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ASC 842 lease accounting standards: Finance and operating leases

11.22.19

Editor’s note: Read this if your organization is an entity with significant lease transactions with terms greater than a year.  

Updated: June 2020

The new Accounting Standards Codification Topic 842 (ASC 842) lease accounting standard is actually not that new. The Financial Accounting Standards Board (FASB) first released the standard in 2016 but, due to a series of delays, it hasn’t been required yet. Even with delays, some organizations have already started to implement ASC 842. They include:

  1. Public business entities
  2. Not-for-profits that have issued or are conduit bond obligors for securities traded, listed, or quoted on an exchange or an over the-counter market

All other entities will start implementing for fiscal years starting after December 15, 2021 and internal periods within fiscal years beginning after December 15, 2022 (January 1 for calendar reporting periods).

Here’s a quick rundown of the lease classifications and how they’ll impact your financial statements.  

Classifying leases

Under the new standards, leases fall into one of two classifications: finance leases and operating leases. This classification makes all the difference in how leases are reported in the financial statements. 

Finance lease

A finance lease essentially treats an asset as if it were purchased by the lessee and financed with funds from the lessor. This prevents companies from hiding financial obligations that are basically liabilities. ASC 842 requires leases to be classified as finance leases if they meet any of the following five criteria:

  1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
  2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
  3. The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease.
  4. The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments in accordance with paragraph 842-10-30-5(f) equals or exceeds substantially all of the fair value of the underlying asset.
  5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

As you can see from the five criteria, finance leases are just purchase arrangements financed over time. ASC 842 is designed to reflect that and improve transparency for investors and other stakeholders.  

Operating lease

Any lease not meeting any of the above criteria is classified as an operating lease. 

No more off-book leases

One of the problems ASC 842 seeks to solve is “off-book” operating leases that show up only as notes on the balance sheet and cloud the debt ratios of companies. Under the new standards, both operating and finance leases will be reported on the balance sheet. The only exceptions are certain leases with terms of 12 months of less. 

Recording finance vs. operating leases

With both operating and finance leases reported on the balance sheet, what’s the difference between the two? The major difference is the way they are recorded on the income statement:

  • Interest and amortization are recorded separately on the income statement for finance leases.
  • Operating leases will report a single line item based on the lease payment. 
  • Principal repayments for finance lease are classified as financing activities.
  • Payments on operating leases are classified as operating activities.

Next Steps 

Make sure you start by implementing for fiscal years starting after December 15, 2021 and internal periods within fiscal years beginning after December 15, 2022. If you have questions about finance or operating leases, or need help with the new standard, please don’t hesitate to contact the team

Download our lease classification infographic for a comparison of finance and operating leases under ASC 842.

Download our Lease Classification Infographic

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Read this if you are responsible for meeting your broker-dealer’s annual report filing requirement under Securities Exchange Act (SEA) Section 15.

In February, the US Securities and Exchange Commission (SEC) approved a 30-day extension for eligible broker-dealers to file their annual reports, effective immediately. Firms that meet the criteria should consider taking advantage of the filing extension. Here are a few details and tips to help broker-dealers understand more about the 30‑day extension.

SEA Section 15 filing extension background

Normally, each broker-dealer registered under Securities Exchange Act (SEA) Section 15 must file annual reports—including financial and compliance or exemption reports, along with those prepared by an independent accountant—no more than 60 days after the broker-dealer’s fiscal year ends. But in light of disruption caused by the COVID-19 pandemic, the Financial Industry Regulatory Authority (FINRA) requested that the SEC allow broker-dealers an extra 30 days to file their annual reports. The extension, FINRA argued, would allow broker-dealers more time to obtain audit services.

Criteria for broker-dealers eligible for the extension

To qualify for a filing extension of 30 calendar days, a broker-dealer must meet the following criteria:

  1. Was in compliance with 15c3-1 (Net Capital) as of its most recent fiscal year end and had total capital and allowable subordinated liabilities of less than $50 million,
  2. Is permitted to file an exemption report as part of its most recent fiscal year-end annual reports,
  3. Submits written notification to FINRA and the Securities Investor Protection Corporation (SIPC) of its intent to rely on this order on an ongoing basis for as long as it meets the conditions of the order, and
  4. Files the annual report electronically with the SEC using an appropriate process.

The extension does not apply to just this year alone. It is understood to be in effect on an ongoing basis.

How to notify FINRA of your intent to take advantage of the extension

Broker-dealers that meet the aforementioned conditions are required to notify FINRA of their intent to take advantage of the extension. FINRA advises eligible broker-dealers to send an email to their Risk Monitoring Analyst with a message structured according to the following template:

“My firm wishes to have an additional 30 calendar days for filing its annual report on an ongoing basis for as long as my firm meets the conditions set forth in the SEC Order of February 12, 2021, regarding additional time for filing annual reports under SEA Rule 17a-5.”

How to file electronically

In addition to notifying FINRA, those looking to benefit from the extension are required to file electronically. There are multiple ways to do so, but the most user-friendly and efficient avenue to electronic filing is through the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.

Using the EDGAR system, broker-dealers must upload only two attachments maximum. The EDGAR system offers two options for electronic filing:

  1. The broker-dealer could attach one document containing all the annual reports as a public document; or
  2. The broker-dealer could attach two documents to its submission: (1) a public document containing the statement of financial condition, the notes to the statement of financial condition and the accountant’s report which covers the statement of financial condition, and (2) a non-public document containing all the components of the annual reports.

Implications for annual filings

An upcoming filing deadline is a stressful event, especially for broker-dealers contending with the upheaval of the past 18 months. Fortunately, FINRA has advocated on their behalf, and the SEC has complied by offering a 30-day filing extension.

The extension provides broker-dealers excess time to review documents and schedule a session with their auditor. Auditors will likely appreciate the extension as well, as it allows them to serve their various clients over a longer period of time, alleviating some of the pressure traditionally associated with filing season.

For these reasons and more, broker-dealers who qualify are encouraged to take the steps required to benefit from this grace period. If you have questions or would like more information, please contact our broker-dealer consulting team. We're here to help.

Article
Eligible broker-dealers: Take advantage of SEC's 30-day filing extension

Read this if you are a timber harvester, hauler, or timberland owner.

The USDA recently announced its Pandemic Assistance for Timber Harvesters and Haulers (PATHH) initiative to provide financial assistance to timber harvesting and hauling businesses as a result of the pandemic. Businesses may be eligible for up to $125,000 in financial assistance through this initiative. 

Who qualifies for the assistance?

To qualify for assistance under PATHH, the business must have experienced a loss of at least 10% of gross revenue from January, 1, 2020 through December 1, 2020 as compared to the same period in 2019. Also, individuals or legal entities must be a timber harvesting or timber hauling businesses where 50% or more of its revenue is derived from one of the following:

  • Cutting timber
  • Transporting timber
  • Processing wood on-site on the forest land

What is the timeline for applying for the assistance?

Timber harvesting or timber hauling businesses can apply for financial assistance through the USDA from July 22, 2021 through October 15, 2021

Visit the USDA website for more information on the program, requirements, and how to apply.
If you have any questions about your specific situation, please contact our Natural Resources team. We’re here to help. 

Article
Temporary USDA assistance program for timber harvesters and haulers

Read this if your facility or organization has received Provider Relief Funds.

The rules over the use of the HHS Provider Relief Funds (PRF) have been in a constant state of flux and interpretation since the funds started to show up in your bank accounts back in April. Here is a summary of where we are as of June 14, 2021 on HHS’ reporting requirements. Key highlights:

These requirements apply to:

  • PRF General and Targeted Distributions
  • the Skilled Nursing Facilities (SNF) and Nursing Home Infection Control Distribution
  • and exclude:
    • the Rural Health Clinic COVID-19 Testing Program
    • claims reimbursements from HRSA COVID-19 Uninsured Program and the HRSA COVID-19 Coverage Assistance Fund (CAF)

This notice supersedes the January 15, 2021 reporting requirements.
Deadline for Use of Funds:

Payment Received Period

Deadline to Use Funds

Reporting Time Period

Period 1

4/10/20-6/30/20

6/30/21

7/1/21-9/30/21

Period 2

7/1/20-12/31/20

12/31/21

1/1/22-3/31/22

Period 3

1/1/21-6/30/21

6/30/22

7/1/22-9/30/22

Period 4

7/1/21-12/31/21

12/31/22

1/1/21-3/31/23

Recipients who received one or more payments exceeding $10,000 in the aggregate during each Payment Received Period above (rather than the previous $10,000 cumulative across all PRF payments) are subject to the above reporting requirements 

Responsibility for reporting:

  • The Reporting Entity is the entity that registers its Tax Identification Number (TIN) and reports payments received by that TIN and its subsidiary TINs.
  • For Targeted Distributions, the Reporting Entity is always the original recipient; a parent entity cannot report on the subsidiary’s behalf and regardless of transfer of payment.

Steps for reporting use of funds:

  1. Interest earned on PRF payments
  2. Other assistance received
  3. Use of SNF and Nursing Home Control Distribution Payments if applicable (any interest earned reported here instead), with expenses by CY quarter
  4. Use of General and Other Targeted Distribution Payments, with expenses by CY quarter
  5. Net unreimbursed expenses attributable to Coronavirus, net after other assistance and PRF payments by quarter
  6. Lost revenues reimbursement (not applicable to PRF recipients that received only SNF and Nursing Home Infection Control Distribution payments)

PORTAL WILL OPEN ON JULY 1, 2021!

Access the full update from HHS: Provider Post-Payment Notice of Reporting Requirements.

Article
Provider Relief Funds: HHS Post-Payment Notice of Reporting Requirements

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

Governmental Accounting Standards Board (GASB) Statement No. 93 Replacement of Interbank Offered Rates

Summary

With the global reference rate reform and the London Interbank Offered Rate (LIBOR) disappearing at the end of 2021, GASB Statement No. 93 was issued to address the accounting and financial impacts for replacing a reference rate. 

The article below is focused on Hedging Derivative Investments and amendments impacting Statement No. 87, Leases. We have not included guidance related to the Secured Overnight Financing Rate or the Up-Front Payments. 

Background

We have all heard that by the end of 2021, LIBOR will cease to exist in its current form. LIBOR is one of the most commonly used interbank offered rates (IBOR). Now what?

In March 2020, the GASB provided guidance to address the accounting treatment and financial reporting impacts of the replacement of IBORs with other referenced rates while maintaining reliable and comparable information. Statement No. 93 specifically addresses previously issued Statements No. 53, Accounting and Financial Reporting for Derivative Instruments, and No. 87, Leases, to provide updated guidance on how a change to the reference rate impacts the accounting for hedging transactions and leases.  

Here are our analyses of what is changing as well as easy-to-understand and important considerations for your organization as you implement the new standards.

Part 1: Hedging Derivative Instruments

The original guidance under Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, as amended, requires that a government terminate a hedging transaction if the government renegotiates or amends a critical term of a hedging derivative instruction. 

Reference rate is the critical term that differentiates Statement No. 93 from Statement No. 53. The newly issued Statement No. 93 provides an exception that allows for certain hedging instruments to hedge the required accounting termination provisions when the IBOR is replaced with a new reference rate. 

In order words, under Statement No. 53, a modification of the IBOR would have caused the hedging instrument to terminate. However, Statement No. 93 now provides an exception to the termination rules as a result of the end of LIBOR. According to Statement No. 93, the exception is allowable when: 

  1. The hedging derivative instrument is amended or replaced to change the reference rate of the hedging derivative instrument’s variable payment or to add or change fallback provisions related to the reference rate of the variable payment.
  2. The reference rate of the amended or replacement hedging derivative instrument’s variable payment essentially equates to the reference rate of the original hedging derivative instrument’s variable payment by one or both of the following methods:
    • The replacement rate is multiplied by a coefficient or adjusted by addition or subtraction of a constant; the amount of the coefficient or constant is limited to what is necessary to essentially equate the replacement rate and the original rate
    •  An up-front payment is made between the parties; the amount of the payment is limited to what is necessary to essentially equate the replacement rate and the original rate.
  3. If the replacement of the reference rate is effectuated by ending the original hedging derivative instrument and entering into a replacement hedging derivative instrument, those transactions occur on the same date.
  4. Other terms that affect changes in fair values and cash flows in the original and amended or replacement hedging derivative instruments are identical, except for the term changes, as specified in number 1 below, that may be necessary for the replacement of the reference rate.

As noted above, there are term changes that may be necessary for the replacement of the reference rate are limited to the following

  • The frequency with which the rate of the variable payment resets
  • The dates on which the rate resets
  • The methodology for resetting the rate
  • The dates on which periodic payments are made.

Many contracts that will be impacted by LIBOR will be covered under Statement No. 93. The statement was created in order to ease with the transition and not create unnecessary burdens on the organizations. 

Part 2: Leases

Under the original guidance of Statement No. 87 Leases, lease contracts could be amended while the contract was in effect. This was considered a lease modification. In addition, the guidance states that an amendment to the contract during the reporting period would result in a separate lease. Examples of such an amendment included change in price, length, or the underlying asset.  

Included within Statement No. 93, are modifications to the lease standard as it relates to LIBOR. In situations where a contract contains variable payments with an IBOR, an amendment to replace IBOR with another rate by either changing the rate or adding or changing the fallback provisions related to the rate is not considered a lease modification. This modification does not require a separate lease. 

When is Statement No. 93 effective for me?

The removal of LIBOR as an appropriate interest rate is effective for reporting periods ending after June 31, 2021. All other requirements of Statement No. 93 are effective for all reporting periods beginning after June 15, 2022. Early adoption is allowed and encouraged. 

What should I do next? 

We encourage all those that may be impacted by LIBOR—whether with hedging derivative instruments, leases, and/or specific debt arrangements—to review all of their instruments to determine the specific impact on your organization. This process will be time consuming, and may require communication with the organizations with whom you are contracted to modify the terms so that they are agreeable to both parties.

If you would like more information about early adoption, or implementing the new Hedging Derivative Instruments or Leases, please contact Katy Balukas or Grant Ballantyne.
 

Article
The clock is ticking on LIBOR. Now what?

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

GASB Statement No. 96 Subscription-Based Information Technology Agreements

Summary

GASB Statement No. 96 defines the term Subscription-Based Information Technology Agreements (SBITA) as “a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.”

GASB Statement No. 96 determines when a subscription should be recognized as a right-to-use subscription, and also determines the corresponding liability, capitalization criteria, and required disclosures. 

Why does this matter to your organization?

In 2018, Financial Accounting Standards Board (FASB) issued Accounting Standards Updated (ASU) 2018-15: Cloud Computing Arrangements for Service Contracts, and we knew it would only be a matter of time when a similar standard would be issued by the Governmental Accounting Standards Board (GASB). Today, more and more governmental entities are purchasing software in the cloud as opposed to a software that is housed locally on their machine or network. This creates the need for updated guidance in order to improve overall financial reporting, while maintaining consistency and comparability among governmental entities. 

What should you do?

We are going to walk through the steps to determine if a SBITA exists—from identification through how it may be recognized in your financial statements. You can use this step-by-step guide to review each individual subscription-based software to determine if Statement No. 96 applies.

Step 1: Identifying a SBITA

There is one important question to ask yourself when determining if a SBITA exists:

Will this software no longer work/will we no longer be able to log in once the contract term ends?

If your answer is “yes”, it is likely that a SBITA exists.  

Step 2: Determine whether a contract conveys control of the right to use underlying IT assets

According to Statement No. 96, the contract meets the right to use underlying IT assets by:

  • The right to obtain the present service capacity from use of the underlying IT assets as specified in the contract
  • The right to determine the nature and manner of use of the underlying IT assets as specified in the contact

Step 3: Determine the length of the subscription term

The subscription term starts when a governmental entity has a non-cancellable right to use the underlying IT assets. This is the period during which the SBITA vendor does not have the ability to cancel the contract, increase or decrease rates, or change the benefits/terms of the service. The contract language for this period can also include an option for the organization or the SBITA vendor to extend or terminate the contract, if it is reasonably certain that either of these options will be exercised.

Once a subscription term is set, your organization should revisit the term if one or more of the following occurs:

  • The potential option (extend/terminate) is exercised by either the entity or the SBITA vendor 
  • The potential option (extend/terminate) is not exercised by either the government or the SBITA vendor
  • An extension or termination of the SBITA occurs 

If the maximum possible term under the SBITA contract is 12 months or less, including any options to extend, regardless of their possibility of being exercised, an exception for short-term SBITAs has been provided under the statement. Such contracts do not need to be recognized under the Statement and the subscription payments will be recognized as outflows of resources. 

Step 4: Measurement of subscription liability 

The subscription liability is measured at the present value of the subscription payments expected to be made during the previously determined subscription term. The SBITA contract will include specific measures that should be used in determining the liability that could include the following:

  • Fixed payments
  • Variable payments
  • Payments for penalties for termination
  • Contract incentives
  • Any other payments to the SBITA which are included in the contract

The future payments are discounted using the interest rate that the SBITA charges to your organization. The interest rate may be implicit in the contract. If it is not readily determinable, the rate should be estimated using your organization’s incremental borrowing rate. 

Your organization will only need to re-measure the subscription liability is there is a change to the subscription term, change in the estimated amounts of payments, change in the interest rate the SBITA charges to your organization, or contingencies related to variable payments. A change in the discount rate alone would not require a re-measurement. 

Step 5: Measurement of subscription asset

The SBITA asset should be measured at the total of the following:

  • The amount of the initial measurement of the subscription liability (noted in Step 4 above)
  • If applicable, any payments made to the SBITA vendor at the beginning of the subscription term
  • The capitalized initial implementation costs (noted in Step 6 below)

Any SBITA vendor incentives received should be subtracted from the total.

Step 6: Capitalization of other outlays

In addition to the IT asset, Statement No. 96 provides for other outlays associated with the subscription to be capitalized as part of the total subscription asset. When implementing the IT asset, the activities can be divided into three stages: 

  • Preliminary project stage: May include a needs assessment, selection, and planning activities and should be recorded as expenses.
  • Initial implementation stage: May include testing, configuration, installation and other ancillary charges necessary to implemental the IT asset. These costs should be capitalized and included in the subscription asset.
  • Operation and additional implementation stage: May include maintenance and troubleshooting and should be expensed.

Step 7: Amortization

The subscription asset are amortized over the shorter of the subscription terms or the useful life of the underlying IT assets. The amortization of the asset are reported as amortization expense or an outflow of resources. Amortization should commence at the beginning of the subscription term. 

When is this effective?

Statement No. 96 is effective for all fiscal years beginning after June 15, 2022, fiscal and calendar years 2023. Early adoption is allowed and encouraged.

Changes to adopt the pronouncement are applied retroactively by restating previously issued financial statements, if practical, for all fiscal years presented. If restatement is not practical, a cumulative effect of the change can be reported as a restatement to the beginning net position (or fund balance) for the earliest year restated. 

What should you do next? 

With any new GASB Standard comes challenges. We encourage governmental entities to re-review their vendor contracts for software-related items and work with their software vendors to identify any questions or potential issues. While the adoption is not required until fiscal years beginning after June 15, 2022, we recommend that your organization start tracking any new contracts as they are entered o starting now to determine if they meet the requirements of SBITA. We also recommend that your organization tracks all of the outlays associated with the software to determine which costs are associated with the initial implementation stage and can be capitalized. 

What are we seeing with early adoption?

Within the BerryDunn client base, we are aware of at least one governmental organization that will be early adopting. We understand that within component units of state governments, the individual component unit is required to adopt a new standard only when the state determines that they will adopt.

If you are entering into new software contracts that meet the SBITA requirements between now and the required effective date, we would recommend early adoption. If you are interested in early adoption of GASB Statement No. 96, or have any specific questions related to the implementation of the standard, please contact Katy Balukas or Grant Ballantyne

Article
Our take on SBITA: Making accounting for cloud-based software less nebulous

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans (GASB 97) addresses specific practice issues that have arisen related to retirement plans. The standard can be roughly divided into two parts, each of which focus on a different aspect of governmental retirement plan accounting. 

Part 1: Component units

Over the years, GASB has wrestled with clarifying exactly what entities should be included in a set of stand-alone financial statements. In general, it defined a financial reporting entity as a stand-alone government and all entities for which it is financially accountable, known as component units. One of the many situations where the government is financially accountable for another entity is where the majority of the entity’s board is appointed by the government. 

GASB 97 clarifies that when the entity has no governing board and the government performs the functions that a board would normally perform, the consideration of consolidation should be the same as if the government appointed a voting majority of a hypothetical governing board. This portion of the standard is consistent with previously issued implementation guides. 

What is new is that GASB 97 creates an exception, allowing defined contribution pension plans, defined contribution OPEB plans, and certain Section 457 plans who do not have a board to be excluded from consideration as a component unit. While GASB believes that it would be appropriate to include them like other entities, they listened to stakeholders who voiced their concerns about the costs of presenting defined contribution plans as component units. Their research showed that most stakeholders do not use information related to defined contribution plans presented as component units of governments, although if the government controls the assets, such information is more valued. GASB decided to balance the costs of preparation with the usefulness of the information.  

Additionally, for the purposes of determining component units, the government is not considered to have a financial burden for defined contribution pension plans and defined contribution OPEB plans that are administered through trusts. 

What should you do? 

First, the intended impact is that there will be fewer defined benefit plans presented as component units. If you currently present a defined benefit plan as a component unit, you may be able to save money by excluding them from the government-wide financial statements. 

Second, if you currently report a defined contribution plan that is administered through a trust as a component unit, you should reassess whether that is still considered a component unit. Remember, even if it is not a component unit, GASB Statement No. 84 Fiduciary Activities may still require it to be included in the financials if the primary government controls the assets. 

When does this apply? 

These changes are effective immediately. 

Part 2: Section 457 plans

Back in 1997 when GASB Statement No. 32 was issued, GASB did not believe it likely that plans established under Internal Revenue Code (IRC) section 457 would be pension plans because at that time, most Section 457 plans did not have employer contributions. In the more than twenty years that have passed since then, the IRC and characteristics of some of these plans have changed, forcing GASB to reconsider their classification. With the issuance of GASB 97, the board stated that it believes Section 457 plans could indeed be pensions. Therefore, Section 457 plans which fit the definition of a pension trigger the same reporting requirements of any other pension plan. 

What should you do? 

If your governmental organization has an employee benefit plan under Section 457, you should take the following steps: 

First, determine whether the plan is a “pension plan” or not. Pension plans provide retirement income or other postemployment benefits such as death benefits, life insurance, and disability benefits. Pensions do not include postemployment healthcare benefits and termination benefits. 

Despite the common usage of “pension” to mean only defined benefit plans, the statement is clear that the term “pension plan” includes defined contribution plans as well.

If the plan fits this definition, proceed to the next step. If not, this statement does not impact you. 

Second, if your Section 457 plan meets the definition of a pension plan and either issues its own standalone financial statements or is included in the financial statements of another government, those financial statements should include all financial reporting requirements that are relevant to pension plans. 

Generally, this means that GASB Statement No. 68 Accounting and Financial Reporting for Pensions (GASB 68) and all its related disclosure requirements are applicable, although there are some plans that don’t fall within GASB 68’s scope where GASB Statement No. 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 applies instead. The additional requirements will not look the same for all entities; defined benefit and defined contribution plans have different reporting requirements and their footnote disclosures will differ. 

When does this apply? 

The requirements related to Section 457 plans apply to fiscal years beginning after June 15, 2021. Some stakeholders requested that GASB delay the adoption due to COVID-19, but the GASB believes that the adoption date they set provides sufficient time for adoption. 

What else do you need to know? 

If your retirement plan falls within the scope of this pronouncement, you may have new costs to deal with, including potentially having to consult with an actuary to develop a model to prepare the new disclosures if you have a defined benefit pension. Fortunately, the GASB believes that most of the additional disclosures will relate to defined contribution pensions which have simpler note disclosures. 

If you would like more information or have questions about your specific situation, please contact Nathan Dunlap or Grant Ballantyne. We’re here to help.
 

Article
GASB 97: What's new, what to do, and what you need to know

Read this if your organization operates under the Governmental Accounting Standards Board (GASB).

Along with COVID-19 related accounting changes that require our constant attention, we need to continue to keep our eyes on the changes that routinely emerge from the Governmental Accounting Standards Board (GASB). Here is a brief overview of what GASB Statement No. 93, Replacement of Interbank Offered Rates, Statement No. 96, Subscription-Based Information Technology Arrangements, and Statement No. 97 Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, may mean to you. If you want more detail, we’ve included links to more analyses and in-depth explanation of what you need to know now.

GASB 93

We have all heard that by the end of 2021, LIBOR will cease to exist in its current form. In March 2020, the GASB provided guidance to address the accounting treatment and financial reporting impacts of the replacement of interbank offered rates (IBORs) with other referenced rates, while maintaining reliable and comparable information. Statement No. 93 specifically addresses previously issued Statement Nos. 53 and 87 to provide updated guidance on how a change to the reference rate impacts the accounting for hedging transactions and lease arrangements.  Read more in our article The Clock is Ticking on LIBOR. Now What?

GASB 96

GASB Statement No. 96 defines the term Subscription-Based Information Technology Agreements (SBITA) as “A contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.”

GASB Statement No. 96 determines when a subscription should be recognized as a right-to-use subscription, and also determines the corresponding liability, capitalization criteria, and required disclosures. Learn why this matters and what you need to do next: Our Take on SBITA: Making Accounting for Cloud-Based Software Less Nebulous.

GASB 97

GASB Statement 97 addresses specific practice issues that have arisen related to retirement plans. The standard is roughly divided into two parts—component units and Section 457 plans—each of which focus on a different aspect of governmental retirement plan accounting. Help your organization gain an understanding of the standard with our article GASB 97: What's new, what to do, and what you need to know.

If you have questions about these pronouncements and what they mean to your organization, please contact Grant Ballantyne.

Article
Update for GASB-governed organizations: Lease accounting, LIBOR transition, SBITA, and Section 457 plans