Capital Asset Reporting GASB Statement 34 AASHTO Peer Conference

1. Capital Asset Reporting GASB Statement 34AASHTO 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.

2. Basic Financial Statements and MD&A--Statement 34

3. Statement 34 Requirements • MD&A • Government-wide financial statements • Statement of net assets • Statement of activities • Fund financial statements • Note disclosures • Required supplementary information (RSI)

4. Introduction to Statement 34 • Effective Dates

6. A six million dollar deficit!!!

7. Net cost to the taxpayers Total expenses Program revenues--reduces the cost of a program

8. What was the net cost? How was it paid for?

9. 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

10. Statement 34 Q&A • 290 Q & A’s • Standard Section • Over 50 Illustrative • Financial Statements • 10 “How to” • exercises • Topical Index

11. Early Implementers--Cities • Alexandria, Virginia—CAFR Aragon, Georgia—CAFR—State Department of Audits and Accounts review (Adobe Acrobat Reader required) Ashtabula, Ohio Corona, California—CAFR (Adobe Acrobat Reader required)** NEW—Del City, Oklahoma • Davie, Florida—CAFR (Adobe Acrobat Reader required) • Guymon, Oklahoma—CAFR (Adobe Acrobat Reader required) • Indian Wells, California—CAFR (Adobe Acrobat Reader required) • Kettering, Ohio Liyerly, Georgia—CAFR—State Department of Audits and Accounts review (Adobe Acrobat Reader required) • Orlando, Florida—CAFR (Adobe Acrobat Reader required) • Tracy, California • Wooster, Ohio ** Corona, CA uses the modified approach

12. Early Implementers--Other • Colleges and Universities • Oakton Community College, Illinois—CAFR (Adobe Acrobat Reader required) • Counties • East Carroll Parish Police Jury, Louisiana—FS (Adobe Acrobat Reader required) • Other Local Governments Village of Wilson, Louisiana—CAFR (Adobe Acrobat Reader required)

13. Early Implementers--Other • School Districts • Berea City School District, Ohio—CAFR (Adobe Acrobat Reader required) • NEW—Genesee Intermediate School District, Flint, Michigan—CAFR (Adobe Acrobat Reader required) • NEW—Iberville Parish School Board, Louisiana • NEW—School District of Kettle Moraine, Wales, Wisconsin • Vernon Parish School Board, Louisiana—CAFR (Adobe Acrobat Reader required)

14. Early Implementers--Other • Special-purpose Governments • Albany County Airport Authority, New York • Douglasville-Douglas County Water and Sewer Authority, Georgia—MD&A, financial statements, notes and RSI (Adobe Acrobat Reader required) • South Shore Tri-Town Development Corporation (Weymouth, MA)

15. The Quick Guides

17. User Guides

19. What are the Elements in the New Model? • Management’s 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

20. 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

21. 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

22. 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

23. Reporting Capital Assets on the Financial Statements Some examples of where and what will be reported

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. Transition for Infrastructure Reporting • staggered transition dates

37. Depreciation--if used • May use any established method • May calculate by class, network, subsystem, or individual asset • May use composite methods

38. 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

39. 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

40. 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

41. 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 government’s different networks.

42. 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

43. 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

44. Modified Approach for Infrastructure Reporting • RSI for Modified Approach • Infrastructure assets reported according to the modified approach should disclose (con’t): • 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

45. 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

46. 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

48. 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

49. Ken Schermann Randy Finden • (203) 847-0700 (ext. 206) ext. 240 • krschermann@gasb.org rjfinden@gasb.org • Jay Fountain Roberta Reese • (203) 847-0700 (ext. 259) ext. 324 • jrfountain@gasb.org rereese@gasb.org