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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Capital Assets

Impairment of Capital/Leased Assets and Insurance Recoveries

GASB 42 establishes accounting and reporting requirements for impairment of capital assets and insurance recoveries. GASB 87 establishes that leased assets are also subject to impairment. Agencies must comply with the Comptroller’s office guidance governing accounting for and reporting for:

  • Unexpected significant impairment of capital or leased assets (assets)
    –AND–
  • All insurance recoveries

An asset impairment is a significant, unexpected decline in an asset’s service utility. The decline is due to events or changes in circumstance that:

  • Are not normal and ordinary
    –AND–
  • At the time of acquisition, could not be reasonably foreseen to occur during the useful life of the asset

Note: The only impairments reported under GASB 42 are those that are considered permanent.

Governments hold assets because of the services they provide; therefore, an impairment is one affecting the service utility of an asset. Service utility is the usable capacity expected at acquisition.

Usable capacity is different from the level of utilization:

  • The level of utilization is the portion of the usable capacity currently being used. Current usable capacity may be less than original usable capacity due to normal or expected decline.
  • The usable service capacity may be less than the maximum service capacity when surplus capacity is needed for safety or economic reasons.
  • Decrease in utilization and the existence of surplus capacity for safety and economic reasons are not considered impairments unless also associated with a decline in service utility.

Temporary Impairments

Report only impairments considered permanent. Do not report the impairment amount if there is factual evidence that an impairment is temporary. Do not reverse the impairment in future years even if the events or circumstances leading to it reverse or if service utility is restored.

Assets that are Idle

If an impaired asset is idle at fiscal year-end, disclose the carrying amount and a general description in Note 2. If the lessee impairs a lease asset during the reporting period, the components of the impairment loss and any change in the lease liability must be disclosed in Note 8. This applies regardless of whether the impairment is expected to be permanent or temporary.