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FRC amends FRS 102 for IBOR phase 2

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22 Dec 2020

The Financial Reporting Council (FRC) has issued ‘Amendments to FRS 102 – Interest rate benchmark reform (Phase 2)’.

Interest rate benchmarks such as the London Interbank Offered Rate (LIBOR) are being reformed, and it is anticipated that LIBOR will not be available after 2021. In response to the uncertainty about the long-term viability of interest rate benchmarks, the FRC published Amendments to FRS 102 – Interest rate benchmark reform, referred to as Phase 1 of the interest rate benchmark related amendments to FRS 102.

Amendments to FRS 102 – Interest rate benchmark reform (Phase 2) represent the second and last phase of the FRC’s standard-setting response to the financial reporting issues arising from the replacement of interest rate benchmarks and are referred to as Phase 2 amendments.

Amendments to Section 11 Basic Financial Instruments provide a practical expedient for the accounting for financial assets and financial liabilities when contractual cash flows change because interest rate benchmarks are being replaced. There are new requirements for disclosure of the nature and extent of risks arising from the interest rate benchmark reform. Amendments to Section 12 Other Financial Instruments Issues give more flexibility regarding the redocumentation of hedging relationships and provide other reliefs that avoid disruption to hedge accounting. A consequential amendment has been made to Section 20 Leases resulting from the changes made to Section 11.

The amendments are intended to adapt and simplify accounting requirements in the context of interest rate benchmark reform and thereby minimise reporting costs for preparers of financial statements compliant with FRS 102 and enable them to provide useful information to the users of their financial statements.

The amendments are effective for accounting periods beginning on or after 1 January 2021, with early application permitted.

A press release and the amendments are available on the FRC website.

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