911

Live now: Board of Curators meeting

UM System

Lease Accounting Standard

Per GASB Statement No. 87, the university is required to implement a new standard on leases that changes how leases are reported, eliminating the “capital” or “operating” classifications and instead treating all leases that meet the criteria and contain the right to use another entity's asset as a Right-of-Use (ROU) lease.

To meet this change in standard, the university began an implementation project and entering leases into PeopleSoft Financials. The implementation project covers both payable leases, in which the university is the lessee/tenant, as well as receivable leases, where the university is lessor/landlord.

What counts as a lease?

A lease could be any contract that conveys the right to use an asset to or from another party. Contracts do not have to include complete access to the asset to qualify as a lease. ROU leases could meet the GASB Statement No. 87 criteria if the contract contains the following:

  • Rent is charged for the use of an item.
    • Payables leases: could include equipment, vehicles, space, buildings, land, as well as other assets that are NOT owned by the University
    • Receivable leases: could include equipment, vehicles, space, buildings, land, as well as other assets that ARE owned by the University or sublet by the University.
  • The amount to be received is fixed or has a minimum amount due regardless of how much the asset is used.
  • The term of the use of the item is longer than 12 months, including all renewal periods given in the contract.
  • The transaction is exchange or exchange-like, meaning both parties in the contract receive or give up equal value or something more than a nominal amount is exchanged.

A contract may contain multiple components, some of which may meet the definition of the lease along with some that may not. If you are unsure whether something qualifies as a lease, please contact Finance Training Support Services to start the process.

Automated payments and other efficiencies

Scheduled payments from the lease will integrate with the Accounts Payable or Billing (ARBI) processes in accordance with payables and receivables leases. This means that once the lease is approved and entered into the system, no action needs to be taken for payments to be made/received, and establishing these automated payments satisfies the requirements of GASB Statement No. 87.

Automated payments can include base rent as well as fixed miscellaneous payments such as common area maintenance (CAM) or fixed utilities or escrows. Variable payments will continue to be paid without automated payments using existing payment processes.

All leases will have notifications enabled to send reminders to a designated department contact in advance of upcoming expiration dates and renewal term. Notifications will be sent no less than 90 days prior to the decision deadline.

Effective dates

Automated lease accounting for payments to be made or received per the contract will begin on one of two dates depending on the campus location. The associated vouchers or invoices will be fed to the AP and ARBI modules approximately 10 days prior to the due date.

Payments or receivable due on or after April 1, 2022, for:

  • Missouri University of Science and Technology (S&T)
  • 911-St. Louis (UMSL)
  • UM System central offices

Payments or receivable due on or after May 1, 2022, for:

  • 911-Columbia (MU)
  • 911-Kansas City (UMKC)
  • MU Health Care/Hospital

Business process and notifications

Future business processes will closely align with how they are done today.

  • Equipment: If you have a request for a lease related to equipment, a requisition should be entered and will be routed to UM Procurement or MUHC Supply Chain.
  • Land, property, buildings: Requests to rent property or rent out space on campus must be initiated through the local campus real estate coordinating office. To set up the lease in PeopleSoft Financials, the department and Fiscal Officer must complete the form provided by the campus real estate coordinator.
  • Changes to in-process lease: Changes to in-process leases should be communicated to the appropriate office to ensure entry in PeopleSoft Financials is correct:
  • Notification: Departments identified as having leases will receive additional communication about leases included in PeopleSoft Financials.
    • Please be on the lookout for future communications specific to leases already being captured during the implementation project.
    • If you have a contract that may seem to contain a lease, please reach out to Finance Training and Support Services.

Accounting

The new standard changes how leases are accounted for on university financial statements. However, department financials will remain intact and there will be no change to how the accounting is done at the department level.

All the GASB Statement No. 87 entries will occur at high-level deptIDs at each business unit and will be reflected in plant funds. Below is an example of how this will be accomplished:

Level | Lease Type Income Statement Balance Sheet

Department | Payable Lease
  • At payment:
    • Rent expense $500
  • At payment:
    • Cash ($500)
Plant Fund | Payable Lease
  • At payment:
    • Rent expense contra $500
    • Interest expense $50
  • End of month:
    • Amortization expense $45
  • At inception:
    • ROU asset $10,000
    • ROU liability ($10,000)
  • At payment:
    • ROU liability $450
  • End of month:
    • Accumulated amort ($45)
Department | Receivable Lease
  • At receipt:
    • Rent income ($500)
  • At receipt:
    • Cash $500
Plant Fund | Receivable Lease
  • At receipt
    • Revenue reversal $500
    • Interest revenue ($50)
  • End of month
    • Lease revenue ($45)
  • At inception:
    • ROU Receivable $10,000
    • ROU deferred inflow ($10,000)
  • At receipt
    • ROU receivable ($450)
  • End of month
    • ROU deferred inflow ($45)

 

 

Frequently Asked Questions

Is there a dollar threshold for reporting leases like there is with capital assets?

No. GASB did not include materiality thresholds in the standard. At this time, no dollar threshold has been set.

 

Will there be a finance policy for leases?

Yes. The Controller’s Office is in the process of drafting a finance policy for leases.

 

Will leased assets follow the same policy and procedures as capital assets?

Lease assets should be cared for in the same manner as capital assets. Additionally, annual inventory of GASB-applicable leased equipment will be combined with university’s capital asset annual inventory beginning in 2023. Each piece of leased equipment will have its own unique tag number and leased assets will also have a different asset category than university-owned capital assets, making assets easier to identify.

 

If I have a long-term lease and the chartfield funding changes on the lease, what is the procedure for changing the funding?

Chartfield changes must be communicated to the UMHS MUHC Supply Chain / UM Procurement Leases office for equipment leases or the UM Real Estate for property leases to be entered into PeopleSoft. Additionally, a process will be put in place to re-affirm chartfields annually (at minimum).

 

How can I look up a lease payment/invoice in Web Applications?

  • Lease payments will always expense accounts 741640, 789810, or 789515. One may drill to the accounting entries (journals beginning with AP) by using the FIN Financial Reports section of Web Applications. The voucher ID will be listed in the journal line reference field.
  • If the lease payment voucher number / payment ID is known, one may use FIN Search Options directly to view information. The lease number and name will be listed within the ‘Notes’ hyperlink of the voucher.
  • Lease invoices will use revenue accounts 494300, 495300, and 495000. One may drill to the accounting entries (journals beginning with BI) by using the FIN Financial Reports section of Web Applications. The invoice number will be listed in the journal line description field.
  • If the lease invoice number is known one may use the Receivables tile in PeopleSoft Financials to view detailed information on the invoice. Departments may also use the ARBI Aging Report in FIN Search Options to monitor outstanding invoices.
 

When will my lease invoice/payment be processed?

Lease invoices and payments will be generated from the Lease Administration module approximately 10 days prior to the schedule payment date on the lease. For example, a lease payment date of April 1 will feed to ARBI or AP module around March 21. All payments will have due immediate payment terms and will process on the next applicable pay cycle.

 

How can I look up lease information in PeopleSoft?

Basic lease information is viewable within PeopleSoft Financials on the Lease Abstract page. Use the Navigator within FSPRD and go to Main Menu > Lease Administration > Reports > Lease Abstract.

 

Will lease transactions be budget checked?

Yes, lease payments and receipts will follow the budget checking rules as any other payment or receipt. Lease payments will be budget checked within 30 minutes of the voucher being created in Accounts Payable. Lease invoices will budget check each night.

 

What happens if a lease has both fixed and variable components?

Leases that meet the GASB definition will have the fixed portion of the lease paid through the lease administration module of PeopleSoft. Variable components cannot be efficiently processed through the module and should be paid outside of the lease administration module. Variable components could include items such as utilities, insurance, taxes, etc.

 

Reviewed 2022-03-08