Proposed Future Changes to Operating Leases

The Latest Rules and Regulations That Impact Your Government Entity

The Governmental Accounting Standards Board (GASB) issued a proposal last month that may change the way state and local governments report operating leases. The proposal is based on the concept that leases are a method of financing that gives governments the right to use an underlying asset. Even though there currently are disclosures in the notes to the financial statements, there is no liability or asset reported on the face of the statements. The proposed statement will provide guidance on operating leases for assets such as vehicles, heavy equipment and buildings but will exclude certain intangible assets such as software licenses.

In order to place the lease as a liability on the face of the statements, a lessee government would be required to recognize a lease liability and a corresponding asset for the right to use the leased asset. As a lessor, a government would be required to recognize a receivable for lease payments and deferred inflow of resources. There are some exceptions including short-term leases and financed purchases.

The Exposure Draft—and a high-level GASB in Focus overview—is available on the GASB website, Governments are encouraged to review and provide comments by May 31, 2016.

By Jeff Patterson, CPA, MBA