IASB issues Interest Rate Benchmark Reform

This Accounting Alert is issued to circulate the new amendments published by the International Accounting Standards Board (IASB) on Interest Rate Benchmark Reform in response to the ongoing reform of interest rate benchmarks around the world.



Interest rate benchmarks such as interbank offered rates (IBORs) play an important role in global financial markets as these benchmarks index a wide variety of financial products.  Market developments have undermined the reliability of some existing benchmarks. Many IBORs are now expected to be replaced by new benchmark Risk-Free Rates (RFRs) in the next few years. One of the biggest issues presented by the replacement of IBORs is the potential effect on hedge accounting given the extensive use of interest rate benchmarks in global financial markets, and it is this subject that is addressed by the IASB's amendments.

Scope of the Amendments

The Board identified two groups of accounting issues that could affect financial reporting. These are:

  • pre-replacement issues - issues affecting financial reporting in the period before the reform; and

  • replacement issues - issues that might affect financial reporting when an existing interest rate benchmark is either reformed or replaced.

The Board followed a phased response to the reform of interest-rate benchmarks. Phase 1 (pre-replacement) culminates with the amendments issued today and focuses on the accounting effects of uncertainty in the period leading up to the reform. The Board has started work on Phase 2 (replacement), which considers the potential consequences on financial reporting of replacing an existing benchmark with an alternative.
The amendments come into effect from 1 January 2020 but companies may choose to apply them earlier. The Board considered the first issue to be more urgent and decided to address the following hedge accounting requirements as a priority in the first phase of the project:

  1. The highly probable requirement - When determining whether a forecast transaction is highly probable, a company shall assume that the interest rate benchmark on which the hedged cash flows are based is not altered as a result of the reform.

  2. Prospective assessments - When performing prospective assessments, a company shall assume that the interest rate benchmark on which the hedged item, hedged risk and/or hedging instrument are based is not altered as a result of the reform.

  3. IAS 39 retrospective assessment - The Board decided to amend IAS 39 so that a company is not required to undertake the IAS 39 retrospective assessment for hedging relationships directly affected by the reform.  However, the company must comply with all other IAS 39 hedge accounting requirements, including the prospective assessment.

  4. Separately identifiable risk components - For hedges of a non-contractually specified benchmark component of interest rate risk, a company shall apply the separately identifiable requirement only at the inception of such hedging relationships.

Please refer to the attached IFRS Alert for a summary of the amendments relating to the Interest Rate Benchmark Reform.


See attached copy of this article for further details.