From Journal of Accountancy: FASB issued a standard Thursday that is designed to give financial statement preparers relief as they make the transition away from the London Interbank Offered Rate (LIBOR) and other similar rates that are being discontinued.
LIBOR and other interbank offered rates are widely used as benchmarks or reference rates in loans, derivatives, and other financial contracts. But LIBOR is expected to cease in its current form in 2021, so new benchmarks such as transaction-based rates are likely to be used as reference rates in the future.
FASB addressed the accounting issues related to the transition in Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
The standard provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued.
“This new ASU provides stakeholders with the guidance they need to ease the process of migrating away from LIBOR and other interbank offered rates to new reference rates,” FASB Chairman Russell Golden said in a news release. “It addresses operational challenges stakeholders raised with the board and will help simplify matters going forward. At the same time, the new guidance will also help reduce transition-related costs.”
Because the standard is intended to provide relief during the transition period, it will be in effect only through Dec. 31, 2022.