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IBOR reform and its effects on financial reporting — Phase 2

Date recorded:

Project plan and preliminary timing (Agenda Paper 14)

Background

Phase 2 of the IBOR reform project relates to issues that might affect the financial reporting when an interest rate benchmark rate is replaced with an alternative rate. 

The purpose of the paper is to:

  • Summarise the preliminary scope of the potential issues to be considered in Phase 2 of the IBOR project
  • A high level project timeline

No staff analysis or recommendations will be provided in this paper and the Board is not being asked to make any decisions.

Preliminary scope

  • Classification and measurement of financial instruments (incl. modification, assessment of SPPI and business model and embedded derivatives)
  • Hedge accounting (incl. hedge designations and end of relief)
  • Other IFRS Standards (e.g. IAS 19, IFRS 16, IFRS 17)
  • Disclosures

The staff have noted that each topic will be discussed in turn at the Board meetings from October 2019 through to the beginning of 2020 (discussed in the order outlined in the preliminary scope above).

Board discussion

The staff introduced an issue to be considered by the Board in Phase 2, which had not been covered in the paper. This issue was the potential consequence that assets and liabilities could move to level 3 in the fair value hierarchy table depending on the market. The Board wanted to make it clear to the market that they are aware that this is an urgent topic.

One Board member asked if measurement of financial instruments will be covered in Phase 2. The staff replied that there will be no change to measurement.

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