IASB Proposes Amendments for Interest Rate Benchmark Reform

The International Accounting Standards Board (IASB) has published the Exposure Draft, Interest Rate Benchmark Reform–Proposed amendments to IFRS 9 and IAS 39. The new Exposure Draft proposes changes to International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, and International Financial Reporting Standard (IFRS) 9, Financial Instruments, in light of the reform of interest rate benchmarks such as interbank offer rates (IBORs). Comments are due by June 17, 2019.

Interest Rate Benchmark Reform

The IASB has proposed to amend IFRS 9 and IAS 39 to provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform.

Hedge Accounting and Interest Rates

IFRS require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform is ongoing, there is uncertainty on when the current interest rate benchmarks will be replaced and with what interest rate. Without the proposed amendments, this uncertainty could result in a company having to discontinue hedge accounting solely because of the reform’s effect on its ability to make forward-looking assessments. This could result in reduced usefulness of the information in the financial statements for investors.

The IASB is also considering the accounting implications arising from the reform in two stages. These proposed amendments relate to the effects of uncertainty in the period leading up to the replacement of interest rate benchmarks. As more information becomes available about the replacements, the IASB will assess the potential accounting implications of reform and determine whether to take further action.

The IASB expects to release the final standard later in 2019.

 

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