Government entities have until the end of the year to implement the policies and processes needed to comply with new rules on accounting for leases. The Government Accounting Standards Board (GASB) released Statement No. 87, Leases, in June of 2017, and the new rules go into effect for reporting periods beginning after December 15, 2019.
While the release of the governmental lease standard coincides with ASC 842 and IFRS 16, in terms of timing, and the concept of recording a right-of-use asset and corresponding liability for operating leases, the standards don’t exactly mirror each other.
The definitions of lease and lease term are generally the same between the standards, however, the GASB approach is consistent with the IASB standards in that all leases will be classified as financing arrangements, and the liability is classified as long-term debt. Additionally, accounting for short-term leases and contracts that transfer ownership is different between GASB and FASB.
We’re compiling GASB 87 articles and resources here to help you get up to speed and keep up with the latest developments. Stay tuned to this blog, as we’ll be updating it when new insights are released.
The GASB summary covers the main points of the new guidance, such as the definition of a lease; determining the lease term; and accounting for lease modifications and terminations.
This overview is good for anyone who will be impacted by the new rules but won’t be involved in the day-to-day work of implementing them.
The comment period has already passed, but this guide will give you an idea of what the Board’s final recommendation will be.
Take heed to PWC’s warning that the GASB lease standard doesn’t necessarily echo the FASB standard. The summary highlights differences in accounting for lease arrangements classified as operating between GASB and FASB guidance, including accounting for arrangements as a lessor. Read their summary to see why.
The new rules were put in place to enhance transparency around financial reporting, but the Board also had to consider the cost/benefit ratio of implementing them.
This report from the Financial Accounting Foundation offers insight into the GASB’s expectations regarding perceived costs and benefits for government entities and how the new guidance will benefit preparers and users of government financial statements.
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As always, remember to keep an eye on our blog for all of the most important updates and changes to the lease accounting standards, including more guidance and insights on GASB 87.