I bet you thought this blog was going to be about some new accounting changes that were thought up in a gigantic Gothic mansion during an extravagant party? Well, as much as I like a good party, this blog is anything but! It’s not “Gatsby”, it’s GASB – and it stands for the Governmental Accounting Standards Board. The GASB establishes accounting and financial reporting standards for state and local governments in the United States (i.e., municipalities, counties, school districts, etc.) that follow generally accepted accounting principles (GAAP).
On June 28, 2017, the Governmental Accounting Standards Board (the “GASB”) released its new lease accounting standard, GASB Statement No. 87, Leases. In order to maximize efficiency and timeliness of changes to the current public-sector leasing guidance, the GASB began this project during the final stages of the FASB and IASB lease accounting projects. As part of this project, the GASB tried to align the accounting and financial reporting more closely with the economic substance of leasing transactions.
The new GASB standard will eliminate the current distinction between operating and capital leases by treating all leases (except short-term leases) as financings. Under this single approach to accounting for and reporting leases, a lessee government is required to recognize:
- a lease liability, and
- an intangible asset representing the lessee’s right to use the leased asset.
A lessee will also report in its financial statements:
- amortization expense for using the lease asset (similar to depreciation),
- interest expense on the lease liability, and
- footnote disclosures about the lease.
The new governmental lease accounting standard will be effective for reporting periods beginning after December 15, 2019, with earlier application encouraged. Accordingly, lessees should begin the process of evaluating the potential impacts of this new standard, along with consulting with lenders, auditors and their technology and software providers regarding any changes that may be necessary to support the new standard.
A summary of the Financial Accounting Standards Board (FASB) lease accounting changes can be found here. Please feel free to reach out to a GreatAmerica sales representative if you have any questions.
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