IBOR reform and its effects on financial reporting

As reported last month, the IASB has a new project on its agenda that is about the accounting consequences of the interest-rate benchmark reforms that regulators around the world are currently working on with a view to replacing well-established benchmarks such as LIBOR or EURIBOR with alternative reference rates (for example, the US Secure Overnight Funding Rate or the reformed Sterling Overnight Index Average in the UK). The Board is moving quickly with this project, as it is concerned to avoid a situation in which existing accounting requirements mean that companies suffer negative effects as a result of the regulatory reform. The underlying issue is that companies with effective interest rate hedge arrangements could be required to discontinue using hedge accounting to record them as a result of uncertainty about future cash flows arising from changes in benchmark rates. Thus, the Board had decided at its last meeting that the first phase of its work would focus on an analysis of the accounting effects of changes leading up to the reform, notably, how future uncertainty about the benchmark rates could affect hedge accounting. Accordingly, the detailed discussions on the project began by addressing this topic.