In 2020, the Governmental Accounting Standards Board (GASB) voted to defer the effective date of lease accounting standard GASB 87. This was done to give public sector entities more time to adapt to the many impacts of Covid-19. Since the standard has officially gone into effect for fiscal years beginning after June 15, 2021, completing and maintaining compliance remains top of mind for all public sector finance professionals.
Do not wait to start
Most government entities, including school districts, have a fiscal year that starts July 1, so they must adopt GASB 87 in their June 2022 audited financial statements. To start on the right foot, affected public sector entities should prioritize getting their Day 1 accounting and reporting right to maintain compliance into the future.
GASB 87 refers to the Governmental Accounting Standards Board’s Statement No. 87, Leases, the new lease accounting standard for public sector entities in the United States. The new standard states that “a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources.” Further, GASB 87 narrows the lease definition, as it establishes a single model for lease accounting based on the foundational principle that leases are financings.
By adopting GASB 87, public sector entities will bring additional liabilities onto their financial statements, potentially impacting their credit ratings. And because leases are classified differently under GASB 87, the standard will directly impact how entities recognize, measure, and manage their leases.