Government / Nonprofit

Retroactive Reporting of Infrastructure under GASB No. 34

By Brian T. McCall, CPA

Sept. 18, 2007

GASB Statement No. 34 may have been issued over eight years ago, but its effects will be felt once again by numerous local government units in 2007. Retroactive reporting of infrastructure has already been adopted by Phase I governments for their Dec. 31, 2006, year-end financial statements. Phase II governments – which comprise a significantly larger portion of the local governmental unit population than Phase I – will be adopting the requirement for their Dec. 31, 2007, year-end financial statements. Phase III governments are encouraged, but not required, to retroactively report existing, general infrastructure assets. Many will choose not to adopt this reporting option.

Many steps should have already been taken by Phase II local government units to address the issues that will arise with the retroactive reporting, but some may have pushed this issue to the back burner because of more pressing matters, or simply may not be aware of the requirement due to the time between GASB Statement No. 34’s issuance and the required implementation date.

Auditors of local government units need to ensure that all of their Phase II clients are aware of the requirement, and that the local government unit has allocated the necessary time and expense to accumulate the information for the retroactive reporting of infrastructure. Attempting to accumulate this information in time for year-end financial reporting will be too difficult if local government units have not already begun, or do not immediately begin, to deal with this issue. The sooner the infrastructure issue is addressed, the more time the local government unit will have to address unexpected matters, which will likely arise due to the multiple steps necessary to arrive at the final reported infrastructure amounts.

Steps that need to be taken by the local government unit include the following:

• Identifying all infrastructures acquired/constructed since July 1, 1980.
• Define what constitutes a network and a subsystem. Infrastructure assets should be reported at the network level if the cost of the network is at least 10 percent of the total cost of all general capital assets reported in the first fiscal year ending after June 15, 1999. Infrastructure assets should be reported at the subsystem level if the cost of the subsystem is at least 5 percent of the total cost of all general capital assets reported in the first fiscal year ending after June 15, 1999.
• Determine if historical cost data is available, or if historical estimates will be more reliable. There are different price indices available to assist in estimating historical cost, such as the Highway Construction Index from Price Trends for Federal Aid Construction, which was the index used in the example presentation in the implementation guide for GASB Statement No. 34. The networks and subsystems should then be valued, and those that qualify as major infrastructure items (networks greater than 10 percent, subsystems greater than 5 percent) should be identified. 
• Determine a capitalization threshold for infrastructure assets. The maintenance of the infrastructure records from year to year will be a continuing responsibility of the local government unit, just as it is for the currently maintained capital asset records, so the local government should consider the costs/benefits of a “low” versus a “high” capitalization threshold.
• Calculate beginning accumulated depreciation, current year depreciation expense, and ending accumulated depreciation, unless the local government unit chooses to use the modified approach. Depreciation expense for infrastructure should be reported as a direct expense of the function that is normally used for maintenance of these assets, most likely to be a highway or public works function.

Phase II local government units should attempt to address this issue now, making sure the procedures they are implementing address the requirements set forth in GASB Statement No. 34. Auditors of these local government units should make sure their clients are aware of the infrastructure requirements, and review this part of GASB Statement No. 34 prior to auditing the infrastructure information.