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Business and Policy Areas
Business and Policy Areas

NACUBO Responds to GASB's Lease Proposal

June 13, 2016

NACUBO submitted comments to the Governmental Accounting Standards Board (GASB) on its "Leases" exposure draft on May 31. NACUBO's comments on the proposal were developed with input from its Accounting Principles Council (APC).

Rather than agreeing with GASB's proposed construct that all leases are financings, NACUBO asserts the foundational principle should be that all lease contracts lead to a right-to-use asset. As such, transparency would be achieved through capitalizing the right-to-use asset and the reporting entity would have the flexibility to examine the contract's substance to determine if a rental or a financing best reflects the economics of the agreement. For example, more often than not, shorter term equipment leases more closely resemble rentals-and additional financings may jeopardize existing debt covenants or certain institutions.

Although other GASB literature would allow intangible right-to-use lease assets to be classified with other capital assets as part of a public institution's "net investment in plant," NACUBO pointed out that it would be helpful to have reporting display requirements and examples presented in the final standard. NACUBO also asked for an additional year to successfully transition to the proposed guidance. 


Sue Menditto
Director, Accounting Policy