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Why Did GASB 87 Replace GASB 62? A Guide to Accounting Pronouncements

There have been over 90 separate GASB statements released by the organization since its inception in 1984. GASB, or the Governmental Accounting Standards Board, oversees the standardization of accounting practices for state and local governmental entities in the US. They release statements when they have new rules and regulations to roll out.

And, similar to Supreme Court cases, older GASB statements can be superseded by newer statements when changes in accounting practices make it obvious that new pronouncements are necessary.

But what exactly are pronouncements? 

This blog explores the answer to that question through the recent rollout of GASB 87, the rules in which replaced the GASB 62 pronouncement.

What are Pronouncements in Accounting?

Pronouncements have a rather loosely-defined definition in the scope of GASB accounting principles, as they are simply an indicator of something changing with accounting guidelines.

What are GASB Pronouncements?

Keeping in the vein of ‘simple’, GASB pronouncements are simply accounting pronouncements made specifically by GASB. The rules contained in these pronouncements only apply to the entities over which GASB has authority.

Accounting Principles in Action

To give a better picture of GASB accounting pronouncements and the interactions between various releases, we are going to examine the necessary transition that entities must now make from compliance with GASB 62 accounting standard, to the GASB 87 standard. 

But first, let’s go over each pronouncement and its implications for entities that fall under the legislation of the GASB.

What is GASB 62? What is GASB 87?

GASB 62 is an accounting pronouncement that was released officially on December 30, 2010, and it superseded previous accounting standards for leases under FASB/GASB pronouncements. Under this lease standard, lessors were required to recognize their revenue from lease agreements as their payments were received. This statement also established two lease classifications: The capital and operating leases.

When GASB 87 was released on December 15, 2018, it changed the guidelines for lease accounting and revenue recognition. Under this newer pronouncement, leases have to be recognized by the lessee as a liability and an intangible right-to-use asset, which is amortized over the lease term.

Unlike GASB 62 leases, lessors are required to book a lease receivable equal to the present value of lease receipts and the deferred inflow of resources is the value of the lease receivable, properly increased to account for any prepayments received, and reduced for any incentives that are paid to the lessee over the course of the lease.

How Does LeaseCrunch Help with the Transition to GASB 87?

Although it might seem like a headache for governmental entities, it is important that GASB regularly updates these standards in order to best serve the organizations that must adhere to them.

But because GASB pronouncements can come along and change the existing precedent of lease accounting practices, and because this seems to happen so frequently, it can be very helpful to invest in some lease accounting software that automatically updates to match these changing standards, so you don’t have to worry about it.

With LeaseCrunch’s lease accounting software, users can select whether or not the lease in question will be accounted as that of the lessee or lessor, and change the workflow to match. The steps for each side of the transaction would look like this:

  1. Lessors enter their receipts, whereas lessees would enter their payments.
  2. In the General Ledger account selection, lessees would choose ‘lease asset’, ‘short and long term lease liability’, ‘interest payable’, ‘amortization expense’, ‘accumulated amortization’, and ‘interest expense’.
  3. Lessors instead would choose the categories of ‘deferred inflow of resources’, ‘short and long term lease receivable’, ‘interest receivable’, and ‘lease revenue and interest revenue.

When it comes to lease accounting in the wake of the change from GASB 62 to GASB 87, utilizing lease accounting software is even more important. Read more about the risk of using just spreadsheets for GASB 87 lease accounting in our resource here.

Our software offers the easiest, most comprehensive lease accounting software on the market. It is secure, accurate, cost-effective, and has great reviews from its users. Here are just a few statements from some of the current users of our software:

“I close my eyes and this is what I picture when it comes to lease accounting software… very intuitive.“

“Why waste your time doing all the calculations and tracking when someone else did all the work and created this for you, at a great price?”

Want to learn more about LeaseCrunch and our automated lease accounting solutions? Contact us today with any questions you have. Ready to see how much time and money  lease accounting software can save your organization? Go ahead and schedule a free demo.