GASB 34 modified v. depreciation infrastructure accounting
GASB 34 allowed states to account for infrastructure assets using either the depreciation approach or the modified approach. I am under the impression that the modified approach would give a better picture of localities' actual infrastructure liabilities. At the same time, I believe one condition of the modified approach is that state/local governments must conduct studies on their roads, etc. every so often, which is an additional cost.
Can someone tell me if I'm understanding this correctly? I don't have a background in public finance, but I work in public policy and I'm doing research into this topic.
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You summarize this correctly, in my estimation. Here's an answer from GASB. Excerpt here, but I've got some thoughts afterwards.
The concern that we've always had isn't that these assets are correctly or incorrectly depreciated, but that counting them as assets is incorrect to begin with.
An asset is "property owned by a person or company (in this case a municipal corporation), regarded as having value and available to meet debts, commitments, or legacies."
A road, pipe, drain, or other piece of municipal infrastructure is not available to meet "debts, commitments, or legacies." You can't dig up a pipe and sell it or shut down a road.
To the contrary, a road or pipe IS a commitment. It is an ongoing commitment to provide service and maintenance by a local government. The proper way to account for this commitment is to list it as a growing liability, instead of a depreciating asset.
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