GASB 87 initiates multiple changes to how governmental entities will account for their existing leases and all leases moving forward. Complying with the new lease accounting standards will require comprehensive research and a strong action plan, involve multiple internal and external contributors, and likely take 3-6 months to implement depending on team bandwidth and number of contracts.
Your finance team may be echoing ‘we have plenty of time’, ‘we will get started once audits are over’, ‘let’s wait until after the holidays’, or ‘maybe we will get another extension’. But as of November 2021, the deadline for GASB 87 remains in place for fiscal periods ending June 30, 2022, and organizations need to begin preparing for compliance now.
GASB 87 implementation takes an enormous effort. The amount of work and resources required to be successful – and compliant before the effective date - are often underestimated. Below are some of the risks in waiting any longer to begin GASB 87 implementation, as well as a few benefits early adopters of a lease management software solution will experience.
5 Risk of Waiting to Implement GASB 87
Locating Your Leases May Be Harder Than You Think
The fundamental purpose of GASB 87 is improved lease management, and the first step of lease management is knowing where they are and, specifically, who is responsible for maintaining them. Depending on how your government contracts services, leases may be held centrally within the finance department or they may be decentralized in a multitude of departments, and possibly even managed by various entities. You will need to get started by locating and collecting all your known operating and capital leases – and let’s not forget all those hidden embedded leases that may be lurking in service contracts.
Extracting Key Lease Data is a Tedious Process
After your leases are gathered, you will need to extract key lease data and organize it in a logical and searchable structure. Converting your lease data into an organized structure is not without its challenges. You may encounter incomplete lease files, ‘hard copy versions only’ of certain lease agreements, voluminous amendments, and the need to translate data from lease agreements into databases. This task will likely take much longer than expected to address and will probably need to be completed on top of your day-to-day job responsibilities.
Not Having Enough Time to Prepare for Audits
Audit season will be impacted by the new standards and reporting regulations GASB 87 requires. Finance teams must prepare lease schedules, journal entries, and note disclosures under the new lease categorization. We recommend that you engage with your auditor along the way to avoid surprises at year-end about the information the auditor requires, lease classifications, and support for financial reporting, including the new footnote disclosures.
If your organization is interested in investing in a lease management software, your procurement process can significantly delay your progress with implementing a technology solution. Many public organizations must follow specific purchasing processes, often including Requests for Proposal (RFP). In the world of local and state governments, higher education, and healthcare, RFPs can be a time consuming and lengthy process, often taking anywhere from 3-6 months to complete the bidding process.
The GASB 87 deadline will wait for no one, so if your organization must follow an RFP purchasing process, you really need to start your RFP process no later than December 2021 in order to be compliant with June 2022 audits. The earlier you submit your RFPs, the better, as once a solution has been contracted, it will usually take 45-90 days to get the software implemented and the team trained on how to use the technology.
Missing the Deadline to Comply
The single biggest risk factor of waiting to get started with GASB 87 implementation is the mere fact that you may miss the deadline entirely. Your organization must meet and adhere to the new accounting standards in time for your upcoming audits. If your finance and accounting team is small, this may mean dedicating large amounts of time to this initiative, and other projects or tasks may get put on the back burner due to lack of resources. It is important to properly assess the steps involved in implementing GASB 87 to ensure your team and organization have plenty of time and resources to ensure compliance.
5 Benefits of Using a Lease Management Solution to Implement GASB 87
Lease management solutions can help organizations operate more efficiently and significantly reduce the burden placed on finance teams to comply with new financial reporting standards. Most importantly, they can address all three phases of challenges faced by organizations looking to implement GASB 87:
- Upfront Lease Organization and Data Extraction
- Schedule Creation
- Ongoing Compliance
Experience Peace of Mind with Easy GASB 87 Implementation
If the entire process of implementing GASB 87 sounds overwhelming, you may want to consider a lease management solution. These types of software programs help organizations implement and maintain compliance with GASB 87 by automating time-consuming processes and eliminating manual data entry. By partnering with a technology solution, you can experience peace of mind knowing you're working with an industry expert who understands the complexities of the changing accounting standards.
Ensure Data Accuracy
Because successful implementation starts with understanding and accumulating the necessary lease data, it is important to consider data collection and validation. Spreadsheets are prone to errors -- one input error or calculation formula error can result in compounded formula mistakes and throw everything out of balance. Rather than relying on spreadsheets for lease data consolidation and calculation, a technology solution can validate formulas and ensure that all calculations and formulas are systematically and consistently applied.
Prepare for Future Standards and Compliance
Although the first year of any new regulation will be the most challenging, once all information has been properly input into a centralized location, your team will have developed the framework for compliance with not just GASB 87, but also future pronouncements. This will help your organization avoid future issues with auditing or handling complex contracts going forward. Additionally, trusting an industry-leading technology solution can help lift the burden off your finance team to understand and prepare for future accounting standards. Your software provider should be a trusted resource for your team and help your organization undertake compliance with future regulations.
Secure Your Important Lease and Financial Data
It is difficult to ensure the accuracy and security of spreadsheets, as responsibility for spreadsheets is in the hands of individual users and likely spread across multiple computers, storage locations, and servers. Spreadsheets are frequently printed out, photocopied, emailed to others, accessed through shared folders, and generally not safeguarded. As lease accounting becomes more central to financial reporting, there must be adequate controls over data security and disaster recovery that spreadsheets do not provide. Lease software provides password-protected system access that protects sensitive data and databases allow data access by multiple users at a time and offer different levels of secure access depending on user roles and needs.
Increase Accessibility and Reduce Information Silos
As you may have experienced while attempting to gather your leases for this undertaking, data and information stored across multiple systems, departments, and team members can create silos and lead to an inefficient use of time and resources. Investing in a solution that can create a single data warehouse and lease repository can dramatically reduce silos and help even the most decentralized team structures find an effective and organized process to manage their leases.
How DebtBook Can Help
DebtBook delivers a complete, powerful, easy-to-use, cloud-based debt and lease management software for government, higher education, and healthcare finance teams. We make GASB 87 implementation and ongoing compliance easy and straight-forward and produce results that you will be confident in. We’ve built the intuitive, affordable, and complete solution for government finance teams that’s designed by government finance teams.
Disclaimer: DebtBook does not provide professional services or advice. DebtBook has prepared these materials for general informational and educational purposes, which means we have not tailored the information to your specific circumstances. Please consult your professional advisors before taking action based on any information in these materials. Any use of this information is solely at your own risk.