To capitalize, or not to capitalize--that is the question.

• Author: Flood, Leonard J.
• Position: Best Practices

In the world of capital assets, there is a vast difference between controlling and accounting for them. When determining what is more important in your jurisdiction, you must first look at the realities of budget and staff size, but you also need to consider the question from a practical perspective. What do we need to control and why? Will micromanaging our capital assets lead to more control or just more work? What needs to be accounted for in our financial statements, and how can we capture the maximum value while accounting for the minimum number of assets?

GFOA's recommended practice, "Establishing Appropriate Capitalization Thresholds for Tangible Capital Assets," helps answer some of these questions. "... a government's principal concern in establishing specific capitalization thresholds ought to be the anticipated information needs of the users of the government's external financial statements," it reads. GFOA recommends that tangible assets only be capitalized if they have an estimated useful life of at least two years, that infrastructure assets be treated separately from other capital assets for the purpose of establishing capitalization thresholds, that thresholds never fall below $5,000, and that governments establish procedures at the departmental level for controlling non-capitalized items.

COUNTING STAPLERS

A lot has changed both in terms of the control of and accounting for capital assets at the Village of Lombard, Illinois, since I joined the Finance Department in 1991. Lombard is a suburban community of more than 42,000 located just 20 miles west of downtown Chicago and the shore of Lake Michigan. In the early 1990s, the purchasing function was centralized in the Finance Department, where it was supervised by a purchasing clerk. Although the Village did not have a formal capital asset policy, control of capital assets was of primary importance. Almost any tangible item purchased was considered a "fixed asset." Even today, I can find evidence of this level of control in the form of staplers, in-boxes, and pencil sharpeners bearing a Village of Lombard inventory tag and number. While no one actually kept track of these items, our purchasing clerk was tireless in her efforts to see that everything was properly tagged--as if this practice would ensure that no items were misappropriated.

After settling into my position, I came to two conclusions. First, to go through the ritual of tagging without tracking was a waste of time...