The GASB issued Statement No. 93, Replacement of Interbank Offered Rates.

Many governments have entered into agreements (particularly derivative instruments and lease agreements) in which variable payments made or received depend on an interbank offered rate (IBOR)—most notably, the London Interbank Offered Rate (LIBOR). As a result of global reference rate reform, LIBOR is expected to cease to exist in its current form at the end of 2021, prompting governments to amend or replace financial instruments for the purpose of replacing LIBOR with other reference rates, by either changing the reference rate or adding or changing fallback provisions related to the reference rate.

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, requires a government that renegotiates or amends a critical term of a hedging derivative instrument, such as the reference rate of a hedging derivative instrument’s variable payment, to terminate hedge accounting. Statement No. 93 provides an exception to this rule, allowing hedge accounting to continue when an IBOR is replaced as the reference rate of the hedging derivative instrument.

Statement No. 93 also clarifies that, when evaluating the probability of the occurrence of an expected transaction pursuant to paragraph 29 of Statement No. 53, the uncertainty related to the continued availability of IBORs does not, by itself, affect the assessment of whether a hedged expected transaction is probable.

Finally, for the purpose of the qualitative evaluation of the effectiveness of an interest rate swap under paragraphs 35-38 of Statement No. 53, Statement No. 93 removes LIBOR as an appropriate benchmark interest rate and adds the Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates.

Statement No. 87, Leases, requires that a government apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable, when the replacement of the rate on which variable payments depend in a lease contract occurs. Statement No. 93 provides an exception to the lease modifications guidance in Statement No. 87 for lease contracts that are amended to replace an IBOR as the rate upon which variable payments depend.

The provision removing LIBOR as an appropriate benchmark interest rate for the evaluation of the effectiveness of derivative instruments is effective for periods ending after December 31, 2021. All other provisions of Statement No. 93 are effective for fiscal years beginning after June 15, 2020. Earlier application is encouraged.

The full text of Statement No. 93 is available here.

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