The AICPA held its 2019 conference on Current SEC and PCAOB Developments in Washington D.C. from December 9-11. The Conference provided insight and perspective related to financial reporting and trends impacting the accounting, auditing, financial reporting and other matters.
Throughout the three-day conference, trending topics dominated the discussions including: critical audit matters (CAMs); auditor independence; new FASB standards on revenue recognition, leases and credit losses; non-GAAP measures; interest rate reform; cybersecurity; and audit quality. The overarching theme throughout each discussion was the impact of technology on the accounting, reporting and auditing profession.
In this article, we are going to take a deeper dive into interest rate reform.
In his address, SEC Chairman Jay Clayton and SEC Chief Accountant Sagar Teotia discussed interest rate reform, with LIBOR expected to go away in 2021. They indicated that the transition is expected to be difficult and cautioned registrants that “the risks associated with this expected discontinuation and transition will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner.” Mr. Clayton encouraged companies to begin assessing their risks associated with rate reform and adjust contracts accordingly.
Additionally, representatives from the Office of the Chief Accountant (OCA) gave an update on their activities related to reference rate reform as it pertains to hedging activities, specifically cash flow hedges. The OCA discussed how the transition away from LIBOR would impact the assessment of hedge effectiveness of a cash flow hedge of LIBOR-based debt. The OCA referenced the FASB’s proposed ASU that would provide for optional guidance for a limited time allowing companies to change to another reference rate while not impacting the status of the hedging instrument.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.