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Exposure Draft of Interest Rate Benchmark Reform (Amendments to Ind AS 109 and Ind AS 107) (Comments to be received by November 8, 2019)
October, 11th 2019
                                     ED/ Ind AS109&107/ 2019/11




               Exposure Draft

       Interest Rate Benchmark Reform

   Amendments to Ind AS 109 and Ind AS 107




(Last date for the comments: November 8, 2019)




                   Issued by
         Accounting Standards Board
The Institute of Chartered Accountants of India




                       1
                                       Exposure Draft

Interest Rate Benchmark Reform (Amendments to Ind AS 109 and Ind AS 107)
Following is the Exposure Draft of Interest Rate Benchmark Reform (Amendments to Ind AS
109 and Ind AS 107), issued by the Accounting Standards Board (the Board) of the Institute of
Chartered Accountants of India, for comments.

The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if
they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear
rationale and, where applicable, provide a suggestion for alternative wording.

How to Comment


Comments should be submitted using one of the following methods, so as to receive not later than
November 8, 2019:

1.    Electronically:   Click on the below mentioned option to submit a comment letter or visit at the
                        following link (Preferred method):
                        http://www.icai.org/comments/asb/

2.    Email:            Comments can be sent at commentsasb@icai.in

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 any aspect of this Exposure Draft may be sought by e-mail to
asb@icai.in.




                                                 2
Amendments to Ind AS 109, Financial Instruments

    Paragraphs 6.8.1­6.8.12 and 7.1.8 are added. A new heading is added before paragraph 6.8.1.
    New subheadings are added before paragraphs 6.8.4, 6.8.5, 6.8.6, 6.8.7 and 6.8.9.
    Paragraph 7.2.26 is amended. New text in this paragraph is underlined.

Chapter 6 Hedge accounting
...

6.8 Temporary exceptions from applying specific hedge accounting requirements

6.8.1        An entity shall apply paragraphs 6.8.4­6.8.12 and paragraphs 7.1.8 and 7.2.26(d) to all
             hedging relationships directly affected by interest rate benchmark reform. These
             paragraphs apply only to such hedging relationships. A hedging relationship is directly
             affected by interest rate benchmark reform only if the reform gives rise to uncertainties
             about:

           (a) the interest rate benchmark (contractually or non-contractually specified) designated as
               a hedged risk; and/or

           (b) the timing or the amount of interest rate benchmark-based cash flows of the hedged
               item or of the hedging instrument.


6.8.2 For the purpose of applying paragraphs 6.8.4­6.8.12, the term `interest rate benchmark
      reform' refers to the market-wide reform of an interest rate benchmark, including the
      replacement of an interest rate benchmark with an alternative benchmark rate such as that
      resulting from the recommendations set out in the Financial Stability Board's July 2014
      report `Reforming Major Interest Rate Benchmarks'.1

6.8.3 Paragraphs 6.8.4­6.8.12 provide exceptions only to the requirements specified in these
      paragraphs. An entity shall continue to apply all other hedge accounting requirements to
      hedging relationships directly affected by interest rate benchmark reform.






             Highly probable requirement for cash flow hedges

6.8.4 For the purpose of determining whether a forecast transaction (or a component thereof) is
      highly probable as required by paragraph 6.3.3, an entity shall assume that the interest
      rate benchmark on which the hedged cash flows (contractually or non-contractually
      specified) are based is not altered as a result of interest rate benchmark reform.

             Reclassifying the amount accumulated in the cash flow hedge reserve


1
    The report, 'Reforming Major Interest Rate Benchmarks', is available at http://www.fsb.org/wpcontent/ uploads/r_140722.pdf.



                                                                             3
6.8.5 For the purpose of applying the requirement in paragraph 6.5.12 in order to determine
      whether the hedged future cash flows are expected to occur, an entity shall assume that
      the interest rate benchmark on which the hedged cash flows (contractually or non-
      contractually specified) are based is not altered as a result of interest rate benchmark
      reform.

        Assessing the economic relationship between the hedged item and the hedging
        instrument

6.8.6 For the purpose of applying the requirements in paragraphs 6.4.1(c)(i) and B6.4.4 ­B6.4.6,
      an entity shall assume that the interest rate benchmark on which the hedged cash flows
      and/or the hedged risk (contractually or non-contractually specified) are based, or the
      interest rate benchmark on which the cash flows of the hedging instrument are based, is
      not altered as a result of interest rate benchmark reform.

        Designating a component of an item as a hedged item

6.8.7   Unless paragraph 6.8.8 applies, for a hedge of a non-contractually specified benchmark
        component of interest rate risk, an entity shall apply the requirement in paragraphs
        6.3.7(a) and B6.3.8--that the risk component shall be separately identifiable--only at the
        inception of the hedging relationship.

6.8.8 When an entity, consistent with its hedge documentation, frequently resets (i.e.
      discontinues and restarts) a hedging relationship because both the hedging instrument and
      the hedged item frequently change (ie the entity uses a dynamic process in which both the
      hedged items and the hedging instruments used to manage that exposure do not remain
      the same for long), the entity shall apply the requirement in paragraphs 6.3.7(a) and
      B6.3.8--that the risk component is separately identifiable--only when it initially
      designates a hedged item in that hedging relationship. A hedged item that has been
      assessed at the time of its initial designation in the hedging relationship, whether it was at
      the time of the hedge inception or subsequently, is not reassessed at any subsequent
      redesignation in the same hedging relationship.

        End of application

6.8.9 An entity shall prospectively cease applying paragraph 6.8.4 to a hedged item at the earlier
       of:

        (a) when the uncertainty arising from interest rate benchmark reform is no longer present
            with respect to the timing and the amount of the interest rate benchmark-based cash
            flows of the hedged item; and

        (b) when the hedging relationship that the hedged item is part of is discontinued.

6.8.10 An entity shall prospectively cease applying paragraph 6.8.5 at the earlier of:



                                                 4
          (a) when the uncertainty arising from interest rate benchmark reform is no longer present
              with respect to the timing and the amount of the interest rate benchmark-based future
              cash flows of the hedged item; and

          (b) when the entire amount accumulated in the cash flow hedge reserve with respect to
              that discontinued hedging relationship has been reclassified to profit or loss.

6.8.11 An entity shall prospectively cease applying paragraph 6.8.6:

          (a) to a hedged item, when the uncertainty arising from interest rate benchmark reform is
              no longer present with respect to the hedged risk or the timing and the amount of the
              interest rate benchmark-based cash flows of the hedged item; and

          (b) to a hedging instrument, when the uncertainty arising from interest rate benchmark
              reform is no longer present with respect to the timing and the amount of the interest
              rate benchmark-based cash flows of the hedging instrument.

          If the hedging relationship that the hedged item and the hedging instrument are part of is
          discontinued earlier than the date specified in paragraph 6.8.11(a) or the date specified in
          paragraph 6.8.11(b), the entity shall prospectively cease applying paragraph 6.8.6 to that
          hedging relationship at the date of discontinuation.

6.8.12 When designating a group of items as the hedged item, or a combination of financial
       instruments as the hedging instrument, an entity shall prospectively cease applying
       paragraphs 6.8.4­6.8.6 to an individual item or financial instrument in accordance with
       paragraphs 6.8.9, 6.8.10, or 6.8.11, as relevant, when the uncertainty arising from interest
       rate benchmark reform is no longer present with respect to the hedged risk and/or the
       timing and the amount of the interest rate benchmark-based cash flows of that item or
       financial instrument.

Chapter 7 Effective date and transition

7.1 Effective date

        ...

7.1.8     Interest Rate Benchmark Reform (amendments to Ind AS 109 and Ind AS 107) added
          Section 6.8 and amended paragraph 7.2.26. An entity shall apply these amendments for
          annual periods beginning on or after 1 April, 2020.






7.2 Transition

        ...

        Transition for hedge accounting (Chapter 6)


                                                   5
      ...

7.2.26 As an exception to prospective application of the hedge accounting requirements of this
       Standard, an entity:

            (a)-(c) Omitted

            (d) shall apply the requirements in Section 6.8 retrospectively. This retrospective
                application applies only to those hedging relationships that existed at the beginning
                of the reporting period in which an entity first applies those requirements or were
                designated thereafter, and to the amount accumulated in the cash flow hedge reserve
                that existed at the beginning of the reporting period in which an entity first applies
                those requirements.

      ...


Appendix 1

Comparison with IFRS 9, Financial Instruments, IFRIC 16 and IFRIC 19
...

4.       Following paragraphs related to transition have not been included as these paragraphs are
         not relevant in Indian context. However, in order to maintain consistency with paragraph
         numbers of IFRS 9, the paragraph numbers are retained in Ind AS 109.
         (i) Paragraph 7.2.2
         (ii) Paragraphs 7.2.6-7.2.7
         (iii) Paragraphs 7.2.12-7.2.13
         (iv) Paragraphs 7.2.14A-7.2.258
         (v) Paragraphs 7.2.6(a)-(c)
         (vi) Paragraphs 7.2.27-7.2.28




                                                    6
Amendments to Ind AS 107, Financial Instruments: Disclosures

 Paragraphs 24H and 44DE­44DF are added and a subheading is added before paragraph 24H.

Hedge accounting

       ...

       Uncertainty arising from interest rate benchmark reform

24H For hedging relationships to which an entity applies the exceptions set out in paragraphs
    6.8.4­6.8.12 of Ind AS 109, an entity shall disclose:

       (a) the significant interest rate benchmarks to which the entity's hedging relationships are
           exposed;

       (b) the extent of the risk exposure the entity manages that is directly affected by the
           interest rate benchmark reform;

       (c) how the entity is managing the process to transition to alternative benchmark rates;

       (d) a description of significant assumptions or judgements the entity made in applying
           these paragraphs (for example, assumptions or judgements about when the
           uncertainty arising from interest rate benchmark reform is no longer present with
           respect to the timing and the amount of the interest rate benchmark-based cash
           flows); and

       (e) the nominal amount of the hedging instruments in those hedging relationships.

Effective date and transition

       ...

44DE         Interest Rate Benchmark Reform (amendments to Ind AS 109 and Ind AS 107) added
             paragraphs 24H and 44DF. An entity shall apply these amendments when it applies the
             amendments to Ind AS 109.

44DF     In the reporting period in which an entity first applies Interest Rate Benchmark Reform,
         an entity is not required to present the quantitative information required by paragraph
         28(f) of Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors.




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