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17.6 Discounting transition change
Publication date: 30 Sep 2021
us IFRS & US GAAP guide
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify that the scope of ASC 848 included derivatives that are affected by a change in the interest rate used for margining, discounting, or contract price alignment that do not also reference LIBOR or another reference rate that is expected to be discontinued as a result of reference rate reform (“the discounting transition”). This was in response to a market-wide transition initiated by certain central clearing houses to change the discount rate on cleared interest rate derivatives to alternative reference rates. The change in fair value of the derivative instrument as a result of the discounting transition was settled by a cash payment or receipt.
No additional amendments were issued by the IASB.
US GAAP | IFRS |
The FASB expanded the relief of the reference rate reform guidance to also include derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform regardless of whether the derivative references LIBOR or another rate not expected to be discontinued.
The updated amendments allow the derivative instruments impacted by this event to qualify for the contract modification relief and certain of the hedge accounting relief provisions within ASC 848, including the ability to not dedesignate a hedge relationship due to a change in critical terms.
The amendments also provided the option for an entity to adjust the basis adjustment for a fair value hedge by the payment or receipt of a cash settlement intended to compensate for the change in fair value due to the change in discount rate and similarly to adjust the amount in AOCI for a cash flow hedge by the payment or receipt of a cash settlement intended to compensate for the change in fair value.
| No specific IFRS amendments were made as a result of the discounting transition. Accordingly, entities need to evaluate whether similar results could be achieved under existing IFRS guidance and accounting policies.
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