Accounting Standards Update 2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting



On March 12, 2020, the FASB issued Update 2020-04 to ease the potential burden in accounting for reference rate reform.

The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provides the following optional expedients that reduce costs and complexity of accounting for reference rate reform:
  • Simplify accounting analyses for contract modifications.
  • Allow hedging relationships to continue without dedesignation if there are qualifying changes in the critical terms of an existing hedging relationship due to reference rate reform.
  • Allow a change in the systematic and rational method used to recognize in earnings the components excluded from the assessment of hedge effectiveness.
  • Allow a change in the designated benchmark interest rate to a different eligible benchmark interest rate in a fair value hedging relationship.
  • Allow the shortcut method for a fair value hedging relationship to continue for the remainder of the hedging relationship.
  • Simplify the assessment of hedge effectiveness and provide temporary optional expedients for cash flow hedging relationships affected by reference rate reform.
  • Allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and are classified as held to maturity before January 1, 2020.

Effective Dates

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022.

Additional Information

Post-Issuance Activities

After issuing new guidance, the FASB monitors implementation by assisting preparers and other practitioners in their understanding and ability to consistently apply the new guidance.

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