While many standards require some form of discounting in the measurement of assets and liabilities, the implicit assumption is that there is a positive time value of money so the present value of an asset to be recovered or a liability to be settled in future is lower than the nominal amount. As the Eurozone has recently experienced negative interest rates with the result that the present value of assets or liabilities is higher than the future inflow or outflow of cash, EFRAG is considering a proactive project on accounting issues arising from low or negative interest rates with special focus on financial instruments.

The EFRAG Board still needs to determine the scope of the project. The agenda paper for the next meeting therefore lists all aspects that can or should be considered in connection with low or negative interest rates and the question whether a low interest environment would produce accounting information that does not appropriately represent the underlying economic phenomena in accordance with the business model.

Please click to access the press release on the EFRAG website announcing the next Board meeting. It offers access to the full agaenda and the meeting papers, including the one on accounting implications of low or negative interest rates.