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    Thursday 23 May 2019

    IASB Update February 2019 - IBOR Reform and the Effects on Financial Reporting (Agenda Paper 14)

    By IASB - February 2019 

    The Board met on 8 February 2019 to discuss proposed amendments to IFRS Standards that would address concerns that may arise leading up to IBOR reform. Issues affecting financial reporting when IBOR reform is enacted (ie when contracts are actually amended) will be discussed during the second phase of the project.

    While the Board agreed to amend IFRS Standards to address concerns related to the uncertainties arising from IBOR reform, the Board emphasised that the underlying economic effects arising from IBOR reform should be represented in financial reporting. More specifically, the Board tentatively decided that:

    1. regarding the ‘highly probable’ requirement, that IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement should be amended to provide relief from the effects of uncertainties around the general conditions (timing and specifics) of the potential replacement of IBOR. In particular, when assessing the likelihood that a forecast transaction will occur, an entity can assume the IBOR-based contractual terms will remain unchanged. All 14 Board members agreed with this decision.
    2. regarding the existence of an economic relationship (as required by IFRS 9) and the expectation that a hedge will be highly effective in achieving offsetting (as required by IAS 39), that IFRS 9 and IAS 39 should be amended to provide relief from uncertainties around the general conditions (timing and specifics) of the potential replacement of IBOR. In particular, when performing these assessments an entity should base such assessments on existing contractual cash flows from the hedging instrument and the hedged item. All 14 Board members agreed with this decision.
    3. an entity should be allowed to continue hedge accounting when an IBOR risk component meets the separately identifiable requirement at the inception of the hedging relationship, although identification may be affected by IBOR reform in the future. In addition, the Board tentatively decided that relief should not be provided for risk components that are not separately identifiable at the inception of a hedging relationship. All 14 Board members agreed with this decision.
    4. an entity should cease to apply the proposed relief when the nature and timing of designated future cash flows are certain. All 14 Board members agreed with this decision.
    5. an entity should provide specific disclosures about the extent to which it applies the proposed relief. All 14 Board members agreed with this decision.
    6. an entity should apply the proposed amendments retrospectively. The proposed effective date of the amendments is 1 January 2020 with earlier application permitted. Thirteen of 14 Board members agreed and one disagreed with this decision.

    Next steps
    The Board will discuss the following topics at a future meeting:

    1. optional application of the proposed relief; and
    2. certainty about the nature and timing of future cash flows and its interaction with ending the proposed relief.

    For further information, please contact :

    Mohammed Yaqoob
    Global Office
    E: myaqoob@nexia.com

     View IFRS: IASB Update February 2019 here.

    The Board met on 8 February 2019 to discuss proposed amendments to IFRS Standards that would address concerns that may arise leading up to IBOR reform.
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