Implementation Guidance—Leases

Project Description: The objective of this project is to publish question-and-answer guidance to assist state and local governments and other stakeholders in addressing implementation issues associated with Statements No. 87, Leases.

Status:
Implementation Guide No. 2019-3, Leases, cleared for issuance: August 2019
 

• Background
• Accounting and Financial Reporting Issues
• Project History
• Recent Minutes
• Task Force
• Project staff:
  • Deborah Beams

Implementation Guide for Leases—PROJECT PLAN

Background: Specific issues were raised by respondents to the Exposure Draft, Leases, which were identified as candidates for consideration in an Implementation Guide. The staff is beginning to receive questions about the standards during speaking engagements, and technical inquiries are being submitted by stakeholders. The project staff anticipates a sustained high volume of questions once governments begin planning for their implementation of Statement 87.

In addition, the project staff has been monitoring implementation issues that the FASB is addressing relative to their recent leases guidance. The issues the FASB is addressing may have implications for implementation of Statement 87 to the extent that the leases standards are similar.

Accounting and Financial Reporting Issues: This project addresses issues related to the key aspects of Statement 87. Potential topics include but are not limited to:

1. Scope of the standards and application of the definition of a lease
2. Identifying the term of a lease
3. Short-term leases
4. Lessee recognition, measurement, and disclosure
5. Lessor recognition, measurement, and disclosure
6. Lease incentives
7. Leases with multiple components
8. Lease modifications and terminations
9. Subleases
10. Sale and leaseback and lease and leaseback transactions
11. Intra-entity leases
12. Leases between related parties 

Guidance would be limited to clarifying, explaining, or elaborating on the standards contained in Statement 87.

Project History:

• Added to current technical agenda: December 2017
• Consultative group appointed? Yes
• Deliberations began: December 2018
• Exposure Draft cleared: February 2019
• Comment period: March-April 2019
• Implementation Guide No. 2019-3, Leases, cleared for issuance: August 2019

Implementation Guidance for Leases—Recent Minutes

Minutes of Teleconference, August 5, 2019

The Board reviewed a ballot draft of the final Implementation Guide No. 2019-3, Leases. The Board did not object to the issuance of the Implementation Guide.

Minutes of Meetings, July 16–18, 2019
 
The Board discussed feedback received from respondents to the Exposure Draft of the proposed Implementation Guide, Leases. The Board considered the project staff’s recommendations for potential modifications to certain proposed questions and answers in response to that feedback. Question numbers refer to the preballot draft. The Board did not object to the project staff’s recommendations, which were as follows:

• No additional guidance should be provided at this time on transactions that involve services as consideration.
• No additional guidance should be provided at this time on accounting for transactions that do not meet the definition of a lease because they are not exchange or exchange-like.
• No additional guidance should be provided at this time for cell phone tower or antenna placement agreements.
• The answer to Question 4.10 should be modified for clarifying edits.
• No additional guidance should be provided at this time for transactions involving land for a nominal fixed amount with usage royalties.
• Question 4.9 should not be included in the final guide.
• No footnote should be added to Question 4.13 that would suggest that stakeholders consider state and local laws which govern contracts.
• No additional guidance should be provided at this time on backdated lease contracts.
• Question 4.14 should be modified for clarifying edits and the bargain renewal option should be changed to a 30 percent discount for 5 years.
• No additional guidance should be provided at this time on a lessor and lessee assessing the lease term differently.
• The fact pattern in Questions 4.15 and 4.16 should be clarified to state that the cancellation penalties are significant such that it is reasonably certain that the lease will not be cancelled.
• No consideration should be given at this time to potential additional circumstances in which multiple contracts are considered in substance to be one contract.
• Question 4.20 should not reference the paragraphs on lease modifications in Statement No. 87, Leases.
• Question 4.23 should not address disclosure of capitalization policies.
• Renewal periods should not always be excluded from the lease term if the payment amounts are unknown.
• Governments should not be limited to estimating unknown payment amounts based on the last known payment amount.
• Question 4.28 should be modified to specify that there is no fixed minimum payment amount.
• Question 4.30 should not address amortization of the discount on the lease liability when significant payments are not due until the end of the lease.
• The principal and interest numbers in Question 4.31 should not be updated to show greater declines in fair value of the underlying asset during the first part of the lease.
• Question 4.32 should not reference the guidance for contracts with multiple components or emphasize the difference between lease and nonlease construction period payments.
• A reference to Question 4.12 should be added to Question 4.32 and “(assets)” should be included after the first use of the word “prepayments.”
• Question 4.34 should be modified for clarifying edits and no guidance should be provided at this time on changes in accounting or measurement of capital assets.
• Question 4.36 should not address insurance policies.
• No additional guidance should be provided at this time on the aggregation of information in lease disclosures.
• Question 4.40 should not be modified to provide further guidance on the presentation of lease assets within the capital asset disclosure.
• No reference to specific Federal Aviation Administration guidance should be added to Question 4.46.
• The answer to Question 4.48 should be a separate receivable rather than added to the existing lease receivable.
• The answer to Question 4.58 should be modified for clarifying edits. 
• No modifications should be made to the fact pattern in Question 4.60.
• No additional guidance should be provided at this time on what constitutes at or near the same time with respect to contract combinations.

Some topics for which the Board tentatively agreed not to provide additional guidance in the final guide may be considered for future Implementation Guides.
 
The Board also reviewed a preballot draft of final Implementation Guide, Leases, and provided suggestions for clarifying edits. The Board did not object to moving forward with a ballot draft of a final Implementation Guide, which will be discussed at the August 2019 Board teleconference.

Minutes of Meetings, June 5–6, 2019
 
The Board discussed feedback received from respondents to the Exposure Draft of the proposed Implementation Guide, Leases. The Board considered the project staff’s recommendations for potential modifications to certain proposed questions and answers in response to that feedback. The Board did not object to the project staff’s recommendations, which were as follows:

• No additional guidance should be provided on what value constitutes exchange or exchange-like with respect to easements.
• The question and answer to Question 4.3 should be edited to clarify that while obtaining an easement creates an intangible asset for the government, the underlying asset is a tangible asset.
• Question 4.12 should not be included in the final guide.
• The answer to Question 4.5 should be modified so that the payments are considered variable lease payments.
• Question 4.13 should be modified to clarify that the contract does not convey control of the underlying asset.
• The answer to Question 4.21 should be modified to include a reference to paragraph 12 of Statement No. 87, Leases.
• Question 4.28 should not be included in the final guide.
• The question and answer to Question 4.60 should be modified to reflect the guidance provided in paragraph 53b of Statement 87.
• The question and answer to Question 4.62 should be modified to clarify that the equipment lease and software license are distinct components of the contract.
• The answer to Question 4.80 should be modified to state that an existing capital lease asset at transition should be adjusted to the same amount as the lease liability. 

The Board also discussed respondent feedback requesting additional questions and answers to be considered in the development of future implementation guide updates.
 
The Board did not object to moving forward with a preballot draft of a final Implementation Guide, Leases, that will be discussed at the July 2019 Board meeting.

Minutes of Teleconference, February 19, 2019
 
The Board reviewed a ballot draft of an Exposure Draft of a proposed Implementation Guide, Leases, and provided suggestions for clarifying edits. The Board unanimously voted not to object to the issuance of an Exposure Draft of a proposed Implementation Guide.

Minutes of Meetings, January 29–31, 2019
 
The Board reviewed a preballot draft of an Exposure Draft of a proposed Implementation Guide, Leases, and provided suggestions for clarifying edits. The Board did not object to a comment period ending April 30, 2019 for the Exposure Draft of the Leases Implementation Guide.
 
Minutes of Meetings, December 17–19, 2018

The Board reviewed potential questions and answers related to an implementation guide for leasing activities, provided suggestions for clarifying edits, and tentatively did not object to the proposed questions and answers, as modified. The Board also did not object to moving forward with a preballot draft of a proposed Implementation Guide.