Title: Episode I – New Lease Accounting Standards

Description:The first of two podcasts about FASAB's new lease 
accounting standards, this segment discusses the history of the leases 
project and the benefits of the new guidance.

Released: October 2018


[ Monica Valentine ] Welcome to FASAB Bits and Bytes, your source for 
quick takes and news from the Federal Accounting Standards Advisory 
Board. This is the first of two podcasts on FASAB's Statement of 
Federal Financial Accounting Standards 54 titled Leases: An Amendment 
of SFFAS 5, "Accounting for Liabilities of the Federal Government," and 
SFFAS 6, "Accounting for Property, Plant, and Equipment." In this 
segment, we're talking about the history of the project and the 
benefits of the new guidance. I'm Monica Valentine, assistant director 
with the Federal Accounting Standards Advisory Board, FASAB. I'm here 
today to talk with Scott Showalter. Scott is the chairman of the FASAB 
Board. Just to give a little background – the Board originally 
developed the lease accounting standards in the mid-1990s, which I 
happened to have been a part of, in Statements 5 and 6. Those standards 
really didn't cover a lot of the many specific topics surrounding 
leases, and it relied very heavily on what was then FASB 13. Why did 
the Board decide now is the right time to revise the federal lease 
accounting standards?

[ Scott Showalter ] I hope I can shed some light on these questions 
you're going to ask me about leases cause some people are probably 
sitting out there going, "Why did you do this? We were happy where we 
were." Well, I think there were two primary reasons on why the Board 
thought it was appropriate to focus on this particular standard. And 
one was, as you just mentioned, we relied a lot on FASB 13, and not 
only the FASB, but as well as GASB and the international standards were 
all approaching leases saying, "We need to do something about that." 
And that they felt like the current standards really weren't getting to 
the objective of what was intended by that standard. So they were all 
going down that route. So we were going to be forced into that no 
matter what because we were about ready to have a standard that was 
based on the other standards that was going to go out of business. So 
we had a problem that we were sending people to a standard that no 
longer was going to exist. The other item was because it was so heavily 
based on FASB 13, the Board, as well as the staff, was often getting 
questions about, "How do I do this in the government environment?" So 
this gave us an opportunity to clarify and give guidance in the federal 
area.

[ Monica Valentine ] What would you say are the primary benefits to 
users under the new lease accounting standards?

[ Scott Showalter ] I think I'd put it into two buckets from this 
perspective. One being it's specific to federal government. And again, 
that was one of the challenges that we had. And while we had a chance, 
you know, it's not often you get to pull the hood up on a car and start 
tinkering with it. And so since we had the hood up on the car, we 
decided to make it a little more straightforward. So our hope, and it 
dominated a lot of the conversation, when the Board was focused on 
creating this standard is how can we make it more straightforward? How 
can we make less of a burden on the preparer and hopefully have a 
better answer on the other side? So I think the benefit will be a 
significant reduction of burden, we hope, as well as complying. Other 
than -- I understand you have to initially do this, but after you get 
past the initial adoption, we hope the ongoing burden is reduced versus 
on where we were.

[ Monica Valentine ] What are some of the major differences that you 
can share with our listeners between our new standards and FASB and 
GASB's amended lease accounting standards?

[ Scott Showalter ] Probably to answer this question, I probably need 
to very, very succinctly tell you what our standard says. Then I have a 
place to contrast it from. First of all, and this is where all the 
standard setters went. The -- all standard setters went with the 
concept was we need to be able to see the use of an asset. People were 
getting a use of an asset and then another component was how were they 
financing the use of that asset? And historically that's been off 
balance sheet for many people because of the concept of operating 
leases. So the belief of all the board setters was that really didn't 
make a lot of sense. That this was a financing mechanism – that 
liability needs to be sitting on the balance sheet and not in the 
footnotes. So I think all of the standard setters that you mentioned 
were all going down the premise that says we probably need to get this 
liability onto the balance sheet -- but we also wanted to show the use 
of this asset. At one time, all the standard setters were sort of 
headed down the same way as a single purpose model, and that was right 
now, if you're familiar with 13, you had a capital lease and you had an 
operating lease. And that added complexity. And so a lot of people were 
going down this route about let's have one way to record a lease. And 
most of us ended up there other than FASB. So this is probably one of 
the bigger, major differences, and that is FASB replaced the capital 
lease with the financing lease, but it still operates a lot like a 
capital lease and an operating lease. We, as well as GASB, went down 
one track, which is recognizing the asset on the books and recognizing 
the liability. So we have one model. And what was unique to federal 
government, and this ties back to one of the benefits, was the fact 
that so much of leasing in the federal government is within the 
government. And so it didn't make a lot of sense to have a lot of 
agencies spending a lot of time and money and effort to record 
transactions that are going to be eliminated between -- when the 
consolidated financial statements are put together. So we actually came 
up with a kind of a shortcut way for intragovernmental leases where 
they say we're going to treat them as operating leases and they're 
going to just flow through the state -- operating statements -- and 
we're not going to worry about putting all that on the balance sheet. 
So again, I think that's a huge benefit, but it's also a difference 
from any other standard setters' goals. GASB and FASB didn't have to 
worry about that particular aspect. The other item, it's kind of a 
nuance, is that we ended up saying the item putting on the balance 
sheet was an asset in plant, property, and equipment whereas GASB said 
it was an intangible. Now that's only important to you if you're a real 
accounting geek like me because that intangible gets amortized similar 
to depreciation, but it's a little different. So it could end up in the 
statements in a little different place, but I think that's probably the 
best, or the most significant changes or differences.

[ Monica Valentine ] Thank you for listening to FASAB Bits and Bytes. 
For more information from FASAB, please visit us at fasab.gov.