FASAB Contact, Ricky A. Perry, Jr., firstname.lastname@example.org, 202-512-5720
|Request for Comment||Due Date||Word Version of Questions for Respondents||Comment Letters||Final Pronouncements|
|Intragovernmental Leasehold Reimbursable Work Agreements (PDF)||November 4, 2022||Word Version of QFRs (Download)||Comment Letters||N/A – Currently under due process|
|Omnibus Amendments: Technical Clarifications Addressing Lessee and Lessor Discount Rates and Sale-leasebacks (PDF)||July 8, 2022||Word Version of QFRs (Download)||Comment Letters||N/A – Currently under due process|
|Implementation Guidance for Leases & Omnibus Amendments to Leases-Related Topics: A Joint Exposure Draft (PDF)||February 5, 2021||Word Version of QFRs (Download)||Comment Letters||Omnibus Amendments 2021: Leases-Related Topics (PDF)|
|Deferral of the Effective Date of SFFAS 54, Leases (PDF)||January 31, 2020||Word Version of QFRs (Download)||Comment Letters||Deferral of the Effective Date of SFFAS 54, Leases (PDF)|
|Leases (PDF)||January 6, 2017||Word Version of QFRs (Download)||Comment Letters||Leases (PDF)|
|Related Active AAPC Project|
|Leases implementation guidance|
The FASAB approved the Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases, project to develop a comprehensive set of lease accounting standards for the federal government. The project was undertaken by the Board primarily because lease accounting standards contained in SFFAS 5 and 6 have been criticized as ineffective. Those standards were based on Financial Accounting Standards Board (FASB) lease accounting standards, which have since been modernized and are becoming outdated.
Since the issuance of Statement 54 in April 2017, the Board has since taken up numerous post-issuance activities and projects.
The objective of these post-issuance activities is to support effective implementation and understanding of the Statement through implementation guidance and the timely identification and issuance of conforming amendments, clarifications, and other guidance that may be necessary.
Post-issuance activities include three Board projects:
- SFFAS 58, Deferral of the Effective Date of SFFAS 54, Leases. As discussed in the project history below, this resulted in the deferral of the effective date of SFFAS 54 to reporting periods beginning after September 30, 2023. Early implementation is not permitted.
- Omnibus amendments related to SFFAS 54. This project is currently under way and being developed in coordination with the Accounting and Auditing Policy Committee (AAPC) leases implementation guidance project.
- Interpretations or Technical Bulletins on SFFAS-54-related topics. As with the omnibus amendments project, research for this project is informed by the AAPC implementation guidance project and supporting task force.
The AAPC’s leases implementation guidance project also relates to SFFAS 54.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
September 19, 2022
Intragovernmental Leases-Related Reimbursable Work Agreements
On September 19, 2022, FASAB staff released an exposure draft (ED) Technical Bulletin, Intragovernmental Leasehold Reimbursable Work Agreements. The proposed Technical Bulletin is intended to further explain and address accounting issues not directly covered under Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases, and other relevant Statements.
Under intragovernmental leasehold reimbursable work agreements, one reporting entity (the provider-lessor) acquires, constructs, improves, and/or alters an underlying asset that is or will be leased to another reporting entity (the customer-lessee) and the customer-lessee agrees to reimburse the provider-lessor for direct and indirect costs for the acquisition, construction, improvement, and/or alteration. These reimbursable costs are beyond what may be included in the tenant improvement allowances of the lease agreement for the related underlying asset.
The proposal would require customer-lessees to recognize an intragovernmental reimbursable work asset for reimbursable acquisition, construction, improvement, and/or alteration costs (unless the leasehold improvement asset is recognized by the customer-lessee). Provider- lessors would recognize an intragovernmental unearned reimbursable work revenue liability for reimbursable acquisitions, construction, improvements, and/or alterations provided to the customer-lessee on a reimbursable basis (unless the leasehold improvement is recognized by the customer-lessee).
Accounting for the substance of these agreements inherently involves professional judgment in determining which reporting entity should report the leasehold improvement asset (or PP&E)—particularly in situations when both parties are expected to derive economic benefits and services from the reimbursable work over the useful life of the resulting PP&E. The proposal would assist reporting entities with recognizing the appropriate types of assets and liabilities embodied under these intragovernmental agreements in a similar manner.
The Board requests comments on the ED by November 4, 2022. Respondents are encouraged to provide the reasons for their positions. The ED (in PDF format) and the specific questions raised (in Word format) are available on the FASAB website.
August 23-25, 2022
The Board received 16 comment letters on the exposure draft (ED) titled Omnibus Amendments: Technical Clarifications Addressing Lessee and Lessor Discount Rates and Sale-leasebacks. A majority of respondents (15 of 16) indicated general support for the proposals. Several respondents provided insightful technical comments and other suggestions to clarify the proposal.
Staff noted two additional clarifying omnibus proposals identified by respondents and staff:
- A minor conforming amendment to align paragraph 61 of SFFAS 54, Leases, (lessor remeasurement guidance) with paragraph 44 (lessee remeasurement guidance). Members agreed to amend paragraph 61 of SFFAS 54.
- Clarifying interactions between paragraphs 19.a and 19.b of SFFAS 54. Members discussed the purpose of the proposed amendment to paragraph 19.b. Staff noted that, absent the clarification, the provision in paragraph 19.a could be interpreted as being applicable to measuring lease terms more broadly rather than being specifically applicable to identifying cancelable periods excluded under lease terms under paragraph 19.a. Such interpretations could (a) scope improbable purchase options and payment-based factors into cancelable period assessments and (b) confuse practitioners when assessing the term of leases. Staff also explained that the language in paragraph 19 is organized differently than the language in paragraph 12 of GASB Statement No. 87, Leases, resulting in a need for clarification.
Members tentatively agreed with the proposed amendment to paragraph 19.b, subject to consultations with GASB staff on the matter and, if necessary, updates on such consultations. Soon after the Board meeting, staff met with GASB staff. Based on those consultations, staff determined that the Board should consider additional information provided by GASB staff. Staff will provide this information to the Board at a future meeting. At that time, members will decide if additional changes to the omnibus proposal are needed.
The Board discussed the basis for conclusions language. Members decided to add additional discussion in response to concerns raised by one respondent related to paragraphs 42B and 59B and the professional judgments that practitioners will make when applying the discounting requirements. Members discussed the benefits to providing reasonable accommodations for flexibilities in rate selection methodologies, if such methodologies are consistently applied in accordance with the proposed criteria. Members also agreed that component reporting entities may develop and implement accounting policies for sub-components. Members requested that staff add additional discussion to the basis for conclusions on this matter. Members may provide follow-up edits when reviewing the updated draft.
Briefing materials – Topic B
Intragovernmental Leases-Related Reimbursable Work Agreements
Members discussed and agreed upon several improvements to the draft ED titled Intragovernmental Leasehold Reimbursable Work Agreements.
Members agreed to add a discussion in the basis for conclusions explaining the authoritative basis for the proposals, including demonstrating the unique aspects of reimbursable work authorizations in the context of assigning leasehold improvement assets.
Members agreed to clarifying edits to paragraphs 8-9, including revising the question to align with the phrasing of the answer.
Members also agreed to include a specific matter for comment to obtain feedback from the community on paragraph 15.
Members agreed to include additional criteria to address the timing of customer-lessee asset amortization commencement in paragraph 25 and provider-lessor revenue recognition in paragraph 32.
Members asked staff to confer one-on-one with members individually on certain finalizing technical edits to the proposals and basis for conclusions prior to releasing a copy to the Board for a 15-day review. Finalizing changes will be tracked in the review copy. If a majority of members do not object to the ED release during the 15-day review period, FASAB will release the ED for public comment for 45 days.
Due to time constraints during the meeting, the Board did not discuss paragraphs 28.b and 34.b disclosure proposals. Accordingly, staff will include a specific matter for comment on the proposals in the ED, and members will further discuss the matter after receiving feedback from respondents.
Briefing materials – Topic F
On May 9, 2022, the Board released exposure draft (ED) Statement of Federal Financial Accounting Standards (SFFAS) titled Omnibus Amendments: Technical Clarifications Addressing Lessee and Lessor Discount Rates and Sale-leasebacks. Comments are due July 8, 2022
April 26-27, 2022
On the first day of the reimbursable work authorizations session, a panel of experts presented an educational session on the topic. The panelists discussed the purposes and uses of reimbursable work authorizations and related accounting issues not directly covered by existing Statements and Interpretations. Staff joined the session as panelists, providing a research and development update alongside the guest panelists.
On the second day of the reimbursable work authorizations session, Board members provided feedback on staff’s research methodology and approach. Members also expressed preliminary support for use of a Technical Bulletin to address the accounting issues not directly covered by existing Statements or Interpretations.
At the leases omnibus session, staff provided an overview of edits and improvements made to the pre-ballot draft of the omnibus exposure draft. Board members expressed support for the pre-ballot edits and improvements presented by staff. Members noted a few additional follow-up edits and improvements during the meeting.
Staff discussed the plan to implement finalizing edits and distribute a ballot copy of the draft exposure draft to members. The exposure draft will be released for public comment for a period of 60 days once five member approvals are received.
Subsequent to the April meeting, the Board issued exposure draft (ED) Statement of Federal Financial Accounting Standards (SFFAS) titled Omnibus Amendments: Technical Clarifications Addressing Lessee and Lessor Discount Rates and Sale-leasebacks. The ED proposes targeted omnibus amendments to SFFAS 54, Leases. The proposed amendments are intended to clarify the application of lessee and lessor discounting requirements and the application of sale-leasebacks guidance to intragovernmental sale-leasebacks and the disclosure requirements applicable to them.
Comments are requested on the ED by July 8, 2022.
February 23-24, 2022
At the February meeting, members provided additional feedback on a draft proposal to clarify paragraphs 42, 47-48, 59, 89, and 92 of SFFAS 54. Staff had implemented revisions in response to the Board feedback provided in October. Members provided a few technical improvements and clarifying edits to the proposals while expressing overall support.
Members agreed to incorporate omnibus amendments within these SFFAS 54 paragraphs rather than through a separate Interpretation. Such an approach should improve the flow and understandability of SFFAS 54 by seamlessly integrating clarifying provisions within the existing guidance. The proposals will clarify guidance for discounting lease liabilities and lease receivables and applying sale-leaseback guidance in paragraphs 89-92 to intragovernmental leases and leases with the public.
Briefing materials – Topic B
Staff has engaged directly with task force members and relevant stakeholders to research SFFAS 54 implementation challenges and identify viable proposals for addressing two areas: incremental borrowing rate selections and accounting for reimbursable work authorizations.
Research progress has temporarily been at a slower pace due to competing priorities in staff’s portfolio of work and scheduled leave. The pace of research and proposal development is expected to accelerate during the second quarter, however, with substantive Board briefing materials and deliberations on these issues expected in February through June.
October 26, 2021
At the October meeting, members provided initial feedback on a draft Interpretation of Federal Financial Accounting Standards of paragraphs 42 and 59 of SFFAS 54 presented by staff based on research and leases implementation task force discussions.
The draft Interpretation was developed in response to task force concerns regarding how to implement and interpret these paragraphs when selecting and estimating incremental borrowing rates for purposes of determining the present values of future lease payments and estimating lease liabilities and lease receivables.
Members raised several matters for staff to consider as research and development of the proposal continues:
- Members discussed the type of pronouncement under development. Some members expressed that a Technical Bulletin may be an appropriate approach.
- Members discussed the level of detail provided. A few members expressed reservations about the level of detail presented in the draft but remained open to such an approach. Members requested that staff provide more information, including a draft basis for conclusions, at a future meeting to help Board members better understand the extent to which detailed guidance may be appropriate.
- A few members also expressed a desire for staff to provide an analysis of the guidance under SFFAS 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits. Members were interested in learning more about the similarities and differences between the proposal presented and SFFAS 33, as well as the basis for any differences.
Staff also noted that some task force members have recently requested that additional clarification be provided to reporting entities with independent borrowing authorities. Staff will bring any task force proposals to the Board for feedback after completing additional research and outreach.
Briefing materials – Topic C
August 24-25, 2021
Although staff provided a non-agenda update for the Board in the briefing materials, the leases project was not discussed at the August 2021 Board meeting.
Briefing materials – Topic H
June 22-23, 2021
At the June meeting, members reviewed a pre-ballot draft of the leases omnibus proposal. Members agreed to a limited number of finalizing changes to the proposal, including updates to the basis for conclusions. Members also reviewed the proposed Technical Release (TR) on leases submitted by the Accounting and Auditing Policy Committee (AAPC). The Board also discussed and agreed to a few minor revisions to the TR proposal.
Briefing materials – Topic F
April 27-28, 2021
At the April 2021 Board meeting, members reviewed a compendium of comment letters along with staff’s analysis and recommended changes to the omnibus amendment proposals on leases-related topics resulting from those comments.
Respondents were generally supportive of the exposure draft (ED) and provided several insightful recommendations. Respondent feedback resulted in numerous staff recommendations to the Board, which were agreed upon during the meeting:
- Editing paragraphs 7 and 22 of SFFAS 54 to clarify that short-term leases are non-intragovernmental
- Clarifying the definition of lease concessions in paragraphs 10 and 70 of SFFAS 54
- Removing the requirements to straight-line lease incentives and lease concessions for short-term leases and intragovernmental leases
- Removing the implicit requirement to impute interest rates under paragraphs 42 and 59 of SFFAS 54 and requiring lessees and lessors to instead discount lease liabilities and receivables using the estimated incremental borrowing rate when a rate is not otherwise stated in the lease agreement
- Changing the term “deferred revenue” to “unearned revenue” in paragraphs 64-65 and elsewhere in SFFAS 54
- Clarifying the treatment of lease-leasebacks under paragraph 93 of SFFAS 54
- Amending SFFAS 5, SFFAS 6, and SFFAS 54 to clarify the treatment of contracts or agreements that transfer ownership
- Explicitly including leasehold improvements in the definition of PP&E under SFFAS 6
- Clarifying land rights in paragraph 18 of SFFAS 6
Briefing materials – TOPIC A
Oct 21-22, 2020
At the October meeting, the Board reviewed and agreed upon finalizing edits to the pre-ballot draft of the leases omnibus proposal and the leases implementation guidance proposal previously approved for exposure by the AAPC.
The Board approved a ballot version of the leases omnibus proposal soon after the meeting. The adjoined exposure document, titled Implementation Guidance for Leases & Omnibus Amendments to Leases-Related Topics: A Joint Exposure Draft was released for public comment on November 2. The Board requests public comments by February 5, 2021. Staff will continue education and outreach efforts with the community and encourage stakeholders to review the proposals and provide comments.
Briefing materials – Tab B
August 26-27, 2020
At the August 2020 meeting, the Board finalized and approved all omnibus amendment candidate proposals for leases-related topics. Board members unanimously concurred with certain staff-recommended revisions to the proposals reflected in the briefing materials. Omnibus proposals included minor technical corrections, clarifying edits, and rescissions of certain disclosure requirements.
Staff will provide a pre-ballot draft for discussion at the October meeting. The discussion will focus primarily on questions for respondents, aspects of the joint exposure document (including the implementation guidance component), and Board comments on the basis for conclusions. The Board plans to issue a joint exposure draft (of the omnibus amendments to leases-related topics and leases implementation guidance) for public comment sometime in November.
Briefing materials – TAB E
June 24 – 25, 2020
At the June 2020 meeting, the Board discussed omnibus amendment candidates, including minor technical corrections and clarifying amendments, identified by staff and the leases implementation task force. Board members agreed with most of the candidates and provided feedback to staff on other candidates. These omnibus amendment proposals under development would serve to clarify and reduce preparer burden associated with interpreting and applying some of the more nuanced requirements of SFFAS 54, Leases, as reporting entities continue implementation preparedness activities.
Staff will present for the Board’s consideration an updated exposure draft (ED) working draft, to include a few additional omnibus amendment candidates, at the August meeting. The Board will also revisit certain candidates discussed at the June meeting that require further discussion.
The Board also tentatively agreed to issue a joint ED of the omnibus proposals developed by the Board and the implementation guidance proposals developed by the Accounting and Auditing Policy Committee to facilitate cohesive and informed responses and efficient analysis of comment letters.
Briefing materials – TAB D
February 26-27, 2020
At the February 2020 meeting, Board members unanimously supported the extension of the effective date deferral of SFFAS 54 from two years to three years.
On March 17, 2020, Board members unanimously approved (via electronic balloting) SFFAS 58, Deferral of the Effective Date of SFFAS 54, Leases, for issuance. The Statement was then delivered to the Secretary of the Treasury, the Director Office of Management and Budget, and the Comptroller General for the 90-day sponsor review prior to its final release. The expected issuance date is June 19, 2020.
Issue Paper for February 26-27, 2020 – Tab H (PDF)
December 17-18, 2019
On December 18, 2019, FASAB released for comment an ED titled Deferral of the Effective Date of SFFAS 54, Leases. Under the proposal, the requirements of SFFAS 54 would be deferred by two years and, as a result, become effective for reporting periods beginning after September 30, 2022. Early adoption would not be permitted, which is an existing stipulation under SFFAS 54 that remains unchanged in the proposal.
Issue Paper for December 17-18, 2019 – Tab A (PDF)
October 23-24, 2019
Staff, along with a panel of experts from the leases implementation task force, provided the Board with status updates and an overview of ongoing implementation efforts. Staff and the panel also discussed challenges faced by agencies in preparing for the forthcoming effective date of SFFAS 54, Leases, An Amendment of SFFAS 5, Accounting for Liabilities of the Federal Government, and SFFAS 6, Accounting for Property, Plant, and Equipment.
Many agencies are making significant headway in addressing implementation challenges but need additional time. Challenges include implementing new systems functionalities, developing and testing automated solutions, and identifying and standardizing certain core systems requirements and data elements across government.
Staff recommended that the SFFAS 54 effective date be deferred by two years to allow additional time for post-issuance technical activities (for example, implementation guidance) to be finalized, issued, and considered by the community. Staff reported on numerous sub-projects underway to develop guidance and examine minor changes needed to current guidance to facilitate implementation.
Board members unanimously agreed to propose a two-year deferral of SFFAS 54. Staff will draft and distribute an exposure draft (ED) and possibly a ballot draft of the ED before the December meeting. If the Board approves a ballot draft of the ED at the December meeting, the document would likely be issued for public comment soon after. Constituents are encouraged to monitor the leases project and respond to the ED when it becomes available.
Issue Paper for October 23-24, 2019 – Tab D (PDF)
August 28-29, 2019
At the August 28 meeting, staff briefed the Board on the project plan for developing implementation guidance for SFFAS 54, Leases. Staff has, with the support of the Accounting and Auditing Policy Committee (AAPC) task force, undertaken a systematic process for identifying implementation issues by (1) performing a content analysis of analogous Governmental Accounting Standards Board implementation issues and (2) surveying task force members and their constituents regarding issue areas that may be candidates for guidance.
The task force roster is finalized, and meetings are scheduled for September 6 (completed), October 4, November 1, and December 6 (tentative).
Board members were generally supportive of the plan but observed that the timelines may prove challenging. Members asked that staff gather information from the task force regarding the present status of implementation efforts and return to brief the Board on the state of such at the October 2019 Board meeting.
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)