GASB 87: are you ready to implement the new lease accounting standard?

The Governmental Accounting Standards Board (GASB) issued Statement No. 87, Leases (GASB 87) in 2017 and subsequently postponed the implementation with Statement No. 95 in 2020. So, while it may seem like we have been talking about the “new” lease accounting standard for years, the reality is governments are required to adopt the accounting and reporting outlined in this statement beginning with financial periods ending June 30, 2022.

Unlike some standards, implementing GASB 87 will take research and evaluation prior to completing the year-end calculations required to ensure that the financial statements and footnote disclosures are complete and accurate. The statement provides an updated definition of a lease as follows:

A lease is a contract that conveys control of the right to use another entity’s nonfinancial asset as specified in the contract for a period of time in an exchange or exchange-like transaction. Control includes both the right to obtain the present service capacity from use of the asset and the right to determine the nature and manner of use of the asset

It is important to note that while the title of the standard is Leases, it may include contracts that do not identify the agreement as a “lease.” This means that governments need to evaluate contracts beyond those referred to as a lease in evaluating the implementation of this standard. Note also that GASB 87 applies to both a government’s lessee and lessor activities.

It is critical to get started now, and here is how

The first step in the overall GASB 87 implementation process is identification of contracts that meet the definition of a lease. We recommend taking the following steps:

• Identify all departments or individuals in your organization involved in contracting that may have knowledge of agreements meeting the definition of a lease
• Construct an inventory of potential leases for evaluation. This questionnaire can help in the process