FRC review of companies' deferred tax asset disclosures
News types: Corporate Reports, Generic Announcement, Policies and Responsibilities, Publications
Published: 21 September 2022
The review considers the basis of recognition of, and disclosure in relation to, deferred tax assets in the light of the effect of the Covid-19 pandemic on companies’ profitability. It follows the FRC's previous tax thematic review , issued in October 2016.
Companies should recognise deferred tax assets only to the extent their recoverability is probable. The FRC did not identify any obvious issues with over-recognition in this area, although in some cases it was difficult to make a full assessment due to the lack of informative disclosure.
The review found several instances of good practice across most individual aspects of deferred tax asset disclosure. However, there is scope for improvement in the following key areas:
- Companies should give more specific disclosures about the nature of the convincing evidence they use to support the recognition of deferred tax assets when they have a recent history of losses.
- Companies should disclose the specific nature of key judgements and significant estimation uncertainties in relation to deferred tax assets, and the related sensitivities to changes in assumptions or the range of possible outcomes within the next financial year.
The full review is available here .