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Proposed changes to IAS12 deferred tax standard
Proposals to amend IAS12 may bring huge increases in deferred tax charges for all types
of businesses.
The proposed abolition of the Initial Recognition Exception to bring IAS12 more in line
with the American standard, FAS109, will mean that any difference between the carrying
amount of an asset and its tax base will have to be recognised as a temporary difference
for deferred tax purposes. In addition to this, it is proposed that assets should be
recognised at their "fair value" assuming full deductibility for tax purposes over
the life of the asset. This means that the deferred tax calculation will have to
compare the tax base of an asset with its fair value to calculate the temporary
difference. This method, sometimes referred to as the "simultaneous equation method",
is more complex than the current IAS12 or UK GAAP method.
"These changes have the potential to create huge increases in the amounts companies
have to provide for deferred tax." said Nigel Rainer, technical director of Tax
Automation. "IAS12 has already been accused of destroying reserves and these changes
seem to be adding to the burden of the whole IFRS implementation within organisations.
Without a strong handle on asset records and proper processes, companies are going to
struggle."
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