Republished with permission of Journal of Government Financial Management.
In June 2017, the Governmental Accounting Standards Board (GASB) issued a complex new standard that establishes a single approach to all lease accounting for state and local governments. GASB Statement No. 87, Leases (GASB 87), also aims to account for certain lease liabilities that may not be currently reported in financial statements.1 While its effective date has been pushed ahead to June 2021 due to COVID-19, the significant changes it requires, as well as the possible intricacies governments may encounter in compliance, mean the time to prepare is now.
Definition of a Lease
GASB 87 significantly changes the wording in the definition of a lease from previous standards. It defines a lease as “a contract that conveys control of the right to use another entity’s nonfinancial asset,” which includes land, buildings, vehicles and equipment. The right to use the nonfinancial asset is “specified in the contract for a period of time in an exchange or exchange-like transaction.”