August

IASB finalises phase 2 of its IBOR reform project

27 Aug, 2020

The International Accounting Standards Board (IASB) has 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 1 January 2021, with earlier application permitted.

 

Background

Interbank offered rates (IBORs) are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining unsecured funding, in a particular combination of currency and maturity and in a particular interbank term lending market. Recent market developments have brought into question the long-term viability of those benchmarks.

The IASB addressed the issues in a project split into two phases: Phase 1 dealt with pre-replacement issues (issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark). This part of the project was concluded on 26 September 2019 by publishing Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7).

Phase 2 of the project dealt with replacement issues, therefore, the amendments published today address issues that might affect financial reporting when an existing interest rate benchmark is actually replaced. This part of the project has been concluded by the issuance of today's amendments.

 

Changes

The changes in Interest Rate Benchmark Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) relate to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the amendments regarding modifications and hedge accounting.

  • Modification of financial assets, financial liabilities and lease liabilities. The IASB introduces a practical expedient for modifications required by the reform (modifications required as a direct consequence of the IBOR reform and made on an economically equivalent basis). These modifications are accounted for by updating the effective interest rate. All other modifications are accounted for using the current IFRS requirements. A similar practical expedient is proposed for lessee accounting applying IFRS 16.
  • Hedge accounting requirements. Under the amendments, hedge accounting is not discontinued solely because of the IBOR reform. Hedging relationships (and related documentation) must be amended to reflect modifications to the hedged item, hedging instrument and hedged risk. Amended hedging relationships should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements.
  • Disclosures. In order to allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition, the amendments require that an entity discloses information about
    • how the transition from interest rate benchmarks to alternative benchmark rates is managed, the progress made at the reporting date, and the risks arising from the transition;
    • quantitative information about non-derivative financial assets, non-derivative financial liabilities and derivatives that continue to reference interest rate benchmarks subject to the reform, disaggregated by significant interest rate benchmark;
    • to the extent that the IBOR reform has resulted in changes to an entity’s risk management strategy, a description of these changes and how is the entity managing those risks.

The IASB also amended IFRS 4 to require insurers that apply the temporary exemption from IFRS 9 to apply the amendments in accounting for modifications directly required by IBOR reform.

The IASB has come to the conclusion that the application of all proposed amendments is mandatory. It also assessed that the nature of the proposed amendments is such that they can only be applied to modifications of financial instruments and changes to hedging relationships that satisfy the relevant criteria and, as such, no specific end of application requirements needed to be specified.

 

Effective date and transition

The amendments are effective for annual periods beginning on or after 1 January 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.

 

Additional information

Please click for:

In addition to the amendments, the IASB has also published a corresponding proposed IFRS Taxonomy update (comments requested by 28 September 2020).

IASB member discusses the second comprehensive review of the IFRS for SMEs Standard

14 Aug, 2020

IASB member Darrel Scott has issued an article discussing the review of the IFRS for SMEs Standard and his views on alignment with full IFRS Standards.

In the article In Brief: Second comprehensive review of the IFRS for SMEs Standard What does alignment mean?, Mr Scott discusses the latest comprehensive review of the IFRS for SMEs Standard and provides additional context around the ‘alignment with full IFRS Standards’ debate — that is, whether, how and when to reflect changes to IFRS Standards in the IFRS for SMEs Standard.

Mr Scott outlines two possible approaches, which he likens to "the two ends two ends of a continuum":

  • Simplified IFRS Standard approach — This requires that the IFRS for SMEs Standard is treated as a condensed version of full IFRS Standards. Also referred to as the 'top-down' approach.
  • Independent Standard approach — This requires that the IFRS for SMEs Standard be viewed as an independent text. Also referred to as the 'bottom-up' approach.

He discusses each approach in full, but notes that the Board's preferred approach is the simplified IFRS Standard approach, or the 'top-down' approach.

Please click to access the article on the IASB website.

IASB posts webinar on the IFRS Taxonomy 2020

05 Aug, 2020

The IASB has posted to its website a webinar, hosted by IASB Board Member Ann Tarca and Technical Staff Vivek Baid, that provides a short introduction to the IFRS Taxonomy 2020 and an overview of changes from the 2019 taxonomy.

For more in­for­ma­tion, see press release on the IASB's website.

IFRS Foundation appoints four new IFRS Interpretations Committee members

10 Aug, 2020

The Trustees of the IFRS Foundation have announced the appointments of Renata Bandeira, Sophie Massol, Jon Nelson and Donné Sephton as IFRS Interpretations Committee members. The new members will serve a three-year term which took effect on 1 July 2020.

For more in­for­ma­tion, see the press release on the IASB’s website.

IFRS Foundation meetings to be held remotely in 2020

07 Aug, 2020

The IFRS Foundation has announced that due to concerns about the COVID-19 pandemic and the global nature of its organization, all meetings with advisory and consultative groups will be held remotely until the end of 2020.

The Foundation has been holding all meetings remotely since March and will continue with videoconference meetings through December 2020.

For more information, see the press release on the IASB's website.

IFRS Foundation publishes IFRS Taxonomy update

18 Aug, 2020

The IFRS Foundation has published 'IFRS Taxonomy 2020 — Covid-19-Related Rent Concessions (Amendment to IFRS 16)'.

This Taxonomy update includes elements to reflect the new disclosure requirements introduced by the recently-issued amendment to IFRS 16.

For more information, see the press release and Taxonomy update on the IASB’s website.

IFRS Foundation publishes revised Due Process Handbook

21 Aug, 2020

The Trustees of the IFRS Foundation have issued an updated IFRS Foundation Due Process Handbook. The most important changes regard the clarification of the authority of agenda decisions published by the Interpretations Committee and an additional due process step with requires the Board to vote on and agree with agenda decisions.

The Handbook continues to note that agenda decisions do not have the status of IFRSs and cannot add or change requirements in the standards, however, it now also states that in many cases an agenda decision includes explanatory material that explains how principles and requirements in IFRSs apply to the transaction or fact pattern described in the agenda decision. As these explanations "may provide additional insights that might change an entity’s understanding of the principles and requirements in IFRS Standards", the Handbook states that entities might determine that they need to change an accounting policy as a result of an agenda decision. The Handbook goes on to note: "It is expected that an entity would be entitled to sufficient time to make that determination and implement any necessary accounting policy change."

The additional due process step regarding agenda decisions consist of the Board being asked whether it objects to the agenda decision. Two aspects will be considered:

  • Whether the Board objects to the Interpretations Committee’s decision that a standard-setting project should not be added to the work plan; and
  • whether the Board objects to the Interpretations Committee’s conclusion that the agenda decision does not add or change requirements in IFRS Standards.

If four or more Board members object, the agenda decision is not published and the Board decides how to proceed.

Please click for the following additional information on the IASB website:

Interview with new Board member

28 Aug, 2020

Zach Gast from the United States joined the International Accounting Standards Board (IASB) at the beginning of August. The IASB has released an interview with him where he talks about his first few weeks on the Board and what he’s looking forward to in his new job.

Recording of the fourth webinar on PFS ED

28 Aug, 2020

On 21 August 2020, the IASB offered an English language webinar summarising the Board’s detailed proposals for management performance measures.

A recording of the webinar is now available on YouTube.

Recording of the webinar on the second comprehensive review of the IFRS for SMEs Standard

21 Aug, 2020

On 17 August 2020, the IASB offered an English language webinar on the second comprehensive review of the IFRS for SMEs Standard, including a Q&A session.

A recording of this webinar is available on the IASB's website.

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