Articles 2019




 

Banking Alert

July 31, 2019

By Charles V. Abraham

On July 17, 2019, the FASB met and tentatively decided to reconsider the effective dates of certain accounting standards updates (“ASUs”) for private companies, not-for-profit companies, and small public companies.

This tentative decision has a major impact on both private banks and banks that are smaller reporting companies, because the effective date of the new current expected credit loss (“CECL”) model for these financial institutions has been postponed to fiscal years beginning after December 15, 2022 (including interim periods within that fiscal year). Early adoption is available to all entities.

A proposed accounting standards update is expected to be released by the FASB shortly, and the comment period for this ASU will be 30 days.

While this is a welcome postponement to smaller financial institutions, we would encourage institutions to continue to work towards implementing the standard and to consider the impact on financial reporting, controls, and information technology. For more information on how Mazars can help, please contact Mazars USA’s banking practice at [email protected]

Hedge Accounting relief related to reference rate reform

Much has been written about the transition from the London Interbank Offering Rate (“LIBOR”) to other reference rates. Replacing LIBOR impacts a significant number of financial institutions both within the US and globally. In the US, an alternate reference rate is the Secured Overnight Financing Rate (“SOFR”).

On July 17, 2019, the FASB discussed providing relief under the hedge accounting standards for the transition period between reference rates. The key tentative decisions made are as follows (available to be implemented by entities on a hedge-by-hedge basis):

  • An entity may continue a hedging relationship “as is” without de-designation, although critical terms related to the financial instruments have changed due to reference rate reform.
  • An entity may continue a fair value hedging relationship “as is” without de-designation, although the benchmark interest rate has changed due to reference rate reform as long as:
    • The fair value hedge basis adjustment is recorded
    • An accounting policy election is made regarding how the adjustment will be recorded (i.e. immediately in current earnings or similar to the other components of the carrying amount of the hedged asset/liability).
  • Additional practical expedients will be available related to determining the initial and subsequent assessments of hedge effectiveness for a cash flow hedging relationship affected by reference rate reform.

A proposed accounting standards update is expected to be released by the FASB shortly, and the comment period for this ASU will be 30 days.

Stay tuned for future Mazars insights related to reference rate reform in the U.S. via webinars and other articles.

 


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