Fourth Quarter 2019 Financial Services Update Highlight – FASB Approves Proposed Changes to Facilitate LIBOR Phaseout

This article is a part of a larger fourth-quarter update. For more information on these quarterly updates, please contact a member of the
Elliott Davis Financial Services Group

On September 5, the FASB issued an Exposure Draft as Proposed ASU No. 2019-770, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The proposal would provide temporary optional guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The proposal is intended to addresses operational challenges companies raised and ultimately will help simplify the transition process.

The Exposure Draft proposed to simplify the accounting evaluation of a contract modification and allow for that modification to be considered a continuation of the contract for accounting purposes. The proposal would also simplify the assessment of hedge effectiveness and allow hedging relationships affected by reference rate reform to continue. Application of the hedge accounting relief would be optional on a hedge-by-hedge basis. The proposed accounting relief could be applied up until January 1, 2023, a year after the expected discontinuation of the London Interbank Offered Rate (LIBOR).

In November, the FASB voted to finalize its proposal and has directed the staff to draft a final ASU for vote by written ballot. A final standard is expected to be issued early 2020.