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The Determinants of the Deferred Tax Allowance Account Under SFAS

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The article “The Determinants of the Deferred Tax Allowance Account Under SFAS No. 109” provides critical and thorough examination and evaluation of associations existing between SFAS No. 109 and deferred tax asset valuation allowance. Actually, empirical evidence presented in the article aims at demonstrating how modern firms may apply SFAS standard. Despite the fact that the article doesn’t involve definitive explanation, it is considered the first step in learning associations between firms and SFAS guidelines.

It is necessary to outline that findings presented in the article are based on results from multivariate estimation procedures and univariate tests. The authors revealed the main factors associated with deferred tax asset valuation allowance. According to the article they are the following: taxable income in prior years, the origin of the temporary differences, the potential for future income and, certainly, tax-planning strategies. Further, the authors suggest that current position of a firm may also affect level of valuation allowance. Negative variables are also presented: distress, contin, model and hypothesis, etc.

It is necessary to admit that authors provide relevant conclusions of the problem being discussed in the article. For example, they suggest that it is needs to introduce additional guidance to determine the existence of the valuation allowance. The models provided in the article “do good job”, because they don’t simply explain the cross-sectional difference, but capture the slightest variations in deferred tax allowance account.

Apparent strength of the article is that it provides descriptive evidence how modern firms are allowed to apply SFAS guidelines. Such findings are important, because “the determination of the valuation account allowance is judgmental, reflecting a trade-off of relevance and objectivity”. This article is of great importance of accounting and audit studies, because it pays attention to examination of better methods how to assess the deferred tax valuation allowance account.


Behn, B., Eaton, T. & Williams, J.R. (1998, March). The Determinants of the Deferred Tax Allowance Account Under SFAS No. 109. Accounting Horizons, 12, 1, 63– 78.

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