At its July 17, 2019, meeting, the FASB continued to discuss its reference rate reform project and made tentative decisions about the following:

• Hedge accounting relief.
• Considerations for transition method, disclosures, and relief period.

The FASB’s primary goal in undertaking the reference rate reform project is to address accounting issues that may arise related to the anticipated transition from use of the London Interbank Offered Rate (LIBOR) to other interbank offered rates in many jurisdictions; however, the scope of the project is not limited to LIBOR transition. Refer to Deloitte’s June 26, 2019, journal entry for a summary of the Board’s earlier tentative decisions for this project. The Board’s deliberations at the July 17 meeting are summarized below.

Hedge Accounting Relief

As indicated in the summary of tentative Board decisions, the FASB expressed its desire to provide relief for certain aspects of hedge accounting to facilitate reference rate reform. Specifically, the Board tentatively decided to:

1. Allow an entity to continue a hedging relationship without dedesignation upon a change in the critical terms of the hedging instrument due to reference rate reform.

2. Allow an entity to change the benchmark interest rate designated as the hedged risk in a fair value hedging relationship without dedesignation if that designated benchmark interest rate is affected by reference rate reform. If this practical expedient is elected, an entity would:

a. Adjust the fair value hedge basis adjustment due to the change in the designated hedged risk
b. Make an accounting policy election to recognize the adjustment either immediately in current earnings or in earnings in the same manner as other components of the carrying amount of the hedged asset or liability.

3. Allow an entity to apply certain practical expedients for the initial and subsequent assessments of hedge effectiveness for a cash flow hedging relationship affected by reference rate reform.

4. Allow an entity to apply the elections in items 1 through 3 on a hedge-by hedge basis.

Transition Method, Disclosures, and Relief Period

The FASB tentatively decided that entities should apply the relief guidance prospectively and that the relief provisions should sunset as of January 1, 2023. The FASB and its staff will continue to monitor the reference rate reform efforts and potentially revisit the sunset date if necessary. In addition, the FASB tentatively decided that entities should “[d]isclose the nature of and reason for electing the guidance in each interim financial statement of the fiscal year of change and the annual financial statement of the period of the change in accordance with [ASC] 250, Accounting Changes and Error Corrections.”

Next Steps

The Board requested that the staff draft a proposed Accounting Standards Update with a comment period of 30 days.

For further information on the topics discussed, see the meeting handout.