Our “Applying IFRS – IBOR reform” publication provides an overview of the reliefs and further material on the additional disclosures required, and the key considerations for entities, including more worked examples, as they implement the requirements.
As all GBP, EUR, CHF and JPY LIBOR settings and the one-week and two-month USD LIBOR settings are expected to cease after 31 December 2021, several accounting questions arise in connection with the IFRS amendments completed by the IASB to facilitate the IBOR reform. To help financial institutions with the ongoing transition process, we have summarized the amendments of Phase I and II, illustrated the main changes with examples and provided EY’s views.
EY’s “Applying IFRS – IBOR Reform” gives guidance on the order in which the Phase II reliefs are applied and on assessing changes in the basis for determining contractual cash flows. It provides further advice in the area of hedge accounting by analysing judgments to be made when considering the timing for when Phase I uncertainty has ended, and the Phase II reliefs should start. A focus is set on the potential operational complexity of tracking the timing for when the reliefs start, depending on when individual instruments transition from IBORs to ARRs. As a final point, examples of published disclosures and experiences made at 2020 year-end should facilitate the transition in the remaining of 2021.
The updated publication includes further guidance added to the following chapters:
Introduction: Focus on the publication in March of fixed credit adjustment spreads for the ISDA LIBOR fallbacks, the evolving timeline for other IBORs and the need for entities to finalise their transition plans.
Changes in the basis for determining contractual cash flows: Additional guidance on the order in which the Phase II reliefs are applied and on assessing whether the change to the contractual cash flows is economically equivalent, including if there is some cash settlement and assessing whether derecognition is required.
Hedge Accounting: Analysis of the judgments to be made when considering the timing for when Phase I uncertainty has ended and the Phase II reliefs should start. Additional guidance on the application of the Phase II reliefs, including:
- the timing for when hedging documentation must be updated,
- identifying when changes to hedging relationships should be considered economically equivalent or would result in derecognition,
- identifying and measuring the hedged component in fair value and cash flow hedges,
- application of the Phase II reliefs for fair value and cash flow hedges, including the expected updates we would expect to hedge documentation with updated worked examples.
Transition: Focus on the potential operational complexity of tracking the timing for when the reliefs start depending on when individual instruments transition from IBORs.
Disclosures: Notes from the experience at 2020 year-end end with examples of published disclosures.
Discover more / ressources: Applying IFRS – IBOR reform (Updated May 2021) | EY – Global