Recognition of deferred tax assets arising from the carry-forward of unused tax losses

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The European Securities and Markets Authority (ESMA) has issued a Public Statement articulating its concerns on the issue of recognising the deferred tax asset in IFRS financial statements. The main objective of ESMA’s statement is to appeal to the preparers of financial statements for prudence in assessing the probability of utilisation of unused tax credits, tax losses and deductible temporary differences in the future. In its statement ESMA compiled several criteria which can be used to properly (and prudently) evaluate whether the prerequisites for deferred tax recognition are met.

ESMA also emphasised the disclosure requirements surrounding the recognition of DTAs, where the extent of such disclosures would be expected to increase as the materiality of the DTAs and the level of

uncertainty relating to their recognition increases.

ESMA and national authorities will continue to monitor the recognition of deferred tax assets in future examinations.

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