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Interest Rate Benchmark Reform—Phase 2

BC15. In August 2020 the IASB issued Interest Rate Benchmark Reform—Phase 2 which amended IFRS 9, IAS 39, IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and IFRS 16 Leases. In September 2020 the NZASB made equivalent amendments to NZ IFRS. These amendments addressed the financial reporting issues that arise during the reform of an interest rate benchmark, including the replacement of an interest rate benchmark with alternative, nearly risk-free interest rates that are based, to a greater extent, on transaction data (alternative benchmark rates). The amendments provided a practical expedient for changes in the contractual cash flows of a financial asset or financial liability when such changes are directly required by interest rate benchmark reform. As a consequence of the amendments, entities meeting certain criteria will not have to derecognise or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate. The amendments also provided relief to continue hedge accounting when changes to financial instruments or hedging relationships occur as a result of the reform.

BC16. The NZASB considered that PBEs affected by the replacement of interest rate benchmarks could also urgently require these amendments and proposed equivalent amendments to PBE Standards. The NZASB issued NZASB ED 2020-5 PBE Interest Rate Benchmark Reform—Phase 2 in September 2020 and finalised the amendments in November 2020.