International developments

A global reform of major interbank offered rate (IBOR) benchmarks is currently underway. The reform involves the replacement of commonly used interest rate benchmarks with alternative benchmark rates (ABR).

Following an announcement by the UK’s Financial Conduct Authority (FCA), LIBOR for GBP, EUR, CHF, JPY, and some less commonly used USD LIBOR tenors will no longer be available from the end of 2021. The remaining USD LIBOR rates will cease after 30 June 2023.

The replacement of IBOR benchmarks could have significant implications for financial instruments accounting, especially for organisations that have:

  • borrowings, receivables or leases referencing an IBOR benchmark
  • derivatives referencing IBOR benchmarks, and/or
  • applied hedge accounting in accordance with either AASB 9 Financial Instruments (AASB 9) or AASB 139 Financial Instruments: Recognition and Measurement (AASB 139).

In response, the International Accounting Standards Board (IASB) published amendments to existing accounting standards in two phases.

Phase 1 of the amendments addresses the potential impacts on hedge accounting arising from uncertainty during the periods leading up to the replacement of IBOR.

Phase 2 focuses on financial reporting issues that might arise when IBOR benchmarks are replaced in contracts. 

Further detail about the IBOR reform project can be found in our IBOR reform phase 1 amendments Reporting Update.


Financial reporting implications of IBOR reform

As a result of the IBOR Reform Phase 2 amendments, the financial reporting impacts are expected to be minimal where loan agreements, leases and derivatives are amended only to effect changes required by IBOR reform.

Where the new basis for determining the contractual cash flows of the financial instrument or lease is economically equivalent to the previous basis (i.e., the basis immediately preceding the change) an organisation must:

  • treat changes to interest rates on loans and borrowings on a prospective basis by revising the effective interest rate
  • remeasure any affected lease liability using the guidance for a change in an index or a rate
  • if hedge accounting is applied, update the hedge documentation (including the designated hedged risk, the identified hedging instrument and associated hypothetical derivative) to ensure that hedge accounting can continue.

Complexity arises where changes in addition to those required by IBOR reform are made to the terms and conditions of the arrangement. In these scenarios the financial reporting impacts may be more significant, for example borrowings may need to be remeasured or hedge relationships discontinued, potentially resulting in an impact on profit or loss. The guidance on navigating through the impacts of these additional changes is complex, therefore, where this situation arises, we recommend consultation with your adviser.

IBOR reform questions and answers

Refer to the Reporting Update PDF for more information and a series of practical examples illustrating the application of the amendments.


The end of IBOR is in sight and organisations affected will be required to apply the relief granted by the IASB in their Phase 2 amendments. This relief allows organisations to change interest rates and amend hedge designations and documentation without significant disruption. However, the accounting can get complicated where additional changes to borrowings and derivatives are made over and above those required by IBOR reform. If this is the case for your organisation, it is recommended you consult with your advisor to assist in working through the accounting impacts

Patricia Stebbens
Partner, Department of Professional Practice

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