United States

GASB proposes single approach for reporting leases

FINANCIAL REPORTING INSIGHTS  | 

The Governmental Accounting Standards Board (GASB) recently issued a proposal to establish a single approach for the reporting of leases by state and local governments, with limited exceptions (most notably for “short-term” leases lasting 12 months or less). Under the Exposure Draft, Leases, a lessee government would be required to recognize a lease liability and an intangible asset representing its right to use the leased asset. A lessor government would be required to recognize a lease receivable and a deferred inflow of resources.

A lessee also would report the following in its financial statements:

  • Amortization expense related to the lease asset (recognizing the asset amount as an expense over the term of the lease)
  • Interest expense related to the lease liability
  • Note disclosures with information about the lease, including a general description of the leasing arrangement

A lessor also would report the following in its financial statements:

  • Lease revenue (and a corresponding reduction in the deferred inflow systematically over the term of the lease)
  • Interest revenue related to the receivable
  • Note disclosures with information about the lease, including a general description of the leasing arrangement

Other issues addressed in the Exposure Draft include accounting for lease terminations and modifications, sale-leaseback transactions, nonlease components embedded in lease contracts (such as service agreements) and related-party leases. The Exposure Draft would apply to contracts that convey the right to use an underlying asset for a period of time in an exchange or exchange-like transaction. It would not apply to donated use of assets or to leases of intangible assets, such as patents and soft-ware licenses. The Exposure Draft is available for comment until May 31, 2016.