Accounting guidance aims to ease transition from LIBOR to new reference rate

Easing the potential burden in accounting for reference rate reform is the aim of temporary optional guidance issued by the accounting profession’s standards board Thursday.

The accounting standards update issued by the Financial Accounting Standards Board (FASB), the group said, provides stakeholders with guidance designed to “ease the process of” migrating away from reference rates such as the London Interbank Offered Rate (LIBOR) and others to new reference rates.

The update, the group said, addresses operational challenges stakeholders raised with FASB. It is also designed, the group said, to help “simplify matters going forward and help reduce transition-related costs.” The update will also help reduce transition-related costs, FASB said.

The guidance will be in effect through Dec. 31, 2022, FASB said, to help stakeholders during the reference-rate transition period. The availability of LIBOR, for example, will not be guaranteed beyond the end of 2021, according to the regulator in the United Kingdom that oversees the panel that sets the rate.

FASB also noted that the new guidance provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

Accounting standards update (ASU) 2020-04—reference rate reform (topic 848): Facilitation of the effects of reference rate reform on financial reporting