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On 3 May 2019, the IASB issued the Exposure Draft ED/2019/1 Interest Rate Benchmark Reform (proposed amendments to IFRS 9 and IAS 39) (the 'ED') with a comment period ending on 17 June 2019.
The IASB has split its work on the Interest Rate Benchmark Reform in two phases. The first phase is addressing issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and a second phase that deals with issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative interest rate.
The ED relates to the first phase of the Interst Rate Benchmark Reform and modifies hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and the cash flows from the hedging instrument are based will not be altered as a result of the interest rate benchmark reform. The proposals are not intended to provide relief from any other consequences arising from interest rate benchmark reform.
In its draft comment letter, EFRAG welcomes the IASB proposals to provide relief on hedge accounting requirements and to split the work in two phases. EFRAG is of the view that the second phase covering replacement issues should be addressed as soon as possible and be discussed already in parallel to the finalisation of the first phase.
EFRAG notes that the transition path of each IBOR is different and hence may require different accounting solutions. In the second Appendix to its draft comment letter, EFRAG discusses three fact patterns of IBOR transition with the aim of identifying potential issues that could arise in relation to their occurrence. EFRAG also notes a number of potential topics that could be addressed during the second phase.
EFRAG requests comments on its draft responses to the questions raised in the ED and to the questions raised by the EFRAG by 31 May 2019.