IASB concludes IBOR reform project

The International Accounting Standards Board (IASB) has finalised its response to the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks, by issuing a final package of amendments to IFRS standards

The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform.

They apply to IFRS 4 Insurance Contracts; IFRS 7 Financial Instruments: Disclosures; IFRS 9 Financial Instruments; IFRS 16 Leases; and IAS 39 Financial Instruments: Recognition and Measurement. 

The amendments relate to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the amendments regarding modifications and hedge accounting. They are aimed at helping companies to provide investors with useful information about the effects of the reform on those companies’ financial statements.

Phase one of IASB’s project dealt with pre-replacement issues, whereas the amendments in this final phase relate to issues that might affect financial reporting when an existing interest rate benchmark is actually replaced.

The second set of amendments include changes to contractual cash flows. As a result, a company will not have to derecognise or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate.

As regards hedge accounting, a company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria.

In addition, a company will be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates.

These amendments are effective for annual reporting periods beginning on or after 1 January 2021, with early adoption permitted.

Hans Hoogervorst, IASB chair, said: ‘Our response to IBOR reform helps companies deal with its effect on their financial instruments and enables them to continue providing useful information to investors.’

IBOR Reform and its Effects on Financial Reporting—Phase 2

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