White paper

Optional accounting expedients can make LIBOR transition easier

Sep 05, 2023
Debt & equity Financial assets Reference rate reform
Lease accounting Financial reporting Derivatives & hedging Audit

The publication of the London Interbank Offered Rate (LIBOR), which was referenced in approximately $350 trillion of contracts, ceased after June 30, 2023. In the U.S., the Secured Overnight Financing Rate (SOFR) has been identified as the preferred alternative to LIBOR as part of reference rate reform. Reference rate reform affects entities that have assets, debt instruments, interest rate swap agreements or other contracts that reference or referenced LIBOR or another rate that has been or is expected to be discontinued.

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional expedients and exceptions to U.S. GAAP on contract modifications, hedge accounting and other transactions. Our white paper, Optional accounting expedients can make LIBOR transition easier, provides additional information about reference rate reform and discusses the temporary optional expedients and exceptions provided by the FASB, as well as the circumstances under which an entity may elect those expedients and exceptions. Our white paper also discusses the effective date and transition guidance in ASU 2020-04, along with the sunset date for the temporary optional expedients (i.e., the date after which the optional expedients may no longer be applied). In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848, which defers the sunset date in Topic 848 from December 31, 2022 to December 31, 2024. The amendments in this ASU apply to all entities (subject to meeting certain criteria) that have contracts, hedging relationships, or other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Our whitepaper has been updated to reflect the extended period of time in which entities may apply the relief.

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