In the ever-changing world of lease accounting, staying informed and compliant with the latest standards and regulations is crucial for all organizations. Zena Thomas, a distinguished Product Owner at Visual Lease with a rich background spanning over two decades in corporate accounting, recently spoke about these challenges during a Visual Lease podcast. Zena plays a significant part in various roles, from auditing within financial institutions and Boards of Education to leading notable projects on corporate inter-company automation and crafting corporate ERP education for company mergers. Zena plays a pivotal role in shaping the future of lease accounting products as she closely works with clients to ensure our software meets and exceeds their intricate accounting requirements, and she leads the charge in developing innovative accounting solutions.
Key Insights from Zena Thomas on GASB 96:
- Expertise and Experience: With over 20 years in the field, Zena’s extensive accounting background enriches Visual Lease’s product development, ensuring our solutions are deeply aligned with accounting standards.
- GASB 96 Overview: GASB 96 addresses the need for standardized accounting treatment for subscription-based IT arrangements, establishing a framework for capitalizing software costs.
- Comparison to GASB 87: While similar to GASB 87 in creating a right-of-use asset and liability, GASB 96 distinguishes itself with unique implementation stages, including preliminary, initial implementation, and operation/additional implementation stages.
Our conversation dives into the complexities of the GASB 96 lease accounting standard, a subject of interest among government entities and other organizations. This standard marked a pivotal shift in the accounting of subscription-based information technology arrangements, aiming to normalize the capitalization of software costs. GASB 96 is was designed to mirror its forerunner, GASB 87, by establishing a right-of-use asset and a corresponding liability for these software arrangements. Yet, it sets itself apart by introducing distinct implementation stages not present in GASB 87. Zena Thomas shares:
“GASB 96 is the accounting treatment for subscription-based information technology arrangements. It’s GASB’s response to questions around accounting treatment for software. Many entities were already capitalizing these costs, and they were looking for GASB to justify that treatment.”
This in-depth discussion with Zena illuminates the importance of adapting to and implementing the GASB 96 standard, highlighting the evolution of lease accounting practices.
Understanding GASB 96
GASB 96 addresses the accounting treatment for subscription-based information technology arrangements, essentially acknowledging the evolving software capitalization landscape. The standard aims to provide a clear justification for this treatment, drawing parallels to GASB 87 but with notable distinctions, particularly in its initial stages.
The Distinction from GASB 87
While GASB 96 shares similarities with GASB 87, especially in amortization schedules, the differentiation lies in the initial implementation stages outlined by GASB 96:
- Preliminary Stage: Costs incurred in the conceptual framework development are typically expensed as incurred.
- Initial Implementation Stage: Costs associated with placing the asset into service are, for the most part, capitalized.
- Operation and Additional Implementation Stage: Ongoing troubleshooting and maintenance activities may see a mix of capitalization and expense costs.
Leveraging Technology for Compliance
The transition to or concurrent handling of GASB 87 and 96 poses unique challenges and opportunities for organizations. While it’s feasible to calculate GASB 96 using GASB 87 methodologies, organizations are advised to employ specific platforms designed for GASB 96 to ensure accurate reporting and compliance. Visual Lease, for instance, provides a robust framework that can initially accommodate both standards, with plans to transition calculations to a dedicated GASB 96 module.
Preparing for GASB 96
For entities that were well-versed in GASB 87, the introduction of GASB 96 presented an opportune moment to begin preparations for compliance. Gathering data concurrently for both standards could streamline processes, offering a comprehensive approach to lease accounting standards compliance. With many entities still in the early stages of GASB 96 material development, there was a window for thorough preparation and strategy formulation.
The evolution of lease accounting standards, evidenced by the introduction of GASB 96, underscores the dynamic nature of financial regulations and the imperative need for organizations to stay informed and prepared. As we navigate these changes, leveraging tailored technology solutions like those offered by Visual Lease can provide a strategic advantage, ensuring seamless compliance and optimized lease accounting practices. Whether deep into GASB 87 or just beginning your journey, now is the time to consider the implications of GASB 96 and how it will shape your organization’s future of lease accounting.
