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    FASB Issues Guidance to Assist in Transition to New Reference Rates

    March 12, 2020

    FASB issued an Accounting Standards Update that provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying the Generally Accepted Accounting Principles (GAAP) to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.

    The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022; one exception to this timeline is for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments to the FASB Accounting Standards Codification® in this Accounting Standards Update require improvements to the U.S. GAAP financial reporting taxonomy. The improvements that will be incorporated into the proposed 2021 Taxonomy are available through taxonomy improvements and finalized as part of the annual release process. According to the FASB Chair Russel G. Golden, the new Accounting Standards Update provides stakeholders with the guidance needed to ease the process of migrating away from LIBOR and other interbank offered rates to new reference rates. This guidance will address the operational challenges stakeholders have already raised with the board and will help to simplify matters going forward. 

     

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    Keywords: Americas, US, Banking, Insurance, Securities, Accounting, LIBOR, Risk-free Rates, Accounting Standards Update, US GAAP, FASB

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