In 2018, International Accounting Standards Board (IASB) decided to add a project to its work plan to consider the financial reporting implications of the reform and identified two groups of accounting issues that could affect financial reporting (i) pre-replacement issues—issues affecting financial reporting in the period during which there is uncertainty about contractual cash flows arising from the reform (addressed by Phase 1 amendments); and (ii) replacement issues—issues affecting financial reporting when changes are made to contractual cash flows and hedging relationships as a result of the reform (to be addressed by Phase 2 amendments). The IASB considered the pre-replacement issues to be more urgent and in September 2019, as a first phase project, amended IFRS 9 and IAS 39 to provide temporary exceptions to specific hedge accounting requirements and added related disclosure requirements to IFRS 7.

As a phase 2 project, the IASB has issued an Exposure Draft to address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of interest rate benchmark reform. The IASB proposes amendments to specific requirements in IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts and IFRS 16, Leases, relating to modifications of financial assets and financial liabilities and lease liabilities; hedge accounting; and disclosures. The proposed amendments apply to changes to financial instruments and hedging relationships required by the reform. The IASB has proposed amendments to these IFRS Standards to assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financial statements.

The main proposed amendments relate to:

• Modifications of financial assets and financial liabilities, including lease liabilities: A company would not derecognise or adjust the carrying amount of financial instruments for modifications required by interest rate benchmark reform, but would instead update the effective interest rate to reflect the change in the interest rate benchmark;

• Hedge accounting: A company would not discontinue its hedge accounting solely because of replacing the interest rate benchmark if the hedge meets other hedge accounting criteria; and

• Disclosures: A company would disclose information about new risks arising from the interest rate benchmark reform and how it manages the transition to alternative benchmark rates.

The IASB will consider feedback on the proposals in the Exposure Draft in developing amendments to the IFRS Standards. The Exposure Draft is open for comment till May 25,2020. The IASB aims to issue the final amendments in Q3 2020.

The Accounting Standards Board (ASB) of ICAI with the aim to provide an opportunity to the various stakeholders in India to raise their concerns at the initial International Standard-setting stage itself, invites comments on the Exposure Draft issued by the IASB.