The International Accounting Standards Board (IASB) has recently issued amendments to the IAS 12, which relate to deferred tax related to assets and liabilities arising from a single transaction. The purpose of the amendments is to clarify how entities should account for taxes that arise from a single transaction.
The IASB identified that entities sometimes apply a different accounting treatment for the recognition and measurement of deferred taxes arising from a single transaction. The amendments aim to address this issue by providing a more precise accounting treatment for the recognition and measurement of deferred taxes arising from a single transaction.
The key changes introduced by the amendments are as follows:
A new requirement for entities to recognize deferred tax assets and liabilities for the temporary differences arising from a single transaction when certain conditions are met.
A clarification of the term "single transaction", which is now defined as "an event or a series of events that give rise to both an asset and a liability for tax purposes".
A requirement to measure deferred tax assets and liabilities related to a single transaction on the basis of the tax consequences that will arise when the transaction is completed.
A requirement to consider the tax consequences of the completion of a single transaction when determining the tax base of the asset or liability that arises from the transaction.
The amendments are effective for annual periods beginning on or after January 1, 2023. Entities may choose to apply the amendments earlier, provided that they disclose this fact in their financial statements.
Overall, the amendments to IAS 12 represent an important milestone in the ongoing efforts to enhance the quality and usefulness of financial reporting. By providing a more precise accounting treatment for deferred tax arising from a single transaction, the amendments provide users of financial statements with greater transparency and clarity around the significant tax implications of such transactions. This is expected to result in more informed decision-making and greater confidence in financial markets.
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