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IBOR reform: Financial statements

IBOR reform: Financial statements



​ ​ESBG responds to EFRAG comment letter on phase 2 elements


>> See the response

​​>> Learn more about IASB/Ed/2020/1

>> Related: WSBI-ESBG response to IASB



BRUSSELS, 25 May 2020 ​ ESBG welcomed last Friday an EFRAG draft comment letter on IASB ED/2020/1 that covers IFRS Standards to assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financial statements.  The letter released in April, covers the second phase of the reform, which covers proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

The association of nearly 900 savings and retail banks thoughout Europe opine that the standards contribute to providing relevant and useful information about financial instruments and hedging transactions presented in financial statements. The standards do this by avoiding unexpected accounting consequences that the IBOR reform could have caused under the current standards.

ESBG sees it a wise move to limit the scope of the amendment to the modifications requested by the interbank offered rate, or IBOR reform. The proposed amendments will avoid discontinuing hedging relationships when the hedged items and hedging instruments become modified and the related hedging documentation amended accordingly due to the sole IBOR reform.

ESBG commented: “We agree with the proposed amendments in relation to hedges of groups of items and portfolio hedges because these amendments are consistent with the objective to continue hedging relationships when transitioning from IBOR to an alternative benchmark rate."

​Backrounnd

Source: IFRS announcement, 20 April 2020

The International Accounting Standards Board has proposed amendments to IFRS Standards to assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financial statements.

The Board has been considering the effects of interest rate benchmark reform on financial reporting since 2018, splitting its work into two phases. The first phase culminated in amendments to some IFRS Standards in September 2019, providing temporary exceptions to specific hedge accounting requirements and requiring related disclosures in the period during which there is uncertainty about contractual cash flows arising from interest rate benchmark reform.

The Board published in April further proposed amendments as part of the second phase of its project. These proposed amendments aim to address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of the reform.

The main proposed amendments relate to:

  • modifications—a company would not derecognise or adjust the carrying amount of financial instruments for modifications required by interest rate benchmark reform, but would instead update the effective interest rate to reflect the change in the interest rate benchmark;
  • hedge accounting—a company would not discontinue its hedge accounting solely because of replacing the interest rate benchmark if the hedge meets other hedge accounting criteria; and
  • disclosures—a company would disclose information about new risks arising from the interest rate benchmark reform and how it manages the transition to alternative benchmark rates.

Hans Hoogervorst, Chair of the International Accounting Standards Board, said:

“The Board is working to an accelerated timeframe to finalise the required amendments to IFRS Standards so that investors continue to receive useful information and that companies are supported in their financial reporting as jurisdictions complete their interest rate benchmark reforms."

​The consultation document proposes amendments to the following Standards:

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

 

To read and comment on the Exposure Draft, please go to the comment letter page. The comment deadline is 25 May 2020.

>> Read ESBG response

>> Learn more about IASB/Ed/2020/1



Accounting Standards; Leasing