Defining Issues | November 2020

 

Insight

FASB proposes relief for discounting transition

Proposed ASU would extend relief for reference rate reform to derivatives impacted by discounting transition.

The proposed ASU would permit a company to apply optional expedients to derivative instruments modified because of discounting transition.

Applicability

Proposed ASU

  • Companies with derivative contracts modified because of discounting transition

Relevant dates

  • October 29, 2020 – Proposed ASU issued
  • November 13, 2020 – Comments due 

Key impacts

Proposed amendments to ASC 848 would:

  • Permit a company to apply certain optional expedients to modifications of interest rate indexes used for margining, discounting or contract price alignment of certain derivatives as a result of reference rate reform initiatives (‘discounting transition’).
  • Extend optional expedients to account for a modified derivative contract modified as a continuation of the existing contract and to continue hedge accounting when certain critical terms of a hedging relationship change to modifications made as part of the discounting transition.

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