Knowledge and Insights

During the last couple of years, many governmental entities were required to move long-term lease and software-based information technology arrangement (SBITA) agreements onto the balance sheet to enhance transparency and accounting for future obligations under executed contracts or arrangements. While the GASB 87 and 96 standards appear complex and daunting on their face, understanding some common themes and principles will allow for a smooth transition of adopting the new standards for existing and future agreements and contracts.

STREAMLINING THE TRANSITION PROCESS

Having a team who understands the basics of each standard will help streamline the gathering of required documents to review for applicability and will serve as an internal control that all applicable agreements are identified. This might include the finance department informing contract managers and IT directors to track all existing and newly executed long-term agreements and forward them to finance to review for applicability at the time of execution and provide updates when the terms are modified or extended.

Utilizing cutting-edge software to calculate the present value of future lease and SBITA payment streams and outputting amortization tables and required journal entries will help cut time spent on implementation immensely. For entities with more than one agreement, user-friendly and even AI-based software can be a lifesaver versus manually doing calculations in Excel workbooks.

REDUCING IMPLEMENTATION COSTS

Understanding what is and what is not applicable under each standard will help reduce the cost of implementation. For example, an entity that is a lessor to several leases may be required to implement the lessor side of GASB 87, but the lessee side might be considered immaterial. Understanding the exclusions that are baked into the standards will help assure you that certain aspects of the standards might not be applicable to your entity, potentially reducing headache and time spent on unneeded journal entries and disclosures.

PRACTICAL STEPS TO TAKE

1. Internal Training: Educate your team on the basics of GASB 87 and 96. This includes finance personnel, contract managers, and IT directors.
2. Document Tracking: Implement a system for tracking all long-term agreements and their modifications.
3. Software Utilization: Use advanced software solutions to handle calculations and generate required documentation.
4. Applicability Review: Conduct a thorough review to determine what aspects of the standards apply to your entity.

ADVANCED STRATEGIES FOR IMPLEMENTATION

LEVERAGING TECHNOLOGY FOR ACCURACY AND EFFICIENCY

With the increasing complexity of financial reporting standards, leveraging technology becomes imperative. Advanced software tools can automate the calculation of present values, generate amortization schedules, and produce necessary journal entries with higher accuracy. Incorporating AI-based solutions can also aid in identifying patterns and discrepancies that might be overlooked in manual processes. This technological leverage not only saves time but also enhances the reliability of the financial data being reported.

CROSS-DEPARTMENTAL COLLABORATION

Effective implementation of GASB 87 and 96 requires collaboration across various departments. Finance teams should work closely with contract managers, legal departments, and IT teams to gather comprehensive data on existing and new agreements. Regular training sessions and workshops can foster a culture of compliance and awareness, aligning all stakeholders with the new reporting requirements. This collaborative approach mitigates the risk of oversight and promotes a unified strategy for compliance.

CONTINUOUS MONITORING AND UPDATING

The implementation process does not end with the initial adoption of the standards. Continuous monitoring and updating of agreements are crucial to maintaining compliance. Regular audits and reviews should be conducted to identify any changes in contract terms or new agreements that may affect financial reporting. Establishing a routine for periodic assessments helps in staying ahead of potential issues and adapting to any updates in the standards promptly.

LESSONS FROM IMPLEMENTATION CHALLENGES

Not all implementations are without challenges. Some entities faced difficulties due to a lack of internal expertise or inadequate tracking systems. Learning from these experiences, it becomes evident that early preparation, investment in technology, and continuous training are key factors in overcoming implementation hurdles. Entities that proactively addressed these challenges reported smoother transitions and better compliance outcomes.

RECOMMENDATIONS FOR GASB STANDARDS IMPLEMENTATION

PREPARING FOR EVOLVING STANDARDS

As financial reporting standards continue to evolve, staying informed and prepared is essential. Entities should keep abreast of any updates or changes to GASB standards and adapt their processes accordingly. Engaging with professional bodies, attending relevant seminars, and subscribing to updates from standard-setting organizations can provide valuable insights and guidance.

BUILDING A RESILIENT COMPLIANCE FRAMEWORK

Building a resilient compliance framework involves more than just meeting current standards. It requires a proactive approach to identify potential risks, invest in ongoing education, and leverage technology to adapt to future changes. By fostering a culture of continuous improvement and compliance, entities can navigate the complexities of financial reporting with confidence and precision.

NEED ASSISTANCE WITH IMPLEMENTATION? OUR TEAM IS HERE TO HELP

At Mercadien, our government team’s expertise can assist with the implementation of the GASB 87 and 96 standards. This includes reviewing and evaluating leases and SBITAs for applicability, processing of required journal entries utilizing state-of-the-are software, and preparing necessary financial statement and disclosure updates.

Ready to streamline your GASB 87 and 96 implementation? Contact Mercadien’s Government Services Group today for expert assistance and facilitate a smooth transition to the new standards.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.