Leases

Project Objective:

The FASAB has recently approved a Leases project whose goal is develop comprehensive lease accounting standards for the federal government. This project is being undertaken by the Board primarily because the current lease accounting standards, Statement of Federal Financial Accounting Standards (SFFAS) 5 and 6, have been criticized as ineffective because they do not make meaningful distinctions between capital and operating leases regarding the substance of lease transactions. In addition, the lease accounting standards in SFFAS 5 and 6 are based on Financial Accounting Standards Board (FASB) lease accounting standards which are currently being revised. The FASB and International Accounting Standards Board (IASB) have undertaken a joint project on lease accounting that focuses on the conveyance of rights to future economic benefits (such as the right of use).

FASAB staff continues to be asked the following question:

Once the new FASB/IASB lease standards are issued as final, should federal entities that present general purpose financial reports in conformance with SFFAS 34 follow those new FASB/IASB lease accounting standards?

The answer to that question is no. The FASB/ IASB lease standards are expected to be released as final during 2012. Issuance of those standards will not automatically change federal financial accounting standards.

Current FASAB standards addressing leasing transactions include Statement of Federal Financial Accounting Standard (SFFAS) 5 Accounting for Liabilities of the Federal Government [pars. 43 – 46] and SFFAS 6 Accounting for Property, Plant, and Equipment [pars. 20 & 29]. These lease standards were originally developed from FASB lease standards effective at that time.

Current FASAB standards addressing leasing transactions include Statement of Federal Financial Accounting Standard (SFFAS) 5 Accounting for Liabilities of the Federal Government [pars. 43 – 46] and SFFAS 6 Accounting for Property, Plant, and Equipment [pars. 20 & 29]. These lease standards were originally developed from FASB lease standards effective at that time.

The primary objectives of this project are to:

  1. Develop an approach to lease accounting that would ensure that all assets and liabilities [consistent with Statement of Federal Financial Accounting Concepts (SFFAC) 5 definitions] arising under lease contracts are recognized in the statement of financial position and related costs are recognized in the statement of net cost.
  2. Evaluate and revise as needed the current lease-related definitions and recognition guidance in SFFAS 5 and 6, including consideration of the advantages and disadvantages of applying the FASB/IASB lease standard in the federal environment.
  3. Ensure that the standards to be developed fully address the various lease transactions/activities currently being used in the federal community (e.g. enhanced use leases).
  4. Consider the differences between lease accounting and the budgetary treatment of lease-purchases and leases of capital assets as outlined in Office of Management and Budget (OMB) Circular A-11.

HISTORY OF BOARD DELIBERATIONS (reverse chronology)

April 25 – 26, 2012 Board Meeting
At its April meeting FASAB Staff provided the Board with an update on the lease project.

April 2012 Lease Update (PDF)

February 22 – 23, 2012 Board Meeting
At its February meeting FASAB Staff provided the Board with an update on the lease project.

February 2012 Lease Update (PDF)

January 17, 2012 Lease Questionnaire
The lease accounting project plan presented to the Board in August 2011 noted that staff would develop a questionnaire to be used to gather data from federal entities on their leasing activities and practices. On January 17, 2012 the questionnaire was distributed by FASAB staff to 27 federal entities via email. In an effort to gather the necessary data on the leasing activities and practices of federal entities we requested the assistance of Deputy CFOs and Accounting Directors in completing the questionnaire. Staff requested that questionnaire responses be submitted by February 27, 2012.

January 2012 Lease Questionnaire (PDF)

August 24-25, 2011 Board Meeting
At its August meeting, the FASAB approved a plan to review existing lease accounting standards and to consider whether changes are needed to address the needs of the federal community and will include more comprehensive standards on federal leasing activities than the existing standards. A task force will be formed to assist in consideration of issues and options.

Leases Project Plan (PDF)

Leases Project Plan Appendix (PDF)