IASB Proposes Amendments Regarding the Recognition of Deferred Tax Assets for Unrealized Losses

The International Accounting Standard Board (IASB) has distributed an Exposure Draft (ED) to announce the anticipated changes in IAS-12 “Income Taxes”. IASB established a fact that diversity in practice about the recording of deferred tax asset related to an instrument measured at amortized cost is vulnerable to uncertainty about the application of some principles under IAS-12.

IAS-12 “Income Taxes”: Some definitions

- Tax Base of an Asset is the amount that will be deductible for tax purposes against any taxable benefits that will flow to entity when it recovers the carrying amount of an asset.

- Tax Base of a Liability is its carrying amount less any amount that will be deductible for tax purposes in future.

- Taxable profit (loss) is the profit (loss) for a period, determined in accordance with the rules under which income taxes are payable.

- Current Tax is the amount of income taxes payable in respect of the taxable profit for a period.

- Deferred Tax liabilities are the amounts of income taxes payable in respect of taxable temporary differences.

- Deferred Tax Assets are the amounts of income taxes recoverable in respect of deductible temporary differences.

Background

For some previous years, suggestions had been made to revise IAS-12, intending to make it clear whether to recognize the deferred tax asset on the unrealized losses. Therefore, some proposals were put forward to clarify the treatment of deferred tax asset.

Suggested Changes

In the exposure draft (ED-2014/3), IASB recommended some suggestions with the intention to make clear some points:

- The valuation of future taxable profits cannot be limited by the carrying amount of an asset.

- While valuating the future taxable profits, remember not to put any effect of the reversal of deductible temporary difference.

- An entity has to measure deferred tax asset combined with rest of the deferred tax assets.

ED does not contain the deferred tax rates currently, IASB would take it into consideration based on the feedback it gets.