FASB published a summary of the tentative decisions taken at its Board meeting in November 2019. The Board discussed comments received on the proposed Accounting Standards Update on reference rate reform (Topic 848) regarding facilitation of the effects of reference rate reform on financial reporting. The key decisions taken at the meeting are related to hedge accounting relief, transition, and disclosures. The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.
Hedge Accounting Relief—The Board affirmed its decisions to provide optional relief for the following:
- Changes in critical terms for all hedging relationships and hedge effectiveness assessments of cash flow hedges
- Changes to the designated hedged risk for fair value hedges subject to a revision that would require an entity to immediately recognize the change in the fair value hedge basis adjustment in earnings
The Board affirmed its decision that an entity would apply the relief on a hedge-by-hedge basis. The Board decided to provide an additional optional relief for excluded components in hedge accounting relationships that are affected by reference rate reform. The Board decided to provide an additional optional relief to allow a one-time transfer of held-to-maturity securities that are affected by reference rate reform.
Transition—The Board decided to provide certain hedge accounting relief for entities that have not adopted the amendments in Accounting Standards Update No. 2017-12 on derivatives and hedging (Topic 815). The Board affirmed its decision that an entity that elects to apply the relief guidance should apply that guidance on a prospective basis. The Board clarified that an entity can apply the guidance from the beginning of an interim period that includes the adoption date.
Disclosures—The Board affirmed its decision to require entities to disclose the nature of, and reason for electing, the accounting relief in each interim financial statement of the fiscal year of change and in the annual financial statement of the period of change. The Board considered but rejected additional disclosure requirements related to an entity’s application of optional expedients in the guidance and to the exposure related to reference rate reform.
Keywords: Americas, US, Banking, Accounting, Tentative Decisions, Accounting Standards Update, Reference Rate Reform, Derivatives and Hedging, Reporting, Topic 848, Topic 815, Hedge Accounting, Disclosure, FASB
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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