Federal Accounting Standards Advisory Board 

_____________________________________________________________________________ 

Eliminating the Category National Defense Property, 

Plant, and Equipment 

Rescinding SFFAS No. 11, Amendments to Property, Plant, and 

Equipment -- Definitional Changes 

Amending SFFAS No. 8, Supplementary Stewardship Reporting 

Amending SFFAS No. 6, Accounting for Property, 

Plant, and Equipment

Statement of Federal Financial Accounting Standards No. 23 

 

 

May 2003 
 THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD 

The Federal Accounting Standards Advisory Board (FASAB or "the Board") was established 

by the Secretary of the Treasury, the Director of the Office of Management and Budget 

(OMB), and the Comptroller General in October 1990. It is responsible for promulgating 

accounting standards for the United States Government. 

An accounting standard is typically formulated initially as a proposal after considering the 

financial and budgetary information needs of citizens (including the news media, state and 

local legislators, analysts from private firms, academe, and elsewhere), Congress, Federal 

executives, Federal program managers, and other users of Federal financial information. The 

proposed standard is published in an Exposure Draft for public comment. A public hearing is 

sometimes held to receive oral comments in addition to written comments. The Board 

considers comments and decides whether to adopt the proposed standard with or without 

modification. The Board publishes adopted standards in a Statement of Federal Financial 

Accounting Standards. 

Additional background information is available from the FASAB: 

 • "Memorandum of Understanding among the General Accounting Office, the 

Department of the Treasury, and the Office of Management and Budget, on Federal 

Government Accounting Standards and a Federal Accounting Standards Advisory 

Board," Amended January 11, 2002. 

 • "Mission Statement: Federal Accounting Standards Advisory Board" 

Federal Accounting Standards Advisory Board 

441 G Street, NW, Suite 6814 

Mailstop 6K17V 

Washington, DC 20548 

Telephone (202) 512-7350 

Fax (202) 512-7366 

www.fasab.gov
EXECUTIVE SUMMARY 

Federal Accounting Standards Advisory Board 

 Eliminating the Category National Defense PP&E 

May 2003 

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EXECUTIVE SUMMARY 

I. Prior to this amendment, the acquisition costs for items classified as national defense (ND) 

property, plant, and equipment (PP&E) were expensed in the period incurred. In addition, 

valuation (using either an historical or latest acquisition cost valuation method), condition, 

and deferred maintenance information for these items was to be presented off-balance 

sheet. 

II. The amendments in this Statement make the following changes. The term “ND PP&E” is 

rescinded. All items previously considered ND PP&E are classified as general PP&E. 

Accordingly, the cost of these items should be capitalized and, with the exception of the cost 

of land and land improvements that produce permanent benefits, depreciated. This 

Statement also notes that all entities are permitted to use the composite or group 

depreciation methodology to calculate depreciation. 

III. The amendments in this Statement take effect for accounting periods beginning after 

September 30, 2002. 
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TABLE OF CONTENTS 

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EXECUTIVE SUMMARY................................................................................................................... i

INTRODUCTION..............................................................................................................................1

Background.................................................................................................................................1

Summary of Amendments.........................................................................................................2

Effective Date .............................................................................................................................3 

ACCOUNTING STANDARDS ..........................................................................................................5

Amendments to Existing Standards .........................................................................................5

Implementation Guidance .........................................................................................................6

APPENDIX A: BASIS FOR CONCLUSIONS....................................................................................9 

Introduction...................................................................................................................................9

Background ..................................................................................................................................9

February 1998 ED.................................................................................................................... 12

September 2001 ED................................................................................................................. 13

March 2002 ED ........................................................................................................................ 14

Concerns with March 2002 ED ...................................................................................................17

Valuation and Consumption ..................................................................................................... 17

Contractor Costs ...................................................................................................................... 19

Effective Date........................................................................................................................... 20

Board Approval...........................................................................................................................20
Federal Accounting Standards Advisory Board 

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INTRODUCTION 

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INTRODUCTION 

1. The purpose of this Statement is to amend certain standards with regard to 

national defense (ND) property, plant, and equipment (PP&E). The standards 

being amended are contained in Statement of Federal Financial Accounting 

Standards (SFFAS) No. 11, Amendments to Accounting for Property, Plant, and 

Equipment -- Definitional Changes (December 1998); SFFAS No. 8, 

Supplementary Stewardship Reporting (June 1996); and, SFFAS No. 6, 

Accounting for Property, Plant, and Equipment (November 1995). 

Background 

2. Pursuant to SFFAS No. 6, costs to acquire, replace or improve ND PP&E1 were 

recognized2

 as an expense in the period incurred. Consistent with the 

treatment of the acquisition cost of ND PP&E, SFFAS No. 6 also required that 

the total estimated cleanup cost be recognized as an expense and a liability 

established in the period the ND PP&E item is placed in service. A further 

requirement of SFFAS No. 6, as amended by SFFAS No. 14, is that deferred 

maintenance amounts be presented as Required Supplementary Information 

(RSI).3

3. The Supplementary Stewardship Reporting standards in SFFAS No. 8 required 

presenting a valuation of ND PP&E. The following values were to be 

presented: 

a. a beginning value balance for ND PP&E; 

1

 Originally, ND PP&E was defined in SFFAS No. 6 as Federal mission PP&E. Subsequent to the issuance of 

SFFAS No. 6, many agencies suggested that the Federal mission PP&E category would be appropriate for 

agency PP&E not considered by the Board in developing the category. To prevent confusion, inconsistency, 

and unintended application, the Board replaced the definition of Federal mission PP&E with the definition of 

ND PP&E currently contained in SFFAS No. 11 to clarify that only DoD and the Maritime Administration’s 

National Defense Reserve Fleet PP&E would be categorized as ND PP&E. 

2

 “Recognize” means to record an amount in entity accounts and to report a dollar amount on the face of the 

Statement of Net Costs or the Balance Sheet either individually or so that the amounts are aggregated with 

related amounts. 

3

 This amendment does not change any requirements for deferred maintenance. 
INTRODUCTION 

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b. the dollar values for ND PP&E acquired during the reporting period; 

c. the dollar values for ND PP&E withdrawn during the reporting period; 

d. the increase or decrease in values resulting from revaluation of assets using 

the latest acquisition cost (LAC); and, 

e. the end-of-year values by major type or category of ND PP&E. 

The values were to have been determined using either an historical or LAC 

valuation method. 

4. In addition to the values, condition information was required. The valuation and 

condition information was presented as Required Supplementary Stewardship 

Information (RSSI) – that is, outside of the principal financial statements. 

5. Current Board members acknowledge that the stewardship approach was 

adopted, not as a convenience or temporizing expedient, but as a technically 

desirable approach. However, an increasing government-wide focus on the 

cost of operations and operating performance in relation to the implications of 

the Government Performance and Results (GPRA) Act, combined with the 

Board’s and Department of Defense’s (DoD) extensive study and greater 

understanding about National Defense PP&E, provide a clear indication that the 

operating performance objective is relevant for ND PP&E. Accordingly, the 

Board rescinds SFFAS No. 11 and amends SFFAS Nos. 6 and 8. 

Summary of Amendments 

6. The amendments in this Statement: 

a. Rescind the term “ND PP&E” and its definition ; 

b. Classify all assets previously considered to be ND PP&E as general PP&E 

and, the provisions for general PP&E and associated cleanup costs for 

general PP&E contained in SFFAS No. 6, as amended, are to be applied; 

and,
INTRODUCTION 

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c. Continue to permit the composite or group depreciation methodology to 

depreciate general PP&E. 

Effective Date

7. This Statement is effective for accounting periods beginning after September 

30, 2002, with earlier implementation encouraged. 
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ACCOUNTING STANDARDS 

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ACCOUNTING STANDARDS 

Amendments to Existing Standards 

8. The amendments to accounting standards for assets previously identified as 

national defense (ND) property, plant, and equipment (PP&E) and 

implementation guidance are presented in paragraphs 9 through 18 that follow. 

9. The amendments affect existing standards, for periods beginning after 

September 30, 2002 or upon early implementation of this Statement, in the 

following manner: 

a. SFFAS No. 11 is rescinded in its entirety; 

b. The prefatory box preceding paragraph 52 of SFFAS No. 8 is rescinded; 

c. Paragraphs 52 through 70 of SFFAS No. 8 are rescinded; 

d. Paragraph 21 of SFFAS No. 6 is amended by rescinding the category name 

"Federal mission property, plant, and equipment;" 

e. Paragraphs 46 through 56 of SFFAS No. 6 and the accompanying heading 

"Federal mission property, plant, and equipment;" which precedes these 

paragraphs, are rescinded; 

f. SFFAS No. 6 is amended by adding the following sentence to paragraph 35 

as a separate bulleted line item: 

• A composite or group depreciation methodology4

, whereby the costs of 

PP&E are allocated using the same allocation rate, is permissible. 

4 The composite methodology is a method of calculating depreciation that applies a single average rate to a 

number of heterogeneous assets that have dissimilar characteristics and service lives. The group 

methodology is a method of calculating depreciation that applies a single, average rate to a number of 

homogeneous assets having similar characteristics and service lives. 
ACCOUNTING STANDARDS 

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Implementation Guidance 

Initial Capitalization 

10. The initial capitalization amount for assets previously considered ND PP&E 

should be based on historical cost in accordance with the asset recognition 

provisions of SFFAS No. 6, as amended, and should be the initial historical 

cost for the items, including any major improvements or modifications. 

11. This standard recognizes that determining initial historical cost may not be 

practical for items acquired many years prior to the effective date of this 

standard in an environment in which the historical records were not required to 

be retained and may therefore be inadequate. 

12. If obtaining initial historical cost is not practical, estimated historical cost may 

be used. Other information such as but not limited to budget, appropriation, or 

engineering documents and other reports reflecting amounts expended may be 

used as the basis for estimating historical cost. 

13. Alternatively, estimates of historical cost may be derived by estimating the 

current replacement costs of similar items and deflating those costs, through 

the use of price-level indexes, to the acquisition year or estimated acquisition 

year if the actual year is unknown. Other reasonable approaches for estimating 

historical cost may also be utilized. For example, latest acquisition cost may 

be substituted for current replacement cost in some situations. 

14. A contra asset account--accumulated depreciation--for the assets should be 

calculated under the provisions provided in paragraphs 41, 42, and 43 of 

SFFAS No. 6, as amended. 

15. For military equipment that is in service upon implementation of this standard, 

cleanup cost liabilities should be adjusted, as needed.5

5

 Under the provisions of SFFAS No. 6, paragraph 97, a portion of the estimated total cleanup costs shall be 

recognized as expense during each period that general PP&E is in operation and a liability accumulated over 

time as expense is recognized. This adjustment may be needed because the DoD may have already 

recognized the total estimated cleanup costs as a liability and expense for some military equipment per 

paragraph 101 of SFFAS No. 6, as amended. 
ACCOUNTING STANDARDS 

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Adjustment to Cumulative Results of Operations 

16. The cumulative effect of adopting this accounting standard should be reported 

as a “change in accounting principle.” The adjustment should be made to the 

beginning balance of cumulative results of operations in the statement of 

changes in net position, for the period the change is made. 

17. Prior year financial statements presented for comparative purposes should be 

presented as previously reported. 

18. The nature of the changes in accounting principle and its effect on relevant 

balances should be disclosed in the current period. Financial statements of 

subsequent periods need not repeat the disclosures.6

The provisions of this statement need 

not be applied to immaterial items 

6

 SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles, paragraphs 12 and 13. 
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APPENDIX A: BASIS FOR CONCLUSIONS 

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APPENDIX A: BASIS FOR CONCLUSIONS 

19. This appendix summarizes some of the considerations deemed significant by 

the Board 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. 

Introduction

20. The Board issued an exposure draft (ED), Eliminating the Category National 

Defense Property, Plant, and Equipment, to rescind SFFAS No. 11, 

Amendments to Property, Plant, and Equipment -- Definitional Changes and to 

amend SFFAS No. 8, Supplementary Stewardship Reporting and SFFAS No. 

6, Accounting for Property, Plant, and Equipment in March of 2002. Twenty 

comment letters were received during a comment period that ended May 20, 

2002. The majority of respondents supported the proposals presented in the 

ED. Concerns raised by the respondents dealt mostly with providing additional 

guidance for the valuation and consumption of items. Two other concerns 

dealt with the impact of the Statement on contractor costs and the effective 

date of the Statement. Background information pertaining to the development 

of this Statement and discussions on the concerns raised by respondents are 

addressed in the following paragraphs. 

Background

21. The Federal Accounting Standards Advisory Board (FASAB) has studied 

accounting and reporting approaches for Property, Plant, and Equipment 

(PP&E) for a number of years. FASAB’s initial standards for PP&E began with 

the development of SFFAS No. 6, Accounting for Property, Plant, and 

Equipment, and followed with SFFAS No. 8, Supplementary Stewardship 

Reporting.

22. SFFAS No. 6 requires that general PP&E be recognized as assets in the basic 

financial statements and, except for land and land improvements that produce 
APPENDIX A: BASIS FOR CONCLUSIONS 

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permanent benefits, be charged to expense through depreciation over their 

useful life. SFFAS No. 6, paragraph 122, states that "allocation of the cost of 

general PP&E, excluding land, among accounting periods was essential to 

assessing operating performance." The Board's federal financial reporting 

objectives concept statement, Statement of Federal Financial Accounting 

Concepts (SFFAC) No.1, focuses on relating costs to accomplishments in 

reporting an entity's operating performance. To meet the operating 

performance objective for general PP&E, the Board sought to provide 

accounting standards that would result in: 

a. relevant and reliable cost information for decision-making by internal users; 

b. comprehensive, comparable cost information for decision-making and 

program evaluation by the public; and, 

c. information to help assess the efficiency and effectiveness of asset 

management. 

23. The Board, however, found that for some PP&E, the depreciation effect of the 

asset on operating performance was not the predominant reporting objective. 

Instead, stewardship was important. Therefore, three categories of assets 

(i.e., national defense PP&E (ND PP&E),7

 heritage assets, and stewardship 

land) are referred to collectively as stewardship PP&E. 

24. The purpose of SFFAS No. 8 was to establish standards for reporting on the 

Federal Government's stewardship over certain resources entrusted to it, and 

certain responsibilities assumed by it. Among these standards are standards 

for reporting on stewardship PP&E. "Stewardship PP&E" consists of items 

whose physical properties resemble those of general PP&E traditionally 

capitalized in financial statements. However, the nature of these Federal 

physical assets that are classified as stewardship PP&E differs from general 

PP&E in that their values may be indeterminable or may have little meaning 

7

 Prior to the issuance of SFFAS No. 11, Amendments to Accounting for Property, Plant, and Equipment – 

Definitional Changes, (amending SFFAS Nos. 6 and 8) the Board referred to ND PP&E as Federal Mission 

PP&E. The reasons leading to that change are not relevant to this ED but may be understood by reading 

SFFAS No. 11. This document uses the amended title and definition in referring to the existing provisions. 
APPENDIX A: BASIS FOR CONCLUSIONS 

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(e.g., museum collections, monuments, assets acquired in the formation of the 

nation) or that allocating the cost of such assets (e.g., ND PP&E) to accounting 

periods that benefit from the ownership of such assets is not meaningful. 

Specifically, for ND PP&E the majority of the Board did not believe applying 

depreciation accounting for these assets would contribute to measuring the 

cost of outputs produced, or to assessing operating performance, in any given 

accounting period. The Board believed that these assets were developed, 

used, and retired in a manner that did not lend itself to a "systematic and 

rational" assignment of costs to accounting periods (i.e., depreciation 

accounting) and, ultimately, to outputs. 

25. Accordingly, one result of SFFAS Nos. 6 and 8 was to remove the PP&E 

components of ND PP&E from the balance sheet. To accomplish this, SFFAS 

No. 6 (as amended) required that the cost to acquire ND PP&E components be 

expensed when incurred. SFFAS No. 8 (as amended), required presenting ND 

PP&E as stewardship information and included the following information by 

major type or category of ND PP&E: 

a. a beginning value balance, using either a historical or latest acquisition cost 

(LAC) valuation method; 

b. the dollar value acquired during the reporting period; 

c. the dollar value withdrawn during the reporting period; 

d. the increase or decrease in value resulting from revaluation of assets using 

the LAC; and, 

e. the end-of-year value. 

26. In addition to presenting values, SFFAS No. 8 required that condition 

information be presented. The presentation of value and condition information 

was done off-balance sheet as Required Supplementary Stewardship 

Information (RSSI). In addition to value and condition, SFFAS No. 6, as 

amended, required deferred maintenance information to be presented as 

Required Supplemental Information (RSI) for ND PP&E. 
APPENDIX A: BASIS FOR CONCLUSIONS 

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February 1998 ED

27. In early 1998, the FASAB issued an exposure draft (ED) to amend SFFAS 

Nos. 6 and 8. The exposure draft was initiated (1) to refine the definition of 

ND PP&E, and (2) in recognition of the need to provide a transition plan due to 

the DoD’s inability to comply with the provisions of SFFAS No. 8. During the 

process, the Board reconsidered whether SFFAS No. 8 was an appropriate 

end goal. Ultimately, the 1998 exposure draft included, among other 

suggestions, proposals to replace the requirement to present cumulative cost 

information in the supplementary stewardship report with a requirement to 

present ND PP&E annual acquisition costs for each of the previous five years 

(i.e., annual trend information rather than cumulative costs), quantities, and 

condition information. 

28. Besides considering the written comments in response to this 1998 ED, the 

Board held a public hearing on these proposals to explore further the concerns 

expressed by some respondents. Because of the divergent views of both 

respondents and Board members, the Board did not reach a final conclusion 

on revisions to the reporting requirements for ND PP&E in SFFAS No. 8. The 

Board’s continued deliberations on the proposed standards highlighted the 

differences of opinion on this subject among the Board members. Since 

neither the standards in SFFAS No.8 nor the proposed amendments were 

acceptable to a majority of the Board members, the Board decided that the 

accounting for and reporting on ND PP&E requirements should be revisited. 

DoD voluntarily undertook a study to address (1) users information needs 

relative to ND PP&E, (2) the current systems capabilities within DoD, and (3) 

an assessment of alternative means to meet the reporting objectives set by the 

Board. 

29. The Board acknowledges that the SFFAS No. 8 stewardship approach was 

adopted, not as a convenience or temporizing expedient, but as a technically 

desirable approach. However, an increasing government-wide focus on the 

cost of operations and operating performance in relation to the implications of 
APPENDIX A: BASIS FOR CONCLUSIONS 

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the Government Performance and Results (GPRA) Act, combined with the 

Board’s and DoD’s extensive study and greater understanding about National 

Defense PP&E, provides a clear indication that the operating performance 

objective is relevant for ND PP&E. 

September 2001 ED

30. In September 2001, the FASAB issued an ED that proposed incremental 

movement from the stewardship reporting of SFFAS No.8 towards information 

focused on operating performance. The amendments proposed in that ED 

would have made the following changes. The definition of ND PP&E would 

have been amended. ND PP&E would have consisted of 2 separate 

categories of items within the amended definition: (a) Major End Items and (b) 

Mission Support Items. Major End Items would have been subject to a 

presentation of the number of units and condition assessment information by 

asset type or category. In addition, Major End Items would have been 

capitalized but not depreciated, while Mission Support Items would have been 

capitalized and depreciated. Also, data for the ten largest current acquisition 

programs would have been disclosed. 

31. The Board issued the 2001 ED because it believed that the proposals in that 

ED were the best that could be achieved given the acknowledged 

shortcomings of DoD accounting and other management information systems, 

as well as DoD's firm belief that certain information would not be useful for 

management purposes. The 2001 ED would have achieved one of the current 

Board's objectives, which was to establish monetary accountability over 

military assets. However, because the 2001 ED did not require depreciation of 

some major assets, the September 2001 FASAB ED on NDPP&E fell short of 

comprehensive PP&E accounting. In addition, it would not have fully achieved 

the objective of SFFAS No. 4, Managerial Cost Accounting Concepts and 

Standards for the Federal Government, to account for the full cost of programs 
APPENDIX A: BASIS FOR CONCLUSIONS 

Federal Accounting Standards Advisory Board 

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with a focus on relating costs to accomplishments in reporting an entity's 

operating performance. 

March 2002 ED 

32. While there were divergent views on the proposals in the September 2001 ED, 

many respondents believed ND PP&E should be capitalized and depreciated 

as is general PP&E. Many Board members had wanted to make this change 

for some time. This caused the Board to reconsider the proposals presented 

in the September 2001 ED. The outcome from the deliberations was a 

consensus of the Board to make the proposal in the March 2002 ED to 

classify, capitalize, and depreciate ND PP&E as general PP&E. The Board 

believed its proposal would put discipline into the asset management process. 

Many members of the Board believe depreciation, impairment, deferred 

maintenance, and condition are interrelated judgments that should result jointly 

from periodic estimation of the remaining useful service potential of assets. 

The Board believes periodic analysis of the sources of asset diminution is as 

important, perhaps more so, for national defense assets than for other assets. 

33. The Board also notes that a second purpose of depreciation accounting is to 

provide information for measuring the full cost of producing outputs (e.g., 

deterrence, readiness, training). Full cost, including the depreciation of ND 

PP&E, would be available for use in assessing the operating performance of 

responsibility segments for producing outputs and to meet the goals of SFFAC 

No. 1 and SFFAS No. 4. In addition, the Board believes that classifying all 

DoD PP&E as general PP&E would improve the public’s understanding of 

federal accounting, add consistency to the application of standards throughout 

the Federal government, reduce the DoD’s cost of development and operation 

of accounting systems, and preclude the standard setting costs that would be 

necessary to resolve on-off balance sheet questions. Accordingly, the Board 

proposed to rescind SFFAS No.11 and amend SFFAS Nos. 6 and 8. 
APPENDIX A: BASIS FOR CONCLUSIONS 

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34. Although the September 2001 ED on ND PP&E proposed three special 

disclosures for ND PP&E, the Board decided not to include them in the March 

2002 ED. The three special disclosures proposed in the September 2001 ED 

were: 

a. unit information by type or category of Major End Item8

; 

b. condition assessment information for Major End Items; and, 

c. actual and planned acquisition program costs and unit information for the 

ten largest current national defense PP&E9

 acquisition programs. 

35. These proposed information requirements were developed and proposed after 

years of deliberation and with varying recognition and measurement 

requirements for the principal financial statements. The Board decided not to 

propose these three special information requirements as part of the March 

2002 ED after reviewing responses to the September 2001 ED. The Board 

concluded that these areas may deserve further study or development for the 

following reasons: 

a. Unit information as originally proposed was tied to the Major End Item 

definition. Respondents questioned the definition’s effectiveness. 

b. Unit and condition information has been determined to be “sensitive” 

information10. 

8

 The Accounting for National Defense PP&E and Associated Cleanup Costs ED, dated September 2001, 

defined Major End Items to be: 1) items that launch, release, carry, or fire a particular piece of ordnance, and 

2) items that carry weapons systems-related property, equipment, materials, or personnel. Major End Items 

(a) have an indeterminate or unpredictable useful life due to the manner in which they are used, improved, 

modified, or maintained and (b) are subject to premature destruction or obsolescence (e.g., aircraft, ships, 

combat vehicles, etc.) Also, included in this category are vessels held in a preservation status by the Maritime 

Administration's National Defense Reserve Fleet. 

9 SFFAS No. 11 defined ND PP&E as being "PP&E [that] are (1) the PP&E components of weapons systems 

and support PP&E owned by the Department of Defense or its component entities for use in the performance 

of military missions and (2) vessels held in a preservation status by the Maritime Administration's National 

Defense Reserve Fleet."
APPENDIX A: BASIS FOR CONCLUSIONS 

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c. Many respondents suggested that further research in the area of condition 

and deferred maintenance presentation is needed to develop consistent 

and comparable measurement and reporting criteria. However, 

respondents found condition information to be a useful supplement to 

deferred maintenance. 

d. One respondent suggested that the proposed reporting on the ten largest 

acquisition programs would confuse users since the cost of assets 

recognized on the balance sheet would be different from budget cost 

measurements. 

36. Given the resources that have been devoted to resolving the fundamental 

recognition and measurement guidance for ND PP&E and the substantial 

efforts underway at DoD to modernize its systems, the Board does not believe 

it would be useful to withhold this Statement while it deliberates on the merits 

of any further PP&E information. 

37. In the meantime, the Board does not believe the absence of the previously 

proposed special information requirements would outweigh the benefits to be 

gained through this Statement. With regard to the stewardship objective and 

the need for unit information, the Board notes that the stewardship objective is 

being met for general PP&E without this special disclosure. Through the 

course of the audit, existence of PP&E and the completeness of PP&E records 

are verified. This satisfies the basic stewardship function that the double entry 

system offers. 

38. With regard to condition information, the Board notes that deferred 

maintenance information is currently required. Further, the assessment of 

useful life needed to assure depreciation is reasonable would result in greater 

discipline in information associated with the condition of PP&E. 

10 Any information, the loss, misuse, or unauthorized access to which would or could adversely affect the 

organizational and/or national interest but which does not meet classification criteria specified in DoD 5200.1-

R (reference ( c )). Source: DoD 5200.1-M; Acquisition Systems Protection Program; 16 March 1994. 
APPENDIX A: BASIS FOR CONCLUSIONS 

Federal Accounting Standards Advisory Board 

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39. The Board expects to revisit these areas as it considers a project on 

integrating depreciation, impairment, and deferred maintenance reporting and 

other fixed asset accounting issues at a future date. The effort would be a 

government-wide undertaking. 

Concerns with March 2002 ED 

Valuation and Consumption 

40. Various respondents suggested that additional guidance be included in this 

Statement for the valuation and consumption or use of items previously 

classified as national defense (ND) property, plant, and equipment. Examples 

of the types of additional guidance suggested include the following: 

a. The cost elements of research, testing, development, and evaluation 

(RTD&E) should be described and specific guidance provided on 

capitalization. 

b. Definitions for terms such as modifications, modernizations, and 

improvements are needed. 

c. More discussion of the desired accounting for the losses of items 

considered part of a group asset account of ND PP&E during testing, 

development, or evaluation phases is needed. 

d. More guidance for determining the capitalized costs to be removed from a 

group asset account when a unit is destroyed, becomes obsolete, or is 

otherwise disposed of is needed. 

e. The role of subordinate systems needs to be addressed, along with a 

description of how the costs of the subordinate systems would be relieved 

of costs assigned to the higher level system. 

f. A discussion of appropriate treatment for the costs of a discontinued 

subordinate system is needed. 
APPENDIX A: BASIS FOR CONCLUSIONS 

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g. The use of depreciation to reflect the full cost of operating ND PP&E items 

has to be tailored to the unique attributes and uses of ND PP&E. 

h. The useful lives of certain classes of ND PP&E should be defined and 

measured in units such as operating hours. 

i. Additional guidance and criteria is needed regarding the use of composite 

and group depreciation methodologies. 

j. Specific reference to abnormal disposition issues should be added to the 

standard. 

41. In response to these issues, the Board members reiterated that the Board is 

responsible for promulgating accounting standards and that it is the 

responsibility of individual entities to set policy and provide operating guidance 

on how to implement the standards. The Board believes these issues can and 

should be addressed by individual entities in the context of existing basic 

principles and practices. Composite and group depreciation methodologies 

are already considered acceptable methods under generally accepted 

accounting principles. The existing principles and practices are used by many 

different industries, including the airline, electrical cooperative, railroad, real 

estate, and cruise line industries. 

42. The Board also expects that many of these concerns raised by respondents 

will be addressed by DoD as the standards are implemented. One example 

may be on the cost elements of research, testing, development, and evaluation 

(RTD&E) to be capitalized. Determining whether to include a particular cost in 

the capitalized cost of PP&E should be guided by general guidance in SFFAS 

Nos. 4 and 6 regarding the types of costs to capitalized. In the event, 

however, that DoD is unable to resolve issues , the Board and its staff will be 

available to consider implementation guidance. 
APPENDIX A: BASIS FOR CONCLUSIONS 

Federal Accounting Standards Advisory Board 

 Eliminating the Category National Defense PP&E 

May 2003 

19

Contractor Costs

43. Two respondents raised concerns regarding application of existing general 

PP&E accounting standards to PP&E formerly classified as National Defense 

PP&E but held by contractors. Since the current PP&E definition explicitly 

includes PP&E in the hands of others (paragraph 18), SFFAS Nos. 6 and 8 (as 

amended) created reporting requirements for general PP&E and National 

Defense PP&E. Both existing standards require cost information. 

44. One respondent, apparently unaware of the aforementioned provisions of 

SFFAS Nos. 6 and 8, encouraged the Board to develop standards that address 

this property. The respondent asserted, “accounting control over this property 

is deplorable.” Information provided by the respondent shows that as early as 

1981 issues were raised regarding the need to improve accountability for 

assets including PP&E provided by the Government at no cost to the 

contractor for use in contract performance. 

45. Another respondent, an industry group including major defense contractors, 

suggests that the elimination of the National Defense PP&E category “will 

impose costly accounting change requirements on government contractors that 

will increase the costs of goods and services acquired by the government.” 

The respondent raised concerns about (1) application of standards to 

immaterial items, (2) provisions for accounting for software modifications, (3) 

requirements for work-in-process reporting, and (4) designation of specific cost 

elements for capitalization (SFFAS No. 6, para 26). Some aspects of these 

and other issues raised by the respondent appear to the Board to be based on 

misinterpretations of the existing standards. Therefore, the Board does not 

believe there are insurmountable issues raised. 

46. Rather, the Board believes that significant efforts are needed to clarify the 

standards for contractors and to determine specific reasonable policies for 

providing information. It is clear that, despite the existence of standards for 
APPENDIX A: BASIS FOR CONCLUSIONS 

Federal Accounting Standards Advisory Board 

 Eliminating the Category National Defense PP&E 

May 2003 

20 

contractor held assets since late 1995, little progress has been made in 

resolving the issue. The Board does not believe that deferral of standards 

related to vast amounts of PP&E will facilitate resolution of the contractual and 

administrative details needed to reasonably comply with generally accepted 

accounting principles. 

Effective Date

47. One respondent commented that the effective date, for periods beginning after 

September 30, 2002, is unrealistic. The Board acknowledges that full 

implementation of the standards will require time and commitment. The Board 

understands that DoD is currently developing systems needed to fully 

implement any PP&E standards, comprehensive training needs to be provided, 

policies and procedures need to be revised and contractors may need to 

modify how they do things. However, the Board believes DoD financial 

statements will be incomplete without consistent and comparable accounting 

for PP&E. In addition, a practical issue arises. DoD has not yet identified 

property as National Defense PP&E. Therefore, it would be problematic to 

determine which components of general PP&E were not yet subject to the 

provisions of SFFAS No. 6, which became effective for fiscal year 1998. 

Board Approval 

48. The Board approved this recommendation by a vote of 6 members approving 

its issuance and 1 member opposing its issuance. Although the Board is 

comprised of 9 members, only 7 members cast a vote. This is because the 

term of two Board members had expired and the appointment of successors 

had not been finalized. The dissent of the Board member who opposed the 

issuance of this Statement is presented in paragraphs 49 through 51. 

49. Mr. Calder dissents from this standard because (1) more guidance on asset 

capitalization and use of composite or group depreciation methods is needed 

and (2) additional disclosures are important to meeting reporting objectives for 

National Defense PP&E. 
APPENDIX A: BASIS FOR CONCLUSIONS 

Federal Accounting Standards Advisory Board 

 Eliminating the Category National Defense PP&E 

May 2003 

21

50. Mr. Calder believes that deliberations uncovered serious issues regarding 

identification of costs to be capitalized and application of composite or group 

depreciation methods to complex weapons systems. Comments showed there 

is diversity of understanding among financial statement users, preparers and 

auditors on these issues. He believes additional guidance should have been 

provided regarding the components of asset cost that should be capitalized; 

especially the accounting treatment for research, development, testing and 

evaluation. He does not believe the guidance in this regard in Statement Nos. 

4 and 6 is adequate to resolve complex and diverse situations unique to 

defense assets. He also believes the new statement lacks guidance regarding 

the appropriate use of composite or group depreciation and could result in 

unacceptable diversity in its application. 

51. In addition, Mr. Calder believes that the statement should have required 

disclosure of unit information for significant categories of assets and 

budget/actual data on major acquisitions programs in progress. Unit 

information has been deliberated at length by the Board over a number of 

years because some members and commentators believed the unit information 

is critical to an understanding of whether DoD has assets sufficient to carry out 

its mission. Information on budget/actual data on major acquisitions programs 

is considered by many to be vital to assessing performance in acquiring assets 

through complex and lengthy acquisition programs. In addition, tracking 

progress against plans would aid in determining the financial status of the 

programs. These two additional disclosures would enhance users’ 

understanding of the nation’s financial condition and future security.
Federal Accounting Standards Advisory Board 

 Eliminating the Category National Defense PP&E 

May 2003 

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FASAB Board Members

David Mosso, Chairman 

Philip T. Calder 

John A. Farrell 

Joseph L. Kull 

James M. Patton 

Robert N. Reid 

Kenneth J. Winter 

FASAB Staff

Wendy M. Comes, Executive Director 

Project Staff: 

Rick Wascak 

Federal Accounting Standards Advisory Board

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