IDW ERS FAB 22

In February 2026, the Financial Reporting Expert Committee (FAB) of the IDW published the draft of a fundamentally revised statement on the accounting treatment of structured financial instruments under German commercial law (IDW ERS FAB 22). The draft is intended to replace the currently applicable IDW RS HFA 22 issued in 2015 and is to be applied for the first time to financial years beginning after 31 December 2026. The draft is currently still in the consultation phase and is primarily aimed at companies preparing financial statements in accordance with the provisions of the HGB and using structured financial instruments.

For structured financial instruments that were already accounted for prior to the initial application of the new standard, companies may continue applying the existing accounting treatment under IDW RS HFA 22 for simplification purposes.

The scope of application remains largely unchanged and continues to cover primarily traditional financial instruments such as bonds, loans or structured deposits, which in practice are often supplemented with additional contractual features. These include, for example, financings with variable or index-linked interest rates, early repayment options or payment mechanisms linked to specific market parameters. In practice, these are therefore often “classic” financing instruments whose cash flows are rendered more flexible or complex through additional contractual components.

The objective of the revision is to provide conceptual clarity and simplify the distinction between single-instrument and bifurcated accounting for structured financial instruments. While the previous standard was heavily based on a symmetrical view of opportunities and risks, the draft now explicitly places the German commercial law principle of prudence and the recognition of losses at the center of the analysis.

This shift in perspective is accompanied by a noticeable streamlining of the rules: numerous special cases, exceptions and illustrative separation tests included in the previous version are eliminated. At the same time, it is clarified that opportunities or value appreciation potential alone no longer trigger a requirement to separate components. The assessment therefore focuses consistently on prudence and loss recognition considerations, resulting in a more systematic and legally robust framework.

For corporate treasury functions, the draft entails in particular:

• a clearer, more principles-based decision logic
• less discretion in complex structuring scenarios
• and a greater focus on the question of whether and when loss risks must be recognized under German commercial law.

In the following, we compare the key changes introduced by the draft IDW ERS FAB 22 with the existing requirements and assess their implications for treasury practice.

The key changes of the draft can be summarized in a clearly structured, three-step assessment framework (see Fig. 1). Going forward, this framework will form the central basis for determining whether a structured financial instrument should be accounted for as a single unit or on a bifurcated basis.

Fig. 1: Assessment framework in accordance with IDW ERS FAB 22, para. 10
Source: IDW HFA 22

The framework follows a logically sequenced series of assessment steps, which will be examined in detail in the following sections.

Step 1: Is it a structured financial instrument?
The first step is to assess whether a structured financial instrument exists. This is the case where a host instrument is combined with one or more embedded derivative components such that the resulting cash flows are no longer determined solely by the features of the host instrument. Embedded derivatives are contractual elements whose value is derived from an underlying reference variable (for example an interest rate, exchange rate or index), require no or only a comparatively small initial investment compared to similar contracts and are settled at a future date. Typical examples include early redemption or extension options as well as conversion rights.

Step 2: Are there dissimilar risks embededded?
In the second step, the analysis focuses on whether the structured financial instrument gives rise to risks, due to the embedded derivative, that differ in nature from those of the host instrument. The draft defines this concept clearly: dissimilar risks exist only where additional types of risk arise to which the host instrument is not inherently exposed. Typical risks of a host instrument include, in particular, interest rate risk and the issuer’s credit risk; in the case of original foreign currency instruments, the corresponding currency risk is also present. By contrast, dissimilar risks arise in particular from additional equity price risk, foreign currency risk or differing credit risks. Purely interest-related features, even if more complex, are generally not considered dissimilar in nature.

Step 3: Are losses offset?
In the third step, it must be assessed whether losses arising from the identified risks that are relevant for accounting purposes are fully or partially offset by opposing changes in value of other components of the instrument.

It is important to note that only such losses are relevant that must actually be recognized in the financial statements under German commercial law principles. Foreseeable risks and losses that are not recognized for accounting purposes, such as pure changes in fair value where the settlement amount of a liability remains unchanged, are not taken into account in this assessment. If such an offset of accounting-relevant losses exists, a separation requirement applies. Otherwise, the instrument is accounted for as a single unit.

The assessment framework outlined above illustrates the central conceptual shift underlying the draft. While the previous approach focused on whether additional opportunities or risks were present, the emphasis going forward is on whether losses could be obscured for accounting purposes. The assessment is thus consistently aligned with the German commercial law principle of prudence, meaning that opportunities or upside potential no longer trigger separation requirements. Instead, the decisive factor is whether loss-relevant circumstances are properly reflected. At the same time, the clearly structured assessment logic leads to a more principles-based approach, largely replacing the previously extensive case-specific rules and examples with a coherent framework derived from fundamental valuation principles.

In practical application, the revised assessment logic becomes particularly evident in typical corporate financing arrangements, such as bonds or loans with interest-linked features. For example, loans with embedded interest rate caps or floors will generally no longer trigger a separation requirement despite their structured nature, as they do not create risks that differ in nature from those of the host instrument; both the host instrument and the embedded derivative are exposed to interest rate risk.

Similarly, bonds with call or extension options will typically no longer require separation, as both the host instrument and the embedded derivative are subject to the same risks, namely interest rate and credit risk. This is also explicitly confirmed in para. 11 of IDW ERS FAB 22, which states that no dissimilar risks exist, for instance, in the following cases:

• the value of the embedded derivative is contractually linked to an interest rate or to an interest index
• call, put, prepayment or extension options whose value depends primarily on interest rates.

ESG-linked components are also likely to trigger separation requirements only to a limited extent going forward. Taking the accounting of a Sustainability-Linked Bond (SLB) under the HGB as an example, which represents a specific type of green financing instrument whose sustainability criteria or targets can influence its financial and/or structural characteristics, it may, depending on the contractual design, include an embedded derivative. 

Case 1:
Company A issues a 7-year SLB with a 3% coupon p.a. and intends to use the proceeds from the issuance to reduce its CO₂ emissions. If Company A succeeds in reducing its emissions by 20% by the end of year 3, the interest coupon decreases by 50 basis points. If not, the coupon increases by 50 basis points. Since Company A’s CO₂ emissions can only be influenced by Company A itself and not by external factors, the emissions are specific to Company A. As a result, in this case it can be concluded that no embedded derivative exists, meaning that the question of separation does not arise in the first place. This is due to the revised definition of a derivative in IDW ERS FAB 22, according to which, pursuant to para. 6, (…) a derivative is a contractual arrangement, 

• whose value is linked to a specific interest rate, the price of a financial instrument, a commodity price, an exchange rate, a price or rate index, a credit rating or index, or another variable, provided that this variable is not specific to one of the contracting parties (also referred to as the “underlying”),
• that requires no initial payment or only one that is smaller compared to other types of contracts that are expected to respond in a similar way to changes in market conditions, and 
• that is settled at a future date. 

Case 2:
Company B issues an SLB with a maturity of five years. The coupon amounts to 2% p.a. At the same time, the interest rate is linked to the performance of a natural equity index. If the index increases by 4% in a given year, the coupon is reduced by 20 basis points. Otherwise, the interest rate increases by 20 basis points.

Unlike in Case 1, it must be concluded here that the value changes are driven by an index that is not specific to one of the contracting parties. As a result, an embedded derivative exists, including a potential requirement to separate it, particularly since the “Natur-Aktien-Index” (NAI; a natural resources index) introduces equity price risk, which constitutes a risk that differs in nature from that of the host instrument. However, a separation requirement would only arise if the derivative gives rise to a potential loss, in which case the principle of prudence becomes relevant. 

Overall, the revised assessment logic leads to a more principles-based evaluation and therefore has a direct impact on practical implementation. It can be expected that the number of instruments requiring separation under German commercial law will decrease under the new approach. This is driven by the focus on risks of a different nature and the application of the principle of imparity. At the same time, increasing divergence from IAS/IFRS is to be expected, as those frameworks follow different rules that more frequently require separation. 

Companies should therefore establish clear responsibilities and processes and review existing procedures in light of the new draft. Structured financial instruments should be systematically identified, analyzed, and documented at initial recognition in order to meet the requirements for proper and transparent documentation. This applies not only to HGB specifically but also more broadly to the identification of embedded derivatives that require separation under both HGB and IFRS.