What GASB 87 Means for Government Entities

By Bill Morgan Nonprofit April 6, 2023

The Government Accounting Standards Board (GASB) released GASB Statement No. 87, Leases, a few years ago. However, due to COVID and the complications that followed, GASB delayed the effective date until June 15, 2021. Even though this date has already passed, many government organizations are still attempting to adjust to the new rules for its leases.

The guidance under GASB 87 applies to nonfinancial assets including equipment, buildings, and vehicles. It does not apply to intangible assets or donated assets. Below is more information about GASB 87. If you have questions, complete form at the bottom to contact us.

Purpose of GASB 87

GASB 87 pushes governmental lease accounting towards the International Accounting Standards Board’s model for leases. GASB’s goals with these changes are to make government financial statements more comparable and to make the financial statements more useful to users.

These goals are achieved by viewing leases as financing the right to use an asset over a certain period. Additionally, GASB 87 does away with the prior distinctions of operating and capital leases.

New Rules Make Accounting More Complex

One of the largest impacts on government entities by GASB 87 is its requirement for retroactive application of the new rules. This means leases that were already on the books are having to be reconsidered under the latest requirements.

State and local governments need to analyze all leases for compliance as well as determine what changes are needed. The lease liabilities need to be reviewed, lease classifications should be analyzed, and stakeholders need to be informed about how GASB 87 changes the information typically shown.

These requirements cause complications because the prior rules had been in place for so long. Additionally, GASB 87 now has three separate accounting treatments for leases: 1) short-term leases, 2) contracts that transfer ownership and 3) contracts that do not transfer ownership. The third category is the catchall for leases that don’t fit into the other two groups.

Morgan & Associates Can Help with GASB 87

While GASB 87 has been effect for some time, it is still considered a new set of rules. If you are overwhelmed by it or need help determining if you’re in compliance, Morgan & Associates are here to help. We have the knowledge and expertise to help your organization with the ins and outs of the new lease accounting rules.