On May 3, 2019, the International Accounting Standards Board (IASB) proposed amendments to its International Financial Reporting Standards (IFRS) to assist with the transition away from LIBOR and toward alternate interest rate benchmarks. The amendments would modify specific hedge accounting requirements to enable entities to apply hedge accounting as if the interest rate benchmark on which the hedged cash flows and cash flows of the hedging instrument are calculated will not be altered as a result of interest rate benchmark reform. The proposal would amend the following two IFRS:

LIBOR is the most commonly used benchmark interest rate for financial institutions making short-term loans to each other in the international market and for financial contracts generally. After a rigging scandal, the UK Financial Conduct Authority (FCA), which regulates LIBOR, announced a decision to phase out LIBOR by 2021 (see Legal Update, FCA Chief Executive speech on future of LIBOR). Several alternatives have been introduced to replace LIBOR (see Legal Update, New York Fed Publishes New Benchmarks), but none has been widely adopted to date.

IASB recognizes that until decisions are made with respect to the alternatives for LIBOR, uncertainties exist regarding the timing and the amount of future cash flows of the hedged and hedging instruments. These uncertainties could affect an entity’s ability to meet specific forward-looking hedge accounting requirements in the periods before benchmark replacement. In certain cases, these uncertainties could require entities to discontinue hedge accounting for hedging relationships that would otherwise qualify for hedge accounting.

Therefore, IASB has proposed to amend IFRS 9 and IAS 39 to provide relief from specific hedge accounting requirements during this period of uncertainty.

IASB rules require assessment of future cash flows from a party's financial contracts, which may be difficult to calculate due to a lack of clarity on which interest rate will be referenced during future periods under contracts that can span years.

US market participants are subject to generally accepted accounting principles (GAAP) set by the Financial Accounting Standards Board (FASB). US market participants would be impacted by IFRS set by the IASB under certain circumstances, particularly where a US entity has non-US operations or a non-US parent, subsidiary, or, in certain cases, a non-US investor.

IASB is requesting public comment until June 17, 2019 and plans to issue a final version of the amendments later in 2019.