Capital Asset Reporting GASB Statement 34 AASHTO Peer Conference

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Capital Asset Reporting GASB Statement 34
AASHTO Peer Conference

• Jay Fountain--GASB Staff
• April 25, 2001
• The views expressed in this presentation are
  those of Mr. Fountain. Official positions of the
  GASB are determined only after extensive due
  process and deliberation by the GASB.

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Basic Financial Statements and MDA--Statement 34
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Statement 34 Requirements

• MDA
• Government-wide financial statements
• Statement of net assets
• Statement of activities
• Fund financial statements
• Note disclosures
• Required supplementary information (RSI)

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Introduction to Statement 34

• Effective Dates

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A six million dollar deficit!!!
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Net cost to the taxpayers
Total expenses
Program revenues--reduces the cost of a program
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What was the net cost?
How was it paid for?
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WHAT NEEDS ARE THE GOVERNMENT-WIDE STATEMENTS ARE
TRYING TO MEET?

• Data About Governmental Activities and
  Business-Type Activities as a Whole
• Periodic Costs of Services
• Sufficiency of Revenues
• Financial Position

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Statement 34 QA

• 290 Q As
• Standard Section
• Over 50 Illustrative
• Financial Statements
• 10 How to
• exercises
• Topical Index

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Early Implementers--Cities

• Alexandria, VirginiaCAFR
• Aragon, GeorgiaCAFRState Department of Audits
  and Accounts review (Adobe Acrobat Reader
  required)
• Ashtabula, Ohio
• Corona, CaliforniaCAFR (Adobe Acrobat Reader
  required)
• NEWDel City, Oklahoma
• Davie, FloridaCAFR (Adobe Acrobat Reader
  required)
• Guymon, OklahomaCAFR (Adobe Acrobat Reader
  required)
• Indian Wells, CaliforniaCAFR (Adobe Acrobat
  Reader required)
• Kettering, Ohio
• Liyerly, GeorgiaCAFRState Department of Audits
  and Accounts review (Adobe Acrobat Reader
  required)
• Orlando, FloridaCAFR (Adobe Acrobat Reader
  required)
• Tracy, California
• Wooster, Ohio
• Corona, CA uses the modified approach

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Early Implementers--Other

• Colleges and Universities
• Oakton Community College, IllinoisCAFR (Adobe
  Acrobat Reader required)
• Counties
• East Carroll Parish Police Jury, LouisianaFS
  (Adobe Acrobat Reader required)
• Other Local Governments
• Village of Wilson, LouisianaCAFR (Adobe Acrobat
  Reader required)

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Early Implementers--Other

• School Districts
• Berea City School District, OhioCAFR (Adobe
  Acrobat Reader required)
• NEWGenesee Intermediate School District, Flint,
  MichiganCAFR (Adobe Acrobat Reader required)
• NEWIberville Parish School Board, Louisiana
• NEWSchool District of Kettle Moraine, Wales,
  Wisconsin
• Vernon Parish School Board, LouisianaCAFR (Adobe
  Acrobat Reader required)

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Early Implementers--Other

• Special-purpose Governments
• Albany County Airport Authority, New York
• Douglasville-Douglas County Water and Sewer
  Authority, GeorgiaMDA, financial statements,
  notes and RSI (Adobe Acrobat Reader required)
• South Shore Tri-Town Development Corporation
  (Weymouth, MA)

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The Quick Guides
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User Guides
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What are the Elements in the New Model?

• Managements Discussion and Analysis
• Government-Wide Statements
• Two new financial statements
• Statement of Net Assets
• Statement of Activities
• Full accrual and economic resources
• All capital assets including infrastructure
  reported
• Fund Statements--Major funds, reconciliation
• Restricted use of trust agency funds

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Capital Asset Reporting Requirements

• All general capital assets (including
  infrastructure assets) must be reported in the
  government-wide statements
• General capital assets (with depreciation) at
  effective date of Statement 34
• Infrastructure assets prospective at effective
  date, retroactive assets after transition period

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Why Report Capital Assets

• Support for reporting capital assets
• Necessary when statements report economic
  resources and financial position
• Inclusion of debt without corresponding assets
  would distort financial position
• Needed for measuring interperiod equity
• Essential for measuring cost of services
• Represents major investment and commitment to
  future services

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Provisions in Statement 34

• After reviewing responses, public hearings, focus
  groups results, and objectives of financial
  reporting, Board voted to require the reporting
  of capital assets and infrastructure assets with
• Transition period--Infrastructure assets
• Transition provisions--Infrastructure assets
• Modified approach--Infrastructure assets

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Capital Assets Reporting

• Definition
• tangible or nontangible assets used in operations
• initial useful life extends beyond single
  reporting period
• includes
• - land - improvements to land
• - vehicles - buildings
• - machinery - building improvements
• - equipment - works of art and historical
  treasures
• - easements - infrastructure

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Reporting Capital Assets on the Financial
Statements

• Some examples of where and what will be reported

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Definition of Infrastructure

• For this statement, infrastructure assets are
• Long-lived capital assets that are a part of a
  network of assets that can have service potential
  for an extended period
• Normally stationary
• Examples
• Roads and bridges, dams, water and
  sewer systems
• Buildings generally NOT classified as
  infrastructure unless part of an
  infrastructure system

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Provisions in Statement 34

• Capital Asset Reporting Requirements
• Report at historical cost (or at fair value or
  estimated historical cost in certain cases)
• capitalized interest
• ancillary charges necessary to place asset into
  its intended location and condition for use
• Depreciate over estimated useful lives, except
  inexhaustible assets, historical treasures, and
  infrastructure if modified approach is used
• May group assets
• May use composite method of depreciation

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Capital Assets Reporting

• Infrastructure
• must report new infrastructure assets at time of
  Statement 34 implementation
• proprietary funds and special purpose
  (business-type) governments must report all
  infrastructure assets at time of implementation
• General governmental infrastructure previously
  acquired has special transition provisions and
  period

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Capital Assets Reporting

• Valuing Capital Assets
• reported at historical cost
• cost includes
• capitalized interest (prospective)
• ancillary charges necessary to place asset into
  its intended location and condition for use
• donated items reported at estimated fair value at
  time of acquisition plus ancillary charges
• Look carefully at capitalization thresholds

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Capital Assets Reporting

• Depreciation
• reported net of accumulated depreciation
• not all are depreciable
• inexhaustible capital assets
• infrastructure assets reported using modified
  approach
• Remember to consider value at end of estimated
  life
• Governments may use any established depreciation
  method

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Statement 34 Does Not

• Does not -- For historical cost depreciation
• Specify or dictate capitalization policies
• Establish estimated useful lives for depreciation
  
• Require use of a specific depreciation method
• Does not -- For modified approach
• Specify a condition at which assets must be
  preserved

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Transition for Infrastructure Reporting

• Transition Accommodations
• staggered transition dates--next slide
• look-back period time limited--additions and
  improvements after June 15, 1980
• look-back limited to major assets--standard
  defines
• reporting nonmajor assets not required
• historical cost may be estimated--for example,
  may use estimated current cost and deflate to
  estimated year of acquisition or last major
  improvement

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Transition for Infrastructure Reporting

• staggered transition dates

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Depreciation--if used

• May use any established method
• May calculate by class, network, subsystem, or
  individual asset
• May use composite methods

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Modified Approach for Infrastructure Reporting

• Infrastructure assets that are part of a network
  or subsystem of a network are not required to be
  depreciated as long as the government
• manages the eligible infrastructure assets using
  an asset management system, and
• documents that the eligible infrastructure assets
  are being preserved approximately at a condition
  level established by the government

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Modified Approach for Infrastructure Reporting

• Acceptable asset management system will
• present an up-to-date inventory
• perform condition assessments of the assets and
  summarize the results using a measurement scale
• estimate each year the annual amount to maintain
  and preserve the assets at the condition level
  established and disclosed by the government

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Modified Approach for Infrastructure Reporting

• Governments should document that
• Complete condition assessments are performed in a
  consistent manner at least every 3 years
• The results of the 3 most recent complete
  condition assessments indicate that asset is
  being maintained/preserved approximately at or
  above the established condition level

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Documentation the network is being preserved at a
certain condition level

• May require professional judgment because of
  variations among governments in their
  infrastructure assets, asset management systems,
  established condition levels, and condition
  assessment methods. These factors may also vary
  within a governments different networks.

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Modified Approach - Reporting

• Statement of Net Assets
• Additions and improvements to infrastructure
  assets are capitalized
• No accumulated depreciation
• Statement of Activities
• Expenditures made to preserve the life of
  infrastructure assets are expensed
• No depreciation expense reported

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Modified Approach for Infrastructure Reporting

• Required Supplementary Information for Modified
  Approach
• Infrastructure assets reported according to the
  modified approach should disclose
• The assessed condition for at least the 3 most
  recent complete condition assessments, indicating
  the dates of the assessments
• The estimated annual amount to maintain and
  preserve at the established condition level
  compared to the amounts actually expensed for the
  current and past 4 reporting periods

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Modified Approach for Infrastructure Reporting

• RSI for Modified Approach
• Infrastructure assets reported according to the
  modified approach should disclose (cont)
• Basis for the condition measurement and the
  measurement scale
• The condition level at which the government
  intends to preserve its infrastructure assets
• Factors that significantly affect trends in the
  information reported

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RSI for Modified Approach
Modified Approach for Infrastructure Reporting

• Infrastructure assets reported according to the
  modified approach should disclose
• 1. The assessed condition
• performed at least every 3 years
• for at least the 3 most recent complete condition
  assessments
• indicating the dates of the assessments

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RSI for Modified Approach
Modified Approach for Infrastructure Reporting
2. The estimated annual amount to maintain and
preserve at the condition level compared to the
amounts actually expended/expensed for each of
the past 5 reporting periods
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Transition Provisions for Infrastructure Assets

• Prospective reporting only at effective date of
  Statement 34
• Capitalize improvements, additions and
  acquisitions and begin depreciation
• If modified approach is to be used--expense
  preservation otherwise capitalize
• May report on portion (network level) of
  retroactive infrastructure assets

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• Ken Schermann Randy Finden
• [phone] (ext. 206) ext. 240
• krschermann_at_gasb.org rjfinden_at_gasb.org
• Jay Fountain Roberta Reese
• [phone] (ext. 259) ext. 324
• jrfountain_at_gasb.org rereese_at_gasb.org