Deferred taxes arise as a result of a mismatch between tax rules and GAAP rules. Financial statements are presented in accordance with the principles and rules laid out by GAAP. However, taxes are levied by the IRS (in the US or each respective country’s tax authority) and paid by the company as per the internal revenue code. This code often differs from the GAAP principles. The differences can be permanent or temporary.
There are two schools of thought on the best way to treat these differences. One school of thought suggests that the matching principle must be followed where the taxes accounted for in a period must match the revenues accounted for in that period. However, another school of thought prefers the creation of a deferred tax asset or a deferred tax liability.