Valuation allowance

Deferred tax assets can be adjusted with valuation allowance to reflect the probability that the reversal may not be realised in future periods. (e.g. Valuation allowance adjustment can be used to reflect probability that a tax loss carry forward will not be realised in the future)

Some management may use valuation allowance to manipulate earnings. Decreasing a valuation allowance will increase the net deferred tax asset on the balance sheet, and increase net income for the period.  Conversely, an increase in the valuation allowance will decrease the net deferred tax asset, and reduce net income for the period.