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HomeMy WebLinkAboutAgenda - 06-05-2001-8hf r. .+_ ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: June 5, 2001 Action Age Qda~ Item No. no - n~ SUBJECT: Fixed Asset Capitalization Policy Amendment DEPARTMENT: Finance, Purchasing PUBLIC HEARING: (Y/N) No and Central Services ATTACHMENT(S): INFORMATION CONTACT: Pam Jones, ext 2650 Amended Policy Ken Chavious, ext 2450 TELEPHONE NUMBERS: Hillsborough 732181 Chapel Hill 968-4501 Durham 588-7331 Mebane 336-227-2031 PURPOSE: To consider adoption of an amendment to the policy regarding the valuation of fixed assets for accounting and financial reporting purposes to bring the County in compliance with GASB Statement 34. BACKGROUND: In 1997, the Government Finance Officer's Association (GFOA) developed a "recommended practice" that govemments formally adopt fixed asset capitalization policies establishing the capitalization threshold for assets at $1,000. This threshold doubled the original recommendation of $500. The key concept underlying this guidance by the GFOA was that fixed asset systems that attempted to incorporate data on numerous smaller assets were often costly and difficult to maintain and operate. In addition, the GFOA views capitalization as primarily a financial reporting issue, since most govemments have controls in place to account for small value items. In June 1998, staff recommended and the Board formally adopted a fixed asset capitalization policy that followed the GFOA recommendation. By adopting the policy with the $1,000 threshold, County staff was able to "clean up" the fixed asset system by eliminating many items of immaterial value and subsequently reduce the time involved in the inventory, accounting and financial reporting processes while maintaining control over the smaller assets at the departmental level. The GFOA recently amended its fixed asset capitalization "recommended practice" increasing the threshold to $5,000. It is advised that govemments issuing Comprehensive Annual Financial Reports (CAFR) follow this recommendation. Staff mentioned, in the fall presentation of the County's CAFR, the upcoming financial reporting requirements associated with the Governmental Accounting Standards Board (GASB) Statement 34. One of the major components of GASB 34 is the requirement to depreciate assets. Increasing the County's fixed asset limit will significantly reduce the work involved in this aspect of the GASB 34 implementation. As was the case with the last fixed asset action, processes are already in 2 place to properly account for the items which fall under the limit. In order to impact the current year financial statements, the policy amendment would need to be effective July 1, 2000. FINANCIAL IMPACT: There is no expenditure of funds or revenue derived from this action. As mentioned above, increasing the fixed asset limit will significantly reduce the time involved in the financial reporting aspects of asset accounting. RECOMMENDATION(S): The Manager recommends that the Board adopt the amendment to the Fixed Asset Capitalization Policy increasing the asset limit to $5,000 effective July 1, 2000. :. 3 FIXED ASSETS CAPITALIZATION POLICY (Effective July 1, 2000) Recordins of Fixed Assets For the purposes of this policy, fixed assets aze defined as assets that have a useful life of more than one year and exceed $5,000 in value. Certain other assets maybe classified as fixed assets at the discretion of the Purchasing and Finance Directors to insure controls are in place to prevent theft or misuse. In addition, inventory accounting and tracking of certain assets excluded from capitalization, asfixed assets will be required. Fixed assets acquired with grant funds will be recorded in accordance with the specific grant requirements. Maintenance of Fixed Assets All records of fixed assets will be maintained in the department of Purchasing and Central Services. The Finance Department shall supervise a physical audit of fixed assets at least annually. Department heads shall be responsible for adequate control over fixed assets and other inventoriable assets assigned to their respective departments. Transfer and Dis$osal of Fixed Assets Transfer of fixed assets between departments and disposal of assets is subject to the approval of the Purchasing and Central Services Director.