The International Accounting Standards Board (IASB) has published Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7), in response to the ongoing reform of interest rate benchmarks around the world. The amendments aim to provide relief for hedging relationships.
The amendments
The main amendments can be summarised as follows:
- Highly probable requirement and prospective assessments of hedge effectiveness; and
- Designating a component of an item as the hedged item.
Without these amendments, the uncertainty surrounding the replacement of IBORs and the form this will take, could result in entities having to discontinue hedge accounting solely because of the reform’s effect on their ability to make forward-looking assessments.
Disclosures about the extent to which an entity’s hedging relationships are affected by the amendments are also required.
The IASB has stated that the exceptions above are mandatory for all hedging relationships directly affected by the interest rate benchmark reform. It also confirms that the exceptions apply for a limited period. Specifically, an entity
prospectively ceases to apply the amendments at the earlier of:
- when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows; and
- when the hedging relationship is discontinued, or when a forecast transaction is no longer expected to occur, the entire amount accumulated in the cash flow hedge reserve with respect to that hedging relationship is reclassified to profit or loss.
The Board has not provided an end to the application of the proposed exception relating to the separate identification requirement outlined above.
The amendments are not intended to provide relief if a hedging relationship no longer meets the requirements of hedge accounting for any other reasons than those included in the amendments.
