Alert: FASB Accounting Standards Update No. 2018-16 – Derivatives and Hedging (Topic 815)

Category: US GAAP

Alert: FASB Accounting Standards Update No. 2018-16 – Derivatives and Hedging (Topic 815)

On October 25, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-16 Derivatives and Hedging (Topic 815)- Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The ASU expands the list of available interest rates that can be used as a U.S. benchmark interest rate for hedge accounting purposes.

The ASU permits the use of the Overnight Index Swap (OIS) Rate based on the Secured Overnight Financing Rate (SOFR) as an eligible benchmark interest rate for a fair value hedge of interest rate risk, in addition to the following:

  1. Interest rates on direct Treasury obligations of the U.S. government (UST);
  2. London Interbank Offered Rate (LIBOR) swap rate;
  3. Overnight Index Swap (OIS) Rate based on the Fed Funds Effective Rate; and
  4. Securities Industry and Financial Markets Association (SIFMA) municipal swap rate.

The amendments are to be applied on a prospective basis for qualifying new or re-designated hedging relationships entered into on or after the date of adoption.

For entities that have already adopted ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, the amendments are effective as follows:

  • For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods therein;
  • For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods therein.

Early adoption is permitted in any interim period after issuance of this ASU.

For all other entities, the effective date and transition requirements will be the same as those in ASU No. 2017-12.

To access the full script of ASU No. 2018-16, click here.

To access the full script of ASU No. 2017-12, click here

 

This communication contains a general overview of the topic and is current as of November 30, 2018. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person’s use of or reliance upon this material. © MNP LLP 2018. All rights reserved.

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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.