FASB Proposed Guidance for LIBOR to SOFR Transition

As a follow up to FASB’s June initiative to provide accounting relief to organizations that will need to modify their contracts as LIBOR is replaced by SOFR, FASB released a proposed Accounting Standards Update on Thursday.

The proposed relief only applies to contracts or hedging relationships that reference LIBOR or any other rates expected to be discontinued due to reference rate reform.

  • Optional Expedients
    • for contract modifications under cash flow and fair value hedge accounting may be elected on a hedge by hedge basis
    • for Receivables and Debt by prospectively adjusting the effective interest rate in the agreements
    • for Leases allowing a continuation of the existing contract with no reassessments or remeasurements
  • The proposal allows for modifications to Derivatives and Hedges without requiring a dedesignation/redesignation.
  • Entities will be allowed to change the benchmark rate documented at hedge inception as long as the change is consistently applied across similar hedge relationships.
  • Where an entity has applied the shortcut method of accounting, they can continue to apply it despite certain requirements not being met, as a result of the reference rate migration.

The guidance (effective upon issuance) would not apply to contract modifications made and hedging relationships entered into, after December 31, 2022. The proposal is open for comments until October 7, 2019.

We’re here to keep you up to date with the latest in the transition from LIBOR. Contact us today for further guidance — and for help with the nuances of your hedge program.

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