Understanding Lease Standards in Governmental Accounting
In June 2017, the Governmental Accounting Standards Board (“GASB”) issued Statement No. 87 – Leases which establishes
new accounting standards to be applied to all lease transactions for state and local governments. The Standard is
effective for fiscal periods beginning after December 15, 2019 with earlier application encouraged.
The
governmental standard follows most of the principles established in the new leasing standard issued by the Financial
Accounting Standards Board (“FASB”) with some notable exceptions. As with the FASB approach as it pertains to lessees,
all leases, except short-term leases, must be recognized on the balance sheet with a lease liability and an offsetting
right to use asset. However, short term leases (defined as those leases with a maximum lease term of no longer than 12
months) must use the accounting now in place for operating leases – there is not accounting election that is
available.
Most notably, the new GASB standard follows the principle that leases are financings of the right to
use an underlying asset. Therefore, with respect to lessees, there is a single amortization method to be applied to the
right to use asset which will accelerate expense recognition.
In general, GASB disclosure requirements related to
leases are not as onerous as the FASB standard and transition provisions are more flexible.
State and local
governments should begin assessing now the extent of their leasing activities and establish a transition plan for
implementing the new standard.
For more information on iLeasePro please visit: https://ileasepro.com/