Date of Award


Degree Type


Degree Name

Doctor of Philosophy


Utilizing a random sample of 80 Canadian public companies, this thesis establishes that a significant increase in the number and magnitude of deferred income tax drawdowns occurred in the recessionary period of the early 1980s. The behaviour of deferred income tax expense is then investigated to determine if the observed increase in drawdowns related to a reduction in fixed asset additions or was the result of accounting losses.;The existing literature on deferred income taxes implicitly assumes that drawdowns are the result of involuntary reversals of timing differences that result in a sacrifice of economic resources. However, the data gathered from financial statements leads one to believe that many drawdowns, and in particular the larger ones, are the result of accounting losses.;It was not possible to determine the exact proportion of drawdowns resulting from losses as current Canadian accounting standards do not require that the reason for a drawdown be provided. For this reason, the researcher contacted management of 13 of the companies experiencing drawdowns in the early 1980s. The result was a substantiation of the belief that losses were a very important factor underlying the increase in drawdowns. It is believed that this has the potential to mislead a financial statement reader as a company's consolidated financial statements can indicate a profit, yet the drawdown can relate to losses in one or more subsidiaries. This is due to a Canadian requirement that each legal entity file its own separate tax return and therefore each separate legal entity in the consolidated group must individually determine its deferred income tax.;In addition, a review of companies notes relating to loss carryforwards indicated potential departures from the CICA Handbook and a lack of data that the researcher believes is necessary for a usesr to make an assessment of the potential benefit that may be associated with these loss carryforwards.;Partial tax allocation, using the deferral method, is recommended for rapid write-off assets such as Class 29 assets, but the critical recommendations relate to disclosure. Current Canadian accounting standards do not require disclosure of the reasons for changes in deferred income taxes, yet the data analyzed shows that it is not possible to make accurate inferences about this behaviour from companies' financial statements. The recommendations on disclosure are designed to rectify this problem.



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