The Governmental Accounting Requirements Board set the efficient date for the GASB 87 leases commonplace at June 15, 2021, after pushing it again by 18 months through the pandemic, however many state and native governments are apparently behind on implementing it.
The usual in some methods parallels the ASC 842 leases commonplace for private and non-private corporations and nonprofits from the Monetary Accounting Requirements Board and the IFRS 16 leases commonplace from the Worldwide Accounting Requirements Board in that it could put leases on the steadiness sheet for the primary time for a lot of entities. For corporations within the personal sector, a lot of them additionally procrastinated on implementing the leasing commonplace, regardless of extensions from each FASB and the IASB through the pandemic. Now state and native governments might be going through related points as they attempt to account for this previous fiscal yr.
“GASB 87 is similar to ASC 842 and IFRS 16 in a wide range of methods,” stated Joe Fitzgerald, senior vp of lease market technique at Visible Lease, a lease accounting and administration software program firm. “The massive distinction, although, is for public sector entities there are additionally lessors, so a lessor element is far more important than ASC 842. They’ve received to get a variety of lessor preparations on their steadiness sheets as nicely. It’s an added problem. They’ve received the lessee aspect as we’ve seen with ASC 842, and now they’ve received a fairly large carry on the lessor aspect.”
GASB headquarters in Norwalk, Connecticut
Courtesy of GASB
He expects to see hundreds of state and native governments scrambling this yr to adjust to the accounting change. “There are roughly 90,000 public sector entities within the U.S.,” stated Fitzgerald. “Numerous them have a non-calendar fiscal yr finish. Particularly, there’s a variety of June 30th’s, so when you consider that, and the usual went efficient for reporting durations starting after June 15 of 2021, that tells you fiscal 2022 and June fiscal 2022 ought to be a variety of exercise for folk adopting.”
Nevertheless, the change in lease accounting requirements for state and native governments hasn’t acquired anyplace close to as a lot consideration because the one for private and non-private corporations did a number of years in the past. Many authorities accountants might not even concentrate on it or assume the deadline continues to be far off.
“We’re not seeing a wave but that we thought we might be seeing within the early a part of this yr,” stated Fitzgerald. “If you consider ASC 842 prospects, a variety of them are 12/31’s. So what they’re doing in January, February and into March is closing their books. They’re getting their annual studies out to the accountants. They’ve received their heads down they usually’re not fascinated by the following factor. Nevertheless, if GASB prospects are June 30, you’ll assume that we might have seen much more exercise.”
Whereas his firm has been fielding some inquiries, some governments could also be ready till later this yr to undertake the brand new GASB 87 commonplace.
“There might be completely different waves,” stated Fitzgerald. “It’s not like they’re all June 30. There are a variety of 12/31’s as nicely.”
Authorities accountants should be studying in regards to the new leases commonplace or getting ready to place out a request for proposals from completely different software program distributors.
“We hear about a wide range of causes,” stated Fitgerald. “Public sector entities nonetheless don’t have their arms round 87 as a lot as we might have thought when it comes to the nuts and bolts of what it means in educating themselves. Numerous them within the public sector must undergo a extra formal RFP course of than we see within the personal sector, in order that tends to gradual the method down for these entities. It’s not like they will keep away from adopting it, although. It’s not like they will say, ‘We elected to not undertake this lease accounting commonplace. We’re going to attend till the longer term.’ They’re going to must do one thing. Now, as we slide nearer to June 30, we may even see an actual rush within the final couple of months, or possibly even into what we historically would see because the reporting interval, that means July via September or October.”
One other situation might merely be consciousness {that a} new leasing commonplace is on the market, though that’s prone to change this yr. “We don’t really feel there’s as a lot consciousness as we might have thought,” stated Fitzgerald. “Like every business, a variety of associations have stated they socialize issues lIke GASB 87 workshops, seminars and conferences. There are a variety of conferences arising that authorities accountants would attend the place GASB 87 is on the agenda. One of many challenges with one thing like that is the truth that every time there’s any deferral, what occurs is folks put their pencils down and cease fascinated by it, after which they’ve to select their pencils again up. There’s a little bit of that, however we don’t really feel the understanding is kind of as nice as we see within the personal sector.”
The brand new commonplace contains quite a few necessities, particularly for lessors. “GASB entities have to trace actions by funds in order that they’ve received different accounting and reporting necessities that they’ve from a disclosure perspective,” stated Fitzgerald. “The idea of fund accounting will come into this.”
One other upcoming commonplace, GASB 96, can be going to have to be taken into consideration by authorities accountants. “GASB 87 is round tangible belongings like ASC 842, issues like actual property and gear,” stated Fitzgerald. “A yr later, there’s additionally one thing known as GASB 96, which is round what we’ll name intangible belongings, which is these subscription-based info applied sciences. Take into consideration SaaS agreements. That might fall below that. In order that they’re additionally going to look a yr later for all of these to be placed on the steadiness sheet.”
Some RFPs are already asking software program distributors for each GASB 87 and 96 compliance, however not many, in line with Fitzgerald. “It’s a small share, however we do see some which can be conscious that’s coming as nicely,” he stated. “However that’s coming proper on the heels. You could possibly argue that if you happen to’re doing 87, you actually ought to have carried out 96 on the similar time, or attempt to do 96 since you may even pull that ahead. However they are usually somewhat gradual. The opposite factor we are inclined to see is that a number of the public sector entities want to their advisors and repair suppliers to construct templates. We may even see a excessive share attempt to use Excel or some form of accountant-developed template.”
State and native governments run dangers in the event that they don’t make the adjustment to the brand new GASB requirements.
“The best-level threat is if you happen to don’t adjust to usually accepted accounting ideas as set by the governing physique, you might run the chance of getting a professional audit opinion, and that’s not factor for anyone,” stated Fitzgerald. “In the event you slap one thing collectively, or if you happen to use an Excel spreadsheet that doesn’t have course of round it, you might have a fabric weak spot in your inner controls. Not a terrific factor both. In the event that they don’t comply appropriately, it may have an effect on their credit standing, particularly in the event that they put a giant legal responsibility up on their steadiness sheet. It may have an effect on a few of their debt covenants and preparations. We speak about that rather a lot with the personal entities in addition to the general public entities about how they need to be speaking with any of their financing sources and taking a look at their debt preparations. That’s a really actual factor. This can be a new accounting commonplace that may have some affect on their steadiness sheet, in order that’s a threat.”
One other threat shouldn’t be doing a full evaluation of all their leases, together with so-called embedded leases which can be deep inside different kinds of contracts.
“The everyday threat is if you happen to don’t do job of getting a whole inhabitants of your leases,” stated Fitzgerald. “It’s a must to have a technique round information extraction and validation. It’s the rubbish in and rubbish out idea, if you happen to don’t make the fitting choice about whether or not to leverage know-how or not. Then having the fitting supply is the opposite factor. Nearly all people underestimates this challenge, whether or not you’re on the general public sector aspect or personal firm aspect, and in consequence they’re at all times under-resourced. We see the identical factor within the public sector. All of them have day jobs, and that is form of a secondary merchandise, so assets are a problem. They’re the identical themes as ASC 842 in a variety of methods.”
The principle message is to not wait for much longer to implement the brand new commonplace. “In the event you wait too lengthy and there’s a rush, there’s going to be a capability situation out there,” stated Fitzgerald. “That’s at all times a priority. In the event you wait till June 30 to get carried out one thing that must be in your books as of June 30, that’s going to be a problem. Rapidly, of us might be popping out of the woodwork at completely different factors. It’s a concern that folk procrastinate.”