FASB Proposes Updates to Reference Rate Reform Guidance
The Financial Accounting Standards Board (FASB) recently issued a proposed Accounting Standards Update (ASU) regarding two issues related to reference rate reform.
The first issue addressed by the proposal relates to the period of time preparers can utilize the reference rate reform relief guidance issued in ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the intended cessation date of certain tenors of USD LIBOR was delayed to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the proposed ASU would defer the sunset date of Topic 848 from Dec. 31, 2022, to Dec. 31, 2024.
The second issue relates to the definition of the SOFR Overnight Index Swap (OIS) Rate. In 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which stated that the definition of the SOFR Swap Rate was specific to the OIS rate based on SOFR and that the FASB would monitor the developments of the forward-looking, term-based version of the SOFR rate (SOFR term) and consider including SOFR term as a benchmark interest rate in the future. Based on the developments of SOFR term in the marketplace, the proposed ASU would amend the definition of the SOFR Swap Rate to include other versions of SOFR, such as SOFR term, as a benchmark interest rate under Topic 815.
The FASB invites stakeholders to review and provide feedback on the proposed ASU by June 6, 2022.