0100 Accounting and Financial Reporting

This policy establishes the capitalization threshold for lessees that report leases and Subscription-Based IT Arrangements (SBITAs) under GASB Statement 87, Leases, and GASB Statement 96, SBITAs. The Procedures section below discusses incremental borrowing rates for lessors and lessees when an interest rate is not explicitly stated in a leasing or subscription contract or when an implicit rate cannot be determined.

A capital asset is property, such as land, land improvements, easements, buildings, equipment, works of art and historical treasures, and infrastructure, with a cost equal to or greater than $5,000 and a useful life of two or more years. Capital assets are acquired for use in normal operations and are not for resale. These assets may be subject to depreciation. Effective FY2024, assets that are below $5,000, that are purchased as a group and have a significant cost are subject to capitalization per GASB Implementation Guide 2021-1 Section 5.1. A financial reporting update with detailed instructions regarding detailed implementation procedures for small asset group purchases is posted on the OSC website. Exceptions to the $5,000 capitalization threshold will require written approval by the Office of the State Controller (OSC).

A physical inventory of capital and inventoried fixed assets is taken to verify that assets recorded are physically located in an agency. Inventories are taken at least annually. The inventory is taken by someone who does not have custody of the assets, nor responsibility for receiving, checking in, tagging, and recording the assets.

Net Position Restricted by Enabling Legislation (GASB COD 1800): For the State primary government, constraints placed on net position use by enabling legislation are not reported as net position restrictions since such constraints are not legally enforceable. An Attorney General Advisory Opinion referenced that the Governor, pursuant to his constitutional authority under Article III, Section 5(3), may use resources restricted by enabling legislation in his discretion to meet a budget shortfall. Legal enforceability means that the State can be compelled by an external party, such as citizens, public interest groups, or the judiciary to use resources created by enabling legislation only for the purposes specified by the legislation.

For classification of governmental fund balances, the State assumes an expenditure to be made from the most restrictive resource when more than one fund balance classification is available for use.

For governmental funds of the State primary government, the accounting classification of restricted assets will be handled at a statewide level. For year-end reporting, OSC staff will prepare worksheet entries on the fund level working trial balances to reclassify unrestricted cash and cash equivalents, investments, and receivables to restricted accounts. For proprietary funds of the State primary government and for component units, the accounting classification of restricted assets should be handled at the agency level.

Prepaid items are payments for services that benefit more than one accounting period, such as insurance, rent, and subscriptions. In governmental funds (general, special revenue, capital projects, and permanent), which follow the modified accrual basis of accounting, prepaid items should be accounted for using the purchases method (i.e., considered expenditures when purchased). Balances of prepaid items in governmental funds should not be reported as assets.

This policy applies to intangible assets other than leasing arrangements reported under GASB Statement 87, Leases; and subscription-based information technology arrangements (SBITAs) reported under GASB Statement 96, SBITAs. See OSC Statewide Accounting Policy 105.7 – Leases and SBITAs for further details on capitalization thresholds and other information pertaining to leasing arrangements.

The provisions set forth in this “General” section apply to all means of access to any information or application designated as a functionality or component of the North Carolina Accounting System (NCAS) or Cash Management Control System (CMCS), under the management and operation of the Office of the State Controller (OSC) or any State agency assigned these responsibilities.

OSC determines the GASB fund type based on information on the center request form and information provided by the agency.