GASB 87 Lessee Lease Disclosures
GASB 87 adds several new disclosure requirements for lessees.
Here are some qualitative lease disclosures lessees must make about any lease activities other than short-term leases:
- A general description of the lease arrangements, including the lease basis, terms, and conditions used to determine variable payments not included in the lease liability
- The existence, terms, and conditions of residual value guarantees (RVGs) that are not included in the lease liability’s measurement
- Leases with related parties
Here are the quantitative lease disclosures for lessees in non-short-term leases:
- The total lease asset amounts, and their relevant accumulated amortization, disclosed separately from other capital assets
- Lease asset amounts by their underlying assets (grouped into classes), disclosed separately from other capital assets
- Resource outflow totals that are recognized in the reporting period for variable payments and other payments, such as RVGs, termination penalties, and lease incentives, that are not included in the lease liability’s measurement
- All principal and interest requirements to the lease’s maturity for each of the five subsequent fiscal years and in five-year increments thereafter - present the principal separately from the interest
- Any lease commitments prior to the lease term’s commencement
- The portion of any losses associated with an impairment — including the impairment loss and any related lease liability change
Lessees must also prepare these disclosures for upcoming leases, subleases, sale-leasebacks, and lease-leasebacks.
All that said, financial report preparers can aggregate specific sets of disclosures where it makes sense. They may have to use some professional judgment when figuring out how to show the disclosures in a way that’s useful to stakeholders because GASB does not provide guidance on disclosure structure or location.
GASB 87 Lessor Lease Disclosures
Lessors are also required to disclose additional information about how leasing activities impact their resources.
Here are the qualitative disclosures lessors must make about their leasing activities, with exceptions for short-term and certain regulated leases:
- A general description of the lease arrangements, including the lease basis, terms, and conditions used to determine variable payments not included in the lease liability
- The existence, terms, and conditions of lessee options to terminate the lease or reduce/remove payments if the lessor issued debt secured by the lease payments – this is required for all leases, including certain regulated leases and investment asset leases
Here are the quantitative disclosures lessors must make about their leasing activities in their financial statements.
- Total resource inflows from leases that are recognized in the reporting period if the financial statement numbers cannot be used to determine this amount – these can include lease revenue, interest revenue, and any other lease-related inflows.
- Resource inflow amounts recognized in the reporting period for variable and other payments not previously included in the lease receivable measurement – these include resource inflows related to RVGs and termination penalties.
Currently, lessors must disclose future minimum lease payments they expect to receive for each of the five succeeding years. GASB 87 requires specific lessors to include a schedule of future minimum lease payments in five-year increments after that initial five-year period. Principal and interest should be shown separately.
GASB 87 is applicable to two types of lessors:
- Lessors who lease assets to other entities as their primary ongoing operations
- Lessors with certain types of regulated leases
Special Lease Disclosures
GASB 87 requires special disclosures for several other types of specific leases. Let’s look at each lease and its set of disclosures below.
Sale-Leaseback Disclosures
A sale-leaseback transaction involves one party selling an asset to a counterparty, then having that counterparty lease the asset back to the seller. The seller gains access to additional capital without losing access to the asset in doing this.
In terms of disclosures, the lessee must disclose the terms and conditions of the sale and the leaseback separately. Both transactions are accounted for separately as well.
The lessor would simply follow general lessor disclosure requirements under GASB 87, as discussed earlier.
Lease-Leaseback Disclosures
Lease-leaseback transactions are common in construction. They involve an entity leasing a property to a developer who builds the development on the property and leases the development back to the original entity.
Unlike sale-leaseback transactions, lease-leasebacks are accounted for as net transactions instead of separate transactions. This is because each party plays both the lessee and lessor roles with the same counterparty.
That said, each party discloses the gross amounts of the lease and leaseback separately in the disclosures to provide the statement user with as much information as possible.
Sublease Disclosures
The lessee must disclose a general description of any subleasing arrangements in its financial statements.
The lessee must account for the main lease (for which it is the lessee) and sublease (for which it is the lessor) as two separate transactions. Therefore, the sublease portion’s disclosures will be separate from the main lease.
The exception is if the sublease itself is a lease-leaseback transaction. If it is, lease-leaseback rules apply to the sublease portion as well.
Impairment Loss Disclosures
The lessee must report any impairment of the underlying asset and changes in lease liability in its financial statements.
Regulated Lease Disclosures
Regulated leases are leases subject to specific external laws, regulations, or rulings.
GASB 87 considers the lease a regulated lease if it meets the following criteria:
- Lease rates cannot exceed a “reasonable” amount. What constitutes “reasonableness” is determined by an external regulator
- Lease rates should be similar for lessees that are similarly situated
- The lessor cannot deny potential lessees the right to enter into leases if facilities are available and if the lessee’s use of the facilities complies with generally accepted use-restrictions
Regulated leases must follow general GASB 87 lease requirements but can be modified to fit the unique nature of the lease.
That said, lessors with any regulated leases — other than short-term leases — must disclose the extent to which counterparties get exclusive or preferential use under lease agreements. These are grouped by major asset class and counterparty.
Additionally, lessors must disclose lessee termination or payment abatement option terms and conditions if the lessor issued debt secured by the lease payments.
Airport leases for aeronautical use are perhaps the most common type of regulated leases.
Regulated lease guidelines only apply to airport leases that exist for aeronautical use, as defined by the Federal Airline Administration.
For example, an airport might disclose its total number of terminal gates, then specify how many gates each carrier leases under exclusive or preferential agreements.
Any airport leases for non-aeronautical use, such as hotels or public parking, are generally not considered regulated leases and should follow normal GASB 87 disclosure requirements.
Non-GASB Lease Disclosures
Short-term leases are generally exempt from GASB 87 disclosure requirements. Under GASB 87, short-term leases have a term of 12 months or shorter. including any renewal or cancellation options.
If both parties can cancel during some part of the lease term without the other’s permission, this part of the term is excluded from the maximum possible term for the purposes of determining the lease’s status as short-term.
If only one party can cancel, but not the other, the cancelable part of the term is included in the maximum possible term for these purposes.
If a lease is considered short-term by GASB 87, it is exempt from GASB 87 disclosures.
