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FASB Clarifies Scope Of Recent Reference Rate Reform Guidance

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The FASB has issued ASU 2021-01, Reference Rate Reform (Topic 848).  Recently, the FASB has worked to try to ease the potential accounting burden of the expected move of global capital markets away from LIBOR (or another reference rate that is expected to be discontinued) as a result of reference rate reform.
February 1, 2021

The FASB has issued ASU 2021-01, Reference Rate Reform (Topic 848).  Recently, the FASB has worked to try to ease the potential accounting burden of the expected move of global capital markets away from LIBOR (or another reference rate that is expected to be discontinued) as a result of reference rate reform. Due to the complexity of the matter and the expedients previously provided by the FASB, stakeholders raised concerns about potential diversity in practice and requested further guidance.  In response to those concerns, the FASB issued ASU 2021-01.

ASU 2021-01 provides that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions.  In addition, a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform.  ASU 2021-01 contains a table that specifically identifies and describes in additional detail the changes by subtopic.

The amendments are effective immediately; however, the transition requirements are extensive and should be determined based on an evaluation of the language included in ASU 2021-01.

The full text of ASU 2021-01 is available here.

 

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

 


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