GASB gives preliminary views on leases, fiduciary responsibilities

Changes may be coming for state and local governments in financial reporting for leases and for the reporting of activities in which they have a fiduciary responsibility.

GASB on Thursday issued separate “Preliminary Views” documents on the subjects and is seeking public comment on each.

The Leases document includes proposals addressing accounting and financial reporting for lessees and lessors and is based on the principle that all leases are financings of the right to use an underlying asset.

GASB is proposing that for leases longer than 12 months, lessee governments should report:

• An intangible asset representing the government’s right to use the leased asset.
• A corresponding liability for lease payments.
• Amortization expense related to the leased asset, recognizing the asset amount as an expense over the term of the lease.
• Interest expense related to the lease liability.

Under the proposal, government lessors for leases longer than 12 months would report:

• A receivable for the right to receive payments.
• A corresponding deferred inflow of resources to reflect resources related to future periods.
• Lease revenue (and a corresponding reduction in the deferred inflow) systematically over the term of the lease.
• Interest revenue related to the receivable.

GASB Chairman David Vaudt said in a news release that the preliminary views on leases would more closely align the accounting for leases with their economic substance.

“The board has an opportunity to make changes to the current guidance on leases that would result in greater transparency, reduced complexity in application, and more meaningful information for financial statement users,” Vaudt said.

The Financial Reporting for Fiduciary Responsibilities document relates to governments that act as a trustee or custodian in controlling assets that belong to others. GASB is seeking to enhance the consistency and comparability of when and how governments report their fiduciary activities in their financial statements.

If approved, the fiduciary responsibility proposal would:

• Define when a government has a fiduciary responsibility and is required to present fiduciary fund financial statements.
• Clarify financial reporting requirements for fiduciary responsibilities, including a requirement for business-type activities that serve in a fiduciary capacity.
• Introduce the use of a financial statement that reports the inflows and outflows of resources for all fiduciary types.

Vaudt said the proposed changes would give governments and their auditors clearer guidance for determining which activities should be reported in fiduciary funds—and clarify in which type of fiduciary fund the activities should be reported.

“This proposal would provide financial statement users with needed information regarding both general and special-purpose governments, including business-type activities such as public universities, hospitals, and utilities, which generally have not reported their fiduciary activities in the past,” Vaudt said.

Comments on each proposal are sought by March 6 and can be made at GASB’s website. GASB will hold public hearings on both preliminary views proposals April 8 in New York City; April 9 in Irving, Texas; and April 10 in Los Angeles.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.