Leases - New Requirements
The Governmental Accounting Standards Board has issued Statement No. 87, Leases (GASB 87), which establishes a single model for lease accounting based on the principle that leases are financings of the right to use an asset. There is no longer an operating versus capital classification. Lessees will recognize an intangible right-to-use asset and a lease liability. Lessors will recognize a lease receivable and a deferred inflow of resources.
GASB 87 is effective for fiscal year 2022 and applies to leases of tangible capital assets—including buildings, land, and equipment. In addition, GASB Statement No. 96, Subscription-Based Information Technology Arrangements expanded the requirements effective beginning in fiscal year 2023. More information will be forthcoming in the future for these types of arrangements.
The materiality threshold for GASB 87 leases has been established at $500,000 for the State of Arizona both as a lessee and lessor.
Forms to Assist in Implementation
Conversion Forms (with Instructional Videos)
In order to establish beginning balances as of July 1, 2021, these forms were developed for conversion of all currently active Capital Leases and Operating Leases (leases active June 30, 2021 or prior) to GASB 87 Leases. The two Decision Forms should be completed first to establish which currently active leases meet the requirements for GASB 87 Leases (or are excluded). If any leases qualify for GASB 87, then the Collection Template (Lessee or Lessor, depending on type) should be completed to gather all the required information for calculating the Present Value of the Lease as well as Disclosure requirements. These were due to GAO on April 1, 2022.
For leases entered into July 1, 2021 through June 30, 2022 (FY2022), please do NOT use the Conversion Forms provided above, but agencies should use the Closing Package, N - Leases. The new FY2022 forms are also provided here for reference. Agencies that submit audited financial statements prepared using the accrual basis of accounting to the GAO are not required to complete these forms. However, these agencies may still find the forms useful in preparing their own financial statements.
The New Decision Form has only slight differences from the Conversion Decision Forms, but there is one improvement – there is a narrative input box at the bottom of the form where comments can be added stating specifically why a lease is EXCLUDED from GASB 87 (or any other info specific to the lease deemed important) for documentation purposes. These forms are no longer required to be returned to GAO, but it is recommended either this form or some alternative method be used to document all lease contracts as qualifying or excluded from GASB 87 for audit purposes. In addition, this form is not specific to FY2022, so it may be utilized for all new leases going forward.
The FY2022 Collection Forms are also very similar to the Conversion Collection Templates, with a few very important differences. The Present Value calculation for the Lease Asset and Deferred Inflow of Resources has additional considerations for activities at or before the commencement of the lease which were not included in the Conversion Forms above. In addition, the conversion forms assume a start date of July 1, 2021, whereas the start date on new leases is no longer pre-set and can now be defined in these new forms.
There is also a new set of forms – Activity Forms. These forms are designed to capture the ACTUAL activity for the fiscal year, rather than the planned activity (that was filled out in the Collection Forms). These forms are provided to capture all payments made/received (depending on whether they are payable or receivable leases) during FY2022, as well as checking for any lease modifications entered into during the fiscal year.
The FY2023 forms will be linked here very soon. These will be part of the FY2023 Closing Package, but if the agency wants to track their leases as the year progresses instead of waiting until the end of the year, please use these forms (rather than the FY2022 forms above). The most important difference is an update to the interest rates. As soon as they are available, an analysis will be completed for interest rate changes during the past year, and rates for Short-Term, Mid-Term and Long-Term leases will be updated to take those rate changes into account. The interest rates will be analyzed and updated again each fiscal year. In addition, the dates within the forms will be updated to FY2023 (July 1, 2022 – June 30, 2023).
The Decision Forms linked above have no changes and are therefore not linked here again. However, this form or some other method should be used for documentation purposes of all new leases going forward.
FY2023 Forms - Coming Soon
GAO GUIDE & RESOURCES
GASB 87 Overview 1-13-22 - CBT version is available in TraCorp under GASB87_GAO
Lease Accounting Decision Tree
GASB 87 Scope Guide
GASB LITERATURE & RESOURCES
GASB Statement No. 87, Leases
GASB Implementation Guide No. 2019-3, Leases
GASB 87 Implementation Guide 2020-1, questions 4.6 to 4.17
GASB 87 Implementation Guide 2021-1, questions 4.4 to 4.22
GASB Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance
GASB Statement No. 96, Subscription-Based Information Technology Arrangements
If you have questions or comments, please contact [email protected].