When GASB 87 (Leases) and GASB 96 (Subscription-Based Information Technology Arrangements) first went into effect, many organizations underestimated just how much work these standards would require. What seemed like a straightforward change quickly revealed itself to be one of the more complex accounting challenges in recent years. Finance teams often found themselves scrambling at year-end, trying to track down agreements, calculate terms, and explain unusual balances during the audit.
Now, after a few years of living with these standards, some clear lessons have emerged. The key to success lies in starting early, staying organized, and documenting every step. When the process is broken down into manageable phases, compliance with GASB 87 and 96 becomes less of a burden and more of a routine part of the year-end close.
A Step-by-Step Approach to Year-End Close
1. Review Prior Year Workpapers
Begin with the previous year’s leases and SBITAs. Identify which agreements will be fully paid off or expired at year-end, and consider the nature of the assets involved. Did leased land get sold? Did software agreements expire and get replaced? Each case requires thoughtful evaluation.
2. Review Software Information
If your organization uses lease or SBITA tracking software, check for agreements nearing expiration or termination. This ensures nothing is missed and keeps the process current.
3. Read Meeting Minutes
Agendas and minutes from governing bodies often contain details about new agreements or modifications. Reviewing these helps you capture changes that may not have reached the accounting records yet.
4. Meet with Departments
Engage with departments at least twice a year. Early and regular conversations prevent the buildup of new items and make year-end far smoother.
5. Review GL Activity
Take a close look at the General Ledger. Revenue and expense accounts sometimes hold transactions tied to leases or subscriptions that need reclassification under GASB 87 and 96.
6. Gather Relevant Data
Compile all the essentials: payment schedules, contract terms, incremental borrowing rates, and documentation showing agreements are active as of year-end.
7. Check for Qualification
Not every agreement qualifies under GASB 87 or 96. Carefully review amendments and exclude short-term agreements that don’t meet the criteria.
8. Enter Agreements into the Tool
Input new or amended agreements into your tracking tool or software to keep your records up to date.
9. Evaluate Outputs for Accuracy
Review calculations carefully. Unexpected balances or inconsistencies usually point to an error in classification or input.
10. Review Journal Entries
Check the account numbers on your journal entries, particularly for conversions from modified accrual to full accrual. Investigate unusual results before closing the books.
Common Pitfalls to Avoid
Even with a clear process, there are traps that can slow down year-end close:
- Waiting until the last minute: Many delays happen because agreements aren’t reviewed until year-end. Start early to give yourself room to troubleshoot.
- Missing agreements hidden in other departments: IT, facilities, or legal might enter into contracts that accounting never sees. Proactive outreach prevents surprises.
- Overlooking amendments or modifications: A small contract change can shift how it’s classified under GASB 87 or 96.
- Relying solely on the General Ledger: Not every relevant agreement will show up cleanly in lease or subscription accounts. Minutes, contracts, and department check-ins are critical.
- Incomplete documentation: If it isn’t documented, it doesn’t exist—for your audit or your future reference.
Avoiding these pitfalls can mean the difference between a smooth close and a stressful scramble.
Conclusion
While the initial rollout of GASB 87 and 96 created real challenges, those lessons have shaped better processes for the future. With thoughtful planning and a consistent approach, evaluating leases and SBITAs can shift from a dreaded year-end task to a manageable part of the close. The key is to start early, stay organized, and treat documentation as your strongest tool for accuracy and audit readiness.
Need help getting leases and SBITAs under control? Contact us today!
