Featured Product

    IASB Amends IFRS 9 and IFRS 7 in Response to IBOR Reform

    September 26, 2019

    IASB amended IAS 39 and IFRS 9, which are the old and new standards on financial instruments, as well as IFRS 7, which is the standard on disclosures of financial instruments. The amendments modify certain hedge accounting requirements. The amendments are designed to support the provision of useful financial information by companies during the period of uncertainty arising from the phasing out of interest-rate benchmarks such as interbank offered rates (IBORs). The amendments also require companies to provide additional information to investors about their hedging relationships, which are directly affected by these uncertainties. The amendments come into effect from January 01, 2020 but companies may choose to apply them earlier. IASB will shortly publish a consultation on update to the IFRS Taxonomy to reflect these amendments.

     The key amendments are related to the following:

    • Highly probable requirement—According to IFRS 9 and IAS 39, when a forecast transaction is designated as a hedged item, that transaction must be highly probable to occur. When determining whether a forecast transaction is highly probable, a company shall assume that the interest rate benchmark on which the hedged cash flows are based is not altered as a result of the reform.
    • Prospective assessments—A hedging relationship qualifies for hedge accounting only if there is an economic relationship between the hedged item and the hedging instrument (described in IFRS 9) or the hedge is expected to be highly effective in achieving offsetting (described in IAS 39). Companies must demonstrate such prospective assessments on a regular basis. When performing prospective assessments, a company shall assume that the interest rate benchmark on which the hedged item, hedged risk, and/or hedging instrument are based is not altered as a result of the interest rate benchmark reform
    • IAS 39 retrospective assessment—To apply hedge accounting under IAS 39, companies must demonstrate that the actual results of the hedge are within a range of 80%–125%. This requirement is commonly known as the IAS 39 retrospective assessment. In response to feedback on the exposure draft on interest rate benchmark reform, IASB decided to amend IAS 39 so that a company is not required to undertake the IAS 39 retrospective assessment for hedging relationships directly affected by the reform. However, the company must comply with all other IAS 39 hedge accounting requirements, including the prospective assessment.

    IASB followed a phased response to the reform of interest rate benchmarks. Phase I culminates with these amendments and focuses on the accounting effects of uncertainty in the period leading up to the reform. IASB has started work on Phase 2, which considers the potential consequences on financial reporting of replacing an existing benchmark with an alternative. The staff has presented a preliminary list of potential accounting issues to be considered by IASB in Phase 2. IASB expects to commence the discussions about specific replacement issues in the fourth quarter of 2019.

     

    Effective Date: January 01, 2020

    Keywords: International, Accounting, Banking, IFRS 9, IAS 39, Financial Instruments, Hedge Accounting, Disclosures, Interest Rate Benchmark, IBOR, Phase I, Phase II, IFRS 7, IASB

    Featured Experts
    Related Articles
    News

    APRA Issues Interim Update to Policy Priorities for 2021 and Beyond

    In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.

    September 24, 2021 WebPage Regulatory News
    News

    EC Adopts Solvency II and Resolution Rules Package for Insurers

    The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.

    September 22, 2021 WebPage Regulatory News
    News

    OCC Issues Booklets on Regulatory Reporting and Earnings

    The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.

    September 22, 2021 WebPage Regulatory News
    News

    ECB Sets Out Results of Economy-Wide Climate Stress Tests

    The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.

    September 22, 2021 WebPage Regulatory News
    News

    EBA Examines Implications of Increasing Use of Digital Platforms in EU

    The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.

    September 21, 2021 WebPage Regulatory News
    News

    HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact

    The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.

    September 21, 2021 WebPage Regulatory News
    News

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

    September 21, 2021 WebPage Regulatory News
    News

    BIS Quarterly Review Discusses Developments in Fintech and ESG Space

    BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.

    September 20, 2021 WebPage Regulatory News
    News

    BCBS to Consult on Supervisory Practices for Climate Risks by Year-End

    The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards

    September 20, 2021 WebPage Regulatory News
    News

    OCC Identifies Operational Risk Deficiencies in MUFG Union Bank

    The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.

    September 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7494