Reference Rate Reform
FASB Proposes Guidance to Assist in Transition Away from Interbank Offered Rates to New Reference Rates
Proposal Would Reduce Related Cost and Complexity
Norwalk, CT, September 5, 2019—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU)
that would provide temporary optional guidance to ease the potential
burden in accounting for, or recognizing the effects of, reference rate
reform on financial reporting. Stakeholders are asked to review and
provide comment on the proposed ASU by October 7, 2019.
"The FASB is committed to providing stakeholders with the guidance they
need to ease the process of migrating away from LIBOR and other
interbank offered rates to new reference rates," said FASB Chairman Russell G. Golden.
"The Board's proposal will address operational challenges they have
raised and ultimately help simplify the process while reducing related
costs," he added.
Trillions of dollars in loans, derivatives, and other financial
contracts reference LIBOR, the benchmark interest rate banks use to make
short-term loans to each other.
With global capital markets expected to move away from LIBOR and other
interbank offered rates toward rates that are more observable or
transaction based and less susceptible to manipulation, the FASB
launched a broad project in late 2018 to address potential accounting
challenges expected to arise from the transition.
The Proposed ASU would provide optional expedients and exceptions for
applying generally accepted accounting principles to contract
modifications and hedging relationships affected by reference rate
The guidance would apply only to contracts or hedging relationships that
reference LIBOR or another reference rate expected to be discontinued
due to reference rate reform.
The guidance is intended to help stakeholders during the global
market-wide reference rate transition period. Therefore, the guidance
would be in effect for a limited time. That is, the guidance would be
effective upon issuance of final guidance and would not apply to
contract modifications made and hedging relationships entered into or
evaluated after December 31, 2022.
The proposed ASU, including a "FASB in Focus" overview and information about how to submit comments, is available at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector,
not-for-profit organization based in Norwalk, Connecticut, that
establishes financial accounting and reporting standards for public and
private companies and not-for-profit organizations that follow Generally
Accepted Accounting Principles (GAAP). The FASB is recognized by the
Securities and Exchange Commission as the designated accounting standard
setter for public companies. FASB standards are recognized as
authoritative by many other organizations, including state Boards of
Accountancy and the American Institute of CPAs (AICPA). The FASB
develops and issues financial accounting standards through a transparent
and inclusive process intended to promote financial reporting that
provides useful information to investors and others who use financial
reports. The Financial Accounting Foundation (FAF) supports and oversees
the FASB. For more information, visit www.fasb.org.