FASB extends LIBOR relief two years

Dive Brief:

The Financial Accounting Standards Board (FASB) Wednesday approved a two-year extension of temporary relief guiding how a borrower accounts for a loan’s switch away from the London Interbank Offered Rate (LIBOR) in financial reports.
In a regular meeting the board voted to extend the existing relief’s expiration date to a “bright-line” sunset date of Dec. 31, 2024 from Dec. 31, 2022.
Board member Christine Botosan, in explaining her support during the meeting that was live-streamed on YouTube, left the door open to further extensions of the relief. “I think we can deal with any additional time that might be needed...but I think we’re in pretty good shape with the time period that we decided and this will cover the issues we’re trying to address.”

Dive Insight:

Financial executives have long been bracing for the phase-out of LIBOR this year. Banks effectively stopped making new loans linked to the scandal-plagued floating-rate benchmark on Jan. 1, but the extended relief tracks a phased transition. The market won’t see the popular U.S. dollar tenors discontinued until June 30, 2023.

The vote Wednesday came after the board heard a staff report recommending the extension, noting that most feedback from report preparers and auditors was supportive of the change and asserting it provides a sufficient time for the transition to new benchmarks as most major LIBOR tenors will be phased out within that period.

Under the plan approved, FASB will delay more onerous accounting treatment that borrowers with legacy LIBOR loans would otherwise likely face. With the relief, borrowers that switch existing LIBOR-linked debt to a new benchmark would continue to be able 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, experts say.

The decision was not controversial, but it has been months in the making with FASB running up against the December expiration of the existing relief.

FASB along with its decision-making process has come under fire from a Securities and Exchange Commission committee. Last month, the SEC’s Investor Advisory Committee issued a report criticizing FASB’s rule-making process for falling short of providing the new or updated guidance needed by investors to analyze company value in today’s fast-changing markets. Over the past 20 years, the report asserted that FASB had only completed three major projects: revenue recognition, leases and credit loss accounting.