IASB finalises amendments regarding the recognition of deferred tax assets for unrealised losses
19 Jan 2016
The International Accounting Standards Board (IASB) has published final amendments to IAS 12 'Income Taxes'. The IASB had concluded that the diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the application of some of the principles in IAS 12. Therefore the amendments consist of some clarifying paragraphs and an illustrating example.
Background
The proposals in ED/2012/1 Annual Improvements to IFRSs: 2010-2012 Cycle included proposals to amend IAS 12 Income Taxes to clarify when a deferred tax asset should be recognised for unrealised losses. However, in response to constituent feedback on the proposals, the IASB decided that the accounting for deferred tax assets for unrealised losses on debt instruments should be clarified by a separate narrow-scope project to amend IAS 12.
Changes
The amendments in Recognition of Deferred Tax Assets for Unrealised Losses clarify the following aspects:
- Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use.
- The carrying amount of an asset does not limit the estimation of probable future taxable profits.
- Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.
- An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilisation of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.
Transition requirements and effective date
The amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted. As transition relief, an entity may recognise the change in the opening equity of the earliest comparative period in opening retained earnings on initial application without allocating the change between opening retained earnings and other components of equity. The Board has not added additional transition relief for first-time adopters.
Additional information
Please click for:
- IASB press release (link to IASB website)
- Access to the amendments (link to IASB website)
- IFRS in Focus newsletter
- Our IAS Plus project page on IAS 12 — Recognition of deferred tax assets for unrealised losses
