Defining Issues  |   October 2018
 

FASB finalizes addition of a new benchmark interest rate for hedge accounting

The FASB has issued ASU 2018-16 related to hedging. The amendment adds the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a benchmark interest rate for hedge accounting purposes.

Applicability

ASU 2018-16

  • Companies that elect to apply hedge accounting to hedges of benchmark interest rate risk.

Relevant dates

Effective date:

Public business entities

All other entities

Entities that have not adopted ASU 2017-12:

Adopt concurrent with ASU 2017-12.

Adopt concurrent with ASU 2017-12.

Entities that have adopted, ASU 2017-12:

Fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Transition

Prospective for qualifying new or redesignated hedging relationships entered into on or after the date of adoption

Early adoption allowed?

Permitted in any interim period if an entity has already adopted ASU 2017-12.

Key impacts

  • Expands the lists of eligible benchmark interest rates to include OIS based on SOFR to facilitate the marketplace transition from LIBOR.

Related content

Handbook: Hedging