1. Herbert Maguire, CPA, CGFM, MBA Commonwealth of Pennsylvania
GASB Statement No. 51 Accounting and Financial Reporting for Intangible Assets Implementation Issues
Herbert Maguire, CPA, CGFM, MBA
Commonwealth of Pennsylvania

2. DEFINITION
For the purposes of the Statement, an intangible asset possesses ALL of the following characteristics:
Lack of physical substance
Non-financial nature
Initial useful life extends beyond a single financial reporting period

3. EXAMPLES OF INTANGIBLE ASSETS
Easements
Water Rights
Timber Rights
Patents
Trademarks
Computer Software

4. EXAMPLES OF INTANGIBLE ASSETS
Easements
Water Rights
Timber Rights
Patents
Trademarks
Computer Software

5. EXAMPLES OF INTANGIBLE ASSETS
Easements
Water Rights
Timber Rights
Patents
Trademarks
Computer Software

6. EXAMPLES OF INTANGIBLE ASSETS
Easements
Water Rights
Timber Rights
Patents
Trademarks
Computer Software
Used by the Auditors to detect subliminal vibrations during inquiries.

7. EXAMPLES OF INTANGIBLE ASSETS
Easements
Water Rights
Timber Rights
Patents
Trademarks
Computer Software
What is the useful life of a trademark?

8. EXAMPLES OF INTANGIBLE ASSETS
Easements
Water Rights
Timber Rights
Patents
Trademarks
Computer Software

9. Basic Guidance
All intangible assets subject to Statement 51 should be classified as capital assets

10. Timber rights, Water rights, Mineral rights
LAND USE RIGHTS
Timber rights, Water rights, Mineral rights
Most of these rights will not be reportable, as they are exempt from reporting under Statement 51 if they are/were acquired as a result of purchasing the land on which they exist.

11. Let’s Talk about
SOFTWARE
next.

12. SOFTWARE KEY TERMS
Internally Generated: software created by the government or by an entity for the government; OR a commercial software that requires more than minimal incremental effort on the part of the government to begin to achieve its expected level of service capacity
COTS (commercial off the shelf): commercial software not requiring more than minimal incremental effort to begin to achieve an expected level of service

13. SOFTWARE DEVELOPMENT Project Stage Associated Activities
Accounting Treatment
PRELIMINARY
Concept formulation; evaluation of alternatives; feasibility
EXPENSE
APPLICATION DEVELOPMENT
Application design; configuration of interfaces; coding; installation to hardware; testing
CAPITALIZE
POST-IMPLEMENTATION AND OPERATIONS
Application training; software maintenance

14. SOFTWARE MODIFICATIONS
Outlays associated with modification of existing software MAY require capitalization if modifications result in:
Increased functionality
Increased efficiency
Extension of useful life

15. REPORTING REQUIREMENTS
Reporting is required for financial periods beginning after June 30, 2009
Retroactive reporting is required for intangible assets except internally generated assets
Historical costs of any internally generated software that will be implemented after June 30, 2009 must be captured for reporting

16. Amortization
Existing guidance for depreciation of capital assets generally applies to amortizing intangible assets
Intangible assets with indefinite useful lives should not be amortized
Discuss Federal DHHS Guidance.
Discuss Trademarks

17. CHALLENGES Educating stakeholders on GASB 51.
Identifying and valuing intangibles that must be capitalized
Check with Legal Counsel on patents, trademarks, rights of way, etc.
Determining useful lives and capitalization thresholds for intangible assets.

18. CHALLENGES Computer software challenges:
Establishing and verifying stages of software development and their related costs
Capturing internal costs during the application development stage.
Establishing “minimal incremental effort”
Capturing capitalizable retroactive software costs
Retroactive – Can do COTS only
Prospective – Must do COTS and internal costs.

19. CHALLENGES Computer software challenges (cont’d)
Identifying and capitalizing costs of major modifications or upgrades.
Addressing variety of software agreements to determine if capitalizable and how much to capitalize.
Software licenses
Upgrades
Modifications
Cloud computing
Hosting agreements

20. CHALLENGES Computer software challenges (cont’d)
Business Process Reengineering costs are not capitalizable – must identify and exclude
State funding of major software applications – can bonds be floated?
Federal approval and funding of capitalizable software applications of central agencies (such as ERP systems).

21. Excerpt from HHS DCA Letter Dated
CHALLENGES
Excerpt from HHS DCA Letter Dated
September 17, 2007
….Statement No. 51….the general principles contained therein should be complied with for charging federal programs. …… It is not acceptable to expense all of the costs of significant software projects and charge Federal programs based upon budgetary needs to finance the projects or as costs are incurred. ….. Federal programs only benefit and should only be charged for amortization of the capitalized costs once the software programs are implemented and in use by Federal programs.
States that have initiated or are planning software projects that will be allocated or billed to Federal programs, whether as a direct or an indirect cost, should submit their planned accounting and billing or allocation methodology to their cognizant DCA Regional Office for review.

22. CHALLENGES
Lack of OMB Circular A-87 guidance on capitalizing/amortizing intangibles.
ARRA software useful life.

23. RESOURCES GASB 51 and its Basis of conclusions and examples
GASB Implementation Q&A Section
NASC GASB 51 Work Group url: