Why Aren’t Deferred Taxes Discounted?
Tyler Dee is the controller for Martinez Company, a major employer in the area. Tyler has just come from a meeting of a local civic group. The meeting was an opportunity for Tyler to present and explain Martinez’s financial statements for the fiscal year recently ended. A significant amount of time was spent discussing the large deferred tax liability reported by Martinez. Several members of the civic group questioned Tyler about the nature of this liability. In particular, Tyler was asked why the liability wasn’t discounted to reflect the time value of money. Tyler had no real answer, except to mumble something like, “That’s just the way the standard is written.” How might Tyler have better explained the lack of discounting of deferred taxes?