The Governmental Accounting Standards Board has unveiled a new standard on accounting and reporting for intangible assets, clearing up a requirement of Statement 34 that had caused widespread uncertainty in the preparation and comparison of governmental financial reports.GASB Statement 51, Accounting and Financial Reporting for Intangible Assets, adopts a clear and simple description of intangibles as assets that have no physical substance, are non-financial in nature, and have a useful life extending beyond a single reporting period. Such assets would include easements, internally generated and third-party computer software, water and timber rights, patents, and trademarks.

"We believe this statement improves financial reporting by reducing inconsistencies that have developed in accounting and financial reporting for intangible assets," said David Bean, GASB director of research and technical activities.

Some of those inconsistencies came about after GASB issued Statement 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, which overhauled governmental accounting and required intangible assets to be capitalized. That statement required the capitalization of intangible assets, but neither defined the term nor specified how to report on them.

Compliance had therefore been spotty.

"There's been a lot of inconsistency in practice since the implementation of Statement 34, which required intangible assets to be capital, but did not define or describe intangible assets or provide specific guidance," Bean said. "Without such specific guidance, a lot of governments did not apply the Statement 34 provisions beyond leases. Therefore, the need for a standard became apparent."

The non-financial attribute of Statement 51 would exclude cash and securities, any claim to monetary assets, such as receivables, and prepayment for goods or services.

The statement generally classifies intangible assets as capital assets, though certain assets, such as capital leases (covered by other GASB pronouncements), are specifically excepted. Intangible assets are to be recognized in the statement of net assets only if they are identifiable.


Stephen Gautier, Government Financial Officers Association director of technical services, praised the statement. "Generally we're very supportive of the statement," he said. "There was some confusion because we had been under an older standard, and what's clarified is that when Statement 34 listed intangible assets among other capital assets, many of us assumed that they would be treated like other assets, but that wasn't always clear. This new statement has really brought clarification to that."

That older standard, an Accounting Principles Bulletin predating GASB, required amortization of capital assets over a period not to exceed 40 years. Statement 51 requires intangible assets with an indefinite useful life, such as easements, to be capitalized but not amortized.

Responding to comment letters received on an exposure draft of the statement, the board decided to exclude intangible assets that are acquired or created for the primary purpose of generating revenues, such as a patent donated to a government for that purpose. Such intangible assets would be classified as investments.

Bean said that the board was also very responsive to calls for an easier transition. After comment letters complained that many governments had not kept track of the historical cost of software developed in-house, the board decided to permit, but not require, retroactive reporting of internally generated software. Smaller governments are exempt from all requirements for retroactive reporting.

That the exemption from retroactive reporting was only partial was a disappointment expressed by the GFOA, but Gautier said that the issue was relatively minor compared to the benefits of the new standard.

The International Public Sector Accounting Standards Board, which sets international standards for governments, has not established a standard on intangible assets, but it expects to begin work on one in the near future.

The Financial Accounting Standards Board has established a standard on intangibles (Statement 142). Bean said that Statement 51 will bring U.S. governments closer to the FASB standard and expected IPSASB standard.

GASB Statement 51 is effective for periods beginning after June 15, 2009, with earlier implementation encouraged, but not required.

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