1. GASB eliminates the operating lease classification all together, requiring all leases to be reported as finance leases. FASB retains the dual classification of operating and finance leases, simply requiring that operating leases be capitalized on the balance sheet.
2. GASB requires lease liabilities to be reported as long-term debt, so it may impact debt covenants and debt to equity ratios. FASB counts operating lease liabilities as operating payables rather than as debt, so debt covenants and ratios should not be impacted.
3. GASB requires that interest expense on the lease liability and amortization expense on the lease asset be front-loaded on the income statement. FASB continues to straight-line the expense on operating leases, similar to how operating leases were expensed under ASC 840.
4. GASB classifies lease payments as capital financing outflows. FASB classifies lease payments as operating outflows.
The differences between GASB and FASB reporting may impact certain industries more than others – such as health care and higher education – that may be either public or private. This may further complicate matters for organizations that report under both US GAAP standards. Consult one of our alliance partners for more advisory information.