What the new standard changes in the capital asset footnote and how to prepare before audit fieldwork

GASB 104 is not the kind of standard that should require a major accounting overhaul. For most governments, it will not change how capital assets are recorded, depreciated or amortized. But it will change how certain capital assets are disclosed in the notes to the financial statements. 

GASB 104 is effective for fiscal years beginning after June 15, 2025. So for governments with a June 30 year-end, that means the standard first applies to the fiscal year ending June 30, 2026.  

The good news: GASB 104 is narrow. 

The not-so-good news: if your capital asset records are not clean, or if your government has leased assets, subscription-based assets, other intangible assets or property being prepared for sale, the footnote work may take more time than expected. 

What is GASB 104? 

GASB Statement No. 104, Disclosure of Certain Capital Assets, was issued in September 2024. The standard focuses on two areas: 

  1. Separate disclosure of certain intangible capital assets, including right-to-use assets.
  2. Disclosure of capital assets held for sale.  

The purpose is to make capital asset disclosures more consistent and useful for financial statement readers. Over the years, governments have implemented newer standards for leases, public-private and public-public partnerships, and subscription-based information technology arrangements. Those standards created more right-to-use assets and subscription-based assets in government financial statements. GASB 104 is aimed at making those assets easier to identify in the capital asset disclosures.  

Why GASB 104 Matters for Governments 

At first glance, this may feel like “just a footnote change.” In some cases, it may be. 

But the footnote is only as good as the records behind it. Governments will need to know which capital assets are owned, which are intangible, which are right-to-use assets and whether any capital assets meet the definition of held for sale. 

For finance directors, clerks, administrators and business managers, the practical question is not, “What does the standard say?” 

The better question is, “Can we pull the information needed for the note without rebuilding our capital asset schedule during the audit?” 

That is where preparation matters. 

Separate Disclosure of Intangible and Right-To-Use Assets 

Under GASB 104, governments should separately disclose capital assets related to intangible assets within the capital asset note. That includes: 

  • Leased assets under GASB 87 
  • Right-to-use assets recognized by an operator under GASB 94 
  • Subscription-based assets under GASB 96 
  • Other intangible assets 

These assets should be organized by major class of asset. However, right-to-use assets should not be shown in the same major class as capital assets the government owns.  

That distinction matters. 

For example, a government may have buildings it owns and building-related leased assets. Those should not be lumped together as if they are the same type of asset. The same concept applies to equipment, vehicles, software or other asset classes. 

The financial statement reader should be able to tell the difference between assets the government owns and assets the government has the right to use under a lease, subscription arrangement or similar agreement. 

Capital Assets Held for Sale 

GASB 104 also adds disclosure requirements for capital assets held for sale. A capital asset should be evaluated as held for sale when both of the following are true: 

  • The government has decided to pursue the sale. 
  • It is probable the sale will be finalized within one year of the financial statement date.  

This evaluation is not a one-time exercise. Governments should consider it each reporting period. 

That means finance teams may need to talk with department heads, boards, councils or management about assets that are being prepared for sale. Examples may include buildings, land, vehicles, equipment or other capital assets the government has formally decided to sell. 

It is not enough to say, “We might sell that someday.” 

There needs to be a decision to pursue the sale, and the sale needs to be probable within one year of the financial statement date. 

What should governments consider when deciding if a sale is probable? 

GASB 104 gives governments several factors to consider when evaluating whether a sale is probable within one year. These may include whether the asset is available for immediate sale in its current condition, whether there is an active effort to find a buyer, whether market conditions support the sale and whether regulatory approvals are needed.  

In plain terms, governments should be ready to answer questions such as: 

  • Has the board, council or governing body approved pursuing the sale? 
  • Is the asset actually ready to sell? 
  • Are we actively looking for a buyer? 
  • Is there a realistic market for this asset? 
  • Are there legal, voter, grantor or regulatory approvals needed before the sale can happen? 
  • Is it reasonable to expect the sale to close within 12 months of year-end? 

This is where documentation matters. If a government concludes an asset is held for sale, there should be support for that conclusion. 

How are capital assets held for sale reported? 

Capital assets held for sale do not move into a new financial statement category just because they are being sold. Under GASB 104, these assets continue to be reported within the appropriate major class of capital asset. They also continue to be depreciated, if applicable.  

The change is in the note disclosure. 

Governments will need to separately disclose the historical cost and accumulated depreciation or amortization by major class of capital asset held for sale. If those assets are pledged as collateral, the government must also disclose the carrying amount of debt by major class of asset.  

That means the capital asset schedule needs to contain enough detail to identify: 

  • Which assets are held for sale 
  • The major class of each asset 
  • Historical cost 
  • Accumulated depreciation or amortization 
  • Whether the asset is pledged as collateral 
  • Related debt carrying amounts, if applicable 

If that information is not already easy to identify, now is the time to clean it up. 

When does GASB 104 apply? 

GASB 104 applies to fiscal years beginning after June 15, 2025, and all reporting periods thereafter. Earlier application is encouraged. The standard should be applied retroactively to all periods presented in the basic financial statements, if practicable. If retroactive application is not practicable, the government should disclose why.  

For governments with a June 30 year-end, this means GASB 104 will first apply to the June 30, 2026 audit. 

That may feel far enough away to handle later, but waiting until audit fieldwork is not ideal. The finance team may need time to review capital asset classifications, identify right-to-use assets, evaluate possible held-for-sale assets and update footnote schedules. 

What should governments do now? 

GASB 104 should be manageable for most governments, but it should not be ignored. A little preparation before year-end can prevent a lot of cleanup during the audit. 

Start with your current capital asset listing. Review whether intangible assets, leased assets and subscription-based assets are clearly identified. If they are mixed into owned asset categories, you may need to separate them for disclosure purposes. 

Next, review any assets your government intends to sell. Do not wait until the audit to decide whether something qualifies as held for sale. If the board or council has approved a sale, or management is actively working toward one, gather the documentation now. 

Finally, look at your footnote support. GASB 104 is a disclosure standard, so the final impact shows up in the notes. But the work happens in the schedules behind the notes. 

Questions? 

Adams Brown works with governmental entities through audit and financial reporting requirements, including new GASB standards. If your organization is reviewing its capital asset records or preparing for GASB 104 implementation, our team can help you understand what needs to be ready before audit fieldwork begins. Contact an Adams Brown government auditor today.