Accounting group proposes changes to LIBOR/SOFR rate reform relief guidance

The time period preparers may utilize reference rate reform relief guidance and expand the Secured Overnight Financing Rate (SOFR)-based interest rates available as benchmark interest rates was proposed Wednesday by the financial accounting standards group, it said in a statement.

According to the Financial Accounting Standards Board (FASB), its proposed accounting standards update (ASU) is open to comment by June 6.

The proposal addresses two parts related to reference rates. The first part would defer the sunset date of a 2020 ASU (No. 2020-04, Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting) from Dec. 31, 2022, to Dec. 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.

The ASU addresses the sunset of the London Interbank Offered Rate (LIBOR), which is no longer allowed for new contracts and loans, and which will expire for existing contracts June 30, 2023. LIBOR is being replaced, at least by many institutions (perhaps not all) by the Federal Reserve-developed SOFR.

The second part would affect the definition of the SOFR overnight index swap rate by amending it to include other versions of SOFR, such as SOFR term, as a benchmark interest rate outlined under ASU 2018-16, Topic 815, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes.

That provision added the term Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate (SOFR Swap Rate) to the Master Glossary of the FASB Accounting Standards Codification, FASB said.. The amendments in Update 2018-16 also permitted a rate that meets the definition of the SOFR Swap Rate to be considered a benchmark interest rate and therefore eligible to be designated as the hedged risk for recognized fixed-rate financial instruments or a forecasted issuance or purchase of fixed-rate financial instruments

FASB Proposes Updates to Reference Rate Reform Guidance