FASB defers sunset date of reference rate reform guidance

The Financial Accounting Standards Board released an accounting standards update Wednesday to extend the period of time for financial statement preparers to use its reference rate reform relief guidance.

Two years ago, FASB issued an earlier accounting standards update to ease the impact of reference rate reform on financial reporting as financial firms and institutions transitioned from the London Interbank Offered Rate to newer reference rates such as the Secured Overnight Financing Rate. In that 2020 update, also known as Topic 848 for its place in FASB's Accounting Standards Codification, FASB offered optional guidance to lighten the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the board included a sunset provision within Topic 848 based on expectations of when the LIBOR would stop being published. However, last year, the U.K.'s Financial Conduct Authority delayed the original end date of certain "tenors" or types of U.S. dollar LIBOR until June 30, 2023.

Courtesy of GASB

To make sure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the new accounting standards update defers the sunset date of Topic 848 from Dec. 31, 2022, until Dec. 31, 2024, after which entities will no longer be allowed to apply the relief in Topic 848.