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

The IASB, considering the effects of interest rate benchmark reform on financial reporting since 2018, has moved forward in two phases. The first was in amendments to some IFRS Standards in September 2019, which provided 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.

Now, as part of the second phase, the board has published further proposed amendments that 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 proposed amendments relate to:

• Modifications. A company would not derecognize or adjust the carrying number 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.

“The Board is working to an accelerated time frame to finalize 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,” said Hans Hoogervorst (pictured), chair of the International Accounting Standards Board, in a statement.

The consultation document proposed amendments to the 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.

The “Exposure Draft: Interest Rate Benchmark Reform — Phase 2” is available here, with a comment deadline of May 25, 2020.