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Over the past few years, the corporate world has worked through achieving compliance with lease accounting standards for real estate and assets. Adherence to ASC 842 and internationally, with IFRS 16, has been a challenging journey for many. Now it’s state and local governments’ turn to shine new light on their lease obligations.
Asset leasing is just as widespread across state and local governments as it is with private sector enterprises. While lease accounting requirements are usually applied to real estate and facilities assets, many other asset classes are commonly leased, such as IT equipment, warehouse space, warehouse equipment, water towers, vehicle fleets, cell towers and office equipment.
In the U.S., all leases associated with these asset classes must comply with regulations from the Governmental Accounting Standards Board (GASB). GASB 87, which took effect in 2021, is the new lease accounting standard issued by GASB to more accurately portray lease obligations and improve governmental financial statements.
Successfully navigating the complexities of GASB 87 compliance requires a cross-functional effort from stakeholders across the organization. Financial and accounting executives need to stay informed about the new accounting rules and the increased complexity associated with financial forecasting in the context of lease management and accounting. Real estate directors can increase efficiencies to reduce balance sheet impacts as they oversee facilities portfolios. And IT executives need to upgrade IT systems to manage finance, real estate and other core asset optimization functions.
What’s changed with the new GASB 87?
For all public sector entities, lease accounting and reporting are being wholly redefined. Under the old GASB 13 and GASB 62 standards, there was a determination about which leases had to appear on balance sheets. That’s no longer the case. Now, with minor exceptions, all leases are considered finance leases and are required to appear on balance sheets.
Further difficulty may arise when leases are scattered across departments throughout the organization. Facility leases may be part of core infrastructure groups, while transportation departments may hold vehicle or truck leases and IT may be leasing laptops, devices or datacenter equipment. There may be other unidentified specialty leases. Finally, there may be leases embedded in service agreements, which need to be identified and accounted for.
All of these leases must comply with GASB 87 standards.
Governments need a more sophisticated lease management solution
Government organizations ultimately obtain funding from legislatures and the implied consent of citizens. The ability to accurately project near-term needs and longer-term obligations through demonstrated financial control is imperative to establishing confidence to obtain future funding. GASB 87 provides an opportunity for improved financial transparency and a better understanding of asset portfolios.
Most government entities will have more than 200 leases, large ones will have far more. It won’t be possible to comply through manual efforts or spreadsheet tracking of leases. Accounting and finance leaders will have to invest in a lease management solution to help. It is not uncommon for an organization to keep documents in file cabinets, transactions in ERP systems, critical dates and options managed in spreadsheets, and workflow managed through e-mail.
Local and state government entities can focus first on integrating all leases and contracts into a digital repository to assess the portfolio. They must identify which contracts contain a lease and which are subject to GASB 87 compliance. There can also be embedded leases in some service agreements. The complexities of these contracts and leases can only be managed effectively with the right technology.
To manage real estate and asset lease contracts, organizations need a consolidated document repository and system of record. A 360-degree view containing lease history, metadata and documents with workflow is vital for contract management and regulatory compliance.
A good lease management solution does the following:
- Provides pre-built data structures and processes for all lease types
- Integrates with financial and other critical business systems
- Identifies underperforming and underused facilities
- Models alternative planning scenarios
- Compares financial and non-financial returns
- Alerts organizations to required lease accounting reviews
- Automates lease accounting controls
- Supports audits approvals and processes
Manage lease contracts with IBM TRIRIGA
IBM TRIRIGA® provides a comprehensive system of record repository to better manage real estate and asset lease contracts. It has long been among the leading integrated workplace management (IWM) solutions helping clients with real estate and lease management, space optimization, capital projects, sustainability and maintenance needs.
TRIRIGA has helped organizations manage changes in lease accounting standards and portfolio management for over 10 years, helping clients achieve ASC and IFRS compliance since those mandates went into effect.
Beyond delivering a complete solution for GASB 87 compliance, IBM TRIRIGA enables a greater sense of overall confidence in managing asset portfolios. Lease management executives can use TRIRIGA to create a repository and achieve compliance through every step of contract management, lease accounting, and lease administration.
Managing lease contracts is a complex process involving multi-step workflows that require an intelligent set of approvals and routings to provide the necessary controls over each action in the process. Once leases are executed, the monthly payment processing, OPEX management and payment adjustments can be administered. IBM TRIRIGA helps automate the entire process and reduce manual actions by enabling alerts on contracts that may trigger reviews or re-assessment. Users can replace spreadsheets with a digitized document repository and system functionality that helps to accurately determine the carrying value of lease liabilities and right-of-use assets.
TRIRIGA handles the full scope of accounting treatments to support GASB 87 compliance, from standard adoption and activation of leases to modification, reassessment and ultimately expiration or termination.
Once contracts and leases are in order, finance directors and real estate executives can also take a fresh look at portfolio planning and transaction management. TRIRIGA also supports improved sustainability and environmental management, facilities maintenance, capital projects and facilities optimization. Executives can transform the future course of their institutions with the confidence of their stakeholders.
IBM is a leader in the industry with years of experience helping worldwide clients with lease accounting compliance and portfolio management. We are now making this experience and expertise available to state and local government clients. It’s easy to grow with TRIRIGA, using our solution beyond GASB 87 compliance to create an ideal, comprehensive solution for you.