Official Releases: GASB 42.Space consideratiosn prevent publishing here the appendices ap·pen·di·ces
A plural of appendix. to GASB GASB Governmental Accounting Standards Board Statement no. 42. Since the appendices often are important to understanding GASB statements The Governmental Accounting Standards Board Statements (GASB Statements in short) are issued by GASB to set generally accepted accounting principles (GAAP) for state and local governments in the United States of America. , readers are advised to obtain complete copies. For additional copies of GASB statements and/or and/or
Used to indicate that either or both of the items connected by it are involved.
Usage Note: And/or is widely used in legal and business writing. information on applicable prices and discount rates, contact the GASB order department, 401 Merritt Merritt is the name of several places in North America:
1 City (1990 pop. 94,279), Los Angeles co., S Calif.; settled in the 1850s, inc. 1957. With the arrival (1875) of the Southern Pacific RR, it became a center for the dairy and logging industries, but , Connecticut Connecticut, state, United States
Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). 06856-5116. Telephone, 800-748-0659.
Statement No. 42 of the Governmental Accounting Governmental accounting is an umbrella term which refers to the various accounting systems used by various public sector entities. In the United States, for instance, there are three levels of government which follow different accounting standards set forth by independent, private Standards Board--Accounting and Financial Reporting for Impairment Impairment
1. A reduction in a company's stated capital.
2. The total capital that is less than the par value of the company's capital stock.
1. This is usually reduced because of poorly estimated losses or gains.
2. of Capital Assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) and for Insurance Recoveries
This Statement establishes accounting and financial reporting standards for impairment of capital assets. A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. This Statement also clarifies and establishes accounting requirements for insurance recoveries.
Governments are required to evaluate prominent events or changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or affecting capital assets to determine whether impairment of a capital asset has occurred. Such events or changes in circumstances that may be indicative of impairment include evidence of physical damage, enactment or approval of laws or regulations or other changes in environmental factors, technological changes or evidence of obsolescence ob·so·les·cent
1. Being in the process of passing out of use or usefulness; becoming obsolete.
2. Biology Gradually disappearing; imperfectly or only slightly developed. , changes in the manner or duration of use of a capital asset, and construction stoppage stoppage - /sto'p*j/ Extreme lossage that renders something (usually something vital) completely unusable. "The recent system stoppage was caused by a fried transformer." . A capital asset generally should be considered impaired if both (a) the decline in service utility of the capital asset is large in magnitude and (b) the event or change in circumstance Circumstance or circumstances can refer to:
Impaired capital Impaired capital
When a company's total capital is less than the par value of all its capital stock. assets that will no longer be used by the government should be reported at the lower of carrying value Carrying Value
Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt.
This is different than market value, as it can be higher or lower depending on the circumstances. or fair value. Impairment losses on capital assets that will continue to be used by the government should be measured using the method that best reflects the diminished di·min·ish
v. di·min·ished, di·min·ish·ing, di·min·ish·es
a. To make smaller or less or to cause to appear so.
b. service utility of the capital asset. Impairment of capital assets with physical damage generally should be measured using a restoration cost approach, an approach that uses the estimated cost to restore the capital asset to identify the portion of the historical cost of the capital asset that should be written off. Impairment of capital assets that are affected by enactment or approval of laws or regulations or other changes in environmental factors or are subject to technological changes or obsolescence generally should be measured using a service units approach, an approach that compares the service units provided by the capital asset before and after the impairment event or change in circumstance. Impairment of capital assets that are subject to a change in manner or duration of use generally should be measured using a service units approach, as described above, or using deflated de·flate
v. de·flat·ed, de·flat·ing, de·flates
a. To release contained air or gas from.
b. To collapse by releasing contained air or gas.
2. depreciated Depreciated may refer to:
Impairment losses should be reported in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.
As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the guidance in paragraphs 41 through 46, 55, 56, 101, and 102 of Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments, and paragraphs 19 through 24 of Accounting Principles Board The Accounting Principles Board (APB) is the former authoritative body of the American Institute of Certified Public Accountants (AICPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1973, Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently in·fre·quent
1. Not occurring regularly; occasional or rare: an infrequent guest.
2. Occurring Events and Transactions. If not otherwise apparent from the face of the financial statements, the description, amount, and financial statement classification of impairment losses should be disclosed in the notes to the financial statements Notes to the financial statements
A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements. . If evidence is available to demonstrate that the impairment will be temporary, the capital asset should not be written down.
Impaired capital assets that are idle should be disclosed, regardless of whether the impairment is considered permanent or temporary.
An insurance recovery associated with events or changes in circumstances resulting in impairment of a capital asset should be netted with the impairment loss. Restoration or replacement of the capital asset using the insurance recovery should be reported as a separate transaction. Insurance recoveries should be disclosed if not apparent from the face of the financial statements. Insurance recoveries for circumstances other than impairment of capital assets should be reported in the same manner.
The provisions of this Statement are effective for fiscal periods beginning after December December: see month. 15, 2004. Earlier application is encouraged.
How the Changes in This Statement Improve Financial Reporting
This Statement improves financial reporting because it requires governments to report the effects of capital asset impairments in their financial statements when they occur rather than as a part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset. Users of financial statements will better understand when impairments have occurred and what their financial impact is on the government. This Statement also enhances comparability of financial statements between governments by requiring all governments to account for insurance recoveries in the same manner.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 3 discusses the applicability of this Statement.
Introduction/1-2 Standards of Governmental Accounting and Financial Reporting/3-22 Scope and Applicability of This Statement/3-4 Definition of Impairment/5-6 Assessment of Impairment/7-11 Identification of Events or Changes in Circumstances That May Indicate Impairment/8 Indicators of Impairment/8 Impairment Test/11 Measurement of Impairment/12-16 Capital Assets That Will Continue to Be Used by the Government/12-15 Capital Assets That Will No Longer Be Used by the Government and Construction Stoppage/16 Reporting Impairment Losses/17 Permanent and Temporary Impairments/18 Capital Assets That Do Not Meet the Impairment Test/19 Disclosure of Idle Impaired Capital Assets/20 Insurance Recoveries/21-22 Effective Date and Transition/23 Appendix A: Background/24-28 Appendix B: Basis for Conclusions/29-65 Appendix C: Illustrations/66 Appendix D: Flowchart for Evaluating and Measuring Impairment of Capital Assets/67 Appendix E: Summary of Indicators and Methods of Measurements/68 Appendix F: Codification Instructions/69
1. Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments, requires capital assets, including infrastructure assets, to be reported to be spoken of; to be mentioned, whether favorably or unfavorably.
See also: Report in the statement of net assets Net assets
The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand.
See owners' equity. . Statement 34 also requires that capital assets (with the exception of inexhaustible assets and those accounted for using the modified approach) be depreciated over their estimated useful lives. Current standards do not have a specific requirement to reduce the carrying value of a capital asset other than through the application of depreciation. The GASB also has not previously established requirements for accounting and reporting should these assets become impaired. Therefore, the primary objective of this Statement is to establish accounting and reporting requirements for the impairment of capital assets.
2. Financial Accounting Standards Board Financial Accounting Standards Board (FASB)
Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). (FASB FASB
See: Financial Accounting Standards Board
See Financial Accounting Standards Board (FASB). ) Interpretation No. 30, Accounting for Involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal.
INVOLUNTARY. Conversions of Nonmonetary Assets to Monetary Assets, an interpretation of APB Opinion APB opinion
A determination by the former Accounting Principles Board regarding the way a certain financial transaction is to be treated for reporting purposes. No. 29, provides guidance on accounting for insurance recoveries and was applicable to government-wide and proprietary fund financial statements. Authoritative guidance for insurance recoveries, however, did not exist for governmental funds. Therefore, another objective of this Statement is to establish and clarify guidance for accounting for insurance recoveries for all funds and activities.
STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING
Scope and Applicability of This Statement
3. This Statement establishes guidance for accounting and reporting for the impairment of capital assets (1) and for insurance recoveries. This Statement applies to all state and local governments. (2)
4. The guidance related to accounting and reporting for impairment of assets applies to capital assets. (3) The guidance related to insurance recoveries applies to all such recoveries, not just those associated with impairment of capital assets.
Definition of Impairment
5. Asset impairment is a significant, unexpected decline in the service utility of a capital asset. Governments generally hold capital assets because of the services the capital assets provide; consequently, capital asset impairments affect the service utility of the assets. The events or changes in circumstances that lead to impairments are not considered normal and ordinary. That is, at the time the capital asset was acquired, the event or change in circumstance would not have been expected to occur during the useful life of the capital asset.
6. The service utility of a capital asset is the usable USable is a special idea contest to transfer US American ideas into practice in Germany. USable is initiated by the German Körber-Stiftung (foundation Körber). It is doted with 150,000 Euro and awarded every two years. capacity that at acquisition was expected to be used to provide service, as distinguished from the level of utilization, which is the portion of the usable capacity currently being used. The current usable capacity of a capital asset may be less than its original usable capacity due to the normal or expected decline in useful life or to impairing events or changes in circumstances, such as physical damage, obsolescence, enactment or approval of laws or regulations or other changes in environmental factors, or change in manner or duration of use. Usable service capacity may be different from maximum service capacity in circumstances in which surplus capacity is needed for safety, economic, or other reasons. Decreases in utilization and existence of or increases in surplus capacity that are not associated with a decline in service utility are not considered to be impairment.
Assessment of Impairment
7. The determination of whether a capital asset is impaired as described in paragraph 5 is a two-step process of (a) identifying potential impairments and (b) testing for impairment. Capital assets that have potential for meeting the definition of impairment are identified through events or changes in circumstances that are prominent and that denote de·note
tr.v. de·not·ed, de·not·ing, de·notes
1. To mark; indicate: a frown that denoted increasing impatience.
2. the presence of indicators of impairment, such as those described in paragraphs 9 and 10. For capital assets so identified, a test of impairment as described in paragraph 11 should be performed to determine whether the circumstance or change in condition results in an impairment as defined in paragraph 5.
Identification of Events or Changes in Circumstances That May Indicate Impairment
8. The events or changes in circumstances affecting a capital asset that may indicate impairment are prominent--that is, conspicuous con·spic·u·ous
1. Easy to notice; obvious.
2. Attracting attention, as by being unusual or remarkable; noticeable. See Synonyms at noticeable. or known to the government. Absent any such events or changes in circumstances, governments are not required to perform additional procedures to identify potential impairment of capital assets beyond those already performed as part of their normal operations Generally and collectively, the broad functions that a combatant commander undertakes when assigned responsibility for a given geographic or functional area. Except as otherwise qualified in certain unified command plan paragraphs that relate to particular commands, "normal operations" of . The events or circumstances that may indicate impairment generally are expected to have prompted discussion by the governing board Noun 1. governing board - a board that manages the affairs of an institution
board - a committee having supervisory powers; "the board has seven members" , management, or the media.
Indicators of Impairment
9. Impairment is indicated when events or changes in circumstances suggest that the service utility of the capital asset may have significantly and unexpectedly declined. Common indicators of impairment include:
a. Evidence of physical damage, such as for a building damaged by fire or flood, when the level of damage is such that restoration efforts are needed to restore service utility
b. Enactment or approval of laws or regulations or other changes in environmental factors, such as new water quality standards that a water treatment plant does not meet (and cannot be modified to meet)
c. Technological development or evidence of obsolescence, such as that related to a major piece of diagnostic or research equipment (for example, a magnetic resonance imaging magnetic resonance imaging (MRI), noninvasive diagnostic technique that uses nuclear magnetic resonance to produce cross-sectional images of organs and other internal body structures. machine or a scanning electron microscope scan·ning electron microscope
n. Abbr. SEM
An electron microscope that forms a three-dimensional image on a cathode-ray tube by moving a beam of focused electrons across an object and reading both the electrons scattered by the object and ) that is rarely used because newer equipment provides better service
d. A change in the manner or expected duration of use of a capital asset, (4) such as closure of a school prior to the end of its useful life
e. Construction stoppage, such as stoppage of construction of a building due to lack of funding.
10. A change in demand for the services of a capital asset is not considered a separate indicator of impairment. However, changes in demand may be caused by or associated with the indicators listed in paragraph 9, and capital as sets in these circumstances should be tested for impairment. For example, decreased demand for the processing services of a mainframe computer because former users of the mainframe have transitioned to PC- and server-based systems should be considered a change in demand associated with an indicator of impairment--evidence of obsolescence--and the mainframe should be tested for impairment. However, a decrease in demand resulting from the conclusion of a special project requiring large amounts of processing time on a mainframe computer that runs other applications should not be considered a change in demand associated with an indicator of impairment, and a test of impairment is not required. A decrease in school enrollment is another example of a change in demand. If this decrease in enrollment prompts management to close a school, a change in manner or duration of use has also resulted and a test for impairment should be performed. If, however, the decrease in enrollment results in the school's changing from an overcrowded o·ver·crowd
v. o·ver·crowd·ed, o·ver·crowd·ing, o·ver·crowds
To cause to be excessively crowded: a system of consolidation that only overcrowded the classrooms. condition to one in which classroom sizes are now below the state-required maximum and is not associated with another indicator of impairment, a test for impairment is not required.
11. A capital asset identified through the processes described in paragraphs 7 through 10 should be tested for impairment by determining whether both of the following two factors are present:
a. The magnitude of the decline in service utility is significant. The expenses associated with continued operation and maintenance (including depreciation) or costs associated with restoration of the capital asset are significant in relationship to the current service utility. In circumstances other than those involving physical damage, management's action to address the situation is all indication that the expenses are too high in relation to the benefit.
b. The decline in service utility is unexpected. The restoration cost or other impairment circumstance is not a part of the normal life cycle of the capital asset. Management is not expected to foresee fore·see
tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees
To see or know beforehand: foresaw the rapid increase in unemployment. with precision the useful life of a capital asset or the service utility, throughout its useful life. However, there is a reasonable range of expectations about the service utility and useful life at the time of acquisition.
Measurement of Impairment
Capital Assets That Will Continue to Be Used by the Government
12. For impaired capital assets that will continue to be used by the government, the amount of impairment--the portion of historical cost that should be written off--should be measured by the method described below that most appropriately reflects the decline in service utility of the capital asset. The methods for measuring impairment are:
a. Restoration cost approach. Under this approach, the amount of impairment is derived from the estimated costs to restore (5) the utility, of the capital asset. The estimated restoration cost can be converted to historical cost either by restating the estimated restoration cost using an appropriate cost index or by applying a ratio of estimated restoration cost over estimated replacement cost to the carrying value of the capital asset.
b. Service units approach. This approach isolates the historical cost of the service utility of the capital asset that cannot be used due to the impairment event or change in circumstances. The amount of impairment is determined by evaluating the service provided by the capital asset--either maximum estimated service units or total estimated service units throughout the life of the capital asset--before and after the event or change in circumstance.
c. Deflated depreciated replacement cost approach. This approach replicates the historical cost of the service produced. A current cost for a capital asset to replace the current level of service is estimated. This estimated current cost is depreciated to reflect the fact that the capital as set is not new, and then is deflated to convert it to historical cost dollars.
13. Impairments resulting from physical damage generally should be measured using a restoration cost approach.
14. Impairments resulting from enactment or approval of laws or regulations or other changes in environmental factors or from technological development or obsolescence generally should be measured using a service units approach.
15. Impairments identified from a change in manner or duration of use generally should be measured using deflated depreciated replacement cost or using a service units approach.
Capital Assets That Will No Longer Be Used by the Government and Construction Stoppage
16. Impaired capital assets that will no longer be used by the government should be reported at the lower of carrying value or fair value. Capital assets impaired from construction stoppage also should be reported at the lower of carrying value or fair value.
Reporting Impairment Losses
17. Unless the impairment is considered temporary as described in paragraph 18, the loss (6) from impairment should be reported in the statement of activities and statement of revenues, expenses, and changes in fund net assets, if appropriate, as a program or operating expense Operating Expense
The essential things that a company must purchase in order to maintain business.
For example, the payment of employees wages are an operating expense.
Also known as OPEX. , special item, or extraordinary item in accordance with the guidance in paragraphs 41 through 46, 55, 56, 101, and 102 of Statement 34 and paragraphs 19 through 24 of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary Unusual and Infrequently Occurring Events and Transactions. Impairment losses appropriately reported as program expense generally should be reported as a direct expense of the program that uses or used the impaired capital asset. Impairment loss should be reported as indicated regardless of whether the capital asset is being depreciated individually or as part of a composite group. If not otherwise apparent from the face of the financial statements, a general description, the amount, and the financial statement classification (for example, public works public works
Construction projects, such as highways or dams, financed by public funds and constructed by a government for the benefit or use of the general public.
Noun 1. or instruction) of the impairment loss should be disclosed in the notes to the financial statements.
Permanent and Temporary Impairments
18. Generally, an impairment should be considered permanent. In certain circumstances involving capital assets impaired through enactment or approval of laws or regulations or other changes in environmental factors, change in technology or obsolescence, change in manner or duration of use, or construction stoppage, however, evidence may be available to demonstrate that the impairment will be temporary. In such circumstances, the capital asset should not be written down. For example, a middle school that is not being used due to declining enrollment should not be written down if evidence, such as future middle school enrollment projections substantiated by current elementary school elementary school: see school. enrollment, residential development data, birth rates, or other economic indicators Economic indicators
The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate. , demonstrates that the closing of the middle school will be temporary. Impairment losses recognized in accordance with this Statement should not be reversed in future years, even if the events or circumstances causing the impairment have changed.
Capital Assets That Do Not Meet the Impairment Test
19. If an event or circumstance indicates that a capital asset may be impaired, but the test of impairment determines that impairment has not occurred, the estimates used in depreciation calculations--remaining estimated useful life and salvage salvage, in maritime law, the compensation that the owner must pay for having his vessel or cargo saved from peril, such as shipwreck, fire, or capture by an enemy. Salvage is awarded only when the party making the rescue was under no legal obligation to do so. value--should be reevaluated and changed, if necessary. (7)
Disclosure of Idle Impaired Capital Assets
20. The carrying amount of impaired capital assets that are idle at year-end year-end also year·end
The end of a year.
Occurring or done at the end of the year: a year-end audit.
Noun 1. should be disclosed, regardless of whether the impairment is considered permanent or temporary.
Insurance Recoveries (8)
21. In governmental fund financial statements, restoration or replacement of an impaired capital asset should be reported as a separate transaction from the associated insurance recovery, which is reported as an other financing source or extraordinary item, as appropriate. In governmental and business-type activities in government-wide financial statements and in proprietary fund financial statements, restoration or replacement of an impaired capital asset should be reported as a separate transaction from the impairment loss and associated insurance recovery. The impairment loss should be reported net of the associated insurance recovery when the recovery and loss occur in the same year. Insurance recoveries reported in subsequent years should be reported as a program revenue, nonoperating revenue, or extraordinary item, as appropriate. Insurance recoveries should be recognized only when realized or realizable. For example, if an insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual.
An insurer is frequently an insurance company and is also known as an underwriter. has admitted or acknowledged coverage, all insurance recovery would be realizable. If the insurer has denied coverage, the insurance recovery generally would not be realizable. If not otherwise apparent in the financial statements, the amount and financial statement classification of insurance recoveries should be disclosed.
22. Insurance recoveries other than those related to impairment of capital assets, such as for theft or embezzlement embezzlement, wrongful use, for one's own selfish ends, of the property of another when that property has been legally entrusted to one. Such an act was not larceny at common law because larceny was committed only when property was acquired by a "felonious taking," i. of cash or other monetary assets, should be accounted for as described in paragraph 21.
EFFECTIVE DATE AND TRANSITION
23. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2004. Earlier application is encouraged. Accounting changes adopted to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?"
coordinate - be co-ordinated; "These activities coordinate well" the provisions of this Statement should be applied retroactively ret·ro·ac·tive
Influencing or applying to a period prior to enactment: a retroactive pay increase.
[French rétroactif, from Latin by restating financial statements, if practical, for all prior periods presented. If restatement Restatement
A revision in a company's earlier financial statements.
The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. is not practical, the cumulative effect of applying this Statement, if any, should be reported as a restatement of beginning net assets, fund balances, or fund equity, as appropriate, for the earliest period restated. In the period this Statement is first applied, the financial statements should disclose the nature of any restatement and its effect. Also, the reason for not restating prior periods presented should he explained. Previously reported impairments, if any, resulted in a new cost basis for the impaired capital asset and should not be restated.
The provisions of this Statement need not be applied to immaterial Not essential or necessary; not important or pertinent; not decisive; of no substantial consequence; without weight; of no material significance.
immaterial adj. items.
This Statement was issued by the affirmative AFFIRMATIVE. Averring a fact to be true; that which is opposed to negative. (q.v.)
2. It is a general rule of evidence that the affirmative of the issue must be proved. Bull. N. P. 298 ; Peake, Ev. 2.
3. vote of five members of the Governmental Accounting Standards Board The Governmental Accounting Standards Board (GASB) is currently the source of generally accepted accounting principles (GAAP) used by State and Local governments in the United States of America. . Messrs. Allen Al·len , Edgar 1892-1943.
American anatomist who is noted for his studies of hormones and for the discovery (1923) of estrogen. and Mazur Mazur can refer to:
Messrs. Allen and Mazur dissent An explicit disagreement by one or more judges with the decision of the majority on a case before them.
A dissent is often accompanied by a written dissenting opinion, and the terms dissent and dissenting opinion are used interchangeably. on the issue of not providing the opportunity for business-type activities and enterprise funds to measure impairment of capital assets using a cash flows approach.
The GASB and its predecessor organization have consistently recognized the differences between those activities of a government that are primarily financed by taxes (governmental activities/funds) and those activities that are generally self-supporting through charges for services (business-type activities/enterprise funds). Governmental financial reporting standards in Statement 34, as well as prior standards, require business-type activities and enterprise funds to report on an economic resources measurement focus and an accrual basis A method of accounting that reflects expenses incurred and income earned for Income Tax purposes for any one year.
Taxpayers who use the accrual method must include in their taxable income any money that they have the right to receive as payment for services, once it of accounting.
NCGA (National Computer Graphics Association) A Fairfax, Virginia-based organization dedicated to developing and promoting the computer graphics industry. It maintained a clearinghouse for industry information. NCGA closed its doors in 1996. Statement 1, Governmental Accounting and Financial Reporting Principles, paragraph 117, as amended a·mend
v. a·mend·ed, a·mend·ing, a·mends
1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive.
2. , states:
... Proprietary fund revenues should be reported by major sources, and expenses should be classified in essentially the same manner as similar business organizations or activities, unless that classification conflicts with or contradicts GASB pronouncements, as discussed in Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting. Such classification is appropriate in view of the nature of these funds, and facilitates comparison of their operating results with those of like organizations in both the public and private sectors. Further, widely accepted account classifications are available for several types of enterprise and other commercial-type activities. GASB Statement 34, paragraph 66, states: Proprietary fund reporting focuses on the determination of operating income, changes in net assets (or cost recovery), financial position, and cash flows. The proprietary fund category includes enterprise and internal service funds.
Cash flows statements are required for enterprise funds activities, and these activities are required to report operating and nonoperating activities separately. These economically focused accounting requirements exist for all enterprise funds, whether they are self-supporting or if the government does or is willing to subsidize sub·si·dize
tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es
1. To assist or support with a subsidy.
2. To secure the assistance of by granting a subsidy. the activity because it is a public benefit.
Messrs. Allen and Mazur believe that the measurement of impairment for capital assets of business type activities and enterprise funds should be consistent with the economic focus of the financial statement presentation. They believe that the harmonization har·mo·nize
v. har·mo·nized, har·mo·niz·ing, har·mo·niz·es
1. To bring or come into agreement or harmony. See Synonyms at agree.
2. Music To provide harmony for (a melody). between a cash flows approach to reporting impairment and the economic focus of financial presentation for business-type activities and enterprise funds is more important than the harmonization of the approach to measurement of impairment between capital assets of governmental activities generally financed through takes, which are not required to present cash flows statements, and business-type activities and enterprise fund capital assets.
Messrs. Allen and Mazur believe that in most cases an impairment that affects service capacity would also affect the cash flows of business-type activities and enterprise funds. However, they believe that cash flows related impairments of business-type activities and enterprise fund capital assets should be reflected in their financial statements even if there are no declines in service utility and, correspondingly, that a business-type activity or enterprise fund that experiences a decline in service utility that does not economically impact the enterprise's ability to recover its investment in capital assets should not be required to write down its capital assets.
This cash flows approach to reporting impairment of capital assets is consistent with accounting standards of for-profit and not-for-profit Not-for-profit
An organization established for charitable, humanitarian, or educational purposes that is exempt from some taxes and in which no one in profits or losses. business organizations and governmental business enterprises throughout the world. One reason for adding this project to the GASB technical agenda at the time it was added was that it provided the opportunity to work with the Public Sector Committee (PSC (Public Service Commission) Same as PUC. ) of the International Federation of Accountants The external links in this article or section may require cleanup to comply with Wikipedia's content policies. . Although there was general harmonization with the measurement of the impairment of general governmental capital assets, the PSC has proposed to measure the asset impairment for governmental business enterprise capital assets using a cash flows approach consistent with existing standards for commercial enterprises.
Messrs. Allen and Mazur are not aware of financial statement user concerns with the current reporting of asset impairment by the business-type activities and enterprise funds that currently are following this cash flows approach.
They also believe the GASB is missing an opportunity for more consistent reporting by certain special entities with similar operations in both the public and private sectors.
Mr. Allen also does not support the conclusion that events that reverse the circumstances that initially resulted in the write-down Write-Down
Reducing the book value of an asset because it is overvalued compared to the market value.
This is usually reflected in the company's income statement as an expense, thereby reducing net income. of impaired capital assets should not be recognized in a government's financial statements.
Mr. Allen also notes that traditional accounting theory, particularly as it is applied to a historical cost model of reporting, specifies that the basis for reporting assets should be written down for certain events but should not be written back up if those events are reversed. For example, inventories written down to market value if lower than the cost basis of those inventories are not permitted to be written back up if the market value increases above the cost basis of these inventories. This traditional accounting theory has been applied by the GASB in this standard for impairment of capital assets. Such assets written down because the government does not have the evidence to demonstrate that an impairment will be temporary are not permitted to be written back up to historical cost if, in fact, it turns out that the impairment was temporary
For example, an elementary school is closed and written off as a result of financial duress duress (dy`rĭs, d`–, d when the town's main employer leaves leading to a decline in population and school enrollment. If events and circumstances were to change several years later and the school were reopened, under this Statement the write-off Write-Off
A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of the school building would not be permitted to be reversed because at the time of closure the government did not have evidence to demonstrate that the closure would be temporary.
Another example would be the enactment or approval of a state law, such as one requiring all local school buildings to be earthquake-proof or vacated within a three-year period. The enactment of such a law may result in the local school district's recording capital asset impairment write-offs in the year the law was enacted for schools they believe will not be able to be brought up to the new earthquake standards. However, if the state legislature A state legislature may refer to a legislative branch or body of a political subdivision in a federal system.
The following legislatures exist in the following political subdivisions:
Mr. Allen believes that an accounting standard is not being faithfully representative if that standard only permits or requires one-way adjustments. Accordingly, Mr. Allen does not support the application of this "conservative" accounting theory to the GASB's proposed capital asset impairment standard. Rather, he believes that the reversal of circumstances that initially resulted in the impairment write-down of assets should also be recognized in the financial statements of the government through the reversal of the impairment write-down.
Mr. Allen notes that the Board's conclusions to base impairment of capital assets on a service utility approach is unique and does not follow existing accounting standards or theory. Therefore, Mr. Allen sees no reason that the GASB should be bound by traditional "conservative" accounting theory, such as not allowing the reversal of capital asset impairment write-downs when circumstances would indicate otherwise.
Mr. Allen also notes that the PSC proposal does allow, in some circumstances, for the reversal of an impairment loss, and he believes that certain reversals would also be appropriate for the GASB based on its service utility approach.
Members of the Governmental Accounting Standards Board:
Tom L. Alien, Chairman Cynthia B. Green William W. Holder Edward J. Mazur Paul R. Reilly Richard C. Tracy James M. Williams
(1) Capital assets are defined in paragraph 19 of Statement 34. Capital assets that have been or will be used in operations are also comprehended in that definition.
(2) This Statement applies to business-type activities and enterprise funds that apply FASB Statement FASB Statement
A standard set by the Financial Accounting Standards Board regarding a financial accounting and reporting method. Essentially, FASB statements determine the acceptable accounting practices that Certified Public Accountants use in reporting No. 71, Accounting for the Effects of Certain Types of Regulation, but does not preclude pre·clude
tr.v. pre·clud·ed, pre·clud·ing, pre·cludes
1. To make impossible, as by action taken in advance; prevent. See Synonyms at prevent.
2. them from reporting a regulatory asset related to an impairment loss when appropriate in accordance with the provisions of FASB Statement 71.
(3) For purposes of this Statement, land is considered to be a separate capitol Capitol, seat of the U.S. Congress
Capitol, seat of the U.S. government at Washington, D.C. It is the city's dominating monument, built on an elevated site that was chosen by George Washington in consultation with Major Pierre L'Enfant. asset from buildings and depreciable depreciable
Of, relating to, or being a long-term tangible asset that is subject to depreciation. improvements and therefore should be evaluated separately for impairment.
(4) A capital asset that a government has decided to sell, but is continuing to use as originally intended until the sale occurs, is not considered to exhibit a change in manner or expected duration of use. A capital asset that a government has decided to sell and is not continuing to use is considered to exhibit a change in manner or expected duration of use and should, therefore, be evaluated for impairment.
(5) Restoration cost is the amount necessary to return the capital asset to its original condition and does not include any amount attributable to improvements and additions.
(6) This guidance also applies to insured impairments that result in accounting gains.
(7) Changes to estimated useful lives and salvage values Salvage Value
The estimated value that an asset will realize upon its sale at the end of its useful life.
For example, the value of a computer after it depreciates over the number of years specified by the IRS. are accounted for on a prospective basis in future depreciation expense.
(8) In accordance with the provisions of Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, recoveries received from internal service funds should be accounted for in accordance with the provisions of this paragraph. Recoveries received from the general fund should be accounted for as reimbursements to the extent of the impairment loss, if any, and be reported as transfers in the fund financial statements for amounts in excess of the impairment loss, if any.