Planon recently participated in an excellent webinar “Countdown to Compliance: How Public Universities Can Effectively Prepare for GASB 87” with NACUBO, the National Association of College and University Business Officers. The webinar speakers included Shea Bryant of Michigan State University, Charlene McNeil of Arazzo Solutions, and me. In this blog, I’d like to share some key takeaways from that webinar.
White Paper - What you need to know about GASB 87
One of the most important changes for public higher education organizations to be aware of under the new GASB 87 standard is that now organizations must recognize almost all contracts that are considered leases, as defined by the new standard, on the statement of net position within the annual financial statements.
It is important for all higher education organizations to be aware that from financial years starting December 15, 2019 and on they must be compliant with the Governmental Accounting Standards Board’s (GASB) new lease accounting standard, GASB 87. The objective of the new standard is to provide better, more accurate information for financial statements. Learn more about GASB 87 from our fact sheet.
Several implications of this new standard that public higher education institutions need to prepare for include:
Significant changes to the organization’s statement of net position
Under GASB 87, almost all contracts are considered leases on the statement of net position in the annual financial statements.
Changes in business processes
To achieve and remain in compliance with GASB 87, your organization will have to undergo several business process changes. For example, you may have to modify monthly reports and/or expand monthly meetings to include new teams, such as lease accounting, internal audit and treasury.
A need for increased communication between previously siloed departments
During the webinar, Charlene McNeil of Arrazo Solutions noted that this process will require you to expand your team of stakeholders so it is critical that there is consistent communication between previously siloed departments. Charlene suggests having monthly meetings with participants from portfolio/lease administration, finance and transaction management to discuss and deal with anything that impacts a lease and triggers a re-measurement. This may include renewals, terminations, unexpected rent charges, and other events.
Creating a standard to correctly identify all contracts that contain a lease, according to the new standard
Determining if a contract contains a lease, as defined by the new GASB 87 standard, will require various decisions about data and journal entries and judgements surrounding existing contracts. During the webinar, Shea Bryant from MSU shared that to help with this process, they enlisted a task force covering land management, university services, medical units, accounting, residential housing, and planning and budgets.
An increased risk for organizations relying on manual processes
Now that almost all contracts are considered on balance leases, managing your portfolio of leases manually will be more difficult due to additional complexity in calculations, disclosures, and compliance requirements. Thus, many organizations, like MSU, are using software solutions to help to stay organized and in control. However, some smaller organizations that are only dealing with a very limited number of leases within a single department may choose to continue using spreadsheets. However, those organizations dealing with a larger number of leases will likely turn to a software solution to deal with the additional complexity.
Planon Can Help Public Universities Become GASB 87 Compliant
Planon has taken great care to work with great universities like MSU and financial consulting organizations like Arazzo Solutions to understand the requirements around GASB and include these into our lease accounting software. We are using our experience implementing FASB ASC 842 and IFRS 16 to establish lessons learned and best practices moving forward to help public universities achieve GASB 87 compliance.
Is your team starting their journey to GASB 87 compliance? Let us know. Our team would be happy to learn more about your specific needs.