IFRS and tax reconciliation: financial accounting as the basis for stronger business management

By Rebeca Sequeira

Accounting and Financial Analyst - EAS LATAM

Financial accounting is much more than simply recording transactions. In a well-managed company, accounting information allows for measuring results, evaluating financial position, anticipating risks, supporting managerial decisions, and communicating the business's economic reality in a reasonable manner.

In this context, International Financial Reporting Standards, known as IFRS, constitute a common technical language for preparing comparable, consistent and useful financial statements for different users: shareholders, management, banks, investors, auditors, regulators and tax authorities.

Resolution MH-DGT-RES-0015-2026, issued by the Directorate General of Taxation, once again highlights the importance of maintaining accounting records prepared according to sound technical principles. Although the resolution originates from tax matters, its content confirms something essential from an accounting perspective: financial information under IFRS or IFRS for SMEs is the foundation upon which companies' tax information is built, analyzed, and reconciled.

Visual summary of the resolution

Issue	Main criterion	Accounting and financial reading
Accounting framework	Large taxpayers must keep accounts in accordance with IFRS; others may choose IFRS for SMEs or IFRS.	The accounting framework must respond to the size, complexity, and information needs of the company.
Tax reconciliation	Financial information is recognized, but must be reconciled for income tax purposes when there are differences with tax regulations.	Tax reconciliation acts as a bridge between financial result and taxable base.
Validity	The resolution is effective from January 1, 2027 and supersedes DGT-R-029-2018.	There is time to review policies, auxiliary documents, chart of accounts, and closing procedures.
Exclusions	It does not apply to taxpayers under the Simplified Tax Regime or the Special Agricultural Regime for tax reconciliation purposes.	The obligation depends on the tax regime and the method of determining the tax.

IFRS has been adopted in Costa Rica as generally accepted accounting principles, and its application allows financial statements to more accurately reflect an entity's economic situation. This involves recognizing assets, liabilities, income, expenses, impairments, depreciation, provisions, financial instruments, and other items based on technical criteria, and not solely from a tax or cash perspective.

The resolution acknowledges the role of IFRS and IFRS for SMEs as a framework for preparing financial information. However, it also points out that financial accounting and tax determination do not always align. Therefore, companies must maintain a tax reconciliation process to identify the differences between accounting profit and the taxable base determined under tax regulations.

From an accounting perspective, this point is especially relevant. Accounting should not be solely for filing tax returns. Its primary objective should be to present reasonable, organized, traceable, and useful financial information for decision-making. Then, based on that information, the appropriate tax adjustments should be made.

Accounting areas with the greatest practical impact

Area	What the company should review	Why it matters
Inventories	Valuation methods, shortages, theft, destruction, self-consumption, discounts and promotions.	Shortages and adjustments must be supported by valid evidence and periodic reconciliations.
Property, plant and equipment	Historical cost, depreciation, improvements, impairments, revaluations and asset ancillary items.	Financial treatment may differ from tax treatment, especially in impairments and revaluations.
Intangible assets	Capitalization, amortization, patents, trademarks, rights and associated tax credits.	Not every expenditure recorded in the accounts as intangible generates immediate tax deductibility.
Revenue and contracts	Revenue recognition, construction contracts, work progress reports, and electronic receipts.	The accounting timing of income may require tax reconciliation, especially in long-term contracts.
Borrowing costs	Capitalization of interest associated with the acquisition or improvement of assets.	Interest may not be deductible until the asset is available for use or sale.
Deferred tax	Temporary differences, IAS 12 or Section 29, and traceability of tax adjustments.	It allows explaining differences between accounting results, tax base, and future tax burdens.

Property, plant and equipment: the most visible example

One of the most important issues is the treatment of property, plant, and equipment. Under IFRS, a company must analyze the recognition, measurement, depreciation, and potential impairment of its assets according to financial criteria. However, for tax purposes, the tax authorities maintain specific rules regarding historical cost, accepted depreciation methods, useful lives, and deductibility.

This requires companies to maintain well-structured fixed asset ledgers with sufficient information on acquisition date, cost, useful life, depreciation method, accumulated depreciation, improvements, impairments, and tax adjustments. The accounting record may be technically correct, but a reconciliation may be required to determine its tax effect.

Impairments: a common difference between accounting and taxation

The treatment of impairments is also noteworthy. From a financial perspective, recognizing an impairment loss may be necessary to accurately reflect the decrease in an asset's value. However, for tax purposes, this impairment loss may not be deductible because it is considered an estimate.

This does not mean that the accounting record is incorrect; it means that the company must be able to distinguish between the financial treatment and the tax treatment through a clear and documented reconciliation.

Inventories and internal control

Regarding inventory, the resolution reinforces the importance of internal control. Shortages, thefts, losses, destructions, or inventory discrepancies must be supported by sufficient documentation and valid evidence. In some cases, certification from an independent certified public accountant may even be required to substantiate the book value of the missing merchandise.

This demonstrates that the quality of accounting records also depends on robust operational processes, physical counts, periodic reconciliations, and adequate documentation.

Taxpayer classification and applicable accounting framework

The resolution states that economic groups or taxpayers classified as Large Taxpayers must maintain their accounting records in accordance with IFRS. Other taxpayers may choose between IFRS for SMEs or full IFRS, depending on their information needs, the requirements of their regulatory bodies, or their business circumstances.

This distinction allows us to recognize that not all companies have the same level of complexity, but they all need technically consistent accounting.

Before 2027: Recommended review points

Review area	Practical question for management and accounting
Accounting policies	Are the policies documented and aligned with IFRS or IFRS for SMEs?
Chart of Accounts	Does it allow for the separation of accounting, tax, and temporary differences?
Assistants	Are there reliable auxiliaries for assets, inventories, intangibles, and loans?
Monthly closing	Does the closing process produce useful information or does it just prepare statements?
Tax reconciliation	Can the company explain each adjustment between accounting profit and taxable income?
Documentary support	Does each relevant record have sufficient and traceable source documents?

The entry into force of this resolution on January 1, 2027, presents an opportunity to review the quality of financial information. Companies should take advantage of this period to evaluate their accounting policies, chart of accounts, asset ledgers, inventory controls, intangible asset records, lease treatment, revenue recognition, management of financial costs, and tax reconciliation procedures.

In practice, the biggest challenge won't be solely tax-related. The real challenge will be accounting and financial: having well-classified, documented, reconciled, and explainable information. Weak accounting can lead to tax errors, but it can also limit management's ability to understand the business's true profitability, measure risks, access financing, or make timely decisions.

Therefore, this resolution should be seen as a reminder of the strategic importance of accounting. IFRS is not merely a technical requirement; it is a tool for improving the quality of financial information. And a company with reliable financial information is better prepared to comply with regulations, make decisions, and grow in an orderly manner.

References

General Directorate of Taxation. Resolution MH-DGT-RES-0015-2026. Interpretative criteria on the application of International Financial Reporting Standards with respect to tax regulations. Published in Supplement No. 45 to Official Gazette No. 78, San José, Costa Rica, Wednesday, April 29, 2026.

Tax Code of Standards and Procedures, Law No. 4755. Articles 99 and 128.

Income Tax Law, Law No. 7092. Article 51.

Tax Procedure Regulations, Executive Decree No. 38277-H. Article 82.

Regulations to the Income Tax Law, Executive Decree No. 43198-H. Article 86.

Costa Rican Association of Public Accountants. Circular 06-2022-R, on the full adoption of International Financial Reporting Standards.

Costa Rican Association of Public Accountants. Circular 21-2018, on the adoption of International Financial Reporting Standards for Small and Medium-sized Entities.