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Interest rate benchmarks reform prompts potential changes to IFRS

The International Accounting Standards Board (IASB) has proposed changes to financial instruments standards IAS 39 and IFRS 9 in response to the reform of interest rate benchmarks such as interbank offer rates (IBORs).

The IASB has proposed to amend IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement 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.

IFRS Standards require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform is ongoing, uncertainty exists about when the current interest rate benchmarks will be replaced and with what interest rate.

Without the proposed amendments, the IASB believe 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 then result in reduced usefulness of the information in the financial statements for investors.

IASB chair Hans Hoogervorst said: “The Board has responded quickly to propose changes that will help address the uncertainties surrounding IBOR reform until the outcome of the reform is clear.”

The IASB is 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.

The IASB has published the exposure draft Interest Rate Benchmark Reform which is open for public comment until 17 June 2019. The IASB is aiming to issue final amendments later in 2019.

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