Definition of SOFR to be Amended for Accounting Rules
FASB voted to amend the definition of the Secured Overnight Financing Rate (SOFR) in U.S. GAAP, another step aimed at facilitating the shift from the London Interbank Offered Rate (LIBOR), which will fully expire next year. The board will provide a generic definition of the SOFR Swap Rate so that any swap rate based on SOFR can meet the definition and, therefore, qualify as a benchmark interest rate, according to the discussions. This means any swap that is based on SOFR would be able to use the less clunky fair value hedge accounting relief the board established four years ago. A swap refers to an exchange of a financial instrument between two parties. “Extending SOFR to other tenors or to term SOFR is just a logical extension of what we had already decided, as others have pointed out, as the market developed,” FASB Vice Chair James Kroeker said. “I would note that there’s a difference between SOFR and other rates that we’ve added post-LIBOR. And I think even at the time people argued that LIBOR effectively didn’t incorporate credit risk. We found out subsequently it incorporates more credit risk maybe than was appreciated by the entire market at that time, but the other rates that we’ve added are intended to include little or no credit risk.”
Advisers Recommend Tackling Disclosure Rules for Intangibles
More guidance on disclosure rules, as opposed to what companies would book on the balance sheet, might be the best way for FASB to address intangible assets, according to March 15, 2022, discussions by board advisers. Taking on a broad rulemaking project would likely be too costly and complex for companies, as intangible assets would prove difficult to measure, the Financial Accounting Standards Advisory Council (FASAC) said. “If the board were to take on a project there was a view that recognition actually could add more cost to the system,” said Alice Jolla, chief accounting officer and corporate vice president of Microsoft Corp. “And then how do you come up with what that measurement is—is it fair value? It didn’t seem to me that that would be a practical alternative.” The FASAC comprises about 35 senior executives, including finance chiefs, from some of the nation’s largest companies. The discussion comes as FASB has a project on its research agenda to study potential ways to improve the accounting for and disclosure of intangibles, including software costs, internally developed intangibles, and research and development. The accounting requirements for intangible assets depends upon whether they are internally generated or acquired, according to the discussions.
Seven Topics Make Short List for New Projects
The IASB will consider adding seven new projects to its technical agenda, including climate-related risks, cryptocurrencies, intangible assets, and the statement of cash flows. Going concern disclosures, operating segments, and pollutant pricing mechanisms are the other three topics, according to board meeting papers. The topics were flagged by companies as having the most pressing financial reporting deficiencies that hinder investors from getting useful information when trying to make investment decisions. Fifteen other topics did not make the short list. The discussions will piggyback on— and appear to be consistent with—the board’s decisions last month to place limits on its technical agenda. The range of new projects will be narrowly drawn or done in phases, according to the meeting papers.