GASB 87 Implementation Guide

What is GASB 87?

GASB Statement No. 87 is the latest lease accounting and financial reporting standard established by the Governmental Accounting Standards Board (GASB). GASB 87 applies to state and local governments and it will exist alongside two other new lease accounting standards, ASC 842 and IFRS 16.

Additional Accounting Standards & Compliance Info

When Does GASB 87 Need to Be Implemented?

GASB Statement No. 87, Leases, was originally proposed in 2017, with an original effective date of December 15, 2019. However, in May of 2020 GASB released Statement No. 95, which delayed GASB No. 87 until June 15, 2021.These changes have led to confusion and implementation delays. Here’s a more complete timeline from GASB:

Added to current technical agenda: December 2017
Deliberations began: December 2018
Exposure Draft cleared: February 2019
Comment period: March-April 2019
Implementation Guide No. 2019-3, Leases, cleared for issuance: August 2019
Reporting period set to begin after December 15, 2019
Statement No. 95, Postponement of the EffectiveDates of Certain Authoritative Guidance: May 2020
Current implementation date: June 15, 2021

That said, it’s important to note that GASB 87 will take roughly four-six months to implement effectively and inaccurate or delayed reporting changes can lead to many consequences, including SEC fines and questions of credibility with shareholders.

In short, your implementation preparations should already be well underway.

Implementation Guide: How Can Organizations Achieve Compliance with GASB Statement No. 87?

Accruent - GASB 87 Implementation Guide

The effective date for Governmental Accounting Standards Board (GASB) No. 87 is soon approaching. Government entities that want to implement the latest accounting rules and meeting reporting requirements should do the following:

1. Understand the Particulars of GASB No. 87 Implementation

First, organizations must understand the basics of GASB No. 87 and how it differs from previous guidelines. The primary differences lie in lease classifications – and, by extension, what must be reported and recognized.

Most notably, leases that were previously recognized as operating leases must be reported as capital leases under the new single-model approach. This means that contracts for those leases must appear on the balance sheet, where organizations will have to recognize lease liability and a right-of-use asset.

For more detailed insight, you can check out our page on GASB 87 or view the official GASB Implementation Guide 2019-3 here. This guide includes specific question and answer guidance about key aspects of Statement 87:

The scope and applicability of Statement 87
How to correctly identify the term of a lease
How to figure out what qualifies as a “short term lease” under GASB 87
Contracts that transfer ownership
Lessee recognition, measurement and disclosure
Lessor recognition, measurement and disclosure
Lease assets and incentives
Notes to financial statements – lessees
Lessor recognition and measurement for leases other than short-term leases and contract that transfer ownership.
Leases between related parties
Subleases

2. Inventory Your Leases

Once you understand the details of GASB 87, we recommend that you catalog and recategorize your existing lease contracts based on GASB 87’s definitions of a lease. Remember this applies to both lessee and lessor arrangements. This will require that your team:

Gain an understanding of your government’s current leasing and service contracts.
Evaluate lease provisions and lease terms to determine which leases must be disclosed.
Find contracts in which the government acts as a lessor and ensure that they have components like start date, end date and interest rate.
Make sure that all lessee agreements are already disclosed in your financial statements.
Gather all related lease data that may not be in the original lease agreement. This includes information found in extensions, amendments and other supplemental documentation.

As you’re doing this, keep in mind that GASB 878 defines a lease as “a contract that conveys control of the right to use another entity’s nonfinancial assets as specified in the contract for a period of time in exchange or exchange-like transaction.” Under this definition, contracts that you don’t currently classify as leases may be considered as such (and vice versa).

Lx Contracts Can Help

A robust lease and accounting tool like Lx Contracts will help you with these processes along with the development of internal procedures for identifying and classifying leases moving forward. Lx Contracts is verified by a leading independent 3rd party accounting firm as a compliant solution for handling these regulations, complete with reporting and ERP integration. It is also fully configurable to handle complex leases, including the ability to classify them as either operating or finance using the FASB ASC 842 test.

Learn More About How Lx Contracts Can Facilitate Compliance

Lucernex has a 100% success rate getting clients live and into compliance, including 128 in 2019 alone. Don’t risk failed implementations – work with our team of proven experts today.

3. Train Your Team

No tool, plan or implementation will work if your team isn’t fully trained and on board. You will need to develop a training program that helps ensure ongoing compliance. Here, we also recommend that you invest in a lease and administration and accounting software that offers ongoing training and customer support.

Accruent offers free superclass trainings, a proven certification training curriculum, and a robust user network.

4. Update Your Systems and Processes

Once you understand GASB 87, your current leases and your team’s capabilities, we recommend you systematically update your systems and processes to facilitate compliance. This will include:

The development of ongoing processes and controls to continuously maintain lease inventory.
Modifications to your existing reporting and accounting processes.
Changes to existing accounting documentation and processes.

Again, the right lease administration and accounting system will help modify and automate existing processes.

FAQ: GASB Implementation Guide

How do you implement GASB 87?

There are four steps to successful implementation of GASB No. 87:

Understand the particulars of GASB 87: The definition of a lease – and what falls under GASB jurisdiction – changes dramatically in GASB 87. We recommend you review GASB’s official implementation guide to understand all the particulars. This will prevent any misclassification as subsequent consequences.
Inventory your leases: Go through all your current leases and inventory them accordingly. This will include lease re-classification as you determine which leases qualify as short-term, which operating leases must be switched over, etc.
Train your team: Initial GASB 87 training and ongoing training about how to use your lease administration and accounting software will help ensure continuous compliance with GASB 87, ASC 842 and IFRS 16.
Update your systems and processes: Once everything is figured out, automate and update your processes and tools to facilitate continuous compliance and decrease ongoing risk.

What is the purpose of GASB?

Established in 1984, the Governmental Accounting Standards Board (GASB) is an independent, private-sector organization that develops and issues accounting and financial reporting standards for U.S. state and local government. Its purpose, according to the FASB website, is, “to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards."

What are common challenges to implementing GASB 87?

All government entities will likely encounter some challenges when trying to implement GASB 87, including:

Difficulty cataloging and locating all leases.
Issues with lease abstraction and review.
Time and resource constraints.
Communication concerns, particularly when it comes to getting inter-departmental approvals.
Access to the latest accounting and financial reports.
Issues during the final testing period.

Adequate preparation and a robust, purpose-built lease administration and accounting software can help governments sidestep these concerns and execute an effective implementation.