Updated: October 2020
IBOR: European legislators should not underestimate issues related to the IBOR reform. We consider that due
to the possible extent of the instruments facing this issue it should be in the IASB’s attention. Especially IBOR
rates with longer tenors replaced by lagged ’in advance’ rates resulting in time gaps of three and more months
would be of a particular concern, due to a high risk of failing the solely payments of principal and interest
(SPPI) benchmark test. Central authorities in many jurisdictions decided that no forward-looking term rates
will be officially provided and consequently the alternative benchmark rate has an imperfect time value of
IFRS 17: ESBG believes that the standard cannot be acceptable without a solution to all issues, as certain
business models would not be faithfully portrayed under the current requirements of the standard. A high-quality
standard does not correctly reflect certain contracts issued by ESBG members, that represent long-term lifesaving products managed under cash flow matching and, to a certain extent, participating contracts, through
its measurement nor its presentation requirements.
PFS: Regarding the requirement to disclose tax and non-controlling interest (NCI) effects for each reconciling
item, there are strong doubts whether this is substantiated on cost/benefit basis. We consider that the IASB
should provide at least 24 months for implementing after the new standard is issued.
The major points of concern identified by the ESBG members are the following:
New proposed IFRS do not consider the business models that entities have in place; therefore not portraying
faithfully their financial position and limiting the production of useful information.
The need to have enough and reasonable time to implement any new requirement on a timely manner.
Costs of implementing proposed new requirements and the likely ongoing associated costs and benefits of
each new IFRS Standard.
The possible broader economic consequences of new financial reporting requirements, particularly on
IFRS 9 FINANCIAL INSTRUMENTS - IBOR PHASE II
IBOR (Interbank Offered Rate) Phase II - Recent market developments have brought into
question the long-term viability of some interbank offered rates (IBORs). IBORs are reference
interest rates which are used as benchmarks for a broad range of financial products and
contracts. We are of the opinion that it contributes to provide relevant and useful information
about financial instruments and hedging transactions presented in the financial statements by
avoiding unexpected accounting consequences that the IBOR reform could have caused under
the current standards. The proposed amendments will avoid discontinuing hedging
relationships when the hedged items and hedging instruments become modified and the
related hedging documentation amended accordingly due to the sole IBOR reform. SPPI-CHF
is a real problem and shouldn’t be discarded - ‘In advance’ rates bring time lack when working
with historical data. In general, the conclusion is that this issue is not related to IBOR, it may
be a consequence of it, but mostly it is an issue how do you apply IFRS9 and not directly
related to IBOR reform.
IFRS 17 INSURANCE CONTRACTS
IFRS 17 Insurance contracts sets out the requirements an entity must apply when accounting
for insurance contracts issued and reinsurance contracts entered into. Ongoing implementation
projects, however, have identified the need for more time and for improvements to the standard
in order to address issues that impact on meaningful reporting and introduce significant
operational challenges. ESBG continues to support a high-quality standard for insurance
contract accounting. If a solution for the annual cohorts issue is rejected during the discussion
at a global level, careful attention should be given to the conclusions of this topic for European
IAS 1 – PRIMARY FINANCIAL STATEMENTS (PFS)
The IASB does not actually address the presentation of the income statement of financial
conglomerates (bank and insurance main business activities). The presentation of insurance
business within the income statement of a bank-insurer raises the issue of a by-nature or byfunction presentation of operating costs. It is difficult to evaluate which approaches are
compliant – the one of IFRS 17 or the one of PFS IAS 1. The P&L presentation issue at group
level for a financial conglomerate is a key issue also for financial communication purposes.
General disclosure requirements are welcome. But it will be burdensome to prepare the
information for reconciliation of Management Performance Measures (MPMs). The definitions
of integral and non-integral associates are also questionable. There are not big issues when
the associate is located in the same country as the parent. But when it is located in a foreign
country, the influence the parent has on the activities of the associate show a certain
dependency, but not the same as the IASB proposes. Examples were given also for issues with
the new mandatory subtotals for operating activities- they are very formal and not helpful for
all institutions. In this case the subtotals are so similar to the overall P&L that creating them
would not be of big importance.
International Financial Reporting Standards (IFRS) set common rules so that financial statements can be
consistent, transparent and comparable around the world. IFRS are issued by the International Accounting
Standards Board (IASB). They specify how companies must maintain and report their accounts, defining types
of transactions and other events with financial impact. IFRS were established to create a common accounting
language, so that businesses and their financial statements can be consistent and reliable from company to
company and country to country. The current suite of IFRS consists of 25 IAS, 17 IFRS and 18 Interpretations.
144 jurisdictions require IFRS or 87% of the world. IFRS are designed to bring consistency to accounting
language, practices and statements, and to help businesses and investors make educated financial analyses