FASB approved an Accounting Standards Update (Topic 848) to provide temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the reference rate reform on financial reporting. FASB is expected to issue the final Accounting Standards Update in early 2020. The guidance will apply only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. This accounting relief could be applied until January 01, 2023, a year after the expected discontinuation of LIBOR.
The final Accounting Standards Update will provide optional expedients and exceptions for applying the Generally Accepted Accounting Principles, or GAAP, to contract modifications and hedge accounting relationships affected by the reference rate reform, thus facilitating a smoother transition to new reference rates. The final Update will assist stakeholders during the global market-wide reference rate transition period. Therefore, the guidance would be in effect for a limited time. The guidance would be effective once the final Accounting Standards Update is issued and would not apply to contract modifications made and hedging relationships entered into, or evaluated, after December 31, 2022.
With global capital markets expected to move away from LIBOR and other interbank offered rates toward rates that are more observable or transaction-based and less susceptible to manipulation, FASB launched a project in mid-2018 to address potential accounting challenges expected to arise from the transition. 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 provision applies to loans, debt, leases, and other arrangements. A company or other organization would be permitted to preserve its hedge accounting when updating its hedging strategies in response to the reference rate reform.
Keywords: Americas, US, Banking, Insurance, Securities, Accounting, Interest Rate Benchmark, Reference Rate Reform, GAAP, Topic 848, LIBOR, IBORs, FASB
Previous ArticleBaFin Updates Notes on Reporting Under Solvency II
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.