The Federal Accounting Standards Advisory Board issued an exposure draft of a proposed Statement of Federal Financial Accounting Standards that would provide a practical expedient when it comes to reporting on embedded leases in federal government contracts.
Processing Content
Under the proposed SFFAS, Embedded Leases Practical Expedient, reporting entities could elect to apply a practical expedient to contracts or agreements that meet certain eligibility conditions and account for them as a “nonlease” in their entirety. Reporting entities could apply the practical expedient to groups of contracts or agreements that are reasonably similar in nature. Contracts or agreements with multiple components that don’t meet the eligibility conditions would continue to be reported following the guidance in paragraphs 72-77 of SFFAS 54, Leases.
“The board continues to support adoption of the leases guidance through its post-implementation research and monitoring activities,” said FASAB chair Terry Patton in a statement Friday. “These proposed amendments are an important step in our efforts to ensure our standards remain consistent with federal financial reporting objectives and meet user needs, while considering the costs of implementation. We welcome and encourage public comment on today’s proposal.”
FASAB is asking for comments on the exposure draft by July 30, 2026, along with the reasons for the commenters’ positions.The exposure draft and the specific questions raised can be found on the FASAB website. For more information, email leases@fasab.gov.
The Governmental Accounting Standards Board has also overhauled its leases standard for state and local governments in recent years, and the changes took effect in June 2021, although many governments were slow to adopt the changes. Like the ASC 842 leases standard for public and private companies and nonprofits from the Financial Accounting Standards Board and the IFRS 16 leases standard from the International Accounting Standards Board in that it put leases on the balance sheet for the first time for many entities. One of the reasons for the delayed implementation is “embedded leases,” which are included in other types of contracts and agreements and often aren’t specifically labeled as leases. Finding and identifying them takes time. They grant the right to control the use of a specific asset for a period in exchange for payment, even if the contract isn’t explicitly called a “lease.”
FASAB works closely with GASB, and GASB chair Joel Black told Accounting Today during a meeting this week that he talks to the FASAB chair at least on a quarterly basis. Patton became chair of FASAB in April. He used to work at GASB and was a member of GASB’s Government Accounting Standards Advisory Council for a number of years.
Credit: Source link
