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This guidance does not represent legal or investment advice. Please consult with your legal counsel regarding the interpretation of language in leases, contracts, and other agreements.

Preparing for GASB 87 – Leases

GASB Statement No. 87, Leases, is effective for fiscal years beginning January 1, 2020.  That may seem like a long way off, but now is the time to develop your implementation plan.

The new standard applies not only to new lease agreements going forward, but also retroactively to existing agreements.  You can start today by identifying the population of current leases to which the standard will apply.

Implementation of the standard can be time consuming because governments may have a significant number of leases administered decentrally across the organization, making it a challenge to identify and determine which agreements are subject to the new accounting and financial reporting requirements. 

Where do I start?

Start by familiarizing yourself with the new standard. 

Create an inventory of existing leases and other contracts and agreements for review.  Effective communication between departments will be necessary to ensure all leases are identified.

Determine which agreements meet the definition of a lease and which can be excluded.  Just because the word “lease” isn’t in the agreement, doesn’t mean it doesn’t meet the definition of a lease under GASB 87.  And not all “leases” meet the definition of the new standard.  It’s the substance of the agreement that you must analyze – and document.

Document key provisions of each lease agreement such as the lease term, extensions, termination provisions, payment provisions, and an implied interest rate.

Key Definitions – Here are some key definitions and concepts you’ll need for your analysis:

Lease – A contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction.

Right to use – The right to obtain the present service capacity from use of the underlying asset and the right to determine the nature and manner of it use.

Lease term – The period during which a lessee has a non-cancelable right to use an underlying asset, plus periods covered by a lessee’s or lessor’s option to extend the lease (if reasonably certain the option will be exercised) and periods covered by the lessee’s or lessor’s option to terminate the lease (if reasonably certain the option will not be exercised).  Note that periods for which both the lessee and the lessor have an option to terminate the lease without permission from the other party or if both parties have to agree to extend, are excluded from the lease term.


Not all leases will be subject to the accounting and reporting requirements of GASB 87.  Here are examples of some common scope exclusions:

  • Short-term leases – Leases that have, at the commencement of the lease, a maximum possible term of 12 months or less, including any options to extend.  For example, month-to-month leases.  The lease payments will simply be recognized as revenue by the lessor and expenses/expenditures by the lessee.
  • Contracts that transfer ownership (formerly known as a capital lease) – A contract that transfers ownership of the underlying asset to the lessee by the end of the contract and does not contain termination options should be reported as a financed purchase by the lessee or a sale by the lessor.
  • Intangible assets – Such as mineral rights, patents, software, copyrights.  Except for the sublease of an intangible right-to-use asset created by the original lease of a tangible underlying asset.
  • Biological assets – Such as timber, living plants, living animals.
  • Leases of inventory.
  • Service concession arrangements – These are covered by GASB 60.
  • Assets financed with outstanding conduit debt – Unless both the asset and conduit debt are reported by the lessor.
  • Supply contracts – Such as power purchase agreements.
  • Certain regulated leases – Such as aviation leases between airports and air carriers.


GASB Statement No. 87, Leases

GASB Leases project webpage

GFOA Best Practices/Advisory – Accounting for Leases 

Audit Connection 

1/15/19 Article: Lease accounting changes are coming soon

SAO has established a local GASB 87 implementation workgroup to identify and provide resources for local governments and to identify and resolve implementation issues. If you have any questions or topics for discussion, please contact or or the SAO Help Desk.