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IAS 12 — Recognition of deferred taxes

Date recorded:


In its July 2015 meeting, the Committee discussed a request relating to the recognition of deferred tax when tax bases of non-monetary assets and liabilities are determined in a currency different from an entity’s functional currency. The Committee decided not to add the issue to its agenda and issued a tentative agenda decision for comment.

Comment letter analysis

The primary concern raised by respondents (from South and Central America) is significant volatility in effective tax rates and the distortive effects they have on financial statements. They raised the requirement of US GAAP which prohibits deferred tax resulting from exchange rate fluctuations on the tax base of a non-current asset or liability and suggested that such a requirement be introduced by the IASB.

Staff recommendation

After conducting additional work based on responses received, the staff recommend that the Committee that the tentative agenda decision be finalised as originally worded.

Committee discussion and decision

The Staff brought a fourth response, received after the papers were posted, to the Committee’s attention.  This respondent felt that the issue was too broad for the Committee to address and should, instead, be added to the IASB’s agenda.

The vast majority agreed with the staff recommendation stating that IAS 12 is clear on this point.  The three members who did not agree felt that the IASB should explore an exception similar to that provided in US GAAP.

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