The Financial Accounting Standards Board issued a proposed
The update addresses ASU No. 2020-04, Reference Rate Reform (Topic 848), issued by FASB in March 2020, which resulted from a FASB project to help ease the potential accounting burden of the expected move of global capital markets away from the London Interbank Offered Rate (LIBOR), the benchmark interest rate banks use to make short-term loans to each other.
Since the release of that ASU, stakeholders raised questions about whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform. Stakeholders suggested the modification, or “discounting transition,” may have accounting implications and shared concerns about the need to reassess previous accounting determinations related to those contracts and about the hedge accounting consequences of the discounting transition.
This latest proposed ASU would clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to contracts that are affected by the discounting transition. The amendments to the expedients and exceptions in Topic 848 are included to capture the incremental consequences of the proposed scope refinement and to tailor the existing guidance to derivative instruments affected by the discounting transition.
FASB also released a staff educational paper Wednesday that provides stakeholders with a summary and overview of a debtor’s application of guidance on debt restructurings and modifications. The paper is