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APPENDIX B 51 APPENDIX B Excerpts from FASAB Standard Number 6 Executive Summary a This statement contains accounting standards for Federally owned property, plant, and equipment (PP&E); deferred maintenance on PP&E; and cleanup costs. Each standard is summarized below. Property, Plant, And Equipment b The Federal Government's investment in PP&E exceeds $1 trillion [NOTE 1 Department of the Treasury, Financial Management Service, Consolidated Financial Statements of the United States Government prototype 1993, p. 23. The prototype statements provide gross historical cost investment amounts for all PP&E recorded by government entities. These amounts have not been audited.] PP&E used for many different purposes. âPP&Eâ is defined as follows: Tangible assets that (1) have an estimated useful life of 2 or more years, (2) are not intended for sale in the ordinary course of business, and (3) are intended to be used or available for use by the entity. c The diversity among Federal PP&E creates a need for meaningful categories of PP&E with different accounting standards for each category. The Board identifies four categories of PP&E. The categories are: - general PP&E are PP&E used to provide general government services or goods; - Federal mission PP&E are PP&E exhibiting specific characteristics set by the Board; - heritage assets are those assets possessing significant educational, cultural, or natural characteristics; and - stewardship land [NOTE 2 Land acquired for or in connection with general PP&E would be included in that category. Land not associated
APPENDIX B 52 with general PP&E would be subject to supplementary stewardship reporting and is referred to throughout this document as stewardship land.] (i.e., land other than that included in general PP&E). d Complete accounting standards for general PP&E are included in this document. e Federal mission PP&E, heritage assets, and stewardship land are the subject of a project on âSupplementary Stewardship Reporting.â An exposure draft (ED) on this topic was issued in August 1995. The Supplementary Stewardship Reporting ED proposes accounting standards for these assets after their acquisition. The accounting standards in this document address (1) classification of PP&E in the categories, (2) accounting for the acquisition cost of PP&E falling into one of these three categories, and (3) implementation of these standards where it affects the basic financial statements. Because Federal mission PP&E, heritage assets, and stewardship land would be subject to supplementary stewardship reporting, they are referred to collectively as stewardship PP&E. This term is used for convenience only since each category has its own definition. Deferred Maintenance x The deferred maintenance standard requires disclosures related to the condition and the estimated cost to remedy deferred maintenance of PP&E. These disclosures are made as a note to a line item on the statement of net costs--no dollar amount shall be recognized on the statement. y The standards recognize that there are many variables in estimating deferred maintenance amounts. The standards acknowledge that condition rating is a management function since different conditions might be considered acceptable by different entities as well as for different items of PP&E held by the same entity. In addition, management may use condition assessment surveys or life cycle cost plans to estimate the amount of deferred maintenance. z The deferred maintenance standard applies to all PP&E whether reported on the balance sheet or through supplementary stewardship reporting. Chapter 3: Accounting Standard â Deferred Maintenance Definition 77 âDeferred maintenanceâ is 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. 78 For purposes of this standard, maintenance is described as the act of keeping fixed assets in acceptable condition. It includes preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected life. [NOTE 58 Acceptable services and condition may vary both
APPENDIX B 53 between entities and among sites within the same entity. Management shall determine what level of service and condition is acceptable.] Maintenance excludes activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, those originally intended. Recognition 79 A line item for âdeferred maintenance amountsâ [NOTE 59 This requirement applies to all four categories of PP&E.] shall be presented on the statement of net cost with a note reference in lieu of a dollar amount. [NOTE 60 If management determines that there are no material amounts of deferred maintenance, this line item need not appear.] No amounts shall be recognized for deferred maintenance. Disclosure Requirements - Measurement 80 Amounts disclosed for deferred maintenance may be measured using: - condition assessment surveys, or - life-cycle cost forecasts. [NOTE 61 Other methods may be used which are similar or identical to condition assessment survey or life-cycle costing. These methods would also be acceptable sources of information on deferred maintenance.] 81 Condition assessment surveys are periodic inspections of PP&E to determine their current condition and estimated cost to correct any deficiencies. It is desirable that condition assessment surveys be based on generally accepted methods and standards consistently applied. [NOTE 62 Management shall determine what methods and standards to apply. Once determined, it is desirable but not required that methods and standards be applied consistently from period to period.] 82 Life-cycle costing is an acquisition or procurement technique that considers operating, maintenance, and other costs in addition to the acquisition cost of assets. Since it results in a forecast of maintenance expense, these forecasts may serve as a basis against which to compare actual maintenance expense and estimate deferred maintenance. Disclosures 83 At a minimum, the following information shall be presented for all PP&E (each of the four categories established in the PP&E standard should be included). - Identification of each major class [NOTE 63 âMajor classesâ of general PP&E shall be determined by the entity. Examples of major class include, among others, buildings and structures, furniture and fixtures, equipment, vehicles, and land.] of asset for which maintenance has been deferred. - Method of measuring deferred maintenance for each major class of PP&E.
APPENDIX B 54 - If the condition assessment survey method of measuring deferred maintenance is used, the following should be presented for each major class of PP&E: * description of requirements or standards for acceptable operating condition, * any changes in the condition requirements or standards, and * asset condition [NOTE 64 Examples of condition information include, among others, (1) averages of standardized condition rating codes, (2) percentage of assets above, at or below acceptable condition, or (3) narrative information.] and a range estimate of the dollar amount of maintenance needed to return it to its acceptable operating condition. - If the total life-cycle cost method is used the following should be presented for each major class of PP&E: * the original date of the maintenance forecast and an explanation for any changes to the forecast, * prior year balance of the cumulative deferred maintenance amount, * the dollar amount of maintenance that was defined by the professionals who designed, built or manage the PP&E as required maintenance for the reporting period, * the dollar amount of maintenance actually performed during the period, * the difference between the forecast and actual maintenance, * any adjustments to the scheduled amounts deemed necessary by the managers of the PP&E, [NOTE 65 Adjustments may be necessary because the cost of maintenance foregone may not be cumulative. For example, if periodic painting is skipped twice it is not necessarily true that the cost would be double the scheduled amount.] and * the ending cumulative balance for the reporting period for each major class of asset experiencing deferred maintenance. Optional Disclosures 84 Stratification between critical and noncritical amounts of maintenance needed to return each major class of asset to its acceptable operating condition. If management elects to disclose critical and noncritical amounts, the disclosure shall include management's definition of these categories. The provisions of this statement need not be applied to immaterial items.