Introduction
The Governmental Accounting Standards Board (GASB) released its fifty-first statement of the governmental accounting standards. The primary focus of the statement is on accounting and financial reporting for intangible assets. The inclusion of intangible assets in GASB’s 34th statement, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments elicited number of questions. This statement sheds light on such questions as the identification of intangible assets, whether governments have any of these assets, and how the assets report intangible assets for accountability purposes (GASB, 2007). The statement provides requirements that will reduce inconsistencies in the reporting of intangible assets hence fostering enhanced comparability of state and local government financial statements.
The Nature of Intangible Assets
Intangible assets in the government arena include land use rights, computer software, patents, and trademarks (GASB, 2007). The GASB states that an asset has to meet three requirements for it to be considered an intangible asset. First, the asset cannot have physical substance in line unless in situations where the intangible asset is carried in a tangible item such as in the case of software on a storage disk. Secondly, the asset needs to be non-financial. The asset has value but not in the form of cash or securities, and neither is it a claim or right to assets in a monetary form like receivables, nor a prepayment for goods or services. Finally, the initial useful life of the asset needs to extend beyond a single reporting period.
Delegate your assignment to our experts and they will do the rest.
Reporting Intangible Assets
The GASB’s standard states that intangible assets ought to be treated as capital assets as per the authoritative guidance for capital assets. There is an exclusion of some intangible assets. The exclusion includes intangible assets acquired or created for sole purpose of directly obtaining income or profit. The said assets are therefore regarded as investments. The standard further provides guidance to issues specific to intangible assets stating the procedure for reporting the historical cost of intangible assets and so on.
Internally Generated Intangible Assets
The standard states that majority of intangible assets are purchased or received from other parties. However, a government can at times develop some of its intangible assets. These are internally generated intangible assets, and a great example is proprietary software systems. The relays of such intangible assets are often incurred over time providing some challenges. Recognizing the asset is the most significant challenge. Three circumstances need to be met if an internally generated intangible asset is to be considered a capital asset. First, the objective and service capacity of the asset needs to be determined. Secondly, the feasibility of the project to be completed needs to be demonstrated. Lastly, the government’s intention to complete or continue with the development of the asset needs to be shown if the asset is to be considered a capital asset.
Indefinite Useful Life
Assets without any legal, contractual, regulatory, technological, or other factors limiting their useful life such as a permanent right of way easement should be considered to have an indefinite useful life. These assets with indefinite useful lives should not be amortized unless their useful life is deemed no longer indefinite citing a change in circumstances.
The Implications of the Accounting and Financial Reporting for Intangible Assets Standards
The standards as stipulated by the GASB provide information on how to properly identify intangible assets which improve financial reporting (GASB, 2007). This is because proper identification leads to accountability which in turn reduces inconsistencies. An understanding of what intangible assets are and how to report them is essential in improving financial reporting. The GASB Statement No. 51 provides information that will in turn help in reducing inconsistencies arising in the accounting and financial reporting of intangible assets (GASB Issues Accounting and Financial Reporting Guidance for Intangible Assets, 2007). The reduction of inconsistencies and improvement in financial reporting will in turn foster enhanced comparability of state and local government financial statements.
References
GASB Issues Accounting and Financial Reporting Guidance for Intangible Assets (267). (2007). Retrieved from Governmental Accounting Standards Series website: http://www.gasb.org/cs/BlobServer?blobkey=id&blobwhere=1175824062778&blobheader=application/pdf&blobcol=urldata&blobtable=MungoBlobs
GASB. (2007, June). Summary of Statement No. 51. Retrieved from http://www.gasb.org/st/summary/gstsm51.html
GASB. (2007, July 10). Intangible Assets. Retrieved from http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename=GASB%2FGASBContent_C%2FProjectPage&cid=1176156650414
