GASB No. 51
Accounting and Financial
Reporting for Intangible Assets
Helen Y. Painter CPA, Partner
Purvis Gray & Company LLP
Ocala, Florida
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Effective Date
• For periods beginning after June 15, 2009
– Applicable for June 30, 2010 and September 30,
2010 fiscal year ends
– Plan NOW during interim field work dates and/or
discuss with clients
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Year of Implementation Requirements
• Phase I and II (GASB 34) governments-retroactive
reporting required for assets acquired after June
30, 1980
• Phase III governments-Encouraged but not
required
• Retroactive reporting NOT required but
permitted-intangible assets with indefinite useful
lives and those internally generated
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Statement 51 Amends …
• Statement 34, para 19-21
• Statement 42, paras. 9e, 16, and 18
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Intangible Assets
EXAMPLES
– Easements, Right-of-ways
– Water Rights
– Timber Rights
– Patents, Trademarks
– Computer Software
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Big Question??
• Are they and when are they Capital Assets for
financial reporting purposes
• GASB found since implementation of 34Inconsistencies in accounting and financial
reporting
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Objective of Standard
Consistency
• Recognition
• Initial measurement
• Amortization
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How can the intangible Asset be
Obtained?
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Purchased
Licensed
Non-exchange transactions (donations)
Internally –generated (computer software)
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CLASSIFICATION
• Unless specifically excluded …. ALL INTANGIBLE ASSETS ARE
CLASSIFIED AS CAPITAL ASSETS
• All authoritative guidance for accounting and reporting for capital
assets should be applied to intangible assets
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Recognition
Measurement
Depreciation (termed amortization for intangible assets)
Impairment
Presentation
Disclosures
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Recognition
• Must be included in the statement of net assets
only if it is identifiable• Identifiable when either of the following
conditions are met:
• Asset is separable-capable of being separated or divided
from the government and sold, transferred, licensed, rented,
or exchanged, either individually or together with a related
contract
• Asset arises from contractual or legal right, regardless of
whether these rights are transferable or separable from the
entity or from other rights and obligations
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Definition of Intangible Asset
An Asset that possesses all of the following:
• Lack of physical substance-An asset may be contained
in or an item with physical substance, for example, a
compact disc in the case of computer software. An
asset also may be closely associated with another
item that has physical substance i.e. underlying land
of a right-of-way easement.
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Definition of Intangible Asset (cont)
• Nonfinancial nature-not in a monetary form
similar to cash and investment securities and
it represents neither a claim or right to assets
in a monetary form similar to receivables, nor
a prepayment for goods or services
• Initial useful life-extending beyond a single
reporting period
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Exceptions to intangible assets
• Assets acquired or created primarily for the
purpose of directly obtaining income or profit
• Assets resulting from capital lease
transactions reported by lessees,
• Goodwill created through the combination of
government and another entity
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Internally Generated Intangible Assets
(IGIA)
• Created or produced by the government OR
an entity contracted by the government
• If acquired from a third party but require
incremental effort to begin to achieve their
expected level of service capacity
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When to Capitalize IGIA
• Outlays incurred related to the development of IGIA
that is identifiable should be capitalized only upon the
occurrence of all of the following:
– Determination of the specific objective and the project and
nature of the service capacity
– Demonstration of the technical feasibility for completing
the project so that the IA will provide its expected service
capacity
– Demonstration of the current intention, ability, and
presence of effort to complete or continue development of
the intangible asset
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When to expense (IGIA)
• Outlays incurred prior to meeting the prior 3
occurrences should be expensed as incurred
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Internally Generated Computer
Software (IGCS)
• When considered internally generated– Developed in-house government’s personnel
– Developed by a third-party contractor on behalf of
government
– Purchased from a vendor and substantially
modified
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Stages of developing and installing
IGCS
• Preliminary Project Stage-includes the conceptual
formulation and evaluation of alternatives,
determination of the existence of technology, and final
selection of alternatives
• Application Development Stage-includes the design of
chosen path, software configuration and software
interfaces, coding, installation to hardware, testing
including the parallel processing phase
• Post-Implementation /Operation Stage-includes
application training and software maintenance
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Stages of developing and installing
IGCS (cont.)
• Data conversion –application development
stage if necessary to make the computer
software operational-otherwise, should be
considered post-implementation/operation
stage
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When to Capitalize
• Same criteria as IGIA
• Thus preliminary project stage activities
should be expensed
• Assumes that management implicitly or
explicitly authorizes and commits to funding
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When to Capitalize
(cont.)
• Outlays in the application development stagecapitalize until substantially complete or
operational
• Outlays in the post-implementation/operation
stage –expensed
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IGCS-Capitalization
• If software is already in operation,
capitalization occurs at any time during the
following:
– Increase in the functionality
– Increase in the efficiency and or level of service
– Extension of the estimated useful life of the
software
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Specific Amortization Issues
• Items to consider– Useful live arising from contractual or other legal
rights should not exceed the period to which the
service capacity
– IA may have an indefinite useful life if no legal
contractual, regulatory, factors that limit the useful life
• EX. Permanent right-of-way easement
– Do NOT amortize
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Impairment Considers
• Consider indicators in para 9, Statement 42
• Stoppage of development of computer
software
– Report at the lower of carrying value or fair value
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Reporting Considerations
• Report outlays as expenditures in financial
statements using the current financial resources
measurement focus (governmental)
• Apply statement retroactively by restating
financial statements
• If restatement not practical, the cumulative effect
should be reported as a restatement of beginning
net assets or fund balance
• Disclose nature of restatement and its effect
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Reporting Considerations
• 1st Year of implementation
– Nature of restatement and its effect
– Reason for not restating prior periods presented
should be explained
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Disclosures
• Include any necessary information in
Summary of Accounting Policies
– i.e. Capitalization policy, estimation of useful life,
amortization periods
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Examples and Q & A
• Great examples in Appendix C of Standard
• Q & A located in 2009-2010 GASB
Implementation Guide-Chapter Z, Look for Q
& A related to Statement No. 51
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