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    FASB Publishes Proposals Related to Reference Rate Reform

    October 29, 2020

    FASB proposed an Accounting Standards Update that would clarify the scope of the recent reference rate reform guidance of FASB, along with the proposed taxonomy improvements. FASB is seeking input from stakeholders by November 13, 2020. A complete list of proposed taxonomy improvements has been provided in the Appendix to the release notes. In addition, FASB has published an Accounting Standards Update on codification improvements which covers amendment of FASB Accounting Standards Codification. The codification updates include technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. The “Amendments to the FASB Accounting Standards Codification” section explains the reason for each amendment in the update. Several proposed codification updates were removed from the final Accounting Standards Update.

    In March 2020, FASB issued an Accounting Standards Update on reference rate reform (Topic 848) for facilitation of the effects of reference rate reform on financial reporting. Topic 848 provides temporary, optional expedients and exceptions for applying the generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. Since then, stakeholders have raised questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of the reference rate reform. Stakeholders indicated that the modification, commonly referred to as the “discounting transition,” may have accounting implications.

    The stakeholders raised concerns about the need to reassess previous accounting determinations related to those contracts and about the hedge accounting consequences of the discounting transition. The amendments in the proposed Accounting Standards Update on reference rate reform would clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. Amendments in this proposed Accounting Standards Update to the expedients and exceptions in Topic 848 are included to capture the incremental consequences of the proposed scope refinement and to tailor the existing guidance to derivative instruments affected by the discounting transition.

     

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    Comment Due Date: November 13, 2020

    Keywords: Americas, US, Accounting, Banking, Securities, Reference Rate Reform, Taxonomy Improvements, Codification Improvements, Topic 848, LIBOR, Interest Rate Benchmark, Reporting, FASB

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