The new GASB 87 lease accounting standard is a significant change in accounting for government agencies and government organisations. The Governmental Accounting Standards Board (GASB) developed this standard to improve the recognition and presentation of leases in the financial statements of governmental entities. GASB 87 came into force on 15 December 2019 and has a significant impact on the Accounting and financial reporting of government entities. The new standard replaces GASB 13 and introduces significant changes to lease accounting. These relate to the classification of leases, the Accounting of assets and liabilities from leases and the disclosure requirements in the financial statements. The Implementation of GASB 87 requires governmental entities to conduct a comprehensive review of their existing lease agreements and adjust their accounting and reporting processes. Key aspects of GASB 87 include:
1. standardised accounting model for lessees
2. new definitions and Criteria for leases
3. extended disclosure obligations
4. different treatment of short-term and long-term leases
5 Special regulations for intragovernmental leases
Compliance with GASB 87 is mandatory for public authorities and government organisations. Timely and accurate implementation of the standard is critical to ensuring transparent and comparable financial reporting in the public sector.
Impact on state authorities and government organisations
Effects on the financial statements
One of the most important effects is the recognition of assets and liabilities from leases in the financial statements. This means that government bodies are now obliged to recognise leases as financial liabilities and report the corresponding assets in their balance sheets.
Disclosure of information
The GASB 87 standard also impacts the disclosure of lease information in financial statements. Government agencies and government organisations must now provide detailed information about their leases, including the term, payment obligations and other material contractual terms.
Increased complexity and requirements
This requires comprehensive documentation and Transparency in relation to leases in order to fulfil the requirements of GASB 87. Overall, the GASB 87 standard leads to increased complexity in the Accounting and reporting by government agencies and requires careful planning and implementation to ensure compliance.
Definition of leases according to GASB 87
According to the GASB 87 standard, a lease is defined as an agreement under which an asset is leased for a certain period of time in return for payment. This definition includes both finance leases and operating leases. A finance lease exists if the lease fulfils certain criteria that indicate that the lessee acquires substantial control over the asset.
An operating lease exists if the lease is not classified as a finance lease. The distinction between finance leases and operating leases is decisive for the classification of leases as operating leases. Accounting under GASB 87, as it affects the recognition of assets and liabilities from leases. Finance leases lead to the recognition of an asset and a liability in the amount of the present value of the future lease payments, while operating leases lead to the recognition of an expense for the period.
The precise distinction between finance leases and operating leases requires careful examination of the contractual terms and application of the criteria in GASB 87.
Requirements for the disclosure of leases
According to the GASB 87 standard, state authorities and government organisations are required to provide comprehensive information on their leases in the financial statements. This includes disclosures about the lease term, payment obligations, contractual terms and other material information about the leases. These disclosure requirements serve to provide users of the financial statements with a transparent presentation of the financial obligations arising from leases.
The disclosure requirements of GASB 87 require governmental entities to carefully document and prepare information about their leases. This may require additional efforts in terms of data collection, preparation and documentation to meet the requirements of GASB 87. In addition, government agencies must ensure that disclosures of lease information are made in accordance with the requirements of GASB 87 and provide users of financial statements with a clear and understandable presentation of lease financial obligations.
Implementation and compliance with GASB 87
Implementation and compliance with the GASB 87 standard requires state agencies and government organisations to thoroughly analyse their existing leases and adjust their accounting and reporting processes. This includes identifying finance leases and operating leases, recognising lease assets and liabilities, and implementing the disclosure requirements of GASB 87. Implementation of GASB 87 requires close collaboration between the various departments of a governmental entity, including accounting, controlling and financial reporting.
It is important that governments develop clear policies and processes for the implementation of GASB 87 and ensure that all relevant staff are aware of the requirements of the standard. In addition, it is important that governmental entities adapt their systems and processes to enable the collection, preparation and disclosure of lease information in accordance with the requirements of GASB 87.
Comparison with other leasing standards such as IFRS 16 and ASC 842
Specific focus on state authorities
The GASB 87 standard differs from other leasing standards in a number of key respects, such as IFRS 16 While IFRS 16 and ASC 842 focus primarily on accounting for leases in the private sector, GASB 87 is specifically aimed at government agencies and government organisations. This leads to differences in the classification criteria for finance leases and operating leases and in the disclosure requirements.
No exceptions for low-value assets or short-term leases
Another difference is that GASB 87 does not provide any exemptions for low-value assets or short-term leases, while IFRS 16 and ASC 842 contain certain exemptions for these types of leases. In addition, there are differences in the measurement methods for lease assets and lease liabilities and in the disclosure requirements for financial statements.
Understanding and adapting accounting and reporting processes
Despite these differences, it is important that state authorities and government organisations understand the requirements of GASB 87 in the context of other leasing standards and ensure that they comply with the respective regulations. This requires carefully analysing the differences between the standards and adjusting accounting and reporting processes accordingly.
Challenges and opportunities in connection with GASB 87
The introduction of the GASB 87 standard brings both challenges and opportunities for government agencies and organisations. One of the biggest challenges is understanding the complexity of the standard and taking appropriate implementation and compliance measures. This requires a thorough analysis of existing leases and an adjustment of accounting and reporting processes.
In addition, the implementation of GASB 87 can also offer opportunities to Efficiency and transparency in relation to the accounting of leases. By carefully documenting and preparing lease information, governments can better understand their financial position and make informed decisions. In addition, improved disclosure of lease information can increase stakeholder confidence and provide a transparent view of financial obligations.
Overall, the implementation of GASB 87 requires careful planning, implementation and compliance to overcome the challenges and capitalise on the opportunities. It is important that government agencies and government organisations understand the requirements of the standard and take appropriate action to ensure compliance. Through close collaboration between the various departments of a government agency and careful analysis of existing leases, government agencies can overcome the challenges and capitalise on the opportunities associated with the implementation of GASB 87.
FAQs
What is the new DASB 87 lease accounting standard?
The new GASB 87 Lease Accounting Standard is an accounting standard developed by the Governmental Accounting Standards Board (GASB) that governs lease accounting and disclosure for state and local government entities.
What are the main requirements of the GASB 87 lease accounting standard?
The GASB 87 lease accounting standard requires state and local government entities to recognise and disclose leases in their financial reports. This includes the recognition of lease liabilities and the recognition of lease assets.
When does the GASB 87 lease accounting standard come into force?
The GASB 87 lease accounting standard is effective for state and local government entities for reporting periods beginning on or after 15 December 2019.
What impact does the GASB 87 lease accounting standard have on state and municipal organisations?
The GASB 87 lease accounting standard is expected to lead to more comprehensive disclosure of leases and greater transparency in the financial reports of state and municipal organisations. It will also change the recognition and measurement of leases.
