GASB 87's rollout has brought in a new era for various organizations, transforming how we manage leases and reporting. As we approach the three-year mark since the standard was introduced, there might be a sense of readiness to move on. However, it's important to recognize that GASB 87 isn't just a checkpoint but rather a journey of ongoing diligence.
GASB 87 compliance transcends its initial implementation — it demands continuous vigilance. Our blog is crafted to guide you through the requisite practices that ensure your organization remains compliant with the GASB lease accounting standard.
Understanding GASB 87 and its Impact
To better understand the need for ongoing GASB 87 compliance, let’s do a quick recap on GASB 87.
What Does GASB 87 Do?
Established by the Governmental Accounting Standards Board (GASB) in 2017, this standard serves as a cornerstone of Generally Accepted Accounting Principles (GAAP) for state and local governments across the United States. The primary aim of GASB 87 is to enhance the transparency of lease commitments and eradicate uncertainties within financial reporting, with a special focus on improving the clarity of balance sheets and income statements.
The GASB 87 Standard applies to tangible asset leases for GASB reporting entities. With GASB 87, governmental entities are required to:
- Consolidate their lease agreements (lessee and lessor – vehicles, real estate, cell tower leases, copiers, etc.)
- Examine each agreement to determine whether they’re subject to the reporting requirements
- Calculate each lease’s beginning balance, schedule, and incremental borrowing rate
- Update their financial statements and note disclosures with this new information
Ongoing Compliance with GASB 87
Crafting a strategy to comply with GASB 87 can be complex, yet it's important to have a robust compliance framework established each year going forward. Here are some of the best practices when it comes to establishing ongoing compliance with GASB 87:
Manage New or Amended Contracts
Organizations routinely initiate and modify various lease contracts. It's critical to consistently examine each contract's alignment with GASB 87 standards. Keeping a steady compliance routine is key, particularly as auditors review contracts.
Evaluate the Materiality of Lease Agreements
Assessing the materiality of lease agreements is essential. Materiality should be considered as a whole, not solely per contract. Individual leases, like office equipment, may seem trivial, but together they might be significant to the overall financials. It's advisable to consult with auditors early on to establish materiality thresholds.
Conduct Regular Internal Audits and Reviews
Conduct regular audits and reviews of lease accounting practices to ensure compliance with GASB 87. This can help identify any areas of non-compliance or potential improvements in lease management and accounting processes.
Monitor GASB Updates and Guidance
Stay informed about any updates, amendments, or guidance issued by GASB related to lease accounting. Regulatory bodies may issue clarifications or additional guidance that could affect how your organization should comply with the standards.
Communicate with Stakeholders
Keep all stakeholders, including management, the board, and external parties, informed about your organization’s approach to lease accounting and any significant impacts on the financial statements.
Keep Thorough Records and Documentation
Maintain thorough documentation for all leasing arrangements, including contracts, correspondence, and calculations related to the recognition and measurement of lease assets and liabilities. This documentation is important for supporting financial statement disclosures and for audit purposes.
Execute Risk Assessment and Management
Regularly assess risks related to lease accounting and compliance with GASB 87. This includes assessing the risk of errors in the measurement of lease liabilities and assets, errors in lease determination, non-compliance with disclosure requirements, and the potential impact on the financial statements.
Implement Lease Accounting Software
Consider investing in lease accounting software that is designed to manage the complexities of lease accounting under GASB 87. The right software can help track lease terms, payment schedules, and options, and can automate year-end reporting and the calculation of lease liabilities and related assets.
Transitioning to Lease Accounting Software for Ongoing GASB 87 Compliance
While Excel has been the go-to for most data management, its limitations in handling complex lease accounting requirements, especially under GASB 87, are becoming increasingly evident. The intricate nature of lease accounting under this standard, with its emphasis on recognizing and measuring lease assets and liabilities, demands more than what traditional spreadsheets can offer.
Now that you’ve implemented GASB 87, you’ll want to make sure that all team members are trained for ongoing compliance. Rather than handling compliance through a maze of spreadsheets, DebtBook’s team will thoroughly train and educate team members on how to use the software and how the technology enables seamless ongoing GASB 87 compliance. This is especially beneficial when new team members replace those who retire and need to get up to speed quickly.
Overall, advanced lease accounting software like DebtBook offers a platform designed to streamline the management of lease data, simplifying compliance with GASB 87 through a host of features and benefits such as:
Centralized Data Management
DebtBook acts as a single source of truth for all lease-related data, eliminating the silos that often plague organizations that use disjointed systems. This centralization ensures that data is consistent, up-to-date, and easily accessible, reducing the risk of errors, discrepancies, and questioning if you’re working off of the correct Excel file version.
Error Reduction
By automating calculations and consolidating lease information, DebtBook significantly reduces the potential for manual errors. This is crucial for maintaining accuracy in the recognition and measurement of lease liabilities and assets, a core requirement of GASB 87.
Organizational Transparency
DebtBook facilitates real-time updates and preserves a detailed audit trail. The platform enhances transparency within the organization and with external stakeholders, such as auditors. This transparency is key for building trust and facilitating smooth audits, especially when it comes to the detailed disclosures required by GASB 87.
Data Readability and Utility
DebtBook increases the readability and usefulness of lease data, making it easier for finance teams to analyze and report on lease obligations. This can improve financial planning and strategy, ensuring that lease liabilities are accurately reflected in the financial statements and Annual Comprehensive Financial Report (ACFR).
Efficient Communication with Auditors
The lease accounting platform streamlines communication with auditors by providing clear, organized, and accessible lease data. This can help expedite the audit process and ensure compliance with GASB 87's reporting requirements.
Centralizing lease management streamlines audit preparations, ensuring that all documentation related to financial inquiries—be it invoices, contracts, or payment schedules—is readily available and compliant with financial standards.
Succession Planning
Do you ever worry about your employees or future staff members struggling to understand the detailed spreadsheet you use to manage your leases? Do you want to attract talent with modern tools? DebtBook facilitates succession planning by creating a systematic record of lease data. This "system of record" ensures that future team members can easily understand and manage lease obligations, preserving institutional knowledge and compliance practices.
Accuracy and Manual Effort Reduction
By automating the lease accounting process, DebtBook reduces the manual effort required, allowing finance teams to focus on higher-value activities. The system's process ensures year-to-year accuracy, crucial for long-term compliance with GASB 87.
Yearly Confidence for Ongoing GASB 87 Compliance
Transitioning to a platform like DebtBook represents a strategic move for organizations dealing with the complexities of GASB 87 compliance. By leveraging such advanced lease accounting software, entities can not only ensure ongoing compliance but also unlock operational efficiencies and improve financial management practices.
To learn more about how you can simplify ongoing compliance for GASB 87, schedule a demo today.
Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.
