Interest Rate Benchmark Reform (Agenda Paper 14)
The Board met on 28 August 2019 to discuss issues identified while reviewing the feedback on the Exposure Draft Interest Rate Benchmark Reform (Exposure Draft) at the July 2019 Board meeting. The Board also discussed the due process, including permission for balloting amendments to IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement.
Redeliberation of proposed amendments to IFRS 9 and IAS 39 (Agenda Paper 14A)
The Board tentatively decided that:
- IAS 39 should be amended to provide an exception for retrospective assessment, so that, during the period of uncertainty arising from the reform of interest rate benchmarks (reform), an entity would continue to apply hedge accounting to a hedging relationship for which effectiveness is outside the 80–125% range. Ten of 14 Board members agreed and four disagreed with this decision.
- for ‘macro hedges’ designated under either IFRS 9 or IAS 39, an entity should assess whether a non-contractually specified risk component is separately identifiable only when the hedged item is initially designated within the ‘macro hedge’.1 Once a hedged item has been designated within a ‘macro hedge’, there should be no reassessment of whether the risk component is separately identifiable at any subsequent redesignation(s) of that hedged item in the same hedging relationship. All 14 Board members agreed with this decision.
- the final amendments to IFRS 9 and IAS 39 should clarify that, when an entity designates a group of items as the hedged item in accordance with paragraph 6.6.1 of IFRS 9 or paragraph 83 of IAS 39, the end of application requirement proposed in the Exposure Draft should apply to each item within the designated group of items. All 14 Board members agreed with this decision.
- the scope of the exceptions proposed in the Exposure Draft should be clarified so the exceptions apply only to those hedging relationships directly affected by uncertainties about the timing or amount of interest rate benchmark-based cash flows of the hedged item or hedging instrument arising from the reform. All 14 Board members agreed with this decision.
- entities should be exempt from the disclosure requirements in paragraph 28(f) of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors upon the initial application of the amendments. The disclosure requirements accompanying the exceptions proposed in the Exposure Draft should also be simplified so that only the following information is required in the notes to the financial statements for hedging relationships directly affected by interest rate benchmark reform:
- a description of the significant interest rate benchmarks to which the entity’s hedging relationships are exposed;
- an explanation of how the entity is managing its transition to using an alternative interest rate benchmark;
- an explanation of significant assumptions or judgements the entity made in applying the exceptions to those hedging relationships within the scope of the amendments; and
- the nominal amount of the hedging instruments and the extent of risk exposure the entity manages that is affected by the reform.
Twelve of 14 Board members agreed and two disagreed with this decision.
Due process steps and permission for balloting (Agenda Paper 14B)
The Board agreed that the amendments to IFRS 9 and IAS 39 should not be re-exposed. All 14 Board members agreed with this decision.
All Board members confirmed they were satisfied the Board has complied with the applicable due process and has undertaken sufficient consultation and analysis to begin the balloting process for the amendments to IFRS 9 and IAS 39.
No Board members indicated they intend to dissent from the issuance of amendments to IFRS 9 and IAS 39.
1Portfolio hedges of interest rate risk or ‘macro cash flow hedges’ (as colloquially referred to in BC6.91 of IFRS 9 Financial Instruments).