Staff Writer and Editor AccountingWEB
Share this content
lease calculator
iStock_KUO CHUN HUNG_lease calculator

GASB Leans Toward Single Approach for Reporting Leases

by
Feb 23rd 2016
Staff Writer and Editor AccountingWEB
Share this content

A new proposal from the Governmental Accounting Standards Board (GASB) would establish a single approach for state and local governments to report leases on the principle that leases are financings of the right to use an underlying asset.

The proposed guidance, which the board issued on Feb. 8, targets lease contracts for nonfinancial assets, like vehicles, heavy equipment, and buildings, but it would not apply to donated use of assets or to leases of intangible assets, such as patents and software licenses.

Limited exceptions are provided in the draft guidance, including short-term leases (12 months or less) and financed purchases.

“This proposal would more closely align the accounting and financial reporting for leases with the substance of these arrangements,” GASB Chair David Vaudt said in a written statement. “Establishing a single model for reporting governmental leasing agreements should result in greater transparency and usefulness for financial statement users and reduced complexity in application for state and local government preparers and auditors.”

Under the exposure draft, Leases, a lessee government would be required to report the following about leases (except short-term leases) in their financial statements:

  • An intangible lease asset that represents the government’s right to use the underlying asset (rather than the underlying asset itself), initially measured based on the lease liability.
  • Amortization expense related to the lease asset (recognizing the asset amount as an expense over the term of the lease).
  • Interest expense related to the lease liability.
  • Note disclosures with information about the lease, including a general description of the leasing arrangement.

Government lessors would report the following about leases (except short-term leases and certain other leases) in their financial statements:

  • A receivable for the right to receive payments, initially measured based on the present value of future lease payments to be received.
  • A corresponding deferred inflow of resources, measured at the initial value of the lease receivable, to reflect that the receivable relates to future periods.
  • Lease revenue (and a corresponding reduction in the deferred inflows of resources) systematically over the term of the lease.
  • Interest revenue related to the receivable.
  • Note disclosures with information about the lease, including a general description of the leasing arrangement.

“Lessees would report lease payments consistent with the principles for general obligation debt. Lessors would report receivables and recognize the related deferred inflows of resources as revenue, if available, over the lease term,” according to a GASB in Focus document on the leases project. “Proposed notes to the financial statements for lessees address the nature, amount, and timing of lease payments. Proposed disclosures for lessors focus on the risk that a lessor will not receive its lease payments.”

Other issues addressed in the exposure draft include lease terminations and modifications, sale-leaseback and lease-leaseback transactions, and reporting nonlease components embedded in lease contracts, such as service agreements.

The deadline for submitting comments to the GASB regarding its exposure draft on leases is May 31. Comments can be submitted by email to [email protected].

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.