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Figure REF 1-1 provides a timeline of select IBOR reform milestones and when the optional relief within ASC 848 may be applied.
Figure REF 1-1
IBOR reform milestones
*Note about ongoing standard setting
On April 20, 2022, the FASB released an exposure draft that proposes deferring the sunset date of ASC 848 from December 31, 2022 to December 31, 2024 and amending the description of the SOFR swap rate within the list of eligible benchmark interest rates within ASC 815-20-25-6A to allow for additional SOFR swap rates to be eligible rather than just the SOFR Overnight Index Swap Rate. Financial statement preparers and other users of this publication are therefore encouraged to monitor the status of the proposal.
1.2.1 Contract modifications
ASC 848-20-35-1 discusses how the election of the contract modifications guidance is applied.

ASC 848-20-35-1

An entity may elect to apply the guidance in this Subtopic to account for contract modifications that meet the scope of paragraphs 848-20-15-2 through 15-3. If an entity elects to apply the guidance in this Subtopic, the entity shall apply it for all contract modifications that meet the scope of paragraphs 848-20-15-2 through 15-3 that otherwise would be accounted for in accordance with the same Topic or Industry Subtopic with the exception of derivative instruments that change the interest rate used for margining, discounting, or contract price alignment. The election to apply the guidance in this Subtopic to account for the modification of the interest rate used for margining, discounting, or contract price alignment for derivative instruments is separate from the election to apply the guidance in this Subtopic to account for other derivative instrument modifications. For example:

  1. If an entity applies the guidance in this Subtopic to modifications of a lease for a lessee accounted for in accordance with Topic 842, it shall apply the guidance in this Subtopic to all modifications of leases accounted for in accordance with Topic 842 that meet the scope of paragraphs 848-20-15-2 through 15-3.
  2. If an insurance entity applies the guidance in this Subtopic to modifications of a contract accounted for in accordance with Topic 310 on receivables, it shall apply the guidance in this Subtopic to all modifications of contracts accounted for in accordance with Industry Subtopic 944-310 that meet the scope of paragraphs 848-20-15-2 through 15-3. The entity does not need to apply the guidance in this Subtopic to contracts within the scope of other Industry Subtopics of Topic 944 that meet the scope of paragraphs 848-20-15-2 through 15-3.
  3. If an entity applies the guidance in this Subtopic to modifications of an interest rate used for margining, discounting, or contract price alignment for derivative contracts as of July 1 2020, it shall apply the guidance in this Subtopic to all modifications of an interest rate used for margining, discounting, or contract price alignment for derivative instruments on and after July 1, 2020. The entity is not required to apply the guidance in this Subtopic to other modifications of derivative instruments (for example, changes in the reference rate index) as of July 1, 2020. For example, the entity may elect to apply the guidance in this subtopic to other derivative instrument modifications as of January 1, 2021. Alternatively, the entity may elect not to apply the guidance in this Subtopic to other derivative instrument modifications at any date.

The application of the guidance is elective, but if made, the election must be made for all contract modifications that:
  • meet the scope of ASC 848 and
  • would otherwise be accounted for in accordance with the same ASC Topic or Industry Subtopic (except for those derivatives modified to change the interest rates used for margining, discounting, or contract price alignment, as those changes are subject to a separate election as noted in ASC 848-20-35-1 above).

The guidance is intended to preclude a reporting entity from selectively applying the contract modification relief in ASC 848-20 on a contract-by-contract basis. For example, if a reporting entity elects to apply this guidance to the modification of a lease accounted for under ASC 842, the reporting entity must apply this guidance to all modifications of leases accounted for under ASC 842 that meet the scope of ASC 848. However, as discussed in more detail in REF 1.2.2, certain optional expedients related to the application of hedge accounting can be applied on a hedge-by-hedge basis.
Question REF 1-1
If a lessee elects to apply the guidance in ASC 848-20 to lease contract modifications, is the reporting entity required to apply the guidance in ASC 848-20 contract modifications of leases where the reporting entity is a lessor?
PwC response
Yes. If a reporting entity elects to apply the guidance in ASC 848-20 to modifications of a lease that would otherwise have to apply the lessee guidance in ASC 842-20, the reporting entity must apply the guidance in ASC 848-20 to all contract modifications that would otherwise have to apply the guidance in ASC 842, including leases where the reporting entity is the lessor in ASC 842-30.

Question REF 1-2
If a reporting entity elects to apply the guidance in ASC 848-20 to contract modifications of debt securities, is the reporting entity also required to apply the guidance in ASC 848-20 to contract modifications of other receivables (such as loans) within the scope of ASC 310?
PwC response
Yes. The refinancing and restructurings guidance in ASC 310-20 is applied to loans and debt securities. If a reporting entity elects to apply the guidance in ASC 848-20 to contract modifications of debt securities that would otherwise have to apply the guidance in ASC 310-20, the reporting entity must apply the guidance in ASC 848-20 to all contract modifications that would otherwise have to apply the guidance in ASC 310.

1.2.2 Hedge accounting
Unlike the guidance for contract modifications under ASC 848-20, a reporting entity can apply the optional expedients under ASC 848-30, ASC 848-40 and ASC 848-50 to hedge accounting relationships designated under ASC 815 on an individual hedging relationship basis. That is, an optional expedient can be elected for some hedging relationships but not elected for other similar hedging relationships. In addition, a reporting entity may elect to apply multiple optional expedients to the same individual hedging relationship and may elect those optional expedients in different reporting periods.

ASC 848-30-25-2

An entity may elect to apply the guidance in this Subtopic for hedging relationships affected by reference rate reform on an individual hedging relationship basis. In addition, an entity may elect to apply the different optional expedients specified in paragraphs 848-30-25-3 through 25-13 on an individual hedging relationship basis. That is, each optional expedient may be elected for each individual hedging relationship and may not be elected for other similar hedging relationships. In addition, an entity may elect multiple optional expedients for the same individual hedging relationship and may elect those optional expedients in different reporting periods. For example, for a cash flow hedge, an entity may elect the optional expedient for the changes in the critical terms of the hedging instrument in accordance with paragraphs 848-30-25-5 through 25-7 when the fallback protocol of the hedging instrument is changed. In a different reporting period, the entity may elect to apply the optional expedient in paragraph 848-30-25-8 to change the method used in assessing hedge effectiveness and may elect to apply an optional expedient for subsequent assessments of effectiveness set forth in Subtopic 848-50.

ASC 848-40-25-1

An entity may elect to apply the guidance in this Subtopic for fair value hedges affected by reference rate reform on an individual hedging relationship basis. In addition, an entity may elect to apply the different optional expedients specified in paragraphs 848-40-25-2 through 25-9 on an individual hedging relationship basis. For example, an entity may elect to apply the optional expedient in this Subtopic for the change in the designated benchmark interest rate and not elect to apply the optional expedient for the shortcut method for assessing hedge effectiveness.

ASC 848-50-25-1

An entity may elect to apply the optional expedients for the assessment of hedge effectiveness in this Subtopic to cash flow hedges affected by reference rate reform on an individual hedging relationship basis. In addition, an entity may elect to apply the different optional expedients for the assessment of hedge effectiveness in this Subtopic on an individual hedging relationship basis. An entity may disregard the guidance in paragraph 815-20-25-81 when applying the guidance in this Subtopic and shall not be required to assess effectiveness for similar hedges in a similar manner.

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