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White Paper

FAQ: IBOR transition to risk-free rates under IFRS — hedge accounting impacts

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Date:
November 5, 2021
  • kern roberts headshot

    Authors

    Kern Roberts

    Director
    Accounting Advisory

    Private Equity | London

  • zwi sacho headshot

    Authors

    Zwi Sacho

    Director
    Accounting Advisory

    Private Equity | London

Summary

Chatham's hedge accounting experts provide practical guidance on some of the questions our clients have asked to prepare themselves for the impact of IBOR reform under IFRS 9 with a particular focus on the transition from GBP LIBOR to SONIA.

The International Accounting Standards Board (IASB) undertook a two-phase project to consider reliefs from the effects of IBOR reform. The Phase 1 amendments, issued in September 2019, provide temporary reliefs from applying specific hedge accounting requirements to relationships affected by IBOR reform. The Phase 2 amendments, issued in August 2020, address issues that arise during the transition of an interest rate benchmark rate.

In this document, Chatham’s hedge accounting experts provide practical guidance on some of the questions our clients have asked to prepare themselves for the upcoming changes. As this transition is still evolving, we will continue to update this document to reflect these changes. Please note the publish date for reference as well as the fact that the terms “LIBOR” and “IBOR”, “hedged item” and “hedged transactions”, “derivative” and “hedging Instrument” will be used interchangeably in this publication. The focus of this FAQ is the impact of IBOR reform under IFRS 9 with a particular focus on the transition from GBP LIBOR to SONIA.

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About the authors

  • Kern Roberts

    Director
    Accounting Advisory

    Private Equity | London

    Kern leads Chatham’s European Accounting Advisory team, specialising in hedge accounting under IFRS 9, IAS 39, ASC 815, and FRS 102. He sits on ISDA's European Accounting Committee.
  • Zwi Sacho

    Director
    Accounting Advisory

    Private Equity | London

    Zwi is a Director in Chatham’s European Accounting Advisory practice. Since joining Chatham, he has been advising and consulting with clients on the accounting and valuations of derivatives in accordance with IFRS and UK GAAP.

Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.

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