By Vicki Hellenbrand, CPA, Senior Manager, vhellenbrand@virchowkrause.com
Capital asset accounting under Governmental Accounting Standards Board Statement No. 34 is causing concern for many local governments. GASB 34 requires that all capital assets be reported in the government-wide financial statements. Capital assets include tangible or intangible assets used in operations with an initial useful life exceeding one year, such as fixed assets currently recorded and infrastructure assets. The requirements for capital asset accounting include:
· General capital assets, including accumulated depreciation, must be reported at the GASB 34 effective date. Examples of general capital assets include land, buildings, building improvements, furniture, equipment, vehicles and machinery.
· Infrastructure assets must be reported on a prospective basis at the GASB 34 effective date. Infrastructure assets include long-lived capital assets that are normally stationary, such as roads, curbs and gutters, bridges and dams, land right of ways, and stormwater systems. Infrastructure assets must either be depreciated similar to general capital assets or reported using the modified approach.
· Retroactive reporting of infrastructure assets is encouraged at the GASB 34 effective date, but this reporting can be delayed up to four years for Phase 1 and 2 governments. It is recommended, but not required, for Phase 3 governments. (See chart below for definitions of Phase 1, 2, and 3 governments.) Governments required to report retroactively must report assets to at least 1980. These requirements will be covered in greater detail in future articles.
In this article, our focus is on the steps needed to establish an accounting requirements implementation plan. This strategic planning process is necessary if government’s are to make educated decisions related to the new accounting options and obtain the necessary data to comply. We recommend the following steps be completed before any major efforts related to data collection begin:
1. Select a GASB 34 champion and capital asset team leader to be the point person for your government.
2. Research capital asset accounting options available to your government.
3. Determine your capital asset accounting goals. These may range from creating a management tool to simply meeting the minimum reporting requirements.
4. Determine the status of your current capital asset records and other necessary records.
5. Determine the effect on your government-wide financial statements if retroactive reporting is omitted or delayed, and whether this makes it worthwhile to consider optional or early implementation of the retroactive infrastructure reporting guidelines.
6. Study the modified approach for infrastructure asset requirements and determine if your government would benefit from that accounting option. Assign a team leader to begin the process of developing your government’s modified approach plan.
7. Determine depreciation methods, asset classifications and asset lives for all depreciable accounts.
Each governmental unit is unique — the capital asset plan you create should be tailored to your specific needs. Because the capital asset accounting requirements have a direct and substantial impact on your financial statements, your auditor should be involved in the process of determining your plan.
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