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Business and Policy Areas
Business and Policy Areas

Project No. 9-3E

February 28, 2003

Mr. David Bean
Director of Research
Governmental Accounting Standards Board
401 Merritt 7
P. O. Box 5116
Norwalk, Connecticut 06856-5116

Re: Project No. 9-3E

Dear Mr. Bean:

The National Association of College and University Business Officers (NACUBO) continues to appreciate the Board’s openness to public comment. Thank you for the opportunity to provide input to the Exposure Draft (ED) on Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries. NACUBO’s comments on the proposal were developed with input from our Accounting Principles Council. The council consists of higher education volunteers from member institutions who are knowledgeable in a variety of matters including external financial reporting, governmental accounting and reporting, not-for-profit accounting and reporting, managerial accounting and reporting, and financial analysis. NACUBO’s overall reaction to the proposal is favorable. Our comments are organized according to the four issues raised by the Board in the ED.

Issue 1: The proposed reasoning for selecting indicators, test and methods, and the use of historical cost as the basis for measurement.

NACUBO concurs with the methods allowed for measuring impairment and agrees that the historical cost basis is the foundation or starting point for necessary write-downs. This approach is logical and consistent with service utility and depreciation estimates applied to capital assets upon establishment and subsequently under impairment evaluation.

Regarding indicators, in paragraph eight, if the list is comprehensive we suggest the wording indicate such. On the other hand, if the list is not comprehensive, we recommend that language be added to clarify that the list is not exhaustive. For example, the sentence might read, "the indicators are," or conversely, "common indicators include but are not limited to."


We appreciate the flexibility of methodology allowed in paragraph 10 and agree with the option noted in paragraph 17 of re-evaluating estimates used in depreciation calculations when events or circumstances indicate an asset may be impaired but impairment has not yet occurred. We would recommend referencing in the body of paragraph 17 the impairment indicator in paragraph 8, item d, and footnote 3 for further clarity. In fact, we recommend elaboration on item d in paragraph 8 because it is the only indicator of impairment with a genesis that goes to a government decision versus an external source.

NACUBO notes a connection between the definition of prominent circumstances leading to an impairment (paragraphs 5 – 7) and "special and extraordinary items" as defined in GASB 34, however, we recommend a direct reference if this is the Board’s intent. This would promote consistency in reporting a loss due to impairment on the Statement of Activities. Additionally, such a loss would be easily identifiable, which is important to higher education as we strive for ease of financial statement comparability between public colleges and universities and independent colleges and universities that follow Financial Accounting Standards Board (FASB) standards.

Issue 2: The approach to the identification and measurement of impairment applies to all capital assets as well as business enterprise capital assets.

NACUBO feels it important to clearly define business enterprise capital assets. The vast majority of public colleges and universities follow Business Type Activity (BTA) reporting under GASB 35. Consequently, the relationship between capital assets held by a BTA and business enterprise capital assets ought to be clear. The current language in the ED, appendix B, paragraph 31 does not provide conclusive guidance that all capital assets held by a BTA are considered business enterprise capital assets. We recommend the Board qualify whether governmental and subsidized capital assets can be held by BTAs or consider classifying capital assets by type of GASB 34 / 35 entity.

Issue 3: Criterion for determining whether impairment is temporary and the treatment of capital assets considered temporarily impaired.

NACUBO agrees that impairments subject to write-down should be considered permanent and not temporary. This is consistent with the long-term perspective of the capital asset category. It logically follows that impairments from physical damage of capital assets accounted for using the modified approach be considered temporary in nature and should not be recorded unless the asset system will no longer be maintained or used, again supporting a long-term focus. Regarding temporary impairments to idle capital assets, it seems inconsistent to have a disclosure requirement.  Proposed disclosure requirements for idle capital assets appear to veer from the impairment focus of the ED. Specifically, it is not consistent to have a disclosure requirement for temporary impairments to idle capital assets when impairments to non-idle capital assets must be considered permanent for a write-down (and if needed disclosure) to occur. If long-term outlook is relevant, disclosure requirements for idle capital assets should only be required to the extent the long-term viewpoint is affected.

Issue 4: Impairments indicated by changes in legal factors are to be reported in the period that the change in law occurs.

NACUBO concurs with the fourth issue, as it is consistent with the overall premise of evaluating prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. It is reasonable and consistent with accounting principles to recognize a loss (in this case an impairment write-down) when there is current evidence to support the loss. In higher education, this approach would be consistent with that used by independent colleges and universities that follow FASB standards.

In closing, we wish to express our appreciation for the opportunity to comment on this ED. We look forward to answering any questions the Board or staff may have about our response. Please address questions or feedback to Sue Menditto, Manager, NACUBO Accounting and Finance Programs at 202-861-2542 or


Mark A. Olson
Senior Vice President

Susan M. Menditto
Manager, Accounting and Finance Programs