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It is estimated that currently, USD350 trillion worth of financial contracts, largely derivatives, use LIBOR as an Inter-Bank Offer Rate (IBOR). By the end of 2021, LIBOR will be replaced by new risk-free rates as the benchmark rates.

From an accounting standpoint, in order to facilitate the transition from an IBOR, the IASB has on 27 August 2020 announced amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 which bring out certain practical expedients. In this note, we capture the key changes to IFRS 9, IAS 39, and IFRS 7. 

LIBOR Reform - Key Changes in IFRS 9, IAS 39 and IFRS 7
  1. Derecognition: The replacement or reform of an interest rate benchmark like LIBOR would likely change the basis for determining the contractual cash flows of a financial asset or financial liability which would ordinarily require an assessment of the derecognition requirements under IFRS 9 and would impact the profit and loss account even if the modification was not a substantial modification. This would also pose a huge operational challenge for entities that have a large number of such contracts. IFRS 9 now includes a practical expedient that enables a company to account for a change in the contractual cash flows that are required by the reform by updating the effective interest rate to reflect the change in an interest rate benchmark from an IBOR to an alternative benchmark rate. This is available subject to the new basis for determining the contractual cash flows is economically equivalent to the previous basis.
  2. Hedge accounting: Many entities have entered into derivative transactions to hedge risks and applied principles of hedge accounting. The amendments enable (and require) companies to continue hedge accounting in circumstances when changes to hedged items and hedging instruments arise as a result of changes required by the reform.
  3. Additional disclosures: The nature and extent of risks to which the company is exposed arising from financial instruments that are subject to interest rate benchmark reform, and how the company manages those risks; and the company’s progress in completing the transition to alternative benchmark rates, and how the entity is managing that transition.

This change is a significant one that has not only accounting but also business impact and hence it is imperative for companies to start working soon.

The author is a Chartered Accountant and an alumnus of the Indian Institute of Bangalore with over a decade of experience in consulting and auditing. He is also a co-founder of World of financial reporting, a firm focused on financial reporting consulting and training solutions. He can be reached at



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