Capital Assets

The basic capital asset standards reside in Statement No. 34, Basic Financial Statementsand Management's Discussion and Analysisfor State and Local Governments, paragraphs 1829, as amended (though capital assets are addressed in multiple other pronouncements as well). In general, governments are required to report capital assets at the historical cost and to depreciate that historical cost in a systematic and rational manner over the estimated useful lives of the assets. Capital assets are reported at their historical cost net of accumulated depreciation in financial statements using the economic resources measurement focus and the accrual basis of accounting. The primary exceptions to the depreciation requirement are land (which is considered inexhaustible), construction in progress, and infrastructure assets reported using the modified approach. The modified approach is an optional reporting method available to governments that meet certain criteria demonstrating that the qualifying infrastructure assets are being maintained over time at a consistent physical condition level determined in advance by the government. Instead of depreciation, governments employing the modified approach report annual expenses for the cost of maintaining and preserving the assets at the predetermined condition level. Those governments are required to present required supplementary information related to physical condition of and maintenance/preservation spending on the infrastructure.

QuestionHow has the optional use of the modified approach affected the comparability of net position, expenses, and other financial statement information between governments that use it and those that do not?