[1] For example, a government trying to promote savings may exempt interest income from tax or provide a lower rate for long term investments -such as capital gains.
Conversely, a government trying to balance its foreign trade may disallow the deduction of international travel expenses or purchases made abroad.
Another common temporary difference refers to bad debt write-off where the governments may generally have a stricter standard requiring the filing of claims in court.
Historically, in many places, a revenue-expense method was used, in which the income statement was seen as primary, and the balance sheet as secondary.
Under International Financial Reporting Standards, as well as many other accounting principles, tax expense is the result of computing current and deferred tax payable using the asset-liability method in which the balance sheet is seen as primary and the income statement as secondary.
The approach in United States Generally Accepted Accounting Principles was codified in SFAS 96 published in December 1987, and updated in February 1992 with SFAS 109, accounting for income taxes from a balance-sheet approach.
Typically, adjustments in respect of prior years arise because the tax calculations made for the statutory accounts (which need only be materially correct, and are prepared in a tight time frame to meet the accounts filing deadline) differ from those done for the filing of the tax return (typically done later in the year, with much greater thoroughness).