GASB 87/96 Explained

GASB 87 and 96 are new accounting standards issued by the Governmental Accounting Standards Board (GASB) for state and local governments in the United States.

GASB 87, which became effective for reporting periods beginning after December 15, 2019, establishes accounting and financial reporting requirements for leases by state and local governments. Similar to ASC 842 for private companies, GASB 87 requires lessees to recognize lease assets and liabilities on their balance sheets for all leases with terms greater than 12 months. This represents a significant change in how governments account for their leases and provides a more accurate representation of their financial position.

GASB 96, which became effective for reporting periods beginning after June 15, 2021, guides how to account for subscription-based IT arrangements by state and local governments. This includes software-as-a-service (SaaS) arrangements, which have become increasingly common in recent years. GASB 96 requires governments to recognize a right-to-use subscription asset and a corresponding liability for the subscription-based arrangement, which should be amortized over the subscription term.

Overall, both GASB 87 and 96 represent a shift towards more transparent and accurate financial reporting by state and local governments. They provide clearer guidelines for accounting for leases and subscription-based IT arrangements, making it easier for investors and other stakeholders to understand a government's financial position. Governments must ensure they have the necessary systems and processes to comply with the new standards and should work with their auditors and advisors to ensure a smooth transition.

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