ASSET MANAGEMENT SCHOOL OFFICIALS NEED TO KEEP IN MIND

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1 RESERVE BANK OF INDIA LIABILITIES AND ASSETS

MANAGEMENT OF ASSETS

ASSET MANAGEMENT


School officials need to keep in mind that assets must be recorded in accordance with accounting principles generally accepted in the United States of America. Generally accepted accounting principles (GAAP) are defined as “uniform minimum standards and guidelines to financial accounting and reporting which govern the form and content of the basic financial statements in an entity.” For school districts, by conforming to GAAP they are assuring comparability with other school districts financial reporting.


Fixed assets are items of a fixed or permanent nature which the district intends to hold or use over a long period of time. They are recorded at original cost or if donated at fair market value. They generally have an estimated useful life beyond one year. Examples are land and improvements, building, furniture and equipment. An asset is capitalized when it is classified as a fixed asset for inclusion in the financial report.


When a district acquires or constructs a fixed asset it is accounted for on the District’s books as current year expenditure. For financial statement purposes fixed assets are capitalized. A “capital asset” (depreciated asset for GASB 34) is not the same as a capital object in “Wisconsin Uniform Financial Accounting Requirements” (WUFAR) for school districts. “Capital assets” generally will include the 500 series capital objects but may also include items from the 400 series such as textbooks, furnishings, etc. Repairs to an existing asset are capitalized if the repair adds value or materially extends the asset’s life. Equipment that is generally not capitalized is items that are immaterial in cost and it is not feasible to maintain property records on an individual item basis. The costs of maintenance and repairs that do not add value to the asset or materially extend the asset life are not capitalized.


Assets purchased with federal funds must be managed in accordance with the federal grant or other agreement. The DPI requires districts to follow Uniform Property Management Standards for DPI-administered federal programs. Property inventory and cost records are not prescribed by the DPI. Please refer to “Education Department General Administrative Regulations Title 34 CFR Part 80.32” for the use, management and disposition of equipment acquired under a federal grant. These standards define the use and maintenance of the property, inventory records to be maintained, a control system and the disposition of the property. The awarding agency may have a right to proceeds when an item with a current per-unit fair market value in excess of $5,000 is disposed. Special policies also apply for special education vehicles. If upon purchase of a special vehicle the district claims and receives special education aid, the proceeds or trade-in at time of sale may become a deduction from aidable special education cost.


Governmental Accounting Standards Board Statement 34 (GASB 34) has implications for the management and financial reporting of fixed assets. The GASB “establishes standards of financial accounting and reporting for state and local governmental entities”. When a district is required to implement GASB 34, assets are reported on the “Statement of Net Assets” for financial reporting purposes and are required to be depreciated. This change will assist users in understanding the extent of capital assets that the district has invested in.


Due to this change in reporting, districts will be faced with challenging decisions regarding capitalization policies and inventory control. Districts will be required to establish a capitalization policy, identify assets, determine their historical costs, and determine useful lives and depreciation methods. They will need to develop or purchase a fixed asset program which tracks the cost, depreciation expense and the accumulated depreciation.


GASB 34 focuses on the disclosure requirements and financial statement presentation rather than acceptable controls. Internal controls are no longer an option. Districts will need to track assets. This can be incorporated into the fixed asset program. The system should include information on each individual item including location. Inventory should be tagged and an actual physical inventory completed once a year. If this process is maintained and continuously updated, the district will have accurate records of their fixed assets as well as safeguarding of them.


Some districts may already have inventory listings and control procedures in place. They may have prepared lists in the past for insurance coverage. When making decisions on which assets to capitalize, reasonable judgment is required. Some districts are choosing to hire appraisal companies for identifying and valuing current inventory. Districts will want to consult their Auditor when making these decisions.


The importance of properly recording fixed assets has greatly increased with GASB 34. School districts will now be reporting long-term liabilities on their financial statements. As a result, accurate reporting of fixed assets becomes essential since reported debt may be directly related to them.


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