Asset value is an important component in an organization’s financial reports. Much of the prior guidance for calculating asset value has focused on this application. While this guide concentrates on the calculation of asset value to support TAM rather than financial reporting, an asset manager should remain mindful of how an agency develops its financial reports, how asset value is calculated in these reports, and any differences between TAM and financial reporting approaches. The following subsections summarize U.S. public agency financial reporting requirements, and discuss discrepancies between approaches used for asset valuation in financial reporting and TAM.
Financial reporting requirements for U.S. public agencies are detailed in GASB Statement 34 (1). This document requires public agencies to prepare basic financial statements. These should include:
- Assets, distinguishing between capital and other assets
- Liabilities, distinguishing between long-term liabilities and other liabilities
- Net assets, distinguishing among amounts invested in capital assets, net of related debt; restricted amounts; and unrestricted amounts
- Revenues by major source
- Excess or deficiency before contributions
- Special and extraordinary items
- Change in net assets
- Ending net assets
Capital assets are included in the calculation of net assets, but are often presented in a separate table in the financial report. These are defined to include “land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period.” Infrastructure assets are further defined as “long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets.” GASB 34 cites as examples of infrastructure assets roads, bridges, tunnels, drainage systems, water and sewer systems, dams and lighting systems.
GASB 34 requires that capital assets are valued using historic costs. Capital assets should be depreciated, but if an agency elects to use the “modified approach” described in Chapter 2 for its infrastructure assets, it is not required that these are depreciated. Instead, the cost to maintain these assets at a specified level of service is established and expensed within the year the cost is incurred.
Tables 7-2 and 7-3 provide examples showing how capital assets are presented in public agency financial reports. Table 7-2 is an excerpt from the Oregon DOT financial statement (39). It shows the beginning balance, increase, decrease and ending balance for each type of capital asset. The value of the state highway and bridge system is reported as a single item in the table with a beginning balance of approximately $14.5 billion and an ending balance of approximately $14.8 billion. In this case, the agency depreciates the value of the system, showing a decrease of $69.7 million from annual depreciation.
Table 7-2. Example Statement of Capital Asset Activity – Oregon DOT - Source Oregon DOT (39)
|Beginning Balance||Increases||Decreases||Ending Balance|
|Buildings||$ 282,559,529||$ 5,825,276||$ (1,011,511)||$ 287,373,294|
|Construction in progress - infrastructure||$ 523,786,457||$ 350,031,308||$ (253,454,458)||$ 620,363,307|
|Construction in progress - other||$ 26,461,827||$ 17,021,568||$ (18,255,339)||$ 25,228,056|
|Data processing software||$ 106,812,614||$ 24,478,495||$ (1,059,400)||$ 130,231,709|
|Land||$ 1,710,428,334||$ 12,918,983||$ (1,570,400)||$ 1,721,776,917|
|Land improvements||$ 192,994,657||$ 2,577,734||$ (286,774)||$ 195,285,617|
|Land use rights (amortized)||$ 781,932||-||-||$ 781,932|
|Leasehold improvements||$ 3,999,333||$ 13,500||-||$ 4,012,833|
|Machinery and equipment||$ 444,479,092||$ 18,807,518||$ (25,186,989)||$ 438,099,621|
|State highway and bridge system||$ 14,465,090,764||$ 379,248,721||$ (69,746,542)||$ 14,774,592,943|
|Works of art and historical treasures||$ 101,151||-||-||$ 101,151|
|Total capital assets||$ 17,757,495,690||$ 810,923,103||$ (370,571,413)||$ 18,197,847,380|
Table 7-3 is an excerpt from Michigan DOT showing how this agency reports changes in capital assets (40). Here roads and bridges are reported separately. They are included in the category of “Capital assets, not depreciated” as Michigan DOT uses the GASB 34 modified approach.
Table 7-3. Example Statement of Capital Asset Activity – Michigan DOT - Source: Michigan DOT (40)
|Beginning Balance||Additions||Deletions||Ending Balance|
|Capital assets, not depreciated:|
|Roads||$ 12,860.9||$ 123.1||$ (922.4)||$ 12,061.6|
|Land||$ 3,146.5||$ 7.8||-||$ 3,154.3|
|Bridges||$ 2,693.9||$ 266.1||$ (34.4)||$ 2,925.6|
|Construction in progress||$ 1,744.4||$ 1,002.5||$ (472.3)||$ 2,274.7|
|Computer software projects in progress||$ 6.8||$ 2.4||$ (6.8)||$ 2.4|
|Land rights||$ 0.4||$ 0.2||-||$ 0.6|
|Capital assets, depreciated:|
|Equipment||$ 241.2||$ 9.6||$ (3.4)||$ 247.4|
|Buildings||$ 168.9||$ 5.4||$ (0.1)||$ 174.1|
|Blue water Bridge infrastructure||$ 32.1||$ 3.5||-||$ 35.6|
|Railroads||$ 173.7||-||-||$ 173.7|
|Rest areas & welcome centers||$ 120.9||-||-||$ 120.9|
|Land improvements||$ 54.5||$ 2.0||$ (0.6)||$ 55.9|
|Airports||$ 1.8||-||-||$ 1.8|
|Computer software||-||$ 6.8||-||$ 6.8|
|Less accumulated depreciation for:|
|Equipment||$ (106.9)||$ (11.5)||$ 2.7||$ (115.6)|
|Buildings||$ (88.0)||$ (7.1)||$ 0.1||$ (95.1)|
|Blue water bridge infrastructure||$ (14.2)||$ (1.4)||-||$ (15.6)|
|Railroad||$ (54.6)||$ (4.1)||-||$ (58.7)|
|Rest area and welcome center||$ (51.9)||$ (2.7)||-||$ (54.6)|
|Land improvements||$ (14.1)||$ (2.7)||$ 0.3||$ (16.4)|
|Airports||$ (1.0)||$ (0.1)||-||$ (1.1)|
|Computer software project||-||$ (1.1)||-||$ (1.1)|
|Total capital assets||$ 20,915.3||$ 1,398.7||$ (1,436.7)||$ 20,877.2|
The Oregon and Michigan examples are typical of other public agency financial reports. These examples are prepared in a manner that complies with GASB requirements. Asset value is consistently reported for transportation assets using historic costs. Annual depreciation is presented where the agency does not use the modified approach, and agency expenses on infrastructure assets are reported in lieu of depreciation where the modified approach is used. However, the presentation is relatively compact and omits many details that may be of value for asset management purposes, such as details on value by system (e.g., Interstates, NHS) or asset subclass.
As discussed in Chapter 2, the use of historic costs, while consistent with best practices in accounting, limits the use of the financial report values for other purposes. However, the GASB 34 modified approach yields an estimate of the cost to maintain the transportation system which is valuable for supporting TAM. Thus, in the event an agency uses the GASB 34 modified approach for financial reporting, an option for supporting TAM is to utilize a consistent approach for reporting asset value in TAM documents, emphasizing the use of the cost to maintain rather than attempting to derive a separate calculation of depreciation. The NHS portion of the overall cost to maintain, calculated using the modified approach, is equivalent to the cost to maintain current value required for NHS TAMPs prepared by State DOTs.
Where the GASB 34 modified approach is not used, it may be preferable to calculate asset value based on replacement cost or market value rather than historic cost. In this case the asset value calculated for TAM inevitably differs from that reported in an agency’s financial report. The following approach is recommended to resolve the discrepancy between asset value reported in financial report and TAM documents:
- When calculating asset value for TAM applications, asset managers should carefully review the calculation of asset value in the agency’s financial report and obtain further detail on the value by system or asset subclass where possible. It is important to establish “line of sight” between the inventory data used for TAM and that used for financial reporting data (see sidebar).
- To the extent feasible, different calculations of asset value should use common assumptions regarding key parameters, such as replacement costs and asset lives.
- Where it is not feasible to use common assumptions, the differences between approaches should be well documented. Over time it may be feasible to resolve the differences in approaches either by revising the asset valuation approach or presenting additional information in the agency’s documents to clarify the different calculations of asset value.
Often there are discrepancies between the asset register used for financial reporting and the asset hierarchy and inventory data used for TAM. Ideally an agency should resolve these discrepancies, so there is a clear “line of sight”.