FASB approved an Accounting Standards Update (Topic 848) to provide temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the reference rate reform on financial reporting. FASB is expected to issue the final Accounting Standards Update in early 2020. The guidance will apply only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. This accounting relief could be applied until January 01, 2023, a year after the expected discontinuation of LIBOR.
The final Accounting Standards Update will provide optional expedients and exceptions for applying the Generally Accepted Accounting Principles, or GAAP, to contract modifications and hedge accounting relationships affected by the reference rate reform, thus facilitating a smoother transition to new reference rates. The final Update will assist stakeholders during the global market-wide reference rate transition period. Therefore, the guidance would be in effect for a limited time. The guidance would be effective once the final Accounting Standards Update is issued and would not apply to contract modifications made and hedging relationships entered into, or evaluated, after December 31, 2022.
With global capital markets expected to move away from LIBOR and other interbank offered rates toward rates that are more observable or transaction-based and less susceptible to manipulation, FASB launched a project in mid-2018 to address potential accounting challenges expected to arise from the transition. 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 provision applies to loans, debt, leases, and other arrangements. A company or other organization would be permitted to preserve its hedge accounting when updating its hedging strategies in response to the reference rate reform.
Keywords: Americas, US, Banking, Insurance, Securities, Accounting, Interest Rate Benchmark, Reference Rate Reform, GAAP, Topic 848, LIBOR, IBORs, FASB
Previous ArticleSAMA Issues Draft of Actuarial Work Rules for Insurance Companies
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting