GASB Proposes Reporting Changes to Ease Effects of Rate Reform
State and local governments can comment on a GASB proposal that aims to revise the financial reporting rules for contracts that reference interbank offered rates that are being phased out. At least $200 trillion worth of financial products are tied to the London Interbank Offered Rate (LIBOR), which will be phased out by the end of 2021. The proposal would amend GASB Statement 53, Accounting and Financial Reporting for Derivative Instruments, and Statement 87, Leases, to enable governmental entities to continue to account for certain types of agreements in the same manner as before replacement of a reference rate. Comments are due by November 27.
FASAC Members Report Revenue Recognition Costs Have Declined, but More Work Is Needed
Several members of a FASB advisory panel have said that the costs to adopt new revenue recognition rules have substantially declined, but that a year after the adoption date, the incremental work is not yet over. Finance professionals from Google’s parent Alphabet, Microsoft Corp., Cigna Corp., PepsiCo, Inc., the Williams Companies, Inc., and other members of the Financial Accounting Standards Advisory Council (FASAC) said during the advisory panel’s September 24 discussion that they are still grappling with incremental work and costs stemming from the reporting changes. “There was more effort than we had anticipated to implement and then pretty quickly to try to realize some efficiencies. Notwithstanding that, there is an ongoing additional layer of work,” Ted Timmermans, vice president controller and CAO of the Williams Companies, Inc., said. “I polled our team and our auditors, they think it probably adds somewhere around 40 hours a quarter, and it’s primarily disclosures. It’s the data you pull together and go through.” This was the second discussion the FASAC has held on implementation of the rules, part of FASB’s efforts to stay informed about the effectiveness of new rules.
Hedging Rules Amended to Ease Accounting Effects of LIBOR Phaseout
On September 26, the IASB said it has amended hedge accounting rules and related disclosures under IFRS to reduce the uncertainty arising from the phasing out of the London Interbank Offered Rate (LIBOR) and other interest rates. The changes require multinational companies to provide additional information to investors about their hedging relationships that are directly affected by rate reform. “The board has worked to an accelerated timetable to give companies a solution to the accounting challenges they face from the uncertainty surrounding the reform of interest-rate benchmarks,” IASB Chairman Hans Hoogervorst said. “The amendments provide useful information for investors during this period of uncertainty.” The accounting modifications will avert potential financial reporting confusion by enabling companies to continue to utilize hedge accounting rules, according to the text of the provisions. Under the changes, IFRS 9, Financial Instruments; IAS 39, Financial Instruments: Recognition and Measurement; and the related disclosure rules under IFRS 7, Financial Instruments: Disclosures, have been amended.