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Business and Policy Areas
Business and Policy Areas

GASB Issues Leasing Guidance

July 20, 2017

The Governmental Accounting Standards Board (GASB) issued Statement No. 87, “Leases,” on June 28.

GASB’s new guidance establishes a single approach to accounting for and reporting leases based on the principle that all leases are a means for financing the use of an underlying asset. Public institution lessees will now be required to recognize a right-of-use asset and an offsetting liability for all leases with terms greater than 12 months. Lease transactions will result in interest expense and amortization of the right-to-use asset over the life of the lease. Lease liabilities will be reported as long term debt on the Statement of Net Position and lease payments will be capital financing activities on the Statement of Cash Flows.

Statement 87 is available from GASB.


A lease is defined as a contract that conveys control of the right to use another entity’s nonfinancial asset as specified in the contract for a period in an exchange transaction. Examples of nonfinancial assets include land, buildings, vehicles, and equipment.

The time period is considered the lease term. A short-term lease is defined as a lease that has a maximum possible term under the lease contract of 12 months or less.

To determine whether a contract conveys control of the right to use the underlying asset, a government should assess whether it has both:

  1. The right to obtain the present service capacity from use of the underlying asset as specified in the contract, and
  2. The right to determine the nature and manner of use of the underlying asset as specified in the contract.

Generally, Statement 87 leads to reciprocal accounting and reporting by both lessees and lessors. However, if a public institution lessor’s underlying asset is an investment, the institution would not apply leasing guidance but rather continue to account for the asset as an investment and follow Statement 72, “Fair Value Measurement and Application.”

Component Units

When the lessee or lessor is included as a blended component unit of the primary government, the reporting requirements of Statement 87 do not apply. Lease arrangements between the primary government and discretely presented component units (or between discretely presented component units) should be treated in the same manner as any other lease under the provisions of Statement 87.


The new leasing standard requires several detailed disclosures. Essential information would include a description of leasing arrangements, the total amount of lease assets and the related accumulated amortization, and principal and interest requirements to maturity.

Effective date and transition

The statement is effective for fiscal years beginning after December 15, 2019 (FY21 for the vast majority of public colleges and universities); early adoption is permitted. Changes adopted to conform to the provisions of Statement 87 should be applied retroactively by restating financial statements—if practicable—for all prior periods presented.

Over the next several years, NACUBO will provide resources to help public institutions adopt the new standard. However, because colleges and universities may enter into lease agreements in the current fiscal year that will exist in FY21, institutions should begin evaluating all new agreements as part of implementation preparation.


Sue Menditto
Director, Accounting Policy