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IFRS Interpretations Committee recommends to propose amendment to IAS 12

 25 March 2014

At this meeting, the Interpretations Committee decided to recommend to the IASB a proposed amendment to IAS 12 that would clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.

The draft amendment 12 consists mainly of an illustrative example that explains the following aspects of the application of the principles of IAS 12:

  1. An unrealised loss on a debt instrument measured at fair value gives rise to a deductible temporary difference even if the debt instrument holder expects to recover its carrying amount by holding it to maturity and collecting all of the contractual cash flows and if the loss is not tax-deductible until realised.
  2. An entity assesses the utilisation of deductible temporary differences related to unrealised losses on debt instruments measured at fair value in combination with other deductible temporary differences. If tax law, however, restricts the utilisation of deductible temporary differences so that an entity can only utilise certain tax deductions against taxable profits of a specific type (for example, if capital losses are deductible only against capital gains), the entity still assesses utilisation of such a deductible temporary difference in combination with other deductible temporary differences, but only of the appropriate type.
  3. When assessing the probability that future taxable profit will be available for the purpose of recognising deferred tax assets, an entity’s estimate of future taxable profit assumes that it will recover an asset for more than its carrying amount, provided such a recovery is probable.
  4. Probable future taxable profit against which existing deductible temporary differences are assessed for utilisation excludes tax deductions represented by those deductible temporary differences.
  5. The example should illustrate the assessment of the utilisation of deductible temporary differences when all three sources of taxable profits (ie future reversal of existing taxable temporary differences, future taxable profits, and tax planning opportunities) are available but are insufficient in total to support recognition of deferred tax assets for all of the deductible temporary differences.
  6. The example should explain how an entity should determine the amount of deferred tax to recognise in other comprehensive income compared with the amount to recognise in profit or loss, when the entity cannot recognise all deferred tax assets because of having insufficient future taxable profits. The Interpretations Committee noted that this determination should be on a reasonable pro-rata allocation, unless tax law requires a different allocation.

The illustrative example should explain the application of IAS 12 to debt instruments measured at fair value in accordance with IAS 39 as well as those measured at fair value in accordance with IFRS 9.

The Interpretations Committee also recommends to the IASB that it should propose an amendment to paragraphs 24 and following of IAS 12 that clarifies item (d) in the preceding list.

The staff will revise the draft illustrative example that they presented at this meeting, taking into consideration comments from Interpretations Committee members. The Interpretations Committee asked the staff to consider how the draft illustrative example can be simplified when making the revisions. The staff will present the Interpretations Committee’s recommendations at a future IASB meeting.


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