FASB has taken a major step towards approving accounting relief for companies required to modify contracts as a result of new global reference rates which are expected as a result of the expected transition away from LIBOR.

The Board tentatively decided that for a contract that meets certain criteria, a change in that contract’s reference interest rate would be accounted for as a continuation of that contract rather than the creation of a new contract. This decision applies to loans, debt, leases, and other arrangements.

With global capital markets expected to move away from LIBOR towards more transaction-based reference rates, the FASB launched a broad project to address potential accounting concerns expected to arise from the transition. Additionally, in late 2018, the FASB added the secured overnight financing rate—or SOFR—as a permissible benchmark rate for hedge accounting purposes.