Final answer:
The modified approach in governmental infrastructure reporting requires a schedule of assessed conditions of assets to be included in Required Supplementary Information (RSI), focusing on the maintenance of the assets rather than traditional depreciation.
Step-by-step explanation:
When governments use the modified approach for reporting infrastructure, a schedule of the assessed conditions of infrastructure assets must be included in Required Supplementary Information (RSI). In this approach, rather than depreciating infrastructure assets, the government ensures that these assets are preserved approximately at or above a condition level that is specified by the government. To demonstrate that this condition level is maintained, the government must provide RSI that includes a schedule showing the assessed conditions of the assets and how they compare to the condition level, as well as estimates of annual expenditures needed to maintain and preserve the assets at the specified condition level.
The modified approach is an alternative to the traditional depreciation method used in accounting for capital assets. Unlike the traditional method, the modified approach does not require the amortization of the cost of these assets over their useful lives. Instead, the focus is on maintaining the service potential of the infrastructure, thereby implying that if the asset is maintained properly, it is presumed to be perpetually in service, and hence, no depreciation is recorded.
It is important for students studying governmental accounting or public finance to understand the modified approach as it provides a basis for governments to manage and report their infrastructure assets in a way that is more aligned with the way these assets are used and maintained over time.