CFM16515 - Transition to IAS: cases where there is no prior period adjustment

FA96/SCH9 paragraph 19A and FA02/SCH26 paragraph 50A

This guidance describes the treatment of loan relationships and derivative contracts in accounting periods beginning on or after 1 January 2005.

FA96/S85B and FA02/SCH26 paragraph 17B will ensure that in the majority of cases, where there are Prior Period Adjustments (PPA), they are brought in as debits and credits for tax purposes.

However, these rules are not sufficient to ensure that no amounts will fall out of charge on the transition to IAS. There may be no PPA in the accounts, because companies may restate comparative figures under paragraph 36 IFRS 1 (see CFM16505).

FA96/SCH9 paragraph 19A (for loan relationships) and in FA02/SCH26 paragraph 50A (for derivative contracts) therefore apply to the transition from UK GAAP to IAS (or vice versa) where there is no PPA. These rules only apply where FA96/S85B and FA06/SCH26 paragraph 17B) do not apply.

FA96/SCH9 paragraph 19A and FA02/SCH26 paragraph 50A apply where a company

• changes its accounting policy for drawing up accounts from one period of account to the next, and
• both accounting policies are acceptable for UK tax purposes, ‘in particular’ (but not exclusively) where the change is from UK GAAP to IAS (or vice versa).

The difference between the accounting value of an asset or liability representing a loan relationship or a derivative contract at the end of the earlier period and the beginning of the later period is brought in for tax purposes as a debit or credit in the later period.

Here ‘accounting value’ means the ‘carrying value’ of the contract for accounting purposes. Paragraph 19A(4A) to (4D) for (loan relationships) and paragraph 50A(3A) to (3D) (for derivative contracts) clarify the meaning of ‘carrying value’ – see CFM16520.