The International Accounting Standards Board (IASB) has issued ‘targeted amendments’ to IAS 12, Income Taxes, clarifying how companies should account for deferred tax on transactions such as leases and decommissioning obligations
The aim of the amendments to the International Financial Reporting Standard (IFRS) is to reduce inconsistency in the reporting of deferred tax on leases and decommissioning obligations, the IASB said.
IAS 12 specifies how a company accounts for income tax, including deferred tax, which represents tax payable or recoverable in the future and in specified circumstances, and situations where companies are exempt from accounting for deferred tax when they recognise assets or liabilities for the first time.
The IASB said that the amendments were introduced as ‘there has been some uncertainty about whether the exemption applied to transactions such as leases and decommissioning obligations transactions for which companies recognise both an asset and a liability’.
The new amendments now clarify that the exemption does not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of equal deferred tax assets and liabilities, and that companies are required to recognise deferred tax on such transactions.
The IASB initially published an exposure draft in July 2019 setting out the proposed amendments.
These amendments will become effective for annual reporting periods beginning on or after 1 January 2023, with early application permitted.