Two American Institute of CPAs (AICPA) panels submitted comments last month to the Governmental Accounting Standards Board (GASB) on its Preliminary Views (PV), Leases. The comments by the AICPA State and Local Government Expert Panel and the AICPA Private Companies Practice Section Technical Issues Committee are outlined below.
The State and Local Government Panel recommended in its March 19 letter that GASB provide information about the Board’s rationale and how Board positions address user needs and concerns in the Basis for Conclusions section of the next round of due process, since the PV format is limited and does not lend itself to providing this information. “In particular,” the letter stated, “the Board should discuss feedback received from users and any other general feedback from the field test currently underway.”
The letter focused on key areas where the Expert Panel disagrees with the Board, has questions or believes further clarity is needed. Among the 17 topics identified are elements of the definition of “lease,” lessee “single approach” versus “dual approach” accounting, bargain purchase options, contracts containing both lease and service components, reassessments of the lease term, disclosures for lessees and lessors, lessee accounting for short-term leases and lease amendments that add or remove underlying assets from the contract. Some of the GASB’s proposals take a different approach than the approach taken by the Financial Accounting Standards Board on the same topic.
TIC’s March 13 letter stated that it believes recognizing substantially all leasing obligations in the statement of net position, as well as other proposed changes, “will have a disproportionate implementation cost for governments compared to the resulting benefits for financial statement users. In the existing financial statement model, the dollar amounts of commitments for operating leases are already disclosed in the notes. Therefore, changing the accounting for those lease commitments from disclosure only to liability recognition will not provide a significant amount of new information for many financial statement users. However, the proposed changes will require significant implementation challenges for state and local governments.”
TIC noted that the extra effort and cost involved in complying with some of the provisions in GASB’s proposal would result in smaller governments hiring outside help because they lack in-house expertise. TIC wrote that it “encourages the Board to adopt simplified methodologies wherever possible to mitigate the additional burdens that governments will face with the new standards.”
TIC also provided comments on other aspects of the PV on the assumption that the Board would move forward with recognition of substantially all leasing obligations in the statement of net position.