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4 *Paragraphs 18, 19, 23 26, and 40 +Except requirements related to the selection of assumptions in a circumstance in which an employer s NPL is measured as of a date other than the employer s most recent FYE. In that circumstance, those requirements are effective for that employer in the first reporting period in which the measurement date of the NPL is on or after June 15, 2017 or later #May be implemented by topic 4

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32 Statement 87 does not include nonexchange transactions, such as $1/year leases, because the Statement 87 reporting model based on leases being financing transactions does not work well for nonexchange transactions. (Report a $1 lease liability and asset?) In final deliberations, the Board decided to specifically note that the right to use a nonfinancial asset refers to the right to use another entity s underlying asset. The Board also decided that the right-to-use asset should be what is specified in the contract, which would include the right to use the underlying asset for portions of time during a lease term, such as leases for certain days each week or for certain hours each day. The Board also agreed to add guidance for determining when a lease contract conveys control of the right to use the underlying asset. The guidance is similar to the FASB guidance but is based on the notions of control found in Concepts Statement No. 4, Elements of Financial Statements, including (1) the right to obtain the present service capacity from use of the underlying asset and (2) the right to determine the nature and manner of use of the underlying asset. The control criteria would be applied to the right-touse asset as specified in the contract. The Board agreed that, unlike FASB, the criteria would not limit a lease to contracts that convey substantially all of the present service capacity from use of the underlying asset. 32

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35 Paragraph 12: Periods for which both the lessee and the lessor have an option to terminate the lease (or if both parties have to agree to extend) are cancelable periods and are excluded from the lease term. For example, a rolling month-to-month lease, or a lease that continues into a holdover period until a new contract is signed, would not be enforceable if both the lessee and the lessor have an option to terminate and, therefore, either could cancel the lease at any time. Provisions that allow for termination of a lease due to (a) purchase of the underlying asset, (b) payment of all sums due, or (c) default on payments, are not considered termination options. 35

36 Paragraph 12: Periods for which both the lessee and the lessor have an option to terminate the lease (or if both parties have to agree to extend) are cancelable periods and are excluded from the lease term. For example, a rolling month-to-month lease, or a lease that continues into a holdover period until a new contract is signed, would not be enforceable if both the lessee and the lessor have an option to terminate and, therefore, either could cancel the lease at any time. Provisions that allow for termination of a lease due to (a) purchase of the underlying asset, (b) payment of all sums due, or (c) default on payments, are not considered termination options. 36

37 The GASB chose maximum possible term rather than lease term because GASB was concerned about potential misapplication of lease term guidance to manufacture shortterm leases, thus avoiding recording liabilities. 37

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39 Amortization of discount reported as interest revenue 39

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44 FN3: In the statement of cash flows, payments allocated to the accrued interest liability should be classified as financing activities as provided in Statement 9. 44

45 Reassessment of a lease liability for following changes, if expected to be significant: Change in the lease term Change in the likelihood (reasonably certain to not reasonably certain or vice versa) of a purchase option being exercised Change in the amounts expected to be payable under a residual value guarantee or when there is a change in the likelihood (reasonably certain to not reasonably certain or vice versa) that a payment will be required Change in estimated amounts for payments already included in the liability Change in rate lessor charges lessee, if used as the initial discount rate If liability reassessed, also reassess the discount rate when: Change in the lease term Change in likelihood (reasonably certain to not or vice versa) that a purchase option will be exercised Change in the manner or duration of use of the lease asset is an impairment indicator 45

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59 Observable standalone prices those for identical or similar assets or services The GASB does not provide a practical expedient to establish a policy of accounting for all components as a single lease unit. The FASB does have such a practical expedient. 59

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61 From paragraph 71: Examples of amendments include a change in consideration, amending the contract to lengthen or shorten the lease term, and adding or removing an underlying asset. Examples of lessee s right to use the underlying asset decreasing include the lease term is shortened or the number of underlying assets is reduced. 61

62 From paragraph 71: Examples of amendments include a change in consideration, amending the contract to lengthen or shorten the lease term, and adding or removing an underlying asset. Examples of lessee s right to use the underlying asset decreasing include the lease term is shortened or the number of underlying assets is reduced. 62

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68 Guidance for determining whether a qualifying sale has occurred is found in paragraphs and of Statement 62, which address real estate sales. These paragraphs include a discussion of continuing involvement as evidence that a sale has not yet occurred. The following are examples of off-market terms: a. A transaction has a sale price and lease payments that are both significantly higher than market. b. A transaction has a sale price that is significantly higher than market but the lease payments are at or below market. c. A transaction has a sale price that is significantly lower than market. 68

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80 7 members, 5-year terms (except chair, who is serving a 7-year term) David A. Vaudt (Chairman) Former State Auditor of Iowa Jeffrey J. Previdi (Vice Chairman) Former Director at Standard and Poor s Ratings Services James E. Brown Former Audit Partner Brian W. Caputo Former Municipal Government Finance Officer and State Preparer Michael H. Granof Current EY Distinguished Centennial Professor of the McCombs School of Business at the University of Texas Kristopher E. Knight Former Deputy Secretary of State of Delaware David E. Sundstrom Former State internal auditor/controller 80

81 The work of the FAF, the FASB, and the GASB is funded by a combination of subscription and publication revenue, accounting support fees, and investment income. The largest share of financial support for the standard-setting boards comes from accounting support fees. Those fees are paid by publicly traded companies (for the FASB, per Sarbanes Oxley) and municipal bond brokers and dealers (for the GASB, per Dodd Frank). Subscription and Publication revenue includes sales and licensing of copyrighted FASB- and GASB-related materials (Codification, GASB Pronouncements and other publications, etc.) The laws that enacted the accounting support fees permit the FAF to recoup the Boards full annual budgeted recoverable expenses. Historically, the FAF has voluntarily funded a portion of the Boards recoverable expenses with available Reserve Funds. Over the past four years, contributions from the FAF Reserve Fund have offset a total of $73 million that otherwise would have been collected through accounting support fees. How are accounting support fees determined? First, the FAF creates its budget. The FAF then determines its voluntary calculated amount available from its Reserve Funds to offset a portion of its recoverable expenses, and only recoups accounting support fees on the balance of recoverable expenses. In 2017, 8,400 public companies paid a total of approx. $27.7 million (approx. $9 per day) in accounting support fees, or $9 per day. In 2017, Approx. 440 municipal bond broker-dealers paid $8.3 million in accounting support fees or approx. $52 per day. 81

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