The European Financial Reporting Advisory Group (EFRAG) has published its final comment letter in response to the IASB's Exposure Draft ED/2019/1 Interest Rate Benchmark Reform (proposed amendments to IFRS 9 and IAS 39).
EFRAG supports the IASB approach of working in two phases and urges the IASB to issue the amendments as soon as possible in order to provide clarity to the entities affected by the reforms. EFRAG is of the view that the second phase should be addressed as soon as possible and in parallel to the finalisation of the first phase.
EFRAG considers the IASB proposals as a step in the right direction but notes that additional changes are necessary. In particular, relief from including the uncertainties of IBOR reform in the retrospective assessment is needed.
Further, EFRAG disagrees with not applying the proposed amendments retrospectively to hedges that were discontinued because entities were unable to apply the proposed reliefs, and suggests to assess whether structuring opportunities would not arise as a result of the ED not allowing reinstatement of such hedges.
EFRAG also notes that the IASB should clarify the application of the Amendments to the portfolio fair value hedge of interest rate risk and the use of cross-currency swaps.
EFRAG is not convinced that the proposed disclosures strike an appropriate balance from a cost-benefit perspective and is of the view that during the first phase qualitative disclosures are sufficient. For the second phase EFRAG asks the IASB to open a dialogue with users to identify their information needs in relation to the IASB proposals.
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EFRAG's comment letter contains a number of topics that could potentially be addressed in the second phase. Finally, EFRAG invites the IASB to address all potential impacts of the Interest Rate Benchmark Reform across the different IFRS Standards during the second phase.