By Jolene FarleyLocal government entities are reworking current accounting practices to reflect a change in how they’re required to report assets.The new accounting standards, called GASB 34 (pronounced gasbee), require state and local governments to begin reporting the value of infrastructure assets in their annual reports. GASB stands for General Accounting Standards Board, a nonprofit entity responsible for establishing accounting standards for state and local governments.For example, infrastructure assets would include such items as buildings, roads, bridges, water and sewer facilities and dams.State and local government agencies currently use the cash accounting methods to report infrastructure assets. With cash accounting, the capital or dollar cost of an infrastructure investment appears in the annual financial report during the year the cost of construction is incurred. The value of existing physical assets does not appear on financial reports after that point. So, in effect, the value of all physical assets is off the books even though the assets continue to have value long after construction costs are incurred. The new reporting standards more accurately reflect the value of each agency’s existing capital assets and brings public agencies in line with accounting norms in the private sector where accrual accounting methods are most often the standard.Accrual accounting methods spread the cost, or loss in value of an asset, out over the asset’s useful lifetime rather than account for in its first year. The intended effect of the change is to make the overall financial condition of state and local governments more easily understood by the public, investors, creditors and the agencies themselves.Complicated mandateRock County was required by the Minnesota State Auditors to comply with GASB 34 by 2003. "It has been called the most important single change in the history of accounting and financial reporting for state and local government," Rock County Auditor/Treasurer Gloria Rolfs said. "This will involve many changes.""The requirements of GASB 34 are effective in three phases based on a government’s annual revenues," she said.Rock County was further along in the process than some counties, cities and schools. The county had values for its assets and didn’t need to have them appraised, according to Rolfs."It’s just that now the infrastructures must be included to show depreciation," Rolfs said. To include the depreciation in the financial statement, accounting software had to be changed.Rock County is about three-quarters of the way through the process even though it is 2004, according to Rolfs. County officials frequently meet with computer programmers writing the new accounting programs. "We have a manual inches thick that is GASB 34 compliant," Rolfs said. "It’s just something that can’t be done overnight. It’s something that must be done in stages."Assigning a valueThe Hills-Beaver Creek School district is just starting the process of complying with GASB 34.Determining the value of all assets currently not listed on the financial statements is a big project, according to Hills-Beaver Creek Superintendent Dave Deragisch. "Initially it will be a lot of work," he said. An appraisal company has been hired by the district and will begin in March to appraise items valued at $1,000 or more.Hills-Beaver Creek is one of the last school districts in the state to go through the process. Since the district had less than $10 million in annual revenue, it had until June 15 of this year to comply. Deragisch wonders how some assets will be appraised. For instance, what value will be assigned to the 85-year-old high school? He has discussed raising the $1,000 valuation threshold with the school board. There are pros and cons to keeping the amount set at $1,000. Using a low threshold would provide a more precise accounting of all assets, but it would be more work to appraise and keep track of depreciation on the items. "We have a lot of pieces of equipment and items in our building that are valued at $1,000 or more," Deragisch said. After the assets are appraised, following GASB 34 guidelines won’t be as much work. "After the first year everything is much easier, you just add those things that you have purchased from that year," he said.Deragisch is concerned about informing the public how the changes will affect end of the year audit reports. The public isn’t used to seeing a bottom line with depreciation subtracted. "If we don’t have a major project or major purchases at Hills-Beaver Creek, the depreciation of our assets could have a negative impact on the bottom line of our audit," he said. He has asked state officials if the state would be required to step in to oversee a district with a negative balance on an audit report. No one has answered his question yet. "It is a question that I have and I think it’s a question that the board members have," he said.
