Jazmin Li
The Governmental Accounting Standards Board (GASB) issued Statement No. 87, Leases, in June 2017, with the objective of enhancing the quality and reliability of financial reporting within governmental entities. GASB 87, a lease accounting standard, is applicable to local and state governments, including airports, and introduces a new framework for lease accounting. It considers leases as financings of the right to use an underlying asset, impacting how leases are recognized and reported. Airports, with their various lease agreements, will be significantly affected by GASB 87, requiring them to understand and effectively implement the new standard.
| Characteristics | Values |
|---|---|
| Implementation Date | 15 June 2021 |
| Purpose | To improve accounting and financial reporting for leases by governments |
| Impact | Significant impact on airports' processes, particularly lease agreements with airlines, concessions, hangars, etc. |
| Compliance | Airports must understand the new requirements and evaluate all lease agreements to determine compliance with GASB 87. |
| Tools | Lease management software can help maintain a central repository of leases and automate financial reporting for streamlined compliance. |
| Preparation | Airports should collect and organize leases, extract data, and conduct internal and external reviews. |
| Exemption | Certain regulated leases, such as those between airports and air carriers, are exempt from GASB 87 requirements. |
| Lease Definition | A lease is a contract conveying control of the right to use another entity's non-financial asset for a specified period. |
| Lease Recognition | Lessees recognize a lease liability and an intangible asset reflecting the right to use the leased asset. Lessors recognize a lease receivable and deferred inflow of resources. |
| Lease Term | GASB 87 applies to leases with terms longer than one year, which must be represented as liabilities and right-of-use (ROU) assets. |
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What You'll Learn
- Airports must understand the new standard and take steps to implement it
- Lease agreements must be evaluated against GASB 87 criteria
- Airports should use lease management software to streamline compliance
- Airports must train staff to effectively carry out their duties
- GASB 87 will affect most airports due to their complex lease structures
Airports must understand the new standard and take steps to implement it
Airports must grasp the new requirements and their impact on processes. This involves understanding the structure and requirements of GASB 87, which mandates that all leases with terms longer than a year be represented as liabilities and right-of-use (ROU) assets. Airports should evaluate their lease agreements to determine compliance with the new standard, paying close attention to embedded leases and ensuring all applicable leases are identified. Certain regulated leases, such as those between airports and air carriers, are exempt from GASB 87 requirements due to external laws and regulations.
To facilitate compliance, airports can utilise lease management software with GASB functionality to centralise lease information, automate calculations, and streamline financial reporting. This technology can also track key performance indicators (KPIs) for strategic planning. Additionally, airports should maintain records of new processes, provide training to relevant employees, and proactively take the necessary steps for a successful transition to the new standard.
The implementation of GASB 87 is complex and will likely require significant time and effort from airports, especially those with complicated lease structures. Airports should not underestimate the undertaking and ensure they have the necessary tools and resources for a seamless transition to the new lease accounting standard.
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Lease agreements must be evaluated against GASB 87 criteria
GASB 87, issued by the Governmental Accounting Standards Board, provides a new framework for lease accounting under the principle that leases are financings. This new standard will have a significant impact on airports due to the number of leases they enter into each year. Airports must, therefore, take proactive steps towards successful implementation.
Firstly, airports should evaluate all lease agreements to determine whether they meet the criteria for compliance with GASB 87. This includes examining embedded lease agreements, which are part of a larger service agreement contract. For example, a contract with a cloud computing service may include the lease of physical servers, which would be subject to GASB 87. Airports should also pay attention to the fact that certain regulated leases, such as those between airports and air carriers, are exempt from GASB 87 requirements due to external laws and regulations.
Secondly, airports should understand the structure and requirements of the new accounting standard. This includes gathering all lease agreements, including those for copiers, vehicles, real estate, and cell towers, and evaluating whether they are subject to the new reporting requirements. Lease management software with GASB functionality can help airports maintain a central repository of leases, automate complex calculations, and streamline financial reporting for GASB 87 compliance.
Thirdly, airports should be aware that the transition to GASB 87 is retroactive. This means that for airports, the earliest period presented in financial statements will need to be restated if practicable. For example, if an airport is in the fourth year of a 10-year lease, it calculates the lease as if it were a six-year lease starting at the date of GASB 87 implementation.
Finally, airports should ensure that all relevant employees are trained to effectively carry out their duties under the new standard. With effective preparation and the right tools, airports can expect a seamless transition to the new processes outlined in GASB 87.
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Airports should use lease management software to streamline compliance
The Governmental Accounting Standards Board (GASB) issued Statement No. 87, Leases, in June 2017, with the objective of refining the accounting and financial reporting of leases in governmental entities. GASB 87 is based on the principle that leases are financings of the right to use an underlying asset. This new framework will have a significant impact on airports, given the number of leases they enter into each year. Airports must now consider whether their agreements meet the definition of a lease under GASB 87 and evaluate all lease agreements for compliance.
To streamline compliance with GASB 87, airports should use lease management software with GASB functionality. This software can help airports maintain a central repository of all their leases, automate complex calculations, and provide ease of financial reporting. With the right tools, airports can expect a seamless transition to the new processes outlined in GASB 87. Lease management software can also track key performance indicators (KPIs) for strategic planning and maintain a record of new processes for easy reference.
The adoption of GASB 87 will be complex and time-consuming for airports, and they must thoroughly understand the new standard to successfully implement it. Airports should assess whether they need to overhaul their current lease reporting structure or leverage a technology solution. They can also seek assistance from advisors or industry experts to comply with the new lease standard.
GASB 87 will affect most organizations, including local and state governments, public welfare organizations, schools, and universities. It is applicable to leases of non-financial assets, such as property, buildings, machinery, and vehicles. Airports should prepare accordingly by gathering their lease agreements and determining whether they are subject to the new reporting requirements.
Overall, by using lease management software, airports can streamline compliance with GASB 87, maintain accurate records, and make the transition to the new standard more seamless.
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Airports must train staff to effectively carry out their duties
To effectively train staff, airports can utilize lease management software with GASB functionality. This software can help employees understand and manage lease agreements, financial reporting, and compliance with GASB 87. It can also automate complex calculations and track key performance indicators (KPIs) for strategic planning. Additionally, airports can provide educational resources and implementation tools to help staff understand the new standard and its impact on their specific roles and responsibilities.
It is important for airports to start the training process early and allow enough time for staff to understand and adapt to the new requirements. GASB 87 is complex and may require significant hours to implement correctly. By providing comprehensive training and the necessary tools, airports can ensure a seamless transition to the new standard for all employees involved in lease and accounting processes.
Furthermore, ongoing training and support should be provided to staff as GASB 87 evolves and is updated. This will ensure that airports maintain compliance and that staff can effectively carry out their duties in the long term. It is also crucial for airports to monitor and address any challenges or issues that arise during the implementation process, as well as keep up with ongoing compliance on every audit moving forward. By investing in their staff's knowledge and providing the necessary resources, airports can successfully adopt and maintain compliance with GASB 87.
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GASB 87 will affect most airports due to their complex lease structures
Certain regulated leases are exempt from GASB 87 requirements. For example, leases between airports and air carriers are subject to the Federal Aviation Administration's (FAA) regulations and are therefore exempt. Most aeronautical agreements that airports have will likely fall into this exception. However, it is important to note that the transition to GASB 87 is retroactive, and airports will need to restate the earliest period presented in their financial statements. This means that a significant amount of new assets and liabilities will be coming onto the airport's financials when this standard is adopted.
To facilitate compliance, airports can utilize lease management software with GASB functionality to maintain a central repository of leases, automate complex calculations, and streamline financial reporting. This software can also track Key Performance Indicators (KPIs) for strategic planning. Additionally, airports should maintain a record of the new processes and train all relevant employees to ensure a seamless transition to the new standard.
Overall, GASB 87 will have a significant impact on airports' lease and accounting processes, and airports must thoroughly understand the new standard and take proactive steps towards successful implementation.
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Frequently asked questions
GASB 87 is a lease accounting standard for governments and nonprofits. It was issued by the Governmental Accounting Standards Board (GASB) in June 2017 and went into effect for fiscal years after June 15, 2021.
The primary purpose of GASB 87 is to improve the accounting and financial reporting of leases in governmental entities, making financial information more transparent, comparable, clear, and useful for financial statement users.
Airports engage in various lease agreements with airlines, concessions, hangars, etc. that meet the definition of a lease under GASB 87. GASB 87 will significantly impact airports' lease and accounting processes, and they must understand the new requirements and proactively take steps toward successful implementation.
Under GASB 87, lessees are required to recognize both a lease liability and an intangible asset reflecting the right to use the leased asset upon the conclusion of the lease term. Additionally, GASB 87 mandates that all leases with terms longer than a year be represented as liabilities and right-of-use (ROU) assets.
Airports should first evaluate all their lease agreements to determine whether they meet the criteria for compliance with GASB 87. They should then maintain a list of all applicable leases and group them into categories for seamless application of GASB provisions. Lease management software with GASB functionality can assist in this process. Finally, airports should ensure that all relevant employees are trained and equipped with the necessary knowledge and tools to comply with GASB 87 requirements.
