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<p class="MsoNormal">Good morning and happy new fiscal year ACFR contacts!<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The most common question I get asked about GASB 87 implementation is: what if I can’t determine the interest rate implicit in the lease?
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Per GASB 87 paragraph 23, “…future lease payments should be discounted using the interest rate the lessor charges the lessee, which may be the interest rate implicit in the lease. If the interest rate cannot be readily determined by the
lessee, the lessee’s estimated incremental borrowing rate (an estimate of the interest rate that would be charged for borrowing the lease payment amounts during the lease term) should be used…”
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">So how do we put this language into practice? By doing the following:
<o:p></o:p></p>
<p class="MsoListParagraph" style="text-indent:-.25in;mso-list:l0 level1 lfo2"><![if !supportLists]><span style="mso-list:Ignore">1.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>Review the lease to determine the interest rate implicit in the lease.
<o:p></o:p></p>
<p class="MsoListParagraph" style="margin-left:1.0in;text-indent:-.25in;mso-list:l0 level2 lfo2">
<![if !supportLists]><span style="mso-list:Ignore">a.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>If the agency concludes that the “interest rate cannot be readily determined” proceed to 2.<o:p></o:p></p>
<p class="MsoListParagraph" style="text-indent:-.25in;mso-list:l0 level1 lfo2"><![if !supportLists]><span style="mso-list:Ignore">2.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>Review a recent bond issuance that the agency was involved in that consists of a similar term and that was applicable to the program engaging in the lease.
<o:p></o:p></p>
<p class="MsoListParagraph" style="margin-left:1.0in;text-indent:-.25in;mso-list:l0 level2 lfo2">
<![if !supportLists]><span style="mso-list:Ignore">a.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>If this doesn’t apply, proceed to 3.<o:p></o:p></p>
<p class="MsoListParagraph" style="text-indent:-.25in;mso-list:l0 level1 lfo2"><![if !supportLists]><span style="mso-list:Ignore">3.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>Refer to the Oregon Bond Index table and select the “State of Oregon” index that most closely aligns with the specific lease scenario.
<o:p></o:p></p>
<p class="MsoListParagraph" style="margin-left:1.0in;text-indent:-.25in;mso-list:l0 level2 lfo2">
<![if !supportLists]><span style="mso-list:Ignore">a.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>For leases measured <u>as of 7/1/2021</u>, refer to the Oregon Bond Index table available via the following link:
<a href="https://www.oregon.gov/das/Financial/Acctng/Documents/Oregon%20Bond%20Index.pdf">
https://www.oregon.gov/das/Financial/Acctng/Documents/Oregon%20Bond%20Index.pdf</a>. [This table will not be updated.]<o:p></o:p></p>
<p class="MsoListParagraph" style="margin-left:1.0in;text-indent:-.25in;mso-list:l0 level2 lfo2">
<![if !supportLists]><span style="mso-list:Ignore">b.<span style="font:7.0pt "Times New Roman"">
</span></span><![endif]>For leases with a measurement date <u>after 7/1/2021</u>, refer to the Oregon Bond Index table on the OST website available via the following link:
<a href="https://www.oregon.gov/treasury/oregon-bonds/Documents/Public-Financial-Services-MDAC/undated/Bond-Index.pdf">
https://www.oregon.gov/treasury/oregon-bonds/Documents/Public-Financial-Services-MDAC/undated/Bond-Index.pdf</a>. [OST updates this table weekly.]
<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The above links are also available on the <a href="https://www.oregon.gov/das/Financial/Acctng/Pages/Training.aspx">
SARS training and resources webpage</a> under the “GASB 87 resources” heading. <o:p>
</o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">As with everything else related to GASB 87 implementation: document, document, document.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Please let me know if you have any questions. Thanks!<o:p></o:p></p>
<p class="MsoNormal">s<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><b>Stacey A. Chase<o:p></o:p></b></p>
<p class="MsoNormal">Senior Financial Reporting & Policy Analyst<o:p></o:p></p>
<p class="MsoNormal">Chief Financial Office<o:p></o:p></p>
<p class="MsoNormal">Department of Administrative Services<o:p></o:p></p>
<p class="MsoNormal">Phone: (971) 900-9993<o:p></o:p></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D"><a href="https://www.oregon.gov/das/financial/acctng/pages/index.aspx"><span style="color:blue">https://www.oregon.gov/das/financial/acctng/pages/index.aspx</span></a><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial",sans-serif;color:#1F497D"><o:p> </o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial",sans-serif">Data Classification: Level 1 - Published</span><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
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