3. • GASB Statement 95, Postponement of the Effective Dates of Certain
Authoritative Guidance
• Provides an additional 18 months to implement
• Fiscal years beginning after June 15, 2021
All leases are financings
Significant new disclosures
Eliminates operating and capital leases
Separation of lease and non-lease
components
4. 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
Definition of a Lease
5. W h a t i s i n a
Lease Term?
If reasonably certain
that option will be
exercised
If reasonably certain
that option will NOT
be exercised
Unless reasonably
certain that clause
will be exercised
Periods for which both lessee &
lessor have option to terminate
or both have to agree to
extend are excluded
6. W h a t i s i n a
Lease Payment?
If dependent or an
index or rate,
measured at rate at
commencement
If fixed in substance
such as minimum
annual guarantees
Amounts paid under
RVG’s, exercise price
of reasonably
certain purchase
option, incentives
Payments established at
specific amounts in the lease
contract which the lessee is
obligated to make
7. LesseeModel
Lease Receivable
Deferred Inflow of Resources
*No derecognition of underlying asset
Lease Revenue
Interest Revenue
Lease Liability
Right-to-Use Asset
Lease Expense
Interest Expense
Amortization Expense
Considerations
Additional liabilities and/or assets on the books
New accounts may need to be created
Who enters into leasing transactions
Embedded leases
Materiality and reasonable certainty
12. Completeness is the biggest ongoing audit
RISK.
Identification Going Forward
13. Reading Lease Agreements is a time-
consuming Process. It’s extremely important
to identify all necessary lease information.
Analyze In-Scope Leases
14. Can I follow the logic you applied across your
population?
Consistency and Reasonableness in Subjective
Determinations
15. Reporting the financial statement balances
and required disclosures will require up front
effort.
Financial Reporting and Disclosure
16. Auditor’s will be asking about your controls
around implementation and going forward
Are Your Policies & Internal Controls Updated?
18. Initial Adoption Documentation
• Document the Transition Method
• Identify Population of Contracts/Agreements
to Analyze for Implementation of GASB 87
• Separating Lease and Nonlease Components
• Identify Lease Terms
• Determine Lease Payments
• Calculate Discount Rate
19. Initial Adoption Documentation
• Determine Lease Assets
• Initial Measurement and Recognition
• Subsequent Accounting i.e. absent
modification, impairment, etc.
• Presentation
• Disclosures
20. Completeness is the biggest first year audit
RISK.
There are a variety of ways to show your
auditor you’ve fully considered
completeness.
Find Leases
21. Completeness is the biggest ongoing audit
RISK.
Controls, policies and procedures to identify
new leases and lease
modifications/terminations will be necessary.
Identification Going Forward
22. Reading Lease Agreements is a time-
consuming Process. It’s extremely important
to identify all necessary lease information.
There are ways to use technology to lessen
this burden
Analyze In-Scope Leases
23. Can I follow the logic you applied across your
population?
Materiality, Discount Rate and Reasonable Certainty
should be clear and emphasized in your organization
Consistency and Reasonableness in Subjective
Determinations
24. Reporting the financial statement balances
and required disclosures will require up front
effort.
Your audit firm should have model financial
statements and checklists to help with disclosures
Financial Reporting and Disclosure
26. Lessee Implementation
• Understanding controls
• Trace listing to the trial balance
• Select a sample of leases
• Did they apply GASB 87 correctly
• Are estimates/judgments reasonable?
• Are there any nonlease components?
• Is the interest rate used appropriate?
• Is the useful life correct?
• Was the implementation journal entry made
correctly
27. Lessor Implementation
• Same as prior slide
• Select a sample of leases
• Did they apply GASB 87 correctly
• Are estimates/judgments reasonable?
• Are there any nonlease components?
• Is the interest rate used appropriate?
• Verify payments are using the effective
interest rate method
• Verify the capital asset was not removed
from the books
28. Lessee Ongoing
• Same as prior slide
• Analytically compare amortization expense
• Verify the amortization expense is charged
appropriately across programs
• Determine if any remeasurement events
occurred
• Determine if remeasurement events were
recorded correctly
29. Lessor Ongoing
• Same as prior slide
• Review lease receivable for collectibility
• Review lease payment stream for indications
of lease modifications
• Inquire of any rent holidays
• Analytically test lease revenue and interest
revenue
36. bkd.com | @bkdllp
The information contained in these slides is presented by professionals for your information only and is not to be
considered as legal advice. Applying specific information to your situation requires careful consideration of facts &
circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Danny Martinez
Managing Director, BKD
dmartinez@bkd.com
505-917-0488
