Accounting for Leases Under GASB 87 – Effective Date Deferment due to COVID-19


To provide temporary relief to governments and other stakeholders in response to the COVID-19 pandemic, the Government Accounting Standards Board (GASB) has issued Statement No. 95, Postponement of the Effective Dates and Authoritative Guidance, deferring the effective dates of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, by 18 months. This changes the effective dates of these provisions from reporting periods beginning after December 15, 2019, to fiscal years beginning after June 15, 2021, and all reporting periods thereafter. The new requirements were issued by the GASB on May 8th, 2020 and are effective immediately.1

Postponement of the effective dates under Statement 95 is intended to provide relief to governments by extending the time allowed to apply current or soon-to-be standards and implementation guidance in accordance with Statement 87 and Implementation Guide 2019-3. Nevertheless, early application of these guidelines is encouraged by the GASB. Governments that have already implemented these standards, or those that proceed with implementation efforts already underway, effectively are early implementers of the provisions by virtue of the postponement of the effective dates under Statement 95.

For lessees, implementation of these guidelines requires recognition of all long-term lease liabilities on the balance sheet. To account for these liabilities, lessees must calculate the net present value of all lease obligations, given a discount rate, to determine the balance sheet lease liability and offsetting right-of-use asset (ROU). This initial asset and liability balance will equal the present value of all future lease payments. Carry-forwards and initial direct costs are then added to the ROU asset balance to be amortized.

In Yardi Corporate Lease Manager (CLM), the present value of total lease payments can be easily calculated on a global scale (all leases on a property or across the entire portfolio), or lease by lease. The discount rate can be set at the system, property or lease level. Carry-forwards and initial direct costs can be included in the calculation of the ROU asset balance to be amortized. CLM also provides a recurring journal entry function that helps streamline the periodic process. The function can be run by lease, by property, or by property list and calculates interest expense, the reduction in lease liability, amortization expense, and the write-down of the ROU asset. The related financial statement disclosure information can be easily compiled using the built-in Disclosure Report.

1Statement No. 95 of the Governmental Accounting Standards Board, Postponement of the Effective Dates of Certain Authoritative Guidance

Author: Jorge Dominguez Rodriguez