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 amendments published today deal with issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement, which require forward-looking analysis. (IAS 39 is amended as well as IFRS 9 because entities have an accounting policy choice when first applying IFRS 9, which allows them to continue to apply the hedge accounting requirements of IAS 39. ) There are also amendments to IFRS 7 Financial Instruments: Disclosures regarding additional disclosures around uncertainty arising from the interest rate benchmark reform.

Changes

The changes in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

• modify specific hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform;
• are mandatory for all hedging relationships that are directly affected by the interest rate benchmark reform;
• are not intended to provide relief from any other consequences arising from interest rate benchmark reform (if a hedging relationship no longer meets the requirements for hedge accounting for reasons other than those specified by the amendments, discontinuation of hedge accounting is required); and
• require specific disclosures about the extent to which the entities' hedging relationships are affected by the amendments.

Effective date

The amendments are be effective for annual periods beginning on or after 1 January 2020 and must be applied retrospectively. Early application is permitted.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Project summary on the IASB website
• IFRS in Focus — IASB issues Interest Rate Benchmark Reform amendments to IFRS 9, IAS 39, and IFRS 7
• Our IAS Plus project page on IBOR reform and the effects on financial reporting - Phase 1

In September 2019, the IASB began discussions on IBOR reform and the effects on financial reporting - Phase 2. The second phase of the project deals with issues that might affect financial reporting when an existing interest rate benchmark is actually replaced.