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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Universities

Leases/SBITAs

According to GASB 87, a lease is a contract that conveys control of the right-to-use (RTU) another entity’s nonfinancial asset (the underlying asset) as specified by the contract, for a period of time, in an exchange or exchange-like transaction. Leases include contracts that, although not explicitly identified as leases, meet this definition. A contract conveys control if the agency has both the right to:

  • Obtain the present service capacity from the underlying asset
    – AND –
  • Determine the nature and manner of its use.

GASB 87 establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Therefore, leases previously not reported on the balance sheet may now need to be added.

Under GASB 87, the:

  • Lessee is required to recognize a lease liability and an intangible RTU lease asset
  • Lessor is required to recognize a lease receivable and a deferred inflow of resources

Therefore, state agency lessees and lessors account for the same transaction in a way that mirrors how the other party accounts for it.

Short-term leases (maximum possible term of 12 months or less) are excluded from recognition and are expensed as incurred.

According to GASB 96, a subscription-based information technology arrangement (SBITA) is defined as a contract that conveys control of the RTU another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.

Under GASB 96, each agency must recognize an RTU subscription asset (an intangible asset) and a corresponding subscription liability.

Agencies are required to disclose descriptive information about material leases and SBITAs, including:

  • The amount of assets recognized
  • Accumulated amortization
  • Payments not included in the measurement of the related liability
    – AND –
  • Future principal and interest requirements

Disclosures must be concise and focused on material information.

For more information, see Note 8 – Leases and Sale, Disposal or Interagency Transfer of Capital Assets.