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How is GASB 87 different from previous standards?

By February 22, 2024Lease Accounting

In this blog post, we will provide a comprehensive breakdown of GASB 87 and explain what you need to know.

Revisiting the Introduction of GASB 87

The lease accounting standard, GASB 87, brought about a significant shift in how leases are accounted for. Previously, operating leases were kept off the balance sheet, but now they must be included. This change meant that public sector organizations saw a substantial increase in assets and liabilities on their balance sheets.

How has GASB 87 Changed Lease Accounting?

  1. Increased Transparency

    Similar to the standards set by FASB and IFRS, GASB 87 aimed to bring more transparency to financial statements. With the inclusion of operating leases, stakeholders can now have a clearer picture of an organization’s leasing obligations. This increased transparency is essential for making informed decisions and understanding the financial health of an organization.

  2. Impact on Government Entities

    Governmental funds, including proprietary and fiduciary funds, experienced changes due to GASB 87. While fund balance accounting didn’t see significant alterations, comprehensive annual financial reports needed to reconcile fund balances with full accrual balances on government-wide financial statements. This alignment ensured accurate and comprehensive reporting of lease obligations.

  3. The Role of Lease Accounting Technology

    To navigate the complexities of GASB 87, implementing lease accounting software is highly recommended. This technology simplifies the calculation, reporting, and compliance processes, especially for organizations with substantial lease portfolios. By leveraging lease accounting software, organizations can maintain accurate records and alleviate the burden of continuous remeasurement and reporting.

  4. Managing Data Integrity and Internal Controls

    Adopting GASB 87 is just the beginning. Organizations must also prioritize the day-to-day management of lease data integrity and internal controls. Lease accounting software serves as a critical tool in this process, facilitating budgeting, cash flow forecasting, and document management. Strong internal controls are crucial for ensuring compliance and accuracy in lease accounting processes.

  5. Integration with ERP Systems

    Organizations have different preferences for integrating lease software with their general ledger systems. Direct integration between lease software and ERP systems can help reduce manual errors and streamline processes. This integration ensures seamless communication and data synchronization between different financial systems, improving efficiency and accuracy in lease accounting.

In conclusion, GASB 87 has brought significant changes to lease accounting standards. Organizations need to understand these changes and adapt accordingly. By embracing lease accounting technology, maintaining data integrity, and preparing for future standards, organizations can navigate the complexities of lease accounting and ensure compliance with regulatory requirements.

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