GASB 87 and GASB 96 are similar, yet different. Both share the characteristic of complicating accounting in the name of financial clarity. But while GASB 87 is an accounting standard for leases, GASB 96 is an accounting standard for SBITAs, or subscription-based information technology arrangements. 

Regarding these specific GASB standards, what would the accounting process look like? Is there anything in particular you should worry about when it comes to the differences between GASB 87 and GASB 96 lease spreadsheets? Is it practical to use spreadsheets for GASB 87 and GASB96 lease accounting at all? 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. GASB 87 runs in tandem with FASB’s ASC 842, as both attempt to make financial information clearer by defining leases and adding financial obligations to the Statement of Financial Position or Balance Sheet.

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:

• A definition of a SBITA
• Details for how a Subscription Liability and Subscription Asset are calculated
• The capitalization criteria for implementation costs requires governments and their entities to note disclosures regarding SBITAs
• Defines the term of the subscription as the period of time during which a government entity has the right to use the underlying assets

What are Common GASB 87 and GASB 96 Disclosure Requirements?

Common disclosure requirements for GASB 87 and GASB 96 include:

• A general description of leases and SBITAs including the basis, terms and conditions of variable payments not included in the measurement of liability.  
• Total amount of lease assets and subscription assets and related accumulated amortization 
• Amount of outflows of resources recognized in the reporting period for variable payment and other payments such as termination penalties not previously included in the measurement of the liability 
• Principal and interest requirements to maturity, presented separately for each of the next five years and five-year increments thereafter
• Commitments under leases or SBITAS before the commencement of the lease or subscription term 
• Components of any loss associated with impairment of a leased asset or SBITA.

What are the Key GASB 87 and GASB 96 Deadlines?

For GASB 87, the implementation dates were:

• For fiscal years beginning after June 15, 2021 with a requirement to restate prior periods unless it is not practical.

For GASB 96, the key deadlines were:

• For fiscal years beginning after June 15, 2022 with a requirement to restate prior periods unless it is not practical

How do GASB 87 and GASB 96 Impact Financial Reporting?

Before GASB 87 and 96 went into effect, leases were not recorded on Statements of Financial Position. Instead, they were recorded only as outflows of resources. After GASB 87 went into effect, government entities had to report both the lease liability and assets on the Statement of Financial Position. GASB 96 had the same effect for subscription-based information technology arrangements

Accounting for GASB 87 Lease Spreadsheets

The steps to account for a lease under GASB 87 are as follows:

1. Calculate the initial lease liability - The present value of future lease payments that are to be made over the term of the lease.
2. Calculate the initial asset value - The asset value is the sum of the lease liability, payments made to the lessor at or before commencement, initial direct costs less any lease incentives received from the lessor.
3. Record the initial journal entry under GASB 87 - This establishes an asset and liability on the statement of financial position.
4. Book subsequent journal entries - On an ongoing basis throughout the lease term, the ROU asset is amortized in a systematic and rational manner and amortization expense is reported as an outflow of resources. This has a function similar to a depreciation expense, as it is representative of the reduction of an asset’s value over time. Subsequent journal entries will also decrease the lease liability when payments are made. Interest on the remaining liability is recorded on a monthly basis as an amount payable and expense.

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 expected to be made during  the term of the SBITA. The government entity should then amortize these assets in a systematic and rational manner over the subscription term and reduce the subscription liability by payments made during the term.

If you need help adding a SBITA in your LeaseCrunch accounting software, check out this Knowledge Base article.

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. Under GASB 87, common challenges include handling modifications and terminations, more specifically knowing when to remeasure a lease or adjust the term. We also frequently see confusion around what qualifies as a lease payment as well as how to determine the appropriate incremental borrowing rate or implicit rate.   

Under GASB 96, common challenges include identifying the incremental borrowing rate or the rate implicit in the contract as well as determining fixed and variable payments. We also see confusion around determining the noncancellable subscription term. 

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.

Spreadsheet Risk in Accounting for GASB 87 and GASB 96

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:

• Overpayment because of a lack of notifications about rent abatement
• Payment escalation, which leads to underpayment
• Incorrect calculations of interest on lease liability
• Issues with calculations for remeasurements or terminations

Three of the biggest reasons to avoid lease spreadsheets and Excel when calculating assets and liabilities under GASB 87 and GASB 96 are:

• Audits are Harder

Utilizing a lease tracking spreadsheet makes audit season incredibly difficult. Managing ongoing maintenance in a lease tracking spreadsheet makes any future audits increasingly difficult, driving up costs both for CPA firms and their clients. In fact, one public company told us that their audit fees increased by 25% due to the extra work that had to be done because of their spreadsheets.

• Lack of Data Integrity, Version Control, and Security

Spreadsheets require a lot of manual effort to make impairments, modifications, and revisions to leases. When a lease changes, the updates on a lease tracking spreadsheet are nuanced and complex.

Additionally, organizations usually have many people who touch leases. One leader at a major public accounting firm learned this lesson during implementation: He had assumed only a couple of people were involved with leases at his client organizations, when really it was around four or five.

With this many people working in a lease tracking spreadsheet, it’s difficult to know who made which changes, or whether you’re working in the latest version.

• Inefficiency

Spreadsheets begin as a blank canvas, a tabula rasa. That means anyone working in a lease tracking spreadsheet first needs to add calculations and processes required to fit their unique situation. 

When the new standard was implemented a few years ago, this might not have seemed like that big of a problem. But the ongoing maintenance required for these spreadsheets is the really big time suck. Due to the nuanced calculations in the new lease standard, any changes after the initial setup can take hours of work to maintain accuracy. Multiply that over many leases at a large organization and you’re wasting a significant amount of time editing spreadsheets.

As you can see, using Excel for GASB 96 and GASB 87 lease spreadsheets 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?

Accountants and finance teams have long relied on spreadsheets for lease accounting, despite the pain points listed above. It’s time for them to explore the world of alternatives to Excel. Government organizations may be reluctant to use solutions like lease accounting software because they worry about having to retrain staff on a new system, or that it will cost too much. However, the right solution will ultimately save an organization considerable amounts of time and money.

Benefits of lease accounting software include:

• Security - if someone makes an error or unauthorized change, version control will help identify the problem. Too many errors? Access control makes it so that only the people who need to update the numbers can do so.
• Calculation accuracy - all the tedious formulas no one wants to build in Excel are done for you (Tip: look for software that comes with SOC-certification and an Agreed-Upon Procedures [AUP] report to ensure accuracy, security, and privacy)
• Quick and easy lease modifications - updating existing lease terms can be done with just a few clicks and no concerns about data integrity or broken calculations
• Improved workflow - know exactly what data to enter for the correct calculation. Get things done right the first time, then focus on what really matters.

It’s also important to note that not all lease accounting software is created equally. LeaseCrunch is different from the other options on the market because of its:

• Cost - While many software solutions make sense only for large lease portfolios, LeaseCrunch is affordable and scalable for any size organization, with pricing based on number of leases.

• Time savings - easily generate journal entries, quantitative footnote disclosures, full amortization schedules, financial disclosure statements, and more with just the push of a button.

• CPA firm collaboration - Unlike other lease accounting vendors who cut CPA firms out of the equation and sell directly to organizations, LeaseCrunch partners with the CPA firm and offers multiple engagement options. CPA firms can white label the solution and own the value, or let LeaseCrunch interface directly with the end-user organizations.

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!

FAQs

What is the primary difference between GASB 87 and GASB 96?

GASB 87 requires all leases more than 12 months in length to be recorded as liabilities and lease assets, whereas GASB 96 defines SBITAs and the accounting used for these types of subscription agreements. GASB 87 and 96 are generally similar in scope and calculations.

What are the key objectives of GASB 87 and GASB 96?

GASB 87 requires all leases longer than 12 months to be recorded as liabilities and assets on the balance sheet. GASB 96 created a definition for SBITAs and further identifies implementation costs and how to account for them.  

Are there any specific criteria for capitalizing costs under GASB 96 that differ from GASB 87?

Under GASB 96, costs associated with certain implementation stages may be capitalized over the subscription term, whereas leases generally do not have implementation costs.

Can you explain the process of amortizing assets under GASB 87 and GASB 96?

When booking subsequent journal entries for GASB 87, the ROU asset is amortized in a systematic and rational manner and reported as an outflow of resources over the lease term. For GASB 96, when a government entity enters into a SBITA, they recognize the subscription asset and a related subscription liability on their financial statements. After calculating the value of these, the entity should amortize the assets over the course of the subscription in a systematic and rational manner.