Defining Issues | January 2021

 

Insight

FASB provides relief for discounting transition

Reference rate reform relief extended to derivatives impacted by discounting transition.

FASB permits entities to apply optional expedients in ASC 848 to derivative instruments modified because of discounting transition. 

Applicability

ASU 2021-01

  • Entities with derivative contracts modified because of discounting transition.

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

  • Permits 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’).
  • Extends optional expedients to account for a 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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