The Financial Accounting Standards Board (FASB) on March 12, 2020, issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update (ASC 848) contains optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform.

2. The Financial Accounting Standards Board (FASB) on March 12, 2020, issued Accounting
Standards Update (ASU) 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. This update (ASC 848) contains optional expedients
and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging
relationships, and other transactions affected by reference rate reform.
FASB took up the reference rate reform initiative to address entities’ concerns about certain
accounting issues that could result from the transition of global market from the London
Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.
Entities were concerned that without new guidelines and relief, contract modification and hedging
requirements applications of entities, under U.S. gaap vs ifrs, triggered by reference rate reform
implementation, would be costly and result in the unfaithful representation of management’s
intent or risk management activities in financial reporting.

3. Main Provisions:
The relief provided by the recent update is elective and applies “to all entities, subject to
meeting certain criteria, that have contracts, hedging relationships, and other
transactions that reference LIBOR or another reference rate are expected to be
discontinued because of reference rate reform”.
Contract modifications and hedging relationships entered into or evaluated after
December 31, 2022 are not affected by the expedient and exceptions provided by the
amendments.
The expedients and exceptions provided by the amendments do not apply to an entity
that has elected certain optional expedients for and that retained through the end of the
hedging relationship, except for hedging relationships existing as of December 31, 2022.

4. Key Impacts:
Account for certain contract modifications as a continuation of the existing contract
without additional analysis.
Continue hedge accounting when certain critical terms of a hedging relationship change
and assess effectiveness in ways that disregard certain potential sources of
ineffectiveness.
Make a one-time sale and/or transfer of certain debt securities from held-to-maturity to
available-for-sale or trading.
Expedients for Contract Modifications:
Below are the optional expedients provided by the update for specific areas of the
Codification that an entity could elect to apply to qualifying contract modifications.

5. • Modifications of contracts within the scope of Topics 310, Receivables (ASC 310), and Debt (ASC 470),
should be accounted for by prospectively adjusting the effective interest rate.
• Modifications of contracts within the scope of Leases (ASC 840 or ASC 842), will not set off reassessment
of lease classification and the discount rate or require the entity to re-measure ifrs 16 payments or
perform the other reassessments that would otherwise be triggered by a modification under ASC 840 or
ASC 842 when that modification is not accounted for as a separate contract.
• Modifications of contracts do not require an entity to reassess its original conclusion about whether that
contract contains an embedded derivative that is clearly and closely related to the economic
characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging—
Embedded Derivatives.
• Account for the modification “as an event that does not require re-measurement of contract at the
modification date or a previous accounting determination reassessment required under the relevant
Topic or Industry Subtopic.”
Under the recent update, if an entity, under a particular codification topic, subtopic, or industry subtopic,
elects to apply an expedient must apply that expedient to all contract modifications that are within the
scope of the ASU and are accounted for under that topic, subtopic, or industry subtopic.

6. Expedients for Hedging Relationship:
The ASU provides companies the option to elect to continue hedge learn accounting for the
following changes which are due to reference rate reform. The optional expedients include:
• Changing certain critical terms of a designated hedging instrument, a hedged item, or a
forecasted transaction in fair value, cash flow, or net investment hedges that are affected, or
expected to be affected, by reference rate reform.
• Changing either the designated estimated amount or proportion of the hedging instrument,
the hedged item, or both for rebalancing a fair value hedge.
• Changing the hedging instrument designation in fair value or cash flow hedges to combine two
or more derivatives or its proportions, and jointly designate them as the hedging instrument.
• Changing the method of assessing hedge effectiveness for cash flow hedges, a change in the
method used to assess hedge effectiveness when initially applying an optional expedient
method and when reverting to the requirements in sub topics Derivatives and Hedging—
Hedging—General (815-20) and Derivatives and Hedging—Cash Flow Hedges (815-30).

7. Sale or transfer of held-to-maturity securities:
The recent update stipulates that an entity may make a onetime election to sell, transfer
or do both to debt securities classified as held to maturity (before January 1, 2020) that
reference a rate affected by the reference rate reform.
Effective Dates and Transition Requirements:
Contract modifications
The amendments are effective for eligible contract modifications by topic and industry subtopic:
• As of any date from the beginning of an interim period that includes or is subsequent to March
12, 2020, and do not apply to contract modifications made after December 31, 2022
• Prospectively from a date within an interim period that includes or is subsequent to March 12,
2020, up to the date that the financial statements are available to be issued.

8. Hedging relationships
• The amendments are effective for eligible hedging relationship existing as of the beginning of
interim period that includes March 12, 2020 and do not apply to new hedging relationships
entered into after Dec 31, 2022.
• The amendments are effective for eligible hedging relationship entered into after beginning of
the interim period that includes March 12, 2020 and do not apply to hedging relationships
evaluated for period after Dec 31, 2022.
Sale or transfer of held-to-maturity securities
The one-time election to sell or transfer eligible held-to-maturity securities may be made at any
time after March 12, 2020, but no later than December 31, 2022.
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