The GASB 87 lease reporting standard has been all but forgotten.
In the hype of public companies preparing for compliance last year and private companies up next at the plate in 2019, the complementary mandate for government bodies is flying under the radar.
But the GASB 87 effective date is the same - Jan. 1, 2020 - and all the same repercussions apply to GASB 87 offenders as they do to FASB 842.
It’s time to bring GASB 87 out of the closet.
We put together a list of the essential facts you need to know about GASB 87. With a short timeline of just 9 months to plan and execute - and few solutions on the market - you’ll benefit from understanding the dos and don'ts now.
1. Who GASB 87 Affects
The Financial Accounting Standards Board (FASB) makes and upholds standards for public and private companies. While deadlines for new standards such as Accounting Standards Update (ASU) 87 can be different between public and private companies, the key tenets of the mandate don’t change.
The International Accounting Standards Board (IASB) similarly creates accounting standards for the international business community. These almost always parallel the corresponding FASB standards.
Finally, the Governmental Accounting Standards Board (GASB) is different...
It sets standards for U.S. state and local governments.
And its rules aren’t always an exact match to FASB or IASB standards, as is the case with GASB 87.
2. GASB 87 Is Not the Same as FASB 842
The overwhelming change about FASB 842 is moving lease accounting out of the notes and into the balance sheet. This is the same for GASB 87.
The main difference between the two standards is in the classification and defining of terms.
Due to the complexity of GASB 87, understanding all the impacts, nuances, and effects could take a while. It may even require outside help from consultants. Be sure to allow a sufficient amount of time for the learning curve of implementing this new system.
3. The Deadline for Compliance
GASB 87 is effective for reporting periods after January 1, 2020. But earlier implementation is greatly encouraged.
Application of this method must also be applied retroactively by restating financial statements for all prior periods presented, if practicable (more details about this here).
4. The Consequences of Non-Compliance
Basically, the same as FASB 842 - no one really knows for sure, but you’re definitely going to get at least a slap on the wrist, if not worse.
Some examples include pointed questions from donors, difficulties with lenders, bringing in consultants to restate prior years financials, lack of resources to help with the transition, and problems with auditors.
5. Additional Resources for GASB 87 Preparation
Because this is the first year for implementation of this standard, there’s a lot to learn. While there are various articles floating around the internet about this change, there are a few standouts.
Use these resources to inform your GASB 87 implementation process:
- Countdown to Implementation: Preparing for the Leasing Guidance
- GASB 87: Are You Ready for the Changes Coming to Lease Accounting?
- GASB 87: Single lease classification: what’s changing and what you need to do
- GASB 87, Leases: Is Three Years Enough to Implement?
- GASB 87 Will Fundamentally Change Lease Accounting for Governments
- Preparing for lease accounting under GASB 87
- Proposed Implementation Guide of the Governmental Accounting Standards Board
Conclusion: Understanding the Dos and Don’ts of GASB 87
It’s critical U.S. state, local governments and institutes of higher education get a grip on the exact procedures of GASB 87 before the deadline at the end of this year.
What’s even more important is getting started with implementation as soon as possible.
In 2018, public companies took 4-6 months on average to complete the FASB 842 implementation from soup to nuts. The same timeline is proving true for private companies in 2019 and will most likely hold water with GASB 87 execution.
We’d recommend getting a handle on where your leases are stored - especially equipment leases - organizing your team and selecting your software.
The sooner, the better!
Avoid GASB 87 Implementation Challenges
The timeline for GASB 87 deployment is a long one: an average 4 - 6 months for even the most prepared government entities.
Here are some challenges you’ll encounter in 2019:
- Cataloging the location of all leases
- No standard lease terms – especially for equipment
- Lease abstraction and review
- Resource constraints
- Cross department approvals
- New accounting and financial reports
- Final testing period
As experts in lease accounting and lease administration software and accounting, our team can help you navigate these challenges. And our software can automate the entire calculation and reporting process.
We’ll help you tackle GASB 87 in the least amount of time, effort and expense.