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Leases (GASB 87)

The Governmental Accounting Standards Board (GASB) Statement No. 87, Leases, revises existing standards for leases and establishes a single model for lease accounting. The revision is based on the principle that leases are financings of the right to use an underlying asset.

There is no longer an operating vs capital classification. Lessees will be required to recognize a lease liability and an intangible right-to-use asset, and lessors will be required to recognize a lease receivable and a deferred inflow of resources. GASB 87 is effective for fiscal year 2021.

The statements applies to leases for nonfinancial assets—including buildings, land, and equipment. GASB has issued an exposure draft that would expand the requirements to subscription-based information technology arrangements, effective fiscal year 2022.

Facilities Portfolio Management Tool

The state of Washington will be modifying the Facilities Portfolio Management Tool (FPMT) to comply with GASB 87. Once updated, FPMT will be able to:

  • Track land and other assets such as equipment, vehicles, and software subscriptions.
  • Track receivable leases (state is lessor) for land and other assets.
  • Calculate amortization schedules.
  • Calculate and send lease accounting transactions to AFRS.
  • Produce reports for reconciliation to AFRS, recording entries manually, and financial statement disclosures.

Timeline

  • July 1, 2020 - Publish SAAM updates on July 1, 2020.
  • September 1, 2020 – Go-live of modified FPMT and begin training new users as well as the existing users on the changes.
  • TBD - Date all leases need to be in FPMT

Preparing for GASB 87

Beginning in September 2020, agencies will be required to record all leases within the scope of GASB 87 and that exceed the state’s capitalization threshold in FPMT. This includes updating facility records, adding leases of land, equipment, and other assets, and adding receivable leases (state is lessor) in FPMT for leases. Below are some steps that can be done now to prepare:

  1. Create an inventory of existing leases and other contracts and agreements for review. This process can be time-consuming, as lease contracts may be spread across the organization in several different departments, divisions, and locations.
     
  2. Determine which agreements meet the definition of a lease and which can be excluded.  Just because the word “lease” isn’t in the agreement, doesn’t mean it doesn’t meet the definition of a lease under GASB 87.  And not all “leases” meet the definition of the new standard. 
     
  3. Document key provisions of each lease agreement such as the lease term, extensions, termination options, and payment provisions.
     
  4. Review the facilities leases currently in FPMT, and update as needed.

Resources

OFM Guides and Resources

GASB Literature and Resources

Questions

If you have questions or comments, please contact Anna Quichocho at anna.quichocho@ofm.wa.gov or 360-725-0187.