ARTICLE | August 16, 2025
With the financial reporting landscape evolving in 2025, now is the perfect time for municipalities and school districts to revisit capital asset policies and procedures. Several recent developments are prompting this reflection:
- The revised Office of Management and Budget Guidance for Federal Financial Assistance — commonly known as the Uniform Guidance — increases the federal capitalization threshold for equipment from $5,000 to $10,000, effective October 1, 2024.
- The upcoming implementation of Governmental Accounting Standards Board (GASB) Statement No. 103, Financial Reporting Model Improvements, effective for fiscal years beginning after June 15, 2025.
- The upcoming implementation of GASB Statement No. 104, Disclosure of Certain Capital Assets, also effective for fiscal years beginning after June 15, 2025.
- Additional expected changes from GASB’s ongoing project to update guidance on infrastructure asset recognition, measurement, and disclosure.
While these changes serve different purposes, all bring the topic of capital assets — and how we define, track, and report them — back into focus.
Multi-Tiered Tracking: Matching Lists to Purpose
A common issue in many municipalities and school districts is the use of a single, very low capitalization threshold for all purposes — accounting, audit, inventory control, insurance coverage, and grant compliance – even though these functions have different objectives and may warrant separate records.
This “one-size-fits-all” approach – especially when paired with a very low capitalization threshold – often results in an unnecessary administrative burden, with staff tracking hundreds of small-value items in the capital asset ledger that do not meaningfully affect the financial statements.
In practice, asset tracking needs generally fall into three categories:
- Capitalization (Financial Reporting) – Assets above the capitalization threshold that are depreciated and reported in the government-wide financial statements in accordance with Generally Accepted Accounting Principles (GAAP).
- Inventory (Custodial Control) – Items tracked for safeguarding and loss prevention, regardless of whether they are capitalized (e.g., laptops, projectors, tools).
- Insurance Schedules – Listings of property for risk management purposes, such as buildings, vehicles, and certain equipment. Often maintained separately by the insurance carrier, these schedules may overlap with the other two lists but are not intended for accounting or audit purposes.
By keeping these purposes distinct, governments can:
- Maintain a capital asset ledger that is concise and meaningful for financial reporting.
- Keep a control inventory for high-risk, low-value items.
- Ensure the insurance schedule is accurate without inflating the accounting records.
This approach is supported by the New York State Office of the State Comptroller (OSC) in its Capital Assets Guide, which acknowledges that smaller items may need to be tracked for control purposes but do not need to be capitalized for financial reporting.
Additionally, clearly define how your capitalization threshold applies to grouped purchases. Be sure to address bulk acquisitions (e.g., multiple laptops, chairs, or tools) and clarify whether the evaluation should be based on the per-unit cost or the total cost of the group. Grouping assets can create large consolidated capital assets that are difficult to track or partially dispose of later, so careful consideration is needed.
Distinguishing these purposes not only improves accuracy and efficiency — it also allows governing boards to set capitalization thresholds that focus on material items for financial reporting, rather than inflating the ledger with every insurable or inventoried asset.
See: OSC Capital Assets Guide, Appendix E
What’s Changing Under Federal Guidance?
The revised Uniform Guidance updates the definition of “equipment” in 2 CFR §200.1, increasing the federal capitalization threshold from $5,000 to $10,000. However, it continues to require the use of the lesser of $10,000 or the entity’s established threshold for financial reporting purposes.
Notably, the $10,000 threshold applies to the per-unit acquisition cost of equipment. For example, if 50 laptops are purchased at $500 each, they must be evaluated individually for federal capitalization and tracking — not as a single $25,000 grouped asset. Misclassifying grouped purchases as federal equipment can create unnecessary compliance burdens.
Using a low local threshold can compound this burden. Under 2 CFR §200.313, equipment meeting the federal definition must:
- Be subject to physical inventory at least once every two years,
- Have its condition, location, and serial number documented, and
- Be recorded with acquisition details, including funding source.
Disposal of such equipment is also regulated. If the fair market value exceeds $10,000, the entity may be required to:
- Obtain approval before sale or transfer,
- Return proceeds to the federal awarding agency, or
- Apply proceeds to other federally approved purposes.
This means that a local threshold of $500 or $1,000 could subject hundreds of low-cost items — like laptops, small furniture, and cameras — to intensive tracking and disposal procedures designed for high-value assets.
By contrast, aligning local policies more closely with the $10,000 federal threshold can limit compliance efforts to truly significant purchases — striking a better balance between control and administrative efficiency.
Accounting Standards and New York State Context
Municipalities and school districts in New York are required to comply with a range of financial reporting and audit standards. The following frameworks collectively influence capital asset reporting:
- GAAP,
- GASB pronouncements,
- General Municipal Law (GML), and
- OSC guidance and legal opinions.
None of these standards prescribe a specific capitalization threshold. Instead, governing boards are authorized to adopt reasonable and consistently applied capitalization policies — provided they are documented.
Recent GASB initiatives, including a current project on infrastructure asset disclosures (as of July 2025), emphasize transparency and reporting clarity over the imposition of new recognition thresholds. This reinforces the idea that materiality and relevance should guide capitalization decisions.
Governments undertaking multi-year infrastructure or capital projects should also ensure that construction in progress (CIP) is clearly defined and tracked separately. Proper accounting for CIP — including consistent application of thresholds, project tracking, and treatment of related costs — is essential, especially when federal or state reimbursements are involved.
Recommendations
To better align capital asset policies with evolving federal and state requirements — and to improve efficiency — consider these five steps:
1. Review and revise capitalization thresholds
Assess whether current thresholds reflect both financial reporting goals and compliance obligations.
2. Adopt a multi-tiered tracking approach
Use systems that distinguish between assets tracked for custodial control, those capitalized for financial reporting, and those listed for insurance purposes. This may mean maintaining separate lists or implementing a single system with flexible reporting capabilities. The goal is to track high-risk, low-value items without applying full accounting detail, maintain accurate capital asset records in accordance with GAAP, and ensure the insurance schedule is up to date for risk management purposes—without inflating the capital asset ledger.
3. Document clear and practical policies
Ensure your policies clearly address grouped purchases and define whether capitalization is based on total or per-unit cost. For federal compliance, per-unit cost must prevail. Also, specify which attributes must be recorded for capitalized items versus those tracked for inventory control or insurance purposes.
4. Communicate the distinction internally
Ensure that staff understand the difference between inventory tracking for control, insurance documentation, and capitalization for accounting.
5. Coordinate with your auditor
Discuss policy changes with your auditor in advance to promote a smooth audit process.
Final Thoughts
Between changes in federal guidance and upcoming GASB standards, now is the perfect time to reassess your capital asset practices. Well-documented, thoughtfully designed policies can reduce burdens, improve audit outcomes, and strengthen internal control — without overcomplicating your systems.
References
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