The government-wide statements show infrastructure at $842 million, net of accumulated depreciation. A citizen asks whether the roads are deteriorating. The financial statements alone cannot answer that question. The notes must disclose whether the government uses the depreciation approach or the modified approach, the condition assessment results, and how much the government spent on maintenance versus capital additions. Note disclosures transform aggregate numbers into actionable information.
AICPA Representative Tasks (verbatim). "Recall the disclosure requirements for significant accounting policies, infrastructure and capital assets and long-term liabilities in the notes to the basic financial statements of state and local governments."
GASB Statement No. 38 (as amended) establishes the disclosure requirements for state and local governments. Notes are not optional supplementary schedules. They are an integral part of the basic financial statements. The auditor's opinion covers the government-wide statements, fund financial statements, and the notes together. When the exam asks what the "basic financial statements" include, notes are inside that boundary; required supplementary information (RSI) and supplementary information (SI) are outside.
Common mistakes
- Treating notes as optional or supplementary. Notes are part of the basic financial statements and are covered by the audit opinion. RSI (budgetary comparisons, pension schedules) is outside the basic statements. The exam will ask what is "integral": notes are in; RSI is out.
- Depreciating land or construction in progress. Neither land nor CIP is a depreciable asset. The rollforward schedule must show them without accumulated depreciation. An answer choice that includes CIP in the depreciation calculation is always wrong.
- Confusing the modified approach with no accountability. Governments electing the modified approach for infrastructure must perform condition assessments at least every three years and must disclose estimated versus actual preservation spending for five years. The approach is not a free pass. It trades depreciation for maintenance accountability.
Bottom line
- Summary of significant accounting policies must describe measurement focus, basis of accounting, fund types, and revenue recognition policies for each major revenue source.
- Capital asset rollforward by major class shows beginning balance, additions, deletions, and ending balance, plus depreciation methods and useful lives.
- Land and construction in progress are never depreciated and appear in the rollforward without accumulated depreciation.
- Infrastructure under the modified approach substitutes condition assessments for depreciation; disclose the condition level, target threshold, and five years of maintenance/preservation expenditures.
Exam shortcut
When a question describes infrastructure with no depreciation expense, immediately look for modified approach indicators: condition assessment, target threshold, and maintenance disclosure. If those elements are present, the treatment is correct; if absent, the government has failed the disclosure requirements.
The full lesson (about 2,616 words, 17 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- III.A5
Browse all free CPA BAR lessons or jump into free CPA BAR practice questions.