Interest Rate Benchmark Reform – Phase 2
The International Accounting Standards Board (IASB) has recently issued ED/2020/1 Interest Rate Benchmark Reform – Phase 2.
The IASB has undertaken its work on the financial reporting implications of interest rate benchmark reform in two phases.
Phase 1 of the project dealt with pre-replacement issues (issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark) and resulted in Interest Rate Benchmark Reform which was issued in September 2019.
Phase 2 of the project addresses replacement issues.
The Phase 2 ED proposes amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases. The proposed amendments aim to address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of the reform.
The main proposed amendments relate to:
An entity would not derecognise or adjust the carrying amount of financial instruments for modifications required by interest rate benchmark reform, but would instead update the effective interest rate to reflect the change in the interest rate benchmark.
- Hedge accounting
An entity would not discontinue its hedge accounting solely because of replacing the interest rate benchmark if the hedge meets other hedge accounting criteria.
An entity would disclose information about new risks arising from the interest rate benchmark reform and how it manages the transition to alternative benchmark rates.
Commenting on the Proposal
This is your opportunity to comment on the proposals.
This ED has a short 45-day comment period. Please send your comments directly to the IASB (with a copy to the NZASB) by 25 May 2020.
Your comments can be made electronically to the IASB website by clicking on the following link https://www.ifrs.org/projects/open-for-comment/. First time users must register with the IASB to submit electronically.