The IASB instructs the staff to commence the balloting process for the proposed amendments to IAS 12 after discussing how to amend the mandatory guidance in IAS 12, transition, other drafting issues and considering whether the due process requirements to date have been met.
On 18 June 2014, the IASB continued its discussion on the proposed amendments to IAS 12 Income Taxes to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.
Amending mandatory guidance, transition and other drafting issues
The IASB tentatively decided that the proposed amendments to IAS 12 should:
- clarify in an example (application guidance) how the guidance in paragraphs 20 and 26(d) of IAS 12 would apply when there is an unrealised loss on a fixed-rate debt instrument that pays interest each year and the principal is repaid on maturity when the holder also deducts the tax base of the asset.
- add a paragraph that clarifies that an entity assesses the utilisation of deductible temporary differences in combination with other deductible temporary differences. However, if tax law restricts the utilisation of deductible temporary differences so that they are deductible only against the taxable profits of a specific type, the entity still assesses utilisation of such deductible temporary differences in combination with other deductible temporary differences, but only of the appropriate type.
- clarify that an entity must assume it recovers an asset for more than its carrying amount if a recovery of this specific asset for more than its carrying amount is probable. The IASB noted that the amendment should reflect that there are many cases in which it is not probable that an entity will recover an asset for more than its carrying amount. In particular, this applies to many assets measured at fair value or assets that have been impaired. In addition, the IASB tentatively decided that the Basis for Conclusions on IAS 12 should go on to explain that it is not always probable that an entity will recover an asset for more than its carrying amount.
- clarify that an entity’s estimate of probable future taxable profit against which deductible temporary differences are assessed for utilisation excludes tax deductions represented by those deductible temporary differences.
- illustrate the application of IAS 12 to debt instruments that are:
- classified as available-for-sale financial assets (IAS 39 Financial Instruments: Recognition and Measurement); and
- classified as financial assets that are measured at fair value through other comprehensive income (IFRS 9 Financial Instruments, as it is to be amended by the limited amendments to the classification and measurement requirements for financial assets).
In addition, the IASB tentatively decided that:
- for entities already applying IFRS, that retrospective application of the proposed amendments is limited so that transfers between retained earnings and other components of equity in the opening statement of the financial position should not be required in order to restate cumulative amounts previously recognised in profit or loss, other comprehensive income or directly in equity. Full retrospective application should be permitted.
- it would not propose an exception to, or exemption from, the retrospective application of IFRS for the proposed amendments to IAS 12 for first-time adopters of IFRS.
All IASB members agreed with these decisions.
Due process considerations
The IASB reviewed the due process steps taken so far in developing the Exposure Draft Recognition of Deferred Tax Assets for Unrealised Losses (Proposed amendments to IAS 12).
All IASB members confirmed that they are satisfied that the IASB has completed all of the necessary due process steps on the project to date and therefore instructed the staff to commence the balloting process for the proposed amendments. No IASB members indicated that they intend to dissent from the publication of the proposed amendments to IAS 12.
In addition, the IASB tentatively decided that there should be a comment period for the Exposure Draft of at least 120 days. All IASB members agreed with this decision.
The staff will commence the balloting process of the proposed amendments. The IASB plans to publish the Exposure Draft of the proposed amendments to IAS 12 after issuing the final requirements for impairment and the limited amendments to the classification and measurement requirements that are to be incorporated into IFRS 9.