Effects of IBOR Reform on Financial Reporting

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.

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.

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.

The AcSB discussed the proposals to include in an exposure draft to amend Section 3856, Financial Instruments, to address issues related to debt modification and hedge accounting resulting from IBOR reform. The Board decided that the amendments will:

• 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 expects to issue the exposure draft in September 2021. The Board plans to incorporate the amendments into Part II of the Handbook in the first quarter of 2022 to make the relief available when entities prepare their 2021 year-end financial statements.

The Private Enterprise Advisory Committee discussed proposals to amend Section 3856, Financial Instruments, addressing issues related to debt modification and hedge accounting resulting from IBOR reform. The Committee advised the AcSB on which industries in the private sector are most likely to be affected by the proposals. The Committee also advised on improving the drafting of the proposals.

The AcSB will discuss the Committee’s comments, and those received from its Not-for-Profit Advisory Committee, at the Board meeting on July 21-22, 2021.

The AcSB discussed the impact of IBOR reform on debt modification accounting and hedge accounting in Section 3856, Financial Instruments, and considered guidance provided in IFRS^® Standards and U.S. generally accepted accounting principles (GAAP) on these topics. The Board also considered the feedback from its Private Enterprise Advisory Committee and Not-for-Profit Advisory Committee on the common types of IBOR-based financial instruments used by private enterprises and not-for-profit organizations in Canada.

The AcSB decided to proceed with a project to address issues related to debt modification accounting and hedge accounting resulting from IBOR reform. The Board will discuss potential solutions to address these issues at a future meeting. 

The Not-for-Profit Advisory Committee received an update on the recent developments in the Canadian Dollar Offered Rate (CDOR) and the U.S. dollar London Interbank Offered Rate (LIBOR) markets. The Committee also discussed the potential impact of IBOR reform on debt modification accounting and hedge accounting in Section 3856, Financial Instruments, and considered guidance provided in IFRS^® Standards and U.S. generally accepted accounting principals (GAAP).

The Not-for-Profit Advisory Committee agreed with staff’s preliminary assessment of accounting issues arising from IBOR reform. On how IBOR reform affects the not-for-profit sector in Canada, the Committee observed that CDOR- and LIBOR-based loans and derivative instruments are uncommon in this sector. One Committee member noted seeing CDOR- and LIBOR-based derivative instruments; however, hedge accounting had not been applied.

The AcSB will consider the Committee’s feedback, as well as feedback from its Private Enterprise Advisory Committee, in a future meeting.

The Private Enterprise Advisory Committee considered recent developments in the Canadian Dollar Offered Rate market and discussed its impact on private enterprises in Canada. The Committee considered the impact of interest rate benchmark reform on debt modification accounting and hedge accounting in Section 3856, Financial Instruments.

The AcSB will discuss the Committee’s comments, as well as those received from its Not-for-Profit Advisory Committee, at its April 2021 meeting.

The AcSB considered the recent developments in the Canadian Dollar Offered Rate market. The Board also discussed the potential impact of IBOR reform on debt modification accounting and hedge accounting in Section 3856.

The AcSB directed staff to perform additional analysis to assess whether the accounting issues related to IBOR reform are significant to private enterprises in Canada and to consider options to address the issues related to the accounting for IBOR reform. The Board will review staff’s analysis and decide whether standard-setting activity related to IBOR reform is needed.