20RU-016 IBOR reform phase 1 amendments

20RU-016 IBOR reform phase 1 amendments

From 2022, there will be a transitioning from the use of the Interbank Offered Rate (IBOR) including the London Interbank Offered Rate (LIBOR) as the predominant benchmark interest rate to other alternative rates for five currencies. LIBOR for US Dollar, Pound Sterling, Euro, Japanese Yen and Swiss Franc will be replaced by risk free rates (RFRs). As a result of this global IBOR reform, an entity’s ability to continue hedge accounting may be impacted.


If an entity has:

  • borrowings that references an IBOR benchmark, and/or
  • derivatives referencing IBOR benchmarks, and
  • applies hedge accounting in accordance with AASB 9 Financial Instruments (AASB 9) or AASB 139 Financial Instruments: Recognition and Measurement (AASB 139),

it should early adopt the AASB 2019-3 Amendments to Australian Accounting Standards Interest Rate Benchmark Reform (“IBOR Phase 1 amendments”), to ensure that hedge accounting can continue to be applied.

Actions for management to take now

Minimal financial impact

Management are encouraged to early adopt the amendments to ensure the continuation of hedge accounting.

As the amendments provide relief for financial instruments directly affected by uncertainties related to IBOR reform to qualify for hedge accounting, adoption of the IBOR phase 1 amendments is not expected to result in a quantitative impact to the financial statements. However there will be additional disclosures to be included in the financial statements.

Additional disclosures

Entities who early adopt the amendments should disclose this fact in their financial statements.

In addition to the above, entities should disclose the following in their annual financial statements:

  • the significant interest rate benchmarks to which the hedging relationships are exposed;
  • the extent of risk exposure that is affected by IBOR reform;
  • how the transition to alternative benchmark interest rates is being managed;
  • a description of significant assumptions or judgements made in applying the amendments; and
  • the nominal amount of the hedging instruments in those hedging relationships.

What else should entities consider?

An entity must cease to apply the amendments prospectively when the uncertainty regarding the timing and the amount of interest rate benchmark based cash flows is no longer present.

The uncertainty may no longer be present, for example, when contracts are modified to effect a replacement of the reference benchmark or the instruments revert to a contractually specified fall back interest rate.

The IASB is considering further amendments to permit these entities to reset their retrospective assessment test to zero at the time when the amendments no longer apply.

Where can I find more information?

More detail about the changes to IBOR and the IASB’s response can be found in the attached article.

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