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Glossary/Government, nonprofit and ERISA

GASB Statement No. 87 (leases)

GASB Statement 87 requires governments to treat most leases as financings of the right to use an underlying asset, recognizing a lease liability and an intangible asset for lessees and a lease receivable for lessors.

CORAA TeamUpdated November 5, 2026

Definition

GASB Statement No. 87 sets one lease model for state and local governments. A lessee recognizes a lease liability and an intangible right-to-use asset for leases that are not short-term. The lease term includes option periods that are reasonably certain to be exercised. A lessor recognizes a lease receivable and a deferred inflow of resources. Unlike ASC 842, GASB 87 does not split lessee leases into operating and finance. A lease is short-term, and exempt, if its maximum possible term is 12 months or less, counting all extension options whether or not they are likely to be exercised.

Why it matters in an audit or review

Auditors test completeness of the lease population, lease term and discount rate selection, the measurement of the liability, and the disclosures. Contracts that contain embedded leases are a common gap, because governments often lack a central lease inventory. The related GASB Statement 96 covers subscription-based IT arrangements with similar mechanics.

Example

Illustrative: a school district leases buses for five years at $100,000 per year. The district discounts the payments at its incremental borrowing rate to measure the liability and records an equal right-to-use asset, subject to adjustments.

Common mistakes

Applying the FASB lessee classification test to a government, or missing contracts that contain leases.

FAQ

Does GASB 87 apply to a nonprofit?

Not unless the nonprofit follows GASB. Most nonprofits use ASC 842.

Sources

  • GASB, Statement No. 87, Leases (2017)
  • GASB, Statement No. 96, Subscription-Based Information Technology Arrangements (2020)

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Related terms

  • GASB (Governmental Accounting Standards Board)
    The Governmental Accounting Standards Board sets accounting and financial reporting standards for US state and local governments, which auditors of governmental entities apply as GAAP alongside the GAAS or GAGAS audit requirements.
  • Governmental audit
    A governmental audit examines the financial statements of a state or local government under GAAS and, usually, GAGAS, using GASB standards and a reporting model with opinion units for each fund type and major fund.
  • GASB Statement No. 34
    GASB Statement 34 created the modern financial reporting model for state and local governments, adding government-wide statements, fund statements, management's discussion and analysis, and required supplementary information.

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