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Breaking it down
Current governmental financial statement disclosure requirements include details about capital assets reported in the statement of net position. This information includes beginning- and end-of-year balances, acquisitions, and dispositions, typically in a tabular format. The recent issuance of GASB Statement 87, “Leases”; Statement 94, “Public-Private and Public-Public Partnerships and Availability Payment Arrangements”; and Statement 96, “Subscription-Based Information Technology Arrangements,” has resulted in the recognition of intangible right-to-use assets, which are classified as capital assets and are subject to the related disclosure requirements.
The GASB received feedback indicating that the distinction between tangible and intangible capital assets and leased versus owned assets was important to users. Additional feedback noted that users consider the distinction between intangible capital assets used in operations and those held for sale to be important when using governmental financial statements.
In response to this feedback, on Sept. 28, 2023, the GASB issued a proposal that would require governments to disclose disaggregated amounts of certain types of capital assets within the notes to financial statements.
Crowe observation: In its early stages, the project focused on the classification of various types of nonfinancial assets prevalent in government financial statements, including the consideration of how to define the term “nonfinancial asset.” Ultimately, however, the GASB chose not to define nonfinancial assets and narrowed the focus to be on certain capital assets only, concluding that nonfinancial investments, or receivables for nonfinancial assets, do not require additional disaggregation.
Scope of the GASB’s exposure draft and key highlights
The scope of the proposal is limited to the classification, presentation, and disclosure of certain types of capital assets. Current recognition and measurement requirements in existing standards would not be affected. The GASB’s exposure draft adds distinctions between the following capital asset types:
- Capital assets held for sale versus those used in operations
- Intangible capital assets versus tangible capital assets
- Intangible lease assets versus tangible owned assets
- Right of use for intangible assets (such as subscriptions) versus leases of tangible assets
The proposed changes would require certain classes of capital assets to be disclosed separately within the capital assets note disclosure. Specifically, the classes include:
- Capital assets held for sale, by major asset class
- Lease assets, by major class of underlying lease asset
- Subscription assets
- Intangible assets other than lease and subscription assets, by major asset class
Additionally, the exposure draft emphasizes that any other intangibles not specifically identified in the proposed guidance that represent the right to use another party’s intangible assets (other than subscription assets) should be disclosed separately from the reporting entity’s owned intangible assets. This emphasis provides guidance for other right-to-use intangible assets that might be present in industry but do not fall into the previously noted categories.
Identifying held-for-sale assets
The exposure draft proposes guidance for determining when a capital asset should be considered as held for sale. Capital assets should be classified as held for sale if 1) the government has decided to sell the asset and 2) it is probable that the asset sale will be finalized within one year of the financial statement date. The GASB also identified the following factors (among others) to consider when determining the probability that a capital asset will be sold within one year of the financial statement date:
- Whether the asset is available for immediate sale in its present condition
- Whether an active program to locate a buyer has been initiated
- The market conditions for the type of asset to be sold
- Any regulatory approvals needed to complete the sale of the asset
Finally, the proposal indicates that the classification of a capital asset as held for sale should be evaluated each reporting period.
Crowe observation: Governmental organizations would be expected to document their intent to sell the asset and the factors that make it probable that the sale will be completed within a year of the financial statement date and reevaluate this assessment annually as part of the financial statement reporting process. If during the annual reevaluation process the government decides not to sell the asset or the expected time frame changes to beyond one year, the asset would be reclassified from held for sale. The operational status of the asset (that is, whether the asset is being used currently in operations) would not affect the ability to classify it as held for sale.
Transition and effective date
The effective date of the proposed statement would be for fiscal years beginning after June 15, 2025, retroactively applied, with early adoption encouraged.
Next steps
The GASB is seeking input from stakeholders during the comment period, which ends Jan. 5, 2024.
