FASB Approves Guidance to Assist in Transition to New Reference Rates
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.
Related Links
Keywords: Americas, US, Banking, Insurance, Securities, Accounting, Interest Rate Benchmark, Reference Rate Reform, GAAP, Topic 848, LIBOR, IBORs, FASB
Previous Article
BaFin Updates Notes on Reporting Under Solvency IIRelated Articles
APRA Updates Timelines for Revision of Market Risk Standards
The Australian Prudential Regulation Authority (APRA) released an update on the timelines for revisions to the market risk prudential standards and the implications for the broader capital framework.
BCBS and IOSCO Propose Further Policy Work on Margining Practices
Three global standard-setters launched a joint consultation that reviews the margining practices during the COVID-19 pandemic and identifies potential areas for further policy work.
BoE Seeks Information Before Migrating Statistical Reporting to BEEDS
The Bank of England (BoE) published the Statistical Notice 2021/09 requiring additional information from firms and software vendors to assist in the onboarding and testing phases for migrating statistical reporting to the BEEDS portal.
EBA Finalizes Standards on Alternative SA for Market Risk
The European Banking Authority (EBA) published the final draft regulatory technical standards on gross jump-to-default amounts and on residual risk add-on under the Capital Requirements Regulation or CRR.
FCA Publishes Final Rules on Investment Firms Prudential Regime
The Financial Conduct Authority (FCA) published the final rules on the Investment Firms Prudential Regime (IFPR) to streamline and simplify the prudential requirements for solo-regulated UK firms authorized under the Markets in Financial Instruments Directive (MiFID).
ESAs Propose New Rules for Taxonomy-Related Product Disclosures
The European Supervisory Authorities (ESAs) have delivered to the European Commission (EC) the final report on the draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR).
EBA Advice on Review of Crisis Management/Deposit Insurance Framework
The European Banking Authority (EBA) published an advice to the European Commission (EC) on funding in resolution and insolvency as part of the review of the crisis management and deposit insurance (CMDI) framework.
FSOC Report Issues Recommendations to Address Climate Risks
The Financial Stability Oversight Council (FSOC) released a report in response to the U.S. President's Executive Order on climate-related financial risk.
BIS Paper Mulls Policies to Alleviate Challenges Posed by Big Techs
The Bank for International Settlements (BIS) published a paper that examines the business models and the associated risks posed by big technology firms foraying into financial services sector.
BIS to Launch Asian Green Bond Fund Early Next Year
The Bank for International Settlements (BIS) announced the development of an Asian Green Bond Fund, in collaboration with the development financing community, to channel global central bank reserves to green projects in Asia Pacific.
