Focus Area: Asset Capitalization Policy for individual assets with significant aggregate value
GASB Implementation Guide 2021-1 Question 5.1 Effective FY 2024
June 21, 2023
Update: June 4, 2024 – added implementation guidance, including the OSC IG 2021-1 Question 5.1 Evaluation Template; added Appendix A to provide guidance on how to utilize the IG 2021-1 Question 5.1 Evaluation Template.
In May 2021, the Governmental Accounting Standards Board (GASB) issued GASB Implementation Guide 2021-1 Section 5.1 with the objective of clarifying that “a government should capitalize assets whose individual costs are less than the capitalization threshold for an individual asset if those assets are significant”. Implementation guides are authoritative Category B guidance which are required to be incorporated into financial reporting as applicable.
Therefore, individual entities within the government are now required to assess acquisitions of similar assets purchased as group near the same time with a single objective that have significant value in aggregate, to be capitalized even if the individual assets fall below the capitalization threshold of $5,000 as stated in OSC policy 102.1.
There is no set timeframe for aggregating similar purchases (if all similar purchases within the same fiscal year would need to be assessed in the aggregate), however similar GASB guidance states that the timeframe to use may depend on if “the asset purchases are substantively part of a single overall transaction, when entered into or near the same time and with a single objective”. After further evaluation and collaboration with the UNC System, OSC recommends state reporting entities should be reviewing the significance of the aggregation of similar asset purchases over the course of a fiscal year. Additional guidance is provided in Appendix A: OSC Guide to Utilizing the IG 2021-1 Question 5.1 Evaluation Template.
The first step in implementing this standard is determining what qualifies as significant. The OSC IG 2021 Question 5.1 Evaluation Template aids in this determination by evaluating whether previously reported capital outlay expenses could be considered significant, and thus should be capitalized as a grouped asset.
Effective Date and Impact
This new guidance is effective for the fiscal year ending June 30, 2024, and will require a restatement of beginning balances at July 1, 2023. This guidance will have an impact on the entire State of North Carolina financial reporting entities, including the primary government (state agencies/departments) and its component units (universities, community colleges, and other component units). The requirements in Implementation Guide 2021-1 need not be applied to immaterial items.
Next Steps to Prepare for Implementation in FY2024:
- OSC Survey needs agency response – OSC will send out a survey to all state entities. Entity feedback is vital not only to updating our policies and procedures but also to make sure that the new policies and procedures can be implemented consistently and uniformly across all state entities.
- Keep updated on any latest memos or guidance provided by OSC through the implementation for FY2024 and attend any GASB training on the subject.
- Effective immediately - track any small asset group purchases of similar items purchased near the same time with a single objective. Additional guidance will be provided based on survey feedback and policy and procedure revisions.
IG 2021-1 Question 5.1 Implementation Considerations
The change in reporting requirements for capitalizing assets below the capitalization threshold but considered significant will require entities to examine previously expensed assets and potential significant groups of assets going forward. Based on the feedback we received from the survey, we identified the following key concerns:
- Cost-benefit considerations, including time constraints in tracking these assets.
- How to quantify “significance” on an entity/statewide ACFR level, setting thresholds for different sized state entities.
- Administrative burden – staff and technology shortages.
To assist state entities with this implementation and addressing the concern above, OSC collaborated with and leveraged the methodology developed by the UNC System. The approach to this implementation and methodology is to analyze the effectiveness of our capitalization thresholds utilizing the Threshold Evaluation Template This template will help state entities determine what is considered significant based on their financial statements/materiality and then what, if anything, needs to be recognized as a grouped asset. Additional guidance on utilizing the evaluation template by reporting type can be found in Appendix A.
For the Fiscal Year ending June 30, 2024, and previous periods, OSC will provide the adjustment entries required for Primary Government entities. Community Colleges, Nonmajor Component Units, and Universities should use the IG 2021-1 Question 5.1 Evaluation Template to determine what adjustment entries are needed, as necessary.
Beginning July 1, 2024, all Primary Government entities will follow OSC guidance for recognizing grouped assets that will be published in Appendix B.
Revised OSC Policies
The following policies have been updated:
- 102.1 – Capitalization Threshold
To gain additional understanding of GASB implementation Guide 2021-1 please refer to the following resources:
- Question 5.1 from Implementation Guide 2021-1
- OSC IG 2021-1 Question 5.1 Evaluation Template
- See below Appendix A: OSC Guide to Utilizing the IG 2021-1 Question 5.1 Evaluation Template
Thank you for your time and attention to this important change. OSC will continue to provide updates as this guidance is implemented. Questions regarding this specific update should be directed to Laura Klem at 919-707-0529 or laura.klem@ncosc.gov; or Elizabeth John at 919-707-0690 or Elizabeth.John@ncosc.gov.