Now that (most) agencies are full speed ahead on implementing GASB 87, there have been countless questions, unique situations, and plenty of confusion as we continue to move forward. With the number of calls and emails we get on a weekly basis specific to leases, I have full confidence that we will all be lease experts in no time! BUT, while we wait to get to that point, let’s highlight some specific items that we’ve seen so far that may help you move forward (or get started if you haven’t yet).

Issues Occurring while Implementing GASB 87

  • Incremental Borrowing Rate Considerations

The borrowing rate or discount rate has been the most common challenge or question encountered. There is no perfect answer or way to address this, but the most critical piece you need to consider is your credit rating, type of lease and lease term. In simple terms, this rate would be the rate a bank would charge you on a loan that you would use to purchase the asset you are leasing. Most often a 30-year versus a 5-year lease would not have the same rate, similar to how you would get a better interest rate on 15-year versus 30-year mortgage. Whatever approach you take in determining the rate, be sure to DOCUMENT your rationale and keep it consistent each year.

  • Consideration of Materiality & Thresholds

The monthly payment amount is NOT the main consideration. What is considered “material” should be determined by the present value you have calculated at the TRANSITION DATE (7/1/21). Even though you may have a lease with a low monthly payment, if it has a term of 30+ years, it would make the present value calculated a significant amount. In addition, your capital asset threshold is likely very low, and part of your GASB 87 policy should be a threshold you have determined internally specific to leases.

  • Embedded Leases

A number of agreements may not look like a lease at first glance or may have different terminology being used (like ‘Licensing Agreements’), but any agreement conveying the right to control an asset will be considered a lease regardless of the title. Make sure to really look like through all areas of the agreements.

  • Government-Wide vs. Governmental Fund

Remember that as the lessor, the leases will be recorded in the actual funds themselves and will show a new receivable and deferred inflow, while on the lessee side, the right to use asset and lease payable should only be reflected on the government-wide statements and in full accrual funds.

Lessons Learned from Early Implementers

  • Policies, Policies, Policies

It can’t be overstated that one of the most critical areas of this GASB is establishing a policy specific to addressing leases. This policy should include the items discussed above like how you determined the borrowing rate, the threshold being used, how you determined leases you feel are exempt and procedures you will perform annually to ensure new leases are captured, among other things.

  • Using Excel may not be your best (or final) option 

At first glance if you have a handful of leases, it may seem easy enough to just use Excel documents to perform calculations and track items, but this has proven cumbersome and can take more staff time than anticipated. In this market of staffing shortages, software solutions can greatly reduce the manual burden on your people and assist in the reporting you need.

You’re already in too deep? Don’t worry, it’s not too late – it’s still something to consider even if you decide to make the switch to a software after the first year of implementation.

What do you do if you haven’t started?

  • Get started now

Don’t beat yourself up as the last couple of years have been unexpected to say the least, but there are no more extensions or delays coming, so don’t wait any longer! Start gathering necessary documents to get the ball rolling and do whatever it takes to get caught up.

  • Consider a software

As mentioned above, a software solution could save your staff time and reduce stress by helping you get through documents, perform calculations, provide footnote disclosures, etc. The manual tasks needed without a software can add up fast, and when you have staff already overworked, that could create unintended consequences  (like miscalculations or errors!). Talk to your CPA about software options to consider.


At this point it seems like we’ve seen it all, folks – but if you’re experiencing some bumps in the road, need more guidance and clarification, or need help getting started, please don’t hesitate to reach out to us for all things GASB 87. Contact us!

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