FASB Proposes Relief for the Transition Away from LIBOR and Certain Other Feference Rates

The FASB proposed providing temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting in light of the expected market transition from LIBOR and other reference interest rates to alternatives, such as SOFR. 

 Under the proposal, an entity could choose not to apply certain modification accounting requirements in US GAAP to contracts affected by what the proposal calls reference rate reform, if certain criteria are met. An entity that made this election would present and account for a modified contract as a continuation of the existing contract. 

The proposal would also provide optional expedients that would enable entities to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain criteria are met.  

The relief would be effective upon issuance, and entities would be able to apply it prospectively through 31 December 2022. Comments are due by 7 October 2019. Overview The Financial Accounting Standards Board (FASB or Board)

(Source:  EY – US Week in Review – To The Point – September 12, 2019)