The GASB on April 23, 2020, published an implementation guide that includes clarifications to accounting rules for leases and fiduciary activities, two significant standards for cities and states that can prove complex.
GASB Implementation Guide No. 2020-1, Implementation Guidance Update—2020, was issued to clarify, explain or elaborate on those and other GASB statements.
The changes are primarily effective for reporting periods beginning after either June 15, 2021, or Dec. 15, 2021, one year later than is typical to ease work hassles the coronavirus pandemic poses.
The board earlier this month proposed delays to a number of GASB statements and guides after accountants said they were unable to access important reporting information and were strapped for resources because of the pandemic. (See Accounting Rulemaker for Governments Offers One-Year Deferral on Nine Statements and Five Guides in the April 17, 2020 edition of Accounting & Compliance Alert.)
The guide answers 12 questions related to GASB Statement (GASBS) No. 87, Leases, including on who controls the right of use of the rented asset and on assessing lease terms. It also clarifies whether an entity has a lease or a financed purchase under a specific scenario. For example, a city leases a fleet of golf carts for its municipal golf course. The city will own the golf carts at the end of the agreement unless it exercises its option to terminate the lease, which it may do at any time without making further payments. At issue is whether the transaction should be reported as a lease or a financed purchase.
The transaction should be reported as a lease, the guide states. “Paragraph 19 of Statement 87 provides for a contract that transfers ownership to be reported as a financed purchase only if that contract does not contain termination options (although it may contain a fiscal funding or cancellation clause that is not reasonably certain of being exercised),” a text of the guide explains.
Related to GASBS No. 84, Fiduciary Activities, the guide addresses two issues: whether cash and other financial assets seized by a county should be reported as a fiduciary activity until a judgment is rendered, and when is a school district considered to have administrative involvement in a ski club matter. Both questions were in context to specific facts and circumstances. For example, a school district holds resources raised by its ski club. There is a school board policy that states that the resources raised by the ski club can be spent only on an annual ski club trip. The policy does not establish the specific types of ski trip disbursements that are acceptable for payment. A school district staff member is required to monitor compliance with the requirements of the activity.
At issue: does the school district have administrative involvement, as discussed in paragraph 11c(2) of GASBS No. 84? The guide states, “Yes, the school district has administrative involvement.” The school district’s role is substantive because the school district has established specific guidelines in an approved policy that defines the purposes for which the club’s resources can be spent, a text of the guide states. In addition, the school district has administrative involvement because a school district staff member is monitoring compliance with the requirements of the activity.
Other topics addressed are:
Additionally, the guide delays the effective date of certain questions and answers that were originally published in Implementation Guide No. 2019-2, Fiduciary Activities, pending the completion of the GASB’s project “Certain Component Unit Criteria and Accounting and Financial Reporting for Section 457 Plans.”
Moreover, it amends earlier guides.
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