The Financial Accounting Standards Board (FASB) has added an “Overnight Index Swap” rate, based on “a broad Treasury repurchase agreement financing rate referred to as the Secured Overnight Financing Rate (SOFR),” to the list of benchmark interest rates allowed for hedge accounting. The new rate is included in Accounting Standards Update No. 2018-16.
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According to Accounting Today, the FASB introduced the new rate as the result of an effort begun by the Federal Reserve Board and the Federal Reserve Bank of New York to find an alternative to the London Interbank Offered Rate (LIBOR), swap rate, due to concerns about the latter’s sustainability. The new rate, according to FASB, is expected “to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes."

According to the FASB, the amendments in the update will be effective concurrently with Update No. 2017-12. For public companies that already have adopted Update 2017-12, the new amendments are effective for fiscal years beginning after Dec. 15, 2018, and interim periods within those fiscal years. For all other companies and organizations that already have adopted Update 2017-12, the new amendments are effective for fiscal years beginning after Dec. 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this update if a company or organization already has adopted Update 2017-12.