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Statement of Federal Financial Accounting Standards 42:
Deferred Maintenance and Repairs: Amending
Statements of Federal Financial Accounting Standards 6,
14, 29 and 32
Status
Summary
Deferred Maintenance and Repairs (DM&R) reporting enables the government to be accountable
to citizens for the proper administration and stewardship of its assets. Specifically, DM&R
reporting assists users by providing an entity's realistic estimate of DM&R amounts and the
effectiveness of asset maintenance practices the entities employ in fulfilling their missions.
This Statement amends the required supplementary information (RSI) presentation requirements
contained in Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for
Property, Plant, and Equipment and also provides conforming amendments as explained within
the Scope and Applicability section at paragraph 6. The amendments require entities to: (1)
describe their maintenance and repairs (M&R) policies and how they are applied, (2) discuss
how they rank and prioritize M&R activities among other activities, (3) identify factors considered
in determining acceptable condition standards, (4) state whether DM&R relate solely to
capitalized general property, plant and equipment (PP&E) and stewardship PP&E or also to non-
capitalized or fully depreciated general PP&E, (5) identify PP&E for which management does not
measure and/or report DM&R and the rationale for the exclusion of other than non-capitalized or
fully depreciated general PP&E, (6) provide beginning and ending DM&R balances by category
of PP&E, and (7) explain significant changes from the prior year.
Other significant amendments contained in this Statement include (1) requiring that condition
standards, related assessment methods, and reporting formats be consistently applied unless
management determines that changes are necessary, (2) eliminating the requirement to report
condition information, and (3) eliminating the (i) optional reporting of low-high DM&R estimates
as well as (ii) option to report critical and non-critical DM&R.
Additionally, the amendments note the importance of communication with, and input from,
professionals in diverse disciplines in compiling and reporting DM&R information.
Issued April 25, 2012
Effective Date For fiscal years beginning after September 30, 2014
Affects • SFFAS 6, paragraphs 77-84 and Appendix C are rescinded.
• SFFAS 14 is rescinded.
• SFFAS 29, paragraphs 26, 28, 41, and 42 are amended.
• SFFAS 32, paragraphs 12b.,12c., and 24 are rescinded.
• Technical Release 9, Section III.
Affected by None.
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Introduction
Purpose
1. The objective of this Statement is to improve the measurement of deferred maintenance and
repairs (DM&R) by incorporating changes responsive to concerns raised by the financial
and technical
1
communities. The Board also considered, where appropriate, a Government
Accountability Office (GAO) study
2
specific to repair and maintenance backlog issues
surrounding federal real property.
Materiality
2. The provisions of this Statement need not be applied to immaterial items. The determination
of whether an item is material depends on the degree to which omitting or misstating
information about the item makes it probable that the judgment of a reasonable person
relying on the information would have been changed or influenced by the omission or the
misstatement.
Effective Date
3. This Statement is effective for periods beginning after September 30, 2014. Earlier
implementation is encouraged.
1
This Statement uses the phrase “technical community” or “technical communities” to refer to entity personnel
responsible for the management of property, plant, and equipment (PP&E), including maintenance and repair.
2
GAO Report No. GAO-09-10 dated October 2008. Federal Real Property. Government’s Fiscal Exposure from Repair
and Maintenance Backlogs is Unclear.
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Accounting Standards
Scope and Applicability
4. This Statement applies to federal entities that present general purpose federal financial
reports in conformance with generally accepted accounting principles as defined by
paragraphs 5 through 8 of Statement of Federal Financial Accounting Standards (SFFAS)
34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of
Standards Issued by the Financial Accounting Standards Board.
5. This Statement replaces the definitions, measurement and reporting requirements for
deferred maintenance and repairs established in SFFAS 6, as amended by SFFAS 40,
Definitional Changes Related to Deferred Maintenance and Repairs: Amending Statement
of Federal Financial Accounting Standards 6, Accounting for Property, Plant, and
Equipment. SFFAS 6, Chapter 3: Deferred Maintenance and Repairs, paragraphs 77
through 84, and Appendix C, Deferred Maintenance and Repairs Illustration are rescinded.
6. In addition to SFFAS 6, this Statement also provides the following conforming amendments:
a. SFFAS 14, Amendments to Deferred Maintenance Reporting Amending SFFAS 6,
Accounting for Property, Plant and Equipment, and SFFAS 8, Supplementary
Stewardship Reporting, is rescinded.
b. SFFAS 29, Heritage Assets and Stewardship Land, is amended to adopt the revised
terminology and to rescind requirements for reporting condition
3
information.
c. SFFAS 32, Consolidated Financial Report of the United States Government
Requirements: Implementing Statement of Federal Financial Accounting Concepts 4
“Intended Audience and Qualitative Characteristics for the Consolidated Financial
Report of the United States Government,” is amended to adopt the revised terminology
and to rescind certain requirements.
d. Technical Release 9, Implementation Guide for Statement of Federal Financial
Accounting Standards 29: Heritage Assets and Stewardship Land, Section III:
Assessing and Reporting Condition is amended to explain the status of guidance
relating to condition reporting.
3
Terms defined in the Glossary are shown in bold-face the first time they appear.
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Definition
7. Deferred maintenance and repairs (DM&R) are maintenance and repairs that were not
performed when they should have been or were scheduled to be and which are put off or
delayed for a future period.
8. Maintenance and repairs are activities directed toward keeping fixed assets in an
acceptable condition.
4
Activities include preventive maintenance; replacement of parts,
systems,
5
or components; and other activities needed to preserve or maintain the asset.
Maintenance and repairs, as distinguished from capital improvements, exclude activities
directed towards expanding the capacity of an asset or otherwise upgrading it to serve
needs different from, or significantly greater than, its current use.
Measurement
9. Amounts for DM&R may be measured using:
a. condition assessment surveys,
b. life-cycle cost forecasts, or
c. other methods that are similar to the condition assessment survey or life-cycle costing
methods.
10. Condition assessment surveys are periodic
6
visual (i.e., physical) inspections of property,
plant and equipment (PP&E) to determine their current condition and estimated cost to
correct any deficiencies.
11. Life-cycle costing is an acquisition or procurement technique which considers operating,
maintenance, and other costs in addition to the acquisition cost of assets. Since it results in
4
The
determination of acceptable condition may vary both between entities and among sites within the same entity.
Management shall determine what level of condition is acceptable.
5
The term “systems” can refer to either (1) information technology assets (e.g., hardware, internal use software, data
communication devices, etc.) or (2) groupings (assemblages) of component parts belonging to a building, equipment
or other personal property.
6
This Statement does not require an entity’s entire portfolio to be inspected each year. It is permissible to schedule
condition assessment surveys on a cyclical (i.e., calendar) basis or a frequency based on consideration of risk
provided scheduling is done in accordance with established practices.
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forecasts of maintenance and repairs expense, these forecasts may serve as a basis
against which to compare actual maintenance and repairs expense to arrive at an estimate
of deferred maintenance and repairs.
12. Management should determine which methods to apply and what condition standards are
acceptable. Once determined, condition standards, related assessment methods
7
, and
reporting formats should be consistently applied unless management determines that
changes are necessary. Although condition information is essential in developing DM&R
amounts, reporting of condition information is not required. Changes to methods or formats
that management determines are necessary should be accompanied by an explanation
documenting the rationale for the change and any related impact on the DM&R estimate(s).
To best meet the goal of DM&R reporting, communication with, and consideration of, input
from professionals in diverse disciplines such as engineering, facilities management,
finance, budgeting and accounting is necessary.
13. DM&R should be measured and reported for capitalized general PP&E and stewardship
PP&E. DM&R also may be measured and reported for non-capitalized or fully depreciated
general PP&E. DM&R should include funded maintenance and repairs (M&R) that have
been delayed for a future period as well as unfunded M&R. DM&R on inactive and/or
excess PP&E should be included to the extent that it is required to maintain inactive or
excess PP&E in acceptable condition. For example, inactive PP&E may be maintained or
repaired either to comply with existing laws and regulations, or to preserve the value of
PP&E pending disposal.
Component Entity Required Supplementary Information
14. DM&R reporting should provide (1) DM&R beginning and ending balances for the reporting
period and (2) narrative information related to DM&R activities. Entities are required to
present both qualitative and quantitative information.
15. At a minimum, the following information should be presented as required supplementary
information (RSI) for all PP&E (each category established in SFFAS 6, as amended, should
be included) regardless of the measurement method chosen.
7
Assessment methods are techniques or procedures used in a process of systematically evaluating an entity's PP&E
in order to project M&R, renewal, or replacement needs that will maintain or preserve its ability to support the entity's
mission or activities it is assigned to serve.
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Qualitative
a. A summary of the entity’s M&R policies and brief description of how they are applied;
i.e., method of measuring DM&R
b. Policies for ranking and prioritizing M&R activities
8
c. Factors the entity considers in determining acceptable condition standards
d. Whether DM&R relates solely to capitalized general PP&E and non-capitalized
stewardship PP&E or also to amounts relating to non-capitalized or fully depreciated
general PP&E
e. Capitalized general PP&E, and non-capitalized heritage assets and stewardship land
for which management does not measure and/or report DM&R and the rationale for the
exclusion
f. If applicable, explanation of any significant changes
9
to (1) the policies and factors
subject to the reporting requirements established in a. through e. above and (2) DM&R
amounts from the prior year
10
Quantitative
g. Estimates of the beginning and ending balances of DM&R for each major category
11
of
PP&E for which maintenance and repairs have been deferred
8
As an example, entities may report (1) how they will pursue reducing their DM&R backlog and how they will be
impacted by budget or funding shortfalls or reductions, and (2) whether or not the entity has used Return on
Investment analyses in its ranking and prioritizing of either M&R or DM&R.
9
The determination of whether or not an item is significant is a matter of professional judgment. This determination is
separate and distinct from materiality considerations that include considering the likely influence that such information
could have on judgments or decisions of financial statement users.
10
Consistent with paragraph 12, once determined, condition standards and related assessment methods and reporting
formats should be consistently applied.
11
SFFAS 6 sets forth three categories of PP&E: (1) general PP&E; (2) heritage assets; and (3) stewardship land.
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Consolidated Financial Report of the US Government
Required Supplementary Information
16. The disclosure requirements listed in paragraphs 14 and 15 above are not applicable to the
U.S. government-wide financial statements. The U.S. government-wide financial statements
should include the following RSI:
a. A description of what constitutes DM&R and how it was measured
b. Amounts of DM&R for each major category of PP&E (i.e., general PP&E, heritage
assets, and stewardship land); and
c. A general reference to specific component entity reports for additional information
Conforming Amendments to Other Statements and Technical Releases
17. This Statement amends requirements in SFFAS 29 and 32 to replace ‘deferred
maintenance’ with ‘deferred maintenance and repairs’ and to rescind certain requirements in
SFFAS 29 and 32, including the requirement to report condition information. The changes to
SFFAS 29 and 32 are presented in paragraphs 18 and 19 below.
18. Paragraphs 26, 28, 41 and 42 of SFFAS 29, Heritage Assets and Stewardship Land, are
amended as follows:
[26] Entities should report the condition
11
of the heritage assets (which may be reported
with the deferred maintenance information
12
) as required supplementary information.
Entities should include a reference to the condition and
deferred maintenance and
repairs information
13
if reported in required supplementary information elsewhere in the
report containing the basic financial statements.
Paragraph 26 Footnote references:
11
Condition is the physical state of an asset. The condition of an asset is based on
an evaluation of the physical status/state of an asset, its ability to perform as
planned, and its continued usefulness. Evaluating an asset’s condition requires
knowledge of the asset, its performance capacity and its actual ability to perform,
and expectations for its continued performance. The condition of a long-lived
asset is affected by its durability, the quality of its design and construction, its use,
the adequacy of maintenance that has been performed, and many other factors,
including: accidents (an unforeseen and unplanned or unexpected event or
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circumstance), catastrophes (a tragic event), disasters (a sudden calamitous
event bringing great damage, loss, or destruction), and obsolescence. 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.
12
See SFFAS 6, Chapter 3, Deferred Maintenance (par. 77-84) for information
regarding definition, measurement and disclosures specific to deferred
maintenance.
13
See SFFAS 42, Deferred Maintenance and Repairs, Amending Statements of
Federal Financial Accounting Standards 6, 14, 29 and 32 for information
regarding definition, measurement and required supplementary information.
SFFAS 14, Amendments to Deferred Maintenance Reporting Amending SFFAS 6,
Accounting for Property, Plant and Equipment and SFFAS 8, Supplementary
Stewardship Reporting, defined deferred maintenance as RSI. The Board
believed that a period of experimentation was necessary for deferred
maintenance information and that classifying it as RSI would be more appropriate
during the experimentation period. The Board may revise this standard based on
experience gained during this time and the development of additional criteria.
[28.c.] A general reference to agency reports for additional information about heritage
assets, such as agency stewardship policies for heritage assets, and
physical units by
major categories of heritage assets, and the condition of the heritage assets
.
[41] Entities should report the condition
22
of the stewardship land (which may be
reported with the deferred maintenance information
23
) as required supplementary
information. Entities should include a reference to the condition and deferred
maintenance and repairs
information
24
if reported in required supplementary
information elsewhere in the report containing the basic financial statements.
Paragraph 41 Footnote references:
22
Condition is the physical state of an asset. The condition of an asset is based on
an evaluation of the physical status/state of an asset, its ability to perform as
planned, and its continued usefulness. Evaluating an asset’s condition requires
knowledge of the asset, its performance capacity and its actual ability to perform,
and expectations for its continued performance. The condition of a long-lived
asset is affected by its durability, the quality of its design and construction, its use,
the adequacy of maintenance that has been performed, and many other factors,
including: accidents (an unforeseen and unplanned or unexpected event or
circumstance), catastrophes (a tragic event), disasters (a sudden calamitous
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event bringing great damage, loss, or destruction), and obsolescence. 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.
23
See SFFAS 6, Chapter 3, Deferred Maintenance (par. 77-84) for information
regarding definition, measurement and disclosures specific to deferred
maintenance.
24
See SFFAS 42, Deferred Maintenance and Repairs, Amending Statements of
Federal Financial Accounting Standards 6, 14, 29 and 32, for information
regarding definition, measurement and required supplementary information.
SFFAS 14, Amendments to Deferred Maintenance Reporting Amending SFFAS 6,
Accounting for Property, Plant and Equipment and SFFAS 8, Supplementary
Stewardship Reporting, defined deferred maintenance as RSI. The Board
believed that a period of experimentation was necessary for deferred
maintenance information and that classifying it as RSI would be more appropriate
during the experimentation period. The Board may revise this standard based on
experience gained during this time and the development of additional criteria.
[42. c.] A general reference to agency reports for additional information about
stewardship land, such as agency stewardship policies for stewardship land, and
physical units by major categories of stewardship land use, and the condition of the
stewardship land.
19. Paragraphs 12b., 12c., and 24 of SFFAS 32: Consolidated Financial Report of the United
States Government Requirements: Implementing Statement of Federal Financial
Accounting Concepts 4 “Intended Audience and Qualitative Characteristics for the
Consolidated Financial Report of the United States Government” are rescinded.
12. b. The text “The above listed required supplementary information is not
applicable to the U.S. government-wide financial statements. SFFAS 32 provides
for required supplementary information applicable to the U.S. government-wide
financial statements for these activities.” is added as a separate bullet following
the existing text for par. 83.
12. c. The text “The U.S. government-wide financial statements need not
separately report stratification between critical and non-critical amounts of
maintenance needed to return each major class of asset to its acceptable
operating condition as well as management’s definition of these categories.
SFFAS 32 provides for optional information applicable to the U.S. government-
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wide financial statements for these activities.” is added to par. 84 as the final
sentences.
24. The U.S. government-wide financial statements should include the following
required supplementary information:
a. a broad description of deferred maintenance,
b. amounts or ranges of amounts of deferred maintenance for each major asset
category (i.e., general property, plant, and equipment; heritage assets, and
stewardship land) for which maintenance has been deferred,
c. a general reference to component entity reports, and
d. optional reporting of the stratification between critical and non-critical amounts
of maintenance needed to return each major asset category to its acceptable
operating condition.
20. This Statement amends requirements in Technical Release 9, Section III, to acknowledge
the rescission of requirements to report condition information as RSI. The following text is to
be inserted before Section III:
Statement of Federal Financial Accounting Standards 42, Deferred Maintenance and
Repairs, Amending Statements of Federal Financial Accounting Standards 6, 14, 29
and 32, rescinded the requirement to report condition information regarding heritage
assets and stewardship land as RSI. The following guidance offers insights regarding
condition assessments and factors that may influence reporting of deferred
maintenance and repairs information. The guidance has not been updated to conform
to the new standards and should be considered other literature until revised
implementation guidance, if any is provided.
Effective Date
21. This Statement is effective for periods beginning after September 30, 2014. Earlier
implementation is encouraged.
The provisions of this Statement need not be applied to information if the effect of applying the
provision(s) is immaterial. Refer to Statement of Federal Financial Accounting Concepts 1,
Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion
of the materiality concepts.
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Appendix A: Basis for Conclusions
This appendix discusses some factors considered significant by Board members in reaching the
conclusions in this Statement. It includes the reasons for accepting certain approaches and
rejecting others. Individual members gave greater weight to some factors than to others. The
standards provided in this Statement–not the material in this appendix–should govern the
accounting for specific transactions, events, or conditions.
This Statement may be affected by later Statements. The FASAB Handbook is updated annually
and includes a status section directing the reader to any subsequent Statements that amend this
Statement. Within the text of the Statements, the authoritative sections are updated for changes.
However, this appendix will not be updated to reflect future changes. The reader can review the
basis for conclusions of the amending Statement for the rationale for each amendment.
Project History
A1. Concerns pertaining to DM&R reporting have arisen since the issuance of SFFAS 6. The
two most common concerns related to (1) the lack of comparability in assessing asset
condition both within and among entities and (2) measurement and reporting practices and
formats that vary greatly among entities. In its most recent real property study (GAO Report
No. GAO-09-10 dated October 2008), the GAO noted that entities define and estimate
DM&R differently in part due to the degree of flexibility afforded by both SFFAS 6 and the
Federal Real Property Profile Reporting Guidelines. As a result, confusion and uncertainty
exists among users of DM&R information.
A2. Primarily as a result of auditor concerns, SFFAS 14, Amendments to Deferred Maintenance
Reporting Amending SFFAS 6, Accounting for Property, Plant and Equipment and SFFAS
8, Supplementary Stewardship Reporting, amended SFFAS 6 and SFFAS 8 to reclassify
deferred maintenance information as required supplementary information instead of a
disclosure in the notes to the financial statements.
A3. At the time, the Board believed that a period of experimentation would be desirable for
deferred maintenance information and that classifying it as RSI was appropriate during the
experimentation period. As a result, the standards for estimating deferred maintenance
were intentionally flexible. However, at a minimum, the Board expected to develop guidance
on determining acceptable condition and revise the standards based on experience gained
during the experimentation period.
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A4. Since completing deliberations on SFFAS 40, Definitional Changes Related to Deferred
Maintenance and Repairs: Amending Statement of Federal Financial Accounting Standards
6, Accounting for Property, Plant, and Equipment, the Board has continued seeking advice
and guidance from stakeholders interested in improving the management of, and reporting
on, federal PP&E and related DM&R.
A5. As demonstrated by SFFAS 40, the Board has spent considerable time and effort working
with key stakeholders and the community-at-large evaluating much of the experience
gained during the experimentation period. As a result, the Board has both reaffirmed and
refined its position regarding DM&R measurement and reporting.
A6. Two external reports served as the initial basis for the scope of the Task Force’s work.
12
The
first report (Deferred Maintenance Reporting for Federal Facilities, The National Academies,
(2001), ISBN 0-309-56339-9) was a critique of the deferred maintenance definition in
SFFAS 6, Accounting for Property, Plant, and Equipment. This report was prepared by the
Federal Facilities Council under the auspices of The National Academies. The report was
reviewed by the Task Force and provided a foundation for the proposed amendment(s)
contained in SFFAS 40. The second report (GAO Report No. GAO-09-10 dated October
2008) was a GAO study specific to federal real property repair and maintenance backlog
issues. In that study, the GAO discussed the need for comparability and realistic estimates
of deferred maintenance so that the government’s fiscal exposure could be revealed.
A7. The Task Force’s work was not constrained by either of these external reports. Task Force
members contributed entity specific information which also included input from internal and
external audit communities.
Summary of Outreach Efforts
A8. The Exposure Draft was issued June 27, 2011 with comments requested by September 16,
2011. Upon release of the exposure draft, notices and press releases went to The Federal
Register, FASAB News, the Journal of Accountancy, AGA Today, the CPA Journal,
Government Executive, the CFO Council, the Council of Inspectors General on Integrity and
Efficiency (CIGIE), the Financial Statement Audit Network; members of both the Federal
Real Property Council and the Federal Facilities Council and committees of professional
associations generally commenting on exposure drafts in the past.
12
During 2008 FASAB established a Task Force to address deferred maintenance and asset impairment issues. The
Task Force consists of government and non-government representatives from various disciplines such as: real
property/facilities management, personal property management, appraisal and valuation services, engineering,
architecture, accounting, internal auditing, external auditing, finance, and budgeting.
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Responses to the Exposure Draft
A9. Twenty-two responses were received. Table 1.0 summarizes responses by respondent
type.
Table 1.0
Summary of Respondents by Type to Exposure Draft
A10.The Board did not rely on the number in favor of or opposed to a given position. Information
about the respondents’ majority view is provided only as a means of summarizing the
comments. The Board considered the arguments in each response and weighed the merits
of the points raised. The following paragraphs discuss significant issues identified by
respondents followed by Board decisions.
Respondents’ Comments on the Exposure Draft
No Longer Requiring Condition Reporting - Refining the Goal of DM&R
A11.The majority of respondents agreed with the Board’s proposal to no longer require condition
reporting. Respondents who disagreed noted that (1) condition reporting for key
infrastructure which directly affects public safety provides a measure of the effectiveness of
the allocated budget to maintain those critical assets, (2) condition reporting has become
the “standard” to understand the overall condition of facilities, and (3) all federal agencies
are required to report condition information and DM&R by the Federal Real Property Council
Reporting Requirements.
RESPONDENT TYPE FEDERAL
(Internal)
NON-FEDERAL
(External)
TOTAL
Preparers and financial managers 11 0 11
Users, academics, others 5 3 8
Auditors 3 0 3
Total 19 3 22
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A12.The goal of DM&R is to provide reliable information on the estimated cost of the PP&E
maintenance and repairs that have been deferred. To that end, this Statement no longer
requires that condition information be reported. Although condition reporting is important
and is the basis of an entity’s DM&R estimate, the Board determined that it is not an
essential component of financial reports. The Board’s rationale for this decision is that
condition assessment methods and reporting continue to evolve and there are no federal-
wide uniform assessment or measurement methods that would increase comparability and
understandability. Therefore, summarized condition information may not provide meaningful
information to users. The Board believes the wide variation among entities in condition
assessment methods and reporting (i.e., different condition ratings/rankings) could obscure
user understanding of the government’s fiscal exposure (realistic DM&R estimate). The
Board believes that this is an area where entity administrative burden can be alleviated
given the questionable benefits of summarized condition information.
A13.This Statement eliminates the requirement
to report condition information. However,
entities may include condition information in a manner they believe best presents and
contextualizes DM&R and related performance matters.
Presenting Beginning and Ending DM&R Balances and Explanation of Significant
Changes
A14.The majority of respondents agreed with the Board’s proposal to require that entities
present beginning and ending DM&R balances and explain significant changes.
Respondents who disagreed noted that because many variables impact the change in
DM&R estimates a significant change could result in wide disparities among the component
entities.
A15.The Board believes that presenting DM&R balances and discussing significant changes
increases comparability while also enhancing entity-specific consistency. Some
respondents have noted that discussing significant changes is not only reasonable, but
required inasmuch as it is a part of determining the underlying causes to such changes. As
one respondent noted, discussing changes is essential for transparency and accountability.
A16.The Board believes that users need to know how much the M&R requirements increased
(decreased) in dollar terms and the effect of this change on the DM&R balances. Moreover,
it is important for users to (1) understand the events that occurred during the year and why
they brought about significant increases or decreases and (2) whether or not DM&R levels
have changed (e.g., the amount declined). To that end, federal entities are required to
present their DM&R beginning and ending balances. As illustrated in Appendix B, entities
should present these balances by category (i.e., general PP&E, heritage assets, and
stewardship land), and explain significant changes by major asset category. The
determination of whether an item is significant is a matter of professional judgment. This
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determination is separate and distinct from materiality considerations. Factors that might be
considered when determining whether an item is significant include the: (1) absolute dollar
amount of the change in DM&R estimates, (2) percent change in DM&R estimates, (3)
perceived importance of the reason for the change to financial statement users, and (4)
potential consequences arising from the change (e.g., effect on mission). The Board
believes that this will increase comparability and the relevance and reliability of the DM&R
estimates and will significantly enhance entity-specific consistency from year to year.
Applying Reported Methods and Reporting Formats Consistently using an
Interdisciplinary and Integrated approach
A17.The majority of respondents agreed with the Board’s proposal to require that entities apply
reported methods and reporting formats consistently unless management determines that
changes are necessary and if changes to methods or formats are necessary, such changes
should be explained. Furthermore, respondents agreed that input from professionals in
diverse disciplines is necessary to effectively compile and report DM&R.
A18.Because consistency in measurement and reporting significantly adds to the informational
value of DM&R estimates (i.e., trend information is useful to decision makers), management
must use consistent assessment techniques, measurement methods and reporting formats
from year-to-year. However, if management decides to change methods or formats, such
changes should be accompanied by an explanation documenting the rationale for the
change and any related impact to the DM&R estimate(s). This is consistent with Task Force
concerns that (1) entities be allowed to adopt new and improved methods or technologies
that might be brought about in the area of asset management and (2) greater rigor and
discipline is needed in the area of DM&R measurement and reporting.
A19.Staff research found that some agencies have interpreted SFFAS 6 requirements to apply
only to unfunded DM&R activities.
13
As a result, inaccurate reporting and increased lack of
consistency and comparability has resulted. The Board notes whether funded or not, DM&R
should be reported. For example, if funding exists but competing demands cause a
schedule slippage and result in a delay to a future period, such costs should be reported as
DM&R.
A20.Staff research also found that some entities have not reported DM&R because they have
not distinguished between needed capital improvements (e.g., activities which extend the
useful life of PP&E) and needed repairs (e.g., activities which allow PP&E to attain its
original useful life). SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles,
13
Department of Defense Inspector General Report dated September 25, 2009, Deferred Maintenance on the Air
Force C-130 Aircraft (Report No. D-2009-112.)
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Including the Application of Standards Issued by the Financial Accounting Standards Board,
states that “[g]enerally accepted accounting principles recognize the importance of reporting
transactions and events in accordance with their substance. Consideration should be given
to whether the substance of transactions or events differs materially from their form.”
14
For
DM&R amounts to be comparable, entities must consider the substance rather than the
form—that is, the terms applied by management—of future activities relating to PP&E.
A21.An interdisciplinary and integrated approach is necessary to address completeness and
consistency and meet the goal of DM&R reporting. This includes communicating among and
considering input from experts in diverse disciplines such as engineering, facilities
management, finance, budgeting, and accounting. Such input should be considered when
determining acceptable condition and related costs to remedy assets. Such an approach will
help to (1) ensure the increased value and efficacy of the reported information, (2) meet
diverse user needs, and (3) foster system integration and process improvements via
continual interaction among entity staff.
Narrative Information Describing M&R Policies and other Non-financial Information
A22.The majority of respondents agreed with the Board’s proposal to require that entities provide
narrative information describing M&R policies and other non-financial information including
any significant changes to policies and other factors from the prior year. Respondents who
disagreed noted that combining policy statements across a reporting entity with
heterogeneous assets and varying missions is difficult.
A23.The Board believes that users need to understand how entities carry-out their stewardship
responsibilities. Moreover, many entities maintain such information as part of their overall
management and stewardship responsibilities.
A24.Although flexibility is necessary in the areas of determining asset condition and defining
acceptable condition, the Board believes that additional disclosures are required in order to
increase consistency, comparability, and the reliability and relevance of DM&R estimates.
Consequently, the Board believes that:
a. disclosing M&R policies and how they are applied in practice assists users in
understanding how an entity manages its DM&R.
b. disclosing policies for ranking and prioritizing M&R activities assists users in
understanding how an entity efficiently and effectively manages its M&R resources. As
14
SFFAS 34, footnote 5.
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such, preparers may provide general context in their explanations concerning the
amount of the ending balance that the entity would need to incur in the near-term to
avoid adverse impact to the entity’s mission. Additionally, the Board believes that in
order to enhance the relevance and reliability of the entity’s estimated DM&R amount,
an entity should explain how it decides to allocate its (available) resources. For
example, entities frequently give top priority to maintenance and repair activities that
maintain employee or constituent health and safety or are required to satisfy regulatory
mandates. Once this is accomplished, entity rankings may be adjusted for asset
condition assessments, and management considerations that include: capital
improvement plans, asset disposal plans, and budgetary funding outlook.
c. identifying factors the entity considers in selecting acceptable condition standards
assists users in understanding the unique nature of the entity’s mission and operating
environment and how these affect asset management. Regardless of whether entities
report condition information, the underlying rationale an entity uses in making this
managerial judgment enhances the relevance and reliability of the entity’s estimated
DM&R. For example, an entity might set different acceptable condition standards for
identical assets because of geographical or environmental factors specific to each.
d. disclosing whether DM&R relates solely to capitalized general PP&E and non-
capitalized stewardship PP&E or also includes amounts relating to non-capitalized or
fully depreciated general PP&E assists users in understanding how an entity manages
its DM&R. Partially as a result of increased emphasis in the reporting of real property
information, it has come to the Board’s attention that some entities, in addition to
tracking DM&R on capitalized general and non-capitalized stewardship PP&E, also
track and report DM&R on expensed or fully depreciated general PP&E; i.e., all
accountable PP&E.
e. identifying PP&E for which management does not measure and/or report DM&R and
the rationale for the exclusion assists users in understanding how an entity efficiently
and effectively manages its M&R resources. Management should clearly disclose and
provide a rationale for this exclusion. For example, PP&E designated as excess and
subject to disposal or considered unserviceable may not have any associated DM&R.
Eliminating Dollar Ranges and Critical / Non-critical Designations
A25.The majority of respondents agreed with the Board’s proposal to eliminate dollar ranges and
critical / non-critical designations. However, a respondent noted that the intent of
distinguishing critical from non-critical DM&R was to provide insight into the timing of such
expenditures. As such, the respondent asked the Board to consider an alternative to
providing information concerning the ending balance that the entity would need to achieve in
the near term in order to avoid adverse impact to the entity’s mission.
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A26.The Board notes that requiring DM&R designations would be (1) overly prescriptive and
difficult for agencies to calculate, (2) inconsistent with Board actions to-date that
acknowledge the imprecise nature of DM&R estimates and (3) contrary to the goal of
focusing on a singular DM&R estimate. However, the Board does believe that this may be
beneficial information that preparers could consider providing.
A27.The stratification between critical and non-critical DM&R at SFFAS 6, paragraph 84 was
intended to be optional and not an unnecessary burden to entities. It has come to the
Board’s attention that the Federal Real Property Guidelines define “critical” at the asset level
(i.e., asset classification defines if M&R is critical or not) whereas the SFFAS 6 guidelines
have been interpreted to apply to the discrete M&R activity (i.e., the nature of the work
defines if M&R is critical or not). Furthermore, some entities are following Treasury
guidelines which define “critical” as a matter of consequence or exigency (i.e., impact of not
performing the M&R work/activity).
15
Consistent with the Task Force’s recommendation, it is
the Board’s opinion that having three separate definitions for “critical” has led to confusion,
increased lack of comparability, and estimates that are not necessarily reflective of what
entities expect to incur. The Board believes that the reporting of critical and non-critical
DM&R is not useful, can lead to inconsistency, and therefore should be not be addressed in
the Statement.
Other Matters
Active and Inactive PP&E
A28.Measuring DM&R related to active and inactive PP&E helps ensure that DM&R estimates
capture reliable information on the estimated cost of the PP&E maintenance and repairs
that have been deferred. For example, entities are often required by law or regulation to
obtain approval(s) prior to disposing real property deemed inactive or excess. If entities
continue to measure DM&R on PP&E pending disposition, DM&R estimates may be
overstated because M&R having a low probability of occurrence may be included. As a
result, DM&R that is not expected to be incurred due to an asset’s inactive status may be
separately identified in order to provide for a more realistic DM&R estimate, if deemed
material.
15
June 17, 2010, Appendix 4 of Chapter 4700 in Vol. 1 of the Treasury Financial Manual, Other Financial Report (FR)
Notes Data and Instructions. “Critical deferred maintenance is urgently needed, absolutely necessary, and is an
element that needs immediate attention. Furthermore, critical deferred maintenance is any deferred maintenance that
poses a serious threat to the public or employee safety or health, natural or cultural resources, and a bureau’s ability to
carry out its assigned mission.”
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Assessment Method Factors and Selection Criteria
A29.In measuring DM&R, entities are free to choose among assessment methods described in
this Statement. For example, an entity may elect to use a life-cycle method to assess its
PP&E as part of its overall project management strategy to enhance its ability to predict
future maintenance and repair requirements. Another entity may elect to use a parametric
method
16
due to the size and complexity of its portfolio and to realize efficiencies and cost
savings while another entity requiring asset-specific condition information may select the
condition assessment survey method. The Board realizes that entities need to consider
many factors when selecting assessment methods. Such factors could include:
a. nature, size and complexity of the PP&E portfolio,
b. mission requirements,
c. cost versus benefit,
d. changes in economic outlook,
e. project management strategy,
f. nature or type of asset to be inspected,
g. asset-specific condition assessment requirements,
h. environmental or weather conditions,
i. availability of commercial-off-the-shelf (COTS) software,
j. availability of government-off-the-shelf (GOTS) software,
k. software scalability and related vendor support,
l. regulatory requirements, and
m. health and safety considerations.
16
Similar to the life-cycle costing method, the parametric method is an accepted technique that entails performing
condition assessments at the system level rather than the component level.
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A30.In order to obtain greater consistency and comparability this Statement provides that once
selected, condition standards, related assessment methods and reporting formats should be
consistently applied unless management determines that changes are necessary. General
selection criteria management could use in evaluating different assessment methods
include the following:
CONDITION ASSESSMENT SURVEYS (i.e., visual, physical inspections)
PROS
• Generates DM&R estimates
• More timely identification of health and safety issues
• Usually identifies and prioritizes work items / specific repairs
• Modified surveys are affordable
• Knowledge-based surveys (e.g., risk management strategies) eliminate over - and
under-inspection
• Engineered-based surveys provide consistent and credible results
CONS
• Traditional surveys are expensive
• Does not always identify or prioritize work items / specific repairs
• Wasteful over-inspection, risky under-inspection
• Inspector bias could distort results
LIFE CYCLE COSTING METHODS (i.e., modeling)
PROS
• Generates DM&R estimates
• Affordable
• Efficient
• Focuses on buildings and systems
• Facilitates evaluation of large portfolios
CONS
• Determining the cumulative costs of deferring maintenance
• Does not identify or prioritize work items / specific repairs
• Not always appropriate for smaller portfolios
• Could require expensive updating of initial procurement information
• Credibility issues
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Board Approval
A31.This Statement was approved for issuance by all members of the Board. The written ballots
are available for public inspection at the FASAB's offices.
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Appendix B: Sample Illustration
Appendix B
Deferred Maintenance and Repairs Illustration
This appendix illustrates the requirements at paragraphs 14 and 15. The examples shown here
are for illustrative purposes only. Different entities may develop different asset classes and
descriptive terminology consistent with the set categories of general PP&E, heritage assets, and
stewardship land. The following narrative discussion and Illustration #1, General Purpose
Display meet the minimum requirements of this Standard. The various illustrations are not meant
to articulate with one another and should be viewed on a stand-alone basis.
XYZ Entity
Deferred Maintenance and Repairs for Fiscal Year 20x2
The XYZ entity operates over 1,300 facilities throughout the world, preserves nearly 300 national
historical landmarks of natural, cultural, educational, or artistic importance, and is responsible for
maintaining over 80,000 acres of stewardship land. Most of the facilities are predominantly used
for office space and warehousing defense assets. Additionally, the entity operates a hospital at
one of its remote sites. It is entity policy to ensure that medical equipment and critical equipment
systems are maintained and managed in a safe and effective manner. Therefore, deferred
maintenance and repairs do not arise for these two types of equipment and no periodic
assessment is performed. Additionally, since (1) it is entity policy to maintain and preserve all
fixed property, plant and equipment (PP&E) regardless of recorded values and (2) accounting
and asset management systems do not differentiate M&R between PP&E capitalized (i.e., items
whose cost exceeds the capitalization threshold) versus those expensed, DM&R estimates
reported herein relate to all PP&E whether capitalized or not or fully depreciated.
Defining and Implementing M&R Policies in Practice.
As permitted under SFFAS 42, Deferred Maintenance and Repairs, Amending Statements of
Federal Financial Accounting Standards 6, 14, 29 and 32, the entity employs a parametric
estimating method for the largest portion of its portfolio (real property such as office and
warehouse space) and the condition assessment method for its hospital facility, defense and
stewardship assets. With the exception of the hospital facility which is inspected on a yearly
basis, the entity’s real property portfolio is assessed on a 3 to 5 year rotating calendar. Both
methods measure current real property asset condition and document real property deterioration.
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Real property assessment methods produce both a cost estimate of deferred maintenance and
repairs, and a Facility Condition Index (FCI). Both measures are indicators of the overall
condition of the entity’s facilities. The parametric estimating methodology involves an
independent, rapid visual assessment of nine different systems within each facility to include:
structure, roof, exterior, interior finishes, HVAC (heating, ventilation, and air conditioning),
electrical, plumbing, conveyance, and program support equipment. The parametric estimating
method is designed to be cost-effective and appropriate for application to a large population of
facilities; results are not necessarily applicable for individual facilities or small populations of
facilities.
The entity’s hospital is inspected on a yearly basis employing a physical inspection method which
focuses on component as well as system distresses in addition to identifying deficiencies. The
entity’s defense assets are routinely surveyed by unit and depot maintenance personnel and
stewardship assets are routinely surveyed by on-site personnel and regional inspection teams.
As stated above, it is entity policy to ensure that medical equipment and critical facility equipment
systems are maintained and managed in a safe and effective manner. Therefore, deferred
maintenance and repairs assessment methods are generally not applied to equipment assigned
to hospitals as any DM&R would be negligible.
Ranking and Prioritizing M&R Activities.
Maintenance and repair activities are first prioritized via health, safety and regulatory
considerations at all facilities. Once this is accomplished, the FCI values are then ranked based
on the ratings obtained during the condition assessment site visits. Rankings are generally
adjusted to take into account current capital improvement efforts underway, future capital
improvement plans, asset disposal plans, and budgetary funding outlook.
Factors Considered in Setting Acceptable Condition.
For office and warehouse space, the entity defines acceptable condition in accordance with
standards comparable to those used in private industry. For example, industry standards for
administrative buildings can vary substantially depending upon their classification as either a
Class A, B, or C property. Such classifications are affected by building location, design, and age.
Condition standards for warehouses are primarily set by local jurisdictions and consider factors
such as accommodating loads, materials to be stored, the associated handling equipment, the
receiving and shipping operations, associated trucking, and the needs of the operating
personnel. Acceptable condition for the hospital facility is in accordance with federal statutory
requirements and requirements adopted by the health care facilities industry substantially
comparable to the requirements at 42 C.F.R. Part 483 entitled, Requirements for States and Long
Term Care Facilities.
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Military specifications and standards for defense assets vary greatly depending upon numerous
factors such as the nature and type of equipment and mission expectations. Acceptable condition
standards for defense assets are set at levels deemed to be mission capable or serviceable.
Heritage assets and stewardship land adopt scientific conservation standards to preserve assets
in a manner that fulfills the entity’s obligation to stabilize, protect, and preserve the assets.
Significant Changes from Prior Year and Related Events.
The overall net increase of $2.0 billion in DM&R is a result of the $3.0 billion increase in General
PP&E DM&R, offset by a $1.0 billion decrease in heritage assets DM&R.
Funded DM&R decreased by $1.0 billion as result of the entity’s strategic initiative to repair and
restore many of its historical landmarks. However, unfunded DM&R pertaining to inactive/excess
general PP&E increased by $3.0 billion as a result of (1) the transfer of properties from other
federal entities, (2) newly identified properties and equipment no longer needed by the entity, and
(3) continued degradation of properties awaiting final disposition. Management policy is to
comply with legal requirements to maintain inactive/excess property in safe condition and to
pursue cost-beneficial measures to preserve the value of properties. The entity in collaboration
with other entities and members of Congress is in the process of finalizing plans to either dispose
of or find alternate uses for the aforementioned properties. For such properties, DM&R include
those M&R activities management believes are warranted but not necessarily the M&R
appropriate for an equivalent active property.
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The following illustration presents information on major PP&E categories experiencing material
amounts of deferred maintenance and repairs and meets the basic illustration requirements of
this Standard:
The following Illustration # 2 presents information on major PP&E categories experiencing
material amounts of deferred maintenance and repairs with an emphasis on active versus
inactive/excess assets:
ILLUSTRATION 1 - GENERAL PURPOSE DISPLAY
Deferred Maintenance and Repair Costs
(Dollars in Millions)
20x2 20x2
Ending Balance Beginning Balance
Asset Category DM&R DM&R
General PP&E $33,500 $30,500
Heritage Assets 5,000 6,000
Stewardship Land 2,500 2,500
Total $41,000 $39,000
ILLUSTRATION 2 - EMPHASIS ON ACTIVE vs. INACTIVE and EXCESS
Deferred Maintenance and Repair Costs
(Dollars in Millions)
20x2 20x2
Ending Balance Beginning Balance
Asset Category DM&R DM&R
Active:
General PP&E $46,875 $45,000
Heritage Assets 0 1,500
Stewardship Land 1,500 1,500
subtotal -active 48,375 48,000
Inactive and Excess:
General PP&E 13,125 10,500
subtotal –general PP&E – inactive and excess 13,125 10,500
Total $61,500 $58,500
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The following Illustration # 3 presents information on major asset classes experiencing material
amounts of deferred maintenance and repairs with an emphasis on active versus inactive/excess
assets:
ILLUSTRATION 3 - EMPHASIS ON ACTIVE vs. INACTIVE and EXCESS BY ASSET CLASS
Deferred Maintenance and Repair Costs
(Dollars in Millions)
20x2 20x2
Ending Balance Beginning Balance
Asset Category / Class DM&R DM&R
Active:
General PP&E:
Structures $14,375 $14,000
Aircraft 53 5
Missiles 139 58
Ships 1,058 937
subtotal - general PP&E active 15,625 15,000
Stewardship Land 500 500
Heritage Assets 0 500
subtotal - all active 16,125 16,000
Inactive and Excess:
General PP&E
Buildings 2,500 2,500
Structures 1,875 1,000
subtotal - general PP&E - inactive and
excess
4,375 3,500
Total $20,500 $19,500
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The following Illustration # 4 presents information on major PP&E categories experiencing
material amounts of deferred maintenance and repairs with an emphasis on funded and
unfunded maintenance and repairs:
ILLUSTRATION 4 - EMPHASIS ON FUNDED and UNFUNDED M&R
Deferred Maintenance and Repair Costs
(Dollars in Millions)
20x2 20x2
Ending Balance Beginning Balance
Asset Category DM&R DM&R
Funded M&R:
General PP&E -active $26,500 $30,000
General PP&E - inactive and excess 19,500 16,000
Heritage Assets 0 2,000
Subtotal - funded 46,000 48,000
Unfunded M&R:
General PP&E -active 15,000 15,000
General PP&E - inactive and excess 6,000 0
Heritage Assets 10,000 10,000
Stewardship Land 5,000 5,000
Subtotal - unfunded 36,000 30,000
Total $82,000 $78,000
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Appendix C: Abbreviations
DM&R deferred maintenance and repairs
FASAB Federal Accounting Standards Advisory Board
FCI Facility Condition Index
FRPP Federal Real Property Profile (GSA Asset Management Database)
GAO Government Accountability Office
G-PP&E general property, plant and equipment
M&R maintenance and repair(s)
OMB Office of Management and Budget
PP&E property, plant, and equipment
RSI required supplementary information
SFFAS Statement of Federal Financial Accounting Standards
U.S. United States
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Deferred Maintenance and Asset Impairment (DM-AI) Task Force Members
U. S. Agencies
Department of Agriculture, U.S. Forest Service
Department of Commerce, National Oceanographic and Atmospheric Administration
Department of Defense, Office of the Secretary of Defense
Department of Defense, Acquisition, Technology, and Logistics
Department of Defense, Comptroller
Department of Energy, Office of Engineering and Construction Management
Department of Interior
Department of Labor, Office of the Inspector General
Department of State
Department of State, U.S. Agency for International Development
Department of State, International Boundary and Water Commission
Department of the Treasury, Financial Management Service
Department of Veterans Affairs
General Services Administration
General Services Administration, Public Buildings Service Central Office
National Aeronautics and Space Administration
Office of Management and Budget
Smithsonian Institution
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SFFAS 42
Task Force Member Firms
American Institutes for Research
Duller Studios
Federal Facilities Council, Committee on Sustainable Operations and Maintenance
Institute for Responsible Infrastructure Stewardship
KPMG LLP
Navigant Capital Advisors
