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
EBA Updates List of Validation Rules for Reporting by Banks
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA Responds to EC Call for Advice to Strengthen AML/CFT Framework
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS Advocates Environmental Risk Analysis for Financial Sector
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.
MAS Issues Guidelines to Promote Senior Management Accountability
MAS published the guidelines on individual accountability and conduct at financial institutions.
APRA Formalizes Capital Treatment and Reporting of COVID-19 Loans
APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.
SRB Chair Discusses Path to Harmonized Liquidation Regime for Banks
SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.
FSB Workshop Discusses Preliminary Findings of Too-Big-To-Fail Reforms
FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.
ECB Updates List of Supervised Entities in EU in September 2020
ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.
OSFI Identifies Focus Areas to Strengthen Third-Party Risk Management
OSFI published the key findings of a study on third-party risk management.
FSB Extends Implementation Timeline for Framework on SFTs
FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.
