FRC consults on FRS 102 hedge accounting amend

The Financial Reporting Council (FRC) is consulting on amendments to hedge accounting under FRS 102 to reflect changes to interest rate benchmarks

The exposure draft, FRED 72 Draft amendments to FRS 102 – Interest rate benchmark reform, proposes amendments to specific hedge accounting requirements of FRS 102 to provide relief to avoid unnecessary discontinuation of hedge accounting as interest rate benchmarks are being reformed. 

Interest rate benchmarks such as the London Interbank Offered Rate (LIBOR) are being overhauled as a result of a number of problems identified after the financial crisis, and it is anticipated that LIBOR will not be used after 2021.

The FRED proposes amendments to specific hedge accounting requirements in FRS 102 Section 12 Other Financial Instruments Issues to provide relief that will avoid unnecessary discontinuation of hedge accounting, during the transition period from current LIBOR. The new rules will reflect IFRS FRS 102 also permits entities an accounting policy choice to apply the recognition and measurement requirements of IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement.

Entities will apply those hedge accounting requirements assuming that the interest rate benchmark relevant to the hedge accounting does not change as a result of any reforms.

FRED 72 is based on similar proposals issued by the International Accounting Standards Board (IASB), outlined in ED/2019/1 Interest Rate Benchmark Reform – Proposed amendments to IFRS 9 and IAS 39 in May 2019.

The FRS 102 proposals will have an effective date of 1 January 2020, with early application permitted, once consultation is completed. 

The closing date for comment is 20 September 2019.

FRED 72 Draft amendments to FRS 102 – Interest rate benchmark reform

By Sara White | 17-07-2019

 

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