The International Accounting Standards Board (IASB) has announced a consultation on proposed amendments to the International Financial Reporting Standards (IFRS) Standards to assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financial statements.
The IASB has split its work on interest rate benchmark reform on financial reporting into two phases, publishing “phase 1” amendments to some IFRS Standards in September 2019. These changes provided temporary exceptions to specific hedge accounting requirements and required related disclosures in the period during which there is uncertainty about contractual cash flows arising from interest rate benchmark reform.
The IASB’s proposed “phase 2” amendments are set out in an exposure draft and aim to address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of IBOR reform.
The IASB states that the main proposed amendments relate to:
- modifications—a company 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—a company would not discontinue its hedge accounting solely because of replacing the interest rate benchmark if the hedge meets other hedge accounting criteria; and
- disclosures—a company would disclose information about new risks arising from the interest rate benchmark reform and how it manages the transition to alternative benchmark rates.
Responses on the exposure draft are required before 25 May 2020.