After the implementation of Statement No. 34, capital assets, including equipment and vehicles, will have to be depreciated. That in turn will place additional importance on establishing a manageable capitalization threshold. The capitalization threshold and the internal control function are extremely important to a meaningful and manageable fixed assets policy. Localities also should address other areas when constructing a fixed assets policy, including the use of only capital accounts to purchase fixed assets and the offering of annual training in the management of fixed assets. Often overlooked, annual training is an excellent way to expose employees regularly to the idea that managing assets is a function of the entire organization, not just the accounting department.
Local governments tend to capitalize assets at overly low dollar values.
When seen only in the context of control, this practice is explainable. Capitalization thresholds, however, are a function of financial reporting. The guidance presented by the GFOA and the LGC offers a logical approach for establishing a meaningful and manageable capitalization threshold. Based on the need for materially accurate financial statements, the guidelines are designed to reduce the possibility of a qualified opinion stemming from lack of control of fixed assets. Local government and public authority administrators, as well as council members, should be proactive in constructing a comprehensive fixed assets policy.