You've survived year-end closes before. You've navigated new GASB standards before. But if you're a finance officer at a small or mid-size municipality, GASB Statement No. 87 probably felt different — and if your next audit is approaching and you still don't feel confident in your lease schedules, you're not alone.
Since the effective date for most local governments (fiscal years beginning after June 15, 2021), every lease over 12 months has to appear on the face of your financial statements. The copy machine lease. The building your parks department has rented for thirty years. The fiber optic line your IT department signed three years ago. The tower site lease the police department manages. All of it — recognized as a right-of-use (ROU) asset and a corresponding lease liability on your statement of net position.
What used to sit quietly off-balance-sheet is now one of the most scrutinized line items in your audit. And managing it with spreadsheets, shared drives, and an under-resourced finance team is a problem that's catching governments off guard across the country.
The Real Villain Isn't GASB — It's the Infrastructure Gap
Let's be honest about what makes GASB 87 hard. It's not that the standard is poorly written. It's that local government finance offices were never equipped with the tools to handle this kind of complexity at scale.
Think about what the standard actually requires you to do for every qualifying lease:
- Determine whether the arrangement meets the GASB 87 definition of a lease — not just what was called a "lease" in the contract, but whether the lessee has the right to obtain substantially all of the economic benefits and the right to direct the use of an identified asset
- Apply the short-term exemption correctly — only leases with a maximum possible term of 12 months or less (including all renewal options, regardless of likelihood of exercise) qualify; one optional renewal period that pushes it to 14 months, and you're in full recognition territory
- Separate lease components from non-lease components bundled in the contract — and decide whether to apply the practical expedient to account for them together
- Calculate the present value of future lease payments using a defensible discount rate — typically your government's incremental borrowing rate, which needs to be documented
- Record the ROU asset and lease liability at commencement, often retroactively for leases already in progress at the implementation date
- Amortize the ROU asset and reduce the liability on a period-by-period basis, allocating interest expense and amortization expense to the correct funds in your fund accounting structure
- Produce note disclosures: a maturity analysis of future undiscounted lease payments, a reconciliation to the lease liability on the balance sheet, and disclosure of variable lease payments and options exercised
Now multiply that by thirty leases. Or seventy. Or, in larger counties, several hundred. And do it with two or three people on your finance team, a shared folder of Excel files, and an audit starting in eight weeks.
That's the gap. And it's where audit findings are born.
What's at Stake If You Get This Wrong
A material misstatement in your statement of net position isn't just a note in a management letter. It creates a cascade of consequences that extend well beyond the finance department.
State oversight agencies monitor local government audit reports. If you're issuing bonds or planning capital financing, your audit opinion matters to rating agencies. And in local government, where your financial statements are a public document reviewed by council members, commissioners, and engaged taxpayers, a finding on a standard you've had years to implement is a hard conversation to have in an open meeting.
Restatements are worse. If the prior year's financial statements need correction, you're looking at restated comparatives, re-issued audit reports, and the kind of institutional credibility damage that lingers long after the numbers are fixed.
Beyond the formal findings, there's the internal cost: the hours your team spends scrambling in audit prep that could be spent on analysis and planning, the anxiety of not being certain your schedules are right until the auditors tell you, and the erosion of confidence that comes from knowing your systems aren't keeping pace with your compliance obligations.
You Deserve Financial Infrastructure That Matches the Complexity of Your Job
Here's what we know from working with local government finance teams: the problem isn't capability. Finance officers at municipalities and counties are some of the most technically knowledgeable accounting professionals working anywhere. The problem is tools.
Account Cloud was built by practitioners who understand governmental fund accounting from the inside — not as a theoretical exercise, but as a daily operating reality. We know that a lease payment doesn't just reduce a liability; it hits a specific fund, a specific function, and a specific program in your chart of accounts. We know that your auditors are going to ask for a reconciliation between your lease schedule and your financial statements. We know that GASB 87 disclosures have to be complete, accurate, and tied to the numbers on the face of the report — not assembled manually the week before fieldwork.
Account Cloud Unity was built specifically for governmental entities, with the fund structure, the GASB compliance framework, and the audit-readiness capabilities that local government finance teams actually need.
A Four-Step Path to GASB 87 Compliance
You don't need a complete technology overhaul in the next thirty days. You need a clear, executable plan. Here's the one that works.
Step 1: Take a Complete Lease Inventory
Start by going department by department. Equipment leases. Building and facility leases. Vehicle fleets. Technology contracts. Fiber and telecommunications lines. Tower site leases. Don't assume the finance office has seen everything — department heads often execute agreements that never make it to your desk.
Build a master register that captures: the lessor, commencement date, lease term, all renewal options (even unlikely ones — they affect the maximum possible term for short-term exemption purposes), payment schedule, and the fund that carries the activity. This register is the foundation of everything that follows.
While you're at it, flag arrangements that might be service concession arrangements rather than leases — these fall under GASB 60, not GASB 87, and the accounting treatment is materially different. If your government operates a parking facility, a transit system, or infrastructure under a third-party arrangement, confirm which standard applies before you record anything.
Step 2: Classify and Measure Each Lease Under GASB 87 Criteria
For each arrangement in your register, work through the classification: Does it meet the GASB 87 definition of a lease? Does the maximum possible term exceed 12 months? Is the lessee obtaining the right to use an identified asset?
For leases that qualify, calculate the initial measurement: the present value of lease payments not yet made, discounted at the rate implicit in the lease or — as is typical for governments — the incremental borrowing rate. Document your rate selection and its basis. Your auditors will ask.
Record the ROU asset and lease liability at equal amounts at commencement, adjusted for any prepaid lease payments, lease incentives received, or initial direct costs. For leases already in progress at your implementation date, calculate the present value of remaining payments as of the first day of your implementation year.
Step 3: Automate Amortization and Journal Entries by Fund
This is the step where manual spreadsheet approaches break down most visibly. Every lease requires a period-by-period amortization table — separating each payment into principal reduction on the lease liability and interest expense — plus a separate calculation for straight-line amortization of the ROU asset.
In a fund accounting environment, every entry has to hit the correct fund. Interest expense doesn't just go to interest expense — it goes to interest expense in the General Fund, the Water Enterprise Fund, or whichever fund carries the leased asset. That fund-level precision, replicated across dozens of leases over twelve monthly periods, is where spreadsheets produce errors and where Account Cloud Unity produces clean, auditable journal entries automatically.
Step 4: Generate Audit-Ready Note Disclosures
GASB 87 requires specific disclosures in the notes to the financial statements. A general description of leasing arrangements and significant assumptions and judgments. A maturity analysis showing undiscounted future lease payments for each of the next five years and in aggregate thereafter, reconciled to the total lease liability reported on the balance sheet. Disclosure of variable lease payments recognized during the period and any options exercised during the year.
These disclosures have to reconcile — to the penny — with the liability on your statement of net position. When your lease data lives in Account Cloud Unity, the disclosures are produced directly from the system. No manual assembly. No reconciliation risk. The number in the note matches the number on the statement because they come from the same source.
What a Clean Audit Looks Like From the Other Side
Picture this: your auditors arrive for fieldwork and request the lease schedule. You pull up a complete, organized register — every lease, every amortization table, every journal entry, all tied to the correct fund. You hand them the note disclosure draft and it reconciles to the statement of net position without a single adjustment.
Your finance team isn't scrambling the week before fieldwork. Your elected officials are receiving financial statements they can stand behind. Your auditor issues an unmodified opinion and the management letter is silent on GASB 87. And you — the finance officer, the controller, the clerk who stayed late more nights than anyone counted — have the documentation to back up every number on that report.
That's what a sound GASB 87 implementation looks like. And it's what Account Cloud Unity was built to help local governments achieve.
If your next audit cycle is approaching and you're not confident in your lease accounting position, now is the time to get ahead of it.
See how Account Cloud Unity supports government lease accounting →