posted October 10, 2017

Changes in Lease Reporting

by Anthony St. George, CPA, Audit Manager

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In June of 2017, the GASB issued Statement No. 87 Leases, which will affect the way in which governments report leases in future reporting periods beginning with those starting after December 15, 2019. The lease standard was designed to enhance the relevance and consistency of information about governments’ leasing activities as described in the statement. The specifics of the lease standard include:

  • the elimination of the operating versus capital lease designation,
  • creating an intangible asset for lessees,
  • creating a receivable for the lessor, and
  • an increased focus on the length of the term of the lease to determine proper reporting.

This new standard applies to only arrangements that meet the definition of a lease and that are not specifically excluded in the statement. Examples of the excluded arrangements include agreements that are considered short-term leases or if transfer of ownership of the underlying asset occurs at the end of the agreement, leases of assets that are investments, and certain regulated leases. Short term leases are defined in the statement as being agreements that last 12 months or less, including any options to extend regardless of their probability of being exercised. These types of agreements are simply outflows or inflows of resources and are not governed by this new standard. Agreements that contain transfer of ownership of the asset are no longer considered leases under this standard and should be accounted for as financed purchases or sales.

For agreements that meet the updated definition of a lease, the lessee is required to recognize a lease liability and a new intangible right-to-use lease asset at the commencement of the lease term. This intangible asset should be amortized in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset, which is similar to previous standards for depreciating assets acquired through capital leases. In other words, the new standard requires that an intangible asset be recorded even if the lease agreement does not meet one of the four previous criteria for capital leases.

This reporting standard also contains further guidance for leases where the government acts as a lessor, contracts with multiple components, subleases and leaseback transactions, as well as several other nuances.

As this standard requires a restatement of beginning balances, it is pertinent to develop a plan for implementation. This process should include an analysis of your government’s current lease agreements and a plan to implement the standard in future financial statements.With proper planning and identification of key features in your government’s lease agreements, a smooth transition can be achieved.


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