Page 1 of 4Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
20 June 2019Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Exposure Draft ED/2019/1Interest Rate Benchmark Reform – Proposed amendments to IFRS 9 and IAS 39The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants, in Hong Kong. We are grateful for the opportunityto provide you with our views on this Exposure Draft (ED).The HKICPA appreciates the need for the IASB's proposals to provide temporary relief toentities when they apply specific hedge accounting requirements in IFRS 9 FinancialInstruments and IAS 39 Financial Instruments: Recognition and Measurement during theperiod of uncertainty arising from the interest rate benchmark reform. Although theproposals do not provide a comprehensive solution to fully address the financialimplications as a result of the reform, the HKICPA agrees that the ED serves as a practicalinterim solution for financial reporting issues that arise in the period before thereplacement of an existing interest rate benchmark. Nevertheless, the HKICPA hassuggested some improvements that would help to clarify the proposals in the Appendix tothis letter.The HKICPA notes that the IASB will deal with financial reporting issues that arise ontransition to an alternative interest rate in the second phase of the project. Given thecurrent development of the reform and the potential reaction of the market (e.g. amendinglegacy contracts), entities are likely to face these issues very soon and so the HKICPAconsiders the second phase is as urgent as, if not more important than, the first phase ofthis project. Therefore, the HKICPA strongly urges the IASB to work on the second phaseof the project in parallel as the first phase and complete both phases as soon as possiblein order to fully address the financial reporting implications of the reform.Our detailed responses to the questions raised in this ED are in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me orEky Liu (eky@hkicpa.org.hk) Associate Director of the Standard Setting Department.Sincerely,Christina NgDirector, Standard Setting DepartmentPage 2 of 4APPENDIXWork undertaken by HKICPA in forming its views:
The HKICPA:
(a) issued an Invitation to Comment on the ED on 7 May 2019 to our stakeholders;
(b) sought input from its Financial Instruments Advisory Panel comprising technical andindustry experts and auditors from accounting firms; and(c) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholder feedback. The Committee comprises of academics,preparer representatives from various industry sectors, investors, regulators, andtechnical and industry experts from small, medium and large accounting firms.Detailed comments on the EDOverall approachThe HKICPA appreciates the need for the IASB's proposals to provide temporary relief toentities when they apply specific hedge accounting requirements in IFRS 9 and IAS 39during the period of uncertainty arising from the reform. Without the proposed relief, itwould be challenging for entities to assess the uncertainty arising from the reform andhedge effectiveness. In addition, some of our investors informed us that the one-off impacton profit or loss from discontinuing hedge accounting, solely due to the uncertaintiesbefore the reform's economic effects are known, would not provide useful information tothem. They considered that disclosures about how an entity's future cash flows fromhedging instruments and hedged items could be affected by the reform and how the entitymanages its interest rate risk in the context of the reform would be more useful.Nevertheless, the HKICPA is concerned that the proposals could have unintended futureconsequences. The ED was driven by the Financial Stability Board's recommendations toreform existing interest rate benchmarks. We are concerned that the proposals maycreate expectations that similar relief might be considered in other circumstances, forexample, if other reforms (e.g. changes in the commodity markets) occur, even within asingle jurisdiction. We think that the IASB should explain clearly in the final Basis forConclusions why this reform warrants standard-setting activity, including the objective andspecial circumstances for providing the proposed relief, to help understanding and tomanage future expectations.Finally, the HKICPA considers that the proposals only serve as an interim solution to theissues arising from the uncertainty of the reform on the forward-looking hedge accountingrequirements. The HKICPA notes that the IASB will deal with other issues, including thosethat arise on transition to an alternative interest rate, in the second phase of the project.Given the current development of the reform and the potential reaction of the market (e.g.amending legacy contracts), entities are likely to face these issues very soon and so theHKICPA considers the second phase is as urgent as, if not more important than, the firstphase of this project. Therefore, the HKICPA strongly urges the IASB to work on thesecond phase of the project in parallel as the first phase and complete both phases assoon as possible in order to fully address the financial reporting implications of the reform.Question 1: Highly probable requirement and prospective assessmentsThe HKICPA agrees with the proposed amendments regarding the highly probablerequirement and prospective assessments for the reasons stated in the above 'overallapproach' section of this Appendix.Page 3 of 4Question 2: Designating a component of an item as the hedged itemThe HKICPA agrees with the proposed amendments relating to separately identifiable riskcomponents for the reasons stated in the above 'overall approach' section of this Appendix.The HKICPA notes that paragraphs BC25 and BC31 of the ED state that the proposedrelief is to be provided to non-contractually specified risk components only. However, theproposed amendments to the standards (paragraph 6.8.7 of IFRS 9 and paragraph 102Gof IAS 39) do not specify to which risk components the relief would be applied. TheHKICPA recommends that the IASB clarifies in the standards whether the relief should beprovided to non-contractually risk components only.Question 3: Mandatory application and end of applicationThe HKICPA supports mandatory application of the proposed exceptions to avoidselective discontinuation of hedge accounting and reclassification of the hedging reserveto profit or loss, thereby also enhancing comparability of financial statements acrossentities.For the reasons stated in paragraphs BC32-BC42 of the ED, the HKICPA supports theproposals that the exceptions would be temporary in nature and entities would ceaseapplying them when the conditions specified in paragraphs 6.8.8 to 6.8.10 and paragraphs102H to 102J of the ED are met.The HKICPA finds the various scenarios provided in paragraphs BC35-BC40 of the EDuseful for entities to understand when they should cease applying the proposedexceptions, in particular, when the contract is amended in anticipation of the reform. TheHKICPA recommends that the IASB makes these scenarios more accessible by includingthem as illustrative examples accompanying the standards instead of in the Basis forConclusions.Question 4: DisclosuresThe HKICPA supports the proposed disclosures and considers that they would provideusers of financial statements with useful information about the extent to which hedgingrelationships could be impacted by the reform. We do not expect that entities would needto incur undue cost or effort in preparing the proposed disclosures.Given the potential implications of the reform, the HKICPA also expects that entitiesshould provide additional information about the reform under the existing riskmanagement disclosure requirements in paragraphs 22A to 22C of IFRS 7 FinancialInstruments: Disclosures. For example, disclosures about how an entity's future cashflows from hedging instruments and hedged items could be affected by the reform andhow the entity manages its interest rate risk in the context of the reform. The IASB shouldemphasise the importance of entities providing sufficient information about the impact ofthe reform in the final amendments.Question 5: Effective Date and TransitionThe HKICPA supports the proposed effective date and permitted earlier application inview of the urgency of the relief.Page 4 of 4The HKICPA also supports the retrospective approach proposed in the ED because itwould provide relief from the need to look back to prior reporting periods and considerwhether hedges should have already been discontinued as a result of the uncertaintyarising from the reform. Entities would be able to continue hedge accounting for hedgingrelationships that were previously qualified for hedge accounting under IAS 39 or IFRS 9.Other commentsThe HKICPA would also like to draw your attention to the following issues that are notcurrently dealt with in the ED.•As explained in the above 'overall approach' section, the HKICPA is concerned thatthe proposals in the ED may create expectations that similar relief might beconsidered in other circumstances, for example, if other reforms occur even within asingle jurisdiction. We think the IASB should explain clearly in the final Basis forConclusions why this reform warrants standard-setting activity, including theobjective and the special circumstances for providing the proposed relief, to helpunderstanding and to manage future expectations.•The proposed relief applies only to hedging relationships of interest rate risk that areaffected by the reform (paragraph BC6 of the ED). The HKICPA considers that thereform could also impact certain hedges of foreign currency risk, for example, incross currency interest rate swap arrangements. The HKICPA recommends that theIASB clarifies in the final amendments whether an entity should also apply theproposed relief to such arrangements, and if not, the basis for such conclusion.•The ED does not propose any exception from the requirement for a risk componentto be reliably measureable (paragraph BC27 of the ED). The HKICPA considers thatquestions about the reliably measurable requirement could arise when the existinginterest rate benchmark (e.g. 3-month LIBOR) is no longer available, for example, ina fair value hedge. Further guidance in this area would be helpful.•The ED is not clear how the cumulative amount in the cash flow hedge reserve isaccounted for at the date the proposed relief ends. For example, when an entityamends the contractual terms of both its hedging instrument and hedged items fromLIBOR to an alternative interest rate, the ED would require the entity to ceaseapplying the relief because the uncertainty from the reform is no longer present. Thismeans that the entity would discontinue hedge accounting and reclassify the fullamount of the related cash flow hedge reserve to profit or loss. The HKICPA thinksthis accounting outcome may not be consistent with the rationale behind the EDgiven that the designated risk, LIBOR, may still be expected to occur via thealternative interest rate. We recommend that the IASB clarifies the accountingtreatment.•The ED does not propose any exception for the effects of the reform on retrospectiveassessments under IAS 39 (paragraph BC 23 of the ED). The HKICPA considersthat entities may fail this assessment solely because of the reform. For example,ineffectiveness could arise temporarily as a result of the differences in the changesin the cash flows of the hedged item and the hedging instrument due to thedifferences in the timing in updating the contracts. We recommend that the IASBconsiders, in such case, whether relief for retrospective assessments would benecessary.~ End ~
IASB Exposure Draft ED/2019/1 Interest Rate Benchmark Reform – Proposed amendments to IFRS 9 and IAS 39
下载原件Page 1 of 4Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
20 June 2019Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Exposure Draft ED/2019/1Interest Rate Benchmark Reform – Proposed amendments to IFRS 9 and IAS 39The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants, in Hong Kong. We are grateful for the opportunityto provide you with our views on this Exposure Draft (ED).The HKICPA appreciates the need for the IASB's proposals to provide temporary relief toentities when they apply specific hedge accounting requirements in IFRS 9 FinancialInstruments and IAS 39 Financial Instruments: Recognition and Measurement during theperiod of uncertainty arising from the interest rate benchmark reform. Although theproposals do not provide a comprehensive solution to fully address the financialimplications as a result of the reform, the HKICPA agrees that the ED serves as a practicalinterim solution for financial reporting issues that arise in the period before thereplacement of an existing interest rate benchmark. Nevertheless, the HKICPA hassuggested some improvements that would help to clarify the proposals in the Appendix tothis letter.The HKICPA notes that the IASB will deal with financial reporting issues that arise ontransition to an alternative interest rate in the second phase of the project. Given thecurrent development of the reform and the potential reaction of the market (e.g. amendinglegacy contracts), entities are likely to face these issues very soon and so the HKICPAconsiders the second phase is as urgent as, if not more important than, the first phase ofthis project. Therefore, the HKICPA strongly urges the IASB to work on the second phaseof the project in parallel as the first phase and complete both phases as soon as possiblein order to fully address the financial reporting implications of the reform.Our detailed responses to the questions raised in this ED are in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me orEky Liu (eky@hkicpa.org.hk) Associate Director of the Standard Setting Department.Sincerely,Christina NgDirector, Standard Setting DepartmentPage 2 of 4APPENDIXWork undertaken by HKICPA in forming its views:
The HKICPA:
(a) issued an Invitation to Comment on the ED on 7 May 2019 to our stakeholders;
(b) sought input from its Financial Instruments Advisory Panel comprising technical andindustry experts and auditors from accounting firms; and(c) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholder feedback. The Committee comprises of academics,preparer representatives from various industry sectors, investors, regulators, andtechnical and industry experts from small, medium and large accounting firms.Detailed comments on the EDOverall approachThe HKICPA appreciates the need for the IASB's proposals to provide temporary relief toentities when they apply specific hedge accounting requirements in IFRS 9 and IAS 39during the period of uncertainty arising from the reform. Without the proposed relief, itwould be challenging for entities to assess the uncertainty arising from the reform andhedge effectiveness. In addition, some of our investors informed us that the one-off impacton profit or loss from discontinuing hedge accounting, solely due to the uncertaintiesbefore the reform's economic effects are known, would not provide useful information tothem. They considered that disclosures about how an entity's future cash flows fromhedging instruments and hedged items could be affected by the reform and how the entitymanages its interest rate risk in the context of the reform would be more useful.Nevertheless, the HKICPA is concerned that the proposals could have unintended futureconsequences. The ED was driven by the Financial Stability Board's recommendations toreform existing interest rate benchmarks. We are concerned that the proposals maycreate expectations that similar relief might be considered in other circumstances, forexample, if other reforms (e.g. changes in the commodity markets) occur, even within asingle jurisdiction. We think that the IASB should explain clearly in the final Basis forConclusions why this reform warrants standard-setting activity, including the objective andspecial circumstances for providing the proposed relief, to help understanding and tomanage future expectations.Finally, the HKICPA considers that the proposals only serve as an interim solution to theissues arising from the uncertainty of the reform on the forward-looking hedge accountingrequirements. The HKICPA notes that the IASB will deal with other issues, including thosethat arise on transition to an alternative interest rate, in the second phase of the project.Given the current development of the reform and the potential reaction of the market (e.g.amending legacy contracts), entities are likely to face these issues very soon and so theHKICPA considers the second phase is as urgent as, if not more important than, the firstphase of this project. Therefore, the HKICPA strongly urges the IASB to work on thesecond phase of the project in parallel as the first phase and complete both phases assoon as possible in order to fully address the financial reporting implications of the reform.Question 1: Highly probable requirement and prospective assessmentsThe HKICPA agrees with the proposed amendments regarding the highly probablerequirement and prospective assessments for the reasons stated in the above 'overallapproach' section of this Appendix.Page 3 of 4Question 2: Designating a component of an item as the hedged itemThe HKICPA agrees with the proposed amendments relating to separately identifiable riskcomponents for the reasons stated in the above 'overall approach' section of this Appendix.The HKICPA notes that paragraphs BC25 and BC31 of the ED state that the proposedrelief is to be provided to non-contractually specified risk components only. However, theproposed amendments to the standards (paragraph 6.8.7 of IFRS 9 and paragraph 102Gof IAS 39) do not specify to which risk components the relief would be applied. TheHKICPA recommends that the IASB clarifies in the standards whether the relief should beprovided to non-contractually risk components only.Question 3: Mandatory application and end of applicationThe HKICPA supports mandatory application of the proposed exceptions to avoidselective discontinuation of hedge accounting and reclassification of the hedging reserveto profit or loss, thereby also enhancing comparability of financial statements acrossentities.For the reasons stated in paragraphs BC32-BC42 of the ED, the HKICPA supports theproposals that the exceptions would be temporary in nature and entities would ceaseapplying them when the conditions specified in paragraphs 6.8.8 to 6.8.10 and paragraphs102H to 102J of the ED are met.The HKICPA finds the various scenarios provided in paragraphs BC35-BC40 of the EDuseful for entities to understand when they should cease applying the proposedexceptions, in particular, when the contract is amended in anticipation of the reform. TheHKICPA recommends that the IASB makes these scenarios more accessible by includingthem as illustrative examples accompanying the standards instead of in the Basis forConclusions.Question 4: DisclosuresThe HKICPA supports the proposed disclosures and considers that they would provideusers of financial statements with useful information about the extent to which hedgingrelationships could be impacted by the reform. We do not expect that entities would needto incur undue cost or effort in preparing the proposed disclosures.Given the potential implications of the reform, the HKICPA also expects that entitiesshould provide additional information about the reform under the existing riskmanagement disclosure requirements in paragraphs 22A to 22C of IFRS 7 FinancialInstruments: Disclosures. For example, disclosures about how an entity's future cashflows from hedging instruments and hedged items could be affected by the reform andhow the entity manages its interest rate risk in the context of the reform. The IASB shouldemphasise the importance of entities providing sufficient information about the impact ofthe reform in the final amendments.Question 5: Effective Date and TransitionThe HKICPA supports the proposed effective date and permitted earlier application inview of the urgency of the relief.Page 4 of 4The HKICPA also supports the retrospective approach proposed in the ED because itwould provide relief from the need to look back to prior reporting periods and considerwhether hedges should have already been discontinued as a result of the uncertaintyarising from the reform. Entities would be able to continue hedge accounting for hedgingrelationships that were previously qualified for hedge accounting under IAS 39 or IFRS 9.Other commentsThe HKICPA would also like to draw your attention to the following issues that are notcurrently dealt with in the ED.•As explained in the above 'overall approach' section, the HKICPA is concerned thatthe proposals in the ED may create expectations that similar relief might beconsidered in other circumstances, for example, if other reforms occur even within asingle jurisdiction. We think the IASB should explain clearly in the final Basis forConclusions why this reform warrants standard-setting activity, including theobjective and the special circumstances for providing the proposed relief, to helpunderstanding and to manage future expectations.•The proposed relief applies only to hedging relationships of interest rate risk that areaffected by the reform (paragraph BC6 of the ED). The HKICPA considers that thereform could also impact certain hedges of foreign currency risk, for example, incross currency interest rate swap arrangements. The HKICPA recommends that theIASB clarifies in the final amendments whether an entity should also apply theproposed relief to such arrangements, and if not, the basis for such conclusion.•The ED does not propose any exception from the requirement for a risk componentto be reliably measureable (paragraph BC27 of the ED). The HKICPA considers thatquestions about the reliably measurable requirement could arise when the existinginterest rate benchmark (e.g. 3-month LIBOR) is no longer available, for example, ina fair value hedge. Further guidance in this area would be helpful.•The ED is not clear how the cumulative amount in the cash flow hedge reserve isaccounted for at the date the proposed relief ends. For example, when an entityamends the contractual terms of both its hedging instrument and hedged items fromLIBOR to an alternative interest rate, the ED would require the entity to ceaseapplying the relief because the uncertainty from the reform is no longer present. Thismeans that the entity would discontinue hedge accounting and reclassify the fullamount of the related cash flow hedge reserve to profit or loss. The HKICPA thinksthis accounting outcome may not be consistent with the rationale behind the EDgiven that the designated risk, LIBOR, may still be expected to occur via thealternative interest rate. We recommend that the IASB clarifies the accountingtreatment.•The ED does not propose any exception for the effects of the reform on retrospectiveassessments under IAS 39 (paragraph BC 23 of the ED). The HKICPA considersthat entities may fail this assessment solely because of the reform. For example,ineffectiveness could arise temporarily as a result of the differences in the changesin the cash flows of the hedged item and the hedging instrument due to thedifferences in the timing in updating the contracts. We recommend that the IASBconsiders, in such case, whether relief for retrospective assessments would benecessary.~ End ~