Accounting Standards Board
The Institute of Chartered Accountants of India
1st June, 2021

Exposure Draft for Amendments to the Guidance Note on Accounting for Derivative Contracts w.r.t. IBOR Phase 2 Replacement Issues

Interbank Offered Rates (IBORs), e.g., LIBOR, TIBOR, NIBOR, etc. play an important role in global financial markets and index (benchmark) a variety of financial products including derivatives. Market developments have undermined the reliability of some existing benchmarks. Consequently, some major interest rate benchmarks will cease to be published across the globe after December 2021. The ongoing reform in IBOR, will impact the way financial information is accounted for in the financial statements. Under Accounting Standards (AS), the relevant guidance with regard to hedge accounting is prescribed under the Guidance Note on Accounting for Derivative Contracts issued by the ICAI in year 2015. To address the accounting issues necessary exceptions to the hedge accounting have been prescribed as under:

  • Phase 1- Pre-replacement issues-deals with issues affecting financial reporting in the period during which there is uncertainty about the timing or the amount of interest rate benchmark-based cash flows. To address these issues, an Announcement was issued by the ICAI providing temporary exceptions from hedge accounting requirements, for accounting periods beginning on or after April 1, 2020. The same is included in the Exposure Draft as Appendix III.
  • Phase 2- Replacement issues-deals with issues affecting financial reporting when the uncertainty regarding the timing and the amount of interest rate benchmark-based cash flows is resolved and hedging relationships are affected as a result of the reform. To address replacement issues relating to hedge accounting arising from Interest Rate Benchmark Reform, paragraph 62 and Appendix IV is proposed to be added to provide temporary exceptions for modifications of the financial contracts that are affected by Interest Rate Benchmark Reform with the view to avoid undue impact on the financial statements where the transactions are economically equivalent to the previous basis (i.e., before and after Interest Rate Benchmark Reform).

Invitation to comment

The Accounting Standards Board (ASB) of ICAI invites comments from public on limited aspect of the Exposure Draft, i.e., on paragraph 62 and Appendix IV only. The downloadable version is available at: https://resource.cdn.icai.org/64939asb52194.pdf

How to comment

Comments on the abovementioned ED may be submitted through any of the following modes, so as to be received not later than June 21, 2021:

1. Electronically:  Click on http://www.icai.org/comments/asb/ to submit comment online (Preferred method)

2. Email:  Comments can be sent to: [email protected]

3. Postal:  Secretary, Accounting Standards Board,
The Institute of Chartered Accountants of India,
ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi 110 002

Further clarifications on this ED may be sought by e-mail to [email protected]

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