FASAB Contact, Monica Valentine, firstname.lastname@example.org, 202-512-7362
|Request for Comment||Due Date||Word Version of Questions for Respondents||Comment Letters||Final Pronouncements|
|Leases: An Amendment of SFFAS 5, Accounting for Liabilities of the Federal Government and SFFAS 6, Accounting for Property, Plant, and Equipment (PDF)||January 6, 2017||Word Version of Questions for Respondents (Download)||Comment Letters||Leases: An Amendment of Statement of Federal Financial Accounting Standards (SFFAS) 5, Accounting for Liabilities of the Federal Government, and SFFAS 6, Accounting for Property, Plant, and Equipment
The FASAB has recently approved a Leases project whose goal is develop comprehensive lease accounting standards for the federal government. This project is being undertaken by the Board primarily because the current lease accounting standards, Statement of Federal Financial Accounting Standards (SFFAS) 5 and 6, have been criticized as ineffective because they do not make meaningful distinctions between capital and operating leases regarding the substance of lease transactions. In addition, the lease accounting standards in SFFAS 5 and 6 are based on Financial Accounting Standards Board (FASB) lease accounting standards which are currently being revised. The FASB and International Accounting Standards Board (IASB) have undertaken a joint project on lease accounting that focuses on the conveyance of rights to future economic benefits (such as the right of use).
FASAB staff continues to be asked the following question:
Once the new FASB/IASB lease standards are issued as final, should federal entities that present general purpose financial reports in conformance with SFFAS 34 follow those new FASB/IASB lease accounting standards?
The answer to that question is no. The FASB/ IASB lease standards are expected to be released as final during 2012. Issuance of those standards will not automatically change federal financial accounting standards.
Current FASAB standards addressing leasing transactions include Statement of Federal Financial Accounting Standard (SFFAS) 5 Accounting for Liabilities of the Federal Government [pars. 43 – 46] and SFFAS 6 Accounting for Property, Plant, and Equipment [pars. 20 & 29]. These lease standards were originally developed from FASB lease standards effective at that time.
The primary objectives of this project are to:
- Develop an approach to lease accounting that would ensure that all assets and liabilities [consistent with Statement of Federal Financial Accounting Concepts (SFFAC) 5 definitions] arising under lease contracts are recognized in the statement of financial position and related costs are recognized in the statement of net cost.
- Evaluate and revise as needed the current lease-related definitions and recognition guidance in SFFAS 5 and 6, including consideration of the advantages and disadvantages of applying the FASB/IASB lease standard in the federal environment.
- Ensure that the standards to be developed fully address the various lease transactions/activities currently being used in the federal community (e.g. enhanced use leases).
- Consider the differences between lease accounting and the budgetary treatment of lease-purchases and leases of capital assets as outlined in Office of Management and Budget (OMB) Circular A-11.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
August 29-30, 2018
On August 22, 2018, the Board released a news release to clarify a question relating to lease accounting guidance during the period between the April 2018 issuance of Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases: An Amendment of SFFAS 5, Accounting for Liabilities of the Federal Government, and SFFAS 6, Accounting for Property, Plant, and Equipment, and SFFAS 54’s effective date of FY 2021.
As the news release states, federal reporting entities should not convert their lease accounting practices to follow the Financial Accounting Standards Board’s new lease accounting standards. Federal reporting entities should continue to follow the current FASAB guidance in SFFAS 5 and 6 that addresses lease transactions. In those instances where the current standards are silent on an issue, the reporting entity should review the hierarchy of generally accepted accounting principles to identify prevalent practices consistent with SFFAS 5 and 6. Generally, reporting entities should continue their current lease accounting practices.
The full news release is available on the FASAB website at http://files.fasab.gov/pdffiles/clarification_lease_standards.pdf.
April 25-26, 2018
FASAB issued SFFAS 54 titled Leases: An Amendment of SFFAS 5, Accounting for Liabilities of the Federal Government and SFFAS 6, Accounting for Property, Plant, and Equipment on April 17, 2018.
SFFAS 54 revises the financial reporting standards for federal lease accounting. It provides a comprehensive set of lease accounting standards to recognize federal lease activities in the reporting entity’s GPFFRs and includes appropriate disclosures.
SFFAS 54 is available at http://www.fasab.gov/accounting-standards/.
December 20, 2017
The Board approved proposed SFFAS 54, Leases: Amending Statement of Federal Financial Accounting Standards (SFFAS) 5 and SFFAS 6. The Statement revises the financial reporting standards for federal lease accounting. It provides a comprehensive set of lease accounting standards to recognize federal lease activities in the reporting entity’s general purpose federal financial reports and includes appropriate disclosures.
FASAB submitted the proposed Statement to the sponsors for the 90-day review period and also reported the proposed Statement to the Congress for a concurrent review. FASAB will issue the final Statement after the expiration of both review periods unless otherwise informed. The Statement will be effective for fiscal periods beginning after September 30, 2020.
October 25-26, 2017
The Board reviewed a pre-ballot draft Leases Statement to address any final issues and approve the latest edits so that the final Statement could be approved.
Staff highlighted the most significant revisions proposed in the latest draft:
- Changed “fiscal funding clause” to “availability of funds clause”
- Added government-wide disclosure requirements
- Added language to the basis for conclusions to explain why the Board had to take action on the lease standards
The Board asked staff to include additional information in the basis for conclusions about the benefits of the revised lease standards to federal financial management and reporting. The basis for conclusions should address
- the added level of transparency with the new key data elements required;
- the improved accountability of federal lease obligations and interest expenses; and
- the inclusion of a sound lease definition to replace the previous bright line capital lease criteria under which federal entities were able to avoid recognizing capital leases.
The revised Leases Statement will be subject to the congressional capital asset 45-day review requirement.
Next steps: Staff will make the revisions to the draft Statement that were proposed by the Board at the October meeting. Staff will then send members a revised draft Leases Statement to review before sending a final ballot draft for Board approval. If any member identifies technical issues, they will be addressed by the full Board at the December meeting.
Issue Paper for October 25-26, 2017 – Tab A (PDF)
August 30-31, 2017
The Board reviewed a draft Leases Statement and gave staff feedback on technical issues so that a pre-ballot draft could be provided to the Board by the October meeting. Staff discussed the following issues with the Board:
- Definition of a lease
- Service contracts
- Lease-term determination
- Effective date of the standards
- Possibility of re-exposure
- Other revisions to the standards
The Board agreed on the following:
- The scope of the lease definition should be narrowed to “a contract or agreement that conveys the right to control the use of another entity’s identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.”
- The definition of service contracts should be included in the leases standards.
- Language should be added to clarify the “noncancelable period.”
- Both the lessee and the lessor’s options to extend or terminate the lease contract or agreement, if probable, should be included in the lease term at its commencement.
- When the lessee or lessor is assessing its own options to extend or terminate the contract or agreement, the level of probability is at the probable threshold. In contrast, when the lessee or lessor is assessing the other party’s options to extend or terminate the contract or agreement, the level of probability is at a higher threshold, like reasonably certain. This requires significant evidence of the other party’s future action.
- The effective date of the Leases Statement should be changed to reporting periods beginning after September 30, 2020 (fiscal year 2021).
- The Board agreed to several editorial changes.
- Re-exposure of the leases standards is not necessary.
Next steps: Staff will make the necessary revisions to the draft standards based on all Board discussions since the release of the ED and present a pre-ballot draft to the Board by the October meeting.
Issues Papers for August 30-31, 2017 – Tab A (PDF)
June 21-22, 2017 Board Meeting
The objective for the June meeting was for the Board to provide direction to staff on the issues raised in the briefing materials and to raise any other technical issues for staff to address. Staff aims to have remaining technical issues addressed at the August meeting so that a pre-ballot draft can be provided to the Board after the August meeting.
At the February 2017 FASAB meeting, the Board considered responses to its 2016 Leases exposure draft (ED) and at the April 2017 meeting representatives from five federal entities discussed their comments on the ED with members. The Board asked staff to consider additional scope exclusions, continue to highlight the benefits associated with revising the lease standards, and explore options to ease the anticipated burdens and costs of the revisions to federal preparers.
At the June meeting, staff discussed the following three issues with the Board:
- Definition of a lease
- Scope of the revised lease standards
- Lease term determination
The Board agreed with the broader definition of a lease over the more narrow definition that would only include property, plant, and equipment (PP&E). The broader definition will allow flexibility for leases that are not PP&E, or those not specifically scoped out to be considered for recognition in accordance with the standards.
The Board agreed with the additional scope exclusions. The scope exclusions will include natural resources per Statement of Federal Financial Accounting Standards (SFFAS) 38, Accounting for Federal Oil and Gas Resources, and Technical Bulletin 2011-1, Accounting for Federal Natural Resources Other Than Oil and Gas; leases of inventory; leases of assets under construction; leases of intangibles; and leases (licenses) of internal use software. With the broader definition, an entity would need to identify all items meeting the definition and justify the exclusions. The broader definition encourages entities to evaluate the substance of the transaction.
The Board agreed to revise the lease term determination language but retain the probable threshold. Staff will also work to ensure the lease term determination language is clear and includes the necessary explanations and definitions. The probable threshold gives the entity a better basis for assessing the lease term, as opposed to the higher reasonably certain threshold which could be more challenging to establish.
Next steps: Staff will make the necessary revisions to the draft standards based on all Board discussions since the ED and present the draft to the Board at the August meeting.
Issue Paper for June 2017 – Tab A (PDF)
April 26-27, 2017 Board Meeting
At the February 2017 meeting, the Board directed staff to extend an invitation to the respondents of the September 26, 2016, Leases exposure draft (ED) to discuss with the Board their comments on the ED and provide further clarification on their responses. Those respondents who wanted to further elaborate on their written comments were given the opportunity to address the Board.
At the April 2017 meeting, five federal entities addressed the Board; each entity was given 40 minutes for opening remarks and questions from Board members.
|Department of Agriculture||Michael Moore|
|Department of Energy||William Truitt, John Wall, and Tynesha Douglass|
|Department of the Interior||Terri Windlan and Sherry Lee|
|Department of Defense||Alaleh Jenkins, Edwin Oshiba, Jim Omans, Michael Walsh, and Steven Hurwitz|
|General Services Administration||Robert (Bob) Smalskas and Edward Gramp|
Mr. Showalter began the clarification discussion by informing the Board that the objective of the session was to listen to the presenters, ask questions of the presenters, and give staff direction on the next steps of the project.
During the discussion several points were made by the presenters, including some of the following:
- The lease proposal will require additional cost to entities by way of added personnel and system upgrades, both during the implementation period and ongoing periods. Most of the presenters were not prepared to give specific estimates of those additional costs.
- Implementation guidance with specific examples will be helpful in the application of the revised lease standards, including related U.S. Standard General Ledger (USSGL) accounts.
- Departments will need to assess the remeasurement of the lease liability quarterly.
- The proposed lease definition should be clearer and more narrowly scoped.
- Clarification is needed for contracts for services when an asset is involved; for example, how a department should unbundle the contracts.
The Board asked staff to address some of the issues raised by the presenters.
- Staff should develop a list of possible items to be scoped out, including intangibles.
- Staff should get a clearer understanding of the benefits associated with revising the leases standards.
- Staff should explore options to ease the anticipated burden and cost of the lease revisions to federal preparers.
Next Steps: Staff will reach out to the presenters as well as other members of the lease task force to address the issues identified by the Board and return with recommendations.
Issues Papers for April 2017 – Tab A (PDF)
February 22, 2017
At the February Board meeting, staff provided to the Board the 25 comment letters received on the Leases ED, several tables that summarized the comment letters, an initial staff analysis of issues identified by respondents, and questions for Board discussion.
Members agreed to extend an invitation to all respondents of the ED to address the Board and provide further clarification on their responses to the Leases ED at the April meeting.
The Board agreed with staff that implementation guidance would be necessary to assist entities to effectively implement the amendments to the Leases standards.
The Board discussed issues raised in the responses to the Leases ED. There were no Board decisions based on staff’s recommendations because members wanted additional feedback from the respondents on the following issues:
- The addition of the notion of control to the lease definition as well as language connecting the definition to that of an asset in Statement of Federal Financial Accounting Concepts 5, Definitions of Elements and Basic Recognition Criteria for Accrual-Basis Financial Statements
- The change of the term “nonfinancial asset” to “nonmonetary asset” in the final amended Leases Statement
- The method used in determining the lease term, including what is considered the “noncancelable period” proposed in the ED
- The probability threshold used when assessing whether renewal and termination options will be exercised
- The initial lessee recognition proposed in the ED
- The recognition and measurement of the lease liability by the lessee proposed in the ED
- The interest rate used to calculate the lease liability proposed in the ED
- The circumstances when the lessee must remeasure the lease liability proposed in the ED
- The recognition and measurement of the lease asset by the lessee proposed in the ED
- The lease term of 24 months or less for a short-term lease proposed in the ED
- The change of the definition of short-term lease from “a lease that, at the beginning of the lease, has a maximum possible term under the contract/agreement of 24 months or less, including any options to extend, regardless of its probability of being exercised” to “a lease with a lease term (as defined in paragraph 14) of 24 months or less”
- The change of the effective date of the amended leases standards to fiscal year 2020
Next Steps: Staff will extend an invitation to all 25 respondents of the Leases ED to allow them to speak before the Board to provide clarification on their responses to the ED and for the members to ask questions of the respondents. The clarifying discussion will take place on April 26, the first day of the next FASAB meeting. Staff will also prepare a package for the Board with materials to facilitate the discussion. Additionally, staff will continue with an analysis of the comments for Board consideration.
October 19-20, 2016 Board Meeting
The Leases project was not discussed at the October 2016 meeting.
The Board is seeking input on the proposed SFFAS entitled Leases: An Amendment of SFFAS 5, Accounting for Liabilities of the Federal Government and SFFAS 6, Accounting for Property, Plant, and Equipment, which was released for public comment on September 26, 2016.
The Board is proposing revisions to the existing federal lease accounting standards. The proposal would provide relevant and meaningful financial information needed by federal financial statement users. The revised standard would include a comprehensive set of lease accounting standards to recognize federal lease activities in the reporting entity’s general purpose federal financial reports, as well as appropriate disclosures.
The Board is proposing that federal lessees recognize a lease liability and a leased asset at the beginning of the lease, unless it is an intragovernmental lease or a short-term lease. A federal lessor would recognize a lease receivable and deferred revenue, unless it is an intragovernmental lease or a short-term lease.
The proposal also provides recognition, measurement, and disclosure requirements for intragovernmental leases. An intragovernmental lease is a contract or agreement that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration occurring within a consolidation entity or between two or more consolidation entities as defined under SFFAS 47, Reporting Entity.
“The Board is seeking to provide relevant and decision useful information to federal financial statement users,” noted Chairman Showalter. “The Board strongly considered the costs associated with the lease proposal. Those cost considerations are especially evident with the proposed accounting for short-term and intragovernmental leases. Additionally, we were able to address some implementation issues resulting from the current standards.”
The Board requests comments on the ED by January 6, 2017, and encourages respondents to provide responses to all of the questions raised and the reasons for their positions. The ED and the specific questions raised are available at the FASAB website in PDF and Word format, respectively (http://www.fasab.gov/documents-for-comment/).
August 24-25, 2016 Board Meeting
At the August Board meeting, staff provided to the Board a pre-ballot draft ED on lease accounting. The objective of the session was for the Board to provide feedback to staff and approve the Lease ED pre-ballot draft.
The following topics were presented by staff and discussed by the Board.
- Comment Period End Date – The Board agreed to the comment period end date of January 6, 2017.
- Proposed Effective Date – Staff proposed an effective date of periods beginning after September 30, 2019. Members agreed to propose an effective date of September 30, 2018, and revise the date to September 30, 2019, if the Board gets a negative reaction to the 2018 effective date. The Board also agreed to not allow early adoption of the standard to maintain consistency among the reporting entities.
- Public Hearing – Staff proposed scheduling a public hearing for April 26, 2017, and providing notice of the public hearing in the ED. The Board agreed that scheduling a public hearing should be determined based on the responses to the comment letters. Therefore, the ED will not include the scheduling of a public hearing; however, the possibility of a public hearing will be noted in the ED.
- Remeasurement Respondent Questions –The Board agreed to add a question to the ED to address the effect of remeasurement on the lease liability and asset, as well as language in the basis for conclusions to reflect the Board’s rationale. They also agreed to add a question to address whether certain remeasurement triggers would cause significant costs to the preparer.
- Implementation Guidance – The Board agreed to propose the prospective implementation approach, which requires that leases unexpired at the beginning of the reporting period be recognized and measured using the facts and circumstances that exist at the beginning of the period of implementation. This approach includes examples of implementation scenarios.
Next steps: The next steps are to incorporate all of the Board’s edits, send the Board a ballot draft of the ED for approval, and release the ED by the end of September.
Issue Paper for August 2016 – Tab F
June 29-30, 2016 Board Meeting
At the June Board meeting, staff provided to the Board a draft ED on lease accounting and task force responses to several lease-related questions posed by staff. The objective of the session was to review responses to seven questions staff had posed to the lease task force related to issues in which the Board had requested additional information and review a draft Lease ED.
The Board made the following tentative decisions.
- The Board agreed with the staff recommendation to propose the use of FASAB’s definition of probable (more likely than not – >50%) as the probability threshold in the Lease ED. The Board also directed staff to include probability threshold as a question in the ED.
- The Board agreed to propose that the leased asset be classified as property, plant, and equipment (PP&E) unless the underlying asset is not PP&E; in those cases the leased asset would be classified to align with the nature of the underlying asset.
- The Board agreed that the basis for conclusions should tell the story of how the Board arrived at its conclusions and the Board’s collaboration with the Governmental Accounting Standards Board (GASB). The basis for conclusions should not specifically note when FASAB’s proposed guidance diverges from GASB’s guidance unless the Board deliberated on GASB’s approach. In those instances when the Board considered GASB’s approach, staff will include the highlights of the discussion and how the Board came to its conclusions.
- The Board agreed to add some verbiage to the basis for conclusions on rent increases, lease incentives, and lease concessions.
Next steps: Staff will make the revisions discussed at the meeting to the draft ED and provide a pre-ballot draft for the August meeting.
Issue Paper for June 2016 – Tab H
April 27-28, 2016 Board Meeting
At the April Board meeting, staff members presented to the Board one issue related to developing the ED of the proposed standards on non-intragovernmental lease accounting. The Board had previously directed staff to use the proposal on leases from the Governmental Accounting Standards Board (GASB) as a platform for developing the federal standards on non-intragovernmental leases—GASB released the ED for comment in January 2016.
The objective of the session was to address the issue of service concession arrangements (SCAs) in the proposed lease standards. Staff noted GASB’s Leases ED specifically excludes “contracts that meet the definition of a service concession arrangement in paragraph 4 of Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements.” Currently FASAB standards are silent on SCAs.
Because SCAs are not addressed in federal accounting standards, the Board agreed that specifically excluding SCAs from the lease standard would raise more questions. Because SCAs are expected to be addressed in the P3 recognition and measurement project, the Board agreed to remain silent on SCAs in the lease proposal but to include the Board’s rationale in the basis for conclusions. The Board may also consider adding a question for respondents about SCAs in the ED.
Issue Paper for April 2016 – Tab C
February 24-25, 2016 Board Meeting
At the February 2016 meeting, staff presented to the Board a draft ED of the proposed standards on non-intragovernmental lease accounting. The Board had previously directed staff to use the Governmental Accounting Standards Board (GASB)’s proposal on leases as a platform for developing the federal standards on non-intragovernmental leases. The GASB ED was released for comment in January 2016. Staff made several revisions to the GASB proposal to reflect differences at the federal level, any conflicts with existing FASAB standards, and any changes the Board had previously agreed to. In addition, staff also posed 23 questions to the Board related to the draft. The questions highlighted areas where the FASAB proposal deviates from the GASB proposal, areas where the task force has raised questions, as well as the areas in which staff would like further direction from the Board.
The Board discussed the following topics at the meeting:
- Capitalization thresholds
- Service concession agreements
- Probability threshold
- Lease asset classification
- Lessee incremental borrowing rate
- Lease liability remeasurement
- The definition of an ‘investment’
- Insignificant lease components
- Rent holidays
Staff will continue to work with the task force to further develop the lease standards.
Issue Paper for February 2016 – Tab H
December 16-17, 2015 Board Meeting
The objective for the December 2015 lease discussion was to update the Board on the progress of the lease project, including the status of the Governmental Accounting Standards Board (GASB) lease project. The Board had previously directed staff to use the GASB lease proposal as a platform for developing the FASAB standards on non-intragovernmental leases.
GASB is in the final stages of finalizing its exposure draft (ED) and expects to release the ED for comment by the end of the first quarter of 2016. GASB plans to release its final lease standard in early 2016 with an effective date of 2019.
Staff’s goal is to have the FASAB lease ED available for comment by mid-2016. Staff also plans to hold a lease task force meeting on February 2, 2016.
There was also a brief discussion on the accounting for lease holdovers, in light of a recent Government Accountability Office (GAO) report. Holdovers occur when the tenant continues to occupy the premises after the lease has expired. The Board will consider the need for guidance on holdovers at a future meeting.
Staff will continue to work with the task force to further develop the lease standards and will continue to follow the progress of the GASB lease discussions.
Issue Paper for December 2015 – Tab D
OCTOBER 21-22, 2015 Board Meeting
The objective for the October 2015 Lease discussion was to update the Board on GASB’s deliberations of their lease project. The Board had previously directed staff to use the GASB Lease proposal as a platform for developing the FASAB standards on non-intragovernmental leases.
Staff provided the Board with excerpts from the tentative GASB Board meeting minutes from their September 1, 2015 lease discussion. The following GASB lease topics were presented to the Board.
- Airport Leases and Related Issues
- Lessee Disclosures
- Lessor Disclosures
- Short-Term Lease Exception
- Lease Terminations and Modifications
- Subleases and Leaseback Transactions
Staff will continue to work with the task force to further develop the lease standards and will continue to follow the progress of the GASB lease discussions.
Issue Paper for October 2015 – Tab C
August 26-27, 2015 Board Meeting
The objective for the August 2015 Lease discussion was to update the Board on GASB’s deliberations of their lease project. The Board had previously directed staff to use the GASB Lease proposal as a platform for developing the FASAB standards on non-intragovernmental leases.
Staff provided the Board with eleven discussion items that staff compiled from the last three GASB lease discussions (April, June, and July 2015). The eleven issues represented those lease topics that GASB either changed its position from their November 2014 Lease Preliminary Views document or topics that FASAB will need to further discuss as the exposure draft is developed. The following discussion items were presented to the Board.
- Defining “nonfinancial asset”
- Intangible (lease) assets
- The role of “control” in determining whether a transaction qualifies as an asset
- Service concession agreements
- Bargain purchase options
- Month-to-month holdover periods
- Probability threshold
- Lessee renewal/termination options
- Fiscal funding clauses
- Lease liability remeasurement
- Allocation of consideration to multiple components
Staff will continue to work with the task force to further develop the lease standards and will continue to follow the progress of the GASB lease discussions.
Issue Paper for August 2015 – Tab D
June 24-25, 2015 Board Meeting
There was no staff presentation to the Board on the Lease project at the June 2015 meeting. Staff provided a memo to the Board updating them on the project’s progress.
Since the April meeting staff has been working with GSA officials and other task force members to further develop the intragovernmental lease accounting standards. Thus far several additional intragovernmental leasing matters have being raised and are being researched for Board discussion.
The GASB met in early June to continue its deliberations on the comments received on their Lease preliminary views in preparation of an exposure draft. They have discussed the scope of the lease standard, its foundational principle, the lease term, and the lessee model. We are reviewing the related GASB staff discussion papers to assess if any of the issues raised in the GASB discussion papers need to be brought to our Board for discussion.
Staff will continue to work with the task force to further develop the lease standards, including the intragovernmental lease standards. Staff will also continue to follow the progress of the other standard setters’ lease accounting projects.
April 29-30, 2015 Board Meeting
The objective for the April 2015 Lease discussion was to review an initial draft exposure draft (ED) for the leases standard. Staff noted that the lease standard will include guidance for all federal leases, including intragovernmental leases. The Board has tentatively agreed that intragovernmental leases should be accounted for similar to current operating leases guidance. The draft ED included definitions of relevant terms, as well as specific provisions that address the recognition and measurement of intragovernmental leases for both the lessee and the lessor. Staff asked the Board if they agreed with the proposed language. The Board generally agreed with the staff proposal and asked staff to provide clarifying language in several sections of the proposal.
Staff also presented to the Board a summary of possible FASAB-relevant comments from the Governmental Accounting Standards Board’s (GASB) Preliminary Views (PV) on Leases. The Board had previously directed staff to use the GASB Lease PV as a platform for developing the FASAB standards on non-intragovernmental leases. GASB received 37 comment letters on their lease PV and held three public hearings and expects to issue its exposure draft in February 2016 and a final standard in early 2017. Since the Board previously agreed to use the GASB lease accounting proposal as the foundation for the FASAB lease account proposal and any wording differences could denote a difference in meaning, staff recommended that the FASAB ED also be released close to that same timeframe as the GASB ED. The Board agreed to stay in sync with the GASB timeline for the release of the lease ED and final standard.
Issue Paper for April 2015 – Tab C
February 25-26, 2015 Board Meeting
At the February meeting staff presented to the Board a discussion paper that provided an analysis of the final six chapters of the Governmental Accounting Standards Board (GASB) Preliminary Views (PV) on Leases. The GASB PV on Leases is being used as a foundation for the development of the FASAB lease standards on non-intragovernmental lease agreements – the GASB PV was released for comment in November 2015. The topics discussed included lessee accounting, lessor accounting, short-term exception, lease terminations and modifications, subleases and leaseback transactions, and leases with related parties, and intra-entity leases.
At the December 2015 meeting the topics related to non-intragovernmental leases from the GASB PV included objective, project background, applicability, scope and lease term. Also, at the December meeting the Board discussed proposed guidance for intragovernmental leases. The proposed guidance included definitions of relevant terms, as well as specific provisions that address features of leases and is based on the current FASB operating lease guidance.
Staff will continue to work with the task force to further develop the lease standards.
Issue Paper for February 2015 – Tab C
December 17-18, 2014 Board Meeting
At the December meeting staff presented to the Board proposed guidance for intragovernmental leases. The proposed guidance included definitions of relevant terms, as well as specific provisions that address features of leases and is based on the current Financial Accounting Standards Board operating lease guidance. At the October 2014 meeting the Board directed staff to simplify the intragovernmental lease accounting guidance. Staff presented revisions to the previously proposed recognition and disclosure lessee and lessor guidance for intragovernmental lease arrangements. The Board stressed consistency and the need for symmetry between the lessee and lessor accounting for intragovernmental leases.
Staff also presented an analysis of the first three chapters of the GASB Preliminary Views (PV) on Leases so that the Board could discuss the GASB concepts as it relates to the development of federal lease standards. The GASB PV on Leases will be used as a foundation for the development of the FASAB lease standards on non-intragovernmental lease agreements– the GASB PV was released for comment in November. The topics discussed were project objective, project background, applicability, scope, and lease term.
Staff will continue to work with the task force to further develop the intragovernmental lease standards. Staff will also continue to review the recently released GASB PV on Leases and provide a staff analysis for the February 2015 Board discussion.
Issue Paper for December 2014 – Tab H
October 22-23, 2014 Board Meeting
At the October meeting staff presented to the Board proposed guidance for intragovernmental leases. The proposed guidance includes definitions of relevant terms, as well as specific provisions that address features of leases and is based on the current FASB operating lease guidance.
Staff proposed seven lease-related definitions to the Board for discussion. The first three definitions – lease, intragovernmental and intragovernmental lease agreement – were discussed and tentatively agreed to by the Board at previous meetings. The remaining four proposed lease-related definitions – intragovernmental lease inception, intragovernmental minimum lease payments, intragovernmental noncancelable lease term, and intragovernmental sublease – were adapted from FASB’s existing operating lease guidance. The Board asked staff to simplify the proposed definitions and discuss them with the task force.
Staff also presented proposed recognition and disclosure lessee guidance for intragovernmental lease arrangements. The Board agreed that the lessee general guidance would be to recognize lease payments as they are received and the specific provisions would address those instances when the “due and payable” approach is not applicable. The Board also agreed that certain scheduled rent increases, rent holidays, and lease incentives should be recognized on a straight-line basis – possibly using the proposed language used for the amortization of leasehold improvements, including the “reasonably assured” language use by FASB.
Staff will work with the lease task force to simplify the proposed guidance for intragovernmental leases.
August 27-28, 2014 Board Meeting
At the August meeting staff provided an update on the status of the Governmental Accounting Standards Board’s leases project. The GASB is plans to issue a Preliminary Views document in the coming months.
The current focus for the FASAB leases project is on developing proposed guidance on intragovernmental leases arrangements. The Board discussed and agreed to a definition for the term “intragovernmental” to refer to occurring within a consolidation entity or within or between two or more consolidation entities. The Board discussed and agreed to proposed definitions of leases and of intragovernmental lease arrangements.
The Board discussed staff’s proposal for recognizing operating leases–straight-line for lease costs and in the current period for executory costs. The Board members agreed with the straight-line concept for lease payments, but would like additional information before deciding whether executory costs should be required to be separated from the rental payment.
The next decision related to the proposed disclosure of future lease payments. Some questioned whether this disclosure was necessary for intragovernmental lease arrangements. The Board agreed to exclude the disclosure, but to ask a question in the exposure document about whether the disclosure is necessary.
The Board agreed that the lessor revenue recognition would match the lessee’s expense recognition—on the straight-line basis. The Board agreed that upfront lease costs for lessors would be expensed. Regarding potential disclosures of future lease payments of lessors, there were no objections to the proposed disclosures.
June 25-26, 2014 Board Meeting
At the June Board meeting staff asked the Board If intragovernmental leases should be accounted for differently than leases between federal entities and non-federal entities. The question was primarily based on the General Services Administration (GSA) briefing to the Board on its intragovernmental leasing activities at the April meeting.
Staff recommended a simplified approach for recognizing amounts arising from intragovernmental leases. The model would simplify intragovernmental eliminations while relying on other means to provide information about use of assets and continuing obligations.
Several factors were considered as the Board assessed whether intragovermental leases should be accounted for differently.
–The information needs are different; risk-based information is not necessary for transactions between federal entities.
— The cost-benefit associated with the proposed single-model approach. GSA’s concern is, if the tenant agencies were to be required to establish a right of use asset and liability based on their occupancy agreement, the tenant agency right of use liability would need to “match” a GSA right of use receivable for this assigned space.
— The fact that 89% of the GSA occupancy agreements are cancelable by the tenant agency at any time after the first year with 120 days notice may result in some qualifying for the 12-month (or 24-) exception.
— Legal enforceability is not a factor with agreements between federal entities.
— The fact that GSA has the authority to assign or reassign space to a tenant agency in any federal government-owned or leased building means agencies intragovernmental rights to leased assets is not as clear as it may be in non-federal leases.
A majority of the Board agreed with a simplified approach for recognizing amounts arising from intragovernmental leases. Tentatively, the Board agreed that intragovernmental leases should be accounted for differently than leases between federal entities and non-federal entities.
The Board agreed to refer to the project as “leases and other similar arrangements” to differentiate the intragovermental arrangements from the non-federal arrangements. This would allow the two types of transactions to be disclosed separately.
The Board also agreed not to pursue issuing a preliminary views (PV) document on leases and to tentatively plan to issue its exposure draft (ED) on leases and other similar arrangements close to when the Governmental Accounting Standards Board (GASB) will issue its ED. Because GASB plans to issue a PV prior to its ED, staff will have an opportunity to seek informally feedback from the federal community on the GASB PV.
April 23-24, 2014 Board Meeting
The current research focus of the Lease project is to seek a better understanding of the General Services Administration’s (GSA) role with respect to leasing activities, the intragovernmental leasing activities of the federal government and the government-specific issues surrounding federal leasing. Staff requested an informational briefing from GSA representatives to assist the Board and staff in understanding:
- GSA lease agreements with other federal entities,
- the types of lease agreements GSA enters into as the lessee, and
- any concerns GSA currently has with the existing federal lease standards.
Several GSA representatives briefed the Board at the April meeting. Staff provided GSA with several questions that staff believed would be important for the Board to know as they consider revisions to the federal lease accounting standards. Staff also encouraged the GSA representatives to cover those areas that GSA believes are important for the Board to know.
The following questions were addressed by GSA at its briefing to the Board.
GSA’s Role –
- What is GSA’s role as landlord for federal civilian agencies?
- What types of real property needs at civilian agencies do not fall to GSA?
- Does GSA provide a full suite of landlord services such as maintenance and improvements?
GSA’s Financing –
- Please explain how GSA finances its operations (that is, appropriations, borrowing, third-party financing, agency reimbursements).
GSA as a Lessee –
- What is the mix of government-owned versus leased properties in your portfolio?
- When you lease facilities, is the lease classification for budget scoring generally capital or operating?
- Does the financial accounting classification usually match the budget scoring now?
- If it doesn’t match, what, if any, challenges does that pose?
- How do termination clauses (e.g., termination for cause clause, fiscal funding clause, etc.) affect the classification of a lease?
- Do you enter into lease agreements that bundle other services such as maintenance or parking? Does this pose any special accounting challenges now? Are you able to obtain a breakdown of the various costs inherent in the lease payment?
- What factors influence your decision to lease versus buy to meet a particular need?
GSA as Lessor —
- Are occupancy agreements with other federal entities considered legally binding documents?
- What terms are usual in intra-governmental leases?
- Pricing (how are prices established)
- Leasehold improvements (advance funded or spread over the lease term)
- Cancellation or termination clauses (with or without penalty)
- The option to avoid termination penalties if another federal agency assumes the lease
- Other services included with the lease (maintenance, annual improvement allowances)
- How do these terms affect classification by the lessee agency? (Are intra-governmental usually classified as operating leases?)
- Are lessees able to obtain a breakdown of the various charges (bundled services, improvements, profit) in their lease payments?
- What are your thoughts on lessee/lessor symmetry if a single model approach is implemented?
- Some have noted that maintaining symmetry if right-of-use assets are recognized would require more communication between GSA and agencies.
- Others have noted the need to coordinate intra-governmental balances now (that is, payables and receivables and treatment of improvements) means a process should already be in place
- What is the approximate value of real property lease commitments as opposed to the value of personal property lease commitments?
Current accounting –
- What matters require attention under the current accounting standards for leases?
The GSA representatives provided the Board with an excellent presentation on federal leases and occupancy agreements. The presentation covered the relevant topics at the right level of detail. Having a cross-functional team greatly enhanced the value of the information.
Issue Paper for April 2014
March 5-6, 2014 Board Meeting
The FASAB met jointly with the GASB to discuss similar issues related to each of their ongoing lease accounting projects. The Boards first discussed the lessor model. Both Boards agreed that they should begin with the goal of developing symmetry between the lessee and lessor models. The FASAB was also very focused on the intragovernmental leasing issues involving federal entities. The Boards also discussed GASB’s tentative decisions to date on the lessee model. The following lessee model points were discussed.
- Termination clauses
- GSA occupancy agreements
- Differences between the accounting for federal leases and the budget scoring for federal leases
- FASAB and GASB’s definitions of probable as it relates to assessing the likelihood of a renewal option being exercised – GASB’s definition of probable has a higher threshold of probability
- Factors affecting the reassessment of the lease term
- Defining a short-term exception
- The discount rate used to calculate the lease liability – the government’s incremental borrowing rate vs. the lessor’s implicit rate
There were no major decisions made by the FASAB. Staff was directed to continue its research.
December 18-19, 2013 Board Meeting
Ms. Deborah Beams, GASB Practice Fellow (leading the leases project) and audit manager at the Dallas office of Grant Thornton, presented to the Board the tentative decisions discussed by GASB on the leases project to date.
Ms. Beams identified the following GASB major tentative decisions on leases:
- The definition of a lease be revised to be “a contract that conveys the right to use an asset (the underlying asset) for a period of time in an exchange or exchange-like transaction”
- The scope of the Leases guidance continue to include contracts not identified as leases but that meet the definition of a lease
- A single accounting model be developed, potentially with exceptions for certain circumstances
- The lease term include:
- The noncancellable period
- 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
- Periods covered by fiscal funding and cancellation clauses if the possibility of cancellation is remote (If the possibility of cancellation is more than remote, the period should be treated as any other termination option when determining the lease term.)
- The underlying assumption that leases are financings be the foundation for the governmental leasing model
- Leases that transfer ownership not qualify for the short-term lease exception, even if they meet the other criteria
- The right to use the underlying asset be recognized as an asset by the lessee
- The general approach to measuring lease assets and liabilities will be to measure the liabilities first and base the assets on that amount
- The general measurement approach for a lease liability be based on the present value of future payments
- Prepayments (amounts paid for the lease prior to measuring the lease liability) be included in the value of the recorded lease asset
- Lease incentives received be reductions in the cost of lease assets
- Initial direct costs be capitalized if they are ancillary charges to place the leased asset into use or expensed if they are other costs.
Ms. Beams also stated that the current GASB plan is to issue an exposure draft on leases at the end of November 2014 and a final statement in late 2015.
Ms. Monica Valentine, FASAB Project Director for the leases project gave a brief overview of the responses to the ten-question federal lease activities questionnaire sent to several federal entities. The purpose of the questionnaire is to gather the necessary data on the leasing activities and practices of federal entities – the input will assist FASAB in developing new lease standards for the federal government. The following points were highlighted:
- Federal agencies primarily serve as the lessee, however three federal entities noted substantial lessor activities
- The list of leased items included facilities/office space, equipment, land, vehicles, and several other items.
- Five federal entities noted enhanced use lease (EUL) activities
Staff noted that the responses highlight the need for comprehensive lease accounting standards for the federal government, especially now since FASB is actively working to modify its current lease standards.
The Board noted the following comments based on the results of the lease questionnaire:
- Focus in on the federal aspects of lease accounting
- Highlight possible issues related to intra-governmental leasing activities
- Identify the user needs as it relates to federal lease activities
- Identify the cost-benefit of having different lease accounting recognition and lease budget scoring.
An additional staff paper provided to the Board asked the following questions:
- Based on the [SFFAC 5] definition of an asset, does the Board believe that a federal entity’s right to use a leased asset meets the definition of an asset to the entity?
- Based on the [SFFAC 5] definition of a liability, does the Board believe that a federal entity’s obligation to make lease payments meets the definition of a liability to the entity?
- Based on the GASB staff paper, does the Board support the Type A and Type B consumption based distinction proposed by the FASB and the IASB?
- Does the Board believe there are other inherently different types of leases so that a different accounting treatment is needed?
All of the members agreed to explore the single-model approach as opposed to the dual-model approach.
The Board highlighted the following as it relates to the lease project:
- It would be helpful to know the annual interest expense for federal entities’ leases
- The single model is preferred because it will be easier for agencies to have just one class of leases
- The single-model approach is a practical expedient and is conceptually sound.
- Articulation is necessary between the lessee and the lessor reporting because of significant intra-governmental leasing
- Identifying any possible exceptions
- Implementation issues should be addressed
- The current two year useful life criteria used to determine capitalization of general property, plant & equipment should be considered as a possibility for lease balance sheet recognition.
- Assess the cost-benefit of having two approaches to leasing analysis – one for budget purposes and the other for accounting purposes
- The Board should be looking at providing decision useful information.
The following are the next steps for the project.
- Hold a task force meeting in late January 2014.
- Prepare for the joint meeting with GASB in March 2014
- Continue to follow the progress in both GASB and FASB’s lease projects.
- Survey the user community on the usefulness of the lease balance sheet recognition and the interest expense breakout
October 23-24, 2013 Board Meeting
The Lease Project was not discussed at the October Board meeting. Staff is continuing preliminary research on the project by following the developments of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board lease project, conferring with the Governmental Accounting Standards Board, and gathering information from federal entities on their leasing activities.
August 28-29, 2013 Board Meeting
At the August meeting, staff presented several questions to the Board related to the revised exposure draft released in May by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on leases, as well as the Governmental Accounting Standards Board’s (GASB) initial board discussions on leases. Ms. Roberta Reese, GASB Project Manager, participated in the discussion to provide background to the FASAB on the GASB discussion.
The discussion centered on the eight questions staff posed to the Board.
Question 1 related to the scope of the lease project and what topics should be considered. Staff recommended that all of the topics tentatively agreed to be addressed by GASB should also be addressed in the FASAB project. Also, more research is necessary to determine the extent of sale-leaseback, leveraged lease, and SCA-like transactions within the federal community. Staff also recommended adding enhanced use leases to the project’s scope.
Question 2 related the definition of a lease – should the term “contract” or “agreement” be used in the FASAB definition of a lease. Staff recommended that the FASAB definition of lease use the term “agreement” as opposed to “contract”, which is what FASB is proposing, because using “contract” could narrow the scope of the lease standards and not capture all leasing transactions involving federal entities. The Board tentatively agreed to leave the “terminology” question open and to concentrate on the substance of a lease.
Question 3 also related to the definition of a lease – should the term “asset” or “property, plant, & equipment” be used in the FASAB definition of a lease. Staff and the Board agreed with GASB’s tentative decision to use the broader term “asset” as opposed to “property, plant, & equipment” which could narrow “leases” in a way that leads to similar activities being excluded from coverage of the standards. Staff believes narrowing should be accomplished through specific exclusions (the approach taken by the FASB and IASB) as they are likely to be clearer to the reader.
Question 4 related to the definition of a lease – should staff assess the prevalence of nonexchange and “exchange-like” (as defined by GASB standards) leasing transactions and whether “control” of a resource is generally conveyed in such transactions in the federal environment. Staff also noted that “exchange-like” transactions are generally included in “exchange transactions” under the current federal standards. It was noted that in situations where we have one federal entity allowing another federal entity to use space free of charge – it is covered by the imputed cost standards and there is no asset or liability currently recognized. The Board agreed that staff should include intra-governmental nonexchange transactions in the scope of the lease project to consider options for balance sheet recognition.
Question 5 related to the inclusion of explanatory guidance to assist in determining if an arrangement is a lease that is currently included in the FASB ED. Staff recommended that this question be deferred until the proposed lease standards are further developed. Since FASAB establishes standards for a single reporting entity more detailed guidance at the standards level may be cost-effective for FASAB.
Question 6 related to the scope of standards (inclusions) – should the scope of FASAB lease standards include agreements that reflect the substance of a lease even if they are not called a lease. Staff recommended that the scope of FASAB lease standards include agreements that reflect the substance of a lease even if they are not called a lease.
Question 7 related to the scope of standards (exclusions) – should the scope of FASAB lease standards exclude the following four bulleted topics:
- Agreements that contract for services that do not transfer the right to use an asset from one contracting party to the other would not meet the basic premise of a lease which transfers/conveys the right to use an asset.
- Federal natural resources is addressed in Technical Bulletin (TB) 2011-1: Accounting for Federal Natural Resources Other than Oil and leases involving oil and gas are covered in SFFAS 38: Accounting for Federal Oil and Gas Resources.
- Intangible assets, other than internal use software (which is considered to be PP&E), are not addressed in the current FASAB standards. Additional staff research is necessary to determine the extent federal entities are involved in leasing activities of intangible assets other than internal use software.
- Service concession arrangements (SCAs) will be addressed in the FASAB Public-Private Partnership project.
Staff recommended that the scope of FASAB lease standards exclude three of the above four bulleted topics, with the exception being internal use software and other intangible assets that will be further researched.
Question 8 related to drafting the scope and applicability sections of the standard. Staff recommended that drafting the scope and applicability of the lease standard be deferred until further staff research can be performed to address the scope issues identified earlier.
The next steps for the project are as follows.
- Continue research to determine the types of lease transactions being used by federal entities (e.g., sale-leaseback, leverage, SCA-type leases, and enhanced-use leases)
- Identify any lease agreements that would not meet the criteria of a lease contract.
- Research nonexchange lease transactions and nominal consideration exchange lease transactions between federal entities and between a federal entity and a non-federal entity.
- Research the extent of federal leases involving intangible assets.
- Hold a task force meeting.
- Continue to follow the progress in both GASB and FASB’s lease projects.
April 25 – 26, 2012 Board Meeting
At its April meeting FASAB Staff provided the Board with an update on the lease project.
April 2012 Lease Update (PDF)
February 22 – 23, 2012 Board Meeting
At its February meeting FASAB Staff provided the Board with an update on the lease project.
January 17, 2012 Lease Questionnaire
The lease accounting project plan presented to the Board in August 2011 noted that staff would develop a questionnaire to be used to gather data from federal entities on their leasing activities and practices. On January 17, 2012 the questionnaire was distributed by FASAB staff to 27 federal entities via email. In an effort to gather the necessary data on the leasing activities and practices of federal entities we requested the assistance of Deputy CFOs and Accounting Directors in completing the questionnaire. Staff requested that questionnaire responses be submitted by February 27, 2012.
August 24-25, 2011 Board Meeting
At its August meeting, the FASAB approved a plan to review existing lease accounting standards and to consider whether changes are needed to address the needs of the federal community and will include more comprehensive standards on federal leasing activities than the existing standards. A task force will be formed to assist in consideration of issues and options.
Leases Project Plan (PDF)