GASB 87 Overview
As a component unit of the State of Michigan, CMU must adhere to Governmental Accounting Standards Board (GASB) accounting principles. GASB's Statement No. 87, Leases, is required to be implemented for fiscal years beginning after June 15, 2021. For CMU, the implementation year is FY22 (July 1, 2021-June 30, 2022).
Objective of GASB 87
In brief, the goal of GASB 87 is to present the financial benefit and obligation of any contractual agreements that convey control of the right to use another party's non-financial asset (or grant another party the right to use CMU's non-financial asset) on the University's balance sheet. Previously, we reported these types of contracts on the income statement as an expense (or revenue). We typically refer to these types of contracts as leases, but there could be contracts that convey control but are not officially titled a "lease".
A simple example would be an agreement to lease space from a third party, In the past, our financial statements would only reflect as an expense the amount of the monthly lease payment. Going forward we will record an asset (right to use) for the cumulative value of the contractual agreement and an offsetting liability/debt obligation for the cumulative value of the payments due. When the monthly payments are made, we will reduce the asset and liability as well as recognize the monthly expense.
To successfully implement this new accounting standard, Contracting & Purchasing Services needs to gather all university contracts which convey or grant a right to use/control a non-financial asset.
Accounting Services staff will review the contracts and document the determination regarding whether they qualify under the GASB 87 accounting standard, perform the required calculations, and process journal entries. To do this, the accounting staff may have to follow up with questions on the contract. The terms of the agreement including payment amounts, length of agreement, and likelihood of renewal are key pieces of information required to perform the calculations.
What is needed from you?
1. Provide all contracts in effect as of July 1, 2019 (original and each amendment) that convey the right to use a non-financial asset to CPS via the Microsoft form below. We need contracts where we are using another party's asset as well as those where someone else is using CMU's asset. Contracts should be submitted via the link below.
2. Be responsive to questions from Accounting Services and CPS on your contract.
3. If you aren't sure if something qualifies, please present it for evaluation. Examples of qualifying and non-qualifying agreements can be found here.
The implementation of a new standard is heavily scrutinized by our external financial auditors. It's important to document evaluation of all contracts to pass audit. That is why it is critical that CPS receive copies of all agreements including any amendments.
Questions related to GASB 87 Leases can be directed to email@example.com.