FASB proposed an Accounting Standards Update (topic 848) that would provide temporary optional guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The comment period for the proposed update ends on October 07, 2019. The guidance would apply only to contracts or hedging relationships that reference London Interbank Offer Rate (LIBOR) or another reference rate that is expected to be discontinued due to reference rate reform. The effective date would be the date of issuance of the final guidance. The guidance would not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.
The guidance is intended to help stakeholders during the global market-wide reference rate transition period. Trillions of dollars in loans, derivatives, and other financial contracts reference LIBOR, which is the benchmark interest rate banks use to make short-term loans to each other. With global capital markets expected to move away from LIBOR and other interbank offered rates (IBORs) toward rates that are more observable or transaction-based and less susceptible to manipulation, FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition. This proposed Accounting Standards Update would provide optional expedients and exceptions for applying generally accepted accounting principles, or GAAP, to contract modifications and hedging relationships affected by the reference rate reform. An entity can elect to apply the proposed amendments as follows:
- The optional expedients for contract modifications would be applied consistently for all contracts or transactions within the relevant Topic, Subtopic, or Industry Subtopic within the Codification that contains the guidance that otherwise would be required to be applied.
- The optional expedients for hedging relationships would be elected on an individual hedging relationship basis.
In response to concerns about structural risks of IBORs and particularly the risk of cessation of LIBOR, regulators worldwide have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The examples of reference rates undergoing reform include US LIBOR, GBP LIBOR, EURIBOR, CHF LIBOR, and JPY LIBOR.
Comment Due Date: October 07, 2019
Keywords: Americas, US, Banking, Insurance, Securities, Accounting, Interest Rate Benchmark, Reference Rate Reform, LIBOR, IBORs, GAAP, Topic 848, FASB
Previous ArticleESMA Updates List of Guidelines Under Its Mandate in September 2019
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.