Accounts and Reports

GAAP POLICY AND PROCEDURE MANUAL

• Capital leases need to be reported as a liability and classified as current (the portion due within one year of the statement date) and noncurrent.
• Leases have been recorded and disclosed in the current Kansas Annual Financial Report. However, GASB 34 will require some new computations, i.e. current vs. non-current and 1st 5 years reported separately with years thereafter reported in increments of 5 years each.

• Leases are not accounted for in STARS as a liability.
• Lease payments are recorded as an expenditure using either 23xx (rents) or 4xxx (capital outlay) expenditure sub-object.

• This area was coordinated with the fixed asset area.
• Addressed the buildings financed through the Kansas Finance Development Authority.
• Addressed large computer systems and other large equipment (e.g. Division of Printing equipment), if leased.
• Establish a cutoff limit for disclosure of material capital and operating leases.
• Identify operating vs. capital leases.
• For capital leases, gathered information - determine if any of this information is centralized. If not centralized, then consider sending out a survey to all applicable agencies.
• Information is centralized through the use of encumbered contracts. We do not need to survey the agencies at this time.

• For Capital Leases:
  • A description of the general leasing arrangements.
  • The gross amount of assets recorded under capital leases presented by major asset classes (for example, show gross amount of capitalized cost less accumulated depreciation).
  • Minimum future lease payments of principal and interest in separate columns for each of the next five years and in five-year increments thereafter with totals for each column. 
• For Operating Leases:
  • A description of the general leasing arrangements
  • Current-year rental costs.
  • Future minimum rental payments in total and for each of the next five years and in five-year increments thereafter (only for noncancelable leases of more than one year).

• Methodology used for 99 and prior AFR's:
  • A contract excel file is maintained by Audit Services staff. An extraction can be made from this file of all contracts using ESOBJ 23xx or 4xxx.
  • Contracts are reviewed for the data extractions (see above), to determine if the contract is a lease purchase.
  • If the contract is determined to be a lease purchase, a calculation is prepared to determine the present value of the outstanding liability at year-end (using the interest rate, life of lease, date payments are due, frequency of payments, payment amount and number of payments remaining).
  • A report is prepared in excel of the above information for governmental funds. It is updated annually. We also report an amount for the Internal Service Funds capital lease for the State Office Building in Wichita.
  • The lease information, in total, is presented in the footnotes. 
• New information that needs to be gathered:
  • New leases need to be reviewed annually to determine if they are an operating lease or a capital lease that meets the disclosure threshold.
  • Since capital leases will have to be recorded as an asset and a liability, any new capital leases meeting the disclosure threshold during the year will need the setup entry to record it as an asset and liability.
  • The real estate capital lease summary schedule needs updated for the year's activity and combined with the Master Lease Purchase program's summary from Doris Patterson.
  • Contracts from Gail Barnhart need to be reviewed to determine if any new contracts (leases) meet the operating or capital lease thresholds.

• With materiality in mind, a cutoff limit (threshold amount) for the disclosure of capital and operating leases has been established and should be applied as follows:
  Capital Leases: Present value of lease payments >$1,000,000 (per lease).
  Operating Leases: Total lease payments >$1,000,000 over lease life (per lease).