The Governmental Accounting Standards Board (GASB) recently issued Statement No. 104, titled “Disclosure of Certain Capital Assets,” which introduces significant changes to how governmental entities report and disclose capital assets. This article explores the impacts of GASB 104 and outlines the steps for its implementation.
Purpose
GASB believes that the breakout of intangible capital assets from tangible capital assets would help users of financial statements evaluate capital assets in valuation, maintenance needs and ownership interests since users may view tangible and intangible assets differently.
Impacts of GASB 104
Separate Disclosure of Certain Capital Assets
GASB 104 mandates that the following types of capital assets disclose separately information about the capital assets and related amortization:
Lease (GASB 87)
- Intangible right-to-use assets from Public Private and Public-Public Partnerships (PPP) by major class of PPP (GASB 94)
- Subscription-based IT arrangement assets (GASB 96)
- Other intangible assets
Capital Assets Held for Sale
The standard requires that capital assets be reported as held for sale if (a) the government has decided to pursue a sale and (b) it is probable that the sale will be finalized within one year of the financial statement date. This change ensures that financial statements accurately reflect the status of assets that are expected to be sold.
The government should consider the following factors when evaluating whether it is probable that a sale will be finalized within one year:
- Whether the asset is available for immediate sale in its present condition
- Whether an active program to locate a buyer has been initiated
- Market conditions for selling the type of asset
- Regulatory approvals needed to sell the asset
The governments should evaluate whether a capital asset is held for sale each reporting period.
A capital asset held for sale should continue to be reported within the appropriate major class of capital asset, and accordingly, would be considered in the net position balance as net investment in capital assets. The government should disclose the historical cost and accumulated depreciation of capital assets held for sale by major class. The government should also disclose the carrying amount of debt for which the capital asset held for sale is pledged as collateral for each major class of asset.
Amendments to Previous Standards
GASB 104 amends several previous standards, including GASBS 62, 72, 87, and 96. These amendments aim to harmonize the new disclosure requirements with existing standards, ensuring consistency across financial reporting.
Illustrations
GASB 104 also provides several illustrations of how these impacts would be presented in a government’s financial statements.
Effective Date
The new standard is effective for fiscal years beginning after June 15, 2025, with earlier application encouraged. This standard should be applied retrospectively to all periods presented in the financial statement unless impractical. This gives governmental entities ample time to prepare for the changes.
Implementation Steps
By following these steps, governmental entities can effectively implement GASB 104 and enhance the transparency and accuracy of their financial reporting.
- Review and Understand the Standard: Governmental entities should start by thoroughly reviewing GASB 104 to understand its requirements and implications. This includes identifying which capital assets need to be disclosed separately and understanding the criteria for assets held for sale.
- Update Accounting Policies and Procedures: Entities will need to update their accounting policies and procedures to align with the new requirements. This may involve revising asset classification processes and ensuring that all relevant assets are identified and reported correctly.
- Train Staff: It is crucial to train accounting and finance staff on the new requirements. This training should cover the specifics of GASB 104, including the types of assets affected and the new disclosure requirements.
- Update Financial Systems: Entities may need to update their financial reporting systems to accommodate the new disclosure requirements. This could involve modifying software to ensure that it can handle the separate reporting of lease assets and right-to-use assets.
- Prepare for Adoption: While the standard is effective for fiscal years beginning after June 15, 2025, entities are encouraged to adopt it earlier. Early adoption can help entities transition smoothly and address any implementation challenges before the mandatory compliance date.
- Communicate with Stakeholders: Finally, it is important to communicate the changes to stakeholders, including auditors, investors, and other users of financial statements. Clear communication will help stakeholders understand the new disclosures and their implications.
Please reach out to your Withum representative if you have any question on implementation of this new accounting standard.
Contact Us
For more information on this topic, please contact a member of Withum’s Assurance and Accounting Services Team.
