LeaseCrunch Blog
Read about ASC 842 & other lease accounting topics
Read about ASC 842 & other lease accounting topics
GASB 87 and GASB 96 are similar, yet very different. Both share the characteristic of further complicating lease accounting in the name of financial clarity. However, whereas GASB 87 is an accounting standard for leases, GASB 96 is an accounting standard for SBITAs, or subscription-based information technology arrangements.
In regards to these two specific GASB standards, what would the accounting process look like? Is there anything in particular you should worry about in regards to differences between GASB 96 and GASB 87 lease spreadsheets? Find out in our all-you-need-to-know blog about these two GASB standards.
What is GASB 87?
GASB 87 requires all leases over 12 months in length to be recorded as liabilities and lease assets. Furthermore, all GASB 87 leases are recognized merely by the fact that they are financings of the right to use an asset. GASB 87 runs in tandem with ASC 842, as both attempt to make financial information clearer by defining leases as means to finance the right to use an asset.
Accounting for GASB 87 Lease Spreadsheets
The steps to account for a lease under GASB 87 are as follows:
What is GASB 96?
GASB 96 is meant to provide guidance for accounting and financial reporting for SBITAs, or subscription-based information technology arrangements. GASB 96 specifically outlines the following for SBITAs:
Accounting for GASB 96
SBITAs should be accounted for under GASB 96 in a similar manner to the way that leases are accounted for under GASB 87. When a government entity enters into a SBITA, they recognize the subscription asset and a related subscription liability on financial statements. The value of these is determined by calculating the present value of subscription payments that are due over the term of the SBITA and discounted by a discount rate. The government entity should then amortize these assets in a systematic and rational manner over the subscription term, thereby further reducing the subscription liability caused by payments made during the term.
GASB 87 financial reporting is notoriously easier than that of GASB 96 because the terms surrounding SBITAs can often be difficult to determine. If you need help adding a SBITA in your LeaseCrunch accounting software, check this Knowledge Base page out.
How do GASB 87 and GASB 96 Impact Financial Reporting?
Before GASB 87 and GASB 96 went into effect, leases were not recorded on Statements of Financial Position, only as outflows of resources. After GASB 87 went into effect, it required government entities to report both the lease liability and assets on the Statement of Financial Position.
GASB 96 instead requires government entities to report subscription liabilities and assets.
What are Some Common Mistakes Made When Trying to Comply with GASB 87 and GASB 96?
For GASB 87, some of the most common mistakes we see are with modifications and terminations, such as when to re-measure the lease or adjust the lease term. We also see struggles with determining what constitutes a lease payment, as well as identifying the incremental borrowing rate or the implicit discount rate.
For GASB 96, we also see mistakes with identifying the incremental borrowing rate or implicit discount rate, as well as what constitutes a fixed payment, which is one input in determining the lease liability. Determining the subscription term of the agreement is another common question received by our support team that could be a source of mistakes for some organizations.
Have you struggled with these areas yourself? Have outlying questions regarding any of them? Don't hesitate to contact us here at LeaseCrunch for more information.
Why does Excel Lead to Non-Compliance?
Excel can lead to multiple errors that a lease accounting software would otherwise catch. Some of the mistakes that organizations have suffered through because of Excel include:
As you can see, using Excel for GASB 96 and GASB 87 calculations is not the best way to avoid errors while improving the ease of lease accounting. Lease software can help mitigate these risks while providing a host of other benefits as well.
What are the Advantages of Using Specialized Software for GASB Lease Accounting?
There are several reasons why specialized software can help you avoid GASB 96 and GASB 87 spreadsheet errors and overall improve your lease accounting processes. These include increases in:
Interested in learning more about how lease accounting software can help you avoid the risk associated with accounting under GASB 96 and GASB 87? Download our free resource today!
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