FASB provides relief for 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.

Related content

Defining Issues: FASB provides relief to companies for reference rate reform

Handbook: Derivatives and hedging