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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

Multiple Components (combinations) Contracts

Under both GASB 87 and GASB 96, contracts that are entered into at (or near) the same time with the same party must be considered part of the same contract if the:

  • Contracts have a single objective.
    –OR–
  • Consideration paid in one contract depends on the other contract leases (GASB 87).

Leases (GASB 87)

According to GASB 87, paragraphs 63-68, if the lessee or lessor enters into a contract that contains both a lease component (such as the right to use a building) and a nonlease component (such as maintenance services for the building), the agency must account for both the lease and nonlease components as separate contracts, unless the contract meets the exception, listed in GASB 87, paragraph 67.

If a lease involves multiple underlying assets and the assets have different lease terms, the lessee and lessor must account for each underlying asset as a separate lease component. In addition, the lessee must account for each underlying asset as a separate lease component if the underlying assets are in different major classes of assets for disclosure purposes under GASB 87, paragraph 37c.

To allocate the contract price for:

  • Different components — lessees and lessors must use the prices for the individual components if the prices are reasonable.
  • Individual components without prices — both lessees and lessors must use best estimates to allocate contract prices.
  • Multiple components in a single lease — the state agency’s accounting must be based on the primary lease component.
Agencies must use professional judgment while maximizing observable information.

SBITAs (GASB 96)

According to GASB 96, an agency may enter contracts that contain multiple components, such as a contract that contains:

  • Both a subscription component, which includes the right to use the underlying information technology (IT) assets, and a nonsubscription component.
    –OR–
  • Multiple underlying IT asset components.

Examples of nonsubscription components include a separate perpetual licensing arrangement and maintenance services for the IT assets. If a state agency enters into a contract with either multiple IT components or subscription and nonsubscription components, the agency must account for each underlying IT asset component as a separate subscription component.

To allocate the contract price for:

  • Different subscription components — the state agency must use the prices for the individual components if the prices are reasonable.
  • Individual subscription components without prices — the state agency must use best estimates to allocate contract prices.
  • Multiple components in a single contract — the state agency’s accounting must be based on the primary subscription component.

Agencies must use professional judgment while maximizing observable information.