EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates. Regulation 2021/25 amends Regulation 1126/2008 and relates to the adoption of certain international accounting standards in accordance with Regulation 1606/2002; these accounting standards are IAS 39 and IFRS 9, which are the old and new standards on financial instruments; IFRS 4 on insurance contracts; and IFRS 7 on disclosures of financial instruments. Regulation 2021/25 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
In August 2020, as part of the phase 2 of interest rate benchmark reforms, IASB published amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 on leases to address the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates. These amendments provide for a specific accounting treatment to spread value changes of financial instruments or lease contracts due to the replacement of the interest rate benchmark over time, which prevents a sudden impact on Profit or Loss, and prevents necessary discontinuation of hedging relationships as a consequence of the replacement of the interest rate benchmark.
Following a consultation with the European Financial Reporting Advisory Group, EC has concluded that the amendments to IAS 39, IFRS 4, IFRS 7, and IFRS 9 meet the criteria for adoption set out in Article 3(2) of Regulation 1606/2002. Regulation 1126/2008 has, therefore, been amended. The amendments have been described in Article 1 and detailed in Annex to the Regulation 2021/25. The amendments for the IFRS 9 relate to amortized cost measurement, temporary exceptions from applying specific hedge accounting requirements, additional temporary exceptions arising from interest rate benchmark reform, and the effective date and transition. Each company shall apply the amendments from the commencement date of its first financial year starting on or after January 01, 2021.
Effective Date: February 03, 2021
Keywords: Europe, EU, Banking, Insurance, Accounting, IFRS 4, IFRS 9, IAS 39, IFRS 7, Insurance Contracts, Financial Instruments, Disclosures, Interest Rate Benchmarks, Reporting, EC
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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