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This document sets forth system-wide standards for financial accounting and reporting of leases as set forth by Statement No. 87 of the Governmental Accounting Standards Board (GASB 87) to ensure that the policies and procedures related to financial accounting and reporting of leases are documented, communicated, clearly understood, and consistently applied. Review of lease agreements is particularly important for several reasons (a.) a lease/purchase analysis needs to be done because it may be less costly to purchase an item than to lease it, (b.) leases have an implicit interest rate involved which may be higher than other sources of funds, and (c.) lease agreements are often presented on forms which, if signed, could expose the campus to unreasonable liabilities against which no insurance is held.
This policy applies to all component institutions of USNH, and all leases as defined in Section C below that has a term of 12 months or more including all optional renewals.
GASB 87 defines a lease as a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset), including land, buildings, equipment, facilities, and infrastructure, as specified in the contract for a period of time in an exchange or exchange-like transaction. GASB 87 does not apply to the following:
- Leases of intangible assets
- Leases of biological assets
- Leases of inventory
- Contracts that meet the definition of a Service Concession Arrangement
- Leases in which the underlying asset is financed with USNH standing conduit debt, unless both the underlying asset and the conduit debt are reported to the lessor
- Supply contracts, such as power purchase agreements
GASB 87 also includes embedded leases which occurs when a service contract with a vendor uses a tangible asset as part of the value provided and the use of that asset meets the definition of a lease. An embedded lease exists when there is an asset in a contract and the department controls the use of the asset, by directing the use and derives all benefits from the asset, and the vendor does not have the practical ability to substitute an alternative asset throughout the period of use.
USNH adopted GASB 87 for the fiscal year starting July 1, 2021. All leases will be accounted for as set forth in this policy as of the date of the adoption.
A department that wishes to lease (USNH is the Lessee) or to provide for lease (USNH is the Lessor) property or equipment must contact the USNH Contract Office t (under USNH Procurement Services). If the lease is to be charged to, or to fund a sponsored program, departments need to request approval from the Support Team for Administration of Research (STAR) prior to contacting USNH Contract Office. USNH Procurement staff will work with campus Finance and Administration Officers and/or the USNH Treasury office, and Legal counsel for review and approval of lease agreements. The Board of Trustee approval may be required for certain types of leases consistent with BOT Policy VI.E.
F. LEASE ACCOUNTING
1. Reporting requirements. USNH Procurement Services will provide access to all executed leases to USNH Financial Services for USNH FOC Accounting to (a.) determine the appropriate recording of each lease based on accounting standards (b.) accumulate minimum lease payment data for disclosure in the annual audited financial statements, and (c.) track outstanding lease commitments system-wide for management information purposes.
2. Accounting impacts when USNH is the Lessee. The Lessee will recognize a lease asset and a lease liability at the inception of the agreement. Generally speaking, these amounts will be equal to the present value of the liability for the future lease payments. The lease liability amounts are reduced as lease payments are made, excluding the interest expense portion of the payments, and the lease asset is amortized on a straight-line basis over the remaining lease term. Lease contracts should include a breakdown of payments to show the interest and principal portion of the transaction whenever possible.
3. Accounting impacts when USNH is the Lessor. If an USNH department leases out property or equipment, those amounts will be recorded as lease receivable with an offsetting deferred inflow of resources. USNH as a lessor should breakdown the payments to show the interest and principal payment portions in each lease contract.
4. Recording lease payments. All lease payments should be encumbered at the time of contract through the execution of a Banner PO document, using account codes provided by USNH FOC accounting.
5. Recording lease revenue. At the inception of the lease, USNH FOC Accounting will record a lease receivable, corresponding deferred inflow of resources and if necessary, provide USNH Non-Student Accounts Receivable (NSAR) department with an amortization schedule. USNH NSAR will record the cash receipt on a CR for lease revenue according to the amortization schedule by debiting lease receivable and lease interest revenue accounts. On a quarterly basis, USNH FOC Accounting will recognize lease revenue by recording amortization of deferred inflow of resources over the life of the lease.
G. RELATED PROCEDURES, FORMS, AND RESOURCES
A comprehensive guide describing detail processes to ensure compliance with GASB 87 is available on the USNH Finance Hub.
Board of Trustee Policy – Leasing of Property BOT VI.E
Policy Owner: Manager, Accounting and Financial Reporting
USNH FOC Accounting: firstname.lastname@example.org