BMW 2003 Annual Report Download - page 116

115
Other current assets
The treatment of financial instruments (marketable
securities, foreign currency receivables and payables,
derivative instruments) differs significantly between
IFRSs and HGB at a conceptual level. IFRSs require
that all financial derivative instruments are measured
at their fair value, including the recognition of un-
realised gains. The requirement for fair value meas-
urement affects the BMW Group particularly in the
accounting treatment of forward currency contracts.
All positive and negative fair values arising on de-
rivative instruments must be recognised. Fair value
changes arising on forward currency contracts to
hedge future transactions (the normal case for
BMW) are recognised directly in equity, thus leading
to a greater risk of volatility in equity as a result of
interest rate and currency fluctuations. Under HGB,
derivative financial instruments may not be recog-
nised. Other financial instruments may not be meas-
ured 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 unrealised
gains under HGB,provisions must be recognised
for all pending losses on onerous contracts.
IFRSs also require that the surplus on certain
external pension funds must be recognised as an
asset. In the case of the BMW Group, this is an issue
principally affecting the pension fund in the United
Kingdom.
Deferred taxes
Under IFRSs, there is a general requirement to
recognise deferred taxes on all temporary differ-
ences between the accounting and tax bases of
assets and liabilities, whereby quasi-permanent dif-
ferences
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-perma-
nent 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 IFRSs, a deferred tax asset must be
recognised for the carryforward of unused tax losses,
to the extent that is probable that the tax benefits
will be realised. Under German accounting rules,
the recognition of deferred tax assets on tax loss
carryforwards is controversal.