Some governments have entered into 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 be discontinued as early as the end of 2021, prompting governments to amend or replace financial instruments tied to LIBOR. The Governmental Accounting Standards Board (GASB) issued Statement No. 93, Replacement of Interbank Offered Rates, to address accounting and financial reporting implications that result from the replacement of an IBOR. Our white paper, GASB guidance for transition from Interbank Offered Rates, discusses certain provisions of Statement 93, including the following:
- Exceptions for certain hedging derivative instruments to the hedge accounting termination provisions when an IBOR is replaced as the reference rate of the hedging derivative instrument’s variable payment
- Clarification of the hedge accounting termination provisions when a hedged item is amended to replace the reference rate
- Clarification that the uncertainty related to the continued availability of IBORs does not, by itself, affect the assessment of whether the occurrence of a hedged expected transaction is probable
- Removal of LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap
- Identification of the Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap
- Exception to the lease modifications guidance in GASB Statement No. 87, Leases, as amended, for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend
Our white paper also discusses the effective date and transition provisions of GASB Statement 93.
