Deferred tax on timing differences and loss carryforwards

Differences between the accounting and tax/Zakat base of items such as ECL provisions, capitalized platform intangibles and accumulated tax losses common in early-stage fintechs create deferred tax assets and liabilities that must be recognized and tested for recoverability; omitting deferred tax on these items, or recognizing an unsupported deferred tax asset on losses, both misstate the tax expense and net assets reported to investors.

Has a full temporary-difference schedule been prepared comparing IFRS carrying amounts to the tax/Zakat base for ECL provisions, capitalized development costs, and other material items? Is there convincing evidence (an approved business plan or forecast, not aspiration) that future taxable profit will be available to support a deferred tax asset on accumulated losses? Is the entity subject to Zakat, income tax, or a mixed base depending on shareholder nationality mix, and is the policy applied consistently?

1) Prepare a full temporary-difference schedule comparing IFRS carrying amounts to the tax/Zakat base for every material balance sheet item (ECL provisions, capitalized development costs, right-of-use assets/lease liabilities, provisions). 2) Recognize deferred tax liabilities for all taxable temporary differences (with limited exceptions). 3) Recognize deferred tax assets for deductible temporary differences and unused tax losses only to the extent it is probable future taxable profit will be available, supported by an approved business plan or forecast, not aspiration. 4) For entities with a mixed Zakat/tax base (depending on shareholder nationality mix), determine which base applies to which portion of the entity and how IAS 12 concepts are applied by analogy to Zakat, per the entity's documented accounting policy. 5) Reassess unrecognized deferred tax assets at each reporting date as new evidence of future profitability emerges. 6) Present a tax rate reconciliation explaining major differences between the effective and statutory rate.

Measure using tax rates expected to apply when the asset is realized or liability settled, based on enacted or substantively enacted rates and rules; for Zakat-payer entities, assess whether IAS 12 deferred tax concepts are applied by analogy per the entity's accounting policy, and measure any Zakat-equivalent deferred balances on a consistent basis period to period; do not discount deferred tax balances.

Disclose: the composition of deferred tax assets and liabilities by category (ECL provisions, capitalized intangibles, tax losses, other); unrecognized deferred tax assets and the reason recognition criteria were not met; a reconciliation of the effective tax/Zakat rate to the statutory rate; and the expiry profile of unused tax losses, if applicable.

• Recognizing a deferred tax asset on accumulated losses without convincing evidence of future taxable profits
• overlooking deferred tax on ECL provisions and capitalized development costs because they are seen as '
• IFRS-only'
• adjustments
• conflating Zakat and income tax treatment for mixed-ownership entities without a documented allocation methodology
• failing to reassess a previously unrecognized deferred tax asset when the business turns profitable
• applying the current tax rate without confirming whether a different rate will apply when the temporary difference actually reverses.