Valuation and income recognition differences between IFRS and EU Accounting Directives
A Financial assets classified as available-for-sale
1 Debt securities portfolio
Under EU Accounting Directives, debt securities portfolios are recorded at market value. The value adjustments are reported under “Net result on financial operations” in the profit and loss for the period in which they are made.
Accrued interest is recorded under balance sheet items “Prepayments and accrued income” or “Accruals and deferred income”.
Under IFRS, debt securities portfolios are carried at fair value with changes in fair value reflected directly in equity.
Impairment is recognised in the profit and loss for the year when negative changes in the fair valuation are other than temporary. It is reported separately on the face of the income statement.
Accrued interest and accrued discounts / premiums are reported on the balance sheet within the balance of the instrument to which they relate.
2 Shares and other variable-yield securities
Under EU Accounting Directives, shares and other variable-yield securities are initially recorded at acquisition cost. Their carrying value is adjusted to the lower of cost or market value at subsequent measurement at the balance sheet date.
Under IFRS, shares and other variable-yield securities are carried at fair value with changes in fair value reflected directly in equity.
Impairment is recognised in the profit and loss for the year when negative changes in the fair valuation are other than temporary. It is reported separately on the face of the income statement.
3 Participating interests
Under EU Accounting Directive, “Participating interests” are accounted based on the equity accounting using methods consistent with EIB Group’s accounting policies.
Starting from 2017, under EU Accounting Directives, Participating interests were reclassified as follows: from “Shares and other variable-yield securities” to “Participating interests” and from “Net result on financial operations” to “Value (re-)adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings”.
B Financial assets and liabilities designated at fair value through profit or loss
1 Derivative assets and liabilities
a Treasury derivatives
Under EU Accounting Directives, derivative instruments in the Bank’s available for sale and trading portfolios are marked to market and recorded under “Other assets” or “Other liabilities”.
Issuance fees are not amortised and they are recorded under “Interest payable and similar charges”.
Interest accrued under derivative instruments is presented under “Prepayments and accrued income” and “Accruals and deferred income”.
Under EU Accounting Directives, the amortisation of premium discount of FX swaps and FX forwards are recorded under “Interest payable and similar expense” and “Interest receivable and similar income”, while under IFRS it is under “Result on financial operations”.
Under IFRS, all derivative assets and liabilities are recognised on balance sheet as such and carried at their replacement values.
With the application of IFRS 13, Credit valuation adjustments (CVA), reflecting counterparty credit risk on derivative transactions, and Debit valuation adjustments (DVA), reflecting own credit risk on derivative transactions, are included in the fair valuations of derivatives.
Changes in fair values of derivatives are recognised in the income statement.
b Hedging derivatives
Under EU Accounting Directives, hedging derivative instruments are not recognised on the balance sheet. They are carried off balance sheet at nominal amount.
Interest accrued under derivative instruments is presented under “Prepayments and accrued income” and “Accruals and deferred income”.
Issuance fees and redemption premiums or discounts are amortised over the period to maturity of the related derivatives under “Interest payable and similar expense”.
Under IFRS, all derivative assets and liabilities are recognised on balance sheet and carried at their replacement values.
Issuance fees and redemption premiums or discounts are recognised in the income statement under “Result on financial operations”.
With the application of IFRS 13, Credit valuation adjustments (CVA), reflecting counterparty credit risk on derivative transactions, and Debit valuation adjustments (DVA), reflecting own credit risk on derivative transactions, are included in the fair valuations of derivatives.
Under IFRS, EIB has two transactions that meet the offsetting of financial assets and financial liabilities criteria.
Changes in fair values of derivatives are recognised in the income statement.
2 Loans and advances
Under EU Accounting Directives, all loans and advances are carried at amortised cost. Accrued interest is recorded under balance sheet items “Prepayments and accrued income” or “Accruals and deferred income”.
Under EU Accounting Directives, the front-end fees on loans are amortised and recognised in the income statement under “Interest and similar income”.
Under IFRS certain loans are classified on initial recognition as “fair value loans” and valued at fair value through profit or loss. Accrued interest/accrued subsidy remuneration/up-front interest revenue/incoming payments unallocated from loans, are reported on the balance sheet within the balance of the asset to which it relates.
Under IFRS the front-end fees on loans are recognised under “Result on financial operations” in the income statement for the loans that are measured at fair value.
Under IFRS the front-end fees on loans are recognised in balance sheet under “Loans and advances to customers/credit institutions” for the loans that are treated at amortised cost.
Transitory accounts on loans are reclassified from other liabilities to the loan balance to which they relate.
Changes in fair values of loans are recognised in the income statement.
3 Amounts owed to credit institutions and to customers
Under EU Accounting Directives, “Amounts owed to credit institutions/customers” are presented in the financial statements at their redemption amounts.
Under EU Accounting Directives, interest on amounts owed to credit institutions and customers is recorded in the profit and loss account on an accruals basis as “Interest payable and similar charges”. Accrued interest is included in “Accruals and deferred income” under liabilities.
Under IFRS, “Amounts owed to credit institutions/customers” are initially recorded at cost and are presented in the financial statements at amortised cost.
Under IFRS, interest on amounts owed to credit institutions and customers is recorded in the income statement as “Interest expense and similar charges” using the effective interest method.
4 Borrowings
Under EU Accounting Directives, borrowings are recorded at amortised cost. Accrued interest is recorded under balance sheet item “Accruals and deferred income”.
Under IFRS, EIB applies the fair value option to a significant portion of its issued debt. Accrued interest is reported on the balance sheet within the balance of the debt instrument to which it relates.
Issuance fees and redemption premiums or discounts are amortised over the period to maturity of the related borrowings, unless those borrowings are measured at fair value, in which case the recognition in the income statement is under “Result on financial operations”.
With the application of IFRS 13, own credit adjustments (OCA), reflecting own credit risk on unquoted or illiquid borrowings hedged by swaps, is calculated.
Under IFRS, EIB has one transaction that meets the offsetting of financial assets and financial liabilities criteria.
Changes in fair values of borrowings are recognised in the income statement.
C Pension funds
Under EU Accounting Directives, a 10% corridor approach is adopted, whereby prior year cumulative actuarial surpluses or deficits in excess of 10% of the commitments for retirement benefits are recognised over the average remaining service lives of the plan’s participants.
Under IFRS, the Group applies IAS 19 revised for determining the income or expense related to its post-employment defined benefit plans.
Cumulative actuarial surpluses and deficits are recognised in full in “Other comprehensive income”. Net interest cost is recognised in the income statement under “Interest expense and similar charges”.
D Non-controlling interest adjustment
The Bank, the European Investment Fund (the EIF) and the EU MICROFINANCE PLATFORM FCP-FIS (the EUMPF) together are defined as the Group.
EIB granted a put option to the minority shareholders on their entire holding of one of its subsidiaries, the EIF.
Under EU Accounting Directives, this put option does not influence the accounting treatment of minority interest on consolidation.
Under IFRS, the put option results in the non-controlling interest balance being classified as liability rather than equity and being carried at fair value through profit or loss.
The non-controlling interest in the IFRS profit for the year is therefore included in the interest expense for the year. Fair value adjustment is reported under “Interest expense and similar charges”.
E Subscribed capital and reserves, called but not paid
Under EU Accounting Directives, the caption “Subscribed capital and reserves, called but not paid” contains net receivable from the new Member State, Croatia.
Under IFRS, the capital and reserves to be received are discounted using discounted cash flow method.
Discounted interest is reported under “Interest expense and similar charges” and its amortisation under “Interest and similar income”.
F Change in impairment on loans and advances and provisions for guarantees, net of reversals
Impairment loss is recognised in profit and loss and the amount of the loss is measured as the difference between the carrying value and the present value of estimated future cash flows discounted at the instrument’s original effective interest rate.
Impairment loss is recognised in the profit and loss for the year when negative changes in the fair valuation are other than temporary.
It is reported separately on the face of the consolidated income statement under the caption “Change in impairment on loans and advances and provisions for guarantees, net of reversals”.
Under IFRS, any impairment already recognised in the statutory accounts under EUGAAP for loans that are treated under the fair value option, is fully reversed.
G Other operating expense
This caption relates to fees and administrative charges in relation to the EUMPF only. Under EU Accounting Directives they are recorded under “General administrative expenses b) other administrative costs” under profit and loss.
