Analyzing IFRS 9 & IAS 39 Amendments: Interest Rate Benchmark Reform

This report provides an analysis of the exposure draft ‘interest rate benchmark reform’ and amendments to IFRS 9 and IAS 39, focusing on the implications for financial reporting. It discusses the challenges posed by the potential cessation of interbank offered rates (IBORs) and the proposed amendments to address these challenges. The report examines the regulator's behavior through the lens of public interest theory, highlighting the aim to improve financial reporting quality. It also explores areas of agreement and disagreement with the exposure draft, including the scope of hedging accounting changes and disclosure requirements. Furthermore, the application of public and private interest theories is considered in relation to the amendments. The report concludes that public interest theory best explains the rationale behind the amendments, as they enhance the transparency and accuracy of financial reporting concerning hedging accounting and benchmark interest rates.

Running head: CURRENT DEVELOPMENT IN ACCOUNTING THOUGHT
Current Development in Accounting Thought
Name of the Student:
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Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Conclusion:......................................................................................................................................6
References:......................................................................................................................................8

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Introduction:
International Accounting Standards Board (IASB) follow a standard procedure while
issuing new accounting standards and issuing amendments. Exposure draft is the preliminary
draft which is issued and kept open for comment by different stakeholders before finalizing a
new accounting standards or amendments in accounting standards. Analysis of ‘interest rate
benchmark reform’ exposure draft shall be made in this document to understand the impact of
such draft on financial reporting.
Discussion:
Exposure draft ‘interest rate benchmark reform’ by amendments to International
Financial Reporting Standards IFRS 9 and IAS 39.
Cost of obtaining unsecured funds in certain combination of currency and maturity represented
by LIBOR, EURIBOR, and TIBOR are obtained from interbank offered rates (IBORs)
Interbank offered rates (IBORs). Numerous questions have been raised on the long term viability
of benchmark on the basis of which interest are fixed. The existing accounting standards are not
fully equipped to consider the implications of benchmark interest rates. The proposed
amendments will deal with the accounting treatment in the period prior to the replacement
interest rates. Accounting treatment for hedging instruments under IFRS 9 and IAS 39 shall be
altered subsequent to the amendment coming into effects (Mates, 2009).
Changes suggested in IFRS 9 and IAS 39:
ED/2019/1- interest rate benchmark reform:

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I. Modification to the requirements of specific hedging instruments subsequent to the
interest rate benchmark reform.
II. Mentions specific disclosure requirements in relation to effects on the hedging
relationships between the parties.
III. It is important to note that the above amendment is mandatory.
IV. The amendment proposed by the International Accounting Standards Board shall also
be effective for hedging accounting. However, the amendment to the hedging
accounting requirement is not to provide any relief to the organizations accounting
hedging instruments. Thus, the consequences of changes in interest benchmark rate
will have to be experienced and recorded in the books of accounts properly.
V. The requirements of discontinuance of hedging accounting is still required even after
the amendment if the reasons are not those mentioned in the exposure draft (Kothari,
2014).
The behaviour of the regulator in explaining the exposure draft by using public interest theory:
The amendment exposure draft is to improve the financial reporting of organization to show the
effects of changes benchmark interest rate on the basis of which LIBOR, EURIBOR and TIBOR
are determined. Thus, with the amended IFRS 9 and IAS 39 the financial reporting will explain
the financial position and performance better as compared to the existing standard. With better
financial reporting the actual impact of interest rate variances on the financial instruments will be
portrayed better in financial statements. Thus, the public using financial statements will be able
to assess the actual reality of an organization and its financial position better with the financial
reports prepared using the amended accounting standard. Thus, public interest theory can be used
to show the intention of the regulator to improve the quality of financial reporting in introducing

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the amendment to IFRS 9 and IAS 39 ("IASB publishes proposed amendments to IAS 39 and
IFRS 9 in the context of the IBOR reform", 2019).
The areas of agreement and disagreement with the exposure draft:
The exposure drafts are kept open for certain period of time to allow the various stakeholders to
comment on the exposure drafts. The stakeholders have all the freedom to express their
agreement or disagreement as they feel to the exposure draft. The reason to keep the exposure
draft open for a particular duration to comment is to consider the views of each and every
stakeholder on the draft. Taking into consideration the comments the Board decides the final
draft which shall be used to amend the standard or standards (Dr.S.K.Khatik & Arickal, 2012).
In this case the areas of agreement and disagreement with the exposure draft are enumerated
below.
Views in agreement with the exposure draft:
I. The exposure drafts provides that the financial reporting for hedging instruments will
have to be changed to take into consideration the changes interest benchmark rate.
This will help in recording the impact of changes interest rates and impact of the
same on financial instruments, financial liabilities and financial assets.
II. The changes in benchmark interest rate shall have to be compensated by the changes
in LIBOR, EURIBOR and TIBOR which makes it imminent to make necessary
adjustments in financial liabilities and assets which earlier was not required. Thus,
better representation of financial position will be possible with the use amended new
IFRS 9 and IAS 39.

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III. Thus, for better representation of financial position many have complimented the
IASB for coming up with exposure draft.
Views in disagreement with the exposure draft:
I. The Board has only proposed specific changes in hedging accounting instead of
wholesome changes as a result even the amended accounting standards would not be
able to fully disclose the impact of changes in benchmark interest (Castro, 2014).
II. Despite hedging relationship not meeting the requirements of hedging the same need
not be disclosed mandatorily until unless the reasons are as specified in the document.
Thus, the not making the disclosure of nonexistence of hedging relationship
compulsory is certainly something which will not benefit the true and fair depiction
of financial performance and position through financial reporting.
III. All the amendments have been made compulsory irrespective of the organization
thus, often this results in disagreement from the organizations which are small and do
not need to disclose items covered in the IFRS 9 and IAS 39 (Boone, Linthicum &
Poe, 2013).
Application of theories:
Public interest theory:
As mentioned earlier that the objective of accounting standards as well as proposed amendments
is to improve the quality of financial reporting to disclose true and fair picture of financial
performance and position as on a particular date. The exposure draft contains the amendments to
be made to IFRS 9 and IAS 39 with the objective of improving financial reporting in respect of
hedging accounting and benchmark interest (Beerbaum & Piechocki, 2016).

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Private interest theory:
Unlike public interest theory private interest theory is not broad in its scope. However, the
organizations using hedging accounting and use benchmark interest to borrow or provide loans
use of amended standards would be helpful in correctly accounting for hedging instruments.
Conclusion:
Public interest theory best explains the comments on the exposure draft as it is true that
subsequent to the amendments the financial reporting in respect of hedging accounting and
benchmark interest rate will be far better than disclosure requirements under existing accounting
standards.

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Attachment:

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References:
Beerbaum, D., & Piechocki, M. (2016). IFRS 9 for Banking Industry the Case for IFRS and
FINREP Taxonomies, Critical Asessment (Abstimmbarkeit von Anhangangaben nach IFRS
9 und 7 mit dem Meldewesen: Perspektive der IFRS-Taxonomie). SSRN Electronic
Journal, 2(4), 11-378. doi: 10.2139/ssrn.2793704
Boone, J., Linthicum, C., & Poe, A. (2013). Characteristics of Accounting Standards and SEC
Review Comments. Accounting Horizons, 27(4), 711-736. doi: 10.2308/acch-50551
Castro, W. (2014). Hedge Accounting: Gerenciamento de Resultado e Fragilidades do CPC
38/IAS 39 (Hedge Accounting: Earnings Management and Fragilities of IAS 39 and CPC 38
). SSRN Electronic Journal, 3(2), 4-21. doi: 10.2139/ssrn.2496134
Dr.S.K.Khatik, D., & Arickal, B. (2012). Adaptation and Convergence of International Financial
Reporting Standards. International Journal Of Scientific Research, 1(3), 10-13. doi:
10.15373/22778179/aug2012/4
IASB publishes proposed amendments to IAS 39 and IFRS 9 in the context of the IBOR reform.
(2019). Retrieved from https://www.iasplus.com/en/news/2019/05/ibor-reform
Kothari, V. (2014). Securitization Vehicles: Is Unconsolidated Status Easier Under IFRS 10 and
IFRS 12?. SSRN Electronic Journal, 4(2), 14-37. doi: 10.2139/ssrn.2374806
Mates, D. (2009). Considerations Concerning the Just Value of the Financial Instruments
According to the IAS 32 and IAS 39. SSRN Electronic Journal, 1(2), 3-47. doi:
10.2139/ssrn.1325730

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