DescriptionIn a world of digital technology, software solutions get more and more important for financial institutions and therefore the amount of expenses for intangible assets is increasing. While, expenses for digital financial technology and software solutions are capitalized only if the requirements of IAS 38 (intangible assets) are met, for calculating Key Performance Indicators like the “capital ratios” under Capital Requirements Regulation (CRR) the capitalized intangible assets have to be deducted from Common Equity Tier 1 (CET1) as a prudential filter. The deduction leads to a reduction of capital ratios and therefore to a disadvantage for financial institutions with investments in financial technologies and software solutions. Consequently, in June 2019 the European Parliament amended the CRR so that in future the software capitalized as intangible asset won’t be deducted from CET1 as a regulatory adjustment. This amendment will affect the capital ratios. This paper examines the impact of this amendment on the capital ratios of the German and Austrian other systemically important institutions (O-SIIs). It also describes the relevance of the financial position intangible assets especially internally generated software and the regulations of IAS 38 concerning the capitalization of expenses in this context. Thus, this paper provides for European companies as well as users of IFRS financial statements and CRR Pillar III reports - auditors, financial analysts and investors - first evidence of these expected effects and improves the discussion about existing prudential and accounting regulations.
|Period||25 Sep 2019|
|Event title||17th Finance, Risk and Accounting Perspectives Conference (FRAP)|