Source: RSM US LLP. PBMares is a member of RSM US Alliance.
ARTICLE | May 12, 2020
Due to the COVID-19 pandemic, many organizations that had been tasked with implementing new GASB accounting standards have been burdened with more pressing needs and/or otherwise have experienced disruption to their normal operating polices, making it difficult to devote the necessary time and resources to GASB implementation efforts. In response to requests to postpone the implementation of the new pronouncements, the GASB announced it would postpone all statement and implementation guide provisions with an effective date that begins on or after reporting periods beginning after June 15, 2018 for the period of one year. Specifically, GASB Statement 87, Leases, is now effective for periods beginning after June 15, 2021, providing organizations up to an additional 18 months to implement the standard. What this means is that organizations will have an additional 18 months to implement the new leasing standard. GASB 87 will be effective for fiscal years beginning after June 15, 2021.
While organizations must continue to address pressing issues resulting from the COVID-19 pandemic, it’s important to not lose sight of potentially demanding challenges involved with implementing GASB 87. Even prior to the deferral, many government organizations, such as large city, state and county governments, had expressed reservations about their ability to timely implement GASB 87. As a result, the deferral may provide these organizations with the time they need. How should you manage this extra time in the midst of the pandemic? We have compiled a list of things you can do to keep on track (note, this is not an exhaustive listing, and other factors may apply as to why implementation efforts should begin now):
- Leverage existing implementation efforts: If you have already begun an implementation process, do not stop. Setting this work aside with the hope of picking it up later in 2021 may lead to inefficiencies, duplication of efforts and stale work. Rather, revisit your implementation road map and update the timing of your implementation activities to spread them out into a less compressed timeframe.
- Implement in stages: Due to the level of effort and costs associated with the implementation of the new standard, organizations can now divide the implementation process into phases over a period of time and make it a more manageable process. For example, implementation can be divided into assessment and implementation phases; with the information learned in the assessment phase, organizations can better plan and budget for the implementation phase (especially if consultants will be engaged to assist with the implementation efforts).
- Address resource constraints: One of the biggest implementation constraints for most organizations relates to the availability of resources within the accounting function as well as conflicting operational functions in other parts of the organization that deal with contracting. Organizations can now plan their implementation activities around staff availability and can better prioritize conflicting issues that exist within the organization.
- Ensure completeness of the lease portfolio: Organizations generally maintain good controls over their real estate leasing portfolios; however, the same cannot always be said about the non-real estate portfolio (e.g., equipment, machinery, auto, IT, etc.). We have seen external auditors focusing on how organizations assess not only their lease portfolio but other contracts that could be or contain leases. Organizations should use the adoption extension to develop a sound process to identify all of their leases (both known leases and potential embedded leases contained in service arrangements). Starting this process sooner will result in more timely identification of unknown (embedded) leases and a reduction in surprises that could have a material impact on financial statements resulting from the adoption. Proper documentation of this process should enable the audit to go more smoothly.
- Address complexities associated with data abstraction: Abstraction of the lease data could be one of the most time intensive aspects of GASB 87 implementation. Organizations should develop a comprehensive abstraction playbook that would allow them to methodically abstract their lease data over a sufficient period of time, rather than rushing through the process without appropriate data review. Organizations should also factor in time to address any issues or questions that arise during the abstraction process, as getting the data entered completely and accurately will drive the correct accounting.
- Select the right lease technology system early: Organizations should use this opportunity to develop their business requirements relating to the selection of a lease technology system, and to demo these systems prior to making a selection. Organizations should take advantage of the extra time the deferral provides when selecting a system to focus on evaluating the benefits of a lease system beyond accounting for GASB 87. These benefits include the potential to eliminate existing manual processes in managing lease portfolios within an organization’s real estate group or/and IT teams. The selection of the wrong system could lead to significant complications during the implementation effort. Focusing on your system vendor contract early provides potential for greater flexibility in pricing as opposed to delaying and negotiating later in the year. It is anticipated that qualified resources to help implement will become scarce as the year progresses.
- Leverage the lessons learned from public filers: Feedback from public filers has indicated the following:
- Underestimating the level of effort and time required was common
- Selecting an appropriate lease technology solution early is critical
- Abstracting data is a long process; not understanding your comprehensive lease portfolio can add additional time and costs to this process
- Identifying the right team (including external partners to assist) and having a strong project management function can lead to a successful implementation
Governmental organizations should heed these lessons and begin their implementations now in order to alleviate some of the issues public filers have noted in their respective implementations.
Organizations should not delay their implementation efforts because of the potential deferral, as implementation can be a complex and arduous task and every minute counts.
This article was written by RSM US LLP and originally appeared on May 12, 2020.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.