GASB 87 and GASB 96 are big deals in governmental accounting. They’ve changed the game for how organizations handle their accounting for leases and software subscriptions they all rely on. Think of GASB 87 as the go-to for lease-related accounting, while GASB 96 is all about accounting for those IT services you get through a subscription. What’s interesting is how these standards aren’t just about keeping the books up-to-date. They’re also shaking things up in terms of how government agencies need to present their financial statements, including footnote disclosures.
Overview of GASB 87 leases
GASB 87 marks a significant change in lease accounting for government entities like state and local governments standard requires recording two additional items on the balance sheet for leased assets such as office space: the lease liability, reflecting the present value of lease payments, and a right-of-use asset for the right to use the leased property. For instance, under GASB 87, a city leasing a building for office use must list the present value of the lease payments as a liability and the rights to use the building as an asset, enhancing financial transparency and clarity on long-term obligations. Additionally, the Statement of Revenues, Expenditures and Changes in Fund Balances needs to reflect the depreciation expense on the right-of-use asset and the interest expense on the amortization of the corresponding liability, like it would for finance leases.
For effective implementation, the GASB 87 and GASB 96 Implementation Guide are key resources. They offer comprehensive instructions and guidance, while practical examples of GASB 87 and GASB 96 help in achieving accurate and compliant financial reporting.
Overview of GASB 96, Subscription-Based Information Technology Arrangements (SBITAs)
GASB 96 governs how government agencies manage the accounting of technology subscriptions. For instance, if a local government agency opts for a subscription to a cloud-based data analysis service, GASB 96 dictates that the agency should list the present value of the entire stream of future subscription payments, as a liability as well as an intangible asset on its balance sheet in its financial statements. The Statement of Revenues, Expenditures and Changes in Fund Balances needs to reflect the depreciation expense for the intangible asset and the interest expense on the amortization of the corresponding liability.
This approach is designed to make the financial commitments involved in tech subscriptions both transparent and comprehensive, facilitating a better understanding of governmental finances.
Differences between GASB 87 and GASB 96
Scope
- GASB 87: Applies to leases of tangible assets.
- GASB 96: Focuses on subscriptions for intangible IT resources.
Asset recognition
- GASB 87: Leased asset recognized as a right-of-use asset
- GASB 96: Intangible asset recognized for the right to use IT resources
Liability measurement
- GASB 87: Liability based on the present value of lease payments.
- GASB 96: Liability calculated based on the present value of subscription payments
Disclosure requirements
- GASB 87: Requires disclosure of the nature of leasing arrangements.
- GASB 96: Requires disclosure of the nature and terms of IT subscriptions.
How to implement GASB 87 and GASB 96
Adopting GASB 87 and GASB 96 can be streamlined with these tips:
- Understand the scope: Clearly differentiate between leases (GASB 87) and IT subscriptions (GASB 96).
- Review contracts: Examine existing contracts to identify and classify leases and subscriptions.
- Update accounting systems: Ensure your system can handle the new recognition, measurement requirements and the required journal entries and disclosure reports.
- Train staff: Educate your financial team on the nuances of both standards.
- Refer to the implementation guides: Utilize the GASB 87 and GASB 96 implementation guides for detailed guidance.
How EZLease lease accounting compliance solutions can help
EZLease simplifies the journey towards GASB 87 and GASB 96 compliance, offering a hassle-free solution to upgrade your lease accounting. Imagine streamlining your lease and subscription management in just a few hours. EZLease is a game-changer, doing the heavy lifting in calculations and ensuring accurate accounting and reporting. Contact us to transform your approach to lease accounting, ensuring GASB 87+96 compliance while saving significant time and effort. Consider this a friendly, straightforward guide to mastering GASB 87 and GASB 96. EZLease acts like a roadmap, making navigating these standards effortless. Get our free trial today to see how it simplifies these complex standards.
