Minutes Archive

Leases—Reexamination of NCGA Statement 5 and GASB Statement 13

Minutes of Teleconference, June 12, 2017

The Board reviewed and provided clarifying edits on the ballot draft of the final Statement, Leases. The Board then voted unanimously to approve the issuance of Statement No. 87, Leases. (Note: Mr. Previdi submitted his vote after the meeting.)

Minutes of Meetings, May 23–25, 2017

The Board reviewed a preballot draft of the final Statement, Leases, and provided clarifying edits on the draft document. The Board also tentatively decided that modifications of lease contracts that lengthen leases should result in remeasurement rather than be reported as separate leases. The Board then agreed to move forward to a ballot draft of the final Statement.

Minutes of Meetings, April 12–14, 2017

The Board reviewed a draft of the Summary, Standards, and Background sections of the proposed Statement, Leases, and provided clarifying edits on the draft document. The Board then agreed to move forward to a preballot draft of the final Statement.

Minutes of Meetings, March 7–9, 2017

The Board reviewed a draft of the Standards section of the proposed Statement, Leases, and provided clarifying edits on the draft document.

Minutes of Teleconference, February 6, 2017

The Board concluded initial redeliberations on the proposals in the Exposure Draft, Leases.

The Board tentatively decided to carry forward the proposal that governments generally separate contracts into lease and nonlease components and separate contracts that contain multiple underlying assets. Next, the Board tentatively agreed that the final Statement need not provide an explicit exception for contracts with insignificant nonlease components, noting that the Statement need not be applied to immaterial items.

The Board then tentatively agreed to carry forward to the final Statement the criteria in paragraph 54 of the Exposure Draft for separation of leases involving multiple underlying assets. In response to respondent comments about the effect of capitalization policies, the Board tentatively agreed that the Basis for Conclusions should include a reference to Question 7.9.8 from Comprehensive Implementation Guide 2016-2017, which addresses capitalization issues.

The Board next considered a respondent comment about whether a right of substitution would cause a lease to be a service agreement. The Board tentatively agreed that the standards proposed in the Exposure Draft provide sufficient guidance to determine whether a contract that contains a service component is a lease or a pure service agreement.

The Board discussed the proposal set forth in the Exposure Draft for allocation of consideration to multiple lease components. The Board tentatively decided to modify the provisions to state that lessors and lessees should first use the prices for individual components that are included in the contract, as long as the price allocation does not appear to be unreasonable based on the terms of the contract and the use of professional judgement. The Board also tentatively agreed that, if a contract does not include prices for individual components or if those prices are not reasonable, lessors and lessees should use professional judgement to determine their best estimate for allocation of the contract price to each component. Professional judgment should maximize the use of observable information; for example, using readily available observable stand-alone prices. The Board also tentatively decided that the final standard should not include a policy election that would permit governments to not separate components of a contract for all leases with multiple components.

The Board next discussed whether additional guidance should be provided to further clarify the term readily available. The Board tentatively agreed that no additional guidance was needed.

In response to respondent comments, the Board also discussed (1) whether a lessor government would be required to identify the prices for each component and disclose those prices to the lessee government and (2) whether independent verification of stand-alone prices for each component should be required. The Board tentatively agreed that no additional guidance was necessary regarding those topics in the final Statement.

The Board then tentatively agreed to not carry forward the flowchart regarding allocation of consideration to multiple components.

The Board next discussed additional outreach that was conducted regarding guidance for lease incentives. The Board tentatively agreed that the Standards section of the final Statement should include a definition of the term lease incentive as follows:


Next, the Board discussed reporting guidance for lease incentives and tentatively agreed that the Standards section of the final Statement should include the following guidance:


In response to respondent comments, the Board tentatively decided to delay the effective date one year. The Statement would be effective for periods beginning after December 15, 2019.

The Board then discussed, and tentatively agreed to carry forward to the final standard, the transition provisions in paragraphs 78–80 of the Exposure Draft, with a modification to paragraph 78 to indicate that earlier application of the guidance is encouraged.

The Board discussed respondent requests to include illustrations or examples, and tentatively decided that illustrations and examples need not be included in the final Statement but would be considered in the future as part of potential implementation guidance.

The Board next discussed whether the expected benefits of information to users and other stakeholders from the requirements set forth in the final standard exceed the anticipated costs to preparers and other stakeholders. The Board tentatively agreed that the perceived implementation and ongoing costs are justified when compared to the expected benefits associated with the requirements to be included in the final Statement.

Lastly, the Board discussed the characteristics of the financial information that would be provided as a result of the final standard. The Board tentatively agreed that the accounting and financial reporting requirements to be presented in the final standard would produce financial information that meets the needs of users, results from economic or financial events affecting the assessment of the governmental reporting entity, is relevant to reporting objectives, and falls within an appropriate information category in general purpose external financial reports.

Minutes of Meetings, January 17–19, 2017

The Board continued redeliberations on the proposals in the Exposure Draft, Leases.

The Board tentatively decided to carry forward an exception to the proposed lessor recognition and measurement guidance for certain regulated leases, such as airport-aeronautical agreements and other leases with similar characteristics, but with modifications to address respondent concerns. The Board tentatively agreed that, to qualify for the exception, the lease must be subject to external laws, regulations, or legal rulings that establish all of the following requirements: (a) the lease rates cannot exceed a reasonable amount, with reasonableness being subject to determination by an external regulator; (b) lease rates should be similar for lessees that are similarly situated; and (c) the lessor cannot deny potential lessees the right to enter into leases if facilities are available, provided that the lessee’s use of the facilities complies with generally applicable use restrictions.

The Board next discussed additional research on the proposed general lessor disclosure in paragraph 49b, which would require disclosure of the carrying amount (and accumulated depreciation) of assets on lease, or held for leasing, by major classes of assets. The Board tentatively decided not to carry that disclosure forward (except for certain regulated leases). The Board next tentatively agreed to carry forward the proposed disclosures for certain regulated leases, with modifications intended to conform with edits tentatively made to the general lessor disclosure requirements.

Next, the Board discussed, and tentatively agreed to carry forward, the provisions in paragraphs 63–68 of the Exposure Draft for lease terminations and modifications, with clarifying edits.

The Board then discussed the provisions in paragraphs 69 and 70 for sublease transactions. The Board tentatively agreed to carry forward those provisions and to add a discussion in the Basis for Conclusions explaining why a transaction that relieves the original lessee of its obligation under the lease is a lease termination rather than a sublease.

The Board also tentatively agreed to carry forward the provisions in paragraphs 71–75 of the Exposure Draft regarding the treatment for sale-leaseback and lease-leaseback transactions, with clarifying edits.

The Board tentatively decided to carry forward the provisions in paragraphs 76 and 77 for the treatment of intra-entity leases and leases between related parties, without modifications.

Lastly, the Board reviewed aspects of the proposed lessee and lessor reporting models for which symmetry of accounting had not been fully achieved. The Board tentatively agreed that the remaining areas of differences between lessee and lessor accounting are warranted.

Minutes of Meetings, December 5–8, 2016

The Board continued redeliberations on the proposals in the Exposure Draft, Leases, discussing the following topics: the lessor model, lessor disclosure requirements, and the notion of symmetry between the proposed accounting guidance for lessees and lessors.

The Board tentatively agreed to carry forward the provision that a lessor should recognize a lease receivable and a deferred inflow of resources at the beginning of the lease term and any initial direct costs as an outflow. The Board also tentatively agreed to carry forward the provisions for initial measurement of the lease receivable.

The Board next discussed the provisions of the Exposure Draft regarding the calculation of interest revenue and remeasurement of the lease receivable and tentatively decided to carry these provisions forward. Consistent with the Board’s tentative modifications to the lessee remeasurement guidance, the Board tentatively decided to add a remeasurement criterion for when a contingency is resolved at a later date such that variable payments become fixed. The Board also tentatively decided to make additional modifications to paragraphs 42 and 43 to conform with modifications tentatively made to the lessee remeasurement guidance, and to provide related edits to the explanations in paragraph B34. In addition, the Board tentatively decided to modify the language in paragraphs 42 and 43 (and in related lessee remeasurement guidance) to clarify that assessment of the need to remeasure is based on the effects of the collective changes since the previous measurement.

The Board then discussed the provisions in the Exposure Draft regarding the reporting of a deferred inflow of resources and tentatively decided to carry them forward with a minor technical modification.

The Board next discussed and tentatively decided to carry forward the provisions regarding lessor reporting of the underlying asset and to add an explanation in the Basis for Conclusions that asset retirement obligations related to the underlying asset are addressed by Statement 83.

The Board next tentatively agreed to carry forward the provision that lessors not apply the recognition and measurement provisions to leases of assets that are investments.

In response to respondent comments, the Board considered a potential exception to the lessor recognition and measurement guidance for nonaviation leases at airports, such as concession leases. The Board tentatively agreed that an exception is not appropriate.

In addition, the Board tentatively agreed to carry forward the provisions for reporting in governmental funds, with a minor technical modification. The Board also tentatively decided to modify the language in the Basis for Conclusions to clarify that a lease receivable is reported at its full amount in governmental funds regardless of whether amounts are available.

Next, the Board discussed the lessor disclosure requirements. The Board tentatively agreed that the lessor disclosure requirements should be carried forward. The Board tentatively agreed that additional disclosures regarding the existence of renewal and termination options is not needed. Lastly, the Board tentatively agreed to modify paragraph 49c to clarify the nature of the disclosure.
The Board also discussed the notion of symmetry between the proposed accounting guidance for lessees and lessors. The Board members tentatively agreed that symmetry between lessee and lessor accounting continued to be an important consideration that should be carried forward.

Minutes of Meetings, October 25–27, 2016

The Board continued redeliberations on the proposals in the Exposure Draft, Leases, discussing the following topics: the lessee model, contracts that are treated as financed purchases, leases with purchase options, and lessee disclosure requirements.

The Board tentatively agreed to carry forward the provision that the lease liability and intangible right-to-use lease asset be recognized at the beginning of the lease term. The Board redeliberated on the provisions for the initial measurement of the lease liability, including comments received from some respondents to the Exposure Draft regarding lease incentives. The Board tentatively agreed to carry forward, without amendment, the provisions for initial measurement of the lease liability.

The Board next discussed the provisions in paragraphs 17 and 18 of the Exposure Draft for discounting of the lease liability. The Board tentatively agreed to carry forward the provision for discounting the lease liability. The Board also tentatively agreed to remove the discussion from paragraph B32 of the Exposure Draft that some may consider to be guidance relating to discounting.

The Board next redeliberated the criteria for remeasurement of the lease liability and tentatively decided to carry them forward. In response to respondent comments, the Board tentatively decided to provide edits that clarify, among other things, that the changes identified in paragraph 19 and 21 are not lease modifications and that the significance of the changes should be considered both individually and in the aggregate. The Board also tentatively decided to add a remeasurement criterion for when a contingency is resolved at a later date, after which variable payments become fixed.

The Board then discussed the provisions regarding the lease asset, specifically addressing respondent comments concerning the treatment of leasehold improvements and the amortization of the lease asset. The Board tentatively decided to add lessor-provided leasehold improvements as an example of a lease incentive in the Basis for Conclusions and to clarify that interest and amortization expense are to be reported separately. In addition, the Board tentatively agreed to carry forward the provisions for reporting in governmental funds with clarifying edits.

The Board also discussed contracts that transfer ownership. The Board tentatively agreed to carry forward the provision, with clarifying edits, that contracts that transfer ownership be reported as financed purchases or sales of the asset. The Board tentatively agreed not to include further guidance on this topic in the final Leases Statement. The Board also reaffirmed its prior tentative decision that leases containing purchase options that the lessee is reasonably certain of exercising should be treated as a lease, not as a financed purchase or sale.

Next, the Board discussed the lessee disclosure requirements. The Board tentatively agreed not to provide guidance regarding where to place and how to structure lease disclosures in the notes to the financial statements, including commitments under leases that have not yet begun. The Board noted that preparers should continue to use professional judgment to determine how to present the proposed disclosure requirements in a manner that is useful and understandable to users. The Board also tentatively agreed that the lessee disclosures should be carried forward to the final Statement. The Board tentatively agreed that the disclosures should not be amended to specifically address concerns regarding impacts on competitive advantage. Additionally, the Board tentatively agreed that a statement of objectives for the notes was not essential and that additional disclosures were not needed. Lastly, the Board also tentatively agreed to modify paragraph 31a(2) to limit its applicability to residual value guarantees not included in the lease liability, parallel to the requirement in paragraph 31a(1).

Minutes of Meetings, September 13–15, 2016

The Board continued redeliberations on the proposals in the Exposure Draft, Leases, discussing the foundational principle, the classification of cash flows related to a lease transaction, and the definition of a short-term lease.

The Board redeliberated the foundational principle of the proposed leases guidance that leases within its scope are financings of the right to use an underlying asset. After considering respondent comments, the Board tentatively agreed that the foundational principle should be carried forward to the final Statement.

The Board next discussed the classification of cash flows related to leases. In response to informal feedback and comments made at the public hearing, the Board tentatively decided to amend paragraph 13 of the Exposure Draft to explicitly state that a lessee’s intangible right-to-use lease asset is a capital asset. The Board also tentatively decided that guidance on the reporting of leases in the statement of cash flows should not be included in the Standards section of the final Statement. However, the Board did not object to including conforming amendments to Question 2.27.5 of Implementation Guide 2015-1 in the codification instructions of the final Statement. This question had been proposed for deletion through the Exposure Draft’s codification instructions, but, with the proposed amendments, it would address the categorization of the cash flows among operating, noncapital financing, and capital and related financing activities.

During the discussion regarding the short-term lease exception, the Board tentatively agreed to carry forward the concept of “maximum possible term” in the definition of a short-term lease. The Board also tentatively decided that lessee-only cancelation options should not affect the determination of the maximum possible term. Therefore, the Board tentatively decided to delete the third sentence of paragraph 60 of the Exposure Draft, which proposed a different notion of maximum possible term for leases cancelable only by the lessee. The Board also tentatively decided to carry forward the maximum possible term provision for a short-term lease—12 months or less. Finally, the Board considered clarifying edits to the short-term leases reporting guidance in paragraphs 61 and 62 of the Exposure Draft and tentatively approved edits so that the guidance would state what should be reported rather than what should not be reported.

Minutes of Meetings, August 10–12, 2016

The Board started redeliberations on the proposals in the Exposure Draft, Leases, commencing with the following topics: the definition of a lease, the scope of the leases guidance, and the lease term. The Board tentatively concluded that further guidance is not needed to clarify that the right-to-use asset is an intangible asset. The Board also tentatively concluded that further guidance is not needed on the degree of formality needed for a lease contract.

The Board next considered respondent comments about power purchase agreements, grazing and hunting rights, and land use agreements for farming, and tentatively agreed that explicitly mentioning the notion of control in the definition of a lease could help in determining situations in which contractual arrangements meet the definition of a lease. In further consideration of respondent comments about the definition of a lease, the Board tentatively decided to specifically note that the right to use a nonfinancial asset refers to the right to use another entity’s underlying asset. Thus, the definition of a lease would refer to “a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset)” (emphasis added). The Board also tentatively decided that the right-to-use asset should be what is “specified in the contract,” which would include the right to use the underlying asset for portions of time during a lease term, such as leases for certain days each week or for certain hours each day.

The Board also tentatively agreed to add guidance for determining when a lease contract conveys control of the right to use the underlying asset. The guidance would be similar to the FASB guidance but would be based on the notions of control found in Concepts Statement No. 4, Elements of Financial Statements, including (1) the right to obtain the present service capacity from use of the underlying asset and (2) the right to determine the nature and manner of use of the underlying asset. The control criteria would be applied to the right-to-use asset as specified in the contract. The Board tentatively agreed that the criteria would not limit a lease to contracts that convey “substantially all” of the present service capacity from use of the underlying asset.

The Board tentatively agreed to specifically exclude all supply contracts (such as power purchase agreements) from the scope of the leases guidance. In further considering hunting and grazing rights, the Board tentatively agreed that no additional guidance in the final Statement was considered necessary. With reference to comments about substantive rights of substitution, the Board tentatively agreed that the definition of a lease does not need to explicitly state that the asset be identified. The Board also tentatively agreed that additional guidance for determining when a substantive right of substitution exists was not considered necessary in the final Statement.

The Board next discussed issues primarily related to the scope of the guidance and tentatively decided not to add infrastructure as an example of a nonfinancial asset. The Board tentatively agreed to add inventory to the scope exclusions in the final Statement. The Board tentatively concluded that historical works of art and assets under construction should not be excluded from the scope of the leases guidance. The Board also tentatively reaffirmed that the following should not be excluded from the scope of the final Statement: leases of assets that are investments, certain regulated leases, and short-term leases.

The Board tentatively concluded that no further guidance was necessary for determining whether cell phone tower and antenna placement agreements are leases.

The Board tentatively decided to add “living plants, and living animals” after timber as examples of biological assets rather than defining that term. The Board next tentatively agreed that additional guidance for contracts that involve both software and hardware and for contracts for cloud services and hosting services was not necessary at this time.

The Board tentatively agreed to not provide a quantitative threshold exception for lower value leases in the final Statement.

The Board tentatively agreed to supersede paragraphs 221, 225, 239, 240, and 254 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, and incorporate them into the final Statement. The Board also tentatively decided that leases in which the underlying asset is financed with outstanding conduit debt, unless both the underlying asset and the conduit debt are reported by the lessor should be excluded from the scope of the final Statement.

During the discussion regarding the lease term, the Board tentatively agreed to carry forward the requirement to include lessee renewal and termination options when assessing the lease term at the beginning of a lease. The Board also tentatively agreed that lessor-only options to extend (or not to terminate) the lease should be included in the lease term assessment. Lessees and lessors would be required to evaluate lessor-only options in the same manner as other options, based on whether it is reasonably certain that the option will be exercised.

The Board tentatively agreed to provide examples of cancelable periods and additional clarifying guidance in the text of the standard. The Board also considered comments on the probability threshold of reasonably certain used in evaluating the likelihood of an option being exercised and tentatively decided to carry that threshold forward. The Board tentatively agreed that no additional guidance is needed with respect to fiscal funding or cancellation clauses and nonpayment issues.

The Board tentatively decided to carry forward the lease term reassessment criteria from the Exposure Draft to the final Statement. The Board also tentatively decided to add the following criterion to the lease term reassessment criteria: “an event specified in the contract that obligates the lessee to extend or terminate the lease occurs, resulting in a change in the lease term.”

Minutes of Meetings, June 22–23, 2016

The Board reviewed a summary of due process comments received on the Exposure Draft, Leases. The Board provided comments on issues raised in respondent comments and discussed issues to be addressed in future redeliberations. No tentative decisions were reached by the Board.

Minutes of Teleconference, January 25, 2016

The Board reviewed a ballot draft of an Exposure Draft of a proposed Statement, Leases, and provided clarifying edits on the draft document. The Board then voted unanimously to approve the issuance of the Exposure Draft.

Minutes of Meetings, January 5–6, 2016

The Board reviewed a preballot draft of the proposed Exposure Draft, Leases, and provided clarifying edits on the draft document. The Board tentatively decided that the Exposure Draft should propose that only governments whose principal ongoing operations consist of leasing assets to other entities be required to disclose future lease payments that are included in the lease receivable, showing principal and interest separately.

Minutes of Meetings, October 6–8, 2015

The Board concluded redeliberations of major issues for the Leases project.

The Board first discussed the characteristics for exclusion of certain airport leases and similar leases. (The Board tentatively decided at the September 2015 meeting to further consider an exception to the leases recognition and measurement guidance for leases with characteristics of airport/airline agreements and similar leases.) The Board tentatively decided to propose excluding from lessor recognition and measurement those leases in which external laws, regulations, or legal rulings significantly limit the ability of the lessor to set rates in excess of costs, such as airport/airline agreements. The Board tentatively decided that those leases excluded from lessor recognition and measurement should continue to be accounted for based on the current guidance for operating leases and be required to provide the following disclosures, which mirror the disclosures proposed for lessors generally: 1) A general description of the agreement; 2) The carrying amount of assets subject to exclusive use by one counterparty under the agreement, by major class of assets, and the amount of accumulated depreciation; 3) The total amount of revenue recognized in the reporting period from the agreement, if the total for all similar agreements is not displayed on the face of the financial statements; 4) A schedule of future minimum payments under the agreement for each of the subsequent five years and in five-year increments thereafter; 5) The amount of revenue recognized in the reporting period for variable payments not included in the future minimum payments; and 6) If the government has issued debt for which the principal and interest payments are secured by payments under the agreement, the existence, terms, and conditions of options by the counterparty to terminate the agreement.

The Board then considered the remaining areas of existing leases guidance that had not yet been discussed in redeliberations. The Board tentatively decided that the Exposure Draft should not propose guidance on participation by third parties in leases. The Board tentatively agreed that the Exposure Draft should not propose guidance on leveraged leases. The Board also tentatively decided that the guidance on participation by third parties in leases and leveraged leases in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, should be eliminated.

The Board then discussed lessor disclosures of investment property, a topic that arose in response to the Board’s July 2015 decision that lessors would not recognize a receivable (and related deferred inflow of resources) when they lease out a tangible asset that meets the definition of an investment in Statement No. 72, Fair Value Measurement and Application. The Board tentatively decided that the Exposure Draft should not propose lessor disclosures for leases in which the underlying asset meets the definition of an investment except for the following, in addition to other currently required investment disclosures: If the government has issued debt for which principal and interest payments are secured by the lease payments, the existence, terms, and conditions of options by the lessee to terminate the lease.

The Board then reviewed all previous tentative decisions taking into consideration their effect on symmetrical recognition and measurement by lessees and lessors. The Board tentatively agreed that symmetry has been achieved to an appropriate extent and that the remaining differences between lessee and lessor accounting are justified, based on the Board’s previous tentative decisions.

The Board then reviewed differences between its proposed Leases guidance and the FASB’s proposed guidance (based on FASB’s 2013 revised Exposure Draft, Leases, and subsequent redeliberations), focusing on differences that had not yet been discussed during redeliberations. No modifications were made to the proposals based on this discussion.

The Board then discussed the transition and effective date of the proposed Leases guidance and the comment period for the Exposure Draft and tentatively decided that the Exposure Draft should propose an effective date for periods beginning after December 15, 2018, which is expected to be two years after issuance of the final standard. The Board tentatively decided that the proposed effective date provisions should allow rather than encourage early implementation. The Board also tentatively decided that the Exposure Draft should propose the following transition provisions:

In addition, the Board tentatively agreed to provide a 120-day comment period for the Exposure Draft.

The Board then discussed whether illustrations should be provided in the Exposure Draft and tentatively agreed that they are not needed.

The Board then discussed whether the expected benefits of information to users and other stakeholders from the Exposure Draft exceed the anticipated costs to preparers and other stakeholders. The Board tentatively agreed that the expected benefits associated with the requirements to be proposed in the Exposure Draft outweigh the perceived implementation and ongoing costs.

The Board then discussed the characteristics of the financial information that would be provided as a result of the proposed standard. The Board tentatively agreed that the accounting and financial reporting requirements to be proposed in the Exposure Draft would produce financial information that meets the needs of users, results from economic or financial events affecting the assessment of the governmental reporting entity, is relevant to reporting objectives, and falls within an appropriate information category in general purpose external financial reports.

Minutes of Meetings, September 1–3, 2015

The Board continued redeliberations of the Leases project taking into consideration public hearing testimonies, comment letters, and field test responses received during due process.

The Board first discussed airport leases and related issues. The Board tentatively decided to pursue an exception to the leases recognition and measurement guidance for leases with characteristics of airport/airline agreements and similar leases, with those characteristics to be identified.

The Board next discussed leases involving assets financed with outstanding conduit debt. The Board tentatively decided that the Exposure Draft should propose explicitly excluding such leases from its scope for lessor recognition and measurement unless both the asset and the conduit debt are reported by the lessor.

The Board then discussed issues related to lessee disclosures. The Board tentatively decided that the Exposure Draft should not propose clarifying guidance regarding the presentation of lessee disclosures. The Board also tentatively decided that the Exposure Draft should propose the disclosures for lessees as set forth in the Preliminary Views. In addition, the Board tentatively decided that the Exposure Draft should not propose any additional lessee disclosures not included in the Preliminary Views.

The Board then discussed issues related to lessor disclosures. The Board tentatively decided that the Exposure Draft should not propose clarifying guidance regarding the disclosure of the cost of assets on lease or held for lease. The Board tentatively agreed that the Exposure Draft should propose the lessor disclosures as set forth in the Preliminary Views. The Board also tentatively decided that the Exposure Draft should propose that leases may be grouped for disclosure purposes. The Board tentatively agreed that the Exposure Draft should not propose any additional lessor disclosures not included in the Preliminary Views.

The Board then discussed issues related to the short-term lease exception. The Board tentatively decided that the length of “short-term” should not be extended to longer than 12 months in the proposed definition of a short-term lease in the Exposure Draft. The Board tentatively agreed that the Preliminary Views’ proposal to use “a maximum possible term, including any options to extend” should not be replaced by “the lease term” in the proposed definition of a short-term lease in the Exposure Draft. The Board also tentatively agreed that the Exposure Draft should not propose edits or clarifications to the definition of a short-term lease. For short-term leases that include rent holidays (for example, one month free), the Board tentatively decided that the Exposure Draft should, consistent with the Preliminary Views, propose requiring recognition of lease payments based on the contract terms rather than allocating lease expense or expenditures over the rent holiday period. The Board tentatively agreed the Exposure Draft should not propose the requirement for lessees to disclose the amount of short-term lease expenses or expenditures.

The Board then discussed issues related to lease terminations and modifications. The Board tentatively decided that specific illustrations of accounting for lease terminations and modifications should not be included in the Exposure Draft. The Board tentatively agreed that the Exposure Draft should not include the statement that a lease modification is in essence a change in accounting estimate. The Board also tentatively decided that the Exposure Draft should propose the following exception to the accounting for lease modifications: if a lease modification gives the lessee an additional right-of-use not included in the original lease that is reasonably priced compared to its stand-alone price (in the context of a particular contract), then both the lessee and lessor should account for that additional portion of the modified lease as a new lease, separate from the original portion of the lease.

The Board then discussed issues related to subleases and leaseback transactions. The Board tentatively decided that the Exposure Draft should propose guidance on subleases. The Board tentatively agreed that the Exposure Draft should propose that subleases be accounted for separate from the original lease as set forth in the Preliminary Views. The Board also tentatively decided that the Exposure Draft should propose that any gain or loss on sale in a sale-leaseback transaction should be deferred over the term of the lease as set forth in the Preliminary Views. The Board tentatively decided that the Exposure Draft should not specifically address the treatment in governmental funds of the inflow of resources resulting from the sale in a sale-leaseback transaction. The Board tentatively agreed not to provide specific guidance on the determination of the fair value of the asset as provided in the determination of off-market terms in a sale-leaseback transaction. The Board also tentatively agreed to propose clarifying guidance on, but make no change to the substance of, the calculation of the present value of the lease payments at a market rate as provided in the determination of off-market terms in a sale-leaseback transaction. The Board also tentatively agreed that the Exposure Draft should propose guidance on the treatment of lease-leaseback transactions as set forth in the Preliminary Views.

The Board then discussed issues related to intra-entity leases (leases between a primary government and discretely presented component units or joint ventures) and agreed that no changes to the requirements in Statement No. 14, The Financial Reporting Entity, were necessary. Consistent with that, the Board tentatively decided that the Exposure Draft should not propose specific guidance on the elimination of lease transaction components of the primary government and a blended component unit, or lease transaction elements between a joint venture and a joint venture participant prior to the calculation of the equity interest.

Minutes of Meetings, July 21–23, 2015

The Board continued redeliberations of the Leases project taking into consideration public hearing testimonies, comment letters, and field test responses received during due process.

The Board first discussed whether and how the effects of adjustments to lease liabilities should affect the measurement of the corresponding lease asset under lessee accounting (an issue raised by a Board member at the June 2015 meeting). The Board tentatively decided to propose that when a lease liability is remeasured, the lease asset should be adjusted by the same amount as the lease liability. The Board tentatively decided that the Exposure Draft should not carry forward the provision from the Preliminary Views that the effects of a lease liability remeasurement due to a change in an index or rate used to determine variable lease payments that relates to the current period be recognized in the flows statement and instead proposed to recognize such changes as an adjustment to the lease asset.

The Board then discussed issues related to lessor recognition. The Board tentatively agreed that the Exposure Draft should carry forward a single lessor model for all leases based on the notion that all leases are financings. The Board also tentatively decided that the Exposure Draft should carry forward the requirement for lessors to recognize a lease receivable and a deferred inflow of resources for the lease. The Board tentatively agreed to carry forward to the Exposure Draft the Preliminary Views provision that the lessor not derecognize the underlying asset in the lease. The Board tentatively decided that the lessor accounting provision for leases in which an underlying asset meets the definition of an investment in the Exposure Draft should be revised so that the lessor in that case does not recognize a receivable and a deferred inflow of resources.

The Board then discussed issues related to lessor measurement and remeasurement. The Board tentatively agreed that the Exposure Draft should explicitly state that the reduction of the lease receivable due to uncollectible amounts should be balanced with a reduction in the deferred inflow of resources. The Board then discussed the rate on which variable lease payments are based. The Board tentatively decided that the Exposure Draft should carry forward the Preliminary Views provision that measurement of the lease receivable include variable lease payments that depend on an index or rate (such as the Consumer Price Index or a market interest rate). The Board also tentatively agreed that the Exposure Draft should carry forward the thresholds for contingent payments included in the measurement of the lease receivable, therefore, maintaining alignment with gain contingency guidance in GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Board tentatively agreed that the Exposure Draft also should carry forward the provision that the lessor discount the future lease payments using the rate the lessor charges the lessee, which may be implicit in the lease.

The Board tentatively decided that the Exposure Draft should include an explicit reference to existing GASB guidance on interest rate imputation as a potential means of determining the rate implicit in the lease. The Board also tentatively agreed that the Exposure Draft should carry forward the provision to allocate payments received first to accrued interest revenue and then to the lease receivable.

The Board tentatively agreed to clarify that the proposed receivable measurement guidance and proposed discount rate reassessment guidance for lessors would be required to be applied rather than considered. The Board also tentatively decided that the Exposure Draft should carry forward the receivable measurement criterion of “Change in lease term.” The Board tentatively agreed that a “Change in the index or rate used to determine variable lease payments” should not be a triggering event and should affect remeasurement only if the receivable is already being remeasured for another reason. The Board tentatively agreed that the Exposure Draft should carry forward the receivable remeasurement criterion of “Change in the rate the lessor charges the lessee.” The Board tentatively decided that the Exposure Draft should carry forward the discount rate reassessment criterion of “There is a change in the lease term.” The Board tentatively agreed that the proposed criterion of “The result of a change in the index or rate used to determine variable lease payments is expected to be significant” should not be carried forward in the discount rate reassessment guidance in the Exposure Draft. The Board tentatively agreed that the Exposure Draft should carry forward the discount rate reassessment criterion of “There is a change in the rate the lessor charges the lessee.”

The Board then tentatively agreed to not carry forward the provision that the effects of a lease receivable remeasurement due to a change in an index or rate used to determine variable lease payments that relates to the current period be recognized in the resource flows statement, separately from the effects of remeasurement for other reasons. Instead, such changes in the remeasurement of a lease receivable should be recognized with all other changes by adjusting the deferred inflow of resources.

The Board then discussed issues related to contracts with multiple components and contract combinations. The Board tentatively agreed that the Exposure Draft should carry forward the proposal that governments generally should separate contracts into lease and nonlease components. The Board tentatively decided that the Exposure Draft should carry forward the proposal that lessee governments separate lease contracts involving multiple underlying assets into multiple lease components if there are different lease terms or different underlying asset classifications. The Board tentatively agreed that the Exposure Draft should carry forward the proposal that lessor governments separate lease contracts involving multiple underlying assets into multiple lease components only if they have different lease terms. The Board also tentatively agreed that the Exposure Draft should not permit a lessee the use of a policy election to not separate lease components from nonlease components and account for the lease and nonlease components as a single lease unit. The Board tentatively decided that the Exposure Draft should not provide specific criteria for the types of contracts that could be reported as a single lease unit.

The Board tentatively decided that the Exposure Draft should propose that the allocation of consideration in a multiple component lease contract follow a three-step approach: (1) use any separate contract prices if reasonable, (2) use observable stand-alone prices if readily available, and (3) choose either to develop reasonable estimates to allocate consideration to remaining components or to treat remaining consideration as a single lease unit.

The Board tentatively decided that the Exposure Draft should not provide a de minimis exemption in the multiple components guidance. The Board tentatively agreed that additional disclosures should not be required for multiple component contracts that are reported as a single lease unit. The Board also tentatively decided that the Exposure Draft should not state the presumption that multiple contracts entered into at or near the same time with the same counterparty are not part of the same lease agreement. The Board tentatively agreed that no changes should be made to the proposed criteria for combining contracts in order to address master vendor agreements.

Minutes of Meetings, June 2–4, 2015

The Board continued redeliberations of the Leases project in response to public hearing testimonies and comment letters received during due process.

The Board began by completing its discussion of issues related to the scope of the Leases project that commenced at the April 2015 Board meeting. The Board tentatively decided to propose that contracts that transfer ownership of the underlying asset and do not contain termination options be reported as financed purchases of that asset, as noted in the Preliminary Views. The Board also tentatively agreed not to provide guidance on how to account for financed purchases of assets in the proposed Leases standard. However, the Board tentatively decided that the proposed Leases guidance should not exclude leases that contain a bargain purchase option or require them to be reported as financed purchases. Instead, bargain purchase options should be proposed to be treated as any other purchase options included in a lease.

The Board then redeliberated the foundational principle underlying the proposed Leases guidance. The Board tentatively agreed to carry forward the foundational principle stated in the Preliminary Views that all leases are financings of the right to use an underlying asset.

Next, the Board discussed issues relating to the lease term. The Board tentatively agreed to propose that the defined lease term continue to include evaluation of the lessee’s option to extend or terminate the lease. The Board also tentatively agreed that further guidance on month-to-month holdover periods is not necessary in the text of the standard of the proposed Leases guidance.

The Board tentatively decided to propose that the term probable be replaced with reasonably certain in determining the threshold that should be used to evaluate the likelihood of an option being exercised. The Board also tentatively decided to propose that the term all relevant factors be used in the assessment of options and that significant economic incentives continue to be listed as an example of those factors. The Board tentatively agreed to propose that substantial penalty be added to a list of examples of significant economic disincentives. Next, the Board tentatively decided that the proposed Leases guidance should continue to exclude any lessor-only cancellation option periods from the lease term. The Board tentatively decided not to provide further guidance for how cancellation options affect the value of the lease in the proposed standard.

The next portion of the Board’s discussion of lease term focused on reassessment. The Board tentatively agreed to propose that, for both the lessee and lessor, the lease term be reassessed only when a renewal option is elected contrary to the original lease term determination. The Board also tentatively agreed that further guidance on the term election is not necessary in the text of the standard. The Board tentatively decided that fiscal funding clauses should be mentioned as a type of termination option in the proposed Leases guidance and therefore should be considered in the same manner as any other termination option for the purposes of determining the lease term.

The Board then started redeliberations of the lessee model by discussing recognition issues. The Board tentatively decided that the Exposure Draft should carry forward the Preliminary Views guidance that a lessee should recognize a lease liability and a right-to-use intangible asset for all leases other than short-term leases. The Board tentatively decided that the Exposure Draft should not provide an example of instances in which a lessee may enter into a lease agreement in which the lease asset meets the definition of an investment. The Board also tentatively agreed that the Exposure Draft should not directly incorporate the existing guidance for lessees regarding accounting for leases in governmental funds from National Council on Governmental Accounting (NCGA) Statement 5, Accounting and Financial Reporting Principles for Lease Agreements of State and Local Governments.

The Board continued deliberations of the lessee model by discussing measurement issues. The Board tentatively decided that the Exposure Draft should not include examples of “other payments that are probable of being required based on an assessment of qualitative factors” as stated in paragraph 7g, Chapter 4, of the Preliminary Views. The Board then tentatively decided that the Exposure Draft should replace the term probable with reasonably certain with respect to when certain lease payments should be included in the measurement of the lease liability. The Board tentatively decided that the Exposure Draft also should not modify the liability measurement components guidance for renewal options.

The Board tentatively decided that the Exposure Draft should carry forward provisions that the lease liability should be discounted. The Board then tentatively agreed that the liability would not be measured based on the fair value of the underlying asset. Rather, the Exposure Draft should carry forward, without any additional modification, the provision to measure the lease liability as the discounted amount of future lease payments using the rate the lessor charges the lessee, or in situations where the lessor’s rate is not readily determinable, using the lessee’s incremental borrowing rate. The Board also tentatively decided to propose carrying forward the provisions that the measurement of the lease asset be based on the lease liability, not fair value of either the underlying asset or the intangible lease asset itself.

The Board tentatively decided that the Exposure Draft should not include an example of a situation in which a government would enter into a lease for a period longer than the useful life of the underlying asset. The Board also tentatively agreed that the Exposure Draft should not include clarifying guidance regarding treatment of a land lease that has been previously amortized and subsequently purchased.

The Board then continued redeliberations of the lessee model with discussion of guidance on the remeasurement of lease liability and the reassessment of the discount rate. The Board tentatively agreed that the proposed liability remeasurement guidance and proposed discount rate reassessment guidance should be clarified. The Board discussed certain triggering events for when the lessee might remeasure the lease liability. The Board tentatively decided that the triggering event of “a change in the index or rate used to determine variable lease payments” should be changed in the Exposure Draft so that a lessee will remeasure the variable lease payments only if the liability is already being remeasured for another reason. The Board tentatively decided that the Exposure Draft should carry forward, with clarifying language, the following triggering events: (1) There is a change in the rate the lessor charges the lessee, if that rate is used as the initial discount rate; (2) An assessment of qualitative factors indicates that the likelihood of a residual value guarantee being paid has changed from reasonably certain to not reasonably certain, or vice versa; and (3) There is a change in the amounts that are reasonably certain of being paid. The Board also tentatively decided that if the lessee’s incremental borrowing rate is used as the initial discount rate to measure the lease liability, when there is a change in the lessee’s incremental borrowing rate, the lessee should not be required to remeasure the lease liability. The Board then tentatively decided that the Exposure Draft should not carry forward the discount rate reassessment criterion of “The result of a change in the index or rate used to determine variable lease payments is expected to be significant.”

The Board continued redeliberations of the lessee model by discussing expense recognition. The Board tentatively decided that the Exposure Draft should carry forward the requirement to amortize the discount on the liability as interest expense/expenditure and to amortize the lease asset as a separate amortization expense. The Board then deliberated presentation issues related to the lessee model. The Board tentatively decided that the existing guidance on presentation of capital assets apply to the lease asset, and therefore, no separate guidance on the presentation of the lease asset is necessary. The Board also tentatively decided that the existing guidance on presentation of general long-term liabilities applies to the lease liability, and therefore, no separate guidance on the presentation of the lease liability is necessary. The Board finished its deliberations of the lessee model by tentatively agreeing that the expected benefits provided by the proposed lessee model outweigh the anticipated costs of implementation and application.

Finally, the Board addressed cost relief issues related to the lessee model. The Board tentatively agreed that the Basis for Conclusions of the Leases Exposure Draft should clarify that a government’s use of capitalization policies to operationalize the materiality box should not result in failure to report lease assets or liabilities that are material collectively. The Board also tentatively agreed that an exception for leases of (individually) small items should not be provided in the proposed Leases guidance. Lastly, the Board tentatively decided that grouping similar leases together for the purpose of financial reporting (known as the portfolio approach) should be addressed in the Basis for Conclusions.

Minutes of Meetings, April 21–23, 2015

The Board began its discussion of the Leases project by reviewing the results of the leases field test. The Board then began redeliberations of the Leases project in light of comment letters, field test feedback, and public hearing testimonies received during due process. The Board discussed the general comments received regarding differences between the FASB and GASB leases proposals and tentatively decided that the Basis for Conclusions should explain why the Board chose certain alternatives over others.

The Board then discussed issues related to the definition of a lease. The Board tentatively agreed that the Exposure Draft should carry forward the term contract, rather than the term agreement, within the definition of a lease. With regard to the term nonfinancial asset, the Board tentatively decided that the Exposure Draft should clarify the meaning of this term. Furthermore, the Board tentatively agreed that the Exposure Draft should define the term nonfinancial asset as follows:
Next, the Board redeliberated issues related to the scope of the leases project. First, the Board tentatively agreed that the scope exclusions in the Preliminary Views should continue in the proposed Leases guidance. The Board then discussed leases involving intangible underlying assets and tentatively agreed that the scope exclusions should be expanded to include leases of all intangible assets. The Board then redeliberated certain scope-related issues that, based on constituent feedback, might require additional clarification. The Board tentatively decided that licensing contracts for computer software should be separately mentioned under the scope exclusion in the proposed Leases guidance. The Board also tentatively agreed that contracts for cloud services and hosting services do not need to be addressed in the proposed Leases guidance but may be suitable for implementation guidance.

The Board then discussed lease arrangements involving transfers of operations and tentatively decided that no specific guidance should be provided on whether transfers of operations or government acquisitions would be included or excluded from the scope of the proposed Leases guidance. The Board also discussed respondent requests for further clarification regarding leases of investment real estate property. The Board tentatively agreed that further guidance should not be provided in the proposed Leases standard to clarify the treatment of real property subject to a lease. Finally, the Board discussed a respondent’s request to exclude leases for placement of scientific equipment from the scope of the proposed leases project and tentatively agreed that such leases should not be excluded from the scope of the project.

Minutes of Meetings, November 11–13, 2014

The Board provided clarifying edits and comments for the ballot draft of the Preliminary Views, Leases. The Board then voted unanimously for the issuance of the Preliminary Views.

Minutes of Meeting, September 30–October 1, 2014

The Board began deliberations by reviewing a table prepared by the project staff comparing the Board’s tentative decisions and the tentative decisions to date regarding leases made by the Financial Accounting Standards Board and the International Accounting Standards Board.

The Board then provided clarifying comments on the preballot draft of the Preliminary Views, Leases. The Board will review and consider for approval a ballot draft of the Preliminary Views at the November meeting.

Minutes of Teleconference, September 8, 2014

The Board began deliberations by discussing the general approach for the accounting and reporting of sale-leaseback transactions. The Board tentatively decided to propose that, as a general principle, a transaction include a qualifying sale (as provided by Codification Section R30, “Real Estate,” if applicable) in order to follow sale-leaseback accounting. The Board also tentatively decided to propose that the presence of an obligation or option for the lessee to repurchase the asset in a sale-leaseback preclude the use of sale-leaseback accounting.

The Board continued deliberations of sale-leaseback transactions by discussing the treatment of gains and losses. The Board tentatively decided to propose that any gain or loss in a sale-leaseback transaction be deferred, regardless of how much use of the asset is retained by the seller-lessee. The Board also tentatively decided to propose that any gain or loss in a sale-leaseback in which the leaseback is a short-term lease be recognized as a gain or loss at the date of the sale, rather than deferred. The Board also tentatively decided to propose that the entire gain in a sale-leaseback transaction be treated as a deferred inflow of resources, rather than a reduction of the lease asset. The Board also tentatively decided to propose that the existing exception in current guidance that recognizes a loss immediately for the difference between the fair value and undepreciated cost of the asset not be retained.

The Board continued its deliberations of sale-leaseback transactions with discussion of off-market terms. The Board tentatively decided to propose that there be an adjustment made for the off-market terms in sale-leaseback transactions. The Board also tentatively decided to propose that a government be allowed to determine whether any off-market terms exist in a sale-leaseback transaction on the basis of the difference between either of the following, whichever is more readily determinable: (1) the sale price and the fair value of the underlying asset or (2) the present value of the contractual lease payments and the present value of the market rate lease payments. The Board also tentatively decided to propose that governments account for the off-market terms in the following manner: (a) treat any deficiency in the same manner as a prepayment of the lease, and (b) treat any excess as additional financing provided by the buyer-lessor to the seller-lessee.

The Board continued sale-leaseback deliberations by discussing the accounting treatment of sale-leasebacks. The Board tentatively decided to propose that the seller-lessee account for the leaseback under the same guidance provided for lessees of leases that are not part of a sale-leaseback. If the transaction does not qualify for sale-leaseback accounting, the Board tentatively decided to propose that the seller-lessee (transferor) and the buyer-lessor (transferee) both account for the transaction as a financing. The Board also tentatively decided to propose that the buyer-lessor follow the applicable guidance for a capital asset purchase and the same guidance provided for lessors of leases that are not part of a sale-leaseback, as if the transactions were separate.

The Board continued deliberations by discussing potential disclosures for sale-leasebacks and failed sale-leaseback transactions. The Board tentatively decided to propose that seller-lessees disclose the terms and conditions of the sale-leaseback transaction. The Board also tentatively decided that seller-lessees should not be required to disclose any gain or loss on the sale portion of the transaction separately from gains or losses on other capital asset disposals. Regarding failed sale-leaseback transactions, the Board tentatively decided to propose not to retain the guidance in paragraph 256 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, in which transferors disclose the minimum sublease rentals to be received in the future under noncancelable subleases. The Board tentatively decided not to propose additional disclosures for failed sale-leasebacks.

The Board continued deliberations of sale-leasebacks by discussing transactions involving regulated enterprises. The Board tentatively decided to retain current guidance relating to sale-leasebacks involving regulated enterprises.

The Board then discussed lease-leaseback transactions. The Board tentatively decided to propose special guidance for lease-leasebacks such that each party would recognize a net receivable and deferred inflow of resources or a net payable and lease asset. The Board also tentatively decided to propose that governments disclose the gross components of a net lease receivable or payable when there is a lease-leaseback transaction.

Finally, the Board provided its edits and comments for five draft chapters of the Preliminary Views on Leases.

Minutes of Meetings, August 20–22, 2014

The Board began deliberations by discussing additional potential disclosures. The Board tentatively decided to propose that a lessor government be required to disclose the existence, and terms and conditions, of options by the lessee to terminate a lease if the lessor government has issued debt for which the principal and interest payments are secured by the lease payments. The Board also tentatively decided that lessees and lessors should not be required to disclose the portion of their lease liabilities and lease receivables, respectively, that relates to the noncancelable periods of the lease.

The Board continued deliberations by discussing lease terminations. The Board tentatively decided to propose that for the termination of a lease, other than a transaction associated with the lessee’s purchase of the underlying asset, the lessee remove the lease asset and obligation, and recognize the difference as a gain or loss. The Board also tentatively decided to propose that for a lease termination that is associated with the lessee’s purchase of the underlying asset, the lessee record the difference between the purchase price and carrying amount of the lease liability as an adjustment to the carrying amount of the underlying asset. The Board tentatively decided to propose that for a lease termination, the lessor remove the lease receivable and related deferred inflow of resources, and recognize any difference as a gain or loss.

The Board then continued discussions on lease modifications. The Board tentatively decided to propose a general approach to be used for lease modifications: A change in the lease contract should be considered a modification of the original lease if the lessee keeps the same right of use; a change should be considered a new lease (and the original lease terminated) if the lessee loses part of its right of use. The Board tentatively decided to propose that for a lease modification from a change in consideration, the lessee remeasure the lease liability on the effective date of modification and assess the need for an updated discount rate; the lessee also should adjust the right-of-use asset by the difference between the modified liability and the liability immediately before the modification, recognizing neither a gain nor loss. The Board also tentatively decided to propose that for a lease modification from a change in consideration, the lessor remeasure the lease receivable on the effective date of modification and assess the need for an updated discount rate. The lessor also should adjust the deferred inflow of resources by the difference between the modified receivable and the receivable immediately before the modification, recognizing neither a gain nor loss.

The Board continued deliberations by discussing lease modifications related to an increase in scope. The Board tentatively decided to propose that for a lease modification from an increase in scope, the lessee remeasure the lease liability on the effective date of modification and assess the need for an updated discount rate. The lessee also should adjust the right-of-use asset by the difference between the modified liability and the liability immediately before the modification, recognizing neither a gain nor loss. The Board also tentatively decided to propose that for a lease modification from an increase in scope, the lessor remeasure the lease receivable on the effective date of modification and assess the need for an updated discount rate. The lessor also should adjust the deferred inflow of resources by the difference between the modified receivable and the receivable immediately before the modification, recognizing neither a gain nor loss.

The Board then discussed lease modifications related to a decrease in scope. The Board tentatively decided to propose that for a lease modification from a decrease in scope, the lessee remeasure the lease liability on the effective date of modification and assess the need for an updated discount rate. The lessee also should adjust the right-of-use asset for the portion of the lease that is terminated and recognize a gain or loss for the difference. The Board also tentatively decided to propose that for a lease modification from a decrease in scope, the lessor remeasure the lease receivable on the effective date of modification and assess the need for an updated discount rate. The lessor also should adjust the deferred inflow of resources proportionally with the receivable adjustment and recognize a gain or loss on the difference. The Board tentatively decided to propose that for changes in lease consideration due to a refunding of related debt, existing guidance for tax-exempt debt be carried forward with conforming edits and extended to refunding of taxable debt. That is, lessees should recognize a deferred inflow or outflow of resources rather than adjust the value of the lease asset, and lessors should recognize a gain or loss over the shorter of the remaining life of the old debt or the life of the new debt.

The Board then moved on to deliberations of issues relating to multiple lease components. The Board tentatively decided to propose that in addition to separation of multiple lease components that have different lease terms, lessee governments be required to separate multiple lease components in a contract if the underlying assets belong to different major classes; however, lessor governments would not be required to do so. The Board tentatively decided that lessees should not be permitted to make an accounting policy election not to separate lease and nonlease components or multiple lease components within one contract. The Board also tentatively decided to propose that if observable stand-alone prices for identical or similar assets or services are not available for all components, lessees consider the remaining components to be one unit for measurement purposes.

The Board continued deliberations of multiple components and contract combinations. The Board tentatively decided to propose that lessors be required to separate lease and nonlease components or multiple lease components on the same basis that lessees are required to do so. The Board also tentatively decided that lessor governments should not be permitted to make an accounting policy election not to separate lease and nonlease components or multiple lease components of a contract. The Board tentatively decided to propose that governments presume that contracts entered into at or near the same time with the same counterparty are not part of one arrangement, unless there is evidence to the contrary. The Board also tentatively decided to propose that contract combinations be required if one or both of the following criteria are met: (a) the contracts are negotiated as a package with a single objective and (b) the amount of consideration to be paid in one contract depends on the price or performance of the other contract.

The Board then discussed lessor accounting in governmental funds. The Board tentatively decided to propose to retain existing guidance, with conforming edits, for treatment by a lessor of leases in governmental funds.

The Board then discussed certain scope topics relating to the proposed Leases guidance. The Board tentatively decided to propose that leases that transfer ownership and leases that contain bargain purchase options should remain in scope of the Leases project, but guidance should be provided to report these transactions as a financed sale or purchase. The Board tentatively decided that guidance for leases associated with certificates of participation should be included in implementation guidance.

The Board continued discussions with a reconsideration of certain recognition issues including allowance of a capitalization threshold, a small-item exception, and a portfolio approach for aggregating leases. The Board tentatively decided not to include guidance addressing the use of a capitalization threshold in the Preliminary Views. The Board also tentatively decided not to include an exception for leases of (individually) small items. The Board tentatively decided that guidance related to the application of the Leases guidance at a portfolio or group level for leases with similar characteristics should be included in implementation guidance.

The Board concluded the Leases discussions with a reconsideration of measurement topics including reassessment of the lease term for lessees, reassessment of the lease liability for variable lease payments for lessees, and reassessment of the discount rate for lessees and lessors when the result of a change in an index or a rate used to determine a variable lease payment may be significant. The Board tentatively decided to propose that a lessee reassess the lease term only when the lessee actually extends or terminates the lease opposite of what was previously expected, in a reversal of a previous tentative decision. The Board also tentatively reaffirmed that lessees should reassess the lease liability for variable lease payments when the result of a change in an index or a rate used to determine the variable lease payments during the reporting period may be significant. The Board also tentatively reaffirmed that both lessees and lessors should reassess the discount rate when the result of a change in an index or a rate used to determine a variable lease payment may be significant.

Minutes of Meetings, July 9–10, 2014

The Board began deliberations by discussing presentation of the lease receivable by the lessor. The Board tentatively decided that existing guidance on presentation of receivables applies to lease receivables and, therefore, no separate guidance on the presentation of lease receivables is necessary. The Board also tentatively decided that a lessor should not be required to present the underlying assets separately from other capital assets but to disclose the amounts of those assets held for leases in the notes to the financial statements. The Board also tentatively decided that guidance on the presentation of lease activities in the statement of cash flows in the lessor’s model should be provided through implementation guidance rather than in the proposed Leases standard.

The Board continued deliberations by discussing other lessor issues. The Board tentatively decided to propose that a depreciable leased asset be depreciated, unless that asset is required to be returned in its original or enhanced condition. The Board also tentatively decided to propose that a leased asset not be depreciated when the leased asset is required to be returned in its original or enhanced condition. The Board also tentatively decided that the assurance that a leased asset will be returned in its original or an enhanced condition should not be on the basis of an asset management system. Finally, the Board tentatively decided that a lessor’s lease asset that meets the definition of an investment should be reported according to the provisions of the Fair Value Measurement and Application Exposure Draft; that is, it should be measured at fair value if it meets the definition of an investment.

The Board then discussed disclosures by the lessor. The Board tentatively decided that the Preliminary Views should not explicitly state that disclosures are required only if leasing activity is significant to the entity. The Board also tentatively decided to propose that lessors 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 tentatively decided that lessors should not be required to disclose (a) the existence, and terms and conditions, of options to extend or terminate the lease; (b) the amount of termination penalties that may be received; (c) the existence, and terms and conditions, of options for a lessee to purchase the underlying asset; or (d) the significant assumptions and judgments made in accounting for leases. However, the Board directed the staff to consider another type of 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 that the Preliminary Views should not include a proposal that refers to the related party disclosures in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The Board also tentatively decided that lessors should not be required to disclose a reconciliation of the opening and closing balances of the lease receivable. The Board also tentatively decided that lessors should not be required to disclose the amount of the discount on the lease receivable.

The Board tentatively decided that the general requirement for reporting and disclosure of asset valuation allowances for losses in Statement 62 would apply to the lease receivable, and, therefore, the Preliminary Views should not include a proposal that specifically refers to the disclosure of the allowance for uncollectible lease payments. The Board tentatively decided that lessors should not be required to disclose the total carrying amount of underlying assets covered by residual value guarantees, or the total value of the guarantees. The Board tentatively decided to propose that lessors be required to disclose the cost and carrying amount, if different, of property on lease or held for leasing by major classes of property and the amount of accumulated depreciation. The Board also tentatively decided to propose that lessors be required to disclose the total amount of revenue recognized in the reporting period related to leases. The Board tentatively decided that lessors should not be required to disclose the separate amounts of interest revenue related to leases (or components of the total lease revenue amount) recognized in the period relating to the lease receivable. The Board tentatively decided to propose that lessors be required to disclose the revenue relating to the 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. The Board tentatively decided to propose that lessors be required to disclose 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. The Board also tentatively decided that lessors should not be required to separately present interest and principal components of the lease receivable in the proposed maturity analysis.

Further, the Board tentatively decided that lessors should not be required to disclose the discount rate(s) used in measuring lease assets. The Board also tentatively decided that lessors should not be required to disclose information about lease concentrations or leases not in the normal course of operations. The Board tentatively decided that lessors should not be required to disclose the treatment of short-term leases. The Board also tentatively decided that lessors should not be required to disclose the amount of revenue received for the period related to short-term leases or the amount of future payments to be received under short-term leases. Finally, the Board tentatively decided that lessors should not be required to disclose qualitative information about circumstances when the next period’s short-term lease revenue is expected to be significantly different than the current period’s revenue.

The Board then moved on to deliberations of issues relating to subleases. The Board tentatively decided to propose that subleases 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). The Board tentatively decided that separate disclosure should not be required for the amount of payments to be received from subleases by the original lessee. Finally, the Board tentatively decided to propose that lessor transactions related to subleases be disclosed separately from the original lessee transactions.

The Board then discussed 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—do not report the lease in the financial reporting entity’s financial statements—be retained. 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. Finally, the Board tentatively decided that the current treatment for leases with discretely presented component units—no elimination, but separate presentation of the lease receivable and payable—should be retained.

Minutes of Meetings, May 28–29, 2014

The Board began deliberations by discussing an illustration of the proposed disclosure requirements for lessees based on the Board’s tentative decisions from the previous meeting. In a change of a previous tentative decision, the Board tentatively decided to propose that the due process document include a proposed requirement for lease assets to be disaggregated by major classes of underlying assets.

The Board then moved on to deliberations of the lessor model, discussing lessors’ recognition in various existing and proposed models. The Board tentatively decided to propose that the lessor’s right to receive payments be recognized as an asset—the lease receivable. The Board also tentatively decided that collectability of the payments and uncertainties surrounding unreimbursable costs to the lessor should not be stated as factors in recognition of the lease receivable. The Board tentatively decided to propose that a liability not be recognized for the discount on a long-term lease.

The Board then discussed the rights retained in the underlying asset, specifically addressing how the lessor treats the underlying asset and whether the lessor recognizes a residual asset. The Board tentatively decided to propose that a governmental lessor not derecognize the underlying asset and not recognize a residual asset for all leases. The Board also tentatively decided to propose that the lessor not recognize a liability for a continuing performance obligation associated with the lessee’s right to use the asset. The Board then discussed revenue recognition with respect to lessors and tentatively decided to propose that a lessor recognize a deferred inflow of resources, measured at the receivable amount plus any cash received up front, at the beginning of the lease and recognize lease revenue over the lease term on a systematic and rational basis. The Board also tentatively decided to propose that the lessor recognize interest revenue over the term of the lease receivable.

The Board continued deliberations by discussing a possible exception for short-term leases with respect to lessors. The Board reconsidered the definition of a short-term lease and tentatively decided that the definition of a short-term lease (for both lessees and lessors) would be a lease that, at the beginning of the lease, has a maximum possible term under the contract, including any options to extend, of 12 months or less. The Board also tentatively decided to propose that a required exception to recognition and measurement for lessors be made for short-term leases. The Board then discussed the lessor accounting treatment for short-term leases and tentatively decided that lessors would recognize lease payments as revenue based on the terms of the lease contract.

The Board then discussed the initial measurement of the lease receivable with respect to the lessor. The Board tentatively decided to propose that the initial measurement of the lease receivable generally be calculated as the discounted future payments to be received during the lease term, subject to a provision for uncollectible accounts. The Board also discussed the definition of a lease term and tentatively decided to propose that lessors use the same definition of lease term as previously decided by the Board.

The Board then discussed the types of payments considered as possible components of the lease receivable. The Board tentatively decided to propose that the following types of payments be included in the initial measurement of the lease receivable:

• Fixed payments required for the lease term
• Variable payments that depend on an index or rate and that are measured using the index or rate at the beginning of the lease
• Variable lease payments that are in-substance fixed
• Residual value guarantees that are in-substance equivalent to fixed lease payments.

The Board also tentatively decided to propose that the lessor recognize revenue from variable payments that are based on a lessee’s usage or performance when it is realizable, which may be the period when the performance or usage (on which the payments are based) takes place. Residual value guarantees should be recognized as a receivable only when the amount of the payment has been decided but not yet paid, with revenue recognized (or expense reduced) at that time. Payments for exercised purchase options should be recognized as a receivable and revenue only when the options are exercised but not yet paid. Termination penalties should be recognized as a receivable and revenue only when they are exercised but not yet paid.

The Board then discussed other issues relating to the initial measurement of the lease receivable. The Board tentatively decided to propose that lessors recognize expense for initial direct costs in the period in which the costs are incurred. The Board also tentatively decided that the discount rate used by the lessor to determine the present value of the lease receivable should be the rate the lessor charges the lessee.

The Board continued deliberations by discussing the subsequent measurement of the lease receivable by a lessor and the related issues. The Board tentatively decided that a lessor should remeasure a lease receivable by calculating the amortization of the discount on the lease receivable and reducing the lease receivable by the actual lease payment amount less the amortization of the discount. The Board also tentatively decided that the lessor should reassess the lease term only when the lessee actually extends or terminates the lease opposite of what was previously expected. The Board tentatively decided that there should be a remeasurement of a lease receivable when the result of a change in an index or a rate used to determine lease payments during the reporting period may be significant. The Board then discussed the reassessment of the discount rate. The Board tentatively decided that when the lease term is changed, reassessment of the discount rate should be required. The Board also tentatively decided that the discount rate should be reassessed when there is a change in the reference rate included in a variable lease payment. The initial selection of a discount rate by lessors also should be the approach for selection of a discount rate in the event of a reassessment, the rate the lessor charges the lessee.

The Board then discussed impairment of the lease receivable and tentatively decided that the due process document should not include an explicit statement that the receivable should be evaluated for collectability (current authoritative literature would apply). The Board also discussed the impact of the remeasurement of the receivable on other financial elements. The Board tentatively decided that an adjustment to the receivable for a change in lease term should be recognized as an adjustment to the related deferred inflow of resources. The Board also tentatively decided that an adjustment to the receivable for a change in the rate upon which variable payments are based should be recognized as revenue or expense.

Minutes of Meetings, April 8–10, 2014

The Board began deliberations by discussing potential note disclosure requirements for lessees in relation to the general description of leasing arrangements. The Board tentatively agreed to propose a requirement for lessees to disclose a general description of the lessee’s leasing arrangements, including the basis, and terms and conditions, on which variable lease payments are determined and the existence, and terms and conditions, of residual value guarantees provided by the lessee. The Board also tentatively decided not to propose a requirement for lessees to disclose the existence and terms of purchase options; the existence, and terms and conditions, of renewal and termination options; the restrictions or covenants imposed by leases; or information about significant assumptions and judgments made in accounting for leases.

The Board continued deliberations by discussing potential disclosure requirements for lessees related to assets and liabilities. The Board tentatively agreed to propose that lessees be required to disclose only the general reconciliations of the changes in the lease liability and of the changes in capital assets currently required by Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and not to include a requirement for a more detailed reconciliation. Furthermore, the Board tentatively agreed to propose a requirement for the total amount of assets recorded under leases, and the related accumulated amortization, to be disclosed separately from owned assets. The Board also tentatively decided not to propose a requirement for lease assets to be disaggregated by major classes of underlying assets.

The Board then discussed potential disclosure requirements for lessees involving expenses related to leases. The Board tentatively decided not to propose that lessees separately disclose the amount of amortization expense recognized for lease assets. The Board also tentatively decided to propose a requirement for lessees to disclose the total variable lease payments actually incurred. Furthermore, the Board tentatively decided to propose that the due process document supersede any existing disclosures related to operating leases.

The Board continued deliberations by discussing potential disclosure requirements for lessees in relation to future lease obligations. The Board tentatively agreed to propose a requirement for lessees to disclose a maturity analysis of future minimum lease payments that shows the payments for each of the first five years and five-year increments thereafter, with the payments shown undiscounted and total interest summed for all years. The Board also tentatively decided not to propose that the lessee disclosure requirements include amounts of sublease rentals to be received. The Board agreed that this topic would be addressed in the lessor disclosure deliberations.

Furthermore, the Board tentatively decided to propose a requirement for lessees to disclose commitments relating to leases, other than short-term leases, for which the lease term has not begun with a conforming edit to NCGA Statement 1, Governmental Accounting and Financial Reporting Principles. The Board also tentatively decided not to propose a requirement for lessees to disclose a maturity analysis of the nonlease components of a contract.

The Board then discussed other considerations regarding lessee disclosures. The Board tentatively decided not to propose that the due process document refer to the noncash transaction disclosure requirement in Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. The Board also tentatively agreed to replace the example in Statement 9 of “obtaining an asset by entering into a capital lease” with “obtaining a right-of-use asset by entering into a lease.” Furthermore, the Board tentatively decided not to propose that the due process document refer to the related party disclosures in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in pre-November 30, 1989 FASB and AICPA Pronouncements.

The Board continued deliberations by discussing other potential disclosure requirements. The Board tentatively decided not to propose a requirement for disclosure of the discount rate(s) used in measuring lease liabilities. The Board also tentatively decided to propose an amendment to Statement 62 to exempt lease liabilities from imputed interest guidance. Furthermore, the Board tentatively decided not to propose a requirement for lessees to disclose the fair value of the lease liability, the amount of initial direct costs capitalized as part of lease assets during the reporting period, and information about arrangements that upon transition no longer meet the definition of a lease. The Board also tentatively decided not to propose a requirement for lessees to disclose the amount of interest expense related to leases or a requirement for lessees to disclose together all lease-related expenses. In addition, the Board tentatively decided not to propose a requirement for lessees to disclose cash paid for principal and interest on leases.

The Board tentatively agreed to propose a requirement for disclosure of payments made in excess of contractual requirements, such as residual value guarantees or penalties. The Board also tentatively decided not to propose a requirement for lessees to disclose the actual lease terms for significant leases and the weighted-average lease term of all leases, as well as the categorization of renewal options by likelihood.

The Board tentatively agreed to propose that lessee disclosure requirements not include information about below-market leases. The Board tentatively decided not to propose a requirement for lessees to disclose information about a government’s decision-making. Furthermore, the Board tentatively agreed to propose an amendment to Statement 62 to exempt disclosure of the underlying asset as collateral. The Board also tentatively agreed to propose that lessee disclosure requirements include the components of a net impairment loss (that is, gross impairment loss and adjustment to the lease liability).

The Board continued deliberations by discussing short-term lease disclosures for lessees. The Board tentatively decided that the existing disclosure requirements for accounting policies are sufficient to cover disclosure of accounting treatment for short-term leases and that no additional guidance is necessary in the due process document. The Board also tentatively agreed to propose a requirement for lessees to disclose the amount of expense and expenditure recognized for the period related to short-term leases. The Board also tentatively decided not to propose a requirement for lessees to disclose commitments under short-term leases or qualitative information about circumstances when the next period’s short-term lease expense is expected to be significantly different than the current period’s expense.

Minutes of Meetings, March 3–5, 2014

The Board met in a joint session with the Federal Accounting Standards Advisory Board (FASAB). The Board and FASAB began by discussing the foundation of a new accounting model for lessors. The Board tentatively decided that a new accounting model for lessors should be considered and that symmetry between the lessee and lessor accounting models should be a key factor in development of the lessor model.

The Board and FASAB then discussed the tentative decisions the Board has made to date. No further tentative decisions were made by the Board.

Minutes of Meetings, February 13, 2014

The Board discussed topics related to impairment of a lease asset. The Board tentatively decided to propose that in circumstances in which an asset underlying a lease is damaged and requires restoration or replacement, the time period during which the underlying asset is not usable generally is the relevant factor in assessing whether the impairment test has been met. This amended the Board’s previous tentative decision that a lessor’s responsibility to repair or replace an impaired underlying asset may indicate that impairment of the lease asset (right to use) will be temporary.

The Board continued deliberations by discussing impairment indicators. The Board tentatively decided to propose that the following be included in the text of a proposed Leases standard:

a) Impairment indicators present with respect to the underlying asset may result in a change in the manner or duration of use of the lease asset
b) A change in the manner or duration of use of the lease asset may indicate impairment of that asset.

The Board then discussed whether a lessor’s responsibility to restore or replace the underlying asset may indicate that the magnitude of the decline in service utility of the lease asset is not significant. The Board tentatively decided not to include that statement in a potential Leases standard.

The Board continued deliberations by discussing how to measure and recognize the impairment of a lease asset. The Board tentatively decided to propose that the lease asset should be adjusted first by the same amount as any change in the related lease liability. If the carrying value of the lease asset is reduced to zero, any further adjustments should be recognized in the flows statement. The Board also tentatively decided to propose that an impaired lease asset first be adjusted by any change in the corresponding lease liability, with any remaining adjustment recognized as the impairment loss.

The Board continued its discussions by reviewing examples of different impairment scenarios presented by the project staff. The Board provided suggestions to staff for changes to the examples if they are to be included in a due process document or future implementation guidance.

Minutes of Meetings, January 27–29, 2014

The Board began deliberations by discussing a possible exception to the overall lease accounting model for noncore assets, which could be defined as assets that are not essential to a government’s operations. The Board tentatively decided to propose that there not be an exception made to the overall leases model for leases of noncore assets.

The Board continued deliberations by discussing topics on lease-related expenses. The Board tentatively decided to propose that the existing guidance related to the accounting treatment for operating leases with scheduled rent increases be superseded. The Board also tentatively decided to propose that lease payments for short-term leases that have a rent holiday or rent reduction provisions be recognized as expenses based on the terms of the contract. Furthermore, the Board tentatively decided to propose that lease payments not included in the liability measurement be recognized as expense in the accrual accounting-based flows statement in the period in which the obligation for those payments is incurred.

The Board then discussed recognition in governmental funds. The Board tentatively decided to propose conforming edits to the existing guidance on accounting for leases in governmental funds. Furthermore, the Board tentatively decided to propose that the general guidance for recognition of liabilities in governmental funds adequately addresses short-term leases, and only limited amendments to existing provisions are needed.

The Board then discussed issues relating to the lease asset. The Board tentatively decided to propose that the right-of-use asset in a lease is an intangible asset that should be accounted for in accordance with existing authoritative guidance for capital assets. The Board also tentatively decided to propose that the relationship between the underlying asset and the lease asset could mean that the lease asset is impaired if indicators of impairment are present with respect to the underlying asset. Furthermore, the Board tentatively decided to propose that a lessor’s responsibility to repair or replace an impaired underlying asset may indicate that an impairment of the lease asset (right to use) will be temporary. The Board discussed how a lessee would measure an impairment of the lease asset and requested that the staff develop example calculations.

The Board continued deliberations by discussing guidance on presentation of lease assets and liabilities. The Board tentatively decided to propose that existing guidance on presentation of capital assets would apply to the lease asset. The Board also tentatively decided to propose that existing guidance on presentation of general long-term liabilities apply to the lease liability and that it be referred to as a long-term liability in a proposed Statement. Additionally, the Board tentatively decided to propose that specific guidance on the presentation of lease activities in the statement of cash flows be provided through implementation guidance rather than in the proposed Leases standard as existing standards related to the statement of cash flows are sufficient.

Minutes of Meetings, December 10–12, 2013

The Board continued its discussion on the measurement of lease liabilities by a lessee and the types of payments that should be included. The Board tentatively decided to propose that the following types of lease payments be included in the measurement of the initial lease liability:

• The best estimate or minimum of range of residual value guarantees probable of being paid based on an assessment of qualitative factors
• Purchase options probable of being exercised based on an assessment of qualitative factors
• Termination penalties, if based on the determination of the lease term, the termination option is probable of being exercised.

The Board then discussed several alternatives with respect to the determination of the discount rate. The Board tentatively decided to propose that lease liability payments be discounted using the rate the lessor charges the lessee. However, if that rate cannot be readily determined, the lessee’s incremental borrowing rate should be used. The Board tentatively decided not to propose an exception to use a risk-free interest rate in certain situations. The Board also continued its discussion of the initial measurement of lease assets and tentatively decided to propose that the first component of the lease asset be the initial measurement of the lease liability.

The Board continued deliberations by discussing subsequent measurement of the lease asset and lease liability by a lessee during the term of the lease. The Board tentatively decided to propose that a lessee remeasure a lease liability by calculating the amortization of the discount on the lease liability and reducing the lease liability by the actual lease payment amount less the amortization of the discount. The Board tentatively decided to propose that lease assets be amortized using a systematic and rational basis. The Board also tentatively decided to propose that lease assets be amortized over the shorter of the useful life of the underlying asset or the lease term. However, the Board also tentatively decided to propose that the lessee amortize the right-of-use asset as if the lessee owns the underlying asset, using the lessee’s depreciation policy, if the lease transfers ownership or if by assessing qualitative factors, it is probable that a purchase option will be exercised. In those situations, if the underlying asset is a non-depreciable asset such as land, the lessee should not amortize the right-of-use asset. Furthermore, the Board tentatively decided that the proposed guidance on leases that transfer ownership be included in the text of a standard.

The Board then discussed classification in the accrual-basis flows statement and the Board tentatively decided to propose that the lessee report the amortization of the lease asset as amortization expense and the amortization of the discount on the lease liability as interest expense.

The Board then discussed the reassessment of lease liabilities for lessees. The Board tentatively decided to propose that there be a reassessment of a lease liability when there is a change in the likelihood (probable to not probable or vice versa) of a purchase option being exercised based on an assessment of qualitative factors. The Board also tentatively decided to propose that, based on an assessment of qualitative factors, there be a reassessment of the residual value guarantee component of a lease liability when there is either a change in the amounts expected to be payable or when there is a change in the likelihood (probable to not probable or vice versa) that a payment will be required. Furthermore, the Board tentatively decided to propose that there be a reassessment of a lease liability when the result of a change in an index or a rate used to determine lease payments during the reporting period may be significant.

The Board tentatively decided to propose that a reassessment of the discount rate be required in any of the following situations:

• The lease term is changed
• There is a change in the likelihood (probable to not probable or vice versa) that a purchase option will be exercised
• The result of a change in the reference rate used to determine a variable lease payment may be significant.

The Board also tentatively decided to propose that in the event of a reassessment the Board’s tentative decision regarding the initial selection of a discount rate also be the approach for selection of a discount rate.

The Board continued deliberations by discussing the recalculation of the lease liability and asset. The Board tentatively decided to propose that adjustments arising from remeasurements of lease liabilities also adjust the right-of-use asset. The exception is adjustments due to a change in the rate upon which a variable lease payment is based, which should be recognized as revenue or expense in the current period.

The Board then discussed whether a lease asset should be subject to existing guidance on impairment. The Board requested to defer a tentative decision on this question until it discusses classification of the lease asset. The Board then considered a situation in which a lease asset also meets the proposed definition of an investment. The Board tentatively decided to propose that the asset be measured in accordance with guidance for investments rather than leases.

The Board then continued discussions on short-term leases. The Board tentatively decided to propose that a short-term exception be an accounting requirement, rather than a policy election, for all leases that qualify. The Board also tentatively decided to propose that lessees not be required to recognize assets or liabilities associated with the right to use the underlying asset for short-term leases. Furthermore, the Board tentatively decided to propose that lease payments for short-term leases be recognized as expenses/expenditures based on the terms of the contract.

The Board also discussed cancellable leases and tentatively decided to propose that cancellable periods (those periods for which a lessee and lessor each have the right to cancel the lease) be excluded from the lease term. The Board also tentatively decided to propose that the maximum possible term for a cancellable lease be defined as any noncancellable period, including any notice periods.

The Board then discussed whether contracts with multiple components (lease and nonlease, or multiple leases) should be bifurcated for accounting purposes and, if so, how the consideration should be allocated to the different components. The Board tentatively decided to propose that governments separate contracts into lease and nonlease components, subject to a practicality exception related to measurement. The Board also tentatively decided to propose that governments separate lease contracts involving multiple assets into multiple lease components only if there are different lease terms, subject to a practicality exception related to measurement.

For allocation of consideration between multiple components, the Board tentatively decided to propose that lessees first use prices in the contract for individual components, if available, if those prices are reasonable based on other observable stand-alone prices. If individual prices are not included in the contract, or the prices are not reasonable, the Board also tentatively decided to propose that lessees allocate consideration based on relative observable stand-alone prices, if those prices are available for all components of the contract. If observable stand-alone prices are not available for all components, the Board tentatively decided to propose that lessees (1) allocate the stand-alone price to any components for which there are such prices and then (2) consider any remaining components to be a single unit of account and assign the remaining consideration to that unit.

The Board continued deliberations by discussing how to account for a contract if components are not separated and the idea of providing guidance for concurrent contracts. The Board tentatively decided to propose that guidance be provided when multiple lease components are considered one unit for accounting purposes. The Board also tentatively decided to propose that accounting for multiple lease components that are considered as one unit for accounting purposes be based on the primary component. Furthermore, the Board tentatively decided to propose that guidance be provided for treating separate contracts that were signed concurrently. The Board will consider issues associated with concurrently signed contracts at a later meeting.

Minutes of Meetings, October 29–31, 2013

The Board discussed lessee recognition and measurement, including the foundation for recognition and measurement, and lessee recognition of assets and liabilities. The Board also began discussions on the lessee initial measurement of liabilities. The Board tentatively agreed that the major criticisms of current lease accounting, opportunities for structuring around a bright-line classification test and omission of a perceived liability, are items that the Leases project should attempt to address. The Board also recognized that the proposed accounting model for leases may have differences from the private sector as a result of factors found in the state and local government environment. The Board tentatively decided that the model should attempt to measure resources available to provide services, and obligations to sacrifice such resources, with consideration given to the characterization of expenses. The Board also discussed whether leases are executory contracts but did not reach a tentative decision. The Board tentatively decided to propose that the notion of leases as financings be the foundation for the governmental leasing model.

The Board continued deliberations by discussing the recognition of assets and liabilities for lessees. The Board tentatively agreed to propose that the right to use the underlying asset be recognized as an asset by the lessee and that the obligation to make lease payments be recognized as a liability by the lessee. Furthermore, the Board tentatively decided to propose that the obligation to return the underlying asset at the end of the lease not be recognized as a liability by the lessees; it also should not be recognized as a deferred inflow of resources or an outflow of resources. The Board then discussed other rights and obligations that may arise from a lease. The Board tentatively agreed to propose that other rights be considered part of the overall lease asset and that other obligations be evaluated on a case-by-case basis.

The Board then discussed potential exceptions to the overall lease model. The Board tentatively decided to propose that exceptions be made for short-term leases, under which the lessee government is not required to recognize assets or liabilities. The Board tentatively decided to propose that a short-term lease be defined as a lease that, at the beginning of the lease, has a maximum possible term under the contract, including any options to extend, of 12 months or less. The Board tentatively agreed to propose that the presence of a purchase option not affect the definition of a short-term lease. However, the Board also tentatively decided to propose that leases that transfer ownership not qualify for the short-term lease exception, even if those leases meet the other criteria. Furthermore, the Board tentatively decided to propose that it not be necessary to make an exception for leases that transfer ownership of underlying assets.

The Board then discussed the overall approach to the measurement of lease assets and liabilities for lessees. The Board tentatively decided to propose that the general approach to measuring lease assets and liabilities be to measure the liabilities first and base the assets on that amount. The Board also tentatively decided to propose that the general measurement approach for a lease liability be based on the present value of future payments.

The Board discussed the lessee measurement of lease liabilities and the types of payments that should be included. The Board tentatively decided to propose that the following types of lease payments be included in the measurement of the initial lease liability:

• Fixed payments for the lease term
• Variable payments based on an index or rate, using the rate in effect at that date
• Variable payments that are in-substance fixed.

The Board tentatively decided to propose that lease payments that depend on a lessee’s performance or usage of an underlying asset not be a component of the initial lease liability. The Board also discussed residual value guarantees as a potential component of the lease liability as well, and requested additional staff research before making a tentative decision.

Minutes of Meetings, September 17–19, 2013

The Board discussed issues associated with lease classifications and lease terms that drive the accounting treatment of leases. After discussing characteristics of various types of leases, the Board considered alternate methods to classify leases for accounting purposes. The Board tentatively agreed that while there might be inherent differences in leases, a single accounting model could be developed in the interest of not creating unnecessary complexity, with potential exceptions for certain circumstances.

The Board then discussed elements relevant to the duration of a lease, including the definition of a lease term, how to account for fiscal funding clauses, and the reassessment of a lease’s term. The Board tentatively decided that the lease term should start with the noncancellable period. The Board also tentatively decided that the lease term should include the periods covered by renewal options (or exclude periods covered by termination options) that are probable of being exercised based on an assessment of qualitative factors. The Board tentatively agreed to include in the noncancellable period of the lease term periods covered by fiscal funding and cancellation clauses with a remote possibility of cancellation. Leases that contain a fiscal funding or cancellation clause with a more than remote possibility of cancellation should be treated as having a termination option. The Board also tentatively agreed the lease term should be reevaluated when there is a change in relevant factors that would result in a change in judgment as to the lessee’s likelihood to exercise or terminate the lease, or when the lessee actually exercises or terminates the lease opposite of what was previously expected. The Board tentatively decided the relevant factors used in the initial assessment also should be the factors that trigger a reassessment.

Minutes of Meetings, August 6–8, 2013

The Board began deliberations for the leases project by reviewing the history of leases and current literature, the tentative scope of the project, the definition of a lease, and related scope issues. The Board tentatively agreed with the timeline and scope of the project. The Board then discussed minor revisions to the definition of a lease. The Board tentatively decided to replace “agreement” with “contract,” and “capital assets (land and/or depreciable assets)” with “an asset (the underlying asset).” The Board also tentatively decided to add the phrase “in an exchange or exchange-like transaction” to the proposed definition of a lease.

The Board then discussed the inclusions and exclusions to the scope of lease guidance. The Board tentatively decided to propose including contracts not identified as leases but that meet the definition of a lease. The Board tentatively decided to not provide in the proposal an example of such a contract, and remove the example currently provided. The Board tentatively decided to propose continuing to exclude the following from the scope of the guidance: agreements that are contracts for services that do not transfer the right to use capital assets from one contracting party to the other; leases to explore for or use of minerals, oil, natural gas, and similar nonregenerative resources; licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents, and copyrights; and agreements that meet the definition of a service concession arrangement. In addition, the Board tentatively decided to propose that biological assets, including timber, be excluded from the scope of the lease guidance, while intangible assets other than licensing agreements would continue to be included in the scope of lease guidance.

Minutes of Meetings, June 25–27, 2013

The FASB project staff on leases provided the Board with background information on the provisions of the recently released revised Exposure Draft, Leases. The session was educational in nature. No deliberations were conducted and no decisions were reached.