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FASB guidance on transition to new Reference Rates

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would provide temporary optional guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. Stakeholders are asked to review and provide comment on the proposed ASU by 7 October 2019.

“The FASB is committed to providing stakeholders with the guidance they need to ease the process of migrating away from LIBOR and other interbank offered rates to new reference rates,” said FASB Chairman Russell G. Golden. “The Board’s proposal will address operational challenges they have raised and ultimately help simplify the process while reducing related costs.”

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, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition.

The Proposed ASU would provide optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships affected by reference rate reform. The guidance would apply only to contracts or hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The guidance is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, the guidance would be effective upon issuance of final guidance and would not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. 

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