A post-implementation review of an accounting standard for state and local governments on the impairment of capital assets and insurance recoveries found that it provides important information to users, but does not resolve all the issues it was meant to address.

Issued in 2003, GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, establishes measurement guidance for capital asset impairments and requires governments to report the effects of those impairments when they occur, rather than as a part of the ongoing depreciation expense for the capital asset or upon disposal of the capital asset. It also provides uniform reporting guidance for insurance recoveries of state and local governments.

The PIR was conducted by an independent team from GASB’s parent organization, the Financial Accounting Foundation, and involved getting broad feedback from stakeholders such as auditors, statement preparers, and more limited input from statement users and academics.

The PIR report concluded that Statement 42 had not resolved all of the issues underlying its stated need. In particular, users had mixed views on whether it had achieved its objectives for establishing recognition criteria for impairments, and requirements that appropriately measure the effects of impairments.

Among the report’s other conclusions:

  • The capital asset impairment and insurance recovery information governments provide in their financial statements is important to statement users, but may be difficult for some users to understand and may not be as detailed or as comparable across governments as some users may wish.
  • Most of Statement 42’s requirements are operational but some stakeholders find certain aspects challenging, particularly relating to the service utility approach and related techniques for measuring impairment of capital assets.
  • Statement 42 did not result in significant unanticipated consequences.
  • The cost to implement Statement 42 and the continuing application costs generally are consistent with the costs that stakeholders expected.

The PIR team recommended that, going forward, GASB should conduct, at a minimum, a limited field test when proposing to issue a standard with new recognition or measurement approaches, and share the results with users to assess the usefulness of the resulting information.
Later this year, the PIR team will turn its attention to a review of GASB Statements No. 33, Accounting and Financial Reporting for Nonexchange Transactions, and No. 36, Recipient Reporting for Certain Shared Nonexchange Revenues.