8. Add paragraph 848-10-00-1 as follows:

848-10-00-1 The following table identifies the changes made to this Subtopic.

9. Add paragraph 848-20-00-1 as follows:

10. Add paragraph 848-30-00-1 as follows:

848-30-00-1 The following table identifies the changes made to this Subtopic.

11. Add paragraph 848-40-00-1 as follows:

848-40-00-1 The following table identifies the changes made to this Subtopic.

12. Add paragraph 848-50-00-1 as follows:

848-50-00-1 The following table identifies the changes made to this Subtopic.

Ms. Botosan and Messrs. Buesser and Schroeder support the objective of this Update to provide accounting relief—through a temporary option that permits an entity to bypass existing requirements—for assessing when a financial instrument subject to reference rate reform is modified. Given the large number and variety of financial instruments affected, those requirements will likely prove burdensome for entities during an extended period of market-wide reference rate reform that necessitates a high volume of modifications to the underlying contracts. Nevertheless, Ms. Botosan and Messrs. Buesser and Schroeder dissent from the issuance of this Update because they believe it fails to achieve the objective of financial reporting, which is to provide decision-useful information to investors and other financial statement users.

Need for Quantitative Information

The basis for their dissent rests with the Board’s decision to require only qualitative disclosures of the nature of and reason for electing the optional accounting relief. Ms. Botosan and Messrs. Buesser and Schroeder believe that those disclosures are unlikely to provide financial statement users with any decision-useful information. What is needed, but not required by the amendments in this Update, are quantitative disclosures about the portion of variable-rate financial instruments, by type, that are subject to modifications directly resulting from reference rate reform but that have not yet been modified. Such disclosures are needed regardless of whether the temporary accounting relief provided in this Update is elected.

Ms. Botosan and Messrs. Buesser and Schroeder acknowledge that the need for quantitative disclosures does not emanate from reference rate reform. In fact, they note that, well before the current reform efforts, investors have long voiced the need for better quantitative disclosures about interest rate risk exposures from financial instruments. U.S. entities alone hold, or are exposed to, trillions of dollars of financial instruments (including loans, debt securities, and derivatives) for which contractual payments are based on rates that fluctuate or vary over an instrument’s life. Those variable-rate financial instruments are linked to a myriad of reference rates including the London Interbank Offered Rate (LIBOR). Quantification is needed because not all reference rates move in lockstep or are directly correlated with each other, and they fluctuate in different ways relative to the market. The decision usefulness of rate-exposure information is now even more important because investors will seek to understand the economic consequences of the modification of large volumes of variable-rate contracts as they transition to different reference rates.

The objective of quantitative disclosures would be to provide users with much-needed insights into an entity’s exposure—at each period end during the transition period—to cash flow changes resulting from the market-driven replacement of certain reference rates. Entity-specific quantification of the exposure is needed because entities affected by reference rate reform are likely to experience a wide range of financial outcomes—both positive and negative—that could stretch over numerous quarters and years. Ms. Botosan and Messrs. Buesser and Schroeder are concerned that the lack of quantitative disclosure requirements in this Update will confound users’ abilities to assess changing exposures and performance during this uncertain transition period. For those reasons, they believe that quantification of an entity’s exposure at each reporting period within the transition period is critical for users to understand.

Ideally, the quantitative disclosures envisioned by Ms. Botosan and Messrs. Buesser and Schroeder would be in the form of a period-to-period rollforward, quantifying the different sources of current-period changes in an entity’s remaining contracts for which a new reference rate is needed. They also believe that an entity should provide the remaining expected durations of those financial instruments.

Terms of some contracts, commonly referred to as “fallback” protocols or provisions, specifically mandate when a change in reference rate is needed and what new rate should be used. Ms. Botosan and Messrs. Buesser and Schroeder would have required a further disaggregation between the portion of those variable-rate financial instruments with a contractually specified fallback rate and the portion for which no fallback rate is specified. Regardless of a contract’s specific provisions, modifications resulting from reference rate reform will affect the amount or timing of real future cash flows, hence the need for quantitative disclosures during the transition period.

Additionally, Ms. Botosan objects to the Board’s decision to limit the disclosure on the optional accounting relief afforded to hedge accounting transactions to the nature of the accounting relief elected and the reason for electing such relief. Financial statement users have expressed concern that such disclosure will be boilerplate in nature and have marginal informational value. Ms. Botosan agrees and is concerned that the limited disclosures required by the amendment, combined with the accounting flexibility afforded by this Update, will lessen users’ ability to rely on financial reporting information during this period of market-wide transition. To help financial statement users gauge the extent to which an entity elects the accounting relief, Ms. Botosan would have required entities to augment existing quantitative disclosures about the volume of an entity’s derivative activity to quantify the volume of activity effected by the application of optional accounting relief. Ms. Botosan also would have required disclosure of the amount of the noncash, nonrecurring change in a cumulative fair value hedge basis adjustment due to a change in the reference rate.

Cost-Benefit Assessment

A majority of the Board rejected the need to provide quantitative disclosures, in part, because of perceived costs. Ms. Botosan and Messrs. Buesser and Schroeder believe, however, that certain quantitative disclosures are justified on a cost-benefit basis. Their view is based on the fact that an entity is already required to provide quantitative disclosures about the volume of its derivatives activity, which could be augmented to quantify remaining contracts in need of a new reference rate. In addition, they understand that entities with material exposures to reference-rate-based financial instruments are planning to track, or are already tracking, progress toward implementing any necessary modifications.

Ms. Botosan and Messrs. Buesser and Schroeder believe that any incremental costs of requiring the disclosure of data, already quantitatively tracked for purposes of operational decision making or communication with investors, would be minimal. However, instead of leveraging those already-incurred costs and efforts for the benefit of financial statement users, users will be forced to incur additional time and costs to search for alternative sources of information, which are limited at best.

Members of the Financial Accounting Standards Board: