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GASB 87 - Leases

Posted by Admin Posted on Nov 29 2021

GASB 87, a new lease accounting standard for governmental entities, requires leases to be reported on the face of the financial statements and eliminates distinction between operating and capital leases. To comply, organizations must reevaluate contractual obligations to determine if they fall under the scope of the new guidance. The new standard applies to reporting periods beginning after June 15, 2021.

The process has been broken down into 9 steps to help with the implementation.

Step 1: Outline an implementation timeline.

Outline tasks that will need to be completed, their order and who has primary responsibility. Now, work backwards from the compliance deadline to schedule key milestones for implementation. Allow time for team members to get up to speed on the nuances of the new requirements and to complete their assigned tasks.

Step 2: Develop a system to collect leases.

Tracking down, identifying and organizing the universe of obligations that may be subject to GASB 87 might be the most time-intensive step in implementation. Before GASB 87, the world was divided between capital and operating leases. Start by creating two folders using those same categories and place all leases from your last audit in the appropriate folder. Add to the appropriate folder any new contracts you’ve executed since then that clearly fall into one of those categories. Remaining contracts — ones that didn’t fit nicely into the prior categories — should go into a third folder marked “other.” You’re now ready to do the tough work under GASB 87: reviewing obligations to flag embedded leases, non-lease components, etc.

Step 3: Categorize contracts and leases under the new guidance. 

This is where the process can get tricky. Reclassify the contracts you’ve placed in your three folders into three new categories: debt, leases and expenses. If you have capital leases that transfer ownership at the end of the term but do not contain termination options, they likely belong in debt. Capital leases that do not transfer ownership or contain termination rights will go into leases. Next, place any short-term operating leases (those with terms of 12 months or less) into expenses. The rest of your operating leases will go into the lease category. Finally, take your “other” folder and organize the contracts between lessee or lessor. Place short-term contracts into the expenses category. If your contracts transfer ownership at the end of the lease period but do not contain termination options, place them into the debt category. Everything else goes into the lease category. Assess remaining contracts for embedded leases and then categorize appropriately.

Step 4: Identify and extract key data.

For every contract in your lease folder, identify the following information: 1) lease term, including renewal options, termination options, and fiscal funding or cancellation clauses; 2) payments; and 3) initial direct costs, incentives and prepayments. To expedite review, ask team members who are familiar with the contract details to help extract key information. If you have a significant number of contracts to review, or if your staff is already stretched thin, consider leveraging a lease management technology. A solution that helps with data abstraction, analysis and input can save your team weeks, even months, of work implementing GASB 87.

Step 5: Create initial schedules.

Populating schedules isn’t necessarily a complex task, but it’s critical you have a good process for accounting for all contracts and ensuring data is accurate. Your schedules and financial reporting will only be as good as your underlying data. Keep a few things in mind here. First, make sure to discount the lease payments using the appropriate interest rate to determine the beginning balance for your lease liability or receivable. Unless there’s a stated interest rate or you have information to calculate an implicit rate (which is rare), you’ll need to determine the appropriate incremental borrowing rate for each obligation. Second, use initial direct costs, incentives and prepayments to adjust the lease asset or deferred inflow of resources. Finally, consider materiality when processing your leases.

Step 6: Implement a review process.

Implementing GASB 87 is not easy. Anticipate that your team will make a few mistakes along the way, particularly the first time around. A consistent internal review process will help ensure you catch errors as you go. If your team already has plenty on its plate, consider engaging an outside advisor to assist with your review process and advise on any close calls or unusual situations. Outside experts can be an invaluable resource, helping you identify issues you may have missed or failed to consider. In either case, identify reviewers well in advance and make sure to give them enough time to thoroughly review and update the contracts and schedules before the next step.

Step 7: Remember journal entries.

Journal entries might not be as complex as you think, but entries related to GASB 87 will likely draw additional scrutiny from your auditor. So be thorough. Keep an eye out for any leases that were previously categorized as capital leases; in some cases, a restatement entry may be necessary for those obligations.

Step 8: Prepare note disclosures.

It’s now time to review and prepare disclosures. Many of the disclosures required by GASB 87 will be familiar — they’re just more robust under the new standard. One reminder when it comes to your disclosures: Right-of-use assets should be listed separately from other capital assets.

Step 9: Plan for ongoing compliance.

GASB 87 is here to stay. Embrace a framework for compliance now and begin to incorporate the process into your existing workflows to set up your organization for success in the future. Regardless of your approach, perhaps the most important takeaway is to get started on your GASB 87 efforts now. June 2022 will be here before you know it, and compliance won’t be easy to do well at the last minute.

Information obtained from Michael Juby

4 ways to withdraw cash from a corporation

Posted by Admin Posted on Nov 02 2021

Owners of closely held corporations often want or need to withdraw cash from the business. The simplest way, of course, is to distribute the money as a dividend. However, a dividend distribution isn’t tax-efficient because it’s taxable to the owner to the extent of the corporation’s earnings and profits. It also isn’t deductible by the corporation. Here are four alternative strategies to consider:

1. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts that you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation.

This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. If there isn’t proper documentation or the debt-to-equity ratio is too high, the “debt” repayment may be taxed as a dividend. If you make future cash contributions to the corporation, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.

2. Compensation. Reasonable compensation that you, or family members, receive for services rendered to the corporation is deductible by the business. However, it’s also taxable to the recipient(s). This same rule applies to any compensation (in the form of rent) that you receive from the corporation for the use of property.

In both cases, the compensation amount must be reasonable in terms of the services rendered or the value of the property provided. If it’s considered excessive, the excess will be a nondeductible corporate distribution (and taxable to the recipient as a dividend).

3. Property sales. You can withdraw cash from the corporation by selling property to it. However, certain sales should be avoided. For example, you shouldn’t sell property to a more than 50%-owned corporation at a loss, since the loss will be disallowed. And you shouldn’t sell depreciable property to a more than 50%-owned corporation at a gain, since the gain will be treated as ordinary income, rather than capital gain.

A sale should be on terms that are comparable to those in which an unrelated third party would purchase the property. You may need to obtain an independent appraisal to establish the property’s value.

4. Loans. You can withdraw cash tax-free from the corporation by borrowing money from it. However, to prevent having the loan characterized as a corporate distribution, it should be properly documented in a loan agreement or note. It should also be made on terms that are comparable to those in which an unrelated third party would lend money to you, including a provision for interest (at least equal to the applicable federal rate) and principal. Also, consider what the corporation’s receipt of interest income will mean.

These are just a few ideas. If you’re interested in discussing these or other possible ways to withdraw cash from a closely held corporation, contact us. We can help you identify the optimal approach at the lowest tax cost.

We are hiring!

Posted by Admin Posted on June 04 2021

Our Company is looking for a full-time senior associate or manager to join our team. This is a great opportunity for someone looking to fast-track their career with a fast growing CPA firm.


Job Responsibilities:

Supervise auditors assigned to engagements, providing guidance and overall review of deliverables

Understanding clients' needs and expectations, their business and industry, accounting and control systems, employees, company values and industry-related GAAP, SSAP, and GAAS issues

Developing an understanding of the Strickland Hardee PLLC audit approach and tools

Assessing risks and evaluating the client's internal control structure

Performing substantive tests and tests of internal controls to identify and resolve accounting or reporting issues

Drafting financial statements under prescribed formats

Communicating engagement findings with teams and clients

Work closely with firm partners to ensure successful engagements

Job responsibilities above are not all inclusive. As a growing firm, employee will have opportunities to explore tax and accounting services as well

Be involved in and assisting driving the firms business development goals


Desired requirements:

Minimum B.A / B.S. degree or equivalent from an accredited university

MSA preferred

Minimum 2 years of auditing experience in public accounting

Experience working with insurance companies is preferred

CPA or CPA candidate

Demonstrated ability to lead a team and ensure successful results

Advanced knowledge of Excel and other Microsoft products.

Knowledge of Thomson Reuters Products a plus (AdvancedFlow, Onvio, Fixed Assets CS, Ultratax CS).

Ability to identify accounting, audit and tax issues.

The individual must be proactive, highly motivated, well organized and have the ability to work effectively without supervision.

Ability to prioritize and meet deadlines while maintaining attention to detail.

Open to acknowledge and accept assistance when needed.

Strong communication skills both written and verbal.

Ability to travel as needed (Overall travel would be less than 10% yearly) Must have access to and ability to arrange for use of reliable modes of transportation to those locations

Out of state relocation assistance provided


Apply now at

GASB 84 Fiduciary Activities

Posted by Admin Posted on May 13 2021

Implementing GASB 84 Fiduciary Activities in School District Financial Statements has arrived.  Are you ready?

Let’s look at some characteristics of activity that would qualify as fiduciary activities

For purposes of this discussion, we will intentionally be ignoring any fiduciary funds that are Pension or OPEB related and focus on other fiduciary activities, more specifically those club and athletic activities.

Activities are fiduciary activities if they meet all the following:

1. The School District holds the asset or has the ability to expend or consume the asset or exchange the asset in a manner that benefits the intended recipient.

2. The assets associated with the activity are not derived from revenues generated by the School District or by the School District’s assets.

3. The assets associated with the activity have one or more of the following:

  3a. The assets are legally protected from the School District’s creditors,

  3b. The School District does not have administrative involvement with the assets or direct financial involvement with the assets.  Nor are the assets derived from the entities provision of goods or services to those individuals.

When considering the characteristics noted above, a School District should read the policies and procedures for those club and athletic activities.  Activity that may be fiduciary activity for one may not be for another. 

In most cases, the School District does hold the asset in a district owned bank account and the assets are not derived from School District’s generated revenues or assets.  The last characteristics are, for school activity accounts, where the real questions come into play. 

Are those assets legally protected from the School District’s creditors?  Unless specifically set up as a legally separate entity, they are probably not.

Does the School District have some form of administrative involvement?  This can vary from club to club, school to school, and district to district.  However, simply put, if the club has a faculty advisor or faculty sponsor who approves the disbursements, then there is administrative involvement meaning the activity would not be considered a fiduciary fund but rather would be included in the School District’s governmental funds.

Upcoming Conference - WRCIC

Posted by Admin Posted on May 11 2021

Strickland Hardee is excited to attend the Western Region Captive Insurance Conference in Salt Lake City, Utah.  This will be our first in-person conference in over a year and we are thrilled to meet with captive industry peers.  Contact T.J. Strickland today to schedule a meeting at

Welcome to Our Blog!

Posted by Admin Posted on Mar 01 2021
This is the home of our new blog. Check back often for updates!