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IFRS® Accounting Standards

Effects of IBOR Reform on Financial Reporting


Following the recommendations from the Financial Stability Board’s report -- “Reforming Major Interest Rate Benchmarks,” many jurisdictions, including Canada, are replacing existing InterBank Offered Rates (IBOR) benchmarks with alternative benchmark rates. 

The current guidance in Section 3856, Financial Instruments requires enterprises to perform a “10 percent” test to quantitatively assess whether a modification to a debt contract should be accounted for as an extinguishment. This can be onerous for private enterprises with a high volume of debt contracts that refer to IBOR benchmark rates. In addition, a change in the benchmark rate in derivative contracts that are designated in a hedging relationship will lead to the discontinuation of hedge accounting. This outcome may not provide decision-useful information to financial statement users. 

The AcSB decided to amend Section 3856 to: 

  1. simplify the current accounting analysis for debt modifications; and 
  2. allow hedging relationships to continue upon a change in certain critical terms that are related to IBOR reform.  

Staff Contact(s)

Sean Wang, CPA, CA, CFA Principal, Accounting Standards Board

Project Status

  • Information gathering

    Completed prior to April 2021

  • Approving project

    The AcSB issued an Exposure Draft in September 2021

  • Consulting stakeholders

    The AcSB issued its Exposure Draft in September 2021
    Stakeholders were encouraged to respond by October 18, 2021

  • Deliberating feedback

    The AcSB deliberated feedback on its Exposure Draft

  • Final pronouncement

    The final amendments were issued in the CPA Canada Handbook – Accounting on February 1, 2022


February 10, 2022 News
Handbook Update – Section 3856, Financial Instruments

Section 3856, Financial Instruments was amended on February 1, 2022, to provide relief to debt modification accounting and hedge accounting during the benchmark interest rate reform. These amendments are effective for fiscal years ending on or after February 1, 2022. Earlier application is permitted, including in financial statements not yet authorized for issue. Find out more.

September 13, 2021 Document for Comment
AcSB Exposure Draft – Financial Instruments

The AcSB wants your feedback on its proposal to provide an optional expedient for applying modification accounting and an exception to certain hedge accounting requirements in Section 3856 Financial Instruments

Applying to both private enterprises and NFPOs using Parts II and III of the CPA Canada Handbook – Accounting, these amendments aim to ease financial reporting burdens related to market-wide interest rate benchmark reform. Submit your comments by October 17, 2021.

Meeting & event summaries

November 10, 2021 AcSB Decision Summary – November 10-11, 2021

The AcSB deliberated stakeholders’ feedback on the Exposure Draft, “Financial Instruments.” Overall, respondents supported the proposals in the Exposure Draft. The Board re-affirmed the proposals that require:

  1. discontinued hedging relationships to be reinstated when that hedging relationship is discontinued solely due to IBOR reform, and the entity would not have been permitted to discontinue that hedging relationship if these amendments had been applied; and
  2. enterprises to disclose the nature and the carrying amount of the financial instruments that are subject to IBOR reform.

The AcSB recognizes the urgency of the amendments and is currently in the process of balloting. The Board plans to issue the final amendments into the CPA Canada Handbook on February 1, 2022. The amendments will apply to annual financial statements ending on or after February 1, 2022, with earlier application permitted, including in financial statements not yet authorized for issue.

August 4, 2021 AcSB Decision Summary – July 21-22, 2021

The AcSB discussed the proposals to include in the Exposure Draft to amend Section 3856, Financial Instruments. The amendment would provide relief from the accounting requirements in Section 3856 associated with debt modifications and hedge accounting resulting from IBOR reform.

The AcSB expects to issue the Exposure Draft in September 2021, with a 30-day comment period ending in October 2021. The Board plans to incorporate the amendments into Part II of the CPA Canada Handbook – Accounting in February 2022 so that the amendments are available for an enterprise’s 2021 year-end financial statements.

June 22, 2021 Not-for-Profit Advisory Committee Notes – June 22, 2021

The Not-for-Profit Advisory Committee discussed the proposals to include in an exposure draft to amend Section 3856, Financial Instruments, addressing issues related to debt modification and hedge accounting resulting from IBOR reform. The Committee advised the AcSB that the proposed amendments should:

  • provide optional relief for debt modifications directly related to IBOR reform, allowing entities to account for these modifications as a continuation of the existing contract rather than an extinguishment; and
  • allow entities to update their hedge documentation to reflect changes resulting from IBOR reform without discontinuing hedge accounting.

The AcSB will consider the Committee’s comments at the Board meeting on July 21-22, 2021.


This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.