BMW 2002 Annual Report Download - page 104

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Other current assets
The treatment of financial instruments (marketable
securities, foreign currency receivables and payables,
derivative instruments) differs significantly between
IAS and HGB at a conceptual level. IAS requires that
all financial derivative instruments are measured at
their fair value, including the recognition of unrealised
gains. The requirement for fair value measurement
affects the BMW Group particularly in the account-
ing treatment of forward currency contracts. For IAS
purposes, all positive and negative fair values arising
on derivative instruments must be recognised. Fair
value changes arising on forward currency contracts
to hedge future transactions are recognised directly
in equity, thus leading to a greater risk of volatility in
equity as a result of interest rate and currency fluctu-
ations. Under HGB, derivative financial instruments
may not be recognised. Other financial instruments
may not be measured at an amount above cost (i.e.
the acquisition cost principle) and they must always
be measured at their most prudent amount (i.e. in
accordance with the imparity principle which requires
recognition of unrealised losses but not of unrealised
gains).
Whereas it is not permitted to recognise un-
realised gains under HGB, provisions must be recog-
nised for all pending losses on onerous contracts.
IAS also requires that the surplus on certain ex-
ternal pension funds be recognised as an asset. In
the case of the BMW Group, this is an issue princi-
pally affecting the pension fund in Great Britain.
Deferred taxes
Under IAS, there is a general requirement to recog-
nise deferred taxes on all temporary differences be-
tween the accounting and tax bases of assets and
liabilities, whereby quasi-permanent differences are
also classified as temporary differences. Deferred
taxes are measured at the rates that are expected to
apply in the future based on tax rates and tax laws
that have been enacted or substantially enacted by
the balance sheet date. Under HGB, there is only a
requirement to recognise all deferred tax liabilities as
well as deferred tax assets arising from consolidation
procedures. There is an option to recognise deferred
tax assets arising from timing differences. Deferred
taxes are measured under HGB at the rates that are
expected to apply in the future based on tax rates
and tax laws that are valid at the balance sheet date.
It is not permitted under HGB to recognise deferred
taxes on quasi-permanent differences between
the accounting and tax bases of assets and liabilities,
which will only reverse over a very long period or
which will only be realised on sale or liquidation.
Under IAS, a deferred tax asset must be recog-
nised for the carryforward of unused tax losses, to
the extent that is probable that the tax benefits will
be realised. Under German accounting rules, it is
prohibited to recognise a deferred tax asset on tax
loss carryforwards.