IBOR to RFR Transition: Effects on Financial Reporting

The IBOR transition is affecting financial reporting. US GAAP and IFRS are influenced more by the transition from IBOR to RFR compared to SWISS GAAP FER. Most directly affected is hedge accounting, which aims to avoid artificial earnings volatility. This might occur if value changes in the hedging instrument and hedged item are recognized in different reporting periods. A transition from IBOR to RFR without an amendment to existing accounting rules might lead to an increase in earnings volatility due to de-designation of hedge accounting relations. Related to IFRS: In May 2019, the IASB issued an exposure draft that reliefs these earnings volatility concerns. Entities can assume existing IBOR-based contractual terms for assessing the hedge accounting requirements. Related to US GAAP: A change in a contract's reference rate as a result of the IBOR transition would not create a new contract but would be accounted for as a continuation of that contract. Specifics on hedge accounting will be addressed in a future board meeting. Cash flow hedge accounting allows some flexibility in payment dates of the hedging instrument and the hedged item. This will be an important feature with alternative RFRs.