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Manpower (DMark Group, Inc.)


Avoiding the hurdles of GASB 87 implementation

Jan 31, 2023

Tribes and tribal enterprises are going through the implementation of the Governmental Accounting Standards Board Statement No. 87 (GASB 87). The lease accounting standard is effective for years ending after June 15, 2021. That means that all June 30, September 30 and December 31 year-end closings for 2022 are at varying stages of implementation.

For those who have not yet finished implementing, here are some common mistakes to avoid with lease identification, analysis and calculation:

Gathering leases

Gathering leases seems to be the most time-consuming part that management is facing.

Oftentimes when using the general ledger to help identify leases, accounting teams have noted that they don’t have the current leases on file or that the signed lease is missing from accounting records.

While some leases are obvious for your analysis, such as equipment and vehicle leases, consideration should be given to others too. For example, billboard marketing, soda fountains with service contract requirements and stadium suite leases may need to be examined.

If a contract conveys the right to use the asset for a period of time in an exchange or exchange-like transaction, you’ll want to include that in your analysis.

Lease analysis

During the analysis of the leases, be sure to check for anything that may be disqualified.

A lease can be disqualified for capitalization under GASB 87 if it includes clauses such as:

  • Transfer of ownership.
  • Variable payments based on usage, including for copiers based on the number of copies made or percentage of coin-in for gaming machines.
  • Software license agreements (those are considered under GASB 96, which is effective for years ending after June 15, 2022, but are excluded for consideration under GASB 87).

However, short-term leases under one year that contain the ability for either party to cancel without the other party’s approval will continue to get expensed. A common example for casinos is gaming machine leases, which often have a six-month term that renews monthly and can be cancelled by either party with 30 days’ notice.

Completing calculations

Once the lease analysis is completed and documented, completing the calculations is the next step.

Many leases don’t have a stated interest rate, so the tribe’s or tribal enterprise’s incremental borrowing rate should be used to calculate the present value.

One common issue that tribes are facing is getting a stated rate from their lenders. If you can’t get a stated rate, use an interest rate of current debt or the borrowing rate of the tribe or tribal enterprise instead.

For stadium suite leases, do not include food service or maintenance costs as part of the asset cost calculation. With gaming machine leases, any sweeteners such as kiosks or ATMs included for free are part of the value.

Once the asset values have been calculated, management needs to determine if capitalization is necessary. Capitalization occurs if the asset is either quantitively material to the financial statements or qualitatively material to the notes on the financial statements with the GASB 87 disclosures.

If management determines that the assets are neither quantitively nor qualitatively material, they can pass on capitalizing the assets. A discussion with your auditor can help with the documentation process and expediate the auditor’s review.

How Wipfli can help

Wherever you are in your implementation process, Wipfli is here to help. Our team can assist you in determining which leases qualify under GASB 87 as well as calculating the asset values and creating the necessary journal entries.

You can also watch our GASB 87 webinar for more clarification on the analysis and calculation processes.

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Jamison Scarpelli, CPA
Senior Manager
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