GASB 87 and GASB 96 are similar, yet different. Both share the characteristic of further complicating accounting in the name of financial clarity. But while GASB 87 is an accounting standard for leases, GASB 96 is an accounting standard for SBITAs, or subscription-based information technology arrangements. 

In regards to these two specific GASB standards, what would the accounting process look like? Is there anything in particular you should worry about in regards to differences between GASB 96 and GASB 87 lease spreadsheets? Find out in our all-you-need-to-know blog about these two GASB standards.

What is GASB 87?

GASB 87 requires all leases over 12 months in length to be recorded as liabilities and lease assets. GASB 87 runs in tandem with FASB’s ASC 842, as both attempt to make financial information clearer by defining leases and adding financial obligations to the Statement of Financial Position or Balance Sheet.

Accounting for GASB 87 Lease Spreadsheets

The steps to account for a lease under GASB 87 are as follows:

1. Calculate the initial lease liability - The present value of future lease payments that are to be made over the term of the lease.
2. Calculate the initial asset value - The asset value is the sum of the lease liability, payments made to the lessor at or before commencement, initial direct costs less any lease incentives received from the lessor.
3. Record the initial journal entry under GASB 87 - This establishes an asset and liability on the statement of financial position.
4. Book subsequent journal entries - In the final step, the ROU asset is amortized in a systematic and rational manner and reported as an outflow of resources over the lease term. This has a function similar to a depreciation expense, as it is representative of the reduction of an asset’s value over time. Subsequent journal entries will also decrease the lease liability. Finally, record the interest payable interest and amortization expense. Interest is calculated by using the discount rate divided by 12, multiplied by the remaining liability.

What is GASB 96?

GASB 96 is meant to provide guidance for accounting and financial reporting for SBITAs, or subscription-based information technology arrangements. GASB 96 specifically outlines the following for SBITAs:

• A definition of a SBITA
• Details for how a Subscription Liability and Subscription Asset are calculated
• The capitalization criteria for outliers other than subscription payments 
• Requires governments and their entities to note disclosures regarding SBITAs
• Defines the term of the subscription as the period of time during which a government entity has the right to use the underlying assets

Accounting for GASB 96

SBITAs should be accounted for under GASB 96 in a similar manner to the way that leases are accounted for under GASB 87. When a government entity enters into a SBITA, they recognize the subscription asset and a related subscription liability on financial statements. The value of these is determined by calculating the present value of subscription payments expected to be made during  the term of the SBITA. The government entity should then amortize these assets in a systematic and rational manner over the subscription term and reduce the subscription liability by payments made during the term.

If you need help adding a SBITA in your LeaseCrunch accounting software, check out this Knowledge Base article. 

How do GASB 87 and GASB 96 Impact Financial Reporting?

Before GASB 87 and 96 went into effect, leases were not recorded on Statements of Financial Position. Instead, they were recorded only as outflows of resources. After GASB 87 went into effect, government entities had to report both the lease liability and assets on the Statement of Financial Position.

GASB 96 now requires government entities to report subscription liabilities and assets. 

What are Some Common Mistakes Made When Trying to Comply with GASB 87 and GASB 96?

For GASB 87, some of the most common mistakes we see are with modifications and terminations, such as when to re-measure the lease or adjust the lease term. We also see struggles with determining what constitutes a lease payment, as well as identifying the incremental borrowing rate or the implicit discount rate. 

For GASB 96, we see mistakes with identifying the incremental borrowing rate or rate implicit in the contract, as well as what constitutes a fixed payment, which is one input in determining the lease liability. Determining the subscription term of the agreement is another common question received by our support team that could be a source of mistakes for some organizations.

Have you struggled with these areas yourself? Have outlying questions regarding any of them? Don't hesitate to contact us here at LeaseCrunch for more information.

What are the Limitations of Using Excel for GASB 87 and GASB 96 Calculations?

Excel can lead to multiple errors that a lease accounting software would otherwise catch. Some of the mistakes that organizations have suffered through because of Excel include:

• Overpayment because of a lack of notifications about rent abatement
• Payment escalation, which leads to underpayment
• Incorrect calculations of interest on lease liability
• Issues with calculations for remeasurements or terminations

As you can see, using Excel for GASB 96 and GASB 87 lease spreadsheets are not the best way to avoid errors while improving the ease of lease accounting. Lease software can help mitigate these risks while providing a host of other benefits as well.

What are the Advantages of Using Specialized Software for GASB Lease Accounting?

There are several reasons why specialized software can help you avoid GASB 96 and GASB 87 lease spreadsheet errors and overall improve your lease accounting processes. These include increases in:

• Accuracy
• Security
• Integration efficiency
• Ease of Use
• Cost efficiency
• Ability to handle lease modifications

Interested in learning more about how lease accounting software can help you avoid the risk associated with accounting under GASB 96 and GASB 87? Download our free resource today!

FAQs

What is the primary difference between GASB 87 and GASB 96?

GASB 87 requires all leases more than 12 months in length to be recorded as liabilities and lease assets, whereas GASB 96 defines SBITAs and the accounting used for these types of lease agreements. GASB 87 and 96 are generally similar in scope and calculations.

What are the key objectives of GASB 87 and GASB 96?

GASB 87 requires all leases longer than 12 months to be recorded as liabilities and assets on the balance sheet. GASB 96 created a definition for SBITAs and further identifies implementation costs and how to account for them.  

Are there any specific criteria for capitalizing costs under GASB 96 that differ from GASB 87?

Under GASB 96, costs associated with certain implementation stages may be capitalized over the subscription term which is different from GASB 87.  

Can you explain the process of amortizing assets under GASB 87 and GASB 96?

When booking subsequent journal entries for GASB 87, the ROU asset is amortized in a systematic and rational manner and reported as an outflow of resources over the lease term. For GASB 96, when a government entity enters into a SBITA, they recognize the subscription asset and a related subscription liability on their financial statements. After calculating the value of these, the entity should amortize the assets over the course of the subscription in a systematic and rational manner.