Last updated on September 16, 2019. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
Project Objective and Background*
Objective:The objective of this project is to facilitate the effects on financial reporting of the market-wide migration from interbank offered rates (IBORs) to alternative reference rates.
The London Interbank Offered Rate (LIBOR) is the most commonly used reference rate in the global financial market. However, concerns about the sustainability of LIBOR and other IBORs globally has led to an effort to identify alternative reference rates. In the United States, the Alternative Reference Rates Committee convened by the Federal Reserve identified the Secured Overnight Financing Rate as its preferred alternative reference rate to U.S. dollar LIBOR.In October 2018, the Board issued Accounting Standards Update No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.
Concurrent with the issuance of Update 2018-16, the Board decided to add to its agenda this project to broadly consider changes to generally accepted accounting principles (GAAP) necessitated by reference rate reform, which include (but are not limited to) the modification of existing hedging relationships and of debt and other financial instruments.
Exposure Draft:On September 5, 2019, the Board issued a proposed Accounting Standards Update, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The due date for comment letters is October 7, 2019.
- Download the proposed Accounting Standards Update, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
Decisions Reached at Last Meeting (July 17, 2019):
The Board discussed the following topics:
- Hedge accounting relief
- Transition method, disclosures, and relief period.
The Board decided to:
- Allow an entity to continue a hedging relationship without dedesignation upon a change in the critical terms of the hedging instrument due to reference rate reform.
- Allow an entity to change the benchmark interest rate designated as the hedged risk in a fair value hedging relationship without dedesignation if that designated benchmark interest rate is affected by reference rate reform. If this practical expedient is elected, an entity would:
- Adjust the fair value hedge basis adjustment due to the change in the designated hedged risk
- Make an accounting policy election to recognize the adjustment either immediately in current earnings or in earnings in the same manner as other components of the carrying amount of the hedged asset or liability.
- Allow an entity to apply certain practical expedients for the initial and subsequent assessments of hedge effectiveness for a cash flow hedging relationship affected by reference rate reform.
- Allow an entity to apply the elections in items 1 through 3 on a hedge-by-hedge basis.
The Board decided that if an entity elects to apply the proposed guidance, the entity would:
- Apply the guidance prospectively
- Disclose the nature of and reason for electing the guidance in each interim financial statement of the fiscal year of change and the annual financial statement of the period of the change in accordance with Topic 250, Accounting Changes and Error Corrections
- Cease applying the guidance as of January 1, 2023.
The Board concluded that it has received sufficient information and analyses to make an informed decision on the perceived costs (or cost savings) of the guidance and that the expected benefits would justify the expected costs (or cost savings) of the optional expedients in the proposed Accounting Standards Update.
The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 30 days.
Tentative Board Decisions Reached to Date (as of July 17, 2019):
A summary of decisions reached to date can be found here.
The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
Board Meeting Materials and Information
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
|July 17, 2019||Board Meeting—Discussion on the proposed hedge accounting relief, transition method, disclosures, and relief period. The Board also discussed the cost-benefit analysis, comment period, and permission to proceed with drafting a proposed Accounting Standards Update for vote by written ballot.|
|June 19, 2019||Board Meeting—Discussion on the proposed scoping criteria and interbank offered rate (IBOR) contract modification relief.|
|August 29, 2018||Board Meeting—The Board added the Reference Rate Reform project to the technical agenda.|
After the comment period closes on October 7, 2019, the Board will consider comment letter feedback on the proposed Update.
Postgraduate Technical Assistant
Postgraduate Technical Assistant