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ACCOUNTING AND AUDITING UPDATES <br />The following is a summary of Governmental Accounting Standards Board (GASB) standards expected <br />to be implemented in the next few years. Due to the COVID-19 pandemic, the GASB has delayed the <br />original implementation dates of these and other standards as described below. <br />GASB Statement No. 87, Leases <br />A lease is a contract that transfers control of the right to use another entity's nonfinancial asset as <br />specified in the contract for a period of time in an exchange or exchange -like transaction. Examples of <br />nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this <br />definition should be accounted for under the leases guidance, unless specifically excluded in this <br />statement. <br />Governments enter into leases for many types of assets. Under the previous guidance, leases were <br />classified as either capital or operating depending on whether the lease met any of the four tests. In many <br />cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease <br />financing transactions. <br />The goal of this statement is to better meet the information needs of users by improving accounting and <br />financial reporting for leases by governments. It establishes a single model for lease accounting based on <br />the principle that leases are financings of the right to use an underlying asset. This statement increases the <br />usefulness of financial statements by requiring recognition of certain lease assets and liabilities for leases <br />that previously were classified as operating leases and recognized as inflows of resources or outflows of <br />resources based on the payment provisions of the contract. <br />Under this statement, a lessee is required to recognize a lease liability and an intangible right to use lease <br />asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby <br />enhancing the relevance and consistency of information about governments' leasing activities. <br />To reduce the cost of implementation, this statement includes an exception for short-term leases, defined <br />as a lease that, at the commencement of the lease term, has a maximum possible term under the lease <br />contract of 12 months (or less), including any options to extend, regardless of their probability of being <br />exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or <br />inflows of resources, respectively, based on the payment provisions of the lease contract. The <br />requirements of this statement are effective for reporting periods beginning after June 15, 2021. <br />-21- <br />