The Board considered a staff proposal for a Technical Correction arising on the interaction of IFRS 1 First-time Adoption of IFRSs, IFRS 3 Business Combinations, and IAS 12 Income Taxes. The problem apparently arises if an entity elects not to apply IFRS 3 Business Combinations retrospectively to past business combinations (ie business combinations that occurred before the date of transition to IFRSs). The problem for such an entity is as follows:

• (a) Before the date of transition to IFRSs, the entity entered into a business combination. In accordance with its previous GAAP, it determined and allocated fair value to identifiable intangibles.
• (b) Assume that the tax base of the intangible asset recognised in the business combination is zero, but applying the previous GAAP, the entity did not recognise the deferred tax liability.
• (c) IAS 12 requires a liability to be recognised for all deductible temporary differences so in preparing its opening IFRS balance sheet the entity will recognise the deferred tax liability. However, under IFRS 1, the entity must debit the deferred tax liability to opening retained earnings instead of increasing recognised goodwill.

Board Members noted that this was not seen as a problem in practice and that the larger accounting firms had been taking the line that the standards involved were clear. There were choices in IFRS 1 to be made and these choices had consequences on other areas of accounting and reporting.

Some Board Members were concerned that the Technical Correction route was in danger of being abused and that, before the Board agreed to amend a Standard or Standards in this manner, there should be a high degree of support for the correction suggested.

After discussion, the Board decided not to proceed with a Technical Correction (7 against; 6 in favour; 1 abstained).