FASB Approves LIBOR Extension Relief

The Financial Accounting Standards Board (FASB) approved an (optional) 2-year extension, until December 31, 2024, for temporary relief of transitioning away from the London Interbank Offered Rate (LIBOR). LIBOR is set to expire June 30, 2023. Companies were initially provided temporary relief through December 31, 2022 to update contracts moving away from LIBOR.

FASB will delay and allow companies to continue ignoring rules around modifying loan contracts and hedge accounting of interest-rate risks, allowing them to treat the loan change as a modification rather than having to test to determine whether to account for the instrument as a new loan. Prior to the relief, any changes in cash flows greater than 10% due to a loan amendment would need to be recorded as a new loan resulting in accounting for a gain or loss on the book. The relief allows companies that only change the reference rate, versus more significant modifications to the contract, to not having to record a new loan. 

LIBOR has been widely used for loans, mortgages, and financial instruments. Banks will be allowed to continue using LIBOR denominated in U.S. dollar along with LIBOR in other currencies on existing loan contracts through June 2023. The Secured Overnight Financing Rate (SOFR) has been increasingly used as an alternative for LIBOR.

10/10/2022