The Governmental Accounting Standards Board (GASB) has published Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, that requires governments to report the effects of capital asset impairment in their financial statements when it occurs. The guidance also enhances comparability of financial statements by requiring all governments to account for insurance recoveries in the same manner.

In reflecting on the impact of Statement 42, GASB Project Manager Roberta E. Reese stated, "Because capital assets are long-lived, they are exposed to various risks, including the risk of diminished service utility that is caused by unexpected events or circumstances. This Statement will ensure that government financial statements report this loss of service utility when it occurs, rather than over the remaining useful life of the capital asset."

The Statement requires governments to evaluate major events affecting capital assets to determine whether they are impaired. Those events include physical damage, changes in legal or environmental factors, technological changes or obsolescence, changes in manner or duration of use and construction stoppage.

Impairment will be measured using methods that are designed to isolate the cost of the capital asset’s service capacity that has been rendered unusable by impairment.

The guidance includes several disclosure requirements that will assist users of financial statements in understanding the nature and impact of impairment of capital assets. Disclosures are required for impairment losses that are not evident from the face of the financial statements, for impaired capital assets that are idle and for insurance recoveries that are not evident from the face of the financial statements.

During the research and development of this Statement, the GASB benefited from collaboration with the Public Sector Committee of the International Federation of Accountants as they also pursued development of standards for impairment of assets.

Statement 42 is effective for fiscal years beginning after December 15, 2004. The Statement may be ordered by telephoning the GASB Order Department at 800-748-0659.

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