On 13 January 2021 the EU endorsed the amendments to IAS 39/IFRS 9/IFRS 7 caused by the IBOR reform (Phase 2). These amendments must be applied no later than for financial years beginning on 1 January 2021.
While Phase 1 was mainly concerned with relief for the continuation of hedge accounting in the periods in which there was still uncertainty regarding the reform of specific benchmark rates, Phase 2 focuses on contracts for which a modification in respect of these new benchmark rates has already been made. A significant difference to Phase 1 is that Phase 2 is not restricted solely to contracts in hedge accounting but also covers other financial assets and liabilities, such as loan agreements and leases.
By year-end, most companies will have already dealt with the accounting effects of these two phases and now must consider which disclosures in the notes for the reporting year arise for the first time owing to Phase 2.
In the first instance, the following qualitative disclosures must be made for each benchmark rate relevant for the entity:
- nature and extent of the risks associated with the IBOR reform
- progress of the entity with regard to the transition to alternative benchmark rates and presentation of the process of transitioning to the new benchmark rates
In addition, quantitative disclosures must be made on the nominal amount of hedging instruments in hedge relationships where the Phase 1 relief is exercised. The quantitative disclosures arising from Phase 2 relate to a larger group of financial instruments and do not depend on whether hedge accounting is applied. For hedging instruments where transition to new benchmark rates is still pending, quantitative disclosures (such as nominal amounts) are expected, presented separately according to
- non-derivative financial assets
- non-derivative financial liabilities
- derivative financial instruments
Financial instruments for which the transition to new benchmark rates was already completed in 2021 are not initially affected by these quantitative disclosures. Nevertheless, qualitative disclosures on this matter are necessary, i.e. to illustrate progress with the transition to new benchmark rates, to comment on changes in existing hedge relationships or to explain significant transition effects.
Your Finance and Treasury Management Team is happy to assist should you have any further queries.
Source: KPMG Corporate Treasury News, Edition 117, December 2021
Ralph Schilling, CFA, Partner, Head of Finance and Treasury Mangement, KPMG AG
Andrea Monthofer, Senior Manager, Finance and Treasury Mangement, KPMG AG