Recently, The Governmental Accounting Standards Board released its Implementation Guidance Update for 2021. Within this update, an amendment was made for the following question:
“Should a government’s capitalization policy be applied only to individual assets, or can it be applied to a group of assets acquired together? Consider a government that has established a capitalization threshold of $5,000 for equipment. If the government purchases 100 computers costing $1,500 each, should the computers be capitalized?”
The amended IG for this question now states that governments are required to assess similar acquisitions of similar assets that individually would be under the capitalization threshold but when significant in total, governmental entities are now required to capitalize them. That being said this, amendment will now require governments to track a grouping of individual small dollar value items which they will no longer be able to expense in the year incurred. Changes for the guidance are to be made retroactively, with the update stating that “changes are to be made retroactively, by restating all prior periods presented, if practicable, and the cumulative effect on periods prior to those presented should be reported as a restatement of the beginning net position or fund net position, as applicable.”
GASB provided the below example of what might be included as part of this amendment:
“For example, a government applying professional judgment to the question of capitalization of library books. The government may conclude that a large initial order or orders of books and other reference materials required to initially supply a new or expanded library facility should be aggregated for the purpose of considering the level of significance for capitalization2, while the on-going periodic acquisition of new books to replace volumes or introduce new offerings should not. Similarly, the acquisition of an entire complement of new personal computing devices in conjunction with the upgrade of an offices or department’s computer network infrastructure might be deemed appropriate for aggregation, while the acquisition of a few replacement or expansion devices might not.”
Moving forward, governments should begin to review the impacts of these changes in their capital asset reporting and if the organization believes that the historical cost of any previously purchased assets would not be significant to the financial statement the governments should prepare support and explanations of this justification to present to auditors during their yearly engagements.
If you have any questions or would like to know more about the Implementation Guidance Update for 2021, feel free to reach out to a Henry+Horne auditor.