The guidance in ASC 848 was available to be adopted upon issuance for all entities. While it provided immediate accounting relief (if adopted), the relief is meant to be temporary (see REF 4.1.4), as reference rate reform is considered temporary in nature due to the expectation that certain LIBOR settings will be discontinued by the end of 2021, with the remainder discontinued in 2023. The relief provided within ASC 848 lasts until December 31, 2024.

As discussed in REF 1.3, the guidance must be elected for contract modifications for arrangements within a given ASC Topic or Industry Subtopic (e.g., all lease modifications within ASC 842). A reporting entity may elect to adopt the guidance for contract modifications:

A calendar year-end company, for example, could have adopted the guidance in Q1 2020.

Once the application of ASC 848 is elected for an ASC Topic or an Industry Subtopic, it needs to be applied prospectively for all eligible contract modifications for that ASC Topic or Industry Subtopic (see REF 1.3) made prior to December 31, 2024. However, it may be elected for different ASC Topics or Industry Subtopics during different reporting periods. For example, a company may elect to apply an optional expedient for all contract modifications that would have been accounted for under ASC 310 in Q1 but elect to apply an optional expedient for all contract modifications that would have been accounted for under ASC 470 in Q2.

A reporting entity may elect the guidance in ASU 2021-01 for contract modifications of derivatives that change the interest rate used for margining, discounting, or contract price alignment:

Once elected, the guidance must be applied for all contract modifications that change the derivatives interest rate used for margining, discounting, or contract price alignment.

ASC 848 can be applied to eligible hedging relationships that exist as of the beginning of an interim period that includes March 12, 2020 and to new eligible hedging relationships designated in subsequent periods. The optional expedients may not be applied, however, to hedging relationships evaluated after December 31, 2024 (with limited exceptions described in REF 4.1.5).

A reporting entity may elect the guidance in ASU 2021-01 for hedge accounting to eligible hedging relationships (See REF 3.1.1 for the scope of hedge relationships eligible for the guidance in ASU 2021-01):

Question REF 4-1 addresses the application of the hedge accounting relief when the election occurs in a subsequent reporting period to the period in which the qualifying event occurred.

The reasonable method used to adjust the amount in accumulated other comprehensive income should be applied retrospectively to Q4 20X0, as this is the reporting period in which the derivative’s interest rate changed. ASC 848-10-65-2(a)(2) states that if a reporting entity elects to apply the guidance in ASU 2021-01 to any hedging relationship, “any adjustments as a result of those elections shall be reflected as of the application date of the election.” It is our understanding that the application date is the date that the modification of the derivative occurred and the optional expedient is applied to that event. Therefore, a reporting entity that elects to apply an optional expedient to an event that occurred in a prior reporting period should apply a reasonable method to adjust the amount in accumulated other comprehensive income retrospectively and revise Q4 20X0 within subsequent financial statements.

ASC 848-10-65-1(e) and ASC 848-10-65-2(d) require reporting entities that have elected to apply the guidance in ASC 848 to disclose the nature of and reason for electing to apply an optional expedient under ASC 848. Disclosure must be made in each interim and annual period in the fiscal year of application.

The guidance in ASC 848 cannot be applied to contract modifications or hedging relationships after December 31, 2024 with limited exceptions. Those limited exceptions relate to certain hedging optional expedients that, if elected, would continue to be applied subsequent to December 31, 2024. Those exceptions pertain to: