Deferred Maintenance & Asset Impairment
The FASAB has recently approved a Deferred Maintenance project whose goal shall be to expand existing guidance where appropriate, as well as consider certain relevant asset impairment accounting. Specifically, the project will develop guidance for reporting information about deferred maintenance and asset impairment with respect to property, plant and equipment (i.e., general PP&E, heritage assets, and stewardship land).
The Board will work with a task force comprising, but not limited to, representatives or members of the Federal Real Property Council, the Federal Facilities Council, agency engineering or facility management staff, financial statement preparers and users, and auditors. Task Force members will bring technical knowledge relevant to not only longstanding issues, but also timely advice concerning the latest advancements in asset portfolio management and new policy initiatives.
We are currently seeking candidates who would like to assist us with this project. If you or someone you know are interested in advising the staff or serving as a Task Force member, please contact the FASAB project manager identified in the contact box.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
December 19-20, 2012 Board Meeting
On January 3, 2013, the Chairman, Tom Allen, announced that the FASAB issued Statement of Federal Financial Accounting Standards (SFFAS) 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use.
SFFAS 44 will require entities to report the effects of general property, plant, and equipment (G-PP&E) impairments in their financial statements. This will enable users of financial statements to discern the cost of impairments when they occur, the financial impact on the reporting entity, and the cost of services provided following the impairment. The new standards will also enhance comparability of financial statements between entities by requiring all entities to account for impairments in a similar manner beginning in fiscal year 2015. Because the standards do not require departments or agencies to specifically search for impaired assets and accordingly, any administrative burdens are expected to be negligible.
“The Board considered carefully the work of other public sector accounting standards-setters and the input of experts from the government and private sector. The resulting standards are intended to focus attention on significant impairments so that needed financial information is provided without undue effort,” noted Chairman Allen.
October 24-25, 2012 Board Meeting
In early October, the Board submitted for review its proposed SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use. This Statement will improve financial reporting by requiring entities to report the effects of General Property, Plant, and Equipment (G-PP&E) impairments. This will enable users of financial statements to discern the cost of impairments when they occur, the financial impact on the reporting entity, and the cost of services provided following the impairment. This Statement also enhances comparability of financial statements between entities by requiring all entities to account for impairments in a similar manner. This Statement does not require departments or agencies to specifically search for impaired assets and accordingly, any administrative burdens are expected to be negligible.
The proposed Statement was submitted to the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB), and the Comptroller General (GAO) for a 90-day review that will end on December 31, 2012. In addition to Sponsor review, the proposed Statement has been reported to the Congress for a concurrent review. Unless otherwise informed, the Board will announce a final Statement after the expiration of both review periods.
August 29-30, 2012 Board Meeting
Significant technical matters were resolved at prior meetings and a vote on the final Statement of Federal Financial Accounting Standards was planned following the meeting. Therefore, the meeting focused on member comments and suggestions for editorial concerns. In addition to minor editorial matters, the members decided to eliminate the requirement for agencies to disclose measurement methods.
The next step will be to vote on a ballot draft document in September.
Issue Paper for August 2012 – Tab D (PDF)
June 27-28, 2012 Board Meeting
At the June 27, 2012 Board meeting the members agreed not to hold a public hearing concerning the Exposure Draft (ED) document entitled, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use.
After reviewing many of the respondent concerns, the Board asked staff to begin preparing a final document for pre-balloting purposes. Although the ED was well received, the Board is concerned that some preparers and auditors will apply this proposed standard to insignificant or immaterial situations. The Board has asked staff to further clarify its intent in this regard and will explore distinguishing impairment from depreciation so that for example, entities carefully consider (1) the basis for their useful life and salvage value estimates and (2) existing depreciation plans prior to recognizing an impairment loss. The Board desires to strike a balance between not requiring entities to search solely for impairments and not incentivizing entities to not identify or communicate material impairments.
Members also agreed to (1) delete references to the terms gradual or sudden in the definition to avoid confusion with depreciation and not to isolate impairments solely to sudden events and (2) not re-title the proposed standard to include assets that are under construction because such assets may be immaterial in many instances and have historically been treated as a sub-set of G-PP&E.
Other issues members addressed included waiving the proposed requirements for specific G-PP&E categories, classes, or base units and the proper interpretation of the proposed indicators. Concerning the former, members generally believe that (1) very few, if any, G-PP&E will be capable of having a material enough impairment loss to be reported at an entity-wide level, (2) G-PP&E classified as mission critical will rarely be partially and permanently impaired since such assets will typically either be repaired or taken out of service, and (3) entities can document materiality considerations that could result in ascertaining the immateriality of G-PP&E categories, classes, or base units. Lastly, merely identifying indicators is not conclusive evidence that impairment exists and does not trigger an impairment loss. In fact, this represents the first step of a two step process that entities should perform prior to concluding that an impairment loss exists; the results of which are then assessed from a materiality perspective.
Staff invites interested parties to share input or observations at any time. Board briefing materials are found at /prior-calendar-years/; select Tab A.
April 25-26, 2012 Board Meeting
On April 25, 2012, Chairman Allen, announced that the FASAB issued Statement of Federal Financial Accounting Standards (SFFAS) 42, Deferred Maintenance and Repairs, Amending Statements of Federal Financial Accounting Standards 6, 14, 29 and 32.
SFFAS 42 represents the Board’s latest efforts to improve the measurement and reporting of deferred maintenance and repairs (DM&R) by responding to concerns raised by the financial and technical communities. “Through collaboration between experts from the government and private sector, these standards will improve the quality of information regarding deferred maintenance and repairs,” noted Chairman Allen. “The standards ensure that users are provided with understandable, relevant, and reliable information while recognizing the need for an interdisciplinary effort focused on the unique circumstances of each agency.”
February 22-23, 2012 Board Meeting
At the February 22, 2012 Board meeting the members voted to approve via ballot the Exposure Draft (ED) document entitled, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use.
After reviewing the final changes to the draft Exposure Draft document the Board asked staff to commence press release and related notification procedures. A 90-day comment period which ends on May 28, 2012 is provided to allow agencies sufficient time to analyze and respond to the Exposure Draft primarily because of its technical nature.
Staff invites interested parties to feel free and share input or observations at any time. Board briefing materials are found at /prior-calendar-years/; select Tab G.
Should you have any questions, input, or observations that you would like to share, please contact Mr. Domenic N. Savini at 202-512-6841 or email at email@example.com.
Exposure Draft (PDF)
December 19-20, 2011 Board Meeting
At the December 19, 2011 Board meeting the members (1) pre-balloted the draft standards entitled, Deferred Maintenance and Repairs; Amending Statements of Federal Financial Accounting Standards 6, 14, 29 and 32 and (2) reviewed a draft Exposure Draft (ED) document entitled, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use.
Deferred maintenance and repairs – After reviewing the draft standards and discussing mostly editorial changes, the Board acknowledged satisfaction with the document and the Chairman asked staff to commence balloting procedures. The standard was approved in early January and will be subject to review both by Congress and the board’s sponsors. The review period is expected to extend into late spring 2012.
Asset impairment – After reviewing the draft Exposure Draft document the Board asked staff to commence pre-balloting procedures. Members paid particular attention to the following topics: (1) the costs versus benefits of implementing the standards, (2) applicability of the standards to diverse asset classes, (3) measuring the magnitude of the decline in service utility, (4) composition of operational and maintenance costs used when measuring the magnitude of the decline in service utility, and (5) the recognition of G-PP&E that do not meet the impairment test.
Issue Paper for December 2011
October 26-27, 2011 Board Meeting
At the October 27, 2011 board meeting the members discussed (1) staff’s analysis of respondent comments to the exposure draft entitled, Deferred Maintenance and Repairs; Amending Statements of Federal Financial Accounting Standards 6, 14, 29 and 32 and (2) draft Exposure Draft (ED) document entitled, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use.
Deferred maintenance and repairs: TAB G – The exposure draft was very well received as reflected by the 22 responses. In particular, the majority of the responses were from the CFO and preparer community reflecting a good balance and check on the task force’s work which was primarily reflecting a technical user’s (i.e., asset custodians, engineers, facilities management personnel, architects, etc.) concerns and point of view.
As a result, because of the favorable nature of the responses, the board concluded that a public hearing would not be scheduled. Staff recommended that the board adopt three respondent suggestions dealing with: (1) ensuring that condition assessment surveys can also be performed on a methodical risk based method in addition to cyclical methods, (2) articulating in the basis for conclusions that preparers could consider providing information concerning the amount of the ending DM&R balance that would need to be incurred in the near term, and (3) including the definition of the term “condition” within the standard.
Members agreed to review a revised document reflecting the above changes prior to pre-balloting in December. Mr. Allen then concluded this portion of the meeting by thanking members of the Deferred Maintenance – Asset Impairment Task Force noting that they have been an incredibly productive group.
Asset impairment: TAB H – Members reviewed specific portions of the draft Exposure Draft document that included the following topics: when provisions of this proposed statement would apply, not requiring entities to search solely for indications of impairment, how/when impairments can arise, and describing the magnitude of the decline in service utility.
In particular, members discussed the historical context of why the board decided to initiate an asset impairment project. Both auditors and practitioners have been raising this issue with members because apart from internal use software, there is no FASAB impairment standard. In some cases auditors are requiring management to use a cash flow approach which is not germane to most all G-PP&E. Although members believe that the benefits of issuing an asset impairment standard outweigh the costs, they would like to make clear that the board is asking the community to “look upward” keeping an eye on materiality and not process.
The board tentatively agreed to exempt internal use software from the provisions of this standard and address SFFAS 10, Accounting for Internal Use Software, in a future project. Members asked staff to present a revised draft document for the next meeting.
Staff invites interested parties to feel free and share input or observations at any time. Board briefing materials are found at /meeting.html; select Tab G and Tab H.
Should you have any questions, input, or observations that you would like to share, please contact Mr. Domenic N. Savini at 202-512-6841 or email at firstname.lastname@example.org.
Issue Paper for October 2011
August 24-25, 2011 Board Meeting
At the August 25, 2011 meeting the Board discussed the revised draft Exposure Draft (ED) document incorporating the April Board meeting comments entitled, Accounting and Financial Reporting for Impairment of Capitalized Property, Plant, and Equipment Remaining in Use.
Members reviewed the revised draft ED, proposed impairment illustrations and process flowcharts in connection with recent task force recommendations. As a result of the Board’s review, members reaffirm that entities are not expected to apply this proposed standard in a manner that would require them to “survey” their asset portfolios to search for potential impairments. However, there is a presumption and reasonable expectation that entities currently have systems in place that communicate impairment events to senior decision makers. Also, the Board reviewed input from the task force which suggested that certain aspects of the draft ED, when taken together might in effect preclude significant impairments from being reported. The Board examined the use of the replacement/restoration approaches and has asked staff to review the conceptual basis for using these methods on PP&E that will not be remediated. Lastly, the Board has asked staff to further research the area of impairments of internal use software and develop a recommendation.
Staff invites interested parties to feel free and share input or observations at any time. In particular, should you have an interest in joining the task force or a view or comment concerning the impairment of internal use software, please contact the staff person below.
June 22-23, 2011 Board Meeting
At the June 22, 2011 meeting the Board unanimously approved the issuance of an Exposure Draft on measurement and reporting issues related to Deferred Maintenance and Repairs. The ED was issued and comments are requested by September 16th. See /documents-for-comment/ for the full exposure draft.
The balance of the Board’s discussion dealt with the preliminary draft Exposure Draft document entitled, Accounting and Financial Reporting for Impairment of Capitalized Property, Plant, and Equipment Remaining in Use.
Members seemed to agree that (1) impairment loss recognition should be limited to very rare instances and (2) impairment loss reversals should not be allowed. The Board made clear that entities are not expected to “survey” their asset portfolios to search for potential impairments. The Board’s intent is for the community to adopt the proposed standard only for significant events that are material to the financial statements. Concerning impairment loss reversals, some of the members appeared to agree that reversals seem to be overly complex and unnecessary noting that if events later change and the asset is placed back into service, the costs incurred to place it back into service will become the asset’s new basis.
In addition, the Board provided the following advice and counsel regarding other aspects of the preliminary document:
- Whether or not an impairment event can be expected does not seem to drive an impairment decision,
- Management’s intention not to restore lost service utility as a test for permanence appears reasonable,
- Service utility losses can be both gradual and sudden,
- Impairment loss calculations should not include improvements or betterments,
- Distinguishing between Replacement and Restoration cost approaches appears to be both reasonable and consistent with expert advice,
- Illustrations should be included for each proposed measurement method,
- Certain proposed methods may need to be carefully considered before adopting into a proposed standard,
- Additional measurement methods may need to be incorporated into a proposed standard, and lastly
- Given a choice among methods, entities should adopt the most efficient method available given the circumstances.
Staff invites interested parties to feel free to share input or observations at any time. Board briefing materials are located on the June 2011 Briefing Materials page; select Tabs G and H. Should you have any questions, input or observations that you would like to share, please contact Mr. Domenic N. Savini at the information below.
Issue Paper for June 2011 – Tab – G Deferred Maintenance June 2011.pdf
April 27-28, 2011 Board Meeting
At the April meeting the Board reviewed a draft Exposure Draft regarding measurement and reporting issues related to Deferred Maintenance and Repairs and provided staff with additional guidance. Three major topical areas drew most of the Board’s attention: (1) the concept of preferred practices and/or methods, (2) condition reporting and additional information, and (3) DM&R estimates. Related highlights from the Board deliberations include:
- Preferred practices and/or methods. Some members were concerned that requiring agencies to follow a preferred method or practice concept would cause implementation difficulties (e.g., audit related) especially since setting boundaries could prove challenging. Also, some members were concerned that a preferred method or practice would impede management’s ability to exercise judgment regarding efficient methods. On the other hand it was noted that providing management with flexibility is diametrically opposed to consistency and comparability issues. As a result, the Board decided to delete any references to “preferred” in the body of the draft Exposure Draft and bolster discussions in the basis for conclusions where benefits of diverse methods could be explained and the factors or criteria management could consider in making selection decisions could be shown.
- Condition reporting & additional information. The Board reaffirmed its position to no longer require condition reporting. However, as one member emphasized it must be clear that the Board’s decision to no longer require such reporting, should not be interpreted to mean that condition information not be reported at all. A point was made that condition reporting is a function that drives the deferred maintenance and repairs estimate and many on the Board believe it is this estimate which is most germane for reporting purposes. Members generally agreed that agencies have flexibility and are free to discuss this matter, as well as others, within the reporting model.
- DM&R estimates. Members generally agreed for simplification in reporting the DM&R estimate. As a minimum, the members believed that beginning and ending balances for material DM&R amounts should broken-out by category (i.e., general PP&E, heritage assets and stewardship land). As one member stated, the level of detail presumably would be selected based upon user needs. Therefore, the above categories represent minimal reporting requirements and further disaggregating by asset class could be appropriate.
Staff was asked to incorporate these as well as other recommendations into a revised draft document for the Board’s consideration in June.
Issue Paper for April 2011 – Tab C – April 2011.pdf
February 23-24, 2011 Board Meeting
At the February 24, 2011 Board meeting the Board provided further direction to staff concerning both measurement and reporting and asset impairment issues.
Measurement and Reporting
The board tentatively agreed that although Deferred Maintenance & Repair (DM&R) is a complex area, the board is seeking more reliable and consistent DM&R information related to fiscal exposure. To that end, the board seems inclined to taking steps that might include (1) eliminating condition reporting on certain asset categories and (2) a more prescriptive standard relative to reporting requirements. The board would like to adopt an approach that provides some degree of measurement and reporting consistency from year to year without imposing any methodology but rather requiring agencies to follow the methodology it chooses consistently. In order to encourage and allow agencies the ability to adopt new and improved methods or technologies that might be brought about in the area of asset management, the board discussed adopting a “preferred change” approach that would allow agencies to change if they could demonstrate that the change is accepted by industry for the purposes of calculating deferred maintenance.
Staff will begin preparing a draft Exposure Draft for the Board’s review in April.
Staff provided a brief overview of a sub-group’s analysis of the impairment standards promulgated by the FASB, GASB, and IPSASB. The sub-group was comprised of a financial analyst, engineer, and budget analyst. Staff advised that concurrent with or shortly after the draft Exposure Draft on measurement and reporting, it would like to take the subgroup’s analysis and test it with the broader community beyond the task force to get other points of view.
The subgroup has recommended following the GASB 42 approach with the difference being that any federal asset impairment standard would allow for the reversal of partial impairment losses in the event that an asset’s functionality or use is restored. The reason for this adjustment is to recognize that Federal assets are usually used well beyond any measurable economic or physical life and that asset managers typically do whatever they can to maintain and/or preserve assets as part of their stewardship responsibilities.
Staff invites interested parties to feel free and share input or observations at any time.
Board briefing materials are found at /prior-calendar-years/; select Tab J.
December 16-17, 2010 Board Meeting
At the December 16 Board meeting the Board provided consultation and advice concerning current issues being addressed by the Deferred Maintenance and Asset Impairment task force. Staff identified and reviewed four major project goals for discussion purposes concerning the measurement and reporting phase of the project. The goals reviewed and discussion of the related work done to-date follow:
- Project Goal #2: Criteria appropriately considered in establishing “acceptable condition.”Although the Board sees merit in providing the accounting guidance presented by staff in this regard, it acknowledges that this is a management function that is not easily guided by accounting standards. The Board was advised that OMB was resuming active Federal Real Property Council (FRPC) meetings and that it should consider transferring this project objective to the council for study and implementation.
- Project Goal #3: Consider whether fixed assets should be classified as critical/non-critical (or another alternative) for reporting purposes.The Board acknowledged the task force recommendation to report active/inactive classifications. The members expressed concerns about agencies’ capacity for tracking information in various categories, potential changes to the real property classification scheme in the future, and comparability. Member noted that comparability can result from flexible classifications because each management decides and explains its classification.
- Project Goal #4: Identify relevant measures or indicators being used in practice (e.g., condition index, return on investment) and decide if any additional measures should be included in federal financial reports.Similar to the discussion held concerning Project Goal #2, the Board was advised that OMB was resuming active Federal Real Property Council (FRPC) meetings and that it should consider deferring this project objective to see what the council develops.
- Project Goal #4b(i) – Determine if techniques are desirable and permissible under existing standards.Although the Board acknowledged the value of consistent reporting, it asked staff to first consider options that would include relaxing or eliminating reporting requirements (i.e., condition reporting). The Board would like to study these options before considering requirements over consistency.
The Board unanimously voted to approve the issuance of Statement of Federal Financial Accounting Standards 40, Definitional Changes Related to Deferred Maintenance and Repairs: Amending Statement of Federal Financial Accounting Standards 6, Accounting for Property, Plant, and Equipment. SFFAS 40 was subsequently submitted to the Board’s sponsors for a 90-day review and to Congress for a 45-day review as required by the CFO Act for all capital asset standards.
Issue Paper for December 2010
October 27-28, 2010 Board Meeting
At the October 28 Board meeting the Board reaffirmed its decision to amend the maintenance definition in SFFAS 6, Accounting for Property, Plant and Equipment and proceed with the measurement and reporting phase of the project. Staff will provide the Board with a briefing concerning this next phase at December’s meeting.
The Board wishes to thank those who took the time to respond to the Exposure Draft as well as attend the October 28 meeting and invites interested parties and stakeholders to contact staff should they have any questions. Please contact Mr. Domenic N. Savini at 202-512-6841 or email at email@example.com.
August 25-26, 2010 Board Meeting
At the August 26th Board meeting the Board discussed the major issues raised by respondents in comment letters on the Board’s Exposure Draft entitled, Definitional Changes Related to Deferred Maintenance and Repairs: Amending Statement of Federal Financial Accounting Standards 6, Accounting for Property, Plant, and Equipment.
Although the Board agreed not to hold a public hearing concerning the definition phase of the project, it believes that the measurement and reporting phase might require a public hearing. The Board acknowledged that the Exposure Draft received a robust response and that the majority of the respondents were in favor of the proposed changes.
Several respondent issues seemed to draw most of the Board’s attention:
- whether deferred maintenance and repairs (DM&R) should apply to capitalized PP&E and non-capitalized stewardship PP&E or more broadly to fixed assets
- varying degrees of interpretation among agencies resulting in inconsistent reporting; i.e. whether or not maintenance is in fact deferred or extended,
- whether or not deferred capital investments should be reported along side DM&R to reflect fiscal exposure while also helping to frame DM&R,
- (re)consideration of a useful life concept for DM&R reporting, and
- whether DM&R should be reported regardless of asset condition.
Many of the issues arising from respondent comments circled around measurement and/or reporting matters. Although the Board broached some of these issues, it agreed that such matters were premature to discuss before further task force analysis and staff review. Furthermore, the Board agreed to handle the balance of the issues identified by respondents via clarifications to the language contained in the Exposure Draft, implementation guidance or technical bulletin.
The Board noted that having a task force comprised of multi-disciplinary professionals enhances the value of the project. Specifically, this project provides an opportunity to not only make financial statement information (RSI) useful for managers in decision-making (i.e. budgeting and management), but also address concerns as to the relevance of capital asset reporting in general by recognizing that links exist between DM&R and capital asset reporting as well as costs associated with maintaining those capital assets.
Materiality and government-wide consistency were discussed to the extent that they are both relevant factors to be considered as we move into the measurement and reporting phase. Finally, the Board agreed not to hold a public hearing concerning the definition phase of the project.
The Board wishes to thank those who took the time to respond to the Exposure Draft and invites interested parties and stakeholders to contact staff should they have any questions or desire to join the task force. Please contact Mr. Domenic N. Savini at 202-512-6841 or email at firstname.lastname@example.org.
June 23-24, 2010 Board Meeting
Staff is (1) processing comment letters received on the May 4th Exposure Draft: Definitional Changes Related to Deferred Maintenance and Repairs: Amending Statement of Federal Financial Accounting Standards 6, Accounting for Property, Plant, and Equipment and (2) continuing research and Task Force discussions concerning the measurement and reporting phase of the project.
If you are interested in participating on the Task Force or have any questions about this project, please contact Mr. Domenic N. Savini.
April 28-29, 2010 Board Meeting
At the April 28th Board meeting the Board reviewed and approved the draft Exposure Draft entitled, Definitional Changes Related to Deferred Maintenance and Repairs: Amending Statement of Federal Financial Accounting Standards 6, Accounting for Property, Plant, and Equipment.
Mr. Allen noted that the Board wished to remind everyone that for reasons previously discussed and noted, it decided to split the deferred maintenance and asset impairment project into two distinct phases; the definition phase and measurement & reporting phase. The Board believes that in so doing it is taking an incremental approach to deferred maintenance and repair reporting. The Board plans to address measurement and reporting issues through continued consultation with stakeholders which could lead to the issuance of additional guidance and/or standards.
The Exposure Draft may be found at: /documents-for-comment/ and the Board invites interested parties and stakeholders to respond and provide appropriate comment. Responses are due no later than June 25th, 2010 and should you have any questions, please contact Mr. Domenic N. Savini.
February 24-25, 2010 Board Meeting
At the February 24th Board meeting staff presented an overview of the draft Exposure Draft (ED) proposing changes to the maintenance definition. Staff also briefly reviewed three current issues now being addressed by the task force; defining criteria for acceptable condition determinations, critical versus non-critical classification, and whether or not agencies should be required to consistently follow condition assessment methods.
By majority vote the Board decided to continue developing the ED and to take into consideration the following matters, some of which require changes to the draft document.
First, the Board envisions issuing two EDs, this definition ED and then later, the measurement and reporting ED. Concerning the need to issue this ED in particular, which only seeks a change to a definition, it was noted that normally the Board would not issue interpretations or technical bulletins to make the type of changes that the Board is currently proposing.
Second, it was agreed that there would be no need to isolate or separately define the term repair(s) either in the SFFAS 6 or the glossary since (1) for accounting purposes repairs are treated the same as maintenance and (2) the Basis for Conclusions provides an acceptable definition for repair (i.e. restoration of function). The Board acknowledged that some in the functional community may define and/or treat repairs differently from maintenance however they are not separate or distinct accounting terms.
Third, the Board highlighted three reasons for its decision to proceed with the draft ED at this time:
- Changing the definition is in fact expected to provide for improved reporting of deferred maintenance.
- The Board recognizes that there is a significant amount of interest in this topic.
- The Board would like to seek consultation from the broader community-at-large before moving onto the measurement and reporting aspects of the project.
Fourth, the Board noted that what is not included in a definition is just as important as what is. For example, some practitioners desire that future capital needs be included in deferred maintenance. However, since the Board considered the issue and decided against such inclusion, this draft ED would clarify this important matter.
Lastly, the Board made clear that this is a preliminary but all-important step going forward in this broad project and invites respondents to offer comments noting other considerations, changes or points the Board should consider in its deliberations.
The Chairman summarized that although the Board agreed to issue the draft ED, the document would need to be revised taking into consideration the points raised by the various Board members.
At the December meeting staff provided an overview of the task force work products that culminated in a proposed re-definition of the term “maintenance,” suggested definition for the term “repair,” and a minority view point. Also, related staff recommendations were provided where applicable. As a result, three distinct issues were addressed by the Board.
First, staff inquired whether or not the Board believed that there were significant enough differences arising from the Task force’s work that would warrant a change to the current SFFAS 6 definition of “maintenance.” Second, staff asked for Board comment on the suggested definition for the term “repair,” and third, staff asked whether SFFAS 6 should (a) explicitly state that management should establish policies regarding “acceptable condition” and (b) whether more robust guidance should be added to the standard that management could refer to when determining “acceptable condition.”
Concerning the first question, by majority vote the Board adopted the task force definition with certain revisions/caveats. First, it was agreed to eliminate the term “restoration” and not make any substitution for the term “repair.” Second, the term fixed assets may need to be changed to PP&E in order to be consistent with SFFAS 6. Third, any and all changes either by the task force or Board should be reviewed again in light of SFFAS 6 language to insure that there are no inconsistencies.
Concerning the second question, the Board consensus was that the suggested repair definition as proposed by the task force be rewritten so that it would not include any reference to maintenance activities. As such, the Board would prefer the definition to read as follows: “Repairs are generally directed towards putting assets back into an acceptable condition (restoration of function).”
Concerning the third issue, the Board consensus agreed with both elements noting that other accounting standard-setters have taken similar courses of action.
The Board made two points clear: first, capital investment needs that go unfunded are not to be included in deferred maintenance and second, since no bright line exists between capital improvement activities and maintenance activities we should not expend research resources create one. It was further noted that trying to establish such a bright line would seem almost impossible to do among the different agencies due to their unique mission requirements.
The Chairman’s final comments were that there will be further discussions on this topic and that he would like to avoid unintended consequences of being overly prescriptive. He reiterated that the value of deferred maintenance information is ensuring that management (1) discloses how they define deferred maintenance in-practice, (2) discloses how they measure and assess acceptable condition, (3) applies practices consistently and (4) adequately discloses asset maintenance/management policies and practices.
October 21-22, 2009 Board Meeting
At the October 2009 meeting the staff presented the Board with a project update. Additionally, the Board was consulted concerning two specific issues. The first issue was whether an incremental approach should be adopted addressing matters that the task force seeks guidance on, and the second issue was if the Board continued to agree that notwithstanding forthcoming improvements, agencies may continue to need flexibility in reporting when maintenance and repair activities have in fact been deferred.
In SFFAS 6, Accounting for Property, Plant and Equipment, the Board opined that (1) acceptable services and condition vary between and among agencies and (2) that management shall determine what level of service and condition is acceptable. Recognizing implementation difficulties, SFFAS 14, Amendments to Deferred Maintenance Reporting Amending SFFAS 6, Accounting for Property, Plant and Equipment and SFFAS 8, Supplementary Stewardship Reporting, moved deferred maintenance reporting from note disclosure to required supplementary information.
The Board discussed the concept of flexibility as well as how prescriptive any forthcoming guidance should be. It was noted that the current standard’s flexibility might be contributing to the lack of comparability between agencies. However, it was also noted that experience in the state/local government arena over infrastructure reporting appears to support a more principles based approach such as agencies currently enjoy; any guidance that could be viewed as being prescriptive would need to consider agency cost versus benefit impacts. The use of multi-year trend information was discussed as a possible solution to agency lack of comparability. The Board also discussed the importance and benefits of having common terms and definitions.
The Board then discussed the value of deferred maintenance information and if the ultimate goal is to elevate this information to the face of the financial statements. Both merits and challenges of this ultimate goal were discussed. In addition to conceptual issues that might exist, practical hurdles would need to be addressed incrementally, beginning with common terms/definitions. However, the Board noted that obligations arising from deferred maintenance (i.e. fiscal exposure) might in fact need to be recognized.
In conclusion, the Board agreed with the direction that the task force is currently taking and noted that the incremental strategy in addressing the reporting issues over deferred maintenance seemed to be a sound approach.
August 26-27, 2009 Board Meeting
The Task Force met on September 1st to accomplish three objectives: (1) discuss the preliminary results of the Real Property Subgroup’s (RPSG) work on redefining “maintenance”, (2) confirm the next step in seeking third-party consults and (3) to set a time frame to work on the “deferred” portion of the Deferred Maintenance definition. Since no clear consensus was reached concerning a most-favored definition from the preliminary results of the RPSG’s work, it was agreed to do some additional work and meet again to address the proposed definitions in light of how repairs and/or capital repairs should be defined. With the exception of one representative, the Equipment/Personal Property Subgroup agreed that any of the 6 definitions as currently written could serve their respective communities.
The Task Force agreed to:
- address the definition of “capital repair” and whether such repairs should be included as an M&R component (capital improvements are currently excluded) and whether or not statutory definitions should be considered,
- address the definition of “repair” and whether or not statutory definitions should be considered,
- address the definition of “expected life”,
- more discretely focus on “key phrase” differences contained in each of the competing RPSG definitions,
- remove Alternate definition 4 as it specifically relates to deferred maintenance and not maintenance, and
- that references to mission (FFC definition) and life-cycle (Alternate 3 definition) do not seem to add much value and might be problematic as well as confusing or inappropriate.
Although no one definition stood out as being the most-favored definition among the Task Force members, some key comments and observations did in fact help to narrow the choices down to certain key phrases now requiring further analysis and discussion.
In addition, Ms. MaryAnn Whitmeyer and Mr. Ivan Graff reviewed real property asset impairment via a highly informative presentation that detailed impairment criteria used by the FASB, GASB and International Public Sector Accounting Standards Board and how each would relate in the Federal real property environment.
If you or someone you know is interested in either becoming a Task Force member or obtaining additional information concerning this project, please feel free to contact the Mr. Domenic Savini.
June 17-18, 2009 Board Meeting
Both the Real Property and Equipment/ Personal Property subgroups met in June to discuss developing a (revised) definition for Maintenance that is consistent with current actual asset management practices now being used in the federal government. As a starting point, both subgroups are working with the recommendations developed by the Federal Facilities Council (FFC) pertaining to SFFAS 6. An important goal of the Task force is “building a bridge” between agency functional expertise regarding asset assessments/condition to ultimately how to best report Deferred Maintenance within the financial statements. Representatives from the OMB, GAO, FFC and others are helping to guide the Task force to its overall goal of improving financial reporting in this area.
Agency attendees participating in the June subgroups were from the DoD, State, NASA, Interior, Energy, Commerce (NOAA), VA and Smithsonian. Major points that came up during these meetings include:
- since the FASAB will not deliberate this issue for some time, the draft set of definitions which are expected this Fall could be used by the FRPC to develop an interim definition for FRPP reporting purposes,
- the task force would like to obtain input from the FRPC’s Inventory Committee concerning its draft definitions and might consider one or more electronic survey instruments as a means to collect feedback from federal agencies/preparers/users,
- perhaps agencies need to report more than just DM dollars in order to provide for a more meaningful disclosure since there is a consensus among attendees that currently DM does not provide useful management information nor represent the cost required to resolve the maintenance backlog at mission critical facilities,
- discussion on what DM should include – (a) The value of cyclic work repeatedly missed – once or multiple times, (b) The value of the work missed or the value of the anticipated failure following the missed work, (c) The value of scheduled work only, including work scheduled in the past and not completed and work scheduled for the future for which no funding exists.
- discussion concerning asset impairment suggested that at least initially, such assessments should be engineering-driven. That is, since cash flows do not typically apply and the fact that agencies have developed fairly sophisticated asset assessment methods and practices, impairment testing should first consider technical assessments prior to employing a (non-technical) impairment test.
- some agency engineers charged with assisting in DM reporting are asking for greater clarity/guidance in the area of DM reporting. This lack of guidance could be contributing to the lack of comparability.
- asset transfers were discussed; (a) in the GSA system, an asset’s original acquisition cost follows the asset from the transferring agency, (b) assets transferred to GSA are not always properly described, (c) in order to preclude either asset exclusion or a doubling-up, the Task force may need to write guidance as to when agencies should in effect remove and/or add an asset from/to its asset registers.
- Impairment Working Group – consensus was reached that engineering/technical assessments should be the first or primary driver in ascertaining if an asset is impaired. However, it was acknowledged that a small working group would study this matter further and report back to the subgroup at a later date. An initial meeting of the working group was held in July.
Due to the summer months preoccupying many of the attendees with year-end closing as well as preparations for the new fiscal year, neither Task force nor Subgroup meetings will be planned during the months of July or August. However, an early September Task force meeting is being considered to help assess status and overall research direction.
The following topics appear likely to be addressed the next time the subgroups and/or Task force reconvene:
- Thresholds such as capitalization thresholds and how they might impact DM reporting both at an agency level and federal government wide.
- Obsolescence and impact on DM reporting.
- The continuance of a discussion concerning what does the term “critical” mean in relation to critical maintenance; does it refer to the asset, the work, or both?
Should you or someone you know be interested in assisting with this project, please notify Mr. Domenic Savini for details. The Task force asks that you help spread the word that sound changes and improvements to financial reporting cannot occur without active involvement from the part of both our functional and administrative/accounting communities.
April 22-23, 2009 Board Meeting
The task force met again in late April to refine its strategy by reviewing recent developments at the Federal Real Property Council (FRPC) concerning deferred maintenance as well as welcoming new members and hearing from those participants representing equipment/personal property issues. The task force confirmed its desire to break into two distinct working subgroups so that discussions concerning this topic would be focused and targeted relative to major asset classes. Subgroups will begin meeting in early to mid –July. The task force will reconvene as needed to ensure consistent and comprehensive coverage of the issues at hand ensuring coordination with major stakeholders.
Highlights from the April meeting include an FRPC update, a review of the Federal Facilities Council’s recommendations concerning deferred maintenance, historical overview of longstanding deferred maintenance issues, discussion of a definitional framework, and the purposes and reporting of deferred maintenance.
The task force welcomes additional agency participants so that wide and cross-cutting views can be explored and discussed at its meetings. Please feel free to contact the staff member listed below if you would like to become a task force member.
February 25-26, 2009 Board Meeting
Although the project was not discussed at the February board meeting, several volunteers as well as interested parties will begin meeting as a Task Force later this month. The goal will be to help identify enhancements that will improve compliance with FASAB’s reporting objectives. Should you or someone you know be interested in joining the Task Force, please contact the staff member listed below.
December 17-18, 2008 Board Meeting
The Board has decided to add Deferred Maintenance and Asset Impairment to its current working agenda.
In 1995 in its release of Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for Property, Plant and Equipment, the Board officially defined deferred maintenance as “maintenance that was not performed when it should have been or was scheduled to be and which, therefore, is put off or delayed for a future period.”
Additionally, the Board recognized that two measurement methodologies could be used; condition assessment surveys and life-cycle cost forecasts. SFFAS 6, as later amended, established that information about deferred maintenance would be reflected as Required Supplementary Information (RSI) and not disclosed; as envisioned originally in SFFAS 6. The Board opined that deferred maintenance reporting was in an evolutionary phase and that the then-current systems where not adequately measuring such costs. The Board identified a need to (a) develop guidance on determining acceptable condition and (b) revise standards based on experience gained during the experimentation period.
In June 1996 the Board again addressed the issue of deferred maintenance in its release of Statement of Federal Financial Accounting Standards (SFFAS) 8, Supplementary Stewardship Reporting. The Board stated that one way the Government demonstrates accountability over assets is by reporting on both their existence and condition with references to deferred maintenance reported in the financials.
In May 2003 when issuing Statement of Federal Financial Accounting Standards (SFFAS) 23, Eliminating the Category National Defense Property, Plant, and Equipment, the Board again addressed deferred maintenance by stating that they expected to consider a project integrating depreciation, impairment and deferred maintenance reporting as a government-wide undertaking. More recently in July 2005, in Statement of Federal Financial Accounting Standards (SFFAS) 29, Heritage Assets and Stewardship Land, the Board reclassified HA & SL as basic information except for condition reporting which was reclassified as RSI.
Not only has the Board considered this matter important in most deliberations concerning the Government’s capital assets accounting and reporting, deferred maintenance continues to be a GAO High Risk area wherein it opines that legislation will likely to be necessary to supplement Executive agency initiatives. Additionally, our office has been experiencing an increase in requests for assistance from the Field concerning the proper RSI reporting for deferred maintenance.
Enhancing the existing guidance would help the Government achieve a more consistent, accurate, and complete picture over its financial exposure regarding property, plant and equipment.
Concerning asset impairment, in SFFAS 23 the Board addressed impairment as one of three areas (the other two being depreciation and deferred maintenance) that it desired to consider integrating into a comprehensive project. Complete impairment was addressed in SFFAS 6 through the requirements that general PP&E “be removed from general PP&E accounts along with associated accumulated depreciation/amortization, if prior to disposal, retirement or removal from service, it no longer provides service in the operations of the entity. This could be either because it has suffered damage, becomes obsolete in advance of expectations, or is identified as excess.”
However, SFFAS 6 does not address partial impairment, although, it is feasible that the effects of partial impairment are captured through the routine evaluation of expected useful life (e.g., expectations may be modified in light of diminished capacity or condition).
Addressing asset impairment in connection with deferred maintenance may lead to potential enhancements which could be made to existing FASAB guidance.
- FASAB Contact: Domenic Savini, email@example.com, 202-512-6841