Introduction to GASB 87 –
the GASB lease accounting

In 2019, the latest Governmental Accounting Standards Board (GASB) lease accounting standard, GASB 87, began to go into effect for most U.S. state and local government agencies, including certain health care, and higher education institutions. Among other requirements, GASB 87 required that most leases be capitalized and recorded on the balance sheet, changed how they’re reported, and eliminated most operating (non-capitalized) leases.

This is a brief introduction to GASB 87. For more detail on the technical accounting as well as how organizations can successfully achieve and maintain compliance with the standard, watch this webinar.

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Why the standard was introduced

GASB 87 was created to better meet the information needs of GASB financial statement users by improving accounting and financial reporting for leases by governments. GASB 87 increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. Under the standard, state and local government organizations are required to capitalize most leases on the balance sheet — reporting them as right-of-use assets and lease liabilities. The standard establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. As a result of the shift, capitalized lease obligations face increased auditor scrutiny, pushing companies to focus on ensuring accuracy and completeness of what they report as well as leading to greater transparency and comparability of financial statements.

The major changes for lessees

The most notable change is the elimination of the operating lease classification. Under GASB 87, all leases, excluding those that transfer ownership of the underlying asset to the lessee and short-term leases are treated as finance leases. The lease assets and liabilities are recognized on the statement of financial position, which may result in a significant increase in the amount of assets and liabilities many companies report. Under GASB 87, all leases expenses are reported as a separate (usually straight-lined) amortization expense of the asset and a declining interest expense based on the liability being reduced with periodic payments.

Lease accounting standard summary

All leases are recognized at the present value (PV) on the statement of financial position.

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

  • The lease liability should be measured at the present value of payments expected to be made during the lease term (less any lease incentives).
  • The lease asset should be measured at the amount of the initial measurement of the lease liability, plus any payments made to the lessor at or before the commencement of the lease term and certain direct costs.

All leases have a P&L pattern that is frontloaded (where rent expense is replaced by a usually straight-lined amortization of the asset and declining interest expense).

Variable payments based on future performance of the lessee or usage of the underlying asset should not be included in the measurement of the lease liability. Rather, those variable payments should be recognized as outflows of resources (for example, expense) in the period in which the obligation for those payments is incurred. However, any component of those variable payments that is fixed in substance should be included in the measurement of the lease liability.

Short-term (less than or equal to 12 months at lease inception) leases are to be accounted for off-balance sheet.


GASB 87 Delay:
How to use your
time wisely

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Understanding the technical
requirements of GASB 87

Since the original publication of a ASC 842 in 2016, the big four and accounting boards have released multiple guides to help companies understand the technical accounting of the new standard.

GASB 87 Implementation Guide

GASB issued an implementation guide to answer some common questions.

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PwC’s In Brief on GASB 87

PwC’s “In brief” series covers the main requirements of GASB 87.

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BerryDunn’s GASB 87 Lessees vs. Lessors

BerryDunn broke down the changes for lessees and lessors under GASB 87

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Baker Tilly’s Insights on GASB 87 Prep

Baker Tilly’s Insights series covers the GASB 87 standard and how entities should prepare.

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