FASB Issues Tentative Board Decisions Related to Reference Rate Reform
FASB published a summary of the tentative decisions taken at its Board meeting on June 19, 2019. The key topics for tentative decisions were facilitation of the effects of the interbank offered rate (IBOR) transition on financial reporting and distinguishing liabilities from equity (including convertible debt). FASB took a major step toward approving accounting relief for companies and organizations that are required to modify contracts as a result of the new global reference rates.
The Board tentatively decided that, for a contract that meets certain criteria, a change in that contract’s reference interest rate would be accounted for as a continuation of that contract, rather than the creation of a new contract. This decision applies to loans, debt, leases, and other arrangements. Currently, trillions of dollars in loans, derivatives, and other financial contracts reference the London Interbank Offered Rate (LIBOR), the benchmark interest rate banks use to make short-terms loans to each other. Consequently, the related cash flows are tied to that rate. With global capital markets expected to move away from LIBOR toward more transaction-based reference rates, FASB has launched a broad project to address the potential accounting concerns expected to arise from the transition. FASB will discuss other hedging-specific reference rate issues at a public meeting in July.
With respect to distinguishing liabilities from equity (including convertible debt), the Board discussed the results of the external review of the staff draft of the proposed update, sweep issues, comment period, and cost-benefit analysis. The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 75 days.
Related Links
Keywords: Americas, US, Banking, Accounting, Securities, Tentative Decisions, Accounting Standards Update, Reference Rate Reform, LIBOR, Interest Rate Benchmark, Reporting, Derivatives and Hedging, FASB
Featured Experts
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
David Fihrer
Skilled life insurance actuary; subject matter expert on IFRS 17 and source of earnings
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
Erkki Liikanen of IFRS on Digitalization of Financial ReportingRelated Articles
EIOPA Report Analyzes Use and Impact of Long-Term Guarantee Measures
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
BIS, SNB, and SIX Announce Successful Completion of CBDC POC
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA Sets Out Treatment of Certain Banking Book Positions Under FRTB
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA Consults on Integrating Climate Change into SII Standard Formula
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU Issues Corrigenda to Investment Firms Directive and Regulation
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS Proposes Changes to Rules Arising from Banking Amendment Act
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA to Elaborate on Approach to Transposition of CRD5 by Mid-December
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ Consults on Aspects of Insurance Act, Solvency Standards & IFRS17
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB Sets Out Work Program for 2021-2023
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA Consults on KPIs on Sustainability for Non-Financial Reporting
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.
