Question ID
2015_2544
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Own funds
Article
26
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
0
Type of submitter
Consultancy firm
Subject matter
Deduction from own funds of items entered as assets that are not yet included within equity
Question

If an institution enters an asset (e.g. at Equity valuation of a holding in a Financial Sector Entity (FSE) or increasing the amount of a deferred tax asset) through the profit and loss statement (P&L), the corresponding profit is not eligible for own funds before it is audited and officially approved (or in case of interim or year-end profits before it is audited and recognition is approved by the competent authority).

However, the deduction amount (e.g. holdings in FSE or DTAs) has formally increased and would lead to an immediate higher deduction amount. If this was the case, it would represent the deduction of gains that are not yet recognized in the own funds of the institution.

 

Background on the question

In case an institution registers the increase of 10 of an asset which represents a deduction item from own funds in year x0 on its balance sheet and - in line with accounting rules - this increase of in value of 10 is booked through P&L increasing the institutions profit by 10, the deduction of the increased amount in x0 of +10 would represent a deduction of a value that is not yet reflected in the equity of the institution in x0 as the profit in x0 is 0 (unless the institution has done an audit of interim profit and has received approval for recognition by the competent authority).

On the contrary, in case the revaluation of 10 is not booked through P&L but through other comprehensive income (OCI), the OCI eligible to own funds in x0 is 10 (after transitional period) and also the deduction amount has correspondingly increased to 10.

Submission date
Final publishing date
Final answer

Deduction items have to be taken into account immediately as they arise. For the inclusion of the corresponding amount of profit a formal decision confirming the final profit or loss for the year or the permission according to Article 26(2) CRR is needed. This does not represent an unintended double deduction but reflects the differentiated treatment of deduction amounts and profits by the CRR.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.