The Financial Accounting Standards Board (FASB) will allow companies more time to transition away from the London interbank offered rate (Libor) as they modify loan contracts and accounting for hedges of interest-rate risks, The Wall Street Journal reported.

FASB announced that companies now have until the end of 2024 to move to a version of the Secured Overnight Financing Rate, or SOFR, which the Federal Reserve and other regulators prefer banks and their borrowers use.

The extension of this relief, which is optional, was first announced in March 2020. It was given “in an effort to help (private and public companies) work through the large volumes of financial contracts they needed to update or renegotiate as part of their preparations to abandon Libor.”

There are two versions of SOFR that companies are considering: Term SOFR, which benefits companies that borrow or lend in one-, three- or six-month periods, and helps project their interest expense; and overnight SOFR, which is administered by the Federal Reserve Bank of New York.

The Fed and the regulators prefer SOFR due to its stability, “as opposed to credit-sensitive alternatives such as the Bloomberg Short Term Bank Yield Index,” the Journal reported.

The relief extension allows for certain hedge-accounting rules to be loosened. It also aims to simplify the determination of whether changes to a Libor-linked loan require businesses to record that loan as a new one or as a continuation of an existing one, according to the Journal. 

Libor is being phased out “after bankers allegedly rigged the rate,” the Journal reported. If its phase out is delayed, FASB would consider providing another extension.

“I think we can deal with any additional time that might be needed,” Board member Christine Botosan said during the meeting, “but I think we’re in pretty good shape with the time period that we decided and this will cover the issues we’re trying to address.”