In 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which was intended to ease the potential burden in accounting for reference rate reform on financial reporting during the temporary transition period. The FASB included a sunset provision within Topic 848 based on the expectation LIBOR would cease being published. At the time of the issuance of ASU 2020-04, the UK Financial Conduct Authority (FCA) indicated that it would no longer be necessary to persuade or compel banks to submit to LIBOR after December 31, 2021. Therefore, the sunset provision was set for December 31, 2022.

In March 2021, the FCA announced a change in the intended cessation date of the overnight 1-month, 3-month, 6-month and 12-month LIBOR to be June 30, 2023. As a result, Topic 848 may not cover a period of time during which a significant number of modifications may take place. Therefore, the FASB is proposing to defer the sunset date to December 31, 2024.

In 2018, the FASB issued ASU 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 added the term Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate (SOFR Swap Rate) to the Master Glossary of the Codification. The amendments in ASU 2018-16 also permitted a rate that meets the definition of the SOFR Swap Rate to be considered a benchmark interest rate and to be eligible to be designated as the hedged risk for recognized fixed-rate financial instruments or a forecasted issuance or purchase of fixed-rate financial instruments. The definition of the SOFR Swap Rate was specific to the OIS rate based on SOFR. It did not include the forward-looking, term-based version of the SOFR Swap Rate (SOFR term) because no cash or derivative instruments that were indexed to SOFR term existed at the time.

The Exposure Draft would amend the SOFR Swap Rate definition to no longer limit the OIS rate based SOFR and would include other rates based on SOFR such as SOFR term.

The amendments in the Exposure Draft would be effective for all entities upon issuance of a final ASU and would be applied prospectively. Comments on the Exposure Draft can be submitted to the FASB through June 6, 2022.

The full text of the Exposure Draft is available here.

^{Readers should not act upon information presented without individual professional consultation.}