March 6, 2003
Dear City Administrator:
At the recent GASB 34 workshop held in Jackson, you asked me if the modified approach for reporting infrastructure assets could be used in the Water & Sewer Fund or other enterprise fund operations. My answer was no – the modified approach is only for general infrastructure assets. At least, that was my answer at the time.
Since then I read in at least one publication where the author stated the modified approach could be used for reporting infrastructure in enterprise funds. Not to be convinced so readily, I contacted Dr. Robert Smith, Professor of Accounting at MTSU. He in turn called a contact of his at the GASB. Turns out that yes, any fund or function can use the modified approach, including enterprise funds. The GASB source relates, however, that few entities are doing so because they have been depreciating assets all along and did not see the benefit of changing systems.
Even though enterprise funds can use the modified approach to report infrastructure assets, you should keep in mind that two conditions must be met in order to use this method. First, an asset management system must be in place that meets certain requirements and second, the government must establish that these assets are being preserved at or above a condition level established by the government. This would be determined by performing condition assessments at least every three years. At least one condition assessment must be performed prior to implementing the modified approach.
Let me know if you have questions regarding this matter.
MUNICIPAL TECHNICAL ADVISORY SERVICE
Richard Phebus, CPA
Finance & Accounting Consultant