Forthcoming new guidance on leases.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Governmental Accounting Standards Board

The Governmental Accounting Standards Board (GASB) plans to issue an authoritative new standard on leases later in 2016. The GASB published its Preliminary Views on accounting and financial reporting for leases in late 2014. The subsequent Exposure Draft (ED) was issued in January 2016. The GASB's pending new guidance on leases promises to differ substantially from current accounting practice in both the public and private sectors.

Definition of a Lease. In the future, a lease will be defined as: a contract that conveys the right to use a nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction.

That definition specifically will exclude agreements involving the right to use intangible assets and biological assets (including timber), as well as contracts that meet the definition of a service concession arrangement (i.e., public-private partnerships).

Key Changes. The most significant changes to current lease accounting standards can be summarized as follows:

* Elimination of Asset Sales from the Scope of Lease Accounting. Currently, lease accounting encompasses agreements that result in the eventual transfer of ownership of a leased asset from the lessor to the lessee. In the future, agreements that result in the eventual transfer of ownership of an asset from the lessor to the lessee will be treated instead as the financed sale/purchase of an asset.

* Asset Reporting. Currently, it is the lessee in a capital lease that reports the underlying asset, not the lessor, which reports only the related receivable (just as though the lessee had purchased the underlying asset from the lessor). In the future, for leases that are greater than 12 months, the lessor will continue to report the underlying asset, while the lessee will report a lease asset, a separate intangible asset that represents the lessee's legal right to use the underlying asset during the term of the lease.

* Categories of Leases...