FASB published a summary of the tentative decisions taken at its Board meeting on June 19, 2019. The key topics for tentative decisions were facilitation of the effects of the interbank offered rate (IBOR) transition on financial reporting and distinguishing liabilities from equity (including convertible debt). FASB took a major step toward approving accounting relief for companies and organizations that are required to modify contracts as a result of the new global reference rates.
The Board tentatively decided that, 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 decision applies to loans, debt, leases, and other arrangements. Currently, trillions of dollars in loans, derivatives, and other financial contracts reference the London Interbank Offered Rate (LIBOR), the benchmark interest rate banks use to make short-terms loans to each other. Consequently, the related cash flows are tied to that rate. With global capital markets expected to move away from LIBOR toward more transaction-based reference rates, FASB has launched a broad project to address the potential accounting concerns expected to arise from the transition. FASB will discuss other hedging-specific reference rate issues at a public meeting in July.
With respect to distinguishing liabilities from equity (including convertible debt), the Board discussed the results of the external review of the staff draft of the proposed update, sweep issues, comment period, and cost-benefit analysis. The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 75 days.
Keywords: Americas, US, Banking, Accounting, Securities, Tentative Decisions, Accounting Standards Update, Reference Rate Reform, LIBOR, Interest Rate Benchmark, Reporting, Derivatives and Hedging, FASB
Previous ArticleErkki Liikanen of IFRS on Digitalization of Financial Reporting
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.