IMPACT OF SOFTWARE EXPENSES ON FINANCIAL STATEMENTS AND CAPITAL RATIOS IN THE FINANCIAL SECTOR EMPIRICAL: EVIDENCE FROM GERMANY AND AUSTRIA

Susanne Leitner-Hanetseder, Josef Arminger and Christa Hangl

Accounting & Taxation, 2021, vol. 13, issue 1, 97-108

Abstract: In a world of digital technologies, software solutions become increasingly important for financial institutions and the amount of expenses for intangible assets are increasing. However, expenses for digital financial technologies are capitalized only if the requirements of the International Financial Reporting Standards (IFRS) are met. Even if the expenses for digital financial technologies are capitalized, for calculating Key Performance Indicators (KPIs) under the Capital Requirements Regulation (575/2013) (CRR), the capitalized intangible assets must be deducted from Common Equity Tier 1 (CET1) capital as a prudential filter. This deduction leads to a reduction of capital ratios and therefore to a disadvantage for financial institutions with investments in software solutions. In June 2019, the European Parliament amended regulations of CRR so that in the future capitalized software as intangible assets will not be deducted from the CET1 capital. This paper examines the impact of this amendment on the capital ratios of German and Austrian firms classified as other-systemically important institutions (O-SIIs). The paper shows the growing relevance of software capitalization in the financial sector. However, based on the 2018 data, the impact of the amendment on capital ratios is not material for German and Austrian financial institutions.

Keywords: Intangible Assets; Software; Digitalization; Capital Ratio; CRR; IFRS (search for similar items in EconPapers)
JEL-codes: G21 G38 M41 M48 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.theibfr2.com/RePEc/ibf/acttax/at-v13n1-2021/AT-V13N1-2021-7.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ibf:acttax:v:13:y:2021:i:1:p:97-108

Access Statistics for this article

Accounting & Taxation is currently edited by Terrance Jalbert

More articles in Accounting & Taxation from The Institute for Business and Finance Research
Bibliographic data for series maintained by Mercedes Jalbert ( this e-mail address is bad, please contact ).