By Ane Ohm on February 15, 2021 at 9:00 AM
In May 2020, the Governmental Accounting Standards Board postponed the implementation date for the new lease standard, GASB 87 to June 15, 2021. At the time, the extension was a welcome relief to entities and their CPA firms who weren’t prepared to implement the new standard amid the disruption caused by the COVID-19 pandemic.
It’s almost a year later, and that June 15 implementation date is approaching quickly. If your GASB clients haven’t been thinking about the new standard, it’s time to help them prepare—especially when it comes to restating prior years.
The new lease standard, GASB 87
The GASB first issued Statement No. 87 in June 2017, with an effective date of December 15, 2019. But this changed, as noted above, when the GASB later issued Statement No. 95 delaying the GASB 87 effective date until June 15, 2021.
Under GASB 87, entities are required to restate all prior periods presented, if practicable. It’s important to note that “if practicable” has been interpreted in such a way that almost all entities will need to restate prior years. While an entity could present a single year rather than comparative financials, many organizations have reporting requirements for presenting comparative financials.
Therefore, virtually all entities must prepare to facilitate compliance with GASB 87 requirements for the fiscal year prior to adoption and when they implement the new lease standard, they will need to restate their prior year’s financial statements. GASB 87 requires the standard to be implemented for all years included in comparative financial statements—most likely one prior year and possibly two.
A closer look at restating prior years
Here’s an example: a GASB entity issues their financial statements dated 6/30/21 as normal, which includes two years for comparative purposes: 7/1/20–6/30/21 and 7/1/19–6/30/20.
Then, as required under GASB 87, they adopt the new lease standard for their 7/1/21–6/30/22 fiscal year. When they issue their financial statements dated 6/30/22 with two comparative years, they have to restate the 7/1/20–6/30/21 numbers as if the new lease standard had been effective that year.
Why should entities prepare for GASB 87 implementation today?
With GASB 87 implementation just around the corner, now is the perfect time to start preparing. CPA firms can help focus on collecting the information they need so that implementation is simple and easy. This way, entities will be grateful they aren’t trying to do everything at once!
- Get a head start on accounting work. The sooner an entity starts accounting for leases under the new standard, the less work they will have to do to recreate the past. Entities need to retain all lease documents, including leases that expired during the prior year, in order to be compliant. The longer they wait to gather the required information, the more difficult it will be to issue their financial statements.
- Become familiar with the new lease standard. Reviewing GASB 87 early helps entities understand what information they need to retain and what policy decisions they’ll need to make. The good news is that GASB 87 is more straightforward than FASB’s ASC 842—but it still takes some getting used to.
- Take advantage of the calm before year-end. It’s important to spend time preparing for implementation before end-of-fiscal-year deadline pressures hit. Once year-end calms down, the entity will already be set up for lease accounting success.
- Collect information while it’s fresh. It will be much easier for entities to extract the necessary data from leases when they’re still familiar with those contracts. If it’s been more than two years since the lease expired, there’s a chance the team is no longer familiar with the lease terms or the person who was may have left the organization.
Make restating prior years for GASB 87 simple and easy
Preparing to restate prior years for GASB 87 requires compiling information from multiple sources and having it readily available. Using spreadsheets or other homegrown systems can take too much time to enter and recall details—especially if the spreadsheet breaks.
LeaseCrunch lease accounting software is designed to help entities implement and maintain their lease accounting according to GASB 87 and GASB 96 standards. While LeaseCrunch’s software implementation is quick and easy, entities still need time to prepare. Having a system in place as soon as possible will make implementation much easier when the effective date arrives.
To learn how LeaseCrunch can help entities prepare for GASB 87 and GASB 96 implementation, request a demo today!