GASB 87 – Capital Leases: Are you ready for the changes to lease accounting?
Effective for fiscal years starting on or after July 1, 2021, all leases (with certain exceptions) will become Capital Leases if they have a term greater than 12 months. GASB 87 applies to both the lessee and the lessor. The determining factors are many and varied, including lease term; right to use/sole control; total of the lease payments as compared to your capitalization threshold; and the type of lease. The changes can require items to be maintained as a part of your fixed assets with an offsetting liability and either amortized or depreciated accordingly. Footnote disclosures are required.
Since the audited financial statements of your organization also include comparative prior year financial statements, GASB 87 requires retroactive implementation of the pronouncement for reporting purposes which includes the restatement of the financials for the prior year in the first year of GASB 87 implementation’s audit report.
The process to perform the implementation of this pronouncement is intricate and detailed and the need to perform the work accurately in a comprehensive well-documented fashion is imperative.
Emphasys Consulting can assist you with the implementation of GASB 87, the analysis and documentation, adjusting entries for both the current and prior year. We also can do the analysis to determine if, based on your leasing experience and plans, an update to your capitalization policy is appropriate.