Final GASB standard on intangibles.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Governmental Accounting Standards Board

Last June, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. That guidance must be implemented no later than the fiscal year ending June 30, 2010.

GASB Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments, included intangible assets within the scope of the term capital assets as defined by that statement (paragraph 19). Consistent with that approach, GASB Statement No. 51 takes the position that intangible assets are subject to all of the accounting and financial reporting requirements applicable to other types of capital assets. In addition, GASB Statement No. 51 offers specialized guidance on certain unique aspects of accounting and financial reporting for intangibles.

"IDENTIFIABLE" CRITERION

The lack of physical substance characteristic of an intangible asset could lead to the recognition of a supposed asset in situations where none, in fact, exists. To avoid that eventuality, GASB Statement No. 51 clarifies that an intangible can be recognized as an asset only if it is identifiable, meaning that 1) it can be sold, transferred, licensed, rented, or exchanged, or 2) it arises from contractual or other legal rights.

INTERNALLY GENERATED INTANGIBLES

Internal/y generated intangible assets includes items created or produced by the government itself, or by a contracting party acting on its behalf. The term also encompasses costs associated with assets acquired from a third party that "require more than minimal incremental effort on the part of the government to begin to achieve their expected level of service capacity" (e.g., "off-the-shelf" software).

Capitalization of internally generated intangible assets can only occur after all of the following conditions have been met:

* The specific objective of the project has been determined;

* The nature of the service capacity to be provided has been determined;

* The technical or technological feasibility of successfully completing the project has been demonstrated; and

* The government has demonstrated that it 1) intends, 2) is able, and 3) is making an effort to develop/complete the project.

No outlays incurred prior to meeting all of these criteria may be capitalized.

COMPUTER SOFTWARE

GASB Statement No. 51 identifies three stages of software development. The preliminary project stage includes conceptual formulation, evaluation of...