Overnight Index Swap Rate Added to Hedge Accounting Benchmark List
In the latest Accounting Standards Update (“ASU”), the Financial Accounting Standards Board has added the Secured Overnight Financing Rate Overnight Index Swap Rate (“SOFR OIS”) to its list of hedge accounting benchmark interest rates permissible in U.S. GAAP. With ASU No. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate Overnight Index Swap Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, the SOFR OIS join the London Interbank Offered Rate swap rate, U.S. Treasury debt interest rates, and the OIS founded on the Fed Funds Effective Rate as benchmark rates allowed for hedge accounting.
SOFR Interest Rate for Hedge Accounting Due By End of the Year
The Financial Accounting Standards Board (“FASB”) plans to publish a U.S. GAAP update that adds a new benchmark interest rate for hedge accounting. Set to be released by year’s end, the planned update will use the Secured Overnight Financing Rate (“SOFR”) as a benchmark rate for labeling hedges of interest rate risk. If the update is finalized, the SOFR will be added to Topic 815, Derivatives and Hedging. Introduced by the Federal Reserve earlier this year to replace the controversial London Interbank Offered Rate (“LIBOR”), the SOFR is founded on the interest rates banks charge each other in the overnight. Read More.
FASB Proposes Expanding Allowed Interest Rates to Hedge Accounting Standard
The list of permissible U.S. benchmark interest rates for the Financial Accounting Standards Board’s (“FASB”) hedge accounting standard could expand. In its recently issued Proposed Accounting Standards Update (“ASU”), the FASB would add the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a fifth U.S. benchmark interest rate. The addition would help companies avoid any potential expenses and complexities related to using varying cash flows and discount rates to evaluate the hedged item and the hedging instrument. Comments are due Friday, March 30.
FASB Finalizes Updated Hedge Accounting Guidance
Announced on Monday, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that improves the guidance related to hedge accounting. ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, aligns the accounting provisions with an entity’s risk management activities, as well as reflects the economic impact of hedging in financial statements, and streamlines hedge accounting treatment. In addition, the new standard expands hedge accounting for financial and commodity risks. The requirements provide additional clarity regarding how economic results are disclosed in financial statements. ASU No. 2017-12 will be effective for public. Read More.
FASB Approves Hedge Accounting Standard
The Financial Accounting Standards Board (“FASB”) will move forward with a new accounting standard to simplify hedge accounting guidance. Voted on last Wednesday, the standard will refine and expand hedge accounting for financial and commodity risks. In addition, the standard will help investors and analysts by improving transparency to the presentation of economic results in financial statements. Speaking on the new guidance, FASB Chairman Russell Golden said the standard will enhance the alignment of accounting rules with an entity’s risk management activities and simplify hedge accounting. The final Accounting Standards Update is scheduled for an August release. For public companies,. Read More.
Highlights from the Private Company Council’s Tuesday Meeting
The following is a recap of Financial Accounting Standards Board (“FASB”) projects discussed at Tuesday’s Private Company Council (“PCC”) meeting: Disclosure Framework. Numerous PCC members expressed support for the project, particularly the inventory exposure draft. The PCC also provided feedback on various portions of the project. Financial instruments—Hedge Accounting. Many PCC members favor the standard, including guidance to give private companies additional time to disclose hedge effectiveness. Liabilities and Equity—Targeted Improvements. Feedback received on the Exposure Draft was discussed, as well as the FASB’s research on an alternative to help streamline financial instruments accounting with “down round” features. The FASB was encouraged. Read More.
Topics: Cloud Computing, FASB, FASB Disclosure Framework Project, Financial Accounting Standards Board "FASB", Hedge Accounting, liabilities and equity, Private Company Council "PCC", Variable Interest Entity "VIE"