We've Seen the Future and It Looks Like ... Leases.

Author:Levine, Michele Mark
 
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In May 2019, the Governmental Accounting Standards Board (GASB) issued an exposure draft (ED) of a proposed statement, Subscription-Based Information Technology Arrangements (SBITA ED); and in June 2019, GASB issued another ED, of a proposed statement, Public-Private and Public-Public Partnerships and Availability Payment Arrangements (PPP ED). (1) What stands out most about these proposals is that much of the accounting and financial reporting are directly tied by GASB to its Statement No. 87, Leases (GASB 87).

The underlying assumption of lease accounting and both of the EDs is that specific kinds of contractual arrangements establish obligations that rise to the level of liabilities and rights that rise to the level of intangible assets, investing them with gravity far greater than the commitments and (generally unrecognized) contingencies that are the norm for executory agreements. (2) Here, we take a quick comparative look at GASB 87 and the SBITA and PPP EDs, and briefly consider the ways in which the facts and circumstances differ despite the similarity of the accounting and financial reporting. Exhibit 1 summarizes key terminology and provisions from GASB 87 and both EDs.

SBITAs and PPPs, as proposed, are clearly the progeny of leases, but the DNA of another parent can be seen in each of the exposure drafts as well. For SBITAs, the second parent is existing accounting and financial reporting guidance for internally generated computer software, which the SBITA ED heavily draws from in proposing guidance on the capitalization of implementation costs as part of a SBITA (intangible, right-to-use) asset. (3) Examples of SBITAs, often referred to as cloud computing, include software-as-a-service (SaaS) contracts and their cousins, platform-as-a-service (PaaS) and infrastructure-as-a-service arrangements (IaaS). Exhibit 2 summarizes the capitalization guidance in the proposed ED, which are based on stages that essentially mirror those for internally generated computer software.

Service concession arrangements (SCAs) accounting is the second parent to the PPP ED, which proposes to supplant it. (4) The PPP ED encompasses a broader array of arrangements than SCAs, however, and also defines and provides guidance on another new entrant to the acronym array, availability payment arrangements (APAs). APAs are defined primarily to distinguish them from, and exclude them from, the accounting and reporting for PPPs. (5) Like SCAs, a fundamental element of any PPP is that a government is using the arrangement as a way to provide public services using capital assets. Exhibit 3 summarizes the proposed SCA requirements, which have changed very little from the existing guidance. (6)

PPPs, however, are not limited to arrangements in which the underlying asset is owned by the government that is contracting for the provision of the public services, and that government transferor may have more or less control over the operation of the underlying asset (such as regarding the services provided and their pricing) than under...

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