Why advocate for lower capitalization thresholds?

Many capital asset owners build their asset register based on assets that are capitalized for financial reporting. If an asset doesn’t meet the capitalization threshold under PSAB, it often doesn’t make it into the system. That is efficient from an accounting perspective, but it can lead to meaningful gaps in your asset register.

What gets measured gets managed

Capitalization thresholds help streamline financial statements, but they may not reflect operational risk or service delivery needs. Lower cost assets like pumps, controller and sensors, or field service equipment may fall below the threshold, yet still play a critical role in delivering a service. If it fails, the impact can be immediate and disruptive. In this context, risk is driven by function and consequence rather than dollar value.

There is also a lifecycle planning implication. Lower-value assets tend to have shorter useful lives and more frequent replacement cycles. Excluding them from the asset register can understate ongoing funding needs and skew lifecycle models toward large, infrequent expenditures. Over time, this creates blind spots in both capital and operating planning.

Field equipment like surveying gear may not make it into asset registers. However, it is still helpful to track their usage in work orders and plan for their replacement. Sometimes, smaller assets can have larger risks associated with them than major assets. These point towards differing thresholds for capitalization in finance and tracking in asset management. Image: Unsplash

A mountain of crumbs

Individually, these assets may be minor expenses. Across a portfolio, however, sub-threshold assets can represent a substantial cumulative investment and be a significant cost driver. They are often replaced using operating funds, but they still call for forecasting, prioritization, and coordination.

From an operational standpoint, these are often the assets staff interact with most. Work orders, inspections, and maintenance activities frequently reference components that never appear in the capital asset listing. When these assets are included in the asset management system, it strengthens the connection between planning and day-to-day operations, improves data consistency, and supports more proactive maintenance approaches.

Separate objectives

Ultimately, asset management and financial reporting serve different purposes. One is about accurate financial disclosure; the other is about informed decision-making. They should align with each other, but not constrain one another.