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FASB

FASB Votes to Propose Two-Year Extension on Accounting Relief for LIBOR Removal

Denise Lugo  Editor, Accounting and Compliance Alert

Denise Lugo  Editor, Accounting and Compliance Alert

Temporary accounting relief guidance set to end next year to facilitate the removal of LIBOR will be extended two more years, U.S. accounting rulemakers said on December 15, 2021.

The FASB voted to propose extending the sunset date under Topic 848, Reference Rate Reform, from December 31, 2022 to December 31, 2024 for the shift from the London Interbank Offered Rate (LIBOR) when that rate and other rates expire.

The change is to align the rate reform accounting standard with the expected cessation date of USD LIBOR, postponed by administrators earlier this year to June 30, 2023, a year after the current sunset date of the accounting rules.

One month and three month tenors of USD LIBOR are the most widely used within financial the system, and to leave the current date would preclude a significant amount of contracts from applying the relief, a staff member explained to the board.

If finalized, the proposed changes would be effective prospectively immediately upon issuance.

The proposal will be issued in the first quarter next year with a 45-day comment period.

The guidance is being proposed as regulators have been urging financial institutions to stay the course toward moving from LIBOR in an orderly manner to ensure they are adequately prepared when it expires.

The shift to eliminate LIBOR and other rates stems from a rate fixing scandal that was made public in 2012, leading to market-wide reference rate reform efforts.

In 2020, to help companies avoid cost and complexity, the FASB issued Accounting Standards Update (ASU) No. 2020-04Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary, optional relief to certain contract modification guidance and hedge accounting requirements.

The guidance facilitates the effects on financial reporting for the transition period during which entities replace the use of interbank offered rates (IBORs) that are expected to be discontinued and replaced with alternative reference rates.

Topic 848 was not intended to permanently change the accounting guidance but, rather, addresses the issue of high volumes of modifications.

 

This article originally appeared in the December 16, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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