Leases—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. 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 and GASB Statements No. 13, Accounting for Operating Leases with Scheduled Rent Increases, No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, and No. 65, Items Previously Reported as Assets and Liabilities. Statement 62 incorporated the provisions of FASB Statement No. 13, Accounting for Leases, as amended and interpreted, into the GASB’s authoritative literature.
Statement No. 87, Leases, approved June 2017
- Accounting and Financial Reporting Issues
- Project History
- Recent Minutes
- Minutes Archive
- Task Force
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 governments 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. This project provides an opportunity for the Board to consider whether operating leases meet the definitions of assets and liabilities.In 2010 and 2013, the FASB and the International Accounting Standards Board (IASB) issued Exposure Drafts proposing to replace private sector guidance for leases. The IASB and FASB issued final guidance in January and February 2016, respectively. Because of the similarities between private-sector leasing guidance and the current public-sector leasing guidance and the significant changes of the revised FASB/IASB guidance, the project staff received inquiries regarding whether there are any plans for the GASB to update its leasing guidance.
The GASB undertook this project during the final stages of the similar FASB and IASB projects to maximize efficiency and timeliness. A simultaneous lease accounting project on the GASB agenda provided the opportunity to follow the progress of the FASB and IASB projects to assess on a contemporaneous basis new and amended leasing guidance in the context of the state and local government environment. The GASB project provides an opportunity to reassess the existing GASB guidance, as well as consider improvements in the FASB and IASB projects in the context of the unique nature of governmental entities and the complexities of their leasing transactions.
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.
Accounting and Financial Reporting Issues: The major topic being considered is the forms of financial reporting display and disclosure that would meet financial statement user needs. The project is considering the following issues:
- Are current accounting and financial reporting standards, including the distinction between types of leases, appropriate to meeting essential user needs?
- If current standards are not considered adequate, what other requirements should be considered?
- Pre-agenda research approved: April 2011
- Added to current technical agenda: April 2013
- Task force established? Yes
- Deliberations began: August 2013
- Preliminary Views approved: November 2014
- Comment period: November 2014–March 2015
- Field test completed: March 2015
- Public hearings held: April 2015
- Redeliberations began: April 2015
- Exposure Draft issued: January 2016
- Comment period: January–May 2016
- Public hearing held: June 2016
- Redeliberations began: August 2016
- Final Statement issued: June 2017
- Implementation issue discussed: August 2022
Minutes of Meetings, October 11–12, 2022
The Board discussed alternatives for clarifying authoritative guidance with respect to cloud storage. The Board tentatively decided to amend the definition of a subscription-based information technology arrangement by replacing “IT software, alone or in combination with tangible capital assets” with “IT assets.”
Minutes of Meetings, August 24–26, 2022
The Board discussed potential diversity in practice related to whether to apply Statement No. 87, Leases, or Statement No. 96, Subscription-Based Information Technology Arrangements, to certain cloud computing arrangements. The Board tentatively decided that the authoritative guidance should be clarified. The Board then discussed various interpretations on the application of the existing guidance.