GASB Report - July 2014

Articles from the GASB Report

Board Meeting Highlights

The GASB held public meetings July 9–10 and July 28, 2014 (by teleconference), to discuss issues associated with its projects on Leases, Fiduciary Responsibilities, Tax Abatement Disclosures, and Irrevocable Charitable Trusts. The Board also reviewed educational memoranda summarizing the results of pre-agenda research on asset retirement obligations and blending requirements for certain business-type activities (BTA). This article addresses key tentative decisions made by the Board during its deliberations on these topics. (For complete minutes of the Board meeting, visit the project pages devoted to each project on the GASB website.)


The Board’s deliberations on potential revisions to the standards on lease accounting continued the discussion of accounting and financial reporting by lessor governments. The discussion included presentation and depreciation of leased assets, disclosures, subleases, and leases with certain counterparties.

Presentation and Depreciation of Leased Assets

At a prior meeting, the Board tentatively decided to propose that a lessor would not derecognize assets it has leased. At the July meeting, the Board tentatively decided to propose that a lessor would not be required to present leased assets separately from other capital assets in its financial statements. Rather, the lessor would disclose the amounts of assets held for leases in the notes to the financial statements.

The Board tentatively decided to propose that a depreciable leased asset would be depreciated by the lessor, as would be the case for other capital assets. However, if the leased asset is required to be returned in its original or enhanced condition, the leased asset would not be depreciated by the lessor. If the condition of a leased asset is maintained or improved, it follows that its useful life is preserved accordingly. This is similar to the treatment of capital assets that are subject to service concession arrangements.

The Board also tentatively decided to propose that a leased asset that meets the definition of an investment would be reported by the lessor at fair value. This decision is consistent with the Board’s proposals in the May 2014 Exposure Draft, Fair Value Measurement and Application. The Exposure Draft proposes a definition of an investment and would require that investments generally be measured at fair value.

Lessor Disclosures

The Board tentatively decided to propose that lessors would be required to disclose a general description of leasing arrangements, including the basis, and terms and conditions, on which variable lease payments are determined. The Board also directed the staff to further explore a disclosure that would provide information about the risks associated with termination if a lessor’s debt payments rely on cash flows from a lease.

The Board tentatively decided to propose that lessors would disclose the cost and carrying amount, if different, of property on lease or held for leasing by major classes of property, as well as the amount of accumulated depreciation. The Board also tentatively decided to propose that lessors disclose the following:
  • The total amount of revenue recognized in the reporting period related to leases
  • The revenue relating to variable lease payments and other payments not included in the measurement of the lease receivable, including revenue related to residual value guarantees and termination penalties
  • A maturity analysis of the lease receivable, showing the undiscounted cash flows to be received on an annual basis for a minimum of each of the first five years and aggregated totals in five-year increments thereafter, reconciled to the lease receivable; this disclosure is similar to the minimum debt service requirements disclosure required for outstanding debt.

The Board tentatively decided to propose that subleases would be accounted for as transactions separate from their original leases. The Board also tentatively decided to propose a disclosure of the treatment of subleases and that subleases be noted as one of the items to be included in the general description of lease arrangements (if applicable). Finally, the Board tentatively decided to propose that lessor transactions related to subleases be disclosed separately from the original lessee transactions.

Leases with Certain Counterparties

The Board tentatively decided that related party leases should be recognized based on the substance of the transaction, when substance is significantly different from form. The Board also tentatively decided that existing guidance with respect to leases between governments and public authorities should be retained.

The Board tentatively decided to propose that the current treatment for leases with blended component units would be retained. In other words, leases with blended component units are not reported in the financial reporting entity’s financial statements. The Board tentatively decided that eliminations for internal leasing activity should not take place within the financial statements of the financial reporting entity; rather, the eliminations should take place before the financial statements are aggregated. Likewise, the Board tentatively decided that the current treatment for leases with discretely presented component units should be retained. In the reporting entity’s financial statements there is no elimination of leases with discretely presented component units, but rather separate presentation of the lease receivable and payable.

Fiduciary Responsibilities

The Board’s deliberations in July on the Fiduciary Responsibilities project included recognition of liabilities in a fiduciary fund and disclosures.

Liability Recognition

The Board began deliberations by discussing its previous tentative decisions that (a) a commitment would be recognized and reported as a liability in a fiduciary fund only when the event giving rise to the liability has occurred and (b) the event that gives rise to the liability is the beneficiary having an immediate claim on the resources. Specifically, the Board discussed how to define what is meant by “having an immediate claim.” The Board tentatively decided to amend its previous tentative decision and propose that a liability be recognized in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources.


The Board reviewed fiduciary fund requirements of other standards setters and tentatively decided that no additional note disclosures should be considered as a result. The Board then discussed potential note disclosures recommended by users interviewed in the project staff research. The Board believes that many of the recommended disclosures pertaining to investment trust funds and pension (and other employee benefit) trust funds were already covered by current guidance or were addressed during the deliberations that lead to that guidance. The Board tentatively decided to propose that in the basic financial statements, additions would be disaggregated by source and, if applicable, by net investment income, including separate display of investment income and investment expense. Further, deductions would be disaggregated by type and, if applicable, by administrative expenses.

Tax Abatement Disclosures

The Board continued its consideration of what information about tax abatement agreements is essential to financial statement users and, therefore, might be proposed as disclosure requirements. The Board also considered the level of detail at which disclosures about tax abatements would be made.

The Board tentatively decided to propose the following disclosures:
  • Other commitments made by governments as part of tax abatement agreements
  • Commitments made by recipients
  • Provisions for recapturing abated taxes
  • General descriptive information, including:
    • Name and purpose of the program(s), and the taxes being abated
    • The authority under which tax abatements are granted
    • The criteria, if any, that make a recipient eligible to receive a tax abatement
    • The manner in which the taxes are abated, including how the amount of abatement is determined and how the taxes are reduced
    • The number of abatements granted during the reporting period and the total number of abatements in effect as of the date of the financial statements.
The Board considered, but tentatively decided not to propose, disclosure of recipient compliance with commitments made in return for the tax abatement. The Board recognizes that this information is important to many financial statement users but does not believe that it is essential for understanding a government’s financial position or economic condition.

Level of Detail

The Board tentatively decided to propose general principles for disclosing tax abatement information:
  • The reporting government would disclose tax abatement information disaggregated between its own agreements and those of other governments.
  • The reporting government would disclose information individually or in the aggregate.
  • The reporting government would present agreements by major program for its own abatements and in the aggregate for the abatements of other governments.
The Board then considered the impact of these general disclosure principles on the specific disclosures it had tentatively agreed to propose. Consequently, the Board tentatively decided a disclosure of the years remaining on a tax abatement would no longer be proposed due to concerns about the practicality of disclosing the information and its usefulness when aggregated. The Board tentatively decided to propose that the remaining tax abatement disclosures tentatively agreed to at the May and July meetings—other commitments made by the reporting government, commitments made by recipients, information about provisions for recapturing abated taxes, and general descriptive information—would adhere to the three general disclosure principles.

The Board tentatively decided to propose the following regarding the tentative disclosures:
  • The types of commitments the reporting government has made (other than to reduce taxes) as part of tax abatement agreements, as well as the most significant individual commitments
  • The types of commitments made by tax abatement recipients, by major program, but only for a government’s own abatements; this disclosure would not be proposed for the tax abatement agreements of other governments.
The Board tentatively decided to propose that the tax abatement disclosures generally be included in notes to the financial statements as long as the agreements remain in effect. However, the disclosure of other commitments made by a government would cease after the government has fulfilled its commitment.

Irrevocable Charitable Trusts

The Board began deliberations on the Irrevocable Charitable Trusts project in July, focusing on defining the scope of items that will be covered by the project. The Board discussed whether to include the following issues in the scope of the project:
  • Beneficial interests in resources held by unrelated third parties for the benefit of the government (whether the resources held are for the full benefit of the government or there is a split-interest agreement in place)
  • Methodology for the measurement and remeasurement of liabilities for split-interest agreements in which the government, or a component unit of the government (that reports under GASB guidance), is holding the assets
  • Guidance for the treatment of liabilities recognized by the component unit for the benefit of the primary government
  • Disclosures related to beneficial interests held by third parties
  • Disclosures related to split-interest agreements that the government (or its component unit) holds.
The Board tentatively decided to not factor legal structures in the consideration of the scope of the project. It tentatively agreed to define the scope of the project as follows: To consider (a) recognition, measurement, and disclosure of beneficial interests in resources held by third parties that are outside the reporting entity and (b) expanded guidance on recognition, measurement, and disclosure for split-interest agreements for which the government or its component units administer the assets.

Pre-Agenda Research

The Board received two reports summarizing pre-agenda research conducted by the staff on two topics: asset retirement obligations and blending requirements for certain BTAs. No deliberations were conducted and no tentative decisions were made. At its August 2014 meeting, the Board expects to consider whether to add projects to the GASB’s current technical agenda on these two topics.