IAS 12 for Banks

1       IAS 12 for Banks

Accounting for income tax is firmly based on the national tax system.

As bank accounting for income tax is based on the national tax system, banks have little more than to follow the presentation requirements of IAS 12, using the figures already compiled. Differences may occur in the treatment of carried forward tax losses and tax credits.

The major additional work is the deferred tax computations, effectively accruing for future tax on revaluations. In Russia, there is a requirement to account for tax (PBU 18), but banks have, so far, been exempt from this requirement.

In simple terms, sales generally generate a tax charge. Revaluations generate a deferred tax charge (an accrual for tax). The revaluations gains will be effectively shown as 76% of the total gain, having accrued deferred tax at 24%.

Banks already revalue their currency positions daily in Russia, but generally have not revalued their financial instruments to reflect the latest market prices.

Deferred tax will need to be accrued for all revaluations of financial instruments, where this is required by IAS 39 Financial Instruments, unless the profits will not be liable for tax.

Deferred tax will need to be accrued for the fair values of assets computed in accounting for acquisitions and revaluations of property.

Where transformation from Russian accounting to IFRS moves profit from one period to another and the tax payment does not move, deferred tax will need to be accrued. This will especially apply to finance leases (IAS 17 Leases) which are not recognised for tax purposes as any different from operating leases.

When reviewing financial statements of clients and correspondent banks, banks will need to ensure that deferred tax has been fully accrued.