FASB Proposes Accounting Improvements for Hedging Interest Rate Risk

The Financial Accounting Standards Board ("FASB") proposed three targeted changes to its derivatives and hedging standards that would broaden the application of hedge accounting by removing exceptions and limitations.

In the proposed update to its accounting standards, FASB would make changes to allow entities to hedge the interest-rate risk of held-to-maturity debt securities in both fair value and cash flow hedges, which current accounting rules prohibit. FASB said the change would align the treatment with held-for-investment loans and international standards.

The second update would amend the definition of the Secured Overnight Financing Rate ("SOFR") so that any tenor, including the term SOFR, could be designated as a U.S. benchmark interest rate, rather than only the overnight rate.

The third targeted change would expand the instruments eligible for net investment hedges by allowing float-to-float cross-currency swaps whose two legs reset on different dates. This change would drop the requirement that the repricing dates match, so long as they occur at least every six months. FASB said that the change would also track market conventions that developed after the end of LIBOR.

FASB stated that hedge accounting is optional, and the proposal would apply to any company that elects it.

Comments are due by August 17, 2026.