NASACT Testifies on "Leases"
7/11/2016
Kim O'Ryan
Alan Skelton Shares NASACT's Views in GASB Public Hearing
Monday, July 11, 2016
by: Kim O'Ryan

Section: NASACT




On May 18, 2016, NASACT provided a response to the Leases exposure draft from the Governmental Accounting Standards Board.
 
On June 29, during the GASB public hearing, Alan Skelton, state accounting officer of Georgia, provided testimony on behalf of the association on the Leases ED.  Mr. Skelton is also NASACT’s representative on the Governmental Accounting Standards Advisory Council.
 
Mr. Skelton testified that NASACT generally agrees with the provisions of the ED. However, he highlighted specific comments from the association’s response letter, including the following:
 
  • We appreciate software being excluded from this standard but are concerned that physical servers upon which the software resides will be a capital lease asset while the software itself will not. There are also situations in which the software and hardware are bundled together in the same contract. Please clarify if it is the intent of the Board for the hardware to be a capital lease and the software for which the hardware was leased be excluded.
  • We request the Board provide guidance on the consideration that should be given for the possible exercising of holdover clauses in lease agreements. Some lease contracts contain a provision that states the lease is automatically extended on a month-to-month basis should the state remain in possession of the asset after the expiration of the lease and would only be subject to a termination notice. 
  • We ask that the Board clarify if the proposed disclosure should be presented in the Lease Note or in the Commitment Note. An example of the disclosure would also be helpful.
  • Actual situations in the states with respect to cancellable periods and lease terms become very complex. Upon reading this paragraph, the requirement is clearer. We are concerned that the Basis for Conclusions may not be authoritative, and that the information in this paragraph will not be part of the codified standards, resulting in more chances for these provisions to be misapplied or inconsistently applied. Therefore, we request that the content of paragraph B19 be added to the Lease Term (paragraphs 9-12) section of the proposed standard. 
  • The ED does not have any examples in the appendices. Examples, while not authoritative, are always helpful in understanding of new standards. We request that GASB incorporate examples and include them within the appendices.
  • We are concerned about the impact this standard will have on the way rating agencies will assess the states. We request that GASB please conduct outreach to the rating agencies regarding these new lease reporting requirements so there are no unintended consequences from implementing the standard. 
 More Information
 
Questions about NASACT’s response letters to recent GASB due process documents may be directed to Kim O’Ryan or Sherri Rowland.
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