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FASB Finalizes Guidance on LIBOR Reference Rate Reform Transition

By | March 15, 2020

FASB has issued an Accounting Standards Update (ASU) that provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.  Reference rate reform is the process of migrating away from LIBOR and other interbank offered rates to new reference rates.

FASB stakeholders raised certain operational challenges likely to arise in accounting for contract modifications and hedge accounting because of reference rate reform. Some of those challenges relate to the significant volume of contracts and other arrangements, such as debt agreements, lease agreements, and derivative instruments, which will be modified to replace references to discontinued rates with references to replacement rates.

The amendments in the ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in the ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. 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, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and are retained through the end of the hedging relationship.

Contact Steve Quinlivan for more information.