May 03, 2019

IASB proposed changes to the old and new standards on financial instruments, IAS 39 and IFRS 9, in light of the reform of interest rate benchmarks such as interbank offer rates (IBORs). The comment period expires on June 17, 2019, with IASB aiming to issue the final amendments later in 2019.

IASB proposed to amend IFRS 9 on financial instruments and IAS 39 on recognition and measurement of financial instruments to provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform. IFRS standards require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform is ongoing, uncertainty exists about when the current interest rate benchmarks will be replaced and with what interest rate. Without the proposed amendments, this uncertainty could result in a company having to discontinue hedge accounting solely because of the reform’s effect on its ability to make forward-looking assessments. This, in turn, could result in reduced usefulness of the information in the financial statements for investors.

In 2018, IASB noted the increasing level of uncertainty about the long-term viability of some interest rate benchmarks and decided to add a project to its agenda to consider the financial reporting implications of the reform. IASB has identified the following two groups of issues that could have financial reporting implications:

  • Issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate (pre-replacement issues)
  • Issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative interest rate (replacement issues)

These proposed amendments address only the pre-replacement issues. As more information becomes available about the replacements, IASB will assess the potential accounting implications of reform and determine whether to take further action. IASB will consider the comments it receives on the proposals and will decide whether to proceed with the proposed amendments to IFRS 9 and IAS 39.

 

Comment Due Date: June 17, 2019

Keywords: International, Accounting, Banking, IFRS 9, IAS 39, Financial Instruments, Hedge Accounting, IBOR, IASB

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