Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Universities

Leases — Recognitions and Measurements

At the start of the lease term:

• The lessee must recognize a lease liability and an intangible right-to-use (RTU) lease asset, unless the lease is a short-term lease or it transfers ownership of the underlying asset.
• The lessor must recognize a lease receivable and a deferred inflow of resources with certain exceptions for:
  • Leases of assets held as investments
  • Certain regulated leases
  • Short-term leases
  • Leases that transfer ownership of the underlying asset

Leases between the state agencies (primary government) and a discretely-presented component unit are covered by GASB 87. The contract is treated like any other lease arrangement. Receivables and payables are not combined with another component unit’s due to/due from.

Leases between the state agencies and a blended component unit are not covered by GASB 87 because the assets or liabilities of the blended component unit are the assets and liabilities of the state agency. However, when the blended component unit presents its own financial statements, then GASB 87 applies. Leases between two blended component units require eliminating entries before aggregation of financial statements with the state agency.

Recording a lease as a liability instead of an operating lease obligation may impact:

• Laws, regulations an/or ordinances relating to debt limits
• Bond covenants
• Bond continuing disclosure
  –OR–
• Federal Grants
  • OMB’s Uniform Guidance requires a lease vs. purchase analysis
  • Most awards only reimburse the lower of lease expense or depreciation.