The Governmental Accounting Standards Board (GASB) is set to release a new standard dealing with leasing later this month. The new lease standard is set to be effective for reporting periods beginning after December 15, 2019 and earlier application is encouraged. If you are a state or local government that is involved in leasing, then this lease standard will have an impact on your financial reporting.
Historically, leases have been classified as either operating or capital lease agreements. Leases that have been classified as operating leases were disclosed in the notes to the financial statements but a long-term liability was not recorded on the face of the financial statements. The new standard will change the definition of a lease and will focus on the fact that a lease is a contract that allows control of the right to use another entity’s asset. The lease term will be defined as the period of time which the lease has a non-cancelable right to use an underlying asset and adjusted for certain options to extend or terminate the lease.
The standard will require the leasee to record a “right to use” asset and related liability on the balance sheet for all leases regardless if they were previously considered operating or capital. The standard will also change the disclosure requirements related to leases.
Although the implementation of this standard is still a couple of years away, (unless you choose to implement early), this will have a significant impact on your financial statements. If you would like to know more about this standard, it is available on the GASB website. We will also be holding a complimentary CPE webinar on July 18th to discuss this standard as well as the new tax abatement disclosures related to GASB Statement 77. You can sign up on our website.
Jeffery W. Patterson, CPA, MBA