NOTES TO THE FINANCIAL STATEMENTS 70 

United States Government 

Notes to the Financial Statements 

for the Fiscal Years Ended September 30, 

2023, and 2022 

Note 1. Summary of Significant Accounting Policies 

A. Reporting Entity 

The government includes the executive branch, the legislative branch, and the judicial branch. This Financial Report

includes the financial status and activities related to the operations of the government. SFFAS No. 47, Reporting Entity 

provides criteria for identifying organizations that are included in the Financial Report as consolidation entities or disclosure 

entities. The determination as to whether an organization is a consolidation entity or disclosure entity is based on the 

assessment of the following characteristics as a whole, the organization: a) is financed through taxes and other non-exchange 

revenues; b) is governed by the Congress or the President; c) imposes or may impose risks and rewards to the government; 

and d) provides goods and services on a non-market basis. 

Consolidation entities are organizations that are consolidated in the financial statements. For disclosure entities, data is 

not consolidated in the financial statements, instead information is disclosed in the notes to the financial statements 

concerning: a) the nature of the government’s relationship with the disclosure entities; b) the nature and magnitude of 

relevant activity with the disclosure entities during the period and balances at the end of the period; and c) a description of

financial and non-financial risks, potential benefits and, if possible, the amount of the government’s exposure to gains and 

losses from the past or future operations of the disclosure entity or entities. 

SFFAS No. 47 also provides guidance for identifying related parties and in determining what information to provide 

about related party relationships of such significance that it would be misleading to exclude such information. 

Based on the criteria in GAAP for federal entities, the assets, liabilities, and results of operations of Fannie Mae and 

Freddie Mac are not consolidated into the government's consolidated financial statements. However, the values of the 

investments in such entities, changes in value, and related activity with these entities are included in the government's 

consolidated financial statements. Although federal investments in Fannie Mae and Freddie Mac are significant, these entities 

do not meet the GAAP criteria for consolidation entities. 

Under SFFAS No. 47 criteria, Fannie Mae and Freddie Mac were owned or controlled by the government as a result of: 

a) regulatory actions (such as organizations in receivership or conservatorship); or b) other government intervention actions. 

Under the regulatory or other intervention actions, the relationship with the government is not expected to be permanent. 

These entities are classified as disclosure entities based on their characteristics as a whole (see Note 27—Disclosure Entities

and Related Parties for additional information on these disclosure entities). 

Also, under GAAP criteria, the FR System and SPVs are not consolidated into the government's consolidated financial 

statements (see Note 7—Investments for additional information on SPVs and Note 27—Disclosure Entities and Related 

Parties for additional information concerning the FR System). 

For additional information regarding Reporting Entity, see Appendix A—Reporting Entity. 

 

B. Basis of Accounting and Revenue Recognition 

Consolidated Financial Statements 

The consolidated financial statements of the government are prepared in accordance with the standards established by 

FASAB. As permitted by FASAB standards, certain components of the federal government prepare their financial statements 

following the standards established by FASB. Information from those components is included within the government's 

consolidated financial statements without conversion to FASAB standards. Intra-governmental transactions are eliminated in 
71 NOTES TO THE FINANCIAL STATEMENTS 

consolidation, except as described in the Other Information–Unmatched Transactions and Balances. See Note 1.T—

Unmatched Transactions and Balances for additional information. The consolidated financial statements include accrualbased financial statements and sustainability financial statements, which are discussed in more detail below, and the related 

notes to the consolidated financial statements. Collectively, the accrual-based financial statements, the sustainability financial 

statements, and the notes represent information that is deemed essential for the financial statements and notes to be presented

in conformity with GAAP. 

Accounting standards allow certain presentations and disclosures to be modified, if needed, to prevent the disclosure of 

classified information. Accordingly, modifications may have been made to certain presentations and disclosures. 

Accrual-Based Financial Statements 

The accrual-based financial statements were prepared under the following principles: 

x Expenses are generally recognized when incurred. 

x Non-exchange revenue, including taxes, duties, fines, and penalties, are recognized when collected and adjusted for 

the change in amounts receivable (modified cash basis). Related refunds and other offsets, including those that are 

measurable and legally payable, are netted against non-exchange revenue. 

x Exchange (earned) revenue is recognized when the government provides goods and services to the public for a price. 

Exchange revenue includes user charges such as admission to federal parks and premiums for certain federal 

insurance. 

The basis of accounting used for budgetary purposes, which is primarily on a cash basis (budget deficit) and follows 

budgetary concepts and policies, differs from the basis of accounting used for the financial statements which follow GAAP. 

See the Reconciliations of Net Operating Cost and Budget Deficit in the Financial Statements section and Note 29—COVID19 Activity in the notes to the financial statements. 

Sustainability Financial Statements 

The sustainability financial statements were prepared based on the projected PV of the estimated future revenue and 

estimated future expenditures, primarily on a cash basis, for a 75-year period. The sustainability financial statements consist

of the: 1) SLTFP, covering all federal government programs and all sources of federal revenue; 2) SOSI; and 3) SCSIA. 

New Standards Issued in Prior and Current Years and Implemented in Current Year 

In FY 2016, the government began implementing the requirements of new standards related to the reporting for 

inventory and related property, net and general PP&E. These standards are available to each reporting entity once per line 

item addressed in the standard. The standards being implemented are: 

x FASAB issued SFFAS No. 48, Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile 

Materials. SFFAS No. 48 permits a reporting entity to apply an alternative valuation method in establishing opening 

balances and applies when a reporting entity is presenting financial statements, or one or more line items addressed 

by this statement. SFFAS No. 48 was effective beginning in FY 2017. Early implementation was permitted. DOD 

did partially implement in 2016 and select component entities have continued to implement in FY 2017 through FY 

2023. DOD has not declared full implementation yet; therefore, this standard continues to be partially implemented 

each year. 

x FASAB issued SFFAS No. 50, Establishing Opening Balances for General Property, Plant and Equipment. SFFAS 

No. 50 permits a reporting entity to apply an alternative valuation method in establishing opening balances and 

applies when a reporting entity is presenting financial statements, or one or more line items addressed by this 

statement. SFFAS No. 50 was effective beginning in FY 2017. Early implementation was permitted. DOD did 

partially implement in 2016 and select component entities have continued to implement in FY 2017 through FY 

2023. DOD has not declared full implementation yet; therefore, this standard continues to be partially implemented 

each year. 

In July 2021, FASAB issued SFFAS No. 59, Accounting and Reporting of Government Land. Per SFFAS No. 59, 

starting in FY 2026, land and permanent land rights will no longer be capitalized, and the previously capitalized amounts will 

be removed from the Balance Sheet. Also, starting in FY 2026, SFFAS No. 59 requires certain disclosures in the notes to the 

financial statements, including estimated acreage of land and permanent land rights and its predominant use. For FY 2022 

through FY 2025, such disclosures are required to be presented as RSI. These include: 

x Estimated acres of general PP&E land and stewardship land using three predominant use sub-categories: 

o Conservation and preservation land;

o Operational land; and

o Commercial use land.
NOTES TO THE FINANCIAL STATEMENTS 72 

x Estimated acres of land held for disposal or exchange. 

New Standards Issued and Not Yet Implemented 

As of September 2023, FASAB has issued the following new standards that are applicable to the Financial Report, but 

are not yet implemented at the government-wide level for FY 2023: 

In April 2018, FASAB issued SFFAS No. 54, Leases: An Amendment of SFFAS No. 5, Accounting for Liabilities of the 

Federal Government, and SFFAS No. 6, Accounting for Property, Plant, and Equipment. SFFAS No. 54 revises the financial 

reporting standards for federal lease accounting. It provides a comprehensive set of lease accounting standards to recognize 

federal lease activities in the reporting entity’s financial statements and includes appropriate disclosures. This statement 

requires that federal lessees recognize a lease liability and a right-to-use lease asset at the commencement of the lease term,

unless it meets any of the scope exclusions or meets the definition/criteria of short-term leases, contracts or agreements that

transfer ownership, or intra-governmental leases. A federal lessor would recognize a lease receivable and deferred revenue, 

unless it meets any of the scope exclusions or meets the definition/criteria of short-term leases, contracts or agreements that

transfer ownership, or intra-governmental leases. SFFAS No. 58, Deferral of the Effective Date of SFFAS No. 54, Leases, 

issued in June 2020, defers the effective date of SFFAS No. 54 to FY 2024 and early implementation is not permitted. The 

following standards were issued to amend SFFAS No. 54, Leases: SFFAS No. 60, Omnibus Amendments 2021, LeasesRelated Topics, SFFAS No. 61, Omnibus Amendments 2023, Leases Related Topics II, and SFFAS No. 62, Transitional 

Amendment to SFFAS 54. These amendments are effective for FY 2024. 

C. Accounts Receivable, Net

Accounts receivable include the amount of taxes receivable that consist primarily of uncollected tax assessments, 

penalties, and interest when taxpayers have agreed, or a court has determined, the assessments are owed. Taxes receivable do 

not include unpaid assessments when taxpayers or a court have not agreed that the amounts are owed (compliance 

assessments) or the government does not expect further collections due to factors such as the taxpayer’s death, bankruptcy, or 

insolvency (write-offs). Taxes receivable are reported net of an allowance for the estimated portion deemed to be 

uncollectible. 

Other accounts receivable represent claims to cash or other assets from entities outside the government that arise from 

the sale of goods or services, duties, fines, certain license fees, recoveries, or other provisions of the law. Accounts receivable 

are reported net of an allowance for uncollectible amounts. An allowance is established when it is more likely than not the 

receivables will not be totally collected. The allowance method varies among the entities in the government and is usually 

based on past collection experience and is reestimated periodically as needed. Methods may include statistical sampling of 

receivables, specific identification and intensive analysis of each case, aging methodologies, and percentage of total 

receivables based on historical collection. See Note 3—Accounts Receivable, Net for additional information. 

D. Loans Receivable, Net

Direct loans committed after FY 1991 are valued at their gross amounts less an allowance for the PV of the amounts not 

expected to be recovered, and thus having to be subsidized is called an “allowance for subsidy.” 

Direct loans obligated before FY 1992 are valued under the PV method. Under the PV method, the outstanding 

principal of direct loans is reduced by an allowance equal to the difference between the outstanding principal and the PV of 

the expected net cash flows. See Note 4—Loans Receivable, Net and Loan Guarantee Liabilities for additional information. 

E. Loan Guarantee Liabilities

Loan guarantees committed after FY 1991 are valued at the PV of the cash outflows less the PV of the related inflows. 

The estimated PV of net long-term cash outflows of an entity for subsidized costs is net of recoveries, interest supplements, 

and offsetting fees. The loan guarantee liabilities present the net PV of all future cash flows from loans. 

Loan guarantees committed before FY 1992 are valued under the allowance-for-loss method. The allowance for loan 

losses is recognized when it is more likely than not that the direct loans will not be totally collected. The allowance of the 

uncollectible amounts is reestimated each year. See Note 4—Loans Receivable, Net and Loan Guarantee Liabilities for 

additional information. 
73 NOTES TO THE FINANCIAL STATEMENTS 

Generally, loan guarantees are recorded as a liability except when cash inflows are expected to exceed cash outflows on 

a PV basis. This results in a negative loan guarantee that is reported as an asset on the Balance Sheet. 

F. Inventory and Related Property, Net 

Inventory is tangible personal property that is categorized as: 1) held for current sale; 2) held in reserve for future sale; 

3) held for repair; or 4) excess, obsolete, and unserviceable. Inventory held for current sale and held in reserve for future sale 

are valued by the main contributing entities at historical cost using the MAC flow assumption. Historical cost includes all 

appropriate purchase, transportation, and production costs incurred to bring the items to their current condition and location.

Any abnormal costs, such as excessive handling or rework costs, are charged to operations of the period. Inventory held for 

repair is accounted for by the main contributors using the allowance method which values inventory at the same value as a 

serviceable item. However, an allowance for repairs contra-asset account (e.g., allowance for loss) is established to recognize

estimated repair costs in the current period operating expenses. Excess, obsolete, and unserviceable inventory is valued at its

net realizable value. 

Related property includes OM&S, stockpile materials, and other miscellaneous related property. OM&S is tangible 

personal property to be consumed in normal operations. Stockpile materials are strategic and critical materials being held due 

to statutory requirements for use in national defense, conservation, or national emergencies. The main contributing entities 

value OM&S and stockpile materials using various methods including MAC, standard price, historical cost, replacement 

price, and direct method. The entities also use both the consumption method and purchase method. The consumption method 

expenses OM&S when consumed, while the purchase method expenses OM&S when purchased. If OM&S are not significant 

amounts, are in the hands of the end user for use in normal operations, or if it is not cost beneficial to apply the consumption 

method; then the purchases method is applied. 

FASAB issued additional guidance, SFFAS No. 48, Opening Balances for Inventory, Operating Materials and 

Supplies, and Stockpile Materials, which permits a reporting entity to apply an alternative valuation method (e.g., deemed 

cost) in establishing opening balances for inventory, OM&S, and stockpile materials. This guidance is intended to provide an 

alternative valuation method when historical records and systems do not provide a basis for valuation of opening balances in 

accordance with SFFAS No. 3, Accounting for Inventory and Related Property. Please refer to Note 5—Inventory and 

Related Property, Net, for additional information. 

G. General Property, Plant, and Equipment, Net 

General PP&E consists of tangible assets (e.g., buildings, structures and facilities, furniture and fixtures, equipment, and 

land) that have an estimated useful life of two or more years, are not intended for sale in the ordinary course of business and

are intended for use or available for use by the entity. General PP&E also includes internal use software, land rights, assets 

acquired through capital leases, and leasehold improvements. 

At the government-wide level, SFFAS No. 6, Accounting for Property, Plant, and Equipment is followed and requires 

that general PP&E is recorded at cost and includes all costs incurred to bring the general PP&E to a form and location 

suitable for its intended use. The main contributing entities use estimated historical cost for general PP&E. Costs to acquire 

general PP&E, extend the useful life of an existing asset, or enlarge or improve its capacity are capitalized and depreciated or 

amortized over the remaining useful life. Depreciation expense is recognized on all capitalized general PP&E, except land 

and land rights of unlimited duration. In the case of constructed general PP&E, the asset is recorded as construction work in 

process until it is placed in service, at which time the balance is transferred to a major class of general PP&E. See Note 6—

General Property, Plant, and Equipment, Net, for additional information. 

FASAB issued additional guidance, SFFAS No. 50, Establishing Opening Balances for General Property, Plant, and 

Equipment, which states that a reporting entity may choose one of three alternative methods for establishing an opening 

balance for general PP&E. The alternative methods include using deemed cost to establish opening balances of general 

PP&E, selecting between deemed cost and prospective capitalization of internal use software, and allowing an exclusion of 

land and land rights from opening balances with disclosure of acreage information and expensing of future acquisitions. An 

entity electing to exclude land and land rights from its general PP&E opening balances must disclose, with a reference on the 

Balance Sheet to the related disclosure, the number of acres held at the beginning of each reporting period, the number of 

acres added during the period, the number of acres disposed of during the period, and the number of acres held at the end of 

each reporting period. Some consolidating DOD contributors used the alternative valuation methods from SFFAS No. 50 
NOTES TO THE FINANCIAL STATEMENTS 74 

based on historical records such as expenditure data, contracts, budget information, and engineering documentation. When 

applicable, DOD will continue to adopt SFFAS No. 50. 

For financial reporting purposes, heritage assets (excluding multi-use heritage assets) and stewardship land are not 

recorded as part of general PP&E. Since heritage assets are intended to be preserved as national treasures, it is anticipated 

that they will be maintained in reasonable repair and that there will be no diminution in their usefulness over time. Many 

assets are clearly heritage assets. For example, the National Park Service manages the Washington Monument, the Lincoln 

Memorial and the Mall. Heritage assets that are predominantly used in general government operations are considered multiuse heritage assets and are included in general PP&E. Stewardship land is also consistent with the treatment of heritage assets

in that much of the government’s land is held for the general welfare of the nation and is intended to be preserved and 

protected. Stewardship land is land owned by the government but not acquired for or in connection with general PP&E. 

Because most federal land is not directly related to general PP&E, it is deemed to be stewardship land and accordingly, it is 

not reported on the Balance Sheet. Examples of stewardship land include national parks and forests. For additional 

information on stewardship assets, see Note 26—Stewardship Property, Plant, and Equipment. 

H. Investments

Most investments are reported at FV. FV is the estimate of the price at which an orderly transaction to sell the asset 

would take place between market participants at the measurement date under current market conditions. Market or observable 

inputs are used as the preferred source of values, followed by assumptions based on hypothetical transactions in absence of 

market inputs. Certain investments rely on NAV as a practical expedient (i.e., priced without adjustments) to estimate their 

FV. NAV is derived from the FV of the underlying investments as of the reporting date. See Note 7—Investments for 

additional information. 

I. Investments in Government-Sponsored Enterprises

The senior preferred stock and associated warrants for the purchase of common stock in the GSEs (Fannie Mae and 

Freddie Mac) are presented at their FV. SPSPAs, which Treasury entered into with each GSE when they were placed under 

conservatorship, can result in payments to the GSEs when, at the end of any quarter, the FHFA, acting as the conservator, 

determines that the liabilities of either GSE exceed its respective assets. Such payments result in an increase to the liquidation 

preference of investment in the GSEs’ senior preferred stock, with a corresponding decrease to cash held by Treasury for 

government-wide operations. In addition, the liquidation preference of investments in the GSEs will increase, based on the 

quarterly earnings of the GSEs, up to the adjusted capital reserve amounts set for each GSE. 

The valuation to estimate the investment’s FV incorporates forecasts, projections, and cash flow analyses. Changes in 

valuation, including impairments, are deemed usual and recurring and thus are recorded as exchange transactions on the 

Statement of Net Cost (as earned revenue) and investments in GSEs on the Balance Sheet. The government also records 

dividends related to these investments as exchange transactions (as earned revenue) which are accrued when declared. 

The potential liabilities to the GSEs, if any, are assessed annually and recorded at the gross estimated amount. For 

additional information on investments in GSEs, refer to Note 8—Investments in Government-Sponsored Enterprises. 

J. Federal Debt and Interest Payable

Federal debt is primarily comprised of Treasury securities, which are debt instruments issued to the public to raise 

money needed to operate the federal government and pay off maturing obligations. Treasury issues these debt instruments to 

the public in the form of marketable bills, notes, bonds, TIPS and FRNs, and in the form of nonmarketable securities 

including Government Account Series securities, U.S. Savings Securities, and SLGS securities. The amount of the debt, or 

principal, is also called the security’s face value or par value. To accurately reflect the federal debt, Treasury records 

principal transactions with the public at par value at the time of the transaction. Certain Treasury securities are issued at a

discount or premium. These discounts and premiums are amortized over the term of the security using an interest method for 

all long-term securities (term greater than one year) and the straight-line method for short-term securities (term of one year or 

less). In addition, the principal for TIPS is adjusted daily based on the CPI for all Urban Consumers. Certain Treasury 

securities also pay interest. For marketable securities, Treasury issues notes and bonds that pay semi-annual interest based on

the security’s stated interest rate. For FRNs, which accrue interest daily and pay the aggregated interest on a quarterly basis, 
75 NOTES TO THE FINANCIAL STATEMENTS 

the interest rate is based on two components; the index rate tied to the highest accepted discount rate of the most recent 13-

week marketable bill auction and the spread rate, which is the highest accepted discount rate determined at auction when the 

FRN is first offered. TIPS, on the other hand, pay a semi-annual fixed rate of interest applied to the inflation-adjusted 

principal. However, for all security types accrued interest is recorded as an expense when incurred, instead of when paid. See 

Note 12—Federal Debt and Interest Payable for additional information. 

K. Federal Employee and Veteran Benefits Payable

Generally, federal employee and veteran benefits payable are recorded during the time employee services are rendered. 

The related liabilities for defined benefit pension plans, veterans’ compensation, burial, education and training benefits, postretirement health benefits, and life insurance benefits, are recorded at estimated PV of future benefits, less any estimated PV

of future normal cost contributions. Normal cost is the portion of the actuarial PV of projected benefits allocated as an 

expense for employee services rendered in the current year. Actuarial gains and losses (as well as prior service cost, if any) 

are recognized immediately in the year they occur without amortization. 

VA provides certain veterans and/or their dependents with pension benefits, based on annual eligibility reviews, if the 

veteran died or was disabled for nonservice-related causes. The pension program for veterans is not accounted for as a 

“federal employee pension plan” under SFFAS No. 5, Accounting for Liabilities of the Federal Government, due to 

differences between its eligibility conditions and those of federal employee pensions. Therefore, a future liability for pension 

benefits is not recorded. These benefits are recognized as expenses when benefits are paid rather than when employee 

services are rendered. 

In accordance with 38 CFR § 17.36(c), the VA makes an annual enrollment decision that identifies which veterans, by 

priority, will be treated for that fiscal year based on funds appropriated, estimated collections, usage, the severity index of

enrolled veterans, and changes in cost. While VA expects to continue to provide medical care to veterans in future years, an 

estimate of this amount cannot be reasonably made. These medical care expenses are recognized in the period the medical 

care services are provided. 

The actuarial liability for FECA benefits is recorded at estimated PV of future benefits for injuries and deaths that have 

already been incurred. 

Gains and losses from changes in long-term assumptions used to estimate federal employee pensions, ORB, and OPEB 

liabilities are reflected separately on the Statement of Net Cost and the components of the expense related to federal 

employee pension, ORB, and OPEB liabilities are disclosed in Note 13—Federal Employee and Veteran Benefits Payable as 

prescribed by SFFAS No. 33, Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the Gains 

and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates. In addition, SFFAS No. 33 also 

provides a standard for selecting the discount rate assumption for PV estimates of federal employee pension, ORB, and 

OPEB liabilities. See Note 13—Federal Employee and Veteran Benefits Payable for additional information. 

L. Environmental and Disposal Liabilities

Environmental and disposal liabilities are estimated costs for anticipated remediation, cleanup, and disposal costs 

resulting from the use of the governments assets or operations. Estimated costs for environmental and disposal liabilities can 

change over time because of laws and regulation updates, technology updates, inflation or deflation factors, and disposal plan 

revisions. Accruals for environmental cleanup costs are the cost of removing, containing, and/or disposing of hazardous 

wastes or materials that, because of quantity, concentration, or physical or chemical characteristics, may pose a substantial 

present or potential hazard to human health or the environment. Cleanup costs include, but are not limited to 

decontamination, decommissioning, site restoration, site monitoring, closure, and post-closure costs. PP&E recognition of an 

anticipated environmental disposal liability begins when the asset is placed in service. See Note 14—Environmental and 

Disposal Liabilities for additional information. 

M. Benefits Due and Payable

A liability for social insurance programs (including but not limited to: Social Security, Medicare, Railroad Retirement, 

Black Lung, and Unemployment) is recognized for any unpaid amounts currently due and payable to beneficiaries or service 

providers as of the end of the reporting period. See Note 15—Benefits Due and Payable for additional information. 
NOTES TO THE FINANCIAL STATEMENTS 76 

N. Insurance and Guarantee Program Liabilities

Insurance programs are authorized by law to financially compensate a designated population of beneficiaries by 

accepting all or part of the risk for losses incurred as a result of an adverse event. Certain consolidation entities with 

significant insurance and guarantee programs (e.g., PBGC and FDIC) apply FASB standards and are not converted to 

FASAB standards in consolidation, as permitted by SFFAS No. 47. 

PBGC values its liabilities at the PV of future benefits and PV of nonrecoverable future financial assistance using 

assumptions derived from market-based (FV) annuity prices from insurance companies. Assumptions are selected in 

accordance with PBGC’s best estimate of anticipated experience for expected retirement ages and the cost of administrative 

expenses. 

The PV of future benefits is the estimated liability for future pension benefits that PBGC is or will be obligated to pay 

the participants of trusteed plans and the net liability for plans pending termination and trusteeship. PBGC recognizes a 

single-employer program liability for trusteed or terminated plans and probable plan terminations. The liability is PBGC's 

best estimate of the losses, net of plan assets, and the PV of expected recoveries (from sponsors and members of their 

controlled group) for plans that are likely to terminate in the future. PBGC uses assumptions to adjust the value of those 

future payments to reflect the time value of money (by discounting) and the probability of payment (by means of decrements, 

such as for death or retirement). PBGC also includes anticipated expenses to settle the benefit obligation in the determination

of the PV of future benefits. Significant unobservable inputs are incorporated in the calculation of the PV of future benefits as 

well. Refer to PBGC’s financial statements for additional information. 

PBGC recognizes a multiemployer program liability for future financial assistance to insolvent plans and to plans 

deemed probable to becoming insolvent. Projecting a future insolvency requires considering several complex factors, such as 

an estimate of future cash flows, future mortality rates, and age of participants not in pay status. In general, if a terminated 

plan’s assets are less than the PV of its liabilities, PBGC considers the plan a probable risk of requiring financial assistance in 

the future. 

FDIC records a liability for FDIC-insured institutions that are likely to fail when the liability is probable and reasonably 

estimable, absent some favorable event such as obtaining additional capital or merging. The FDIC liability is derived by 

applying expected failure rates and loss rates to the institutions based on supervisory ratings, balance sheet characteristics,

and projected capital levels. 

PBGC's exposure to losses from plan terminations and FDIC’s exposure to losses from insured institutions that are 

classified as reasonably possible are disclosed in Note 21—Contingencies. 

All other insurance and guarantee programs are accounted for in the consolidated financial statements in accordance 

with SFFAS No. 51, Insurance Programs.

Insurance programs exclude programs that administer direct loans and loan guarantees; qualify as social insurance; are 

authorized to engage in disaster relief activities; provide grants; provide benefits or assistance based on an individual’s or a 

household’s income and/or assets; assume the risk of loss arising from federal government operations; pay claims through an 

administrative or judicial role for individuals or organizations who claim they have been harmed by a federal entity; 

indemnify contractors, agreement partners, and other third parties for loss or damage incurred while or caused by work 

performed for a federal entity; or are workers’ or occupational illness compensation programs that compensate current or 

former employees (or survivors) and certain third parties for injuries and occupational diseases obtained while working for a 

federal entity. 

Per SFFAS No. 51, there are three categories of insurance programs: 1) exchange transaction insurance programs other 

than life insurance; 2) non-exchange transaction insurance programs; and 3) life insurance programs. 

For exchange transaction insurance programs other than life insurance, revenues are recognized when earned over the 

insurance arrangement period and liabilities are recognized for unearned premiums, unpaid insurance claims, and for losses 

on remaining coverage. Losses on remaining coverage represent estimated amounts to be paid to settle claims for the period 

after year-end through the end of insurance coverage in excess of the summation of unearned premiums and premiums due 

after the end of the reporting period. 

For non-exchange transaction insurance programs, revenue is recognized the same as other non-exchange transaction 

revenue, no unearned premium liability is recorded, and a liability is only recognized for unpaid insurance claims.

For life insurance programs, revenue is recognized when due, and liabilities are recognized for unpaid insurance claims 

and future policy benefits. The liability for future policy benefits represents the expected PV of future claims to be paid to, or 

on behalf of, existing policyholders, less the expected PV of future net premiums to be collected from those policyholders. 

Life insurance programs are disclosed in Note 13—Federal Employee and Veteran Benefits Payable. See Note 16—Insurance 

and Guarantee Program Liabilities for additional information. 
77 NOTES TO THE FINANCIAL STATEMENTS 

O. Deferred Maintenance and Repairs

DM&R are maintenance and repairs that were not performed when they should have been or scheduled maintenance 

and repairs that were delayed or postponed. Maintenance is the act of keeping fixed assets in acceptable condition, including 

preventative maintenance, normal repairs, and other activities needed to preserve the assets, so they continue to provide 

acceptable service and achieve their expected life. Maintenance and repairs exclude activities aimed at expanding the 

capacity of assets or otherwise upgrading them to serve needs different from those originally intended. DM&R are not 

expensed in the Statements of Net Cost or accrued as liabilities on the Balance Sheet. However, DM&R information is 

presented in the unaudited RSI section of this report. Please see unaudited RSI—Deferred Maintenance and Repairs for 

additional information including measurement methods. 

P. Commitments

Commitments reflect binding agreements that may result in the future expenditure of financial resources that are not 

recognized or not fully recognized on the Balance Sheet and should be disclosed. Examples of commitments include certain 

long-term leases, undelivered orders, P3s, international or other agreements in support of international economic 

development, or agreements in support of financial market stability. See Note 20—Commitments for additional information. 

Q. Contingencies

Liabilities for contingencies are recognized on the Balance Sheet when both: 

x A past transaction or event has occurred, and 

x A future outflow or other sacrifice of resources is probable and measurable. 

The estimated contingent liability may be a specific amount or a range of amounts. If some amount within the range is a 

better estimate than any other amount within the range, then that amount is recognized. If no amount within the range is a 

better estimate than any other amount, then the minimum amount in the range is recognized and the range and a description 

of the nature of the contingency is disclosed. 

A contingent liability is disclosed if any of the conditions for liability recognition do not meet the above criteria and 

there is at least a reasonable possibility that a loss may be incurred. See Note 21—Contingencies for additional information. 

R. Funds from Dedicated Collections

Generally, funds from dedicated collections are financed by specifically identified revenues, provided to the 

government by non-federal sources, often supplemented by other financing sources that remain available over time. These 

specifically identified revenues and other financing sources are required by statute to be used for designated activities, 

benefits, or purposes, and must be accounted for separately from the government’s general revenues. The three required 

criteria for a fund from dedicated collections are: 

x A statute committing the government to use specifically identified revenues and/or other financing sources that are 

originally provided to the government by a non-federal source only for designated activities, benefits, or purposes; 

x Explicit authority for the fund to retain revenues and/or other financing sources not used in the current period for 

future use to finance the designated activities, benefits, or purposes; and 

x A requirement to account for and report on the receipt, use, and retention of the revenues and/or other financing 

sources that distinguishes the fund from the government’s general revenues. 

Funds from dedicated collections on the Statement of Operations and Changes in Net Position are presented on the 

consolidated basis. The consolidated dedicated collections presentation eliminates balances and transactions between funds 

from dedicated collections held by the entity. For additional information on funds from dedicated collections, see Note 22—

Funds from Dedicated Collections. 
NOTES TO THE FINANCIAL STATEMENTS 78 

S. Sustainability Financial Statements

The sustainability financial statements are estimates based on economic as well as demographic assumptions presented 

in Note 24—Long-Term Fiscal Projections and 25—Social Insurance. The sustainability financial statements are not 

forecasts or predictions. The sustainability financial statements are designed to illustrate the relationship between receipts and 

expenditures, if current policy is continued. For this purpose, the projections assume, among other things, that scheduled 

social insurance benefit payments would continue after related trust funds are projected to be depleted, contrary to current 

law, and that debt could continue to rise indefinitely without severe economic consequences. SOSI and SCSIA are based on the selection of accounting policies and the application of significant accounting 

estimates, some of which require management to make significant assumptions. Further, the estimates are based on current 

conditions and expectations of future conditions. Actual results could differ materially from the estimated amounts. Each 

statement includes information to assist in understanding the effect of changes in assumptions to the related information. 

By accounting convention, General Fund transfers to Medicare Parts B and D reported in the SOSI are eliminated when 

preparing the government-wide consolidated financial statements. The SOSI shows the projected General Fund transfer(s) as 

eliminations that, under current law, would be used to finance the remainder of the expenditures in excess of revenues for 

Medicare Parts B and D that is reported in the SOSI. The SLTFP include all revenues (including general revenues) of the 

federal government. 

T. Unmatched Transactions and Balances

The reconciliation of the change in net position requires that the difference between ending and beginning net position 

equals the difference between revenue and cost, plus or minus prior-period adjustments. The unmatched transactions and 

balances includes unmatched intra-governmental balances on the Balance Sheet and includes unmatched intra-governmental 

current year transactions on the Statement of Net Cost and the Statement of Operations and Changes in Net Position to 

reconcile the change in net position to ensure beginning and ending net position equals the difference between revenue and 

cost, plus or minus prior-period adjustments. Unresolved intra-governmental differences (i.e., unmatched transactions and 

balances) result in errors in the consolidated financial statements. 

The unmatched transactions and balances are needed to balance the accrual-based financial statements. The Statement 

of Net Cost, the Statement of Operations and Changes in Net Position and the Balance Sheet include specific lines for the 

unmatched transactions and balances. The primary factors affecting this out of balance situation are: 

x Unmatched intra-governmental transactions and balances between federal entities; and 

x Errors and restatements in federal entities’ reporting. 

As intra-governmental transactions and balances reduce to immaterial amounts, the corresponding individual lines in the 

“Unmatched Transactions and Balances” table are adjusted to remove the differences for the fiscal year. Please refer to the 

table of “Unmatched Transactions and Balances” in Other Information (Unaudited) for examples of the individual lines. 

Refer to the Other Information (unaudited)—Unmatched Transactions and Balances for additional information. 

U. Changes in Accounting Principles

A change in accounting principle results from either adopting a new accounting pronouncement or an entity adopting an 

allowable alternative accounting principle on the basis that is preferable. Generally, as applicable, changes in accounting 

principles are shown as an adjustment to beginning net position in the Statement of Operations and Changes in Net Position 

of the period in which the change is implemented. 

Adjustments to beginning net position in FY 2023 and FY 2022 for changes in accounting principles were ($0.8) billion 

and ($4.3) billion, respectively, mostly due to DOD’s continued implementation of SFFAS No. 48, Opening Balances for 

Inventory, Operating Materials and Supplies, and Stockpile Materials and SFFAS No. 50, Establishing Opening Balances 

for General Property, Plant, and Equipment. 
79 NOTES TO THE FINANCIAL STATEMENTS 

V. Corrections of Errors 

Corrections of errors in financial statements result from mathematical mistakes, mistakes in the application of 

accounting principles, or oversight or misuse of facts that existed at the time financial statements were prepared. When 

preparing comparative financial statements, if the material error occurred in the prior period presented and the effect is 

known, then the affected line items of the prior period are restated. There were no material corrections of errors identified for 

fiscal years ending September 30, 2023, and 2022. 

W. Changes in Presentation 

Changes in presentation are done to improve clarity of the presentation of the Financial Report and include changes 

since the prior year that are not the result of corrections of errors or changes in accounting principles. In FY 2023, due to a

change in presentation of the reported unmatched transactions and balances on the Statement of Net Cost, Statement of 

Operations and Changes in Net Position, and Unmatched Transactions and Balances in Other Information (unaudited), the 

FY 2022 Statement of Net Cost was adjusted by $.1 billion to report the associated unmatched transactions and balances that 

were previously reported on the Statement of Operations and Changes in Net Position unmatched transactions and balances 

line and the buy/sell costs that were previously included in the gross cost recorded on the Statement of Net Cost. They are 

now reported on the standalone unmatched transaction and balances line on the Statement of Net Cost. Additionally, the 

Unmatched Transactions and Balances in Other Information (unaudited) was updated to show the details of the unmatched 

transactions and balances by statement. For more information refer to the Statement of Net Cost, Statement of Operations and 

Changes in Net Position, Reconciliation of Net Operating Cost and Budget Deficit, and Unmatched Transactions and 

Balances in Other Information (unaudited). The FY 2022 presentation was modified to conform to the FY 2023 presentation. 

X. Fiduciary Activities 

Fiduciary activities are the collection or receipt, as well as the management, protection, accounting, investment and 

disposition by the government of cash or other assets in which non-federal individuals or entities have an ownership interest 

that the government must uphold. Fiduciary cash and other fiduciary assets are not assets of the government and are not 

recognized on the Balance Sheet. See Note 23—Fiduciary Activities, for additional information. 

Y. Use of Estimates 

The government has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, 

expenses, and the disclosure of contingent liabilities to prepare these financial statements. There are a large number of factors 

that affect these assumptions and estimates, which are inherently subject to substantial uncertainty arising from the likelihood 

of future changes in general economic, regulatory, and market conditions. As such, actual results will differ from these 

estimates and such differences may be material. 

Significant transactions subject to estimates are included in the balance of loans receivable, net, federal employee and 

veteran benefits payable, investments, investments in SPVs, investments in GSEs, tax receivables, receivables from 

resolution activities, loan guarantee liabilities, depreciation, other actuarial liabilities, cost and earned revenue allocations, as 

well as contingencies and any related recognized liabilities. 

The government recognizes the sensitivity of credit reform modeling to slight changes in some model assumptions and 

uses regular review of model factors, statistical modeling, and annual reestimates to reflect the most current cost estimate of

the credit programs to the U.S. government. Federal Credit Reform Act of 1990 loan receivables and loan guarantees are 

disclosed in Note 4—Loans Receivable, Net and Loan Guarantee Liabilities. 

Estimates are also used to determine the FV of investments in SPVs and GSEs. The FV of the SPV preferred equity 

investments is estimated based on a discounted cash flow valuation methodology, whereby the primary input is the PV of the 

projected annual cash flows associated with these investments. The FV of the GSE senior preferred stock considers 

forecasted cash flows to equity holders and the traded prices of the other equity securities, including the GSE’s common 

stock and junior preferred stock. The value of the GSE senior preferred stock is estimated by first estimating the FV of the 
 NOTES TO THE FINANCIAL STATEMENTS 80 

total equity of each GSE (which, in addition to the GSE senior preferred stock, is comprised of other equity instruments 

including common stock, common stock warrants, and junior preferred stock). The FV of the GSE total equity is based on a 

discounted cash flow valuation methodology, whereby the primary input is the PV of the projected quarterly cash flows to 

equity holders. The FV of the GSEs’ other equity instruments are then deducted from its total equity, with the remainder 

representing the FV of the GSE senior preferred stock. 

Factors impacting the FV of the GSE warrants include the nominal exercise price and the large number of potential 

exercise shares, the market trading of the common stock that underlies the warrants as of September 30, the principal market, 

and the market participants. Other factors impacting the FV of the GSE warrants include, the holding period risk related 

directly to the assumption of the amount of time that it will take to sell the exercised shares without depressing the market. 

For additional information on investments in SPVs and GSEs, see Note 7—Investments and Note 8—Investments in 

Government-Sponsored Enterprises, respectively. 

Treasury performs annual calculations, as of September 30, to assess the need for recording an estimated liability in 

accordance with SFFAS No. 5, Accounting for Liabilities of The Federal Government, and to the government’s funding 

commitment to the GSEs under the SPSPAs. For additional information on investments in GSEs and the amended SPSPAs, 

see Note 8—Investments in Government-Sponsored Enterprises. 

Z. Credit Risk 

Credit risk is the potential, no matter how remote, for financial loss from a failure of a borrower or counterparty to 

perform in accordance with underlying contractual obligations. The government takes on credit risk when it makes direct 

loans or guarantees to non-federal entities, provides credits to foreign entities, or becomes exposed to institutions that engage 

in financial transactions with foreign countries. 

The government also takes on credit risk related to committed, but undisbursed direct loans, CARES Act Section 4003 

COVID-19 credit program receivables, funding commitments to GSEs, CARES Act Section 4003 Section 13(3) funding 

provided to Corporate Credit Facility LLC, MSF, MLF, TALF, and other activities. Many of these programs were developed 

or provided credit support to the pandemic emergency relief programs of the Federal Reserve Board, to provide credit where 

borrowers are not able to get access to credit with reasonable terms and conditions. These programs expose the government 

to potential costs and losses. The extent of the risk assumed is described in more detail in the notes to the financial 

statements, and where applicable, is factored into credit reform models and reflected in FV measurements. 

AA. Treaties and Other International Agreements 

For financial reporting purposes, treaties and other international agreements may be understood as falling into three 

broad categories: 

x No present or contingent obligation to provide goods, services, or financial support; 

x Present obligation to provide goods, services, or financial support; or 

x Contingent obligation to provide goods, services, or financial support. 

The proper financial reporting of treaties and other international agreements depends on the probable future outflow or 

other sacrifice of resources as a result of entering into the agreement. 

In many cases, treaties and other international agreements establish frameworks that govern cooperative activities with 

other countries, but leave to the discretion of the parties whether to engage in any such activities. In other cases, the 

agreements may contemplate specific cooperative activities, but create no present or contingent obligations to engage in 

them. Cooperative activities relevant to these treaties and other international agreements fall under the first category, which

does not result in the U.S. government incurring any financial liability. Since these treaties and other international agreements 

have no financial impact, they are not reported or disclosed in this Financial Report. 

Some treaties and other international agreements fall under the second category, and involve a present obligation, and 

therefore result in liability recognition. Such present obligation may relate to the U.S. government providing financial and inkind support, including assessed contributions, voluntary contributions, grants, and other assistance to international 

organizations in which it participates as a member. Examples of such agreements include those that establish international 

organizations under which the U.S. government undertakes obligations to pay assessed dues to the organization; grant 

agreements under which the U.S. government provides foreign assistance funds to other countries; and claims settlement 

agreements under which the U.S. government agrees to pay specific sums of money to settle claims. 
81 NOTES TO THE FINANCIAL STATEMENTS 

The last category encompasses those treaties or other international agreements which result in contingencies that may 

require recognition or disclosure in the financial statements. Such contingencies may stem from commitments in a treaty or 

other international agreement to provide goods, services, or financial support when a future event occurs, or from litigation, 

claims, or assessments forged by other parties to the agreement. For additional information related to treaties and other 

international agreements that fall under the last category, refer to Note 21—Contingencies. 

AB. Public-Private Partnerships 

SFFAS No. 49, Public-Private Partnerships establishes principles to ensure that disclosures about applicable P3s are 

presented in the government’s notes to the financial statements. The principles guide entity financial reporting disclosure by 

establishing a P3 definition and identifying risk-based characteristics that need to exist before considering the P3 arrangement 

or transaction for disclosure. The standard exempts certain arrangements or transactions from the P3 disclosure requirements, 

as such exempt arrangements or transactions are subject to existing disclosure requirements in other accounting standards. 

The P3s that are deemed material to the consolidated financial statements and have met the criteria of SFFAS No. 49, PublicPrivate Partnerships are disclosed. See Note 28—Public-Private Partnerships for additional information.