Title: Episode II - New Lease Accounting Standards

Description:The second of two podcasts about FASAB's new lease 
accounting standards, this segment discusses how FASAB's lease 
standards differ from GASB's, as well as the implementation of SFFAS 54.

Released: November 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 second 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 how FASAB's lease standards differ from 
GASB's lease standards, as well as the implementation of SFFAS 54 in 
the federal environment. 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. 
As the project manager for the leases project, I worked very closely 
with GASB and the GASB staff to help our Board establish many of the 
foundational principles for our lease standards. What factors led the 
Board to lease standards that are slightly different from GASB? You did 
mention the intragovernmental, how we were different there from the 
other standard setters. Were there other differences that the Board 
debated?

[ Scott Showalter ] First of all, it's great to work with another 
standard setter and to be able to leverage the work that they did, and 
I think in all fairness we probably couldn't have got through this 
project as quick as we did if we weren't able to leverage the 
information that GASB done. So it's always great. It's also great to 
share different views on how we got there. I would say, and the Board 
was really focused on this from the very beginning, we wanted to stay 
as close to the GASB as we possibly could, and we should have a valid 
reason for deviating from them. And I think all the deviations I'm 
aware of can be tracked back to the difference between federal 
government and leasing and as well as the way leasing takes place in 
the state and local area. And clearly the most significant is the one 
you've already mentioned -- is intragovernmental. That does not -- that 
occurs very seldom in state and local government, so that was by far 
the difference. The other was actually the intangible, which I 
mentioned earlier is we don't have a standard on tangible assets. So as 
we talked about that in the Board, we had to create something that 
would be able to record it that way. That was one where there was just 
a difference in where the Board particularly felt that particular item 
was. GASB had an intangible asset concept and we did not. So we didn't 
go that way.

[ Monica Valentine ] The lease standard is effective for reporting 
periods beginning after September 30, 2020 -- fiscal year 2021. What 
was the Board's rationale for the longer implementation period?

[ Scott Showalter ] We're very aware that all the issuers like as much 
time as they possibly can have. When we had the various groups come in 
to the Board and actually testify on behalf of what would be the 
burden, again anytime you issue a new standard, there is that initial 
burden of implementation. And some of the issuers that came in did tell 
us this was going to take a little while, so we wanted to make sure. 
The other thing, which I did mention previously, is we came up with a 
definition of what a lease was and it wasn't necessarily what you 
called a lease, it was about what the contract said. To some extent, 
even though an agency may have had the, what they thought, was a 
population of leases based on the definition of the standard, we have 
made a change to that just a tad. And so we wanted to make sure the 
agencies had time to be able to first crystallize what that definition 
was going to be about. We wanted to make sure they had time internally 
to educate their people about what that meant. We wanted to make sure 
they had time to do inventory even though theoretically all these 
things were in a footnote already, we have a suspicion that they're 
maybe not -- be in that footnote. And we're also aware, and users tell 
-- and preparers tell us this all the time, you know there's other 
standards out there we're implementing in addition to this standard. So 
we were a little sensitive to the volume of standards we had issued 
recently, and we wanted to make sure they had sufficient time to be 
able to implement it. So it just wasn't for one reason, we thought 
there was a series of reasons that let's give them a little time to 
implement this.

[ Monica Valentine ] I'm sure the community appreciates that. Because 
the lease accounting changes are rather significant and some in the 
federal community may not be looking forward to implementing the new 
accounting lease standards for many of the reasons you mentioned, what 
is the Board planning to do to assist the community to implement those 
new standards?

[ Scott Showalter ] This is a, I tell you, renewed area of emphasis for 
the Board and that is providing more implementation guidance, not only 
for this standard but I think if I was to look forward a little bit, I 
think preparers should be able to see more implementation guidance 
coming out. So there was several times during the process when we were 
focusing on developing this standard where the Board said, "Okay that'd 
be a great thing for implementation guidance." I know staff has been 
creating that list and going down that route, so I think we view that 
as a very important part. It's not just the issuing of the standard, 
it's successful implementation of the standard, the way we evaluate our 
work. I would encourage agencies as they're going about working at this 
to please let us know where those areas they're struggling with that 
maybe aren't as clear as they'd like to be and give us a chance to be 
able to put that in implementation guide. So we can sit around the 
table and think about what the issues are, but nothing's better than 
issuers calling in saying, "Hey this is a problem I'm having or 
something's not clear."

[ Monica Valentine ] Now that Statement 54 has been issued as final and 
is effective in just over two years, what should federal reporting 
entities be doing now to prepare for the new lease standards in fiscal 
year 2021?

[ Scott Showalter ] You know I wish I had some real philosophical thing 
to say here, but I am an accountant and auditor so it'll be pretty 
basic and that is first of all, read the standard. It's not a long 
standard. Think about who in your organization's going to be impacted 
by this. Because of the nature of this standard, this standard has 
outreach beyond the accounting finance area because it's going to go 
into people that have responsibility for the leases, and they may need 
to do some internal training to be able to -- first of all what is a 
lease? So after you've identified what a lease [is] -- to be the third 
thing, then you need to perform an inventory. I'd probably start with 
my footnote first and say, "What type of information did I have for 
that footnote in the old days?" But again, we're probably going to 
stretch that definition a little bit. Now we're bifurcating between 
what's my intragovernmental leases versus my other leases. And then I 
would try to create a process to start capturing these things, what 
you've had historically, but there's no reason as you go forward with 
new leases to immediately capture them now as opposed to letting them 
go.

[ Monica Valentine ] Thank you Scott, I really do appreciate it and I 
know the community will appreciate all of your insightful answers and 
thank you very much.

[ Scott Showalter ] Thank you.

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