Issues Persist With GASB Standard on Impairment of Capital Assets
A recently conducted inspection of a 2003 accounting standard on the impairment of insurance recoveries and capital assets for local and state governments received mixed feedback. One independent group commented that this standard gives useful information to the users of financial statements; however it did not cover all the related aspects.
A post implementation review team of Governmental Accounting Standards Board (GASB) critically assessed the accounting standard-42 ‘Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries’. The standard provides guidance on the measurement of impairment in respect of capital assets and obliges government to disclose the impact of the impairment as and when it is occurred rather than showing it as part of continuous depreciation expense or recording it at the time of disposal of asset. The team received feedback from various stakeholders.
Some of the findings from PIR report on Standard-42 are described below:
· Statement-42 is successful in illuminating the guidance on accounting for insurance recoveries for all funds and activities.
· The financial statements users consider the insurance recoveries and assets impairment information important, provided in the financial statements of governments. However users may find information difficult to understand and compare across governments.
· Statement-42 did not result in major modifications in the way the financial statements are presented. Also the implementation costs of these changes and their associated sections are within the stakeholder’s expectations.
· Ststement-42 has been successful in increasing the understanding of the users of financial statements regarding impairment and better comparability of insurance recoveries information has been achieved. However it’s financial impact on government has not been as expected.
As a result of the review, the PIR team advised GASB to undertake a sample testing on some real information while considering introducing a new standard on recognition and measurement or changing the existing one and take comments about the usefulness of proposed changes. GASB stated in its response to the report that it actually considers it a useful suggestion to undertake field tests as critical part of planning to launch a new standard or change.