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Business and Policy Areas
Business and Policy Areas

GASB Lease Proposal Diverges from FASB's Recent Guidance

April 4, 2016

Just weeks before the Financial Accounting Standards Board (FASB) issued its final standard on leases, the Governmental Accounting Standards Board (GASB) issued an exposure draft addressing leasing transactions of governmental organizations. The proposed guidance attempts to more closely align the accounting and financial reporting of leases with the substance of those transactions.

Unlike FASB's new model, which includes two lease classifications (operating and financing), GASB is proposing a single model for all leases based on the foundational principle that leases are financings of the right to use an underlying asset. Under the proposed guidance, a lessee would recognize a lease liability and an intangible right-to-use lease asset. The lease liability would be reduced as payments are made and an outflow of resources for interest on the liability would be recognized. The right-of-use asset would be amortized over the shorter of the lease term or the useful life of the underlying asset.

A lessor would be required to recognize a lease receivable and a deferred inflow of resources. The lessor would recognize interest revenue on the lease receivable and an inflow of resources from the deferred inflow of resources over the lease term. The underlying asset would not be derecognized by the lessor.

Leases with a maximum possible term of 12 months or less, including any options to extend, would be considered short term. Rather than reporting a lease liability or receivable, lessees and lessors would recognize lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the contract.

Impact on Higher Education

Today, public institutions follow FASB guidance when accounting for leases—thus providing consistency across all of higher education. The proposed guidance would result in different accounting and reporting of leases by GASB and FASB institutions, potentially hampering comparability. In addition, amounts currently reported as rent expense would instead be shown as interest expense and amortization expense. This may create issues for research institutions that are subject to Office of Management and Budget (OMB) compliance requirements.

The standard would be effective for reporting periods beginning after December 15, 2018 (FY20 for most colleges and universities). Early adoption would be permitted. Comments on the proposal are due May 31, 2016, and a public hearing is scheduled for June 29, 2016.

The full text of the exposure draft is available online.


Sue Menditto
Director, Accounting Policy