The IASB tentatively decided that the most appropriate path forward to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value is a separate narrow-scope project to amend IAS 12.
The IASB met to discuss the most appropriate path forward to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.
Annual Improvements to IFRSs―2010-2012 Cycle (ED/2012/1) comment letter analysis―project options
The Exposure Draft Annual Improvements to IFRSs 2010-2012 Cycle published in May 2012, for which the comment period ended 5 September 2012, included a proposed amendment to IAS 12 Income Taxes ―Recognition of deferred tax assets for unrealised losses.
In its meeting in November 2012, the IFRS Interpretations Committee (the Interpretations Committee) discussed a comment letter analysis prepared by the staff on this proposal and decided to consult the IASB on the most appropriate path forward.
The IASB tentatively decided that the accounting for deferred tax assets for unrealised losses on debt instruments should be clarified by a separate narrow-scope amendment to IAS 12. This is because:
- the issue of whether an entity can assume that it will recover an asset for more than its carrying amount when estimating probable future taxable profits should be addressed in a separate narrow-scope project; and
- such a project, which goes beyond clarifications and corrections (ie a project with a broader scope than annual improvements), also allows for discussing whether to amend IAS 12 to achieve an outcome for deferred tax accounting that would be consistent with the one that was recently discussed by the US-based Financial Accounting Standards Board (FASB) for the same type of debt instruments.
Furthermore, the IASB agreed with the Interpretations Committee that clarifying this issue requires addressing the question of whether an unrealised loss on a debt instrument 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.
All IASB members agreed.
The staff will prepare an analysis of the different approaches to account for deferred tax assets for unrealised losses and present it for discussion at a future Interpretations Committee meeting.