September 11, 2019 - The Financial Accounting Standards Board (FASB) released proposed guidance last week intended to ease the potential accounting burdens of LIBOR transition for loan market participants.
The Accounting Standards Update (ASU) in which the relief is included provides temporary exceptions for applying generally accepted accounting principles to loan contract modifications and hedging relationships affected by the transition. It provides the two stages of accounting relief sought from the FASB by private sector groups, including the ARRC.
In a press release accompanying the ASU, Chairman Russell Golden noted the FASB’s intentions to support stakeholders by providing the guidance they need. “The Board’s proposal will address operational challenges they [stakeholders] have raised and ultimately help simplify the process while reducing related costs,” he said.
The guidance is the result of a project the FASB launched in late 2018 to address accounting challenges associated with the transition, and of the assurances provided by the Board in its June and July meetings.
Since the guidance is intended only to assist stakeholders during the global reference rate transition period, the relief will be in effect for a limited time, applying only to contract modifications made and hedging relationships entered into before December 31, 2022. Loan market participants are encouraged to read and review the proposed guidance and to provide comments by the October 7, 2019, deadline.