GASB 34…Are You Prepared?

“Without a doubt, GASB Statement No. 34 represents one of the most important changes in the history of financial reporting and accounting for local governments.”

The Governmental Accounting Standards Board (GASB) has issued new guidelines that will fundamentally change the way local government’s cities and counties, including public works and utilities, report their finances. For the first time, financial statements will need to contain more detailed information about the full cost of providing services, including the infrastructure assets of water and sewer systems, roads, bridges, storm water systems, and tunnels.

The figure following presents the cycle for describing the key steps and dependencies associated with infrastructure asset management and reporting under GASB Statement No. 34. Implementing GASB 34 may be a significant effort on the part of local government. Those who succeed will do so only by proper advanced planning. The challenge is to develop a practical set of practices and procedures to guide the efforts to develop consistent documentation about the value of the infrastructure assets and what is being done to ensure that they are being properly maintained.

Following the inventory and assessment process, the team responsible for the Consolidated Annual Financial Report (CAFR) will determine whether the depreciation approach (for defining historical costs) or the modified approach (for calculating upkeep requirements) should be used to comply with GASB 34. The results from the selected approach will be published and an annual CAFR work plan should be prepared and carried out. The two approaches are discussed more fully in Illustration 1.1.

Illustration 1. 1 - Infrastructure Identification and Valuation Cycle

During the years leading up to full implementation and compliance with GASB 34, the costs of inventories, condition assessments, valuation, and supporting technical and human resources will have budgetary consequences for local governments, which they should plan accordingly.