The Governmental Accounting Standards Board (GASB) has unveiled a preliminary proposal to enhance financial reporting for state and local governments, shedding light on the often-opaque world of infrastructure asset management.
The board issued Preliminary Views, Infrastructure Assets on October 10, 2024, which proposes changes that would give citizens a better understanding of how their tax dollars are being used to build, maintain, and upgrade roads, bridges, and water systems.
The provisions are aimed at finding a balance between providing detailed financial information and avoiding unnecessary red tape for governments, according to the proposed text.
Modifying Definition of Infrastructure Assets
The proposal would modify the definition of infrastructure assets to clarify what qualifies as such in government financial statements. The changes specify that infrastructure assets can have multiple components, must be part of a network, and provide a particular public service. Buildings in a network and communication networks are also included.
These modifications will help governments accurately classify and report their infrastructure assets, providing a clearer financial picture, the text explains.
Enhancing Accuracy, Consistency
Currently, infrastructure assets are recorded at their historical cost minus depreciation, or governments can opt for a “modified approach” that bypasses depreciation if they maintain the assets at a certain condition level. However, this approach has been criticized for lacking accuracy and consistency.
The GASB’s proposal addresses these concerns by requiring periodic reviews of the estimated useful lives and salvage values of infrastructure assets such as roads, bridges, tunnels, water systems, and other assets that provide public services. This change aims to ensure that the costs of these assets are allocated more accurately over their useful lives, providing a clearer picture of their value and usage.
The proposal also suggests that significant components of infrastructure assets with different useful lives should be depreciated separately, allowing for a more precise allocation of costs.
Additionally, the GASB wants to enhance disclosures in financial statements, including details on maintenance expenses, changes in policies for capitalizing and estimating useful lives, and the government’s policy for monitoring and maintaining infrastructure assets.
Governments would need to provide a 10-year schedule comparing estimated and actual annual maintenance expenses by major class to help users understand infrastructure maintenance.
Balancing Benefits and Burdens
While the proposed changes promise to improve the accuracy and relevance of financial reporting, they may require additional administrative effort and resources from governments, the proposed text explains. Further, the removal of the need for an asset management system for those using the modified approach could provide more flexibility, but may also reduce comparability between governments.
The GASB is encouraging stakeholders to participate in public hearings and user forums, and to submit written comments by January 17, 2025. The feedback will be considered in the development of an Exposure Draft, which will further refine the proposed standards before final adoption.
This article originally appeared in the October 11, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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