Project Pages

Lease Accounting—Reexamination of NCGA Statement 5 and GASB Statement 13

Project Description: The objective of this project is to reexamine issues associated with lease accounting, considering improvements to existing guidance. This project will provide a basis for the Board to consider whether current operating leases meet the definitions of assets or liabilities. Current guidance is provided by National Council on Governmental Accounting (NCGA) Statement 5, Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments, GASB Statement No. 13, Accounting for Operating Leases with Scheduled Rent Increases, GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. The Statement 62 incorporates the provisions of FASB Statement No. 13, Accounting for Leases, as amended and interpreted, into the GASB’s authoritative literature.

Status:
Added to Current Agenda: April 2013
Added to Research Agenda: April 2011

Lease Accounting—Project Plan

Background: Governments routinely enter into leases. Under the current authoritative literature, many of these leases are reported as operating leases. Even though operating leases represent long-term commitments to make payments, no liabilities are reported, although there are disclosures. Likewise, no assets are reported when government’s have long-term rights to receive operating lease payments. In Concepts Statement No. 4, Elements of Financial Statements, the Board established definitions of assets and liabilities. A research project would provide a basis for the Board to consider whether operating leases meet the definitions of assets or liabilities.


The FASB and the International Accounting Standards Board (IASB) have current projects that propose to replace private sector guidance. Because of the potentially significant changes of the FASB/IASB project, the staff has received technical inquiries regarding whether there are any plans for the GASB to update its leasing guidance.

A lease accounting project undertaken by the GASB could be performed in concert with the similar FASB/IASB project to maximize efficiency and timeliness. A simultaneous lease accounting project on the GASB agenda would provide the opportunity to follow the progress of the FASB/IASB leasing project to assess any proposed new or amended leasing guidance in the context of the state and local government environment on a contemporaneous basis. This would allow the Board to consider and address amendments to FASB Statement 13 (GASB Statement 62) in a timely manner.

Finally, part of the GASB’s strategic plan is to evaluate the effectiveness and impact of existing standards that have been in effect for a sufficient length of time. NCGA Statement 5 was issued in 1982 and GASB Statement 13 in 1990. This project would provide an opportunity for a fresh look at the existing guidance for any improvements not contemplated by the FASB/IASB project given the unique nature of governmental entities and the complexities of their leasing transactions.

Accounting and Financial Reporting Issues: The major topic being researched is the forms of financial reporting display and disclosure that would meet essential financial statement user needs. The project is considering the following research issues:
  1. What types of leases are entered into by state and local governments?
     
  2. What specific user needs exist regarding governmental leases and what decision-useful or accountability information is needed to meet those needs?
     
  3. Are current accounting and financial reporting standards appropriate to meet essential user needs?
     
  4. Should there be a distinction between operating and capital leases?
     
  5. If current standards are not considered to be adequate, what additional potential requirements should be considered?
Project History: A proposal to add the project to the research agenda was discussed by the GASAC at its March 2011 meeting and the project was added to the research agenda in April 2011.

Current Developments: The FASB’s proposed lease accounting standards is expected to be issued in April 2013. At its February 2013 meeting, the GASAC ranked the project fifth in priority among research and potential projects.

Work Plan: 
Board meetings Topics to be considered

June 2013:

Overview of FASB proposal.

August 2013:

Discuss scope of project.

September 2013:

Discuss lease term and classifications of leases.

October 2013:

Discuss lessee recognition and measurement.

December 2013:

Continue discussion of lessee recognition and measurement.

January 2014:

Discuss lessee disclosures.

March 2014:

Discuss lessor—recognition and measurement

April 2014:

Continue discussion of lessor—recognition and measurement.

May 2014:

Discuss lessor disclosures.

July 2014:

Discuss sales and leaseback transactions.

August 2014:

Discuss short-term leases.

September 2014:

Review draft standard section.

November 2014:

Review preballot draft of proposed Statement.

December 2014:

Review ballot draft and issue Exposure Draft.

January–March 2015:

Due process, including field test.

April–October 2015:

Redeliberations.

November 2015:

Review preballot draft of final Statement.

December 2015(T/C):

Review ballot draft and issue final Statement.