Amendments to IAS 12 - Clarification of accounting for deferred tax on transactions

25 May 2021

On 7 May 2021, the International Accounting Standards Board (IASB) published Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) that clarify how entities account for deferred tax on transactions such as leases and decommissioning obligations.

The amendments narrow the scope of the recognition exemption (IAS 12 paragraphs 15 and 24) so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences.

Recognising (or not recognising) deferred tax can have significant effects for companies. Previously, differing views resulted in entities accounting for deferred tax on such transactions in different ways, reducing comparability between their financial statements.

The IASB also noted the recognition exemption was not needed for transactions that give rise to both an asset and a liability.

The IASB expects that the amendments will reduce diversity in the reporting and align the accounting for deferred tax on such transactions with the general principle in IAS 12 of recognising deferred tax for temporary differences.

The amendments are effective for annual reporting periods beginning on or after 1 January 2023 with earlier application permitted.

For further information, please speak to Helen Jones.