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Five Steps for Successful GASB 87 Implementation at Airports

Tue Mar 23 2021

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In May 2020, the Governmental Accounting Standards Board (GASB) announced the postponement of the effective date of Statement No. 87, Leases, by 18 months. Previously, airports were expected to adopt GASB 87 for all reporting periods after December 15, 2019. GASB 87 is now scheduled to be effective for fiscal years beginning after June 15, 2021. While the implementation of the GASB 87 has been extended, earlier application is encouraged. Airports have significant preparation ahead to effectively apply all provisions of GASB 87.

GASB Overview

The Governmental Accounting Standards Board issued Statement No. 87 in 2017 with the objective to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. GASB 87 is based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. GASB 87 impacts accounting, including calculation of lease terms, interest rates, variable payments, and Minimum Annual Guarantee (MAG) amounts, as well as financial reporting and disclosures.

GASB Applicability to Airports

GASB 87 has a significant impact on airports’ processes, as airports engage in various lease agreements with airlines, concessions, hangars, etc. that meet the definition of a lease under GASB 87. There are many factors that airports must consider when evaluating whether an agreement meets the definition of a lease under GASB 87. A single agreement may contain more than one lease. Some lease components may meet the GASB criteria while some may not. Certain regulated leases that are subject to external laws, regulations, or rulings are exempt from the provisions set forth in GASB 87. For example, leases between airports and air carriers are subject to the Federal Aviation Administration’s (FAA) regulations and are therefore exempt from GASB 87 requirements. Airports must thoroughly understand GASB 87 provisions for successful implementation.

Five Steps for Successful GASB 87 Implementation

Get a lay of the land.
Identify all applicable leases.
  • Evaluate all lease agreements and determine whether it meets the criteria for compliance with GASB 87.
  • Pay close attention to embedded lease agreements and ensure that all applicable leases are identified.
  • Remember that certain regulated leases are exempt from GASB 87.
  • Maintain a list of all applicable leases to ensure compliance for each fiscal year.
Organize all leases.

Group similar leases into categories for seamless application of GASB provisions. For example, leases can be separated into two broad categories – aeronautical use and non-aeronautical use. Non-aeronautical use can be further split into subcategories, such as food and beverage, retail, rental car, etc.

Find a suitable tool.
  • GASB 87 compliance is too complex to effectively and efficiently execute via a manual paper process.
  • Excel can be a great tool for calculations, but it is extremely limited for overall lease tracking.
  • Lease management software with GASB functionality can help airports maintain a repository of leases in a central location, automate complex calculations, and provide ease of financial reporting for streamlined GASB 87 compliance. A robust software can also track Key Performance Indicators (KPIs) for strategic planning.
Document new processes.
  • Maintain a record of the new processes for easy reference.
  • Train all relevant employees to provide them with the knowledge and tools to effectively carry out their duties.

Summary

GASB 87 significantly impacts airports’ lease and accounting processes. Airports must thoroughly understand the requirements of the new standard and proactively take the necessary steps towards successful implementation. With effective preparation and the right tools, airports can expect a seamless transition in adopting the new processes outlined in GASB 87.

Need help implementing GASB 87 at your airport? Learn more about ProDIGIQ’s solution:

From general aviation airports and regional carriers to large hub airports and major airlines, hundreds of organizations trust ProDIGIQ for their aviation needs.

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