• 1000

The IBOR phase 2 Exposure Draft1 (ED) attracted 80 comment letters following its 45-day comment period, which closed on 25 May. The proposals, issued by the International Accounting Standards Board (the Board), aim to address the accounting issues that can arise when an interest rate benchmark is either reformed or replaced.

Almost all of the respondents expressed general support for the project and broadly agreed with the proposals. However, most respondents raised issues for the Board to consider before finalising the amendments and suggested some improvements to the proposals.

The large number of responses the Board received in this short period shows how important these amendments will be and the need for preparers to understand the reporting impacts of benchmark reform.

Chris Spall
KPMG global IFRS financial instruments leader

Further clarifications, improvements and amendments

During the June meeting, the Board agreed to finalise the proposed amendments, subject to certain changes and except for the proposals on ‘accounting for qualifying hedging relationships and groups of items’ which will be discussed at the July meeting.

Changes to the proposals that the Board agreed included the following.


Proposed amendments on …   The Board agreed to …  

Modifications of financial assets and financial liabilities

  • consider drafting suggestions to improve clarity when preparing the final amendments.
Hedging relationships
  • incorporate reference to the examples of modifications required by benchmark reform as part of the changes required to hedging relationships;
  • include specific reference to a change in the designated hedged portion as a required change to the hedged item;
  • clarify that the changes to hedging relationships have to be made by the end of the reporting period during which uncertainty with respect to a specific element of the relationship has been resolved; and
  • clarify that, for the purpose of the changes required to a hedging instrument, modifications required by benchmark reform could be effected in ways other than modifying the contractual terms of the hedging instrument as long as the hedging instrument is not derecognised and the outcome is economically equivalent to modifying the hedging instrument to refer to the alternative benchmark rate.

Designation of a non-contractually specified risk component

  • clarify that the 24-month period applies to the individual alternative benchmark rate – i.e. on a rate-by-rate basis.
  • clarify that a discontinued hedging relationship is only reinstated if, at the date of initial application of the amendments, it:
    • still meets the risk management objective on the basis of which it qualified for hedge accounting; and
    • continues to meet all other qualifying criteria after taking into account the amendments;
  • clarify that when the 24-month period applies to the reinstated hedging relationship, the date begins from the initial application date of the amendments.
  • amend paragraph 24J(b) to require disclosure of quantitative information about instruments indexed to rates subject to benchmark reform (instead of specifically requiring the carrying amounts of non-derivatives and the nominal amounts of derivatives to be disclosed); and
  • delete paragraph 24J(c) which would have required an entity to disclose how, when assessing modifications, the company determined the base rate and relevant adjustments for each significant alternative benchmark rate that it is exposed to.

Next steps

At the July Board meeting, the Board will:

  • continue to discuss the remaining feedback on the hedge accounting proposals;
  • discuss any sweep issues that may be identified; and
  • begin the balloting process for the amendments to be finalised.

Speak to your usual KPMG contact to find out more about the Board’s discussion and visit home.kpmg/IBORreform to keep up to date with the latest news and discussion.

1 Interest Rate Benchmark Reform — Phase 2: Proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16    .

© 2023 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.