BMW 2004 Annual Report Download - page 106

105
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 unre-
alised gains. The requirement for fair value measure-
ment 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 cash flow hedges which are
designated as being effective 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, 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 re-
quires 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 funds 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
differences are also classified as temporary differ-
ences. 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 sub-
stantially enacted by the balance sheet date. Under
HGB, there is only a requirement to recognise all
deferred tax liabilities and 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
on tax rates that are enacted at the balance sheet
date. It is not permitted under HGB to recognise
deferred taxes on quasi-permanent differences be-
tween 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 liqui-
dation.
Under IFRSs, a deferred tax asset must be
recognised for the carryforward of unused tax losses,
to the extent that it is probable that the tax benefits
will be realised. Under German accounting rules, the
recognition of deferred tax assets on tax loss carry-
forwards is controversial.