New reporting requirements for leases are effective for audits of local governments for fiscal years beginning after June 15, 2021 (i.e., fiscal years June 30, 2022 and December 31, 2022). It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset.
One of the primary risks identified is ensuring that all contracts/agreements that apply are captured and properly accounted for with the implementation of the new lease standard.
We have developed tools and resources we hope will be useful in gathering and accumulating a complete inventory of lease information ahead of the year-end busy time and your audit deadlines. Please contact a MMKR team member directly so we can make these resources available to you.
Tips to ensure a complete inventory of leases is accumulated:
- Review financial reports to gather leases previously identified as operating and capital leases under expiring guidance.
- Review codes used to report routine payments to vendors. Review your chart of accounts for common codes used by your organization that may be considered lease payments.
- Remember your organization may be the lessor to a lease and, therefore, a review of payments received may help identify any outstanding leases the entity should be reporting as the lessor entity.
- Communicate with the employees in your organization that participate in the procurement/payment and receipt process. Inquire of these individuals to determine if they are aware of any leases or potential lease related transactions.
As part of identifying leases applicable to the new reporting standard, you will notice the standard includes a significant amount of information that will need to be gathered to effectively report the leased assets and the required lease obligations.
Each governmental entity will need to identify the term and payment components applicable to each individual lease. The information required to be gathered includes determining the effective date of the lease agreement, the underlying leased asset, transfer of title provisions, and any termination options. All governments will also need to obtain a copy of each lease agreement (including amendments) for their auditor’s and own records.
There are several resources, including GASB Statement No. 87, and the implementation guide for leases that provide useful information on this topic. Please reach out to a MMKR team member for more information as you work through the implementation of this new standard.