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IAS 12 — Recognition of deferred tax assets for unrealised losses

Date recorded:

At the December 2012 meeting, the IASB tentatively decided to clarify the accounting for deferred tax assets for unrealised losses on debt instruments by a separate narrow-scope amendment to IAS 12.

The IASB agreed with the Committee that in order to clarify the issue the following questions needed to be addressed:

  1. whether an unrealised loss on debt instruments measured at fair value gives rise to a deductible temporary difference when the holder expects to recover the carrying amount of the asset by holding it to maturity and collecting all the contractual cash flows; and
  2. an entity can assume that it will recover an asset for more than its carrying amount when estimating probable future taxable profits.

In addition, the IASB wanted to discuss whether the amendment to IAS 12 would be consistent with the conclusion that had recently been discussed by FASB on the same issue.

As the Chairman explained, the Committee was a sub-contractor to the IASB.

On the basis of that request, the Staff performed the technical analysis and prepared the paper.  On the basis of its technical analysis of IAS 12, the Staff concluded that it would be appropriate to recognise a deferred tax asset.

The Committee members agreed with the Staff’s analysis and conclusions. However, they were not consistent with the FASB’s conclusions and this might be important for certain industries.

The discussion during the meeting did not address the technical analysis, but instead it was primarily about the process and what would be the best way to take this issue forward.

It was agreed that the Staff paper would be discussed with the IASB.  It will also be sent to FASB for their comment.

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