The FASB issued ASU 2020-04. Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting that is intended to ease the potential accounting burden as it relates to reference rate reform.
In light of the risk of the cessation of the London Interbank Offered Rate (LIBOR) and global regulatory efforts toward reference rate reform, the FASB has issued a number of optional expedients and exceptions for contracts, hedging relationships and other transactions that are likely to be impacted by reference rate reform. The intention of these temporary provisions is to allow entities to treat contract modifications related to reference rate reform as a continuation of the existing contracts when certain criteria are met.
Generally, this means that entities can elect to account for the modifications on a prospective basis and will not be required to reassess or remeasure the existing contracts or to reassess hedging relationships. When elected, the optional expedients for contract modifications must be consistently applied to all eligible and transactions. The optional expedients for hedge accounting can be adopted on an individual hedging relationship basis.
The amendments are effective from March 12, 2020 through December 31, 2022. The transition provisions vary by the type of contract or transaction.
The full text of ASU 2020-04 is available here.
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