Commercial Code financial statements

It is then further adjusted with the temporary or
timing differences resulting from the differing exercise of accounting options
for tax purposes. There are also instances of accounting policy requirements in
the Income Tax Act that are more rigid than the corresponding provisions of the
Commercial Code. These, too, can lead to timing differences. All timing
differences must be recorded in a register showing for each one its legal basis
and its reversal.

A company may not depart from its financial statements as
finalised by their adoption by the shareholders in respect of matters for which
there is no explicit accounting option in a tax act. Thus, it is free to depreciate a
fixed asset on the declining balance method for tax whilst showing straight-line
depreciation in its legal accounts, but may not change its mind about
capitalising the item at all.

If, by the time the tax returns are prepared, it is
seriously felt that the item should have been written off to expense, the only
permissible conclusion is that the financial statements were incorrect and
should be amended. This, though, is at that stage a cumbersome and costly
process.