The Financial Accounting Standards Board (FASB) on April 20 announced a proposed standard update that would defer for two years the end date of relief provided by transition guidance for businesses shifting away from the London Interbank Offered Rate (LIBOR).

FASB in March 2020 published the temporary guidance, which intended to reduce the costs and complexities of accounting for reference rate reform. The relief period is set to end Dec. 31, 2022; the new standard update would push this date back to Dec. 31, 2024, if approved.

LIBOR expired at the end of 2021, though certain tenors of U.S. dollar LIBOR will continue to be published through June 30, 2023. The proposed FASB update took this timeline into consideration, noting a “significant number of modifications” are expected to be taking place through the extended sunset date.

LIBOR and other interbank offered rates are widely used benchmark or reference rates in financial contracts worldwide, including loans, derivatives, and leases. The preferred U.S. alternative to LIBOR is the Fed-backed Secured Overnight Financing Rate (SOFR), though other rates are available.

In 2018, FASB initiated a project to address the accounting challenges from the transition away from LIBOR. That year, the organization added the overnight index swap rate based on SOFR as a permitted U.S. benchmark interest rate to provide lead time for companies to prepare their interest rate risk hedging strategies under Accounting Standards Codification Topic 815 on derivatives and hedging.

FASB’s latest proposal also seeks to amend the definition of the SOFR swap rate to include other versions of SOFR, such as SOFR term, as a benchmark interest rate under Topic 815.

The organization is accepting comments on the proposed changes through June 6.