Document ID: chunk:federal_register_of_legislation:F2025C00209:reg:221:p49
Version: federal_register_of_legislation:F2025C00209
Segment Type: reg
Provision Reference: reg 221 (pt 49/73)
Character Range: 297868–300928

associated with the application of the practical expedient for leases.

 4.             The Board therefore concluded that the modifications arising as a result of interest rate benchmark reform should not result in significant R&M differences between the amended IFRS Standards and the IFRS for SMEs Standard that would warrant additional disclosures for Tier 2 entities applying the new Simplified Disclosures framework in AASB 1060.

Differences arising from the relief from specific hedge accounting requirements

 1.             The Board noted that the IFRS for SMEs Standard permits hedge accounting only for four specific types of instruments listed in the Standard, including interest rate swaps. While the IFRS for SMEs Standard is less restrictive regarding the types of risks that can qualify for hedge accounting and hedge ineffectiveness, it requires an entity to discontinue hedge accounting if:

          1.                     the hedging instrument expires or is sold or terminated;

          2.                    the hedge no longer meets the conditions for hedge accounting specified in paragraph 12.16; or

          3.                     the entity revokes the designation.

 2.             In the IFRS Interest Rate Benchmark Reform—Phase 2 amendments, the IASB observed that amending the formal designation of a hedging relationship to reflect changes required by the reform would result in the hedging relationship being discontinued. The Board noted this is because both AASB 9 (paragraph 6.4.1) and AASB 139 (paragraph 88) require the formal designation of a hedging relationship to be documented at inception as part of the qualifying criteria for hedge accounting to be applied. The hedge documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess hedge effectiveness. Although in limited circumstances AASB 9 permits the hedge documentation to be updated without resulting in the discontinuation of hedge accounting, AASB 139 requires hedge accounting to be discontinued when any amendments are made to the hedge designation as documented at the inception of the hedging relationship.

 3.             The Board further noted that the term "at inception" is a notable omission in the IFRS for SMEs Standard. Given the absence of an explicit reference to the formal designation and documentation at the inception of a hedge in the IFRS for SMEs Standard, the Board took the view that changes to hedge designations and hedge documentation that are required as a result of the reform would not necessarily result in the discontinuation of hedge accounting under the IFRS for SMEs Standard. The relief from specific hedge accounting requirements introduced by the amendments to AASB 9 and AASB 139 is therefore unlikely to result in significant R&M differences.

Other considerations

 1.             The IFRS for SMEs Standard also permits accounting under IAS 39 Financial Instruments: Recognition and Measurement but does not require any