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IBOR Reform and the Effects on Financial Reporting – Phase II [Completed]

Effective date and transitional provisions:

The amendments are effective for annual periods beginning on or after January 1, 2021 and are to be applied retrospectively. Early application is permitted. Restatement of prior periods is not required, however, an entity may restate prior periods if, and only if, it is possible without the use of hindsight.

Next steps:

The AcSB expects to issue the amendments to the relevant IFRS standards in Q4/2020

Last updated:

August 2020

Overview

Market developments have brought into question the long-term viability of Interbank offered rates (IBORs) and the International Accounting Standards Board (Board) looked into the potential effects of financial reporting.

The first phase of the project dealt with pre-replacement issues (issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark). The first phase of the project culminated with Interest Rate Benchmark Reform, which was published in September 2019.

The second phase of the project dealt with replacement issues (issues that might affect financial reporting when an existing interest rate benchmark is replaced).

In August 2020, the Board issued Interest Rate Benchmark Reform—Phase 2, which amends 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 Board issued amendments that complement those issued in 2019 and focus on the effects of the interest rate benchmark reform on a company’s financial statements that arise when, for example, an interest rate benchmark used to calculate interest on a financial asset is replaced with an alternative benchmark rate.

The Phase 2 amendments, Interest Rate Benchmark Reform—Phase 2, address issues that might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate (replacement issues).

The objectives of the Phase 2 amendments are to assist companies in:

  • applying IFRS Standards when changes are made to contractual cash flows or hedging relationships because of the interest rate benchmark reform; and
  • providing useful information to users of financial statements.

In Phase 2 of its project, the Board amended requirements in IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts and IFRS 16, Leases relating to:

  • changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities;
  • hedge accounting; and
  • disclosures.

The Phase 2 amendments apply only to changes required by the interest rate benchmark reform to financial instruments and hedging relationships.

 

Other Developments

August 2020

On August 27, 2020, the IASB published Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) with amendments that address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier application permitted.

April 2020

On April 17, 2020, IASB staff updated the Work Plan to indicate that the Board plans to review the feedback it receives on its Exposure Draft in June 2020.

On April 17, 2020, the AcSB issued its exposure draft that corresponds to the IASB’s Exposure Draft on this topic. Comments are requested by May 25, 2020.

On April 9, 2020, the IASB published an exposure draft Interest Rate Benchmark Reform — Phase 2 (Proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) that contains proposed amendments that would address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. Comments are requested by May 25, 2020.

January 2020

On January 31, 2020, the IASB staff updated the Work Plan to indicate that the IASB expects to issue an Exposure Draft in April 2020.

December 2019

On December 13, 2019, the IASB staff updated the Work Plan to indicate that the IASB plans to issue an Exposure Draft in Q2/2020. 

November 2019

On November 25, 2019, the IASB staff updated the Work Plan to indicate that the Board plans to issue an Exposure Draft in the first half of 2020. 

October 2019

On October 1, 2019, the IASB® staff updated the work plan to indicate that the Board expects to issue an Exposure Draft (no date specified).

August 2019

On August 15, 2019, the International Accounting Standards Board (the Board) added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—IBOR reform.

 

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