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FASB Proposes Slight Updates to Three Major Accounting Standards

Multiple clarifications are in the works for three of the Financial Accounting Standards Board’s (“FASB”) top accounting standards. On November 19, the FASB issued a proposal featuring changes to the following Accounting Standards Updates (“ASU”): ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments The proposal features 11 changes to the credit loss standard. The proposed clarifications include how companies calculate the allowance for credit losses on accrued interest receivable balances and accounting for the allowance when moving debt securities between measurement categories. Also proposed are clarifications regarding when a company must. Read More.

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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.

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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.

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FASB Issues Update on Certain Financial Instruments with Liabilities and Equity Characteristics

Following recommendations from the Private Company Council, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I simplifies accounting for select financial instruments with down round features, a rule in an equity-linked financial instrument or embedded feature that offers a downward adjustment. Read More.

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FASB Reaches Decisions on Proposed Hedge Accounting Updates

Last week while discussing its proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, the Financial Accounting Standards Board agreed to include a cross currency basis spread in a currency swap to the list of excluded amounts from hedge effectiveness assessments. In addition, the FASB agreed on using an amortization approach with respect to the base recognition model for excluded components. Companies will also be allowed to use a mark-to-market through earnings method. Further, when a hedging relationship ends and an amortization approach is applied, the fair value changes of excluded components in. Read More.

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FASB Reaches Decisions on Hedge Accounting Project

During a review last week on its proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, the Financial Accounting Standards Board (“FASB”) reached conclusions on the following topics: The market yield test. The FASB decided to exclude the market yield test from the final standard. Companies would have been required to use the total contractual coupon cash flows to determine fair value of the hedge item attributable to interest rate risk, if the hedge item’s market yield is below the benchmark interest rate at hedge inception. Companies now have the freedom to use. Read More.

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