The Governmental Accounting Standards Board published guidance Thursday to help state and local governments transition away from some existing benchmark reference rates, such as the London Interbank Offered Rate, or LIBOR, as more financial institutions transition to newer reference rates such as the Secured Overnight Financing Rate, or SOFR, that are less prone to market manipulation.

GASB’s sister standard-setting organization, the Financial Accounting Standards Board, has also been promulgating guidance and temporary standards to aid in the transition. On Thursday, GASB released the new accounting and financial reporting guidance in Statement No. 93, Replacement of Interbank Offered Rates. GASB noted that some governments have entered into agreements in which variable payments made or received from either derivative counterparties or parties associated with lease agreements depend on an interbank offered rate, notably LIBOR. Thanks to global reference rate reform after some of the largest banks were exposed as manipulating LIBOR, LIBOR is expected to stop existing in its current form at the end of next year, prompting governments to amend or replace the financial instruments tied to LIBOR.

The older Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, used to require a state or local government to terminate hedge accounting whenever it changes the reference rate of a hedging derivative instrument’s variable payment. Similarly, Statement No. 87, Leases, also previously required a state or local government that replaced the rate on which variable payments depend within a lease contract to apply the provisions for lease modifications, including remeasurement of the lease liability or lease receivable.

The goal of Statement 93 is to deal with those and other accounting and financial reporting implications of the replacement of an IBOR by offering 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. The new guidance also clarifies the hedge accounting termination provisions when a hedged item is amended to replace the reference rate. It also clarifies that the uncertainty pertaining to the continued availability of IBORs doesn’t, by itself, impact the assessment of whether the occurrence of a hedged expected transaction is probable. The new statement also removes LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of an interest rate swap. It also identifies SOFR and the Effective Federal Funds Rate as appropriate benchmark interest rates for the qualitative evaluation of the effectiveness of an interest rate swap. Finally it 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.