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    IASB Decides on Effective Date for Phase 2 Benchmark Reform Proposal

    June 26, 2020

    IASB published a summary of its June meeting, including the preliminary decisions of the Board. IASB met on June 25, 2020 to discuss the feedback on its exposure draft on interest rate benchmark reform. The exposure draft proposed amendments to IAS 39 and IFRS 9, the old and new standards on financial instruments, respectively; IFRS 7 on disclosures of financial instruments; IFRS 4 on insurance contracts; and IFRS 16 on leases. This is Phase 2 of the IASB project on interest rate benchmark reform. The Board tentatively decided to finalize the effective date proposed in the exposure draft—that is, entities would be required to apply the amendments for annual periods beginning on or after January 01, 2021, with earlier application permitted.

    At its meeting, the Board tentatively decided to:

    • Finalize without substantial changes the proposals set out in the draft amendments to IFRS 9, IFRS 4, and IFRS 16, with respect to modifications of financial assets and financial liabilities.
    • Finalize the proposals in the exposure draft related to the changes required to hedging relationships and clarify that the changes to the hedging relationships have to be made by the end of the reporting period, during which uncertainty with respect to a specific element of the relationship has been resolved.
    • Finalize the proposals in the exposure draft, subject to clarifying that the 24-month period applies to the individual alternative benchmark rate and hence begins from the date that an entity designates a particular alternative benchmark rate as the hedged risk for the first time.
    • Finalize the transition requirements proposed in the exposure draft with one change to the requirement for reinstating particular discontinued hedging relationships. 
    • Finalize the proposed amendments in paragraphs 24I–24J of the exposure draft, related to disclosures, subject to changing the amendment proposed in paragraph 24J(b) and deleting the disclosure requirement proposed in paragraph 24J(c) of the exposure draft. 
    • Clarify that, for the changes required to a hedging instrument, modifications required by the interest rate benchmark reform could be made in ways other than by modifying the contractual terms of the hedging instrument. This could be made as long as the hedging instrument is not de-recognized and the outcome is economically equivalent to modifying the hedging instrument to refer to an alternative benchmark rate.
    • Make no substantial changes to the proposals in the exposure draft in response to issues related to classification of financial assets and embedded derivatives.

    At the July 2020 Board meeting, IASB plans to discuss feedback on the proposals, in the exposure draft, on accounting for qualifying hedging relationships and groups of items, as well as any sweep issues that may arise. IASB will also discuss beginning the balloting process for the amendments.

     

    Keywords: International, Accounting, Banking, Securities, Insurance, IBOR, Interest Rate Benchmarks, Financial Instruments, IFRS 9, IAS 39, Hedging, Disclosures, Insurance Contracts, IASB

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