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November 14, 2019
ECONOMY

Working group on euro risk-free rates issues recommendations to address accounting impact of euro risk-free rates transition

epa05208888 A photograph made available on 13 March 2016 showing a Euro symbol projected onto the European Central Bank (ECB) in Frankfurt am Main, Germany 12 March 2016. The European Central Bank (ECB) is participating in Luminale, a light show that takes place every two years in Frankfurt. Both the ECB?s main building by the river Main and the Eurotower in the city centre will be illuminated by a ?symphony? of light consisting of bars, lines and circles ? primarily in blue and yellow, the colours of the European Union. It will be based on Ludwig van Beethoven?s Prelude to the Ode to Joy, the European anthem. The euro symbol will be projected onto the south facade of the main building and will be visible to passenger planes on approach to land at Frankfurt airport. The light show takes place every day from 20:00 CET to midnight from 13 to 18 March 2016. EPA/BORIS ROESSLER

• Report highlights IFRS and IAS accounting consequences of benchmark rate transition
• Recommendations of working group focus on hedge accounting

The private sector working group on euro risk-free rates has published a report with recommendations, from an accounting perspective, on the transition to new risk-free rates. The report focuses on the implications for International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) as the most widely used reporting frameworks in Europe.

The report describes the overall consequences for financial accounting and potential issues that may arise, especially concerning hedge accounting. The report also sets out the challenges for non-hedge-related topics.

The recommendations cover three areas: (i) the impact of the transition from the euro overnight index average (EONIA) to the euro short-term rate (the €STR) on the modification of contracts and hedge accounting, (ii) fallbacks for EURIBOR and hedge accounting, and (iii) general accounting and financial reporting. Among the recommendations it makes, the working group on euro risk-free rates suggests that preparers of financial statements should closely monitor the IAS Board’s project on interbank offered rate reforms and any amendments or clarifications to the standards that result from it.

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