Why the new guidance?
GASB Implementation Guides are issued periodically to assist stakeholders by clarifying, explaining, or elaborating on the requirements of GASB statements.
What can we learn from these new questions and answers?
The new questions and answers clarify the guidance of three GASB pronouncements:
- Statement No. 87, “Leases”
- Statement No. 96, “Subscription-Based Information Technology Arrangements”
- Statement No. 100, “Accounting Changes and Error Corrections”
The scenarios addressed in Questions 4.1-4.3 clarify the short-term lease assessment by 1) highlighting the difference between a conditional and unconditional right to terminate a lease, 2) clarifying what a maximum possible lease term is, and 3) describing the two circumstances in which a lease modification results in a short-term lease.
Questions 4.4 and 4.5 address two lessee scenarios and clarify that 1) interest expense accrues over time and should be recognized over the entire lease term and 2) the currency in which lease payments are made does not affect whether those payments are considered fixed.
Question 4.6 addresses the presentation of lease revenue within a business-type activity or enterprise fund and clarifies that the operating or nonoperating classification depends on the purpose of the lease, the nature of the activity being reported, and the government’s policy.
Crowe observation: The classification of lease revenue as operating or nonoperating varies depending on the circumstances, but the related interest revenue should always be presented as nonoperating revenue. In Question 4.13 of “Implementation Guidance Update – 2021,” the GASB clarified that interest revenue from a lease should not be reported as operating revenue, even if leasing is the principal ongoing operation of the business-type activity or enterprise fund.
Questions 4.7, 4.8, and 4.9 address SBITAs and clarify 1) the difference between a licensing agreement that automatically renews and a perpetual license, 2) that a cloud computing arrangement may be a SBITA, depending on the circumstances, and 3) the distinction between the term of a contract and a subscription term.
Question 4.10 clarifies that closing out a major fund would not constitute a change to or within the financial reporting entity in accordance with Statement No. 100 and should be reported as interfund activity.
Effective dates
Questions 4.1-4.9 and 5.1 are effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter. Earlier application is encouraged if the pronouncement addressed by the question and answer has been implemented. Question 4.10 should be applied simultaneously with the requirements of Statement No. 100, which are effective for accounting changes made in fiscal years beginning after June 15, 2023, and all reporting periods thereafter. If Statement No. 100 has been implemented prior to the issuance of this GASB Implementation Guide, Question 4.10 is effective for fiscal years beginning after June 15, 2023, and all reporting periods thereafter, with earlier application encouraged.
