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PwC is pleased to offer our updated Reference rate reform guide. Reference rate reform is the term used to refer to the efforts that have been undertaken by regulators and other market participants to introduce new reference rates that are based on a larger and more liquid population of observable transactions. This guide is intended to assist our clients and other interested parties in applying the accounting and financial reporting guidance in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2021-01, Reference Rate Reform (Topic 848): Scope.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification), and should be read in conjunction with the applicable authoritative accounting literature.
References to US GAAP
Definitions, full paragraphs, and excerpts from the FASB’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to our Derivatives and hedging guide. References to this guide are indicated by DH followed by the specific section number (e.g., DH 9.6).
Summary of significant changes
The following is a summary of the noteworthy revisions to the guide since it was first published in April 2020. Additional updates may be made to future versions to keep pace with significant developments.
Revisions made in January 2021
REF 1: Reference rate reform
REF 2: Contract modification relief
  • REF 2.1.5.1 was added to discuss application of the principle for contract modification relief to derivative instruments.
REF 3: Hedge accounting relief
  • REF 3.1.1 was updated to include the optional expedients available to derivatives impacted by the discounting transition as provided by ASU 2021-01.
  • REF 3.1.6 was added to include the optional expedient available for a cross-currency swap used in a net investment hedge.
  • REF 3.2.3 was added to include the new optional expedient added by ASU 2021-01 for adjusting the basis adjustment in a fair value hedge applying the shortcut method affected by the discounting transition.
  • REF 3.3.2.1 was added to include the clarification added by ASU 2021-01 for changing the benchmark interest rate of a forecasted issuance affected by reference rate reform
  • REF 3.3.6 was added to include the new optional expedient added by ASU 2021-01 for adjusting the amount in accumulated other comprehensive income for a cash flow hedge affected by the discounting transition.
REF 4: Effective date and transition
  • REF 4.1.1 was updated to discuss the effective date and transition provisions of ASU 2021-01 for contract modification relief.
  • REF 4.1.2 was updated to discuss the effective date and transition provisions of ASU 2021-01 for hedge accounting relief.
  • Question REF 4-1 was adding to illustrate how to apply the transition guidance when electing an application date retrospectively to a prior reporting period.
  • REF 4.1.4 was updated to discuss the sunset date of new optional expedients from ASU 2021-01.
Revisions made in October 2020
REF 1: Reference rate reform
  • Question REF 1-1 and Question REF 1-2 have been added to illustrate how the contract modifications relief by topic is applied.
  • Discussion on the election of optional relief for hedge accounting was added to REF 1.2.2.
REF 2: Contract modifications relief
  • Question REF 2-1 has been added to illustrate how the one-time election to sell or reclassify held-to-maturity debt securities is applied.
  • REF 2.1.2 and REF 2.1.3 were updated to clarify how the relief is intended to be applied for financial assets in the scope of ASC 310 and debt agreements in the scope of ASC 470 related to additional direct fees and costs.
REF 3: Hedge accounting relief
  • REF 3.1.1 was updated to clarify which practical expedients are available without a contract modification occurring.
  • A reference to ongoing standard setting was added related to an exposure draft issued by the FASB in October 2020 that would amend the scope of ASC 848.
Copyrights
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.
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