FASB’s Proposed Relief From Reference Rate Reform

By Erin Scherbert, Baker Tilly

In 2014 the Financial Accounting Standards Board (FASB) began monitoring the global reference rate reform initiatives to determine appropriate alternatives to unsecured market benchmarks based on interbank offered rates. As a result of this monitoring initiative, the FASB and the Federal Reserve Bank of New York formed the Alternative Reference Rate Committee (ARRC) to aid in the identification of a suitable alternative to U.S. Dollar London Inter-bank Offer Rate (LIBOR) and to create a plan of adoption to alternative reference rates. This initiative resulted in the ARRC identifying the Secured Overnight Financing Rate (SOFR) as the alternative reference rate to be utilized. Once the ARRC determined the SOFR was a suitable alternative, the Federal Reserve Bank of New York started publishing a daily SOFR rate and announced a transition plan into financial markets in 2018.

This initiative to find a suitable replacement to LIBOR was a worldwide concern, which caused regulators around the globe to undertake reference rate reform initiatives to identify alternative reference rates that are transactional-based and less susceptible to manipulation. The FASB has undergone this process to largely consider changes to generally accepted accounting principles (GAAP) as a way to aid the market-wide transition from LIBOR and other interbank offered rates (collectively referred to as IBORs).

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