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FASB Cleans Up Rate References: Goodbye LIBOR
27 Jun
Summary
- FASB is updating accounting rules to remove LIBOR references.
- SOFR will replace LIBOR in the digitized authoritative principles.
- This change aims to improve the usefulness of accounting codification.
The Financial Accounting Standards Board (FASB) has taken a significant step toward updating its accounting codification, the digitized source of generally accepted accounting principles. The board voted to draft a proposed standards update that will remove over 100 references to the London Interbank Offered Rate (LIBOR) and replace them with the Secured Overnight Financing Rate (SOFR)-based benchmark.
This initiative is primarily a 'housekeeping' measure intended to update the codification to reflect changes already occurring in global capital markets. Maintaining references to LIBOR, a benchmark tarnished by a rate manipulation scandal and largely phased out since mid-2023, makes the guidance less useful. Banks have largely transitioned to SOFR for new loans since 2022.
FASB members noted that adopting SOFR as the sole replacement is the most expeditious and straightforward option. The proposed update will have a relatively short 60-day comment period. This follows previous actions by FASB in 2018, which included SOFR-linked rates for hedge accounting purposes due to concerns about LIBOR's sustainability.
