“Just the facts, ma’am.” Sergeant Joe Friday uttered some version of those words in just about every episode of Dragnet. So taking a cue from the iconic detective…
Here’s just the facts about GASB 87.
The Governmental Accounting Standards Board (GASB) issued Statement No. 87, Leases, in June 2017. Like its counterparts in the non-governmental sector, the governing board’s objective was to improve transparency and comparability in the accounting and financial reporting of leases.
In a news release GASB Chairman David A. Vaudt explained, “The Board’s new leasing guidance better aligns the accounting and financial reporting of these arrangements with their economic substance.”
The primary way all three boards aimed to achieve this goal was by moving operating leases to the balance sheet.
Whereas the Financial Accounting Standards Board (FASB) maintained its two-model approach for the classification of leases, the International Accounting Standards Board (IASB) established a single-model approach with IFRS 16, eliminating the operating lease classification. This shift was based on the thinking that all leases are basically financing arrangements for the right to use an underlying asset.
Like IFRS 16, the new lease accounting standard from the GASB uses the single-model approach. This differs from the existing GASB guidance which uses a dual-model approach more closely mirroring FASB 13 (which dates back to 1976 even before the GASB was formed).
Through the years the GASB has issued concept statements that define terms such as asset, lease and liability and has periodically evaluated their standards to determine if they still worked for governments or if updates were called for.
But GASB 87 presents the biggest change to lease accounting for governmental entities.