The International Accounting Standards Board (IASB) issued the Interest Rate Benchmark Reform (IRBR) in September 2019. This incorporated revision to IFRS 9, IAS 39 and IFRS 7. The new changes demand qualitative and quantitative disclosures that can facilitate financial statement users to understand the impact on a business’ hedging relationships due to uncertainty resulting from IRBR.
Therefore, IASB proposed to include six new elements to the IFRS Taxonomy, out of which, five are descriptive and one is monetary. Referred to as the IFRS Taxonomy Update 2019, the new elements reflect the new disclosure requirements introduced by the amendments. Furthermore, IASB also issued a proposal to add documentation labels for all six elements. The context given ahead elaborates on the new proposed changes.
The Five Descriptive Elements
Following are the 5 descriptive elements included in IFRS Taxonomy Update 2019:
- This is a text block element type wherein disclosure of information about hedging relationships is directly impacted by uncertainty resulting from IRBR. (A text block element implements a set of information in various formats such as narrative explanations, numeric disclosures, tables and more)
- Text block element – Disclosure of the range of risk exposure a business manages for the direct impact IRBR has on hedging relationships.
- Text block element – To disclose significant interest rate benchmarks to which a business’ hedging relationships are exposed.
- To describe how a business is managing process to transition to alternative benchmark rates for hedging relationships.
- To describe critical assumptions or judgments in implementing amendments for IRBR.
IASB suggests creating text block elements to tag disclosures that preparers might report in different formats. This will allow the use of different formats in electronic reports. To allow the use of various formats in electronic reports, the Board proposes to create text block elements rather than text elements for the first 2 disclosures mentioned above.
The New Monetary Element
The new proposed monetary element is the ‘nominal amount of hedging instruments in hedging relationships for which amendments for IRBR are applied’.
This new element is devoid of a natural accounting balance of debit or credit and therefore, has no assigned balance attribute. It is anticipated to have a positive value in an electronic report. Because it is the nominal value of hedging instruments instead of the carrying amount and is identified as an asset or a liability. In addition, the sixth element is suggested to be in the monetary type as the nominal amount of these hedging instruments is anticipated to be reported as a monetary amount.
Few monetary elements are devoid of a natural accounting balance of debit or credit. Hence, to enable preparers of electronic reports with adequate guidance on IFRS Taxonomy 2019 – IRBR ascertaining the correct sign for reporting such elements. The IFRS Taxonomy incorporates implementation notes for monetary elements without an assigned balance attribute. The proposed implementation note is: “A positive XBRL value should normally be entered for this element.”
Documentation labels for new elements
Documentation labels assist preparers in recognising the correct element to use when tagging financial statements by making the accounting meaning of an element more comprehensible. Simultaneously, it also assists financial statement users in understanding reported information electronically.
The proposed documentation labels are:
- The disclosure of information about hedging relationships that are directly affected by the uncertainty arising from interest rate benchmark reform.
- The disclosure of significant interest rate benchmarks to which the entity’s hedging relationships are exposed.
- The disclosure of the extent of the risk exposure the entity manages for hedging relationships directly affected by the interest rate benchmark reform.
- The description of how the entity is managing the process to transition to alternative benchmark rates for hedging relationships.
- The description of significant assumptions or judgments the entity made in applying the amendments for interest rate benchmark reform.
- The nominal amount of the hedging instruments in hedging relationships for which the entity is applying the exceptions in the scope of the amendments for interest rate benchmark reform.
The new changes as the IFRS Taxonomy Update 2019 to annual periods will be effective on or after 1 January 2020. It is permitted for the earlier application of the changes and hence earlier use of the IFRS Taxonomy elements.
The proposal has been issued by IASB only for commenting purposes. The comments will be received in writing until 13 December 2019. Proceeding ahead, the comments will be considered and examined and the necessary revisions will be made. The final form of the IFRS Taxonomy Update will be issued after the approval of IASB.