IBOR reform and the effects on financial reporting

Date recorded:

Cover Paper (Agenda Paper 14)


The Board published the Exposure Draft Interest Rate Benchmark Reform (proposed amendments to IFRS 9 and IAS 39) (ED) in May 2019 with a 45-day comment period.

In this meeting, the staff will provide a summary of feedback from comment letters on the proposals in the ED.

The Board is not asked to make any decisions at this meeting and hence, the papers do not contain any staff recommendations.

This summary does not repeat the contents of the ED. For a detailed summary of the ED, please refer to our IFRS in Focus.

Summary of feedback from comment letters (Agenda Paper 14A)

Overview of feedback

Most respondents welcomed the Board’s timely response to address the pre-replacement issues and broadly supported the amendments proposed in the ED.

Nonetheless, some respondents said the Board should further specify the objective and extend the scope of the proposed exceptions in the ED. In particular, they suggested the Board extend the scope of the proposed exceptions beyond hedge accounting relationships of interest rate risk, for example to include hedge accounting relationships for currency risk and propose exceptions that would apply to hedges in the context of macro hedge accounting relationships.

In addition, when responding to the specific questions in the ED, many respondents suggested the Board reconsider its decision not to propose any exception for the effects of the reform on the ‘retrospective assessments’ required by IAS 39, simplify disclosure requirements and clarify how the transition requirements would apply in practice.

Most respondents also suggested that the Board addresses issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative interest rate (ie replacement issues) as soon as possible and in parallel to the finalisation of the pre-replacement issues.

Additional issues for consideration before finalising the proposed amendments (Agenda Paper 14B)


At the time of discussing the proposed exceptions to be included in the ED, the Board noted that a range of issues, that might affect financial reporting when existing interest rate benchmarks such as interbank offer rates (IBORs) are replaced with alternative interest rates (RFRs), could arise at different points in time due to the uneven timing of the replacement coupled with different approaches to replacement being considered in different markets. The Board therefore decided to monitor developments in this area and as more information becomes available, assess the potential financial reporting implications and determine whether it should take any action and, if so, what.

The staff have identified a number of matters that could have a significant impact on financial reporting as a result of the reform. In this session, the Board will discuss issues around the retrospective application of IAS 39, modification vs. derecognition of financial assets and liabilities and changes to the hedge documentation.

Board discussion


The Board agreed that for disclosures they should provide an objective for what they are trying to achieve and how they would like it to be applied. The objective of the disclosures is to show readers the extent to which the relief has been used. The Board will aim for the requirements to be easy to apply and to not create extra costs to preparers.


Some Board members were concerned about adjusting the scope as it may require re-exposure and would rather focus on getting the ED finalised quickly in order to allow preparers to use it for year-end. However, others were in favour of increasing the scope to include hedges of foreign exchange risk (where these hedges are a combination of foreign exchange risk and interest rate risk) and thought that this is a clarification of what was initially intended (hence would not require re-exposure). However, they do not want to increase the scope to all hedging relationships affected by the reform.

Retrospective assessment

Overall, the Board had some sympathy for the issue around retrospective assessment and would like to find a solution to help preparers. They understand that with no relief for retrospective effectiveness testing, many hedges will be discontinued due to IBOR reform, which undermines the purpose of the amendments. However, most Board members were not keen on providing a relief on the 80–125 % rule. They requested the staff to provide more analysis around possible solutions. One solution discussed could be to align the assumptions on IBOR reform for retrospective effectiveness testing with prospective effectiveness testing (i.e. to assume that the interest benchmark on which the hedged cash flows are based is not changed). However, for measurement purposes, actual cash flows would still be used.

Macro hedging

The Board will articulate the application of macro hedging in the amendments as a clarification, however they do not believe there is anything new or standalone.

Additional examples

Requests were made for more detailed examples. One Board member said there is no time for the staff to create these as an application guidance as the timeline on this is very short. Another Board member was reluctant to add these to the Standard and instead suggested publishing additional educational materials which will help illustrate certain examples.

Other points

Some respondents raised the point around relief on reliable measurement, however the Board agreed that they will not change or amend this.

Some respondents requested an overarching objective for the amendments, however the Board think they have clearly provided an objective.

At the August meeting, the staff will provide a paper to the Board on retrospective effectiveness testing and clarification on:

  • Application of separately identifiable criteria for portfolio hedging,
  • Disclosures with the aim to reduce the required quantitate disclosure requirement, and
  • End of relief guidance and in particular whether it applies to both the hedged item and instrument or just the hedging instrument or item on its own and for portfolio hedging.

They will then ask permission to start the balloting process to finalise Phase 1.

The modification of financial assets and liabilities, hedge documentation and what happens at the end of relief will all fall into Phase 2, which will be discussed in a future Board meeting.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.