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GASB 87 Summary Page

By February 23, 2022Lease Accounting

What is GASB 87 & What Do I Need to Know?

 

GASB 87 effective date

Deadline for companiesFiscal years beginning after June15, 2021

GASB 87 Summary

Issued by the Governmental Accounting Standard’s Board, GASB 87 is the new lease accounting standard for US government entities. All entities that prepare financial statements in accordance with GASB standards must comply with GASB 87 for fiscal years beginning after June 15, 2021.

In general, GASB 87 applies to:

  • State, local and municipal governments
  • Public benefit corporations and authorities 
  • Public employee retirement systems
  • Public utilities, hospitals and other healthcare providers
  • Public colleges and universities 

GASB 87 impacts lease accounting and reporting for both lessees and lessors as follows:

  • Lessees must recognize lease liabilities and intangible right of use (ROU) lease assets on their statements
  • Lessors must recognize lease receivables and deferred inflows of resources on their financial statements

Was GASB 87 postponed?

The Governmental Accounting Standards Board postponed the implementation date for GASB 87 back in May of 2020. The extension was implemented in order to give CPA firms and entities an opportunity to prepare to implement the new standard after disruptions during the COVID-19 pandemic.

What does GASB 87 do?

In 2017, the Governmental Accounting Standards Board (GASB) published the lease accounting standard GASB 87. The organization is the source of the accounting principles (GAAP) used by state and local governments in the United States.

GASB 87 was created to increase visibility into lease obligations and remove ambiguity around lease obligations in financial disclosures, particularly balance sheets and income statements.

What did GASB 87 replace?

GASB 87 replaces the current operating and capital lease categories with a single model for lease accounting based on a definition of leases as contracts that convey control of the right to use a non-financial asset. The new rules require lessees to recognize a lease liability and an intangible asset while lessors are required to recognize lease receivables and a deferred inflow of resources on their financial statements.

How Does GASB 87 Change the Balance Sheet?

GASB 87 requires organizations to now record most leases on the balance sheet. 

For most organizations, this is a massive administrative lift. Leases are complex legal documents, sometimes hundreds of pages, which require trained professionals to negotiate and interpret; with countless obligations, clauses and critical dates to keep track of.

Leases are also dynamic. Terms change all the time as organizations take on new spaces, scale back or renegotiate, and you must account for every change under GASB 87.

To produce accurate lease accounting reports, the following information needs to be collected and tracked: 

  • Lease terms
  • Discount rate
  • Rent payment amounts and dates
  • Lease option terms, including renewal, purchase or cancelation options
  • Variable or percentage rent terms
  • Residual value guarantee terms

Definition of a Lease Under GASB 87

Under GASB 87, a lease is defined as a contract that conveys the right to use another entity’s nonfinancial asset for a period of time, including:

  • The ability to obtain the present use of the asset as specified in the contract
  • The right to control how the underlying asset is used

Common examples of leased assets recorded under GASB 87 are: 

  • Equipment for day-to-day operations (office equipment, medical equipment, telecommunications equipment, IT equipment)
  • Vehicles (automobiles, vans, trucks)
  • Real estate (property, buildings, offices, warehouses) 

In addition, some leases are exempt under GASB 87, such as:

  • Leases of certain types of intangible assets (e.g., patents, software licenses, the rights to explore for or exploit natural resources such as oil, gas, minerals and similar nonrenewable resources)
  • Leases of biological assets, including timber, living plants and living animals
  • Leases of inventory
  • Service concession agreements

And more.

GASB 87 Compliance Software

Visual Lease’s GASB 87 lease accounting software is the perfect tool to keep all of your leases in one single location, while making sure you stay completely GASB 87 compliant.

GASB 87 Software Checklist

When planning and preparing for GASB 87 and evaluating lease accounting software, naturally you’ll want to look for a solution that specifically supports GASB 87, which requires all contracts that meet the definition of a lease to be recognized in financial statements and classified as a finance lease.

In addition, to ease the transition to GASB 87 and streamline the lease accounting process, you’ll want to look for a solution with the following capabilities and benefits.

Intuitive and easy to use

  • Streamline lease data collection with other business applications, such as ERPs and accounts receivable
  • Enable automated calculations and financial reports
  • Support configurable data fields and reports to match your compliance requirements and organizational needs
  • Centralize all your lease information within one system

Robust, best-in-breed functionality

  • Incorporate years of lease financial management experience built within each feature and functionality
  • Prioritize future-readiness with ongoing investments in R&D
  • Focus on data security and privacy

Lease portfolio accuracy 

  • Provide data visualization for visibility into lease details and costs, enabling more informed business decisions
  • Streamline lease detail management via system alerts for lease events and changes that could impact your ongoing financial reporting

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