July 25, 2019 - The Financial Accounting Standards Board has agreed to issue additional LIBOR transition relief, providing the loan market assurance that the accounting body will address the major accounting issues presented by the transition.
At its July meeting, the FASB announced it will issue relief simplifying the assessment of hedge effectiveness and allowing hedging relationships affected by reference rate reform to continue.
The relief aligns with the FASB’s stated goal of minimizing the disruption of the LIBOR transition from an accounting perspective and providing financial statement users with decision-useful information.
The announcement was the second such announcement in as many months. FASB announced in June that it will issue relief allowing reference-rate modification to be classified as a continuation for accounting purposes.
FASB will release both sets of relief in a proposal in September. After FASB releases the proposal, it will go through the standard 30-day public comment period, followed by alteration and finalization processes.
The relief announced last week is intended to allow companies to continue to account for hedging relationships using hedge accounting, without having to perform burdensome tests showing that the use of hedge accounting is appropriate.
Currently, businesses using hedge accounting must demonstrate that their hedges are effective and that the interest payments or receipts hedged are probable of occurring in the future. While the details of the relief are not yet known, it will presumably make complying with both of these requirements simpler.
The relief has been encouraged for months by loan market participants and representative groups including the Alternative Reference Rates Committee, the body tasked by the Federal Reserve to ensure a smooth transition away from LIBOR, of which the LSTA is a member.