Deutsche Bank’s Incorrect Disclosure of Deferred Tax Assets

The German regulator BaFin recently pointed out that Deutsche Bank incorrectly disclosed deferred tax assets in its 2019 financial statement, failing to meet international accounting standards. According to BaFin, the declarations on deferred tax assets in the consolidated financial statement were incomplete. They highlighted that 2.076 billion euros worth of deferred tax assets were not disclosed separately in the notes for Deutsche Bank’s U.S. business, which is a significant oversight.

Violation of Accounting Standards

BaFin emphasized that the bank should have made the disclosure of deferred tax assets, especially considering the years of losses that were recorded. Furthermore, Deutsche Bank failed to provide an explanation for being confident about generating sufficient profits in the future. These errors were deemed to be against the rules set by the International Accounting Standards, reflecting a serious violation of accounting protocols.

The regulator’s findings were the result of a random sampling examination initiated by Germany’s now-defunct Financial Reporting Enforcement Panel. This scrutiny uncovered the discrepancies in how Deutsche Bank reported its deferred tax assets, raising concerns about the accuracy and transparency of the financial statement.

Deutsche Bank’s Response

In response to BaFin’s observations, Deutsche Bank defended its 2019 financial statement, asserting that it was still compliant with international reporting standards. The bank’s spokesperson clarified that there was no indication of inaccuracies in the accounts, and no corrective actions or restatements were necessary. Deutsche Bank maintained that its financial statements and disclosures adhered fully to the requirements of the International Financial Reporting Standards (IFRS).

Deferred tax assets play a crucial role in a company’s financial statements by lowering its taxable income in the future, potentially stemming from overpayments or advance tax payments made previously. BaFin underscored the importance of disclosing these assets for transparency regarding the expected tax implications in the future, highlighting the need for accurate and complete financial reporting.

Following the news of BaFin’s findings and Deutsche Bank’s response, Europe-traded shares of the bank experienced a slight decrease of 0.9% on Tuesday morning. The market reaction signaled some investor concerns regarding the accuracy and compliance of the bank’s financial reporting practices, potentially impacting the bank’s reputation and stock performance in the short term.