IASB February 2006

Analysis of costs and benefits

The Board considered an analysis of the costs and benefits of the proposed amendments to IAS 12. The Board noted that a quantitative analysis was not possible but that it was helpful to have a qualitative analysis for each amendment proposed. Such an analysis should be developed for all Exposure Drafts henceforth.

The Board considered a staff recommendation arising from the analysis of costs and benefits. This concerned the proposed exception from recognition of deferred tax balances relating to investments in foreign subsidiaries and joint ventures. The recommendation was to change to an exception for deferred tax balances relating to investments in subsidiaries and joint ventures in jurisdictions in which intragroup distributions have tax consequences. The Board decided not to make such a change.

The Board concluded that overall the benefits of the proposed amendments outweighed the costs.

Transitional arrangements

The Board considered what transitional arrangements should be required for the proposed amendments. The Board decided that:

• existing users should be required to apply the amendments to the assets and liabilities in the opening balance sheet for the first period starting after the effective date of the Standard and to all events and transactions thereafter. In applying the amendments to the assets and liabilities in that first opening balance sheet:
  (a) a re-analysis of the cumulative amounts recognised through profit or loss or directly in equity should not be allowed and
  (b) assets and liabilities to which the initial recognition exemption currently applies should be treated as if they had been acquired for their carrying amount at the balance sheet date. In other words, they would be grossed up to create (i) a new carrying amount and (ii) a deferred tax balance calculated in accordance with proposed IAS 12 with the sum of (i) and (ii) equalling the previous carrying amount.
• first-time adopters whose date of transition to IFRSs is before a specified date shortly after the publication of the final standard should be required to apply the existing IAS 12 requirements in financial statements presented for any periods that start before the specified date. The amendments should be applied to the assets and liabilities in the opening balance sheet for the first period starting after the specified date and to all events and transactions thereafter. In applying the amendments to the assets and liabilities in that first opening balance sheet entities should apply the same approach as existing users.

Any adjustments arising on the first application of the amendments should be treated as a change in accounting policy.

• first-time adopters whose date of transition to IFRSs is later than a specified date shortly after the publication of the final standard should apply the amendments retrospectively except that:
  (a) the requirements for the allocation of tax among components of profit or loss and equity should be applied to the amounts recognised directly in equity on the initial recognition of assets and liabilities on the date of transition to IFRSs.
  (b) the carrying amount of assets and liabilities to which the initial recognition exception currently applies should be determined as if they had been acquired for their carrying amount at the date of transition to IFRSs. In other words they would be grossed up to create (i) a new carrying amount and (ii) a deferred tax balance calculated in accordance with proposed IAS 12 with the sum of (i) and (ii) equalling the previous carrying amount.

Alternative views

Two Board members indicated that they were considering adding alternative views to the Exposure Draft.

Update on FASB redeliberations on uncertain tax positions

The FASB staff presented an update on the FASB’s redeliberations of uncertain tax positions.

• a requirement that changes in the expected outcome of uncertain tax positions would be based on new information available to the entity, not on a new interpretation of old or previously available information and
• a comment that classification of interest and penalties should be treated as an accounting policy election, and a requirement for the election to be disclosed as well. The Board decided not to require disclosure of the amount of interest and penalties.