gasb lease implementation update: where do we …...6/30/2020 1 gasb lease implementation update:...

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GASB Lease Implementation Update: Where Do We Go from Here?

June 30, 2020

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Presenters

Amy Shreck, [email protected]

Danny Martinez, CPA, CGFM®Managing [email protected]

Laura LangfordDirector – Corporate Accounting & Controller

Dawn HendersonTechnical Accounting Specialist – Corporate Accounting

› Update on GASB activities

› Impact of COVID-19 pandemic• Modifications• Remeasurement• Terminations

› Guest appearance

Agenda

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Update on GASB Activities

› Postponement of the Effective Dates of Certain Authoritative Guidance

› Delay for statements & implementation guides effective for periods beginning after June 15, 2018

› Early application of delayed standards is encouraged

› Issued in May 2020, effective upon issuance

GASB Statement No. 95

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GASB Statement No. 95No. Title New Effective Date

83 Certain Asset Retirement Obligations Reporting periods beginning after June 15, 2019

84 Fiduciary Activities Reporting periods beginning after Dec. 15, 2019

88 Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements

Reporting periods beginning after June 15, 2019

89 Accounting for Interest Cost Incurred before the End of a Construction Period

Reporting periods beginning after Dec. 15, 2020

90 Majority Equity Interests Reporting periods beginning after Dec. 15, 2019

91 Conduit Debt Obligations Reporting periods beginning after Dec. 15, 2021


92 Omnibus 2020 Paragraphs 6 & 7 – Fiscal years beginning after June 15, 2021Paragraphs 8, 9, & 12 – Reporting periods beginning after June 15, 2021

93 Replacement of Interbank Offered Rates

Paragraphs 13 & 14 – Fiscal years beginning after June 15, 2021, & all reporting periods thereafter

IG 2017-3 Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (and Certain Issues Related to OPEB Plan Reporting)

Questions 4.484 & 4.491 – The first reporting period in which the measurement date of the (collective) net OPEB liability is on or after June 15, 2019Questions 4.84, 4.103, 4.108, 4.109, 4.225, 4.239, 4.244, 4.245 & 5.14-5.4 – actuarial valuations as of Dec. 15 2018, or later

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IG 2018-1 Implementation Guidance Update –2018


IG 2019-1 Implementation Guidance Update –2019


IG 2019-2 Fiduciary Activities Reporting periods beginning after Dec. 15, 2019


No. Title New Effective Date

87 Leases Fiscal years beginning after June 15, 2021, all reporting periods thereafter

IG 2019-3 Leases Fiscal years beginning after June 15, 2021, all reporting periods thereafter

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Effective For Fiscal Years Ending

June 30, 2022September 30, 2022December 31, 2022

Impact of COVID-19 Pandemic

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› Lease modifications

› Remeasurement

› Lease terminations

› Other

Impact of COVID-19 Pandemic

› Reminder on transition guidance• Implement using facts & circumstances at the beginning of the year of

implementation• If lease amendment occurs prior to implementation date = use the

modified terms for implementation• If lease amendment occurs after implementation date = implementation

using terms prior to amendment & remeasure at amendment

Lease Modifications

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› Example amendments in GASB 87 (para. 71)• Changes to the contract price• Changes to the lease term• Changes to the underlying asset

› Right to use increases = modification

› Right to use decreases = partial or full termination

• Exercising existing option = remeasurement guidance

Lease Modifications

› Account for amendments resulting in modification as a separate lease if both of the following are met

• Modification gives lessee an additional lease asset that was not included in the original lease contract

&

• Increase in lease payments for the additional asset does not appear to be unreasonable based on

› Terms of the amended lease contract› Professional judgment, maximizing use of observable information

Lease Modifications

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› If a modification is not a separate lease, remeasure the lease liability

› Adjust lease asset for the difference between the remeasured liability & the liability prior to modification

› Lease asset cannot be less than zero, so any remaining amount should be reported in the resource flows statement

Lease Modifications – Lessee

Lease Modification Example

Q 4.67 in IG 2019-3

Four-year lease contract

Three years in, modify from 200 computers to 230 computers

Lease liability changes from $200,000 to $202,500

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Q 4.67 in IG 2019-3

› District determined increase in payments appears to be unreasonable – very low compared to value of 30 additional computers

› Not a separate lease

› Journal entry

› Debit: Right to use asset

$2,500

› Credit: Lease liability

$2,500


Right to Use Asset

Beginning: $195,000

Adjust: 2,500

Ending: $197,500

Lease Liability

Beginning: ($200,000)

Adjust: (2,500)

Ending: ($202,500)


Notice that the RTU Asset & Lease Liability are not equal

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› If a modification is not a separate lease, remeasure the lease receivable

› Adjust deferred inflow of resources for difference between the remeasured receivable & the receivable prior to modification

› To the extent the change relates to payments for the current period, the change should be recognized as an inflow or outflow in the current period

Lease Modifications – Lessor

Q 4.67 in IG 2019-3

› Same evaluation

› Not a separate lease

› Journal entry

› Debit: Lease receivable

$2,500

› Credit: Deferred inflow

$2,500


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› Modifications result from amendments or changes to the contract

› Remeasurement can also occur in other situations described on following slides

› Entries are the same as shown in the modification examples

Remeasurement

› Lessees – paragraph 25• Change in lease term• Likelihood of the following has

changed to/from reasonably certain

› Residual value being paid

› Purchase option being exercised

• Change in estimated payments already included in measurement of lease liability*

• Change in interest rate charged by lessor

• Contingency resolved related to variable payments

Remeasurement

*See next slide

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› Change in estimated payments already included in measurement of lease liability*

› If an index or rate used to determine variable payments changes, does not trigger remeasurement

› If the liability is remeasured for other situations, also adjust for change in index or rate if effects are significant

Remeasurement – Lessees

› Also update discount rate if• Lease term changes• Likelihood of exercising a purchase option changes to/from reasonably

certain• Base on revised rate charged by lessor or incremental borrowing rate

› Do not update discount rate solely for change in lessee’s incremental borrowing rate

Remeasurement – Lessees

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› Lessors – paragraph 49• Change in lease term• Change in interest rate the lessor charges the lessee• Contingency upon which some or all of the variable payments that will

be received is resolved

› If remeasured for any of the above, also adjust receivable for change in an index or rate used to determine variable payments

Remeasurement

› Lessors should also update discount rate if• Lease term changes• Interest rate the lessor charges the lessee changes

› Do not update discount rate solely for change in and index or rate used to determine variable payments

Remeasurement – Lessors

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› Decreases in right to use of the underlying asset should be treated as full or partial terminations

• Shortened lease term• Reduction in number of underlying assets

Terminations

› Reduce carrying value of lease asset

› Reduce carrying value of lease liability

› Difference = recognize gain or loss

› Termination due to purchase of underlying asset• Reclassify right to use asset to appropriate owned asset group• Include in calculation of gain or loss

Terminations – Lessees

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Lease Termination Example

Q 4.69 in IG 2019-3: Lessee, Partial Termination

Ten-year lease contractTwo years in, lease term reduced to five yearsAt time of amendment

Lease liability = $80,000Lease asset = $76,000

Remeasured liability = $50,000


Q 4.69 in IG 2019-3

Existing lease liability $80,000

Less: Remeasured liability $50,000

Adjustment $30,000

Existing lease liability $80,000

Less: Adjustment $30,000

Ending Balance $50,000

Existing lease asset $76,000

Less: Adjustment $30,000

Ending Balance $46,000

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› Reduce carrying value of lease receivable

› Reduce carrying value of deferred inflow

› Difference = recognize gain or loss

› Termination due to purchase of underlying asset• Derecognize underlying asset• Include in calculation of gain or loss

Terminations – Lessors


Q 4.70 in IG 2019-3: Lessor, Full Termination

Ten-year lease contract

Two years in, lease is canceled

At time of amendment

Lease receivable = $80,000

Deferred inflow = $76,000

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Q 4.70 in IG 2019-3

Debit: Deferred Inflow $76,000

Debit: Loss or other financing source

$4,000

Credit: Lease Receivable $80,000

› Contingent & variable payments may be less likely to be paid/received

› Could impact ability to meet debt service if payments depend on receipt of rents

• Guidance for amendments due to debt refundings by lessors – see paragraphs 74 & 76

› Consider need for allowance related to lease receivables› Reassess likelihood of lease extensions

Other Impacts

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Guest AppearanceLaura Langford, Director of Corporate Accounting & Controller

Dawn Henderson, Technical Accounting Specialist, Corporate Accounting

Omaha Public Power District

› Publicly owned electric utility in Nebraska that serves an estimated population of 855,000 people

› Political subdivision of the State of Nebraska & is governed by an elected board

› Operating since 1946, with headquarters in Omaha, Nebraska› OPPD uses baseload power facilities fueled by coal & natural gas,

peaking units fueled by natural gas & oil, & renewable energy, including wind, landfill gas, & hydropower. OPPD’s first community solar facility was operational at the end of 2019

Omaha Public Power District Overview

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› Document Standard & Applicability

› Gain Alignment

› Gather Information

› Research & Document Evaluations

GASB 87 Implementation Process

› Alignment on Understanding

› Develop Project Plan for Implementation & Beyond

GASB 87 Implementation Process –Document Standard & Applicability

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› Accounting

› Budgeting

› Business Partners

› Management

GASB 87 Implementation Process –Gain Alignment

› Accounting

› Business Partners

› Supply Chain Management

› Land Management

› Others that create customer billings

GASB 87 Implementation Process –Gather Information

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› LeaseVision

› Materiality

› Numbers of Leases Evaluated

› Leases Excluded

GASB 87 Implementation Process –Research & Document

› Start early

› Coordination

› Document everything

Tips & Lessons Learned

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CONTINUING PROFESSIONAL EDUCATION (CPE) CREDIT

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The information contained in these slides is presented by professionals for your information only and is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

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