Overview
The Governmental Accounting Standards Board’s Statement No. 87, “Leases,” introduces major changes in how lease obligations are reported in financial statements. Effective for fiscal years beginning after December 15, 2019, GASB 87 eliminates the distinction between operating and capital leases for lessees, requiring most leases to be recorded as liabilities with corresponding right-of-use assets.
What This Means for Your Organization
GASB 87 redefines leases as a contract that conveys control of the right to use another entity’s non-financial asset for a period of time in an exchange or exchange-like transaction. This change impacts budgeting, financial disclosures, and audit preparation. Governments must now assess all agreements for embedded leases and document key terms including payment schedules, renewal clauses, and interest rates used for present value calculations.
What We’re Asking Clients to Do
To assist with the transition, McMahan and Associates is asking clients to compile all current and new lease agreements. We’ve developed a GASB 87 lease template to help capture essential data for analysis, and a client letter outlining the implementation steps and deadlines.
Available Resources
To help guide your compliance efforts, we’ve provided the following downloadable resources:
These tools will help you gather and organize the information required under GASB 87. During our audit fieldwork, we’ll work with you directly to evaluate agreements and determine the appropriate accounting treatment.
Looking Ahead
We continue to monitor GASB guidance and will update you as further clarifications or resources become available. The earlier leases are reviewed and documented, the smoother the transition will be.
Conclusion
While implementing GASB 87 requires effort and coordination, it’s a necessary step toward more transparent financial reporting. With the tools and support available, your organization can meet the new standards confidently. If you have questions or need help reviewing leases, our team is here to assist you.
