June 8, 2023


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Companies Could Get Extended Accounting Relief for Libor Changeover

U.S. companies could get a longer stretch of accounting relief for their transition away from the London interbank offered rate under a new proposal from the Financial Accounting Standards Board.

Financial authorities in 2017 moved to phase out Libor, which underpins trillions of dollars in corporate loans, derivatives and home mortgages, after a manipulation scandal. Companies are in varying stages of selecting a replacement rate and updating their systems to accommodate the switch.

The Federal Reserve and other regulators have said they prefer if banks and their borrowers replace Libor with the Secured Overnight Financing Rate, or SOFR, compared with credit-sensitive alternatives such as the American Interbank Offered Rate, known as Ameribor.

FASB, the U.S. accounting standard setter, in March 2020 approved temporary, optional relief providing public and private companies with accounting shortcuts and clarifications for modifying loans and other financial contracts tied to Libor to help them with the transition. The relief was also intended to address the issue of high volumes of contract modifications as companies prepare to abandon Libor.

On Wednesday, FASB voted to propose extending that relief by an extra two years. The move would address the U.K. Financial Conduct Authority’s decision—supported by U.S. officials—in March to allow banks to continue referencing Libor for existing debt for an additional 18 months, through June 2023. Banks won’t be able to issue new financial contracts using Libor after the end of this month.

Under the proposal, the relief would remain in place until Dec. 31, 2024, FASB said. “Eighteen months [after the June 2023 deadline] just feels like it’s dragging on a little bit, but I also recognize that once they’ve transitioned, this becomes a moot point anyway,” board member Christine Botosan said.

FASB expects to formally issue the proposal in the first quarter of 2022, which would then kick off a 45-day period during which the public can provide feedback.

Also at the meeting, the board directed its staff to do more research on potential broader changes to hedge accounting due to the shift away from Libor, specifically involving companies’ hedging of interest-rate risk in the U.S. and elsewhere.

U.S. lawmakers in recent months have sought to ease the changeover for companies and lenders. The House earlier this month passed a bill that would help companies and lenders switch certain financial contracts such as floating-rate notes to a replacement rate after Libor falls out of use. The legislation, introduced by

Rep. Brad Sherman

(D., Calif.) in July, last week was sent to the Senate and referred to the banking committee.

Write to Mark Maurer at [email protected]

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Appeared in the December 16, 2021, print edition as ‘FASB Eases Transition Away From Libor.’