Don’t Let the Sun Go Down on Thee — FASB Defers Sunset Date of ASC 848
Introduction
On December 21, 2022, the FASB issued ASU 2022-061 to defer the sunset date of ASC 8482 until December 31, 2024. The ASU became effective upon issuance.
Background and Main Provisions of the ASU
In March 2020, the FASB issued ASU 2020-043 to provide temporary, optional expedients related to the accounting for
contract modifications and hedging transactions as a result of the global
markets’ anticipated transition away from the use of LIBOR4 and other interbank offered rates to alternative reference rates.
Preceding the issuance of ASU 2020-04, which established ASC 848, the United
Kingdom’s Financial Conduct Authority (FCA) announced that it would no longer
need to persuade or compel banks to submit to LIBOR after December 31, 2021. In
response, the FASB established a December 31, 2022, expiration date for ASC 848.
In March 2021, the FCA announced that the intended cessation date of LIBOR in
the United States would be June 30, 2023. Accordingly, ASU 2022-06 defers the
expiration date of ASC 848 to December 31, 2024.
The proposed guidance on deferring ASC 848’s sunset date would
have also changed the definition in the ASC master glossary of the SOFR5 Overnight Index Swap Rate to expand the acceptable benchmark interest
rates that could be eligible for designation as the hedged risk for certain fair
value hedges under ASC 815.6 The current definition is specific to the Overnight Index Swap Rate based
on the SOFR and does not include any of the term-based versions of the SOFR swap
rates. While the proposed ASU would have incorporated term-based SOFR swap rates
into that definition, the FASB decided at its October 5, 2022, meeting not to
expand the eligible SOFR rates and therefore did not include this change in ASU
2022-06.
See Chapter 8 of Deloitte’s Roadmap
Hedge Accounting for a
comprehensive discussion of the guidance in ASC 848.
Contacts
For information about this
publication, please contact:
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Jonathan Howard
Partner
Deloitte & Touche LLP
+1 203 761 3235
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For information about Deloitte’s
service offerings related to hedging transactions, please contact:
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Andrew Pidgeon
Partner
Deloitte &
Touche LLP
+1 415 783
6426
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Footnotes
1
FASB Accounting Standards Update (ASU) No. 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of
Topic 848.
2
FASB Accounting Standards Codification (ASC) Topic 848,
Reference Rate Reform.
3
FASB Accounting Standards Update No. 2020-04, Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting.
4
The London Interbank Offered Rate.
5
The Secured Overnight Financing Rate.
6
FASB Accounting Standards Codification Topic 815,
Derivatives and Hedging.