Governmental Accounting Standards Update: 5/12/20

The Governmental Accounting Standards Board (GASB) regularly issues GASB statements to set accounting and financial reporting standards for state and local governments that follow generally accepted accounting principles in the United States (U.S. GAAP). Below are select statements that were recently issued.

• GASB Statement No. 93, Replacement of Interbank Offered Rates
• GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements
• GASB Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance

GASB Statement No. 93, Replacement of Interbank Offered Rates

The GASB has issued Statement No. 93, Replacement of Interbank Offered Rates, to provide guidance to state and local governments on the transition away from existing interbank offered rates (IBORs) to other reference rates.

Government entities may have entered into agreements in which variable payments made or received under the agreement (such as debt or a lease) depend on an IBOR, the most common rate used in practice being the London Interbank Offered Rate (LIBOR). LIBOR is expected to cease to exist in its current form at the end of 2021, which is prompting all entities, including governments, to amend or replace arrangements (most often a derivative instrument or a leasing arrangement) tied to LIBOR.

Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, previously required a government to terminate hedge accounting when it changed the reference rate of a hedging derivative instrument’s variable payment. In addition, Statement No. 87, Leases, previously required a government to apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable, when it replaced the rate on which variable payments depend in a lease contract.

The objective of Statement No. 93 is to address those and other accounting and financial reporting implications of the replacement of an IBOR by doing the following:

• Providing 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
• Clarifying the hedge accounting termination provisions when a hedged item is amended to replace the reference rate
• Clarifying 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
• Removing LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap
• Identifying 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
• Providing an exception to the lease modifications guidance in Statement No. 87 for certain lease contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend

Effective Dates

The removal of LIBOR as an appropriate benchmark interest rate is effective under Statement No. 93 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. Early adoption is permitted and encouraged by the GASB.

GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements

The GASB has issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, which provides guidance to improve accounting and financial reporting for public-private and public-public partnership arrangements (commonly referred to as P3s) and availability payment arrangements (commonly referred to as APAs).

Statement No. 94 provides guidance for P3s, including those that are currently outside of the scope of the GASB’s existing standards, primarily Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements and Statement No. 87, Leases. Statement No. 94 also provides improvements to the guidance previously included in Statement No. 60 on P3s and provides guidelines for the accounting and financial reporting APAs.

Statement No. 94 defines a P3 as an arrangement in which a government transferor contracts with a governmental or nongovernmental operator to provide public services by conveying control of the right to operate or use a nonfinancial asset (the underlying P3 asset), such as infrastructure or other capital asset, for a period of time in an exchange or exchange-like transaction.

Some P3s meet the definition of a service concession arrangement (SCA) under Statement No. 60. Statement No. 94 does carry forward the financial reporting requirements for SCAs that were included in Statement No. 60, with modifications to apply the more extensive requirements related to recognition and measurement of leases to SCAs.

P3s that meet the definition of a lease should apply the guidance in Statement No. 87 if existing assets of the transferor that are not required to be improved by the operator as part of the P3 are the only underlying P3 assets and if the P3s do not meet the definition of an SCA (as defined in Statement No. 60).

Statement No. 94 defines an APA as an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying infrastructure or other nonfinancial asset for a period of time in an exchange or exchange-like transaction.

Statement No. 94 requires governments to account for APAs related to those activities and in which ownership of the asset transfers by the end of the contract as a financed purchase of the underlying infrastructure or other nonfinancial asset. It also requires a government to report an APA that is related to operating or maintaining a nonfinancial asset as an outflow of resources (e.g., expense) in the period to which payments relate.

Effective Date

Statement No. 94 is effective for fiscal years beginning after June 15, 2022, and all reporting periods thereafter. Earlier adoption is encouraged by the GASB.

GASB Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance

The GASB has issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. The GASB intends Statement No. 95 to provide relief to governments and other stakeholders in light of the COVID-19 pandemic.

The effective dates of the following GASB statements and guidance are postponed by one year from the effective date within the original statement:

• Statement No. 83, Certain Asset Retirement Obligations
• Statement No. 84, Fiduciary Activities
• Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements
• Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period
• Statement No. 90, Majority Equity Interests
• Statement No. 91, Conduit Debt Obligations
• Statement No. 92, Omnibus 2020
• Statement No. 93, Replacement of Interbank Offered Rates
• Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting)
• Implementation Guide No. 2018-1, Implementation Guidance Update—2018
• Implementation Guide No. 2019-1, Implementation Guidance Update—2019
• Implementation Guide No. 2019-2, Fiduciary Activities

Statement No. 95 also postpones the effective dates of the following pronouncements for 18 months from the original effective date of the standard:

• Statement No. 87, Leases
• Implementation Guide No. 2019-3, Leases

Effective Date

The provisions of Statement No. 95 are effective immediately.

It is important to note that Statement No. 95 does not postpone the effective date of Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, because the pandemic was already factored into the effective date of Statement No. 94.