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**SFFAS 54 LEASE GUIDANCE:**

**INTRAGOVERNMENTAL LEASES**

**LEASE-RELATED OPERATING COSTS PAID DIRECTLY TO LESSOR**

**EFFECTIVE FISCAL YEAR 2024**

**PREPARED BY:**

**GENERAL LEDGER AND ADVISORY BRANCH**

**BUREAU OF THE FISCAL SERVICE**

**U.S. DEPARTMENT OF THE TREASURY**

**INTRAGOVERNMENTAL LEASES**

**Effective Fiscal 2024**

Page 40 of 41                                                                                  November 2022

**SFFAS 54 Background:**

SFFAS No. 54, *Leases*, as amended by SFFAS No. 60, *Omnibus Leases-Related Topics*, replaces proprietary lease accounting and disclosure standards for general purpose federal financial reports. SFFAS No. 54 is effective for reporting periods beginning after September 30, 2023. (Early implementation is not permitted.)

A lease is defined as “a contract or agreement whereby one entity (lessor) conveys the right to control the use of PP&E (the underlying asset) to another entity (lessee) for a period of time as specified in the contract or agreement in exchange for consideration.” (SFFAS 54, Par. 6)

**Intragovernmental Leases**

An intragovernmental lease is a contract or agreement occurring within a consolidation entity (or between two or more consolidation entities) as defined in SFFAS No. 47, *Reporting Entity*. Intragovernmental leases are recognized as expenses/revenues based on the payment provisions of the IGT agreement and payables/receivables standards. Reporting entities do not recognize lease liabilities or lease assets for IGT leases.

Lease occupancy/rent payments, along with lease-related operating costs paid from the lessee **directly to the lessor** (such as maintenance, utilities, taxes, etc.) should be accounted for as expenses/revenues in the appropriate accounting period, **based on terms of the lease contract**. (SFFAS 54, Pars. 27-28)

If the lease contract allows for prepayments or advance payments, a Lessee should recognize a prepaid asset if payments are made in advance of the reporting period to which they relate, as well as a payable for rent due and unpaid at the end of the reporting period to which they relate.  Likewise, a Lessor should recognize a liability for advances and prepayments if payments are received in advance of the reporting period, or a receivable for rent due and to be received. (SFFAS 54, Pars. 27-28)

**Budgetary Guidance**

From a budgetary perspective, the lease scorekeeping rule developed by OMB, CBO, and the House and Senate Budget Committees originally in connection with the Budget Enforcement Act of 1990 states that lease scorekeeping requirements “**do not apply to leases between Federal agencies if the lessor recorded the full cost of the asset when it was acquired.**”  Assuming that the full cost of the underlying asset is recognized when acquired by the lessor, budgetary guidance from The Economy Act, Revolving Fund, or other statutory authorities apply to Intragovernmental leases.

**Listing of USSGL Accounts Used in This Scenario:**

**Key Assumptions Driving Proprietary Accounting Entries:**

· A federal reporting entity (Lessee) signs a 3-year lease with another federal entity (Lessor) for the right to control/right to use equipment.  

· Both entities are federal consolidation entities as defined in SFFAS No. 47, *Reporting Entity*.  They have signed an intragovernmental agreement to conduct business with one another under the authority of The Economy Act.

· The Lessor first records the appropriation it receives to purchase the equipment for leasing, which will serve as the underlying asset under lease.  The Lessor records the full cost of the purchase of equipment from a non-federal vendor.  The purchase price of the equipment is $180,000.

· The equipment has a 10-year useful life and depreciation expense is $18,000 annually.

· The 12 monthly lease payments are $5,000, payable on a monthly basis. (Totaling $60,000 annually.)

· The lease contract in this scenario does not allow for prepayments or advance payments.

**Key Assumptions Driving Budgetary Accounting Entries:**

**Budgetary Authority**

· The Lessee records appropriations while the Lessor records anticipated collections for Year 1 of the 3-year lease agreement.  The Lessee received a direct appropriation and is working from an unexpired TAFS from a general fund expenditure account.

· Budgetary Lease Scorekeeping requirements do not apply because both entities are federal agencies and the lessor has already obligated the full cost (purchase cost) of the underlying asset at acquisition. (*OMB Circular No. A-11, Appendix B*, Page 1, Par. 2)

· Therefore, budgetary guidance from The Economy Act prevails as statutory authority.

**Cancellation Clauses & Other Costs**

· The lease does not include a cancellation clause.

**Disclaimer**

The below guidance is intended to serve as a reference only based on a finite number of underlying assumptions.  It is in no way intended to provide comprehensive posting logic for every leasing activity.  Agencies should have a thorough understanding of authoritative standards SFFAS 54, SFFAS 60, and SFFAS 61 and apply other factors, including but not limited to certain prepayments, accruals, etc.  As stated above, agency management must exercise professional judgement and collaborate within their agency to reach determinations of lease activities on a lease-by-lease basis, before establishing accounting treatment.

Entity management should document these decisions and incorporate them into management’s existing OMB Circular No. A-123, “Management's Responsibility for Enterprise Risk Management and Internal Control,” Appendix A, procedures.

**Pre-Closing Adjusted Trial Balance:**

**Closing Entries:**

**Post-Closing Adjusted Trial Balance:**

**Financial Statements:**

**Reclassified Financial Statements:**

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