GASB provides guidance for LIBOR transition

By Ken Tysiac

GASB issued a standard Thursday that is designed to assist state and local governments in the transition away from existing interbank offered rates (IBORs) to other reference rates.

Statement No. 93, Replacement of Interbank Offered Rates, provides guidance to governments that have entered into agreements in which an IBOR is a benchmark for variable payments made or received from either:

  • Derivative counterparties; or
  • Parties associated with lease agreements.

The most common IBOR, the London Interbank Offered Rate (LIBOR), is scheduled to be discontinued at the end of 2021. As a result, governments will need to amend or replace financial instruments that are tied to LIBOR.

Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, previously required a government to terminate hedge accounting when it changes the reference rate of a hedging derivative’s variable payment.

Meanwhile, Statement No. 87, Leases, previously required a government that replaced the rate on which variable payments depend in a lease contract to apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable.

Statement No. 93 is designed to address those and other accounting implications of the replacement of an IBOR. Statement No. 93:

  • Provides 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.
  • Clarifies the hedge accounting termination provisions when a hedged item is amended to replace the reference rate.
  • Clarifies 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.
  • Removes LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap.
  • Identifies 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.
  • Provides an exception to the lease modifications guidance in Statement 87 for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend.

The removal of LIBOR as an appropriate benchmark interest rate takes effect for reporting periods ending after Dec. 31, 2021. All other requirements of Statement No. 93 are effective for reporting periods beginning after June 15, 2020. Earlier application is encouraged.

Ken Tysiac ( is the JofA’s editorial director.


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