The impending phaseout of rates such as the London Interbank Offered Rate (LIBOR) will lead preparers to use new benchmarks such as more observable or transaction-based rates, which are seen as less vulnerable to manipulation. LIBOR is expected to cease in its current form in 2021.
In preparation for the change, the International Accounting Standards Board (IASB) amended its new and old financial instruments standards, IFRS 9, Financial Instruments, and IAS 39, Financial Instruments: Recognition and Measurement, as well as IFRS 7, Financial Instruments: Disclosures.
* Modify some specific hedge accounting requirements to provide relief from potential effects of the uncertainty caused by the interbank-offered rate reform.
* Require companies to provide additional information to investors about their hedging relationships that are directly affected by these uncertainties.
The IASB also has started work on considering the potential consequences on financial reporting of replacing an existing benchmark with an alternative.
The amendments take effect on Jan. 1, 2020, but early application is permitted.
GASB proposal: GASB, meanwhile, proposed new guidance to assist state and local governments in the transition from interbank-offered rates to other reference rates.
The exposure draft, Replacement of Interbank Offered Rates, would:
* Allow governments to continue using hedge accounting for certain hedging derivative instruments that are amended or replaced to change the reference rate from an interbank-offered rate.
* Clarify the hedge accounting termination...