Capital assets are defined as all tangible and intangible assets used in operations that have useful lives greater than one year.
They get no respect, even though they are usually the largest asset on a government’s statement of net position. But government accountants and auditors have not historically given a proportionate level of attention to the accounting and internal controls related to capital assets. This is mostly due to two reasons.
First, infrastructure is by far the largest category of government capital assets. Infrastructure has frequently not been viewed as an asset by governments because it is not usually able to be sold. In fact, infrastructure has sometimes been viewed as a liability because of the requirement for governments to use future resources to maintain. I have been involved in negotiations between governments that have shared construction costs in the building of a new asset. Each argued against taking the asset onto their books, so they didn’t have to take responsibility for maintenance and ultimate replacement.
Second, prior to Governmental Accounting Standards Board Statement No. 34, governmental capital assets were recorded in a “general fixed assets account group,” but not in any consolidated or fund financial statement. Infrastructure assets weren’t recorded at all. Auditors did not place much attention on capital assets during annual audits because they determined that even huge variations in the amount of assets recorded in this account group would not greatly impact users’ judgment about the financial position of the government.
Because accountants and auditors did not put substantial effort into tracking capital assets, physical inventories of capital assets were seldom done. However, in recent years, now that capital assets are recorded in the entity-wide financial statements, government accountants and auditors have been giving capital assets more attention. For example, auditors are delivering audit findings such as:
• There is no formal effort to cleanse the database of out-of-service assets.
• Written policies and procedures for capital assets are inadequate.
• There is no comprehensive plan to perform a physical inventory of capital assets.