Should Governments Report Like Businesses? Historically, states and cities used cash accounting methods to report infrastructure assets such as roads, bridges, and water and sewer facilities. Thus, the cost of an infrastructure investment was reported as an expense on the income statement when it occurred, but the value of the physical asset did not appear on the balance sheet. In other words, the value of all infrastructure assets was off the books. The theory behind this treatment is that infrastructure assets are, for the most part, immovable and of value only to the governmental unit (and its residents). Because infrastructure assets cannot be sold, there is no value to be reported on the balance sheet. In actuality, of course, physical infrastructure assets like roads and bridges generally continue to have value, or usefulness, long after governmental units have incurred the cost of construction. And, just as business assets depreciate in value, the value of infrastructure assets also declines over time. Thus, in 2001, the Government Accounting Standards Board (GASB) mandated that states and cities treat infrastructure assets just like businesses do record them on the balance sheet at initial cost and depreciate this value over time. The idea here is that the new treatment would (1) improve financial reporting, (2) enhance awareness of fiscal issues facing governmental units, and (3) emphasize the importance of maintaining infrastructure assets. What do you think? Should governmental entities have been required to report financial status in the same way as businesses? Will the change in how infrastructure assets are treated cause states and cities to act differently?.

1. Should Governments Report Like Businesses?
Historically, states and cities used cash accounting methods to report infrastructure assets such as
roads, bridges, and water and sewer facilities. Thus, the cost of an infrastructure investment was
reported as an expense on the income statement when it occurred, but the value of the physical
asset did not appear on the balance sheet. In other words, the value of all infrastructure assets
was off the books. The theory behind this treatment is that infrastructure assets are, for the most
part, immovable and of value only to the governmental unit (and its residents). Because
infrastructure assets cannot be sold, there is no value to be reported on the balance sheet. In
actuality, of course, physical infrastructure assets like roads and bridges generally continue to
have value, or usefulness, long after governmental units have incurred the cost of construction.
And, just as business assets depreciate in value, the value of infrastructure assets also declines
over time. Thus, in 2001, the Government Accounting Standards Board (GASB) mandated that
states and cities treat infrastructure assets just like businesses do record them on the balance
sheet at initial cost and depreciate this value over time. The idea here is that the new treatment
would (1) improve financial reporting, (2) enhance awareness of fiscal issues facing
governmental units, and (3) emphasize the importance of maintaining infrastructure assets.
What do you think? Should governmental entities have been required to report financial status in
the same way as businesses? Will the change in how infrastructure assets are treated cause states
and cities to act differently?