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ESMA issues Public Statement “Disclosures of significant accounting policies and significant judgements related to the third series of Targeted Longer-Term Refinancing Operations (TLTRO III)”

06/01/2021

The European Securities and Markets Authority (ESMA) has today published a Public Statement calling for greater transparency regarding the financial reporting treatment of the ECB’s Targeted Longer-Term Refinancing Operations in the IFRS financial statements of banks.

ESMA has observed that there is diversity in practice regarding the treatment of the TLTRO III refinancing transactions in banks’ financial statements. The observed diversity relates to:

  1. the banks’ assessment as to whether:
  1. the transactions involve below-market interest rate borrowings and, if so, whether the advantage of the below-market rate of interest needs to be accounted for under IFRS 9 Financial Instruments or IAS 20 Accounting for Government Grants and Disclosure of Government Assistance;
  1. the changes in estimates of payments due to revised assessment of meeting the eligibility criteria shall be accounted for in accordance with paragraph B5.4.6 of IFRS 9; and
  1. the calculation of the applicable effective interest rate.

ESMA emphasises the importance of banks providing an adequate level of transparency regarding the financial reporting treatment of these transactions in their financial statements. In particular, ESMA recommends that the impacted banks provide:

  1. entity-specific disclosures of the significant accounting policies; and
  1. the significant judgements and assumptions related to the TLTRO III transactions

as required by paragraphs 117 and 122 of IAS 1 Presentation of Financial Statements and by paragraph B5 of IFRS 7 Financial Instruments: Disclosures.

The ESMA Public Statement may be accessed here.

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