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 ArticleFHFA Rule on Reporting of Dodd-Frank Act Stress Testing Results
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE has set out a three-phased plan to transform data collection from the UK financial sector over the next decade.
BIS recently made a couple of announcements with respect to the planned and ongoing work in the area of financial technology.
ESRB updated the list of national macro-prudential measures applied by each member state in the European Economic Area.
BoE has set out results of a survey on the impact of COVID-19 events on the use of machine learning and data science.
In response to a request from the European Council and Parliament, ECB published an opinion on the proposed regulation on markets in crypto-assets.
APRA announced the updated aggregate amounts for the 2021 Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated authorized deposit-taking institutions that are subject to the Liquidity Coverage Ratio (LCR).
ECB published supervisory Memorandums of Understanding (MoUs) with UK as well as other European and non-European authorities.
EIOPA identified business model sustainability and adequate product design as the two EU-wide strategic supervisory priorities.