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14 Apr. 2020

Interest Rate Benchmark Reform — Phase 2

To assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financials statements, the AASB is proposing amendments to AASB Standards through ED 299 Interest Rate Benchmark Reform — Phase 2.

The pre-replacement issues arising from the reform was addressed in AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform by amending some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the reform (Phase 1 of the project).

The proposals in ED 299 attempt to address replacement issues (Phase 2 of the project) by aiming to address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of the reform.

The main proposed amendments relate to:

  • modifications—a company would not derecognise or adjust the carrying amount of financial instruments for modifications required by interest rate benchmark reform, but would instead update the effective interest rate to reflect the change in the interest rate benchmark;
  • hedge accounting—a company would not discontinue its hedge accounting solely because of replacing the interest rate benchmark if the hedge meets other hedge accounting criteria; and
  • disclosures—a company would disclose information about new risks arising from the interest rate benchmark reform and how it manages the transition to alternative benchmark rates.

Please submit your comments to the AASB by 15 May 2020 via the AASB website, LinkedIn or email.