Defining Issues | March 2020

FASB provides relief to companies for reference rate reform

FASB provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates such as LIBOR that are expected to be discontinued.

Applicability

ASU 2020-04

  • All companies with contracts or hedging relationships that reference an interest rate that is expected to be discontinued

Relevant dates

  • Effective immediately
  • May be applied as of the beginning of the interim period that includes March 12, 2020
  • Available for a limited time, generally through December 31, 2022

Key impacts

  • Account for certain contract modifications as a continuation of the existing contract without additional analysis.
  • Continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness.
  • Make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading.

 

 

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