The Governmental Accounting Standards Board (GASB) Statement No. 34, or GASB 34, is a financial accounting department issue regarding how your government categorizes capital-fund accounts and capital-asset values. It also looks at your general ledger bookkeeping system and how annual financial statements are prepared and the types of information they need to contain.
So, what does GASB 34 mean to a public works department? Although only a small portion of GASB 34 addresses reporting with regard to publicly owned infrastructure and capital assets, it requires coordination among public works, engineering, and finance departments to establish both a system and standard operating procedures to track capital-infrastructure assets.
A goal of GASB 34 is that it will help public works departments go from the traditional dire-need maintenance approach to one of preventive maintenance and renewal using the modified approach—one of two methods allowed by GASB for tracking and reporting assets.
To report capital assets using the modified approach, an organization establishes a system to manage infrastructure assets and standard operating procedures. These procedures define how to track and record inventories, maintenance activity costs, and condition-inspection information for reporting purposes.
Part of the requirements of the modified approach is to establish a minimum condition level at which the infrastructure network is maintained. At least once every three years, you must inspect and rate the entire network to see if you are meeting or exceeding your established minimum condition goals. Instead of taking a depreciation expense each year for each asset and charging that against its capital value (reducing the book value of the asset), you expense out in that fiscal period the maintenance cost as a maintenance expense. This maintains the capital value of the asset at the original cost at which it was placed on the books.
If you are using the modified approach, you need to standardize your inspection procedures and tracking and reporting processes. All of this can be built into one management system that incorporates asset inventory-inspection systems for capital assets with a work order management system.
Inspection information is reported in the financial statements in a section called Management's Discussion & Analysis (MD&A). This required supplementary information to your financial statements should include the three most recent condition inspections to ensure you meet or exceed your established minimum condition level. This document should include an estimate of what it will cost you for the next fiscal period to maintain and preserve your assets at or above your minimum condition levels. The MD&A also should contain a narrative describing any major additions or changes to your infrastructure inventory or the inventory's overall value or network condition rating.
GASB allows you the flexibility to mix your reporting approach within the same network. For example, road surfaces, bridges, sewer lines, and dams are long-lived assets that do not literally get replaced, but rather are periodically rehabilitated to maintain a certain quality and condition over a long period of time. It does not make sense to depreciate the value of a road over time to a potential zero dollar book value if that asset is never replaced, is always in service, and is providing your community with serviceability and value. However, a traffic sign, a water meter or valve, or any other capital asset that can be replaced with a new one makes sense to report using depreciation. Therefore, you can report your water mains and pumps using the modified approach and then report your meters, hydrants, and valves using the depreciation approach.
There are many considerations when considering reporting infrastructure assets for GASB 34. Regardless of the method you use to report your infrastructure—the modified approach or depreciation—you need to maintain an up-to-date inventory of all eligible assets. These inventories are not static, but rather dynamic. They change on an almost daily basis as new assets are placed into service, as existing capital assets are rehabilitated or replaced, or as capital assets in service are retired.
— Jay Wickham is executive vice president of marketing with CarteGraph, Dubuque, Iowa.