Recently, PeopleSoft PUM FSCM Image 31 became available and includes functionality to ensure Government Accounting Standards Board (GASB) compliance as it relates to Lease Accounting.
The GASB issued statement number 87 (GASB 87), is a new accounting standard for lease accounting. The new standard is effective in 2020. GASB 87 is similar to previously released guidance from FASB and IASB with some differences. A key requirement under GASB is to capitalize leases as assets and liabilities on the balance sheet. The operating lease classification no longer exists under GASB. This is similar to guidance under IASB. However, GASB does classify certain leases as ‘Financed Purchases’ which is different from IASB or FASB.
When the business unit reports under GASB, the system classifies assets in the business unit as finance and disregards the criteria for classification of leases used by FASB. This can be completed by enabling the GASB 87 features using the same installation options used for IASB and FASB.
In addition, GASB 87 requires organizations to classify certain leases as a ‘Financed Purchase.’ The initial measurement of the lease liability and the asset is the same for a financed purchase. The difference is the liability account used for a financed purchase. The liability should be reported using the ‘Financed Purchase’ account rather than the ‘Lease Liability’ account.
The GASB identifies a financed purchase as a lease that:
- Transfers ownership of the underlying asset to the lessee by the end of the contract and the lease cannot contain termination options.
- The lease may contain a fiscal funding or cancellation clause as long as it is not reasonably certain of being exercised.
The GASB views this lease as a financed purchase rather than a lease liability, because the lessee is expecting take ownership of the leased asset.
Accounting for financed purchases requires changes to transaction code configuration, the transaction code selected on the asset, and the accounting entry templates. This is completed by creating a new transaction code for Financed Purchases (FP – Financed Purchase – Fin Purch). When adding a new asset, the checkbox “Transfer of Ownership” will also need to be selected for these instances.
About the Author: Bryan Reynolds is a Consultant in Elire’s Lease Administration Practice, responsible for implementing Oracle’s Lease Accounting Modules.