Article

Five steps for implementing the GASB 87 lease standard

Authored by Susannah Filipovic, CPA

The effective date (fiscal years ending June 30, 2022 and later) for Governmental Accounting Standards Board (GASB) No. 87, Leases (GASB 87) is soon approaching. Here are five steps to take now toward implementing the new accounting rules and financial reporting requirements for government leases.

1. Familiarize yourself with the GASB 87 guidance

GASB Statement No. 87 is available for free download on the GASB website. 

The days of classifying a lease between capital and operating will soon be over for governments.  Under GASB 87, you’ll review contracts under the new lease definition and likely book a long-term payable for lessee contracts or a long-term receivable for lessor contracts.

The GASB 87 Implementation Guide No. 2019-3, Leases, provides 77 questions and answers as well as multiple illustrations that apply the statement to different scenarios.

2. Inventory leases and implement a tracking process to comply with GASB 87 going forward

Many governments are decentralized when it comes to entering and negotiating lessee and lessor leases. It is important to start a catalog of lease contracts and evaluate the contract provisions under the definition of a lease.

  • Review lease agreements to determine nature of lease
  • Determine if financing agreements qualify as leases or purchase loans/sales
  • Evaluate lease provisions to determine lease terms or other provisions of the arrangement requiring disclosure
  • Pay attention to contracts where the government acts as a lessor – do the agreements include components such as interest rate, start date and end date?
  • Develop internal procedures for identifying leases in the future.

3. Provisions of the statement need not be applied to immaterial items

Consider establishing internal thresholds for which leases to consider (similar to capital asset thresholds). Keep in mind individually immaterial lease assets may result in a material lease liability for lessees. Implementation Guide No. 2019-3 Q&A 4.23 states, “Lease liabilities that are significant, either individually or in the aggregate, should be recognized.”

4. Revise capital asset software and tracking programs

Government assets obtained through a lease are considered intangible right-to-use assets. These types of assets are required to be disclosed separately from “owned assets” by specific major asset classification.  Governments will need to set up separate asset classifications in their tracking systems to aggregate the amount of leased assets by major class for disclosure purposes.

5. Start the process now by reviewing these Baker Tilly GASB 87 resources

For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.

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