Presentation on theme: "Herbert Maguire, CPA, CGFM, MBA Commonwealth of Pennsylvania"— Presentation transcript:
1 Herbert Maguire, CPA, CGFM, MBA Commonwealth of Pennsylvania GASB Statement No. 51 Accounting and Financial Reporting for Intangible Assets Implementation IssuesHerbert Maguire, CPA, CGFM, MBACommonwealth of Pennsylvania
2 DEFINITIONFor the purposes of the Statement, an intangible asset possesses ALL of the following characteristics:Lack of physical substanceNon-financial natureInitial useful life extends beyond a single financial reporting period
3 EXAMPLES OF INTANGIBLE ASSETS EasementsWater RightsTimber RightsPatentsTrademarksComputer Software
4 EXAMPLES OF INTANGIBLE ASSETS EasementsWater RightsTimber RightsPatentsTrademarksComputer Software
5 EXAMPLES OF INTANGIBLE ASSETS EasementsWater RightsTimber RightsPatentsTrademarksComputer Software
6 EXAMPLES OF INTANGIBLE ASSETS EasementsWater RightsTimber RightsPatentsTrademarksComputer SoftwareUsed by the Auditors to detect subliminal vibrations during inquiries.
7 EXAMPLES OF INTANGIBLE ASSETS EasementsWater RightsTimber RightsPatentsTrademarksComputer SoftwareWhat is the useful life of a trademark?
8 EXAMPLES OF INTANGIBLE ASSETS EasementsWater RightsTimber RightsPatentsTrademarksComputer Software
9 Basic GuidanceAll intangible assets subject to Statement 51 should be classified as capital assets
10 Timber rights, Water rights, Mineral rights LAND USE RIGHTSTimber rights, Water rights, Mineral rightsMost of these rights will not be reportable, as they are exempt from reporting under Statement 51 if they are/were acquired as a result of purchasing the land on which they exist.
12 SOFTWARE KEY TERMSInternally Generated: software created by the government or by an entity for the government; OR a commercial software that requires more than minimal incremental effort on the part of the government to begin to achieve its expected level of service capacityCOTS (commercial off the shelf): commercial software not requiring more than minimal incremental effort to begin to achieve an expected level of service
13 SOFTWARE DEVELOPMENT Project Stage Associated Activities Accounting TreatmentPRELIMINARYConcept formulation; evaluation of alternatives; feasibilityEXPENSEAPPLICATION DEVELOPMENTApplication design; configuration of interfaces; coding; installation to hardware; testingCAPITALIZEPOST-IMPLEMENTATION AND OPERATIONSApplication training; software maintenance
14 SOFTWARE MODIFICATIONS Outlays associated with modification of existing software MAY require capitalization if modifications result in:Increased functionalityIncreased efficiencyExtension of useful life
15 REPORTING REQUIREMENTS Reporting is required for financial periods beginning after June 30, 2009Retroactive reporting is required for intangible assets except internally generated assetsHistorical costs of any internally generated software that will be implemented after June 30, 2009 must be captured for reporting
16 AmortizationExisting guidance for depreciation of capital assets generally applies to amortizing intangible assetsIntangible assets with indefinite useful lives should not be amortizedDiscuss Federal DHHS Guidance.Discuss Trademarks
17 CHALLENGES Educating stakeholders on GASB 51. Identifying and valuing intangibles that must be capitalizedCheck with Legal Counsel on patents, trademarks, rights of way, etc.Determining useful lives and capitalization thresholds for intangible assets.
18 CHALLENGES Computer software challenges: Establishing and verifying stages of software development and their related costsCapturing internal costs during the application development stage.Establishing “minimal incremental effort”Capturing capitalizable retroactive software costsRetroactive – Can do COTS onlyProspective – Must do COTS and internal costs.
19 CHALLENGES Computer software challenges (cont’d) Identifying and capitalizing costs of major modifications or upgrades.Addressing variety of software agreements to determine if capitalizable and how much to capitalize.Software licensesUpgradesModificationsCloud computingHosting agreements
20 CHALLENGES Computer software challenges (cont’d) Business Process Reengineering costs are not capitalizable – must identify and excludeState funding of major software applications – can bonds be floated?Federal approval and funding of capitalizable software applications of central agencies (such as ERP systems).
21 Excerpt from HHS DCA Letter Dated CHALLENGESExcerpt from HHS DCA Letter DatedSeptember 17, 2007….Statement No. 51….the general principles contained therein should be complied with for charging federal programs. …… It is not acceptable to expense all of the costs of significant software projects and charge Federal programs based upon budgetary needs to finance the projects or as costs are incurred. ….. Federal programs only benefit and should only be charged for amortization of the capitalized costs once the software programs are implemented and in use by Federal programs.States that have initiated or are planning software projects that will be allocated or billed to Federal programs, whether as a direct or an indirect cost, should submit their planned accounting and billing or allocation methodology to their cognizant DCA Regional Office for review.
22 CHALLENGESLack of OMB Circular A-87 guidance on capitalizing/amortizing intangibles.ARRA software useful life.
23 RESOURCES GASB 51 and its Basis of conclusions and examples GASB Implementation Q&A SectionNASC GASB 51 Work Group url: