- GASB 87: Lease accounting
- GASB 94: Accounting for public-private and public-public partnership arrangements
- GASB 96: Accounting for subscription-based IT arrangements
GASB, which stands for Governmental Accounting Standards Board, is the group that sets the accounting and financial standards for state and local government entities in the United States. Established in 1984, the members of GASB are appointed by the trustees of the Financial Accounting Foundation (FAF). Like the Financial Accounting Standards Board (FASB), GASB is an independent, nongovernmental organization.
Local and state government entities following US GAAP report under GASB. That includes municipalities, public employee retirement systems, and utilities. Public benefit corporations – a type of for-profit entity that includes specific public benefits in its statement of purpose – also report under GASB. GASB applies to government-operated hospitals and healthcare providers as well.
The fund accounting principles underlying GASB provide transparency around an entity’s use of its funding and resources. Therefore, state and local governments are not the only governmental entities that need to record and manage their financial transactions to provide transparency and accountability to the public.
Government accounting standards apply to federal entities as well as state and local entities. Federal agencies report under the Federal Accounting Standards Advisory Board, or FASAB, the body that regulates generally accepted accounting principles (GAAP) for the federal government. GASB on the other hand, provides accounting guidance for local and state government agencies. A full list of GASB statements is included later in this article.
In the last few years, GASB has released several new statements to clarify ambiguous guidance and accommodate the evolving nature of government operations. Here’s an overview of three of the most talked-about new standards:
- GASB 87, addressing leases
- GASB 94, accounting and disclosure guidance for public-private and public-public partnership arrangements
- GASB 96, covering the accounting treatment for Subscription-Based Information Technology Arrangements (SBITA)
On the heels of new lease accounting standards for private and non-profit organizations, GASB released Statement No. 87, Leases. It supersedes the guidance provided by GASB 62 and GASB 13. The standard was initially set to go into effect for all reporting periods beginning after December 15, 2019. However, the effective date was delayed due to the COVID-19 global pandemic, and it’s now scheduled for fiscal years beginning after June 15, 2021. Despite the timeline shift, organizations still must restate all prior periods presented if practicable and it is advised to not delay the transition to the new standard.
GASB 87 departs from GASB 62 in several significant ways. For starters, leases are no longer classified as either capital or operating. Instead, all leases are classified as finance leases. Additionally, an exception for short-term leases now exists. Leases with a maximum possible term of 12 months or less are not required to be reported under the new standard. Under GASB 62, short-term leases were not specifically excluded.
GASB 87 lessor accounting also mirrors lessee accounting. Lessors are now required to record a lease receivable and deferred inflow of resources on the balance sheet and recognize the income over the term of the lease.
GASB vs. FASB lease accounting
As mentioned, GASB 87 was released shortly after the FASB released ASC 842, Leases, for corporations and non-profit organizations reporting under US GAAP. Despite the similarity in timing, however, the GASB guidance doesn’t completely mirror that of the FASB. In fact, quite a few notable differences can be found.
First, the definition of a lease is different. Under GASB 87, an “exchange or exchange-like transaction” is required to determine if a contract contains a lease, whereas ASC 842 language states an “exchange for consideration” must occur. A contract qualifying as a lease under ASC 842 may not qualify under GASB.
Another key difference is in the assessment of control. Under ASC 842, substitution rights can impact the determination of control. If a lessor has the right to substitute an asset and benefits economically from the substitution, then they have a substantive substitution right and the agreement does not constitute a lease. Under GASB 87, such substitution rights have no impact on the determination of control.
Read full examples of GASB 87 lease accounting:
GASB 94 establishes new accounting and disclosure guidance for public-private and public-public partnership arrangements (referred to as PPP or P3). This new standard supersedes GASB Statement 60 and is effective for fiscal years beginning after June 15, 2022, the same as GASB 96. A government (the transferor) contracts a third party (the operator) to provide public services by conveying control of the right to operate/use a nonfinancial asset for a period of time.
GASB 94 vs. GASB 87
Some of the accounting rules under GASB 94 and GASB 87 are almost identical including discount rates, measurement of contract length, analysis of modifications/terminations. Underlying accounting mechanics are similar for the initial and subsequent measurement of liability and right-of-use assets. The primary difference between GASB 94 and GASB 87 is that P3 arrangements can include the construction/purchase of a new asset that must be accounted for by both the transferor and the operator.
GASB Statement No. 96, Subscription-Based Information Technology Arrangements (GASB 96), addresses the accounting for software subscription services. As cloud-based software usage becomes more popular, accounting professionals need more prescriptive guidance on how to assess subscription-based IT arrangements (SBITA) and how to present them on their financial statements.
Under GASB 96, the determination of a SBITA depends heavily on the assessment of control – whether the government is granted rights to the present service capacity of the underlying IT assets and to dictate the nature and manner of use of the underlying IT assets. Exemptions include:
- Contracts meeting the definition of a lease under GASB 87
- Contracts falling under the scope of GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB 51)
One of the key topic areas covered by GASB 51 is the development of computer software. However, its focus is on internally developed software paid for through perpetual licensing agreements, which are structured differently from SBITAs and require a different set of financial obligations.
Scheduled to be effective for fiscal years beginning after June 15, 2022, GASB 96 requires organizations to recognize a subscription liability and a subscription asset at the commencement of the subscription term of the SBITA. The subscription term begins when the government entity obtains control of the right to use the underlying IT asset.
Read a full example of GASB 96 accounting and an overview of the new standard:
Over the last three and a half decades, GASB has released several landmark statements widely impacting government accounting. Below, we’ve summarized some of the most well-known and frequently-searched governmental accounting standards.
When GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments (GASB 34), was released, it was considered the most sweeping innovation in governmental accounting and financial reporting. It expanded on the existing guidance to make financial statements more useful for a wider range of users by updating the fund reporting requirements and adding new information .
One of its most notable changes was the introduction of a required management’s discussion and analysis (MD&A) section. MD&A allows stakeholders to better assess whether an agency’s financial position has improved or declined in the reporting year.
GASB 34 also requires annual reports to use accrual accounting to report all government spending, requiring the conversion of any modified accrual basis governmental funds to full accrual. When it was issued in 1999, it was the first time government entities were required to report long-term assets and liabilities, as well as all revenues and all costs related to providing services each year.
GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (GASB 62), provides broad guidance that simplifies and brings consistency to accounting research and application. Issued in late 2010, the scope of GASB 62 includes more than 30 reporting areas, such as leases, contingencies, the capitalization of interest costs, and more.
GASB 62 superseded GASB Statement No. 20, which allowed for enterprise funds and business-type activities to apply FASB Statements and Interpretations issued after November 30, 1989, as long as they aren’t in conflict with previous GASB pronouncements. This approach created inconsistency in interpretation and unnecessarily complicated research. GASB 62 provides authoritative guidance on many of the topics covered in Statement No. 20 while also making accommodations for the specific needs of government financial reporting.
Some of GASB 62’s significant requirements for leases include:
- Two classifications, capital and operating leases
- A single treatment for all short-term leases
For lessors, operating leases could only be recorded as recognition of income when payments came due. Those rules are now superseded by GASB 87, which we’ll cover more in-depth later.
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (GASB 75), went into effect for fiscal years beginning after June 15, 2017. This statement focuses on healthcare, life insurance, and other post-employment benefits (OPEB) plans. New guidance under GASB 75 updates the analysis and disclosures required by OPEB plan actuaries. Additional requirements affecting government entities themselves are also included. Among them are:
- Valuations to be completed every two years for all benefit plans
- Reporting the unfunded OPEB liability on the statement of net position
- Disclosing deferred inflows/outflows as a result of changing past actuarial assumptions
Prior to the issuance of GASB 75, governments with single-employer or agent multiple-employer OPEB plans were only required to disclose their net OPEB liability in the notes to their financial statements. Governments with cost-sharing, multiple-employer OPEB plans, and special-funding plan types weren’t required to disclose their net OPEB liability at all.
GASB Statement No. 84, Fiduciary Activities (GASB 84), refines the definition of fiduciary funds and outlines their treatment in financial statements. The goals of GASB 84 are:
- Properly identify fiduciary activities
- Consistently determine the type of fund used to report on each activity
- Appropriately present fiduciary activities in financial statements
It went into effect for reporting periods starting after December 15, 2019, and clarified ambiguities in the previous guidance. Prior to the issuance of GASB 84, no guidance for differentiating fiduciary activities existed, including fiduciary component units, leading to inconsistent interpretation and application.
Below you’ll find a list of all the statements of governmental accounting standards issued by the GASB along with the corresponding issuance dates, ordered from newest to oldest. We’ve included notes for GASB standards that have been fully superseded by others as well. Use the “View All Statements” button to display the full list.
- GASB 98, The Annual Comprehensive Financial Report. Issued in October 2021.
- GASB 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32. Issued in June 2020.
- GASB 96, Subscription-Based Information Technology Arrangements. Issued in May 2020.
- GASB 95, Postponement of the Effective Dates of Certain Authoritative Guidance. Issued in May 2020.
- GASB 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements. Issued in March 2020.
- GASB 93, Replacement of Interbank Offered Rates. Issued in March 2020.
- GASB 92, Omnibus 2020. Issued in January 2020.
- GASB 91, Conduit Debt Obligations. Issued in May 2019.
- GASB 90, Majority Equity Interests—an amendment of GASB Statements No. 14 and No. 61. Issued in August 2018.
- GASB 89, Accounting for Interest Cost Incurred before the End of a Construction Period. Issued in June 2018.
Looking ahead, the GASB will continue to release guidance reflecting the changing needs of financial statement users and the evolving nature of governmental financial transactions. The board’s current agenda lists a number of updates that may significantly impact government accounting, such as the reexamination of GASB 34. Government entities can expect accounting requirements to grow more complex, making technical research skills, GASB accounting software, and strategic thinking more vital than ever.