FASB Considering Accounting Relief for LIBOR Transitions

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FASB has taken a major step towards approving accounting relief for companies required to modify contracts as a result of new global reference rates which are expected as a result of the expected transition away from LIBOR.

The Board tentatively decided that for a contract that meets certain criteria, a change in that contract’s reference interest rate would be accounted for as a continuation of that contract rather than the creation of a new contract. This decision applies to loans, debt, leases, and other arrangements.

With global capital markets expected to move away from LIBOR towards more transaction-based reference rates, the FASB launched a broad project to address potential accounting concerns expected to arise from the transition. Additionally, in late 2018, the FASB added the secured overnight financing rate—or SOFR—as a permissible benchmark rate for hedge accounting purposes.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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