In the management discussion and analysis accompanying its 2018 financial statements, Tiber County reported that "for the fifth consecutive year revenues exceeded expenditures." However, a note included in required supplementary information disclosed the following:
County Roads and Highways-Comparison of Needed to Actual Maintenance/Preservation Costs (in thousands)
_______________Actual _______________ Needed
2018.................$3,400........................$4,200
2017.................$3,000........................$4,000
2016.................$2,900........................$3,000
2015..................$3,100........................$3,100
2014.................$2,800........................$2,700
The county has not been depreciating its infrastructure system but instead has been taking GASB
Statement No. 34's modified approach.
1. What reservations might you have about the significance of the county's excess of revenues over expenditures in 2018?
2. Suppose that you were the county's independent auditor. What reservation might you have about the county's reporting practices?
3. Suppose that the county was required to switch from the modified approach to the standard approach. As of year-end 2018 the estimated initial cost of the roads was $100 million and their estimated useful life was 40 years.
a. How would the change from the modified approach to the standard approach affect the county's general fund excess of revenues over expenditures?
b. How would it affect the county's government-wide excess of revenues over expenses?