IASB Exposure Draft of Amendments to IFRS relating to the IBOR reform

Today, the IASB has released its Exposure Draft ED/2020/1. This ED contains proposed amendments and clarifications to IFRS 9 in respect of the IBOR reform.

In particular, the IASB basically propose

• that a change in how contractual cash flows are determined can constitute a modification, even in the absence of an amendment to the contractual terms;
• a practical expedient to apply paragraph B5.4.5 of IFRS 9 to account for modifications to the interest rate benchmark on which a financial instrument’s contractual cash flows are based, if these modifications are directly required by the reform,
  
• continuation of hedging relationships, as and when changes to the documentation of a hedging relationships are required as a direct consequence of IBOR reform;
• no further changes, as current requirements in IFRS 9 provide sufficient guidance as regards derecognition, determination of the business model, the SPPI test, and recognizing expected credit losses.

Further, the IASB propose narrow amendments to IFRS 16 and IFRS 4 as well as additional disclosure requirements to IFRS 7. The IASB also notes potential effects of the reform on the application of other standards, namely IFRS 13, IFRS 17, and requirements in other IFRSs with respect to discount rates. However, any such changes are not deemed necessary and, therefore, are not proposed.

All proposed amendments shall be applied for annual periods beginning on or after 1 January 2021.

This Exposure Draft is part of phase 2 of the IASB’s “IBOR reform project” and is open for comments until 25 May 2020.