exist, i.e., to test the sensitivity of recoveries, the default timing assumption must also be adjusted to ensure that the recovery occurs after the default. Those assumptions that caused the largest change in the subsidy rate are determined to be the key cash flow assumptions. 38. Key assumptions, identified by the sensitivity analyses that are utilized in the process of developing estimates, should be documented including the rationale, justification, and source of supporting documentation. 39. The accounting office should maintain detailed subsidiary accounting records by program, cohort, risk category (if applicable) and case (individual direct loan or loan guarantee). 40. The cash flow estimation process, including all underlying assumptions, should be reviewed and approved at the appropriate level including revisions and updates to the original model. Cash flow models should be tested for reliability as part of the approval process by comparing estimated cash flows to actual cash flows and assessing the model's ability to replicate a credit program's performance. 41. The agency should do trend analysis of the credit subsidy expense components, i.e., interest, defaults, fees, and other. When unusual fluctuations are identified, they should be investigated and explained. 42. The agency must document the options used in the OMB Credit Subsidy Calculator and the reasons those options were selected.11 10 The root of the cash flow assumption is the starting point for the assumption, i.e., there are no preceding formulas or related inputs that would affect the assumption. 11 OMB contracted with an independent public accounting firm to review the OMB Credit Subsidy Calculator's compliance with the Credit Reform Act. Results of the audit may be obtained from the applicable OMB program examiner or OMB’s Budget Analysis Branch. 43. The agency should determine whether the proper dollar scale (e.g., whole dollars, hundreds, thousands, etc.) for the cash flow spreadsheets was used. Some program subsidy rates, particularly those for programs disbursing over several years, may be influenced slightly with the scale of the program. Therefore, management should determine whether rounding to three decimal places has no significant effect on the cash flow spreadsheet values and the subsidy rate. 44. The agency should determine whether the OMB Credit Subsidy Calculator options selected properly reflect specific characteristics of the applicable credit program. For example, the OMB Credit Subsidy Calculator option for the timing of principal and interest payments for direct loan program and the timing of commitments and disbursements by the private lender of a loan guaranteed should agree with the program's credit terms. 45. The agency should review the OMB Credit Subsidy Calculator output to determine whether any warning messages are listed and determine why the situation causing the warning message was not resolved and whether not eliminating the error could have any impact on the subsidy rate calculation. Also, if applicable, the agency should determine whether the suppression of any error messages was appropriate by checking the agency's cash flow spreadsheet to determine whether the "suppress warnings" command was used and assess the impact these suppressed error messages could have on the cash flows. 46. The agency should review trends in the direct loan subsidy allowance account balance and/or the liability for loan guarantees account balance as compared to the outstanding balances of loans and/or guarantees. Any unusual fluctuations identified should be investigated and explained. When unusual fluctuations occur, an analysis by cohort may be helpful to identify the causes. Reestimates 47. OMB Circular A-11 has established criteria for when agencies should calculate credit subsidy reestimates for the budget. It states that "interest rate reestimates of the subsidy cost of a cohort of direct loans or loan guarantees must be made when a cohort has substantially disbursed (i.e., when at least 90 percent of the direct loans or guaranteed loans have been disbursed.) The computation should be made after the close of the fiscal year in which this criterion is met, unless a later time within the same fiscal year is approved by the OMB representative with primary budget responsibility for the credit account"; and that "technical reestimates of the subsidy cost of a cohort of direct loans or loan guarantees must be made after the close of each fiscal year as long as the loans are outstanding, unless a different plan is approved by the OMB representative with primary budget responsibility for the credit account. The different plan might be with regard to the time when reestimates are made within the year or the frequency of reestimates." If the plan allows technical reestimates to be made less frequently than every year, it should require technical reestimates to be made for any year when any one of four conditions is met.12 The period for which reestimates are to be calculated includes the first year that loans were disbursed. Reestimates are calculated as of the end of the fiscal year regardless of when the actual computation is performed. 48. SFFAS No. 2 states that "the subsidy cost allowance for direct loans and the liability for loan guarantees are reestimated each year as of the date of the financial statements. Since the allowance or the liability represents the present value of the net cash outflows of the underlying direct loans or loan guarantees, the re-estimation takes into account all factors that may have affected the estimate of each component of the cash flows, including prepayments, defaults, delinquencies and recoveries.13 Any increase or decrease in the subsidy cost allowance or the loan guarantee liability resulting from the reestimates is recognized as a subsidy expense (or a reduction in subsidy expense) as of the end of the fiscal year to which it applies. Reporting the subsidy cost allowance of direct loans (or the liability of loan guarantees) and reestimates by component is not required." SFFAS No. 7, paragraphs 362-363, states that “[a] negative subsidy...” or “...downward subsidy reestimate is recognized as a direct reduction in expense, not as a revenue, gain, or other financing source.” In addition, SFFAS No. 18 requires that the interest rate and technical reestimates be disclosed separately for each program. 49. The table below summarizes the reestimate requirements for the budget and financial statement presentations. 12 These four conditions are: (1) based on periodic schedules established in coordination with OMB, (2) when a major change in actual versus projected activity is detected, (3) when a material difference is detected through monitoring "triggers" developed in coordination with OMB, and (4) when a cohort is being closed out. 13 OMB has an alternative method of computing reestimates, the “balances approach,” which compares (a) the net present value of the best current estimate of the remaining cash flows with (b) the net balance owed to Treasury (for direct loan programs) or the net balance on deposit with Treasury (for loan guarantee programs). In estimating the net present value of the remaining cash flows, agencies would still need to estimate future cash flows based on actual experience with cash flows to date and forecasts of other factors. They would therefore still need to maintain historical cash flow data, at the subsidy component level, to analyze the sources of error in the estimates of cash flows for past periods. Budget Financial Statement Frequency: Interest Rate Reestimate Frequency: At least one time when the cohort is 90 percent disbursed - regardless of financial statement materiality. In addition, reestimates should be recorded in the Budget whenever made for financial statement purposes. Whenever the change in the interest rate materially affects the financial statements or, if no material change occurs prior to the cohort being 90 percent disbursed, at least one time when the cohort is 90 percent disbursed. Timing: Timing: At the end of the fiscal year. Typically as of the end of the fiscal year. Frequency: Technical Reestimate Frequency: Annually unless a different plan is approved by OMB - regardless of financial statement materiality. In addition, reestimates should be recorded in the Budget whenever made for financial statement purposes. Any year when material. Also, agencies must disclose significant subsequent events after the reestimate date in the financial statement footnotes. Timing: Timing: At the end of the fiscal year unless otherwise approved by OMB. Typically as of the end of the fiscal year. Also, agencies must disclose if the reestimate was calculated at a time other than the end of the fiscal year. 50. An interest rate reestimate of the subsidy cost of a cohort of direct loans or loan guarantees is made for the difference between (a) the interest rate assumed in the President's budget for the fiscal year in which the subsidy is obligated, and (b) the actual annual interest rates prevailing during the years of disbursement. OMB Circular A-11 instructs that an interest rate reestimate should be made when the cohort is 90 percent disbursed.14 However, when an interest rate change has occurred that would materially affect the financial statements, 14 If the interest rate assumption is a key assumption, agencies should consider using sensitivity analysis, as discussed in the section entitled Specific Fund/Program Procedures and Controls, to determine whether the change in interest would have a material affect on the financial statements. To do this, agencies would need to repeatedly adjust the interest rate by predetermined increments, e.g., plus or minus 100 basis points, and rerun the revised cash flows through the OMB Credit Subsidy Calculator to determine the impact on the subsidy rate. Agencies should then multiply the revised subsidy rate by the assumed disbursement amount, to calculate financial statement impact. As a result, agencies will be able to document the amount of interest rate change that would be necessary, under an assumed disbursement amount, to materially affect the financial statements. agencies should calculate the interest rate reestimate and include the reestimate in the current year's financial statements. 51. A technical reestimate of the subsidy cost of a cohort of direct loans or loan guarantees is made for all changes in assumptions other than discount rates. If OMB has approved a plan that permits an agency to make technical reestimates less often than annually, the agency should monitor the indicators specified in that plan to determine whether a reestimate is needed for other reasons: in particular, because it is needed to comply with other parts of that plan and/or because the reestimate has a material financial statement impact. 52. An agency that does not plan to perform technical reestimates annually must establish a systematic process to determine each year whether a reestimate is necessary and, if material to the financial statements as a whole, the reestimate must be reflected in the current year's financial statements. If an acceptable monitoring process is not in place, reestimates must be made annually for the financial statements. An acceptable process would generally include the following: a. A comparison between actual experience to date and the assumptions that had been previously used for the period to date. -- An acceptable process would regularly (but not less than annually) compare the actual cash flows, by subsidy component, reported by the accounting office at the program level to those used in the previous budget estimates. b. Differences between the current best estimate of future cash flows and the assumptions that had been previously used. -- An acceptable process would also include procedures that identify and systematically monitor significant economic and other assumptions underlying cash flows in order to determine whether changes have occurred in the expected future cash flows that make a reestimate necessary. The significant assumptions would be expected to differ from program to program according to each program's own attributes. Economic changes could include, for example, recessions, changes in interest rates, and changes in the market value of collateral or international economic factors (such as trade disruptions). Other changes could include, for example, legislative or administrative program changes (of the kind that do not meet the OMB Circular A-11 definition of a modification), operational changes (such as reduction in staff because of budgetary constraints that would affect loan servicing), environmental changes, or war. The impact of these changes on the estimates of future cash flows (and, if necessary, the cash flow models) must be assessed and documented. c. Special emphasis for programs that have peak periods - Where applicable, an acceptable monitoring process should provide extra emphasis during periods when cohorts are experiencing significant increases or decreases in defaults, prepayments, recoveries, or other cash flows. For example, suppose for one particular program historical experience has demonstrated that a cohort usually experiences increased defaults starting in year three which peak in years 6 through 8. Historical experience has further demonstrated that defaults decline steadily beginning in year nine, until a stabilized rate is reached in years 13 through 30. During years 3 through 13, the agency's monitoring efforts should compare actual cash flows for defaults reported by the accounting department to estimated default cash flows as a way of validating the default cash flow assumption and determining whether a reestimate or adjustment to the overall rate or timing is necessary. However, once the monitoring system has demonstrated that the cohort has stabilized and no significant unusual events have occurred, it is less likely that annual reestimates would be necessary. 53. In years for which reestimates are made, they should normally be made as of September 30 of the reporting period using a data base that is complete through the same date. If OMB has approved a plan to make reestimates at another time during the year, this will be acceptable for financial statement purposes if the following conditions are met: a. The technical reestimate of the subsidy cost is made for a 12-month period ending not earlier than March 31, using actual transaction data through March 31 of the reporting year. Agencies may also use actual transaction data beyond the March 31 date through to the end of the reporting period. The reestimated subsidy cost is compared with the previous estimate of the subsidy cost for the year ended September 30.15 The difference is the amount of the reestimate. Alternatively, for the last two quarters of the fiscal year (or for a portion of this period), agencies may estimate those quarters’ cash flows on a reasonable basis e.g., the last two quarters’ cash flows from the previous fiscal year, or if the cash flows are relatively uniform, two quarters of the originally estimated cash flows, or the average cash flows of the previous two quarters. For cohorts with an interest rate reestimate, the interest rate reestimate and a revised technical reestimate16 would be calculated after September 30 using actual interest rates. b. In order to use this approach, agencies must ensure that the monitoring process described previously includes monitoring major events occurring during the third and fourth quarters that could have a significant impact on the subsidy reestimate. If such an event is identified, an adjustment to the reestimate of the affected cohorts may be necessary. c. Agencies may be unable to calculate, and reflect in the financial statements, a reestimate for major events occurring during the third and fourth quarters because, at this point, the effects of the major event may not yet be determinable. In this case, 15 See footnote 12 for a discussion of the "balances approach" for calculating reestimates. 16 A revised technical reestimate in this context is limited to the change in the reestimate due to revised discount rates and not to any difference in cash flows. agencies must disclose such events in the footnotes as a potential material uncertainty. The disclosure will further acknowledge that this/these event(s) will be taken into consideration in making the reestimate for the following year or once the impact of the events is determinable. d. This policy, when adopted by an agency, with OMB's approval, will be disclosed in the footnotes to the agency's financial statements. 54. If OMB has approved a plan to make reestimates at another time during the year that does not meet the conditions detailed in paragraph 47 above, its financial statement impact should be evaluated. The conditions listed in paragraph 47 are just one acceptable scenario that details the steps that agencies should perform to ensure that the financial statements are materially correct. Agencies may develop alternative procedures to ensure financial statements are fairly presented without performing a full reestimate as of the date of the financial statements. The agency and OMB examiner may wish to collaborate in developing the alternative procedures that will best address each individual agency's workload, the needs of the budget, financial statements, and all applicable standards. 55. If the most recent estimated cash flows of a cohort are different from the actual experience, these differences and the reasons for these differences may affect the future estimated cash flows of that cohort. The effects on the future cash flows of that cohort need to be assessed and included in the reestimate, and the reasons for the estimated effects need to be documented. 56. Reestimates for any of the reasons in this section should be completed, submitted to OMB, and included in the current year's financial statements, on a timely basis.17 If OMB has approved a plan that permits an agency to make technical reestimates less often than annually, written documentation of the plan and OMB's approval should be obtained. If a technical reestimate is not made in a particular year, documentation should explain why that is consistent with the approved plan and provide assurance (in the ways specified above) that the lack of a technical reestimate would not have a material financial statement impact.18 17 Fair presentation of subsidy estimates in the financial statements may differ from estimates in the budget. 18 OMB has established a four-step process, outlined in OMB Circular A-11, that allows for calculating budgetary technical reestimates for the budget at times other than the beginning of each fiscal year following the year in which the initial disbursement was made, as long as the loans are outstanding (subject to OMB approval). However, this does not allow agencies to omit material reestimates from the current year financial statements or to postpone including material technical reestimates in the financial statements until a subsequent year. Conversely, the OMB process may require agencies to make technical reestimates for the budget that are not material to the financial statements. 57. Reestimates submitted by the budget office to OMB should be recorded in the accounting records. The agency should have an audit trail from individual transactions to the subsidiary ledgers to the general ledger. This will ensure that cash transactions can be identified by type so that they may be identified by subsidy expense component. SFFAS No. 18 states: “Reporting entities... should disclose for each program ...the subsidy reestimates by components as defined in paragraph 32 [SFFAS No. 2] for those years [current reporting year and the preceding reporting year].” 58. If the cause of the reestimate affects the cash flows of future cohorts, the assumptions used to produce cash flow estimates and/or the method of estimating cash flows should be revised appropriately for the budget estimates of future cohorts. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Technical Glossary Allowance for Subsidy See Direct Loan Subsidy Allowance Account definition. Assumptions basic beliefs about the future operating and functional characteristics of the loan or group of loans or loan guarantees. Types of assumptions include: Cash flow assumptions - all known and/or forecasted information about the characteristics and performance of a loan or group of loans or loan guarantees. Examples include estimates of loan maturity, borrower interest rate, default/delinquency rate, timing of defaults, overall impact of changes in economic factors, etc. Model assumptions - determinations of how cash flow assumptions are applied through the life of the cohort. For example, determining whether the entire assumed amount of defaults should be applied in 1 year or whether a constant or variable proportion of the assumption value should be allocated to each year. The allocation of cash flows over time is the selected model form and is just as influential as the cash flow assumptions. Case level each individual loan or guarantee within a cohort. Cash flow stream the agency's projection of the dollar amount for the scheduled cash flows and deviations from scheduled cash flow items for each year over the life of the cohort. Cash flows Estimates of payments to or from the Government over the life of a loan or group of loans or loan guarantees. For direct loans, these may include: loan disbursements, repayments of principal, payments of interest, and any other payments such as prepayments, fees, penalties, and other recoveries. For loan guarantees, these may include: payments by the Government to cover defaults and delinquencies, interest subsidies, payments to the Government, such as origination and other fees, penalties and recoveries, and any other payments. Cohort all direct loans or loan guarantees of a program for which a subsidy appropriation is provided for a given fiscal year, even if disbursements occur in subsequent years. For direct loans and loan guarantees for which a subsidy appropriation is provided for one fiscal year, the cohort will be defined by that fiscal year. For direct loans and loan guarantees for which multi-year or no-year appropriations are provided, the cohort will be defined by the year of obligation. Direct Loan Subsidy Allowance Account the balance maintained in the general ledger that represents the difference between the current outstanding loans receivable balance and the present value of estimated cash outflows minus the present value of the estimated cash inflows over the remaining life of the direct loans. The subsidy allowance is subtracted from the loans receivable balance when calculating the net loans receivable balance. A similar account may also be used for defaulted guaranteed loans. Econometrics the application of statistical methods to the estimation of economic relationships. Financing Account the non-budgetary account or accounts associated with each credit program account that holds balances, receives the subsidy cost payment from the credit program account, and includes all other cash flows to and from the Government resulting from post-1991 direct loans or loan guarantees. Each program account is associated with one or more financing accounts, depending on whether the account makes both direct loans and loan guarantees (separate financing accounts are required for direct loans and loan guarantees). Fund an aggregation of programs into a common grouping consistent with how the Congress provides appropriations - i.e., the program and financing accounts together and, if needed, the negative subsidy receipt accounts. (This term has other meanings in different contexts.) Inputs in the context of Federal credit, cash flow data elements used to develop spreadsheet calculations. Internal control an integral component of an organization’s management that provides reasonable assurance regarding the achievement of reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Internal control consists of the control environment, risk assessment, control activities, information and communication and monitoring. Key assumptions assumptions that have been established, through sensitivity analysis or other means, to be the elements that have a large impact on estimates, and thus are the most important factors in determining the cost of a loan or group of loans or loan guarantees. Liability for Loan Guarantees Account the balance maintained in the general ledger that represents the present value of estimated cash outflows minus the present value of the estimated cash inflows over the remaining life of the loan guarantees. Liquidating Account the budget account that includes all cash flows to and from the Government resulting from pre- 1992 direct loans or loan guarantees, unless they have been modified and transferred to a financing account. Negative Subsidy Receipt Account the budget account for the receipt of amounts paid from the financing account when there is a negative subsidy cost for the original estimate or a downward reestimate. For mandatory programs, negative subsidies and downward reestimates may be credited directly to the program account as offsetting collections from non-Federal sources. OMB Credit Subsidy Calculator computer software developed by OMB for discounting cash flows in estimating credit subsidies. It uses agency cash flow inputs to compute the net present value at the point of disbursement and the subsidy rate associated with those cash flows. Program in the context of Federal credit, an aggregation of cohorts which are linked by common terms, conditions, regulations, and/or mission goals; often a subdivision of a fund or the budgetary financing account. Program Account the budget account into which an appropriation to cover the subsidy cost of a direct loan or loan guarantee program is made and from which such cost is disbursed to the financing account. Program accounts usually receive a separate appropriation for administrative expenses. Risk category subdivisions of a cohort of direct loans or loan guarantees into groups of loans that are relatively homogeneous in cost, given the facts known at the time of obligation or commitment. Risk categories will group all loans obligated or committed for a program during the fiscal year that share characteristics predictive of defaults or other costs. All cohort level guidance in this technical release also applies to risk categories when they are used. Service or line of business an aggregation of funds into a common grouping: for example, grouping funds into single family or multifamily designations. The following example is provided to illustrate the relationship the above terms have to each other and show how they may be aggregated for financial statement purposes. Agencies should consult applicable OMB guidance to determine what level of aggregation is most appropriate and acceptable. Business line or service: Farm Service Agency Fund: A. CCC Export Guarantees B. Agricultural Credit Insurance Fund Program: B1. Farm Ownership Loans B2. Farm Operating Loans, subsidized B3. Farm Operating Loans, unsubsidized Cohort: B3a. FY 1992 Farm Operating Loans, unsubsidized B3b. FY 1993 Farm Operating Loans, unsubsidized B3c. FY 1994 Farm Operating Loans, unsubsidized B3d. FY 1995 Farm Operating Loans, unsubsidized B3e. FY 1996 Farm Operating Loans, unsubsidized Risk category: B3e1. FY 1996 Farm Operating Loans, unsubsidized, Southwest Region B3e2. FY 1996 Farm Operating Loans, unsubsidized, Northeast Region Case: B3ai Fiscal year 1992 unsubsidized loan to farmer A B3aii Fiscal year 1992 unsubsidized loan to farmer B Appendix B: Summary of Selected Reporting Requirements19 Principal Statements Credit Reform Information Presented Balance Sheet Credit program receivables and related foreclosed property, net of related subsidy allowance Liabilities for loan guarantees Statement of Net Cost Subsidy expense will be included as part of the gross program costs (present value of fees will be included as an offset in calculating subsidy expense rather than recording actual collection of fees as revenue) Interest revenue and interest expense Statement of Changes in Net Position Appropriations received (subsidy) and appropriations used Statement of Budgetary Resources Appropriations received (subsidy), borrowing authority, offsetting collections (examples: Collection of fees, principal, interest, subsidy from program account) and obligations (subsidy to financing account, direct loans, interest supplements, default claims) and offsetting receipts (example: negative subsidy or downward reestimate received by general fund receipt account) Statement of Financing Reconcile net obligations to net cost using components from the Statements of Budgetary Resources, Changes in Net Position and Net Cost. Examples of reconciling items include upward/downward reestimates of subsidy expense, offsetting collections pertaining to fees and obligations 19 Refer to FASAB Standards for a complete listing of accounting and reporting requirements. The requirements in the Standards may be supplemented by guidance provided in OMB Bulletin 01-09 and OMB Circular A-11. Note Disclosures Credit Reform Information Presented By program or fund: Loans receivable gross, Interest receivable, Foreclosed property, Allowance for subsidy cost (present value), and Net value of assets related to direct loan programs (and loan guarantee programs) Direct Loans (and Defaulted Guaranteed Loans) by Program or Fund *Presentation by Program or Fund required by OMB Bulletin 01-09. Comparative data (current and prior years) for Note disclosures required by OMB Bulletin 01-09. SFFAS No. 18 requires the reconciliation of the subsidy cost allowance for direct loans and not defaulted guaranteed loans. Total amount of loans disbursed for current and prior years Reconciliation between the beginning and ending balance of the subsidy cost allowance at the reporting entity level By program or fund: Present value of post-1991 liabilities for loan guarantees Face value of guaranteed loans outstanding, Amount of outstanding principal guaranteed Guaranteed Loans by Program or Fund *Presentation by Program or Fund required by OMB Bulletin 01-09. Comparative data (current and prior years) for Note disclosures required by OMB Bulletin 01-09. Reconciliation between the beginning and ending balance of the loan guarantee liability at the reporting entity level By program or fund: Total subsidy expense, and its components Total subsidy expense for modifications Total subsidy expense for reestimates, and their components, for current and prior year (interest and technical) Subsidy rates for the total subsidy cost, and its components, for the current year Total administrative expense Description of the characteristics of loan programs Discussion of events and changes in economic conditions, other risk factors, legislation, credit policies and subsidy estimation methodologies and assumptions that have a significant and measurable effect on subsidy rates, subsidy expense and subsidy reestimates Nature of the modification of direct loans or loan guarantees, discount rate used to calculate the modification expense, and basis for recognizing a gain or loss relating to the modification. Restrictions on the use/disposal of foreclosed property, number of properties held and average holding period by type or category, number of properties for which foreclosure proceedings are in process and changes from prior year’s accounting methods Both Direct Loans (and Defaulted Guaranteed Loans) and Guaranteed Loans by Program or Fund *Presentation by Program or Fund required by OMB Bulletin 01-09. Comparative data (current and prior years) for Note disclosures required by OMB Bulletin 01-09. Federal Financial Accounting and Auditing Technical Release 7: Clarification of Standards Relating to the National Aeronautics and Space Administration’s Space Exploration Equipment Status Issued May 25, 2007 Effective Date Immediately Affects None. Affected by None. Summary The purpose of this technical release is to provide technical guidance to the National Aeronautics and Space Administration (NASA) regarding the accounting treatment of NASA’s space exploration equipment for financial reporting purposes. At issue is whether it is permissible to treat the acquisition or development costs of any of this equipment as research and development costs. The objective of this technical release is to provide guidance to NASA on the application of the current FASAB standards. Table of Contents Page Summary 1 Scope 4 Effective Date 4 Technical Guidance 7 Appendix A: Basis for Conclusions 10 Abbreviations AAPC Accounting and Auditing Policy Committee AICPA American Institute of Certified Public Accountants CFO Chief Financial Officer DoD Department of Defense FAS Financial Accounting Standard FASAB Federal Accounting Standards Advisory Board FASB Financial Accounting Standards Board GAAP Generally Accepted Accounting Principles NASA National Aeronautics and Space Administration ND National Defense OMB Office of Management and Budget PP&E Property, Plant, and Equipment R&D Research & Development RTD&E Research, Testing, Development, and Evaluation SFFAC Statement of Federal Financial Accounting Concepts SFFAS Statement of Federal Financial Accounting Standards SIG Staff Implementation Guidance TR Technical Release Introduction Purpose 1. The purpose of this technical release is to provide technical guidance to the National Aeronautics and Space Administration (NASA) regarding the accounting treatment of NASA’s space exploration equipment for financial reporting purposes. At issue is whether it is permissible to treat the acquisition or development costs of any of this equipment as research and development costs. Three specific questions were posed to the AAPC by NASA in reference to the issue. The objective of this technical release is to provide guidance to NASA on the application of the current FASAB standards. Scope 2. This technical release guidance is limited to transactions involving NASA’s space exploration equipment. However, the guidance related to the application of the Generally Accepted Accounting Principles (GAAP) hierarchy applies broadly to all federal entities. 3. Readers of this technical release should first refer to the hierarchy of accounting standards in Statement on Auditing Standards (SAS) 91, Federal GAAP (or see AU411). This technical release supplements the relevant accounting standards, but is not a substitute for and does not take precedence over the standards. Effective Date 4. This technical release is effective immediately. Background Overview 5. On July 12, 2006, NASA wrote to the AAPC requesting guidance for the accounting treatment of the National Aeronautics and Space Administration (NASA) space exploration equipment. With a series of changes to the accounting standards governing space exploration equipment, including the reclassification of Federal Mission Property in SFFAS 23 Eliminating the Category National Defense Property, Plant, and Equipment, NASA found existing guidance unclear regarding the accounting classification of space exploration equipment. This resulted in inconsistent and sometimes contradictory opinions from NASA’s auditors. 6. In the letter to the AAPC, NASA posed three questions that it deemed central to resolving the ambiguity in the existing Federal Accounting Standards Advisory Board (FASAB) standards. These questions are as follows: 1. Does the hierarchy of accounting principles for federal entities permit NASA to apply the SFAS 2, in determining whether space exploration equipment should be expensed as a period expense? 2. Can space exploration equipment that does not meet the criteria for General Property, Plant & Equipment (PP&E) as defined in the FASAB Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for Property, Plant and Equipment, be treated as a period expense? 3. Does SFFAS 6 currently limit all items previously categorized as “space exploration equipment” to General PP&E? 7. The AAPC formed a task force to address NASA’s questions and agreed to provide a Technical Release to guide NASA in the implementation of the standards. Related Accounting Literature 8. In its original form, SFFAS 6 defined Federal Mission PP&E to include "space exploration equipment" and required that it be expensed. Subsequently, SFFAS 11 amended SFFAS 6, changing the classification of "space exploration equipment" to General PP&E and required that it be capitalized. Most recently, in May 2003, SFFAS 23 rescinded SFFAS 11 and modified SFFAS 6. The related accounting literature are as follows: Federal Accounting Standards Advisory Board Accounting Standards: a. SFFAS 6, Accounting for Property, Plant, and Equipment b. SFFAS 8, Supplementary Stewardship Reporting c. SFFAS 11, Amendments to Accounting for Property, Plant, and Equipment d. SFFAS 23, Eliminating the Category National Defense Property, Plant and Equipment e. Staff Implementation Guidance (SIG) 23.1, Guidance for Implementation of SFFAS 23, Eliminating the Category National Defense Property, Plant, and Equipment Financial Accounting Standards Board Accounting Standards: f. SFAC 6, Elements of Financial Statements g. SFAS 2, Accounting for Research and Development Costs Technical Guidance 9. This guidance is presented as responses to the three questions posed by NASA to the AAPC, with questions two and three combined. 10. Does the hierarchy of accounting principles for federal entities permit NASA to apply the SFAS 2, Accounting for Research and Development Costs, in determining whether space exploration equipment should be expensed as a period expense? 11. Yes. The American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards Number 91, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles, (integrated into AICPA Professional Standards, AU 411.15) provides that “in the absence of a pronouncement covered by rule 203 or another source of established accounting principles, the auditor of financial statements of a federal government entity may consider other accounting literature, depending on its relevance in the circumstances.” Other accounting literature includes the FASB Statements of Financial Accounting Standards and Interpretations. 12. SFFAS 8 addresses accounting for Research and Development Costs. SFFAS 8 provides that “Expenses included in calculating net cost for research and development programs that are intended to increase or maintain national economic productive capacity or yield other future benefits be reported as investments in research and development in required supplementary stewardship information accompanying the financial statements of the Federal Government and its component units.” SFFAS 8, however, does not define “expenses” in the context of calculating the net cost of research and development programs. Nor do other FASAB standards specifically address recognition of research and development costs or the elements of costs that would be identified with research and development activities. However, SFFAS 23 acknowledges that the Board considered concerns about the treatment of the costs of research, testing, development, and evaluation (RTD&E) for the Department of Defense but decided that issues related to these costs can and should be addressed in the context of existing basic principles and practices. Thus, preparers have in turn looked to other authoritative literature for guidance. 13. SFAS 2 describes activities that typically would be included in and the elements of costs to be identified with research and development. Other federal agencies have turned to SFAS 2 for needed authoritative guidance. Specifically, SFAS 2 provides that the costs of materials, equipment or facilities acquired or constructed for a particular research and development project and that have no alternative future uses are treated as research and development costs in the period. 14. While SFFAS 8 is the principal authoritative source on accounting for research and development costs by federal agencies, this standard may be supplemented in order to address some of the differing research and development efforts by federal agencies. Accordingly, consistent with the provisions of AU 411.15, federal agencies may consider the provisions of SFFAS 8 together with the provisions of SFAS 2 in making a determination about accounting for research and development costs. 15. Can space exploration equipment that does not meet the criteria for General PP&E as defined in the SFFAS 6 be treated as a period expense? Does SFFAS 6 currently limit all items previously categorized as “space exploration property” as General PP&E? 16. The criteria for determining whether an item is capitalized as PP&E are outlined in SFFAS 6, paragraph 17. The typical characteristics of general PP&E are outlined in SFFAS 6, paragraph 23. 17. In its original form, SFFAS 6 defined Federal Mission PP&E to include “space exploration equipment” and required that it be expensed. Subsequently, SFFAS 11 amended SFFAS 6 to redefine “Federal Mission PP&E” as “National Defense Property, Plant and Equipment.” SFFAS 11 also included explanatory language which specified that space exploration equipment was to be accounted for as general PP&E. Most recently, in May 2003, SFFAS 23 rescinded SFFAS 11 in its entirety and modified SFFAS 6 to require that National Defense Property, Plant and Equipment be capitalized as General Property, Plant, and Equipment. We realize that these changes could have caused some preparers and auditors uncertainty regarding how to apply the resulting guidance in accounting for “space exploration equipment; ” however, the hierarchy of accounting literature provides a means to access literature to be relied on in determining an appropriate treatment. 18. SIG 23.1, issued to clarify the intent of the FASAB in its issuance of SFFAS 23, stated that, “assets being recognized due to the implementation of SFFAS 23 should be characterized in accordance with the asset definitions in SFFAS 6 and other accounting standards.” The genesis of the guidance was the narrow reading of the provision of SFFAS 23, which stated that ...“The amendments in this Statement... Classify all assets previously considered to be National Defense Property, Plant, and Equipment as general PP&E and the provisions for general PP&E ... contained in SFFAS 6, as amended, are to be applied.” The essence of the guidance was to point out that the FASAB’s intent was to have preparers follow existing standards in the classification of assets. It was not the FASAB’s intent to require that preparers follow SFFAS 6 without regard to the nature of the underlying asset. Accordingly, the concept discussed in SIG 23.1 should be applied, i.e., the definitions included in the accounting standards may be used to determine the classification and treatment of “space exploration equipment” and not limited to the category of General PP&E, but be categorized in accordance with the definitions of SFFAS 6 and other accounting standards. 19. The FASAB standards in and of themselves do not preclude the expensing of space exploration equipment; as stated, the characteristics of the transactions or events should govern accounting treatment. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions A1. NASA’s request for guidance is based their need for clarification on the specific accounting guidance on the classification of space exploration equipment. The need for clarification is based on the many changes in the standards related to property, plant, and equipment. In 1995, SFFAS 6 originally defined space exploration equipment as Federal Mission PP&E. In 1998, FASAB classified space exploration equipment as PP&E in SFFAS 11 and also replaced the definition of Federal Mission Property with National Defense (ND) PP&E. In 2003, SFFAS 23 rescinded SFFAS 11 in its entirety and reclassified ND PP&E as General PP&E. In addition to eliminating the category ND PP&E, this rescission purged the term “space exploration equipment”1 from the authoritative literature. A2. In 2004, the Department of Defense (DoD) questioned whether the FASAB actually intended to require that all items falling under the ND PP&E definition in SFFAS 23 be classified as General PP&E. DoD submitted a discussion paper in July 2004 to the FASAB staff. As a result, SIG 23.1 was released. Under this guidance, ND PP&E was not limited to the category of General PP&E. SIG 23.1 states that “assets being recognized due to the implementation of SFFAS 23 should be categorized in accordance with asset definitions in SFFAS 6 and other accounting standards... any items not properly classified as General PP&E should be valued in a manner consistent with definitions in existing standards to determine the relevant asset class.” A3. The Committee believes that NASA, in making determinations about the accounting treatment of transactions and events, should use its judgment in applying the standard that most appropriately reflects the characteristics of the transactions or events. One purpose of the hierarchy established in the AICPA Statement on Auditing Standards 91 is to permit other accounting literature to be considered in the absence of specific guidance in the FASAB standards. If it is determined that “space exploration equipment” meets the criteria for capitalization and has predominant characteristics of property, plant and equipment, then the accounting requirements in SFFAS 6 should be applied; however if the costs incurred for space exploration equipment are more similar to the R&D activities specified in SFFAS 8 and SFAS 2, then NASA should apply these standards to its space exploration equipment. The FASAB standards in and of themselves do not preclude the expensing of space exploration equipment; as stated, the characteristics of the transactions or events should govern accounting treatment. NASA’s current accounting policy is to classify all theme assets as General PP&E and capitalize them. If it is determined that NASA should change 1 "Space exploration equipment" included items intended to operate above the atmosphere for space exploration purposes, and any specially designed equipment to aid, service, or operate other equipment engaged in the exploration of space. (See SFFAS 6, par. 52.) its current accounting policy, it should document that the accounting policy selected is preferable and the reasons therefore. A4. One comment letter was received from the following source: FEDERAL (Internal) NONFEDERAL (External) Users, academics, others 0 1 Auditors 0 0 Preparers and financial managers 0 0 The one respondent agreed with the guidance as it was written and added the following comments. “The hierarchy of accounting standards provides for the use of FASB standards in this case. SFAS 2 also covers the subject in sufficient detail to enable NASA to apply it to its research and development costs.” Technical Release 8: Clarification of Standards Relating to Inter-Entity Costs (Rescinded) Status Issued February 20, 2008 Effective Date Immediately Affects None. Affected by TR 19 rescinded TR8 in its entirety. Summary TR 19, Recission of Technical Release 8 rescinded TR 8 in its entirety. Technical Release 9: Implementation Guide for Statement of Federal Financial Accounting Standards 29: Heritage Assets and Stewardship Land Status Issued February 20, 2008 Effective Date Immediately Affects None. Affected by SFFAS 42. Summary This technical release is intended to assist federal entities in reporting information on heritage assets (HA) and stewardship land (SL) in accordance with new federal accounting standards. Federal entities are required to report descriptive, nonfinancial information on HA/SL as basic information in their financial reports, in accordance with Statement of Federal Financial Accounting Standards (SFFAS) 29, Heritage Assets and Stewardship Land. Table of Contents Page Summary 1 Scope 5 Effective Date 5 Section I. Materiality Considerations 7 Section II. Identification, Categorization, and Quantification 11 Section III. Assessing and Reporting Condition 28 Section IV: Government-Wide Reporting 36 Appendix A: Basis for Conclusions 37 Appendix B: Excerpts from SFFAS 29 Heritage Assets and Stewardship Land 39 Appendix C: Illustrative Disclosures 40 Appendix D: Glossary 45 Acronyms AAPC Accounting and Auditing Policy Committee AICPA American Institute of Certified Public Accountants AGA Association of Government Accountants AT Codification of Statements on Standards for Attestation Engagements AU Codification of Statements on Auditing Standards CFR Consolidated Financial Report of the U.S. Government CFO Chief Financial Officer CPA Certified Public Accountant ED FASAB published the exposure draft FAM U.S. Government Accountability Office Financial Audit Manual FASB Financial Accounting Standards Board FASAB Federal Accounting Standards Advisory Board FMFIA Federal Managers Financial Integrity Act GAO U.S. Government Accountability Office GASB Governmental Accounting Standards Board JFMIP Joint Financial Management Improvement Program OMB Office of Management and Budget OIG Office of Inspector General PP&E Property, Plant and Equipment RSI Required Supplementary Information RSSI Required Supplementary Stewardship Information SFFAC Statement of Federal Financial Accounting Concepts SFFAS Statement of Federal Financial Accounting Standards SNC Statement of Net Cost HA Heritage Assets SL Stewardship Land Introduction Purpose 1. This technical release is intended to assist federal entities in reporting information on heritage assets (HA) and stewardship land (SL) in accordance with new federal accounting standards. This technical release supplements relevant federal accounting standards, but is not a substitute for and does not take precedence over the accounting standards issued by FASAB. 2. Federal entities are required to report descriptive, nonfinancial information on HA/SL as basic information in their financial reports, in accordance with Statement of Federal Financial Accounting Standards (SFFAS) 29, Heritage Assets and Stewardship Land. 3. Prior to issuing SFFAS 29, information on HA/SL was reported as Required Supplementary Stewardship Information (RSSI). SFFAS 29 reclassifies all HA/SL information as basic financial information, except for condition information, which is reclassified as Required Supplementary Information (RSI) and may be reported with deferred maintenance information. The standard also requires that entities reference a note on the balance sheet that discloses information about HA/SL, but no asset dollar amount should be shown. Instead, the minimum reporting requirements for note disclosure include a description of major categories, physical unit information for the end of the reporting period, physical units added and withdrawn during the period, and a description of the methods of acquisition and withdrawal. 4. SFFAS 29 also requires two new disclosures for HA/SL: entity stewardship policies and an explanation of how HA/SL relate to the mission of the entity. The standard also includes the requirements for the Consolidated Financial Report of the U.S. Government (CFR). The CFR provides for a general discussion and directs users to the applicable entities’ financial statements for more detailed information on HA/SL. This technical release focuses specifically on HA/SL. It does not address other types of Property, Plant, and Equipment (PP&E). 5. This technical release is organized into four sections: Section I Materiality Considerations describes an approach for considering materiality that is common to entities as they apply the materiality concept to HA/SL. It includes qualitative factors to consider in making materiality judgments about HA/SL. Section II Identification, Categorization, and Quantification discusses issues related to identifying HA/SL and describes how the standard allows entities "flexibility" in determining the format and level of detail to report relevant and reliable information in note disclosures. It also explores factors affecting the level of detail such as management’s selection of categories for reporting and choice of physical units within categories, as portrayed in various examples. In addition, a discussion of supporting documentation is included. Section III Assessing and Reporting Condition discusses approaches for meeting condition reporting requirements for HA/SL. This section provides guidance for identifying criteria to assess condition, discusses sources of information to support reporting, and provides examples of reporting condition. Section IV Government-Wide Reporting discusses the balance sheet note reference and a note disclosure of HA/SL information in the U.S. Government-wide financial statement. Scope 6. Readers of this technical release should first refer to the hierarchy of accounting standards in Statement on Auditing Standards (SAS) 91, Federal Generally Accepted Accounting Principles Hierarchy (or see AU411). This technical release supplements the relevant accounting standards, but is not a substitute for and does not take precedence over the standards. Effective Date 7. The effective date for implementation of the Technical Release is for periods beginning after September 30, 2008. Earlier implementation is encouraged. The provisions of this Technical Release need not be applied to immaterial items. Background 8. FASAB determined that information on HA and SL (except for condition) should be basic financial information because (1) information on these assets is essential to fair presentation and understanding of the entity’s financial condition; (2) accountability for HA/SL requires more audit scrutiny than would be afforded if these assets were addressed through RSI; and (3) this classification is consistent with existing standards issued by the Governmental Accounting Standards Board (GASB) for reporting on art and historical treasures, and Financial Accounting Standards Board (FASB) for reporting on collections, other works of art, and historical treasures.1 Reporting condition of HA/SL as RSI is appropriate because the information is experimental in nature and the manner of assessing and reporting this information is inconsistent.2 Transition from RSSI to Basic/RSI Information 9. The reclassification from RSSI to basic financial information for HA/SL is being phased in as required by SFFAS 29. The phase-in approach requires full implementation of SFFAS 29 for reporting periods beginning after September 30, 2008. Items a and b are new note disclosures and are to be reported as basic financial information beginning in periods after September 30, 2005; items c through f temporarily move to RSI in periods after September 30, 2005 before being reported as basic financial information. a. A statement explaining how HA/SL relate to the mission of the entity b. A description of the entity’s stewardship policies c. A description of major categories d. Physical unit information for the end of the reporting period e. Physical units added and withdrawn during the year f. A description of the methods of acquisition and withdrawal 10. Effective dates for transitioning the above HA/SL information from RSI to basic financial information (i.e., a note disclosure to the financial statements) begin for periods: 3 After September 30, 2007 for items c and d, After September 30, 2008 for items e and f. 1 SFFAS 29, par. 54. 2 SFFAS 29, par. 57. 3 See SFFAS 29 for details on the phase-in of disclosure requirements being reported as basic information. Section I. Materiality Considerations 11. In the interest of meaningful and cost effective information, managers of HA/SL information need to understand and apply the concept of materiality in order to decide what is material and what is not. Key issues are (1) what is the appropriate level of detail and aggregation for reporting HA/SL information and (2) how should materiality be applied to assets that are not reported in dollar amounts? 12. In developing the entity’s disclosures, management should identify meaningful levels of aggregation by determining whether assets are material enough to warrant classification in separate categories. Regardless of the level of detail or aggregation, the entity should support its financial statements with internal accounting policies listing the chosen criteria and methods of aggregation and classification. 13. Materiality has both quantitative and qualitative characteristics. Traditional materiality judgments about financial information are primarily quantitative and are focused on dollar amounts. However, the fact that HA/SL are not reported in dollars requires special attention to qualitative factors such as the nature of the related assets and the circumstances in which the materiality judgment is made. 14. Management’s consideration of materiality is a matter of professional judgment and is influenced by (1) the information necessary to demonstrate accountability for HA/SL, (2) the needs of a reasonable person who will rely on the principal financial statements, and (3) cost-benefit justifications. This approach incorporates two fundamental values of federal financial reporting: accountability and decision usefulness. Accountability and Decision Usefulness 15. As the standard-setting body for the federal government, FASAB stated that there are two fundamental values that provide the foundation for governmental accounting and financial reporting: “accountability” and its corollary, “decision usefulness.”4 FASAB explained that “Because a democratic government should be accountable for its integrity, performance, and stewardship, it follows that the government must provide information useful to assess that accountability.” 4 Statement of Federal Financial Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting, par. 71. 16. Under an “accountability concept” of materiality, management uses its professional judgment to decide, on behalf of users, what information is needed to demonstrate accountability over HA/SL in accordance with federal accounting concepts and standards. Materiality is then evaluated in relation to the information considered necessary for accountability. In essence, the accountability concept of materiality considers the information needed to answer such questions as, are the assets important to the entity’s mission or to the Nation? Are the assets highly visible, vulnerable, or controversial? And, is the government effectively managing and safeguarding assets? 5 17. Traditional definitions of materiality for financial information center on “decision usefulness,” a concept that relates to the needs of a reasonable person who relies on reported information to make decisions. The focus on decision usefulness originated from the primary objective of financial reporting for business enterprises established by FASB: “Financial reporting should provide information that is useful to present and potential investors and creditors and other users making rational investment, credit, and similar decisions.”6 18. However, in the federal government, the HA/SL information that users need in order to make informed decisions is evolving since agencies are still in the early stages of reporting. Users’ needs will likely become more clearly identified as the required disclosures are made available and attract users who rely on it for making decisions.7 In the meantime, attempting to make materiality determinations about HA/SL information based solely on undetermined user needs (i.e., decision usefulness) is an uncertain approach. Therefore, for HA/SL, the current focus for considering materiality should be based on accountability. Citizens want assurances that the HA/SL entrusted to the government are protected and used for the purposes intended.8 Congress, executives, and program managers need to demonstrate to those to whom they are accountable that they have, in fact, protected those resources and used them well. 5 SFFAC 1, par. 105 states, “The federal government derives its just powers from the consent of the governed. It therefore has a special responsibility to report on its actions and the results of those actions. ...Providing this information to the public, the news media, and elected officials is an essential part of accountability in government.” 6 Source: FASB’s Statement of Financial Concepts No. 1: Objectives of Financial Reporting by Business Enterprises, par. 34. 7 See SFFAC 1, par. 75-87; SFFAC 4, par. 6-9; and SFFAS 6, Basis for Conclusions, par. 123 for a summary of the users of federal financial reports and their stewardship information needs. 8 “Citizens” include individual citizens as well as citizen intermediaries (i.e., the general news media and more specialized users such as trade journals); public interest and advocacy groups; state and local legislators and executives; and analysts from corporations, academe, and elsewhere. According to SFFAC 1, par. 76 and SFFAC 4 par. 7, “Citizen intermediaries devote more time to reading, analyzing and interpreting more detailed information that they analyze, summarize and pass on to Citizens for further application.” (SFFAC 4, par. 16) Measurement Issues 19. For the federal government HA/SL, there is no unifying theme upon which to base quantitative measures of materiality, such as, total assets or total expenses because there is no common unit of measure, such as dollars, that can be used to evaluate the effect of omissions and misstatements among HA/SL categories. In other words, HA/SL management’s focus is on whether in the aggregate the categories reported for HA/SL are a complete presentation of HA/SL for which the entity is accountable. For example, management might report quantities for five separate and dissimilar categories of HA such as 6,000 linear feet of archival documents, 4,000 cubic feet of archeological artifacts, 2,500 paleontological items, 1,000 pieces of artwork, and 500 geological specimens. These diverse categories have different measurement attributes that are not readily quantifiable in monetary units. 20. Therefore, each entity should identify and apply the qualitative factors that will govern their HA/SL note disclosure. Choosing qualitative materiality factors is a practical means to achieve straightforward and consistent reporting procedures for stewardship assets. The intent is that management should do what is reasonable to report information about the entity’s HA/SL yet avoid costly and burdensome reporting of unnecessary detail. Qualitative Factors to Consider 21. Reporting information about HA/SL should reflect the entity’s stewardship processes and responsibilities for managing stewardship assets. Such reporting can be accomplished, in part, by analyzing the entity’s mission as part of determining which asset categories are material and warrant separate classification and presentation. As mentioned previously, factors to be considered, among others, are whether the asset categories are viewed as “important to the nation” or to the mission of the entity, and whether the assets are “visible, vulnerable, or controversial.” Other factors to consider include whether the entity has significant operations, programs or activities related to the management of the HA/SL. Additionally, consideration should be given to whether HA/SL have characteristics or qualities that have widespread public interest. Financial Presentation, Disclosure and Meaningful Aggregation 22. Inherent in preparing financial statements in conformity with GAAP, management makes financial reporting assertions about HA/SL, generally in five broad categories: existence, completeness, rights and obligations, valuation, and presentation and disclosure. As stated in the Basis for Conclusions section of SFFAS 29, “... the Board believes that the agencies are in the best position to determine the most meaningful level of presentation. The Board believes that ultimately the presentation depends upon the specifics of the entity – its mission, the types of HA, how it manages and materiality considerations.” 9 23. As supported by the Basis for Conclusions for SFFAS 29,10 management must differentiate between (a) detailed records that may be needed for management control and safeguarding purposes, and (b) presentations that are material for stewardship note disclosures. Entities may track individual assets and asset categories for control purposes that do not warrant separate presentation in their stewardship note disclosures. For example, under the Real Property Initiative of the President’s Management Agenda, agencies are required to record information about assets in the Federal Real Property Profile database. This information is viewed as an asset manager’s tool and may provide estimates on a large scale to generally depict the government’s assets. 24. Management’s consideration of materiality should focus on identifying meaningful levels of aggregation for reporting; i.e., determining which HA/SL warrant classification and presentation in separate categories. For example, are the assets unique, especially important and of exceptional interest? 25. In order to meet the reporting objectives of SFFAS 29, consistent with the financial reporting assertions, and with a focus on meaningful aggregation, management should analyze the entity’s HA/SL: For significant HA/SL that are considered meaningful for aggregation, establish separate categories and disclose the number of physical units11 in each category. If immaterial “entities may omit heritage asset and SL information.”12 26. In summary, the agency is in the best position to determine the appropriate level of fair presentation, aggregation and physical units of measure for presenting each major category based on the entity's mission, the types of HA/SL, and how it manages its assets. Such determinations are highly subjective and require the use of professional judgment. 9 SFFAS 29, Basis for Conclusions, par. 79. 10 SFFAS 29, Basis for Conclusions, par. 85. 11 “Particularly for collection-type heritage assets, it may be more appropriate to define the physical unit as a collection, or a group of assets located at one facility, and then count the number of collections or facilities.” (SFFAS 29, footnote 10). 12 SFFAS 29, Basis for Conclusions, par. 101. Section II. Identification, Categorization, and Quantification 27. SFFAS 29 provides considerable latitude on identifying, categorizing, and quantifying footnote information on HA/SL. The Board provides broad guidance, and allows flexibility for each entity to determine what constitutes relevant and reliable information for its individual HA/SL.13 Reporting requirements for HA/SL include acquisitions, withdrawals, and ending balances expressed in physical units. SL physical units are by major categories of use14 whereas HA physical units are by major category.15 HA/SL (1) should be reported with a note reference on the balance sheet with no asset dollar amount shown and (2) costs associated with HA/SL must be recognized in the statement of net cost (SNC) for the period in which the costs are incurred. Also nonfinancial information on HA/SL (including multiuse HA) must be reported in the note disclosure. 28. Multi-use HA requires additional descriptive information in the heritage asset note disclosure, with cross references directing the reader from the balance sheet to the note disclosure. Multi-use HA are to be reported in both the principal financial statements (in dollars) as general PP&E and in the heritage asset note disclosure (in physical units).16 This reporting and note disclosure would not be considered duplicative as each category is considered unique for this reporting purpose. 29. Additionally, agencies should document the identification, categorization, and quantification reasoning in their internal accounting policies and procedures to ensure the consistent reporting for all similar HA/SL. Identification General Issues 30. A primary issue in implementing SFFAS 29 is determining whether land is SL or General PP&E land; and whether an asset is a heritage asset, a multi-use heritage asset, or General 13 SFFAS 29, par. 79 – 85. 14 SFFAS 29, par. 40 d. 15 SFFAS 29, par. 25 d. 16 SFFAS 29, par. 27 and 29. PP&E. Making each determination correctly is fundamental to accounting and reporting for HA/SL. 31. SFFAS 29 broadly characterizes HA/SL as generally expected to be preserved indefinitely. In addition to the definitions of HA/SL contained in the standard, HA/SL are significant to the nation’s history and culture. Being listed on the National Register of Historic Places, although not considered a required criterion for identifying HA,17 may indicate that the asset is HA. Other ways to identify HA/SL include specific designations set forth by authoritative bodies such as Congress, the President, or an agency head as well as cultural protection laws, regulations, or other cultural asset protection standards. Also, HA/SL may have characteristics or qualities that are of widespread public interest. 32. Once HA/SL have been identified, each entity must determine the most appropriate level to report these assets for purposes of the required note disclosure. This reporting depends on the types of HA/SL, the entity’s mission, materiality considerations, and the entity’s ability to classify such assets consistently from year to year. 33. The following HA, multi-use HA, and SL examples illustrate how some PP&E could be identified as HA or SL. However, the examples are for illustrative purposes only and their disclosures are not mandatory. The examples are not all-encompassing and agencies may identify other more useful and relevant criteria to identify HA/SL. Appendix C provides examples of footnote disclosures. Heritage Assets Heritage Asset Examples 34. Example 1: Historic and prehistoric structures may be identified as HA because historic structures are significant to the nation and are associated with the important people and history of the nation.18 They are constructed works consciously created to serve some human activity or purpose. These structures include buildings, monuments, dams, canals, stockades, fences, defensive works, temple mounds, kivas, ruins of all structural types, and outdoor sculptures. 17SFFAS 29, par. 15 and 16. 18 An example of such a site is the U.S. DOE Nevada Test Site on which various archeological sites have been identified. Most were left by the ancestors of the present-day Indian tribes, Paiutes and Shoshones. These sites include rock shelters, brush houses, fire pits for cooking, and artifacts on ground surfaces. 35. Example 2: National historic landmarks possess exceptional value or quality in illustrating or interpreting the heritage of the United States in history, architecture, archeology, technology, and culture. They possess a superior location, design, setting, materials, and workmanship. They are districts, sites, buildings, structures, or objects of national significance possessing exceptional value in commemorating or illustrating the history of the United States. The Historic Sites Act of 1935 authorizes the Secretary of the Interior to grant this designation as the federal government’s official recognition of the national importance of historic properties. 36. Example 3: A cultural landscape is identified as a HA because of its natural and cultural significance. A cultural landscape is a geographic area, including both natural and cultural resources, associated with an historic event, activity, or person. These landscapes may contain trails, trees, waterways, or structures but are combined into one unit by their designation and collectively viewed as one HA. There are four general types of cultural landscapes: historic sites, historic designed landscapes, historic vernacular landscapes, and ethnographic landscapes.19 37. Example 4: Museum or library collections may be identified as HA because they may have historical significance and/or cultural, educational or artistic importance. These collections comprise objects or materials that have been gathered and maintained for exhibition or use. These items could include exhibit pieces, artifacts, published materials, and/or other literary content in any format. 19 One example of a cultural landscape is Fort Bragg. This cultural landscape is unique because of its continued use for defense related purposes and the influences to the landscape that result from defense related activities. Another example that encompasses three overlapping cultural landscapes is the Department of Energy (DOE) Hanford site. The first landscape represents a rich archeological and ethnographic landscape that has existed for more than 10,000 years where local American Indian tribes still revere the area for its spiritual and cultural importance, as they continue the traditions practiced by their ancestors. The second landscape embodies the experiences of the immigrants who started arriving in the mid-19th century. Following the explorers and fur traders who passed through the area were miners, ranchers, and then farmers. In 1943, the U.S. Government acquired the land for a secret wartime project and approximately 1,500 families were forced to move. Today, the former residents and their families recall the homes they had to leave and see the remains of their farms and towns as symbols of the sacrifice they made to the war effort. The third landscape is associated with World War II and the subsequent Cold War. The government acquired the land in 1943 to build large industrial facilities to produce plutonium, which served a vital role in the nation's defense. Hanford's mission expanded during the Cold War era to include research and development activities associated with the peaceful uses of atomic energy. Today, the remains of the facilities and legacy wastes document an important part of the nuclear age story. Multi-use Heritage Assets 38. A HA that serves two purposes, for example, a heritage function and a government operations function, should be considered a multi-use HA and classified as general PP&E if the predominant use (not the incidental use) of the asset is in general government operations.20 Entities should consider the predominant use of a HA in determining the appropriate accounting treatment. Multi-use Heritage Asset Examples 39. Example 1: Assets in the Nation’s capital that are currently identified as multi-use heritage assets include the Department of the Treasury and the Government Accountability Office (GAO) buildings. The main Treasury Building is used predominately for agency operations but also has historical significance as evidenced by its National Historic Landmark status. The GAO building qualifies as a multi-use heritage asset because it is listed in the National Register of Historic Places, and it is being used in general government operations. 40. Example 2: The Hoover Dam’s predominant use is an operational dam providing hydro power, recreation, and water supply. It is also a National Historic Landmark and a museum facility. Therefore, it is considered a multi-use heritage asset. 41. Example 3: A Supervisor’s Office for a National Forest is identified as a multi-use heritage asset because it provides administrative office space for Forest Service personnel who manage operations of the forest. While its predominant use is for administrative office space, the office is also listed on the National Register of Historic Places because of its age and unique log architectural design. 42. Examples 4 and 5 below describe assets that are not multi-use heritage assets because they do not meet the definition of HA or are exempt from classification as multi-use HA. 43. Example 4: The Punta Gorda Lighthouse is an operational lighthouse that is capitalized and reflected on the balance sheet. Even though the lighthouse is a contributing property to an historic site and has attributes that are considered historically valuable, these attributes are common to many other historic structures in the country. Management has determined that the lighthouse is not a multi-use heritage asset, because according to the managing agency’s internally documented procedures for identifying heritage assets, the lighthouse does not meet the necessary level of historic significance for disclosure. 20 SFFAS 29, par. 18. 44. Example 5: The Jefferson National Expansion Memorial (St. Louis, MO) has incidental administrative offices and shop space located in the memorial. In this case, the memorial should be reported as a heritage asset. Stewardship Land 45. Entities commonly classify land by using a two-step process. First by determining whether the land meets the criteria for general PP&E land or SL. Land is considered general PP&E if it is “acquired for or in connection with items of general PP&E.”21 SL is land and land rights owned by the federal government but not acquired for or in connection with items of general PP&E.22 46. If land meets the criteria for general PP&E, then determine if the land has an identifiable cost.23 If land does not have an identifiable cost or where cost is nominal or insignificant, it is SL, regardless of whether it is "acquired for or in connection with other general PP&E." The following chart provides implementing guidance for interpreting par. 25 of SFFAS 6 and par. 35 and 36 of SFFAS 29. 21 SFFAS 6, par. 25. The phrase “acquired for or in connection with” is defined as including “land acquired with the intent to construct general PP&E and the land acquired in combination with general PP&E, including not only land used as the foundation, but also adjacent land considered to be the general PP&E’s common grounds,” according to SFFAS 29, footnote 16. 22 SFFAS 29, par. 33 and 36. 23 Examples where land would have an unidentifiable, nominal, or insignificant cost would include federally owned lands that were part of the Louisiana Purchase in 1803 (Louisiana, Arkansas, Oklahoma, Missouri, Iowa, Kansas, Nebraska, South Dakota, Montana, and parts of Minnesota, Wyoming, and Colorado), the Gadsden Purchase in 1853 (parts of Arizona and New Mexico), and the Oregon Territory where American title was established in 1846 by the Spanish-American Compromise (Washington, Oregon, and part of Idaho). These lands do not have an identifiable cost because the land was acquired at nominal cost (in current dollar value) or at no cost at all. These lands are part of the originally constituted America’s “public domain” land. Much of this land is no longer under federal ownership. What remains under federal ownership today is generally referred to as the “public lands.” The concept of “identifiable cost” in determining whether land is stewardship land does not apply to situations where land logically would have an identifiable cost but that cost is unknown due to inadequate accounting, weak or no internal controls, or other imprudent actions. Purchase or Obtain Land N Used with General PP&E? (See par. 45) SL Y N Identifiable or significant cost? (See par. 46) Y General PP&E Stewardship Land Examples 47. Example 1: In order to establish a military base, testing ground, or firing range, an agency receives a transfer 24 of federal land that was originally part of large territories of "public domain" land that the Nation acquired at nominal cost. This public domain land, acquired by transfer from another federal entity, does not have an identifiable cost. Therefore, this public domain land is SL, regardless of how the agency uses it. In this case, the land would be categorized and reported as SL for financial reporting purposes. 48. Conversely, if land were purchased for or in connection with construction of a military base, testing ground, or firing range, it would have an identifiable cost and should be included in general PP&E. In this case, the land would be reported on the balance sheet with a dollar value along with other capital assets. 24 See SFFAS 29, par. 39 and 40.d. (3) for the discussion on SL transfers. 49. Example 2: Agency 1 has been granted specific legislative authority to sell tracts of land that were originally public domain land (currently classified as SL) to the public and to retain a portion of the proceeds25 from those sales to purchase environmentally sensitive tracts of land from the public in locations prescribed by the enabling legislation. The purchased land may be retained and managed by Agency 1 or it may be transferred to another federal agency (Agency 2) for management of the SL (e.g., for use as wildlife habitat, forest production, or other SL use). At the point when the sale and purchase transactions occur, the cost/value of the land sold and purchased is known. However, this SL is not associated with general PP&E and therefore is classified as SL. 50. In this example, Agency 1 would report a reduction in the quantity of SL reflecting the disposal (sale) transaction. When land is subsequently purchased, Agency 1 would show an increase in the quantity of SL reflecting the purchase transaction. If the purchased land is transferred to Agency 2, Agency 1 would show a reduction in the quantity of SL reflecting the transfer to Agency 2 for management. Agency 2 would reflect an increase in its quantity of SL. No monetary amounts relating to land would be reported on the balance sheet. 51. When each agency develops its footnote disclosures, the actual increase or decrease in categories and/or physical units depends on how each agency in the example chooses to categorize and quantify its SL. In this example, Agency 1 has a “multiple-use” category26 and quantifies its land by management unit. As such, if a management unit were reduced or increased in size but not eliminated or created, there would be no net change in its reporting. Agency 2 has a major category of use of conserving, protecting, and enhancing fish and wildlife and their habitats. Agency 2 quantifies its land by refuge. If the increase in land does not create a new refuge, then Agency 2 would also show no net change in its reporting. 52. Example 3: An agency purchases land for $300,000 that is to be added to a wildlife refuge for wildlife habitat. In this example, the land has an identifiable cost, but it was not acquired for or in connection with general PP&E. Therefore, it does not qualify as general PP&E land. Thus, the land is SL and the $300,000 purchase price would be expensed in the year of acquisition.27 In this example, if the reporting unit (wildlife refuge) was increased in size, but the increase did not create a new refuge, then the entity would show no net change in its 25 Generally speaking, federal agencies can sell and purchase land. However, without specific legislative authority, they cannot retain proceeds from the sales of land for any agency purpose. Proceeds from the sale of land would normally be transferred to the General Fund of the Treasury. 26 An example of “multiple-use” land is when legislation requires the use of multiple natural resources (i.e., domestic livestock grazing, fish and wildlife development, mineral exploration and production, rights-of-way, outdoor recreation, and timber production) related to the SL and no single use is predominant. 27 In accordance with SFFAS 29, par. 37. reporting related to SL units. However, if the agency reports by units, such as acreage, it would reflect an increase in units. Categorization 53. SFFAS 29 emphasizes reporting on asset categories, rather than individual assets28 such that reporting should be by major category for HA and major category of use for SL.29 Moreover, entities should determine the appropriate level of detail for their categorization. Related groups of assets that do not warrant classification and presentation in separate categories should be aggregated.30 General Issues Designation of Categories 54. The determination of which HA/SL warrant presentation in separate categories is related to whether they are material based on management’s judgment. As described in the section on Materiality Considerations, management’s consideration of materiality for HA/SL focuses on meaningful levels of aggregation for the stewardship note disclosures. Establishing the Level of Reporting Detail 55. The appropriate information for reporting HA/SL can vary from one entity to another, as well as from a component entity to the consolidated entity. The level of detail of the information presented depends, in part, on the mission of the entity, the types of stewardship assets, how the entity manages the assets, and the materiality of the assets in question.31 For example, an agency with stewardship as its primary mission might choose to report more extensive and detailed categories than an agency that does not have a stewardship 28 SFFAS 29, par. 25.c. and 40.c. 29 The phrase “major category of land use” is not specifically defined in SFFAS 29. However, based on the definition of land (the solid part of the surface of the earth), one might reasonably assume that the land functions as the foundation for natural resources and as a basin for water resources (water being a natural resource). It is the natural resources that land-management agencies manage, and it is the resources for which they authorize use. Hence, the phrase “major category of land use” can be implied to mean “major category of resource use.” 30 Aggregation of assets into categories could be compared to or likened to identifying “major classes” of assets. SFFAS 6 provides examples of major classes for general PP&E in footnote 63. These include, among others, buildings and structures, furniture and fixtures, equipment, vehicles, and land. 31 See Section on Materiality Considerations. mission. It is important to clarify that agencies may establish levels of detail for HA/SL and manage them for control purposes in a manner that is different from how they categorize and aggregate them for financial reporting purposes. 56. Also, some HA/SL categories overlap because they are defined in ways that result in certain assets, such as landscape monuments, being reported as both HA and SL. However, such reporting is not duplicative because the type of information reported for each category is different. For example, while a landscape monument might count as one item in the category of HA, the land supporting the monument could be included in the physical units under SL.32 The Craters of the Moon National Monument and Preserve might be reported as HA and the vast expanse of land under the monument reported with the many tracts of land managed by the district. Heritage Assets 57. SFFAS 2933 requires that entities categorize HA by “major category.” Major categories can be defined in many ways such as: The characteristics or attributes that make them unique, e.g., historical, natural, cultural, educational, artistic, or architectural; Designations of significance by experts or government leaders; The nature of the items such as collectible or non-collectible; Structural or nonstructural; and Asset use such as transportation, dwellings, shipping, ghost towns, military, farming, burial, and many others. 58. Some examples of categories of HA, which are not intended to be all encompassing, include: Monuments, Landmarks, Landscapes, National Parks, Museums, Cemeteries, Libraries, and Districts or Regions. 32 In accordance with SFFAS 29, par. 17. 33 Par. 25 item c. Heritage Asset Examples 59. Example 1: Pompeys Pillar is categorized as a national landmark that is both HA and SL. This landmark is a rock outcropping, a massive natural block of sandstone and a major landmark along the route of the Lewis and Clark Expedition. Because of its historical significance, (including Clark’s signature carved on its surface), it is included in the National Historic Landmarks Program and therefore considered an HA. The National Park Service categorizes Pompeys Pillar as a National Historic Landmark property type of “landscape – natural feature.” The managing agency has determined the physical unit to be the number of landmarks in this category. 60. Example 2: Some national monuments are included in HA categories because of their historic or natural attributes and because sometimes they contain aspects of both. An example is the Grand Staircase-Escalante National Monument,34 which has primarily landscape attributes. This monument's vast and austere landscape embraces a spectacular array of scientific and historic resources. This high, rugged, and remote region, where bold plateaus and multihued cliffs run for distances that defy human perspective, was the last place in the continental United States to be mapped. Today, this unspoiled natural area remains a frontier, a quality that greatly enhances the monument's value for scientific study. In this example the managing agency has categorized the physical unit to be monuments therefore, this asset would be considered one unit under the monuments category.35 61. Example 3: The Statue of Liberty36 and Ellis Island National Monument37 are identified as HA because of their historical significance. Ellis Island was incorporated as part of the Statue of Liberty National Monument on May 11, 1965. The entity has selected “National 34 Grand Staircase also has a long and dignified human history; it is a place where one can see how nature shapes human endeavors in the American West, where distance and aridity have been pitted against our dreams and courage. The monument presents exemplary opportunities for geologists, paleontologists, archeologists, historians, and biologists. 35 Congress granted the President authority to designate national monuments in the Antiquities Act of 1906, which specifies that the law’s purpose is to protect “objects of historic or scientific interest.” In addition to national monuments created through presidential action, Congress establishes national monuments by passing a law to create each individual monument with its own purpose (generally to protect natural or historic features). 36 The Statue of Liberty was dedicated on October 28, 1886, and was designated a National Monument on October 15, 1924. Located on 12-acre Liberty Island in New York Harbor, the Statue of Liberty was a gift of international friendship from the people of France to the people of the United States and is one of the most universal symbols of political freedom and democracy. 37 Ellis Island was incorporated as part of the Statue of Liberty National Monument on May 11, 1965. Between 1892 and 1954, approximately 12 million steerage and third class steamship passengers, who entered the United States through the port of New York, were legally and medically inspected at Ellis Island. Monuments” as a HA reporting category and appropriately reports these HA in that category. 62. Example 4: An agency has archeological sites distributed across large tracts of agency managed lands. The lands have a very diverse topography and accessibility is difficult. These assets are evaluated as to their significance, have distinct public value, and they are recognized for research potential yielding scientific information or supporting management decision-making, interpretation, education, or economic benefits. Thus, management has categorized them as HA. These HA are actively maintained within the agency’s stewardship program. This agency’s management has made a determination that to receive “significant” or “priority” status, the HA must also meet one or more of the following agency recognition criteria: Official designation; Prior financial investment in preservation, protection, interpretation, or use; or An agency approved management plan. Stewardship Land 63. Where parcels of land have more than one use, the predominant use of the land should be considered the major use. In cases where land has multiple uses, none of which is predominant, a description of the multiple uses should be presented in note disclosure. The appropriate level of categorization of SL use should be meaningful and determined by management based on the entity’s mission, types of SL use, and how it manages the assets. Stewardship Land Examples 64. Example 1: An example of a multiple-use category includes SL for which legislation prescribes the multiple use that will be achieved or authorized on the same tract(s) of land including, but not limited to domestic livestock grazing, fish and wildlife development and utilization, mineral exploration and production, rights-of-way, outdoor recreation, and timber production.38 65. Because the legislation requires “multiple-use” of all of the natural resources related to the SL, with no single use being predominant, the major category of use is “multiple.” However, a description of the multiple uses should be presented. Categorization of SL could be disclosed by geographic management unit, such as a state or region or perhaps a lower level management unit such as a field, district, or area jurisdiction. The management units 38SFFAS 29 par. 34 and footnote 17 specifically exclude the natural resources related to the land. could be reported consistent with the manner in which they are managed, that is, by a specific land use plan (or management plan), which specifies how the natural resources related to the land will be used over a long-term period (i.e., one or more decades). 66. Example 2: SL is categorized as recreational when this is the predominate use of the land. Within this category, the physical units could be reported as a region, park, district, or other field unit jurisdiction. 67. Example 3: SL can also be categorized by function. Land can support such activities as education, transportation systems, and farming and grazing. For example, the mission of an agency may be to enhance the quality of life, promote economic opportunity, and carry out responsibilities to protect and improve trust assets such as providing schools and other opportunities for learning. Physical units within this category could be reported as townships, parcels, tracts, acres, or other units. 68. Example 4: An agency manages lands (that were formally public domain lands and were withdrawn)39 for the purpose of constructing statutorily-authorized federal water projects and their associated canals, laterals, and drains to (a) provide water for agricultural, municipal, and industrial uses; (b) maintain flood control; and (c) generate power. In this federal water projects category, the number of units could be the number of major projects consisting of numerous related divisions, units, features, or facilities. Quantification General Issues 69. SFFAS 29 requires HA/SL to be quantified in physical units, rather than in monetary terms.40 However, SFFAS 29 does not define the term "physical units" or specify which physical units should be used to quantify the variety of HA/SL categories and subcategories held by federal entities. Accordingly, quantities may be reported in a manner consistent with data available from existing management systems. 70. Physical units could consist of: items to be counted such as monuments, museum collections, facilities housing museum collections, parcels, tracts, sites, regions, districts, locations, management units; or units of measure such as inches, linear feet, square or 39 "Withdrawal" of public lands means the removal or withholding of public land, by statute or Secretarial Order, from operation of some or all of the public land laws. 40 SFFAS 29, par. 25 and 40. cubic area (feet or yards), acres, miles, or kilometers. There may be other metrics to use in quantifying HA/SL not listed here. 71. However, counting physical items may not be necessary, particularly for collection-type HA, such as books and records contained in libraries. It may be appropriate to define the physical unit as a collection, or a group of assets located at one facility, and then count the number of collections or facilities. For SL, it may be appropriate to define the physical unit as regions or areas (where regions and areas are management jurisdictions) and then count and disclose the number of regions, areas, or acres, depending on the relevance of the metric used and the cost/benefit of capturing the information. 72. The above discussion highlights the need for management to differentiate between (a) detailed records that may be needed for management control and safeguarding purposes, and (b) financial statement reporting purposes for note disclosures. Many entities have stewardship responsibilities and control systems that can be traced to public laws or administrative rules. As good stewards, they may track individual assets and asset categories for control purposes that do not warrant separate presentation or disclosure in their financial reports. On the other hand, agencies also need to determine if there are legal or regulatory requirements for reporting HA/SL in the financial statements. Regardless of how the entity chooses to disclose, reporting should be done consistently. Also, as noted in SFFAS 29 par. 82 of the Basis for Conclusions, management should document its reasoning for the categorization and unitization. Heritage Asset Examples 73. The following examples represent potential approaches for quantifying heritage assets in the footnote disclosure. 74. Example 1: Wild and Scenic is a river designation that can be bestowed by Congress. In this example, the agency manages multiple Wild and Scenic rivers and quantifies them in terms of the number of rivers. This presentation is at a higher level of aggregation than is required to meet management objectives, which may include the number of river miles, types of river miles (i.e., recreational, scenic, or wilderness), river segments, and other aspects of river management needed to fulfill mandates required by public laws and regulations. 75. Example 2: Similarly, national scenic trails are congressionally designated. An entity may report the number of trails it manages even though it may not manage the entire length of certain trails.41 Additional data on these trails, such as the portion of each trail the entity is responsible for managing, exists within their management systems but does not have to be reported in the financial footnote disclosure. However, the entity may choose whether to report this supplemental data in its financial report as other supplementary information. 76. Example 3: Certain National Historic Landmarks are congressionally designated. An entity may choose to report only the number of landmarks under this category, even though these landmarks may contain multiple properties within each landmark. Another entity which also reports National Historic Landmarks may instead choose to report the properties within each landmark. Both of these reporting methods are acceptable under SFFAS 29. 77. Example 4: Archives, which include, but are not limited to, paper records and manuscripts, could be reported in cubic feet such as 238 million cubic feet or 211 collections. In terms of archived electronic documents, the disclosure could be to report such records in number of logical data such as 30 million or 830 collections. 78. Example 5: Museum items discovered on SL and managed in connection with HA include, but are not limited to, dinosaur bones, fossilized remains or traces of dinosaurs, herbarium specimens, mammals, insects, cultural objects depicting early human occupation, architecture, engineering, and American history. The museum items are maintained and managed to professional standards by federal and nonfederal repositories. The entity has determined that it will report these assets based on the number of facilities (repositories) housing the museum items (collections). This categorization is suitable for the entity given the latitude allowed by SFFAS 29 regarding reporting relevant and reliable information on aggregation of units. Stewardship Land Example 79. Reporting for each major category of SL use should include physical units by major category of use. Example 1: An agency is organized largely by the states in which it has management responsibility for SL. Within each state there are jurisdictions that are smaller management units sometimes identified as field offices or districts. Within a field office there are smaller management units identified as area offices. This agency has selected the field office level as the “physical unit” for reporting its accountability over SL. This physical unit was selected 41 Many trail systems consist of segments managed by one or more federal agencies as well as by nonfederal entities. For purposes of this example, each federal agency would be responsible for disclosing that which it manages. because the agency usually develops its land use plans at this level although certain parcels of land within a field office may require a distinct plan separate from the rest of the management unit. The agency has 118 field offices and based on its assessment, it is most appropriate to report 118 physical units of SL. Supporting Documentation 80. In the Basis for Conclusions of SFFAS 29, par. 86-88, the FASAB briefly discusses the fundamental problems associated with providing corroborating documentation to auditors on historical assets which predate the effective date of the standard, and were acquired in an environment in which the historical records were not required to be retained and therefore may not exist or be inadequate. The following section addresses some of the complexities associated with documenting America’s stewardship lands and heritage assets. Figure 1: 81. The public domain once stretched from the Appalachian Mountains to the Pacific. Of the approximate 1.8 billion acres of public land acquired by the United States, about two-thirds went to individuals, corporations, and the states. The remaining public domain was set aside for national forests, wildlife refuges, national parks and monuments, and other public purposes. 82. The majority of the public domain that remains today is stewardship land. As identified in the above graphic, this land was acquired through various purchases and cessions prior to 1870. During these early periods (1776 to the early/mid 1900s) few envisioned the need for the kinds of records, documents, and statistics that are required today. Acquisitions and disposals of land, whether from purchase, cession, or treaty, were not documented in the same manner as land transactions in more modern times. For example, as identified in item 6 of the above graphic, the boundary of the Louisiana Purchase was not well defined which led to a dispute between Spain and the United States resulting in the boundary adjustment of 1819. Surveys of the public land east of the Mississippi River began in 1785. Two years later, survey of only 4 ranges (about 144 square miles) had been completed. Much of the stewardship land remains unsurveyed today. 83. Definitive documentation on the majority of these lands is not available; therefore management must choose alternative methods of satisfying management’s assertions for these assets. For assessing land, for example, these alternatives could mirror areas defined in the “Categorization” section of this document, such as the number of areas of recreational use, geographic management areas, and federal water projects of fish hatcheries. 84. HA also have many of the same documentation problems since antiquities laws and preservation acts did not go into effect prior to artifacts having been collected and preserved. Many of these assets may reside in federal and nonfederal repositories. However, records and detailed listings from these periods generally do not exist. In more recent times, legislation has strengthened the laws and rules regarding preservation and documentation over these assets.42 Methodology for Developing Supporting Documentation 85. Ideally, agencies should have a historical file evidencing ownership of HA/SL. But, when original property records or other documentation (for example, deeds, tax assessments, insurance records, etc.) for HA/SL do not exist, a methodology needs to be employed in 42 For example, The Antiquities Act of 1906 provides authority for the President to establish National Monuments and gives authority to the Secretaries of Agriculture and Interior to issue permits for investigation and collection of resources from federal land and for collections... to be made for permanent preservation in public museums; The Museum Properties Management Act of 1955 authorizes the Secretary of the Interior through the National Park Service to preserve objects found within individual national parks; and the National Historic Preservation Act of 1966 directs the Secretary of the Interior to promulgate regulations that ensure that significant prehistoric and historic artifacts and associated records are deposited in an institution with adequate long-term curatorial capabilities. order to develop alternative documentation to support management’s assertions of federal ownership. For example, maintenance or renovation contracts, historical maintenance records or a history of payment of invoices, minutes of meetings, historical data bases, surveys of land records, a history of past/historical practices (e.g., establishing defacto ownership), or other relevant sources of information may provide acceptable alternative evidence of government ownership of HA/SL. Section III. Assessing and Reporting Condition Statement of Federal Financial Accounting Standards 42, Deferred Maintenance and Repairs, Amending Statements of Federal Financial Accounting Standards 6, 14, 29 and 32, rescinded the requirement to report condition information regarding heritage assets and stewardship land as RSI. The following guidance offers insights regarding condition assessments and factors that may influence reporting of deferred maintenance and repairs information. The guidance has not been updated to conform to the new standards and should be considered other literature until revised implementation guidance, if any is provided. Assessing Condition 86. The condition43 of HA/SL is to be reported as RSI unless it is reported elsewhere in the report containing the basic financial statements.44 For consistency, condition should generally be reported for asset categories, rather than for individual assets.45 However, the assessment of condition for HA/SL, which have a unique nature and specialized use, does not always lend well to traditional physical assessments such as “good,” “fair,” and “poor.”46 Such assessments are usually applied to items of general PP&E that break, wear out, or become obsolete while in service. 87. Traditional condition assessments or evaluations typically compare the current condition of an operating asset (such as a piece of equipment) against its original condition. As such, traditional condition assessments provide some indication of an asset’s status in its useful life cycle, i.e. the asset’s ability to perform as planned for the expected period of time. However, unlike items of general PP&E whose utility is expended over time in order to 43 SFFAS 29 par. 41 footnote 22 gives a detailed explanation of condition, and par. 57 discusses the reasons for reporting condition as RSI. In addition, SFFAS 6 par. 77, 78, and 81 and footnotes 58 and 62 provide some insight into condition. 44 SFFAS 29 footnote 11 states in part: “Condition is the physical state of an asset. The condition of an asset is based on an evaluation of the physical status/state of an asset, its ability to perform as planned, and its continued usefulness.” 45 See par. 81 and 84 of SFFAS 29 for more details. 46 For example, the existing state of the Liberty Bell (i.e., cracked and unable to ring) does not necessarily mean that the condition of the bell is poor. produce goods or services, HA/SL generally have an unlimited or indeterminate useful life or are expected to be preserved indefinitely. 88. Agencies may assess the condition of HA/SL as a function of their day-to-day operations and document condition through periodic assertion/assessment statements provided by their field office managers. In order to make these assessments, management should consider developing criteria or guidelines to enable agencies to assess condition. 89. Agencies also need to evaluate the cost and benefits of doing condition assessment surveys. Such things as cycling the assessments on a rotating basis, the frequency of assessments (i.e., every 3 or 5 years) and the criteria and methodology used for making such assessments need to be considered. Management needs to document the procedures and methodology used on a consistent basis. 90. Although it is not possible to explicitly cover every circumstance that may arise, the examples presented in this technical release are intended to provide preparers with a broad range of acceptable methods for assessing and reporting condition consistent with the purposes intended by SFFAS 29. This technical release provides the foundation for preparers to exercise judgment in formulating their course of action. Develop Criteria for Assessing Condition 91. The appropriate criteria for assessing condition depend on factors such as the agency’s mission, the nature of the assets, the purpose for which they are managed, and their intended use. The criteria that are used by an agency to assess condition should be explained in suitable detail in RSI. 92. An agency could determine the condition of some of its HA/SL through site monitoring. The agency leverages its resources through partnerships with state, local, tribal organizations, other law enforcement personnel, and other volunteers under the direction of agency scientists to monitor thousands of sites annually. The heritage and stewardship land sites are visually inspected using previously prepared maps, photos, current land uses, site forms, and other baseline data to monitor and document changes and determine trends and condition of the site as compared to the condition when the site was first discovered. At-risk sites are usually monitored more frequently than sites that have remained stable. Reporting Condition 93. According to SFFAS 29, par. 26, 27, and 41: Entities should report the condition of the heritage assets (and stewardship land) (which may be reported with the deferred maintenance information) as required supplementary information. Entities should include a reference to the condition and deferred maintenance information if reported elsewhere in the report containing the basic financial statements. Entities should disclose that multi-use heritage assets are recognized and presented with general PP&E in the basic financial statements and that additional information for the multiuse heritage assets is included with the heritage assets information. Heritage Assets 94. Condition information for HA and the different categories of HA should fit the particular situation and circumstances. The emphasis should be on evaluating the efforts to preserve HA in the same state as when they were discovered. Additionally, for some categories condition information should be reported on individual HA, while condition information for other categories is more appropriately reported for a collection. 95. The primary focus for museum collections is preservation. Great attention is given to: (1) stabilizing objects in the condition in which they were received; and (2) preventing further deterioration. Documenting facility preservation procedures to "safeguard" assets (i.e., adequately protected, properly managed, and not materially degraded while under government care) may be more appropriate than assessing individual objects as having good, fair, or poor condition.47 96. As previously noted, HA are generally expected to be preserved indefinitely.48 However, this expectation needs to be tempered with the understanding that all physical things will ultimately deteriorate. For example, in the restoration of the historic flag, “Old Glory,” the painstakingly careful work to remove the flag from an old linen backing could have caused some damage to the flag itself. Moreover, many of the flag’s woolen threads are already cracked as a result of flapping in the wind, aging, and exposure to light. The goal of safeguarding is to preserve HA for as long as possible, and to manage their condition in accordance with their intended use and not to unduly hasten their deterioration. 49 47 The Basis for Conclusions to SFFAS 6 highlights the importance of safeguarding HA/SL. 48 SFFAS 29, par. 16. 49 SFFAS 6, Basis for Conclusions, par. 125 states that the government "...must demonstrate that it is being an appropriate steward for these assets..." and must be able to answer basic questions such as "Is the government effectively managing and safeguarding its assets? " Note disclosures should answer this question. However, the assertion that HA are safeguarded is a significant statement that implies management controls are operating effectively, and entities making this assertion should have a credible basis for doing so. Heritage Asset Examples 97. Example 1: An Indian cliff dwelling may be discovered with only three remaining walls. The fact that the wooden roof has long since rotted away and one wall has fallen due to climatic conditions over many years does not mean that the remaining structure should be judged to be in poor condition. The original function of the cliff dwelling as living quarters is no longer relevant, but it must now be viewed in terms of its archeological value. Thus such a structure may be viewed to be in “acceptable” or “satisfactory” condition because either its particular state indicates that it will be preserved indefinitely or any necessary intervention has been accomplished to avoid further deterioration. Should there be a real possibility that another wall could collapse due to erosion from climatic conditions; the condition may be evaluated as “needs intervention” or “threatened.” 98. Example 2: The condition of museum collections may be evaluated in terms of a specific facility’s methodology used to preserve the assets, (i.e., the facility curating the museum collection), rather than by individual assets or collections.50 For example, prehistoric pottery that is retrieved from an archeological dig in broken pieces cannot be classified as being in “poor” condition. The original function of the pottery as a container to store water is no longer relevant, but rather it must be viewed in terms of its value to understand a prehistoric culture. However, the item could deteriorate beyond the condition in which it was found through improper care. 99. Museum collections unlike other HA are curated in a special facility. The criteria for reporting museum collection condition information is based directly on the facility housing the museum collection itself, because the facility determines whether the collection, as a whole, is in stable condition. Numerous factors such as temperature, relative humidity, and dust and pest control are used to evaluate facilities to determine their ability to minimize any deterioration that could happen to its contents.51 Consequently, a museum collection housed in a facility meeting museum conservation professional standards may be properly viewed as being in “acceptable” condition. A museum collection housed in a substandard facility can be viewed as being in a state “requiring intervention.” Rehabilitation of HA 100. Rehabilitation of a HA, to make possible a compatible use for that asset through repair, alterations, and additions while preserving those portions or features that convey its historic, 50 SFFAS 29, par. 16 and par. 81. 51 This methodology is consistent with standard professional museum practice as recommended by museum conservators and museum associations. cultural, or architectural values, may turn it into a multi-use heritage asset. Condition information would not be based on comparing the asset to its original, new state, nor to its state at the time it was first recorded or documented by archaeologists, but would rather be based on comparing the asset to its condition at the time it was originally rehabilitated. In this example, the rehabilitation work and resulting use in government operations moves the asset from the HA category to a multi-use HA category and as a result, it is reported as general PP&E. As such, the cost of the rehabilitation work would be capitalized and the property would be reported on the balance sheet with an appropriate value. 101. Some former HA have been recreated at the same site, and according to the same design using contemporary materials, as the original assets. Some of these recreations are not HA while some others have been determined to complement or add to the significance of the site and any condition information on the recreation may fall within the purview of general PP&E or HA depending upon its classification. Stewardship Land 102. Based on guidelines and criteria established by agencies for assessing condition, a key to the evaluation of land is whether it is capable of fulfilling its primary use. For example, land condition could be considered acceptable when it is capable of supporting one or more of its authorized uses. On the other hand, land condition may be considered unacceptable when intervention is needed due to environmental contamination that will cause humans or wildlife to be injured by virtue of their proximity to the contaminated land. Under such circumstances, readers would be referred to the environmental cleanup liability note in its financial statements for information as applicable. 103. The following discussion describes some of the relevant factors that exist as to why it is difficult to apply the concept of “condition”52 to the definition of land provided in the standard.53 104. Land exists as a result of thousands, millions, or billions of years of events such as volcanoes, earthquakes, fire, floods, erosion, collisions with cosmic debris, and so on. These are all natural events that are both creative and destructive. They formed the land and may also cause its destruction. Agencies are not able to easily assess the durability, obsolescence, or quality of design and/or construction of land like agencies do for constructed assets. 52 SFFAS 29 par. 41, footnote 22. 53 A solid part of the surface of the earth exclusive of depletable and renewable natural resources. 105. Land is also not subject to factors, such as accidents, catastrophes, disasters, and obsolescence within the same context as constructed assets because the physical state of land endlessly changes based on the forces of nature. Some natural forces have immediate effects on the asset, others, take weeks, months, or years, and still others, such as climatic changes or major geological events can produce a very long term effect. The concepts of “performing as planned,” “continued usefulness” and “performance capability” are difficult to apply to land. Land does not perform, it exists, recycles, and changes form depending on forces of nature. 106. The following provide examples of why the effects of natural occurrences of nature on the land are unpredictable. A lightning strike sparking a wildland fire would not have impact on the land itself but could devastate a plant community in a matter of minutes. However, that same fire could produce an invigorating effect on the plant community over the long term. Yellowstone National Park was so designated, in part, because of its geologic activity. The underlying volcanism that makes the park unique by producing hot springs, geysers, etc., will likely cause an immense change in its landscape at some point in the future. Under normal or average conditions, some soil erosion occurs due to flooding because of wind and water action on all land. In an event such as a flash flood, erosion occurs at an accelerated rate, even leaving the formation of gullies with unstable banks as vegetation cover is swept away in a flood. Heavy rains with a movement of water across a naturally barren landscape can lead to short-term undesirable effects. However, in the long term, gullies are stabilized by the vegetation that grows back and become the natural course for water to take in future years when rainfall occurs. These natural processes (erosion and stabilization) occur with or without human intervention and may not be "prevented" by any "condition" of the land. Drought is inevitable and has tremendous ecological and socioeconomic consequences. Both short-term and long-term droughts significantly impact natural resources and human lives. During short droughts, the lack of moisture typically causes reduced plant and animal productivity. Persistent droughts, characterized as several consecutive years with below average precipitation, are more infrequent but may be widespread and can result in significant economic and ecological stress and ecosystem alterations. When short or long-term droughts subside and precipitation returns to normal or above normal levels, the vegetative resource can respond dramatically and the land can quickly return to its natural state. Various desirable (and sometimes undesirable seeds) that have been lying dormant in the soil for years will germinate and vegetative growth can be extensive. Such was the case in Arizona in 2005. After a 7-plus year drought, the rains came at the right time and native vegetation flourished; so much that during 2006 there were many fire hazards. 107. Agencies do not typically perform maintenance on land. Unlike constructed assets, land does not meet the definition/description of maintenance--the act of keeping fixed assets in acceptable condition. Maintenance includes preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve an asset so that it continues to provide acceptable services and achieves its expected life. The type of activity (maintenance) as described herein is not scheduled, performed, or deferred on land. 108. While condition is not easily applied to land, it can be readily applied to constructed changes to the land that require recurring maintenance, such as a constructed marsh specifically built to provide habitat. Another example is land that has been contaminated by the release of hazardous substances or land that has been used to store, treat, or dispose of hazardous wastes. This information should already be disclosed in the notes to the financial statements as environmental liabilities and could be referenced in the stewardship note. Stewardship Land Examples 109. Example 1: An agency has a mission of conserving, protecting, and enhancing fish and wildlife and their habitats. Accordingly, the ability of the agency’s land to provide integrated habitat and life support for permanent resident populations and for migratory populations might provide a criterion to evaluate its condition. For example, does the land support sufficient vegetation to provide habitat for native species or are coastal or other marshes sufficient to support migratory bird populations? The agency would evaluate its land against these criteria and the results of this evaluation may be that the condition of the land is sufficient to support the mission of the agency (i.e., the land provides integrated habitat and life support for permanent resident populations and for migratory populations) and such condition would be disclosed. If the agency had constructed habitat by changing the land and if that constructed habitat required recurring maintenance that either was or was not performed, then the condition of the constructed habitat could be disclosed. 110. Example 2: An agency manages a small portion of the land under federal ownership for which it is required to clean up contamination resulting from past waste disposal practices, leaks, spills, and other past activity, which have created a public health or environmental risk. The contaminated sites covering about 10% of the agency’s SL have resulted from nuclear-powered aircraft carriers, submarines, and other nuclear ships or from the stockpile of lethal or incapacitating chemical warfare agents and munitions. These contaminated sites that make the surface of the earth uninhabitable by people would be listed in the environmental cleanup liability notes to the agency’s financial statements. The SL condition disclosure could identify these areas and report their condition as unacceptable. 111. The condition of the agency’s non-contaminated lands might be disclosed as sufficient to support the mission of the agency based on the agency evaluating this land in relation to its mission. If insufficient budgetary resources or other intervening factors prevented the mitigation of the environmental contamination, the agency would disclose this information (as applicable) in its environmental cleanup liability note to the financial statements and could reference that note in its stewardship note disclosure. The agency would also report the estimated cost of environmental cleanup as deferred maintenance in accordance with environmental liability standards.54 54 Standards for determining and reporting deferred maintenance are contained in SFFAS 6, which requires disclosures related to the condition and the estimated cost to remedy deferred maintenance of PP&E. Section IV: Government-Wide Reporting SFFAS 29 requires a balance sheet note reference and a note disclosure of HA/SL information in the U.S. Government-wide financial statement. The government-wide balance sheet should reference a note that discloses information about stewardship land and heritage assets, but no asset dollar amount should be shown. The note disclosure should include a brief statement explaining how HA/SL relates to the mission of the federal government; a description of its predominant uses; and a general reference to agency reports for additional information about HA/SL. The Government-wide financial statement should also disclose that multi-use heritage assets are recognized and presented with general PP&E in the basic financial statements and that additional information for the multi-use heritage assets is included with the heritage assets information. Appendix A: Basis for Conclusions A1. The HA/SL taskforce that developed this technical release was comprised of over a dozen different entities, varying in size, with experts in the field who had significant responsibility for heritage assets and/or stewardship land. The taskforce approached this implementation guide project by addressing the specific areas in SFFAS 29 that focus on identification, categorization, quantification and condition of these assets. The taskforce believed that the most meaningful information to guide preparers was through examples of how entities currently or in the past have identified, categorized and quantified heritage assets and stewardship land, as well as how they assessed their condition. A2. This technical release provides a variety of examples that are representative of the many types of stewardship assets in existence. In addition, this technical release provides numerous ways to disclose heritage assets and stewardship land since SFFAS 29 allows entities considerable latitude and flexibility in achieving the objective of relevant and reliable information for users. A3. Typically standards or technical releases do not address materiality. The taskforce believes that since no dollar amounts are assigned to these assets and that traditional materiality judgments about financial information are primarily quantitative and focused on dollar amounts that materiality needed to be addressed. Thus, the taskforce provided an approach for considering materiality to give preparers implementation guidance in applying materiality to heritage assets and/or stewardship land. A4. As a result of the taskforce deliberations, it reached a consensus on the material presented in this technical release. A5. The exposure draft, Implementation Guide for Statement of Federal Financial Accounting Standards 29: Heritage Assets and Stewardship Land, was issued June 11, 2007 with comments requested by August 13, 2007. Four comment letters were received from the following sources: FEDERAL (Internal) NON-FEDERAL (External) Users, academics, others 0 1 Auditors 0 0 Preparers and financial managers 3 0 A6. The Committee considered responses to the exposure draft at its September 27, 2007 AAPC meeting. The majority of the respondents agreed with the proposed guidance. Specific concerns were raised by several respondents related to developing supporting documentation when property records do not exist. The Committee believes there are number of ways to develop acceptable alternative documentation to support management’s assertions of federal ownership of heritage assets and stewardship land. Par. 85 is revised to address these concerns. In addition, clarifying language was added to par. 45-46 to help preparers in determining whether land meets the criteria for general PP&E land, stewardship land, and land rights as defined in SFFAS 29. Also, the technical release has been revised to highlight that the examples used in assessing and reporting condition provide a broad range of acceptable methods consistent with the purposes and intent of SFFAS 29. Finally, clarifying edits, revisions, and helpful examples were added to address commentators concerns. Appendix B: Excerpts from SFFAS 29 Heritage Assets and Stewardship Land See SFFAS 29, par. 1-105. Appendix C: Illustrative Disclosures PLEASE NOTE: Appendix C illustrates Heritage Assets and Stewardship Land disclosures at the component entity level. These illustrative disclosures may only include selected portions of a full disclosure as required by SFFAS 29. These illustrations are considered nonauthoritative guidance and are not required to be followed. Footnote Disclosure Heritage Assets: Example 1: (Par. 25 a. and b. of SFFAS 29) The Library of Congress classifies its collections as HA: assets with historical, cultural, educational, artistic or natural significance. Its mission is to maintain a universal collection and provide access for current and future generations. The Library’s collection development policies are designed to fulfill its responsibilities to serve (1) the Congress and United States government as a whole, (2) the scholarly and library community, and (3) the general public. Written collection policy statements ensure that the Library makes every effort to possess all books and library materials necessary to the Congress and various offices of the United States government to perform their duties; a comprehensive record, in all formats, documenting the life and achievement of the American people; and a universal collection of human knowledge embodying primarily in print form the records of other societies, past and present.55 Copyright deposits are a major source of the Library’s collections of Americana. The Library also acquires materials by purchase, transfer from other federal agencies, gift, domestic and international exchange, or by provisions of state and federal law. Many of these materials are foreign publications. Various preservation methods are used to maintain the collections, and disposals occur only for the exchange and gift of unwanted or duplicate copies. Stewardship Land: Example 2: (Par. 40 a. - d. of SFFAS 29) 55 Clinical medicine and technical agriculture are the responsibilities of the National Library of Medicine and National Agricultural Library, respectively. Agency X meets its mission by managing the lands and their various resources so that they are utilized in the combination that will best meet the needs as well as the enjoyment of both present and future generations of the American people. These resources include both natural and cultural HA of scenic, scientific, and historical value. The management of the lands and their associated HA are the essence of the Agency’s mission. The agency has been entrusted with stewardship responsibility for the management of natural resources on and beneath America’s SL as legislated through P.L. 94-579. Land use plans, developed with public involvement, are the mechanism by which use and levels of use are determined. The agency is required to develop, maintain, and, when appropriate, revise land use plans that divide the land into tracts or areas. The agency’s stewardship mission is to be environmentally responsible for commercial and noncommercial uses of the natural resources (depletable and renewable) associated with SL. P.L. 94-579 prescribes the uses that will be achieved or authorized on the land. The agency has 4 major categories of use: multiple; recreation; cultural, schools, and housing; and reclamation/irrigation. (The agency will provide a description of each major category of use in its note disclosure.) 1. Multiple use: a. Grazing: b. Wildlife: c. Minerals: d. Rights-of-Way: e. Recreation: f. Timber: 2. Recreation: 3. Cultural, Schools, and Housing: 4. Reclamation/Irrigation: The agency reports its physical units of SL by management unit. The “management unit” jurisdictions represent the management level at which specific management plans are developed and implemented to manage the natural resources related to the land for both present and the future periods. Agency A Stewardship Lands as of September 30, 200X Category of Use 200W Balance 200X Additions Note 1 200X Withdrawals Note 1 200X Net Change 200X Balance Condition Note 2 Multiple Use 118 2 3 -1 117 Acceptable Recreation 388 388 Acceptable Cultural/Schools/ 1 Housing 79 1 80 Acceptable Reclamation/ 1 -1 Irrigation 221 220 Acceptable Total 806 3 4 -1 805 Note 1: Describe the major methods of acquisition and withdrawal of SL during the reporting period. Note 2: Describe what constitutes acceptable and unacceptable condition. Example 3: American Battle Monuments Commission Significant Accounting Policies (Par. 25 a.- d. of SFFAS 29) Heritage Assets (could be combined with Property and Equipment note) The Commission’s stewardship policies are designed to be responsive to the overall mission of the Commission to design, construct, and maintain cemeteries and memorials. Heritage Assets are assets possessing significant cultural, architectural, or aesthetic characteristics. The Commission considers its cemeteries, federal memorials, monuments, and markers acquired through purchase or donation to be noncollection HA. HA are acquired through purchase or donation, are accounted for in the Commission’s property records, and are not presented in the balance sheet. Withdrawals of HA are recorded upon formal agreement with recipients. Additional disclosure on individual heritage asset cemeteries and memorials are found in the Schedules of HA presented as unaudited supplementary information. Cemetery land is owned by the foreign countries in which cemeteries are located and is provided to the United States in perpetuity. Heritage Assets Heritage assets are significant to the mission of the Commission. The Commission presents its HA in three categories; cemeteries, federal memorials, and nonfederal memorials. Changes in HA for fiscal year 20XX were as follows: Cemeteries Federal Memorials NonFederal Memorials Beginning of Year 10-1-XX 24 25 4 Number Acquired, Fiscal Year XX 0 0 2 Number Withdrawn, Fiscal Year XX 0 0 0 End of Year 9-30-XX 24 25 6 The Commission assumed responsibilities for private memorials for the 147th Engineer Battalion and the 507th Parachute Infantry Regiment during fiscal year 20X2. Through September 30, 20X2, Commission cemeteries contain over 131,000 interments. Over 94,000 Honored War Dead, whose remains were not recovered, are memorialized in the cemeteries and federal memorials that encompass over 1,600 acres. This land is provided to the Commission through host agreements with foreign countries for permanent use as cemeteries and memorials. Required Supplemental Information (RSI) Disclosure (Par. 26 of SFFAS 29) The following illustrates sample disclosure of condition information for the American Battle Monuments Commission under SFFAS 29. Disclosure of condition information is also illustrated for the Library of Congress. However, agencies may develop and use other disclosures to fit their circumstances as deemed necessary. Example 4: American Battle Monuments Commission Condition assessment surveys, using a five-point scale of one (excellent) to five (very poor), identify needed future maintenance and repair projects at cemeteries and memorials in order to maintain real property and heritage assets in an acceptable condition of three (fair) or better. These surveys are reviewed and updated at least annually by the Commission’s engineering staff. In addition, engineering projects identified improvements in cemetery irrigation, drainage, roads, parking areas, and buildings. As of September 30, 20XX, the Commission has identified a total of 333 maintenance, repair, and improvement projects, with an estimated cost of $15.8 million, to be performed in future years, subject to available funding. Example 5: Library of Congress The Library of Congress has the world’s largest library collection, including research materials in over 450 languages and various media. Providing access to this collection inevitably puts it at risk and could impair the Library’s ability to serve the Congress and other users in the future. However, the collections exist to be used, and management accepts the responsibility of mitigating risk to the collections at the same time it fulfills its mission of service to the Congress and the nation. Therefore, the Library has chosen to balance the usage of the collection with the long-term preservation requirements of the collections. As of September 30, 20XX, the collections were determined to be in a useable condition for fulfilling its service mission. During fiscal 20XX, only a very small percentage of materials were removed from the collection because of damage caused by use and/or deterioration of the medium. The ultimate useful life of a library item varies by its medium (e.g., book, film, tape, manuscript, disk), and the manner in which it is used and stored. The Library employs a variety of methods to prolong the useful life of its deteriorating materials, including: The establishment of adequate environmental storage conditions The usage of binding or other methods to house items The mass deacidification of print materials The use of surrogates in serving the collections to the public The reformatting of collections to other media The Library has inadequate temperature and humidity control in some collections storage areas; inadequate space for appropriate storage of collections materials; insufficient space for reformatting the acetate negative collection; and insufficient funds for reformatting. These conditions cannot be fully addressed with current funds and physical plant. The move of collections into the storage facility at Fort Meade, Maryland, is serving to remedy many of these difficulties for books and paper-based materials, and the acquisition of the National Audio-Visual Conservation Center in Culpepper, Virginia, is a major step in the preservation of film and other media. Technical Release 10: Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment Status Issued June 2, 2010 Effective Date Upon issuance Affects None. Affected by Technical Release 21 Technical Release 23 Summary This technical release provides implementation guidance regarding the consistent application of TB-2006-1 as it relates to asbestos cleanup costs associated with facilities and installed equipment. Many federal agencies continue to struggle with interpreting and implementing a cost effective implementation methodology and it is apparent that guidance is needed to ensure consistent reporting of asbestos cleanup liabilities. Accordingly, this guidance has been updated to help ensure agencies recognize cleanup cost associated with asbestos in accordance with applicable GAAP, including but not limited to SFFAS 5, 6, 40, 42 and 44; Interpretation 9; Technical Bulletin 2006-1, 2017-2; and applicable TRs. This guidance provides additional clarification by providing a framework for identifying assets containing asbestos, assessing the asset to collect information and/or develop key assumptions in applying acceptable methodologies to estimate asbestos cleanup costs for federal facilities and installed equipment. Table of Contents Page Summary 1 Scope 4 Effective Date 4 Technical Guidance 3 Appendix A: Basis for Conclusions 11 Appendix B: Illustrations -- Examples of Practice 12 1-8 Paragraphs 1 through 8 were rescinded by Technical Release 21. Technical Guidance Scope 8A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 8B. This guidance is limited to federal real property5A that contains any form of asbestos. It provides additional clarification of federal GAAP for identification and recognition of asbestos-related cleanup costs and a methodology for identifying and recognizing asbestos liabilities associated with federal properties. Methodology for Identifying and Estimating Cleanup Costs Associated with Asbestos 9. The following methodology is for identifying and estimating cleanup costs associated with asbestos. The methodology, described below and illustrated in Diagram 1, was developed on the premise that federal entities must recognize a liability when a future outflow or other sacrifice of resources as a result of past transactions or events is "probable" and "reasonably estimable.” How this approach will be executed is at the discretion of the individual federal agency. 1-5 Footnotes were recinded by Technical Release 21. 5A For the purpose of this document, real property is defined as federal facilities and installed equipment within general PP&E, heritage, and stewardship categories. It includes 1) leasehold improvements, 2) real property owned by the reporting entity in the hands of or leased to others (for example, state and local governments, colleges and universities, or federal contractors), and 3) real property acquired through contracts or agreements that transfer ownership (see SFFAS 6, par. 18). Installed equipment "fixture" is defined in GAO-08-978SP, Volume III, Third Edition of the Principles of Appropriation Law (13-199) as those equipment items that are (1) permanently attached to the realty, or (2) if not permanently attached, (a) it is necessary and indispensable to the completion and operation of the building, or (b) the structure was designed and built for the purpose of housing the equipment. 10. The following steps may be taken to identify real property5B that may contain asbestos. a. Review inventory listing of all real property. b. Identify and eliminate all real property or group of real properties6 on the list that are not expected to contain asbestos. Document the basis for elimination such as: i. Asbestos survey results, or other records indicating the real property(ies) or group of real properties is not likely to contain asbestos (e.g., the manufacture date for items not likely to contain asbestos could be considered); ii. Records indicating all asbestos was previously removed from the real property(ies); or iii. Asset type is not likely to have asbestos or not required to be surveyed for asbestos (e.g., railroad tracks, power lines, airfield pavements, roads, sidewalks, and land).7 c. Property remaining on the list should be expected to contain asbestos. 11. Once steps have been taken to identify real properties that are expected to contain asbestos, each real property or group of real properties should be assessed to collect the information in paragraphs a and b below. For purposes of developing asbestos cleanup cost estimates, reasonable assumptions8 can be made in some cases to make up for a lack of actual data. 5BInterpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6, provides clarification and guidance regarding cleanup cost liabilities for component reporting entities when the component reporting entity responsible for reporting on an asset during its useful life is different from the component reporting entity that will eventually be responsible for settling the liability for the cleanup cost of that asset. Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, provides that assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis. 6Real property may be sorted into groups by category, type, and/or locations. Examples of categories might include buildings, and other structures. Examples of types might include railroad tracks, power lines, and sidewalks. Locations may be facilities or sites recently built and known to be asbestos free. A combination of categories, types, and/or locations may also be used. 7 In accordance with TB 2006-1, paragraph 6, this guidance regarding asbestos-related cleanup costs does not include naturally occurring asbestos (NOA) that can be found in soil, rocks and mines. NOA is contained in land, and land is considered to have an indefinite useful life. Therefore, NOA would appropriately be accounted for under the requirements of SFFAS 5. a. The scope of asbestos removal required at real property(ies) renovation, disposal or demolition by determining the: i. Most likely method of real property renovation or demolition (e.g., use of heavy equipment, implosion/explosion, or manual methods); and ii. Federal, state and local regulatory requirements governing asbestos management to identify added costs to standard demolition (e.g., asbestos surveys, sampling, removal, and nonroutine materials management). Regulatory requirements must be considered to identify additional cost considerations that may differ by location such as extent of asbestos surveys, sampling, removal, and nonroutine materials management. b. The amount, type, location, and expected condition of asbestos and asbestos containing materials in the real property or group of properties by referring to available records, to include records of comparable assets in the same asset class, reasonable surveys of the real property(ies) and/or real property construction information. c. If the information above is either not available or not sufficient to support assumptions in lieu of actual data, yet the existence of asbestos has been identified in paragraph 10 above, then the removal of asbestos may be considered probable but not reasonably estimable at that time. The existence of asbestos and a statement that such an estimate cannot be made should be disclosed in the notes to the financial statements.9 The agency should estimate and recognize any other identifiable costs (e.g., asbestos survey). 12. If sufficient information is available to develop a cleanup cost estimate or support key assumptions needed for the cost estimate, then one of the following estimating methodologies can be used for each real property or group of real properties to estimate cost of removal, containment or disposal. a. A property-specific cost estimate based on survey data (most accurate, if available); or b. An extrapolation of historical cost or cost estimates for asbestos cleanup of similar real property(ies); or 8Assumptions include renovation or demolition method, the quantity and quality of asbestos to be removed (paragraphs11. a and b) and other information that affects cost (e.g., asbestos survey, sampling, removal, and nonroutine materials management). As additional information becomes available, the federal entity should reevaluate its key assumptions and make necessary adjustments to the cost estimate and liability. 9TB 2006-1, par. 49. c. A cost model10 used for an individual real property or group of similar real properties and information from industry-specific cost estimation publications or standardized cost factors developed for each state; or d. Other reasonable methodologies. 13. Once the estimated asbestos cleanup cost associated with the removal, containment or disposal of the real property has been determined, that cost should be recognized and reported in accordance with relevant GAAP.11 14. If the asbestos cleanup cost cannot be estimated using any of the methodologies in paragraph 12, the agency should estimate and recognize any other identifiable costs (e.g., asbestos survey) as outlined in TR 2 (Section 2: Determining “Reasonably Estimable” Environmental Liabilities – (2.) Experience with Similar Site and /or Conditions). 15. In accordance with SFFAS 6, paragraph 96, “Estimates shall be revised periodically to account for material changes due to inflation or deflation and changes in regulations, plans and/or technology. New cost estimates should be provided if there is evidence that material changes have occurred; otherwise estimates may be revised through indexing.”12 As additional information becomes available, key assumptions should be reevaluated, cost estimate revised, and necessary adjustments made to the liability recognition. 10 A cost model is a framework upon which an estimating methodology is developed. The model may use mathematical equations to convert resource data into cost data and require users to enter a minimal amount of information to generate cleanup cost estimates. 11Relevant GAAP includes but is not limited to SFFAS 5, 6, 40, and 42; Interpretation 9; TB 2006-1, TB 2017-2; and related TRs. 12TB 2006-1, paragraph 34: As reestimates are made, the cumulative effect of changes in total estimated asbestosrelated cleanup costs related to current and past operations shall be recognized as expense and the liability adjusted in the period of the change in estimate (SFFAS 6 par. 99). In certain scenarios, such as when cleanup costs have been fully expensed, the reestimate may result in a credit to expense for that year. Diagram 1: General Approach to Determining, Estimating and Recognizing Asbestos Cleanup Costs (Circles correlate to Sections of document) 16. The guidance in SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes, SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32, and SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, may also be relevant when considering the impact of asbestos cleanup on financial reporting. 17. The appendices (that include nonauthoritative illustrations and examples) of TR 10 are not updated for amendments.12A Therefore, readers are cautioned to refer to the paragraphs above for guidance that could impact the accompanying nonauthoritative illustrations and examples. Effective Date 18. This TR is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. 12AThe FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend a pronouncement. For example, within the text of a Technical Release, the guidance sections are updated for changes. However, appendices are not updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending pronouncements for the rationale for each amendment. Appendix A: Basis for Conclusions Background A1. In January 2008, the Accounting and Audit Policy Committee (AAPC), established the General Property, Plant, & Equipment (G-PP&E) Task Force to assist in developing implementation guidance for federal G-PP&E as it relates to SFFAS 6, Accounting for PP&E, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E Guidance developed by the FASAB. The task force includes federal agency representatives who are experiencing G-PP&E implementation issues and those who have G-PP&E implementation best practices to share with the federal community. A2. The AAPC G-PP&E task force was divided into four subgroups that will each address a set of related issues. Each subgroup meets separately on a regular basis to discuss its set of issues and report back to the full task force on its progress towards the development of implementation guidance. The four subgroups are: G-PP&E Acquisition G-PP&E Use G-PP&E Disposal G-PP&E Records Retention A3. This guidance was developed by the Disposal subgroup. The subgroup included members from the following federal agencies: Department of Defense Department of Energy Department of the Interior Government Accountability Office General Services Administration National Aeronautics and Space Administration Recognition versus Disclosure of Asbestos Cleanup Costs A4. An asbestos cost estimate is developed in accordance with the methodology outlined in TR 2 once the existence of the asbestos is determined. If the asbestos is probable, the entity must determine whether the costs can be reasonably estimated. Asbestos cost estimates rely on information such as the amount, type, and condition of asbestos in the property, the disturbance activity, and the federal, state and local asbestos regulations. This information is not always available due to: a) absence of environmental or legal driver to track the existence of asbestos; b) asbestos embedded in materials not visible through observation; and c) changes in regulatory restrictions on the use of asbestos in materials. For purposes of developing asbestos cleanup cost estimates, assumptions can be made in some cases to make up for a lack of actual data. When reasonable assumptions and associated estimates (i.e. supported by industry best practices) cannot be made, the presence of asbestos and the inability to reasonably estimate an amount of the total cleanup costs should be disclosed in the agency’s notes to the financial statements. Asbestos Cleanup Cost Estimation Approach A5. Cost estimates for future asbestos cleanup are dependent on information that is often not discovered until closer to initiation of a renovation or demolition project. As a result, cost estimates may be based on key assumptions that become more accurate as an asbestos cleanup project is planned. Thus, the methodology presented offers several options for developing cost estimates depending on the availability of asbestos information (i.e., cost model for individual or grouped properties, extrapolation of historical costs, property-specific cost estimate based on survey data). The methodology incorporates refinement of the cost estimate as better and relevant information becomes available over the life of the asset. Once a renovation or disposal project is planned and detailed asbestos surveys are conducted as dictated by environmental regulation, environmental liabilities should more accurately reflect future asbestos cleanup costs. Reasonable Cost Estimate A6. Management is responsible for making the accounting estimates included in the financial statements. Estimates are based on subjective as well as objective factors and, as a result, judgment is required to estimate an amount at the date of the financial statements. Management's judgment is normally based on its knowledge and experience about past and current events and its assumptions about conditions it expects to exist and courses of action it expects to take. An entity's internal control may reduce the likelihood of material misstatements of accounting estimates. The entity should consider the following factors when developing a reasonable cost estimate: 1. Accumulation of relevant, sufficient, and reliable data on which to base an accounting estimate. 2. Preparation of the accounting estimate by qualified personnel. 3. Adequate review and approval of the accounting estimates by appropriate levels of authority, including: Review of sources of relevant factors Review of development of assumptions Review of reasonableness of assumptions and resulting estimates. Evaluate whether the assumptions are consistent with each other, the supporting data, relevant historical data, and industry data Consideration of the need to use the work of specialists Consideration of changes in previously established methods to arrive at accounting estimates Consideration of changes in the business or industry that may cause other factors to become significant to the assumptions 4. Comparison of prior accounting estimates with subsequent results to assess the reliability of the process used to develop estimates. 5. Consideration by management of whether the resulting accounting estimate is consistent with the operational plans of the entity. A7. The AAPC released the exposure draft (ED), Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment on September 3, 2009. Upon release of the ED, notices and/or press releases were provided to: The Federal Register, the FASAB News, the Journal of Accountancy, AGA Today, the CPA Journal, Government Executive, the CPA Letter, and committees of professional associations commenting on past exposure drafts. A8. Nine letters were received from the following sources: FEDERAL (Internal) NON-FEDERAL (External) Users, academics, others 2 Auditors Preparers and financial managers 7 A9. AAPC received a comment on the exposure draft requesting clarification on whether removal of asbestos could be classified as part of normal operations, when performed during maintenance, repairs or alterations that occur over the life of the building, and therefore the cost of removal could be accounted for as an operating expense and not a liability. Although the building maintenance and repair occurs periodically over the life an asset, any asbestos contained in a specific asset may not be periodically removed and/or contained at every scheduled repair and/or maintenance activity. Therefore, the removal of asbestos should not be accounted for as a routine operating expense. Further, in accordance with TB 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs, paragraph 30, “it is possible for certain types of nonfriable asbestos-containing material to remain nonfriable indefinitely; therefore, the estimate does not need to include nonfriable asbestos-containing roofing, flooring, siding, and other materials that when repaired, renovated, removed, contained, disposed of, or otherwise disturbed do not become friable and do not require additional costs above and beyond normal repair, renovation, removal, containment, or disposal costs to prevent them from becoming friable. However, if there are additional costs incurred to prevent the nonfriable asbestos-containing material from becoming friable or if it could potentially become friable as part of the repair, renovation, removal, containment, or disposal process, such costs should be included in the estimate of asbestos-related cleanup costs.” Appendix B: Illustrations -- Examples of Practice The examples shown in this appendix are for illustrative purposes only. The explanations and illustrations are presented to show how the standards may be applied but are not standards themselves. These illustrations are general in nature and may not apply to specific cases that appear similar but have unique circumstances. The following examples illustrate the estimation of asbestos-related clean up costs associated with future repair/renovation or demolition projects at the time the asset is placed in service I. Evaluating Asbestos Cleanup Costs Associated with Real Property Repair or Renovation: A federal entity recognizes the potential to repair or renovate real property during the course of its operating life. For real property containing asbestos, the asbestos plan states that measures must be taken to contain and properly dispose of the asbestos if the materials become damaged or need to be removed. a. When the asset is placed into service or the entity first reports asbestos cleanup costs for a given real property, the following considerations may apply: An asbestos survey performed on the real property that requires repair indicates that the blown-in attic insulation and the ceiling tiles contain asbestos. A review of the federal and state requirements indicate that regardless of renovation or demolition method, the attic insulation and ceiling tiles will likely require removal in accordance with asbestos regulations. There is cost information available for removing, containing, and disposing of similar asbestos-containing materials. b. Based on the information above and in accordance with TR 2, since asbestos containing materials are present, the probability requirement of recognizing a cleanup liability is satisfied. Also, since there is information about the cost of removal, containment and disposal of the asbestos, the cost associated with asbestos cleanup is reasonably estimable. The federal entity must estimate the asbestos-related cleanup costs to be incurred while conducting the repair or renovation, plus the cost of cleaning up the asbestos remaining in the real property at the time of demolition, where reasonably estimable. These estimated costs would then be recognized as a liability according to the guidance in SFFAS 6, paragraph 104. II. Evaluating Asbestos Cleanup Costs Associated with Real Property Demolition: A federal entity acquires an asset that is suspected to contain asbestos. Federal accounting standards require that federal entities estimate the liability associated with asbestos removal, containment, or disposal when the asset is placed in service. a. At the acquisition date, the following is determined: There is no evidence or certification that the asset is asbestos-free. As some construction material utilized at the time the asset was built had been found to contain asbestos, it is therefore probable that asbestos may be present in the real property being assessed; The condition of materials suspected to contain asbestos was not surveyed by the previous owner; No asbestos survey or other assessment has been performed to estimate the type, location, or extent of asbestos in the real property; There are no assets that are similar in size, age and functionality that could be used to obtain information about the type, location, or extent of asbestos in the similar assets; There are no current reliable factors or parameters to be applied to a relevant asbestos liability estimation model; and It is not possible to determine the extent of the existence of asbestos without destroying or weakening the existing structure or disturbing potential asbestos, which would be undesirable. b. Based on the information above and in accordance with TR 2, the presence of asbestos in the real property satisfies the probability requirement of liability recognition. However, the cost of removal, containment, and disposal of the asbestos is not reasonably estimable at this time. The existence of asbestos and a statement that such an estimate cannot be made should be disclosed. In this case, the federal entity must estimate a liability for conducting an asbestos survey and any other identifiable associated cost, recognize that liability in accordance with the guidance in SFFAS 6, paragraph 104, and disclose information about the real property in the notes to the financial statement. Also, as relevant information about the real property and its asbestos become available, the federal entity should reconsider its key assumptions and use an acceptable estimation technique (i.e., cost model or similar real property) to develop a reasonable estimate of asbestos cleanup costs. Technical Release 11: Implementation Guidance on Cleanup Costs Associated with Equipment Status Issued June 2, 2010 Effective Date Upon issuance Affects None. Affected by Technical Release 21. Summary This technical release provides steps that can be followed to help federal entities recognize cleanup costs in accordance with applicable GAAP standards, including but not limited to SFFAS 5, 6, 40, 42 and 44; Interpretation 9; Technical Bulletin 2006-1, 2017-2; and applicable TRs. The guidance will also assist federal entities to provide reasonable estimates of cleanup costs associated with the disposal of equipment assets, when required. The guide focuses on cleanup of hazardous waste associated with equipment. It focuses on when cleanup costs should be recognized as an environmental liability and when it should be expensed as a cost of routine operation. In addition the guide includes two examples - one example is associated with equipment cleanup when a liability should be recognized and one is associated with equipment cleanup when the costs should be expensed as routine operations. Table of Contents Page Summary 1 Scope 3 Effective Date 4 Technical Guidance 3 Appendix A: Basis for Conclusions 10 Appendix B: Illustrations 13 Appendix C: Abbreviations 19 Appendix D: Glossary 21 1.-7. Paragraphs 1 through 7 were rescinded by Technical Release 21. Technical Guidance Scope 7A Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. Cleanup Costs Associated with Equipment5A at Disposal 8. Cleanup costs should be recognized in accordance with all relevant GAAP. In accordance with SFFAS 6, the cleanup costs are the costs of removing, containing, and disposing of (1) hazardous waste from property, or (2) material and/or property that consists of hazardous waste6 at permanent or temporary shutdown of the associated equipment asset. If the hazardous waste cleanup is unique to the equipment closure (either temporarily or permanently), disposal, or decommissioning, then the cleanup costs, as defined above, shall be estimated when the associated equipment asset is placed in service. Recognition of the expense and accumulation of the environmental liability shall begin on the date that the equipment asset is placed into service, continue in each period that operation continues, and be completed when the equipment asset ceases operation.7 A portion of estimated 1-4 Footnotes 1-4 were recinded by Technical Release 21. 5 Footnote 5 was recinded byTechnical Release 21. 5A Equipment is defined in Appendix D. 6 SFFAS 6 paragraph 86: Hazardous waste is a solid, liquid, or gaseous waste, or combination of these wastes, which because of its quantity, concentration, or physical, chemical, or infectious characteristics may cause or significantly contribute to an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness or pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, disposed of, or otherwise managed. 7 SFFAS 6 paragraph 98: Recognition of the expense and accumulation of the liability shall begin on the date that the PP&E is placed into service, continue in each period that operation continues, and be completed when the PP&E ceases operation. total cleanup costs shall be recognized as expense during each period that the equipment is in operation.8 9 In accordance with SFFAS 5, the liability is recognized when a future outflow or other sacrifice of resources as a result of past transactions or events is probable and reasonably estimable. In addition, TR 2 outlines several key factors (tests) that must be considered in determining whether a future outflow of resources from a federal entity for environmental cleanup is probable and can be reasonably estimable. Further, Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6, provides clarification and guidance regarding cleanup cost liabilities for component reporting entities when the component reporting entity responsible for reporting on an asset during its useful life is different from the component reporting entity that will eventually be responsible for settling the liability for the cleanup cost of that asset. Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, provides that assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis. Example of Practice -- Cleanup Costs Associated with Equipment at Disposal: Determination of hazardous waste cleanup liability associated with equipment disposal at the time equipment is being placed in service. 9. As the entity assesses the probability of future outflows of resources for environmental cleanup associated with the equipment disposal, the following factor should be considered. Does the acquisition or any other relevant information (e.g. operating records, experience with similar assets, etc.) identify materials that are used or created within the process that would constitute a hazardous waste at disposal? If the future outflows of resources for environmental cleanup are not probable, then the criterion for recognition of a liability is not established.10 10. If the future outflows of resources for environmental cleanup are probable then the entity must assess whether the hazardous waste associated with the newly acquired equipment will be regulated and/or managed the same as other routine operational waste (i.e. routinely disposed using the same method) at the federal facility, or will it be uniquely managed. 8 SFFAS 6 paragraph 97: A portion of estimated total cleanup costs shall be recognized as expense during each period that general PP&E is in operation. This shall be accomplished in a systematic and rational manner based on use of the physical capacity of the associated PP&E (e.g., expected usable landfill area) whenever possible. If physical capacity is not applicable or estimable, the estimated useful life of the associated PP&E may serve as the basis for systematic and rational recognition of expense and accumulation of the liability. 9 SFFAS 6 paragraph 104 provides additional instructions for initial implementation of SFFAS 6 and for liabilities related to assets in service at the effective date of this standard. 10 Technical Release 2 establishes guidance for when costs associated with environmental damage meet the probable and reasonably estimable criteria. 11. As the entity assesses the reasonable estimability of future outflows of resources for environmental cleanup related to equipment disposal, the entity should consider whether liability can be estimated for removing, containing, and/or disposing of the hazardous waste.11 12. If the future outflow of resources for environmental cleanup related to the equipment disposal are probable, and it is determined that the hazardous waste associated with the newly acquired equipment is not routinely removed and disposed during equipment operation; and the costs of removal or containment and/or disposal of the hazardous waste associated with disposal of the equipment can be reasonably estimated (estimates may include a study, if required), then the requirement of equipment disposal cleanup liability recognition has been satisfied and the federal entity must recognize an environmental liability for these estimated costs in accordance with SFFAS 6, paragraph 98. (See illustration in Diagram 1.)12 Cleanup Costs Associated with Equipment during Ongoing Operations 13. In accordance with SFFAS 6, paragraph 93,13 if such cleanup is an ongoing part of operations, the costs are to be accounted for in accordance with SFFAS 5, Accounting for Liabilities of the Federal Government, and are not subject to the recognition guidance provided in SFFAS 6, chapter 4 (par. 97 and 98). SFFAS 5 applies to all environmental liabilities not specifically covered in SFFAS 6, including cleanup resulting from accidents or when cleanup is an ongoing part of operations. Any accrued liability/payable and associated operating expense should be recognized in the period the cleanup occurs as part of ongoing operations. 11 SFFAS 6 Note 68: The unit of analysis for estimating liabilities can vary based on the reporting entity and the nature of the transaction or event. The liability recognized may be the estimation of an individual transaction or event; or a group of transactions and events. For example, an estimate of the cleanup costs could be made on a facility by facility basis, or an entity by entity basis. 12 In accordance with SFFAS 6, paragraph 96, “Estimates shall be revised periodically to account for material changes due to inflation or deflation and changes in regulations, plans and/or technology. New cost estimates should be provided if there is evidence that material changes have occurred; otherwise estimates may be revised through indexing.” As additional information becomes available, the agencies must reevaluate assumptions, revise cost estimates, and make necessary adjustments to the liability recognition. 13 SFFAS 6, paragraph 93: Other cleanup costs, such as those resulting from accidents or where cleanup is an ongoing part of operations, are to be accounted for in accordance with liability standards and are not subject to the recognition guidance provided in this standard. This guidance does not apply to these other types of cleanup since the cleanup effort is not deferred until operation of associated PP&E ceases either permanently or temporarily. 14. In many cases, hazardous wastes removed and disposed at decommissioning, shutdown and/or disposal of equipment are the same as those managed as part of the periodic routine maintenance and day-to-day operations, as determined by the regulatory requirements and method of managing the waste. For instance, the costs of removing and disposing of hazardous waste (e.g., batteries, cleaning solvents, motor oil) incurred as part of periodic routine maintenance of equipment over its useful life, are generally expensed and the associated liability/payable is recognized as the costs are incurred. The cost of removing and disposing of the same routine maintenance hazardous waste at the time of equipment disposal would likewise be expensed and associated liability is recognized when incurred. Example of Practice -- Cleanup Costs Associated with Equipment during Ongoing Operations: Determination of hazardous waste cleanup during ongoing operations of the equipment (routine hazardous waste disposal)13A at the time the equipment is being placed in service. 15. As the entity assesses the probability of future outflows of resources for environmental cleanup related to the equipment, the following factor should be considered. Does the acquisition or any other relevant information (e.g. operating records, experience with similar assets, etc.) identify materials that are used or created within the process that would constitute a hazardous waste at disposal? If the probability of future outflows of resources for environmental cleanup is not met, then the criterion for recognition of a liability is not established.14 16. If the future outflows of resources for environmental cleanup are probable, then the entity must assess whether the hazardous waste associated with the newly acquired equipment will be regulated and/or managed the same as other routine operational waste at the federal facility or will it be uniquely managed. 17. If the future outflows of resources for environmental cleanup related to the equipment disposal are probable and it is determined that the hazardous waste associated with the newly acquired equipment is regulated and/or managed the same as other routine operational wastes, then the costs of removal, containment and/or disposal of the routine wastes associated with disposal of this equipment asset are to be recognized, in accordance with the liability standards, in the period that the removal, containment and/or disposal of routine wastes occurs. These costs are not subject to the recognition guidance provided in SFFAS 6, paragraph 98. (See illustration in Diagram 1 below.) 13A Routine hazardous waste disposal is defined in Appendix D. 14 Technical Release 2 establishes guidance for when costs associated with environmental damage meet the probable and reasonably estimable criteria. 18. The guidance in SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes, SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32, and SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, may also be relevant when defining, measuring, and reporting estimated cleanup costs that are considered deferred and when considering the existence of any potential asset impairment indicators. 19. The appendices (that include nonauthoritative illustrations and examples) of TR 11 are not updated for amendments.14A Therefore, readers are cautioned to refer to the paragraphs above for guidance that could impact the accompanying nonauthoritative illustrations and examples. Effective Date 20. This TR is effective upon issuance. 14A The FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend a pronouncement. For example, within the text of a Technical Release, the guidance sections are updated for changes. However, appendices are not updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending pronouncements for the rationale for each amendment. Diagram 1: Recognizing Environmental Liabilities for Equipment Disposal in Compliance with relevant GAAP (Circles correlate to Sections of document) The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions A1. In January 2008, the Accounting and Audit Policy Committee (AAPC) established the General Property, Plant, & Equipment (G-PP&E) task force to assist in developing implementation guidance for federal G-PP&E as it relates to SFFAS 6, Accounting for PP&E, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E guidance developed by the FASAB. The task force includes federal agency representatives who are experiencing G-PP&E implementation issues and those who have G-PP&E implementation best practices to share with the federal community. A2. The G-PP&E task force was divided into four subgroups that will address a set of related issues. The subgroups meet separately on a regular basis to discuss their set of issues and report back to the full task force on its progress towards the development of implementation guidance. The four subgroups are G-PP&E Acquisition G-PP&E Use G-PP&E Disposal G-PP&E Records Retention A3. This guidance was developed by the Disposal subgroup. The subgroup included members from the following federal agencies: Department of Defense Department of Energy Department of the Interior Government Accountability Office General Services Administration National Aeronautics and Space Administration The subgroup included accountants, program managers, and functional PP&E experts. The program managers gave the subgroup the perspective of how the standards come into play on a day-to-day basis. A4. The scope of the implementation guidance is to address cleanup costs associated with equipment as it applies to SFFAS 1, 5, 6 and TR 2. The technical release focuses on when to recognize cleanup of hazardous waste associated with equipment as an environmental liability and when to expense as a routine operational cost. The technical release is separated into two sections – one addressing when SFFAS 1 should be applied and the other when SFFAS 6 should be applied. In addition, the technical release includes two examples – one example is associated with hazardous waste cleanup not routinely managed and disposed of, which includes liability recognition (e.g., PCB removal and disposal during ship decommissioning) and the other example is associated with hazardous waste cleanup routinely managed and disposed of, which includes expensing of the costs being accounted for as an operational expense (e.g., removal of dry cleaning solvents). A5. This technical release provides steps that can be followed to help federal entities consistently apply existing standards to assist in providing consistent, accurate and meaningful information. A6. In January 2009 the Disposal subgroup of the G-PP&E task force presented a draft equipment cleanup issue paper to the AAPC for review. The committee asked the subgroup to better clarify when the equipment cleanup cost should be recognized as a liability and when the costs should be expensed as routine operations. The Committee also asked the subgroup to include an additional example in the technical release for a naval ship to show the distinction between the disposal of hazardous waste during the normal operations of the ship and the disposal of hazardous waste unique to decommissioning the ship. In May the subgroup returned to the AAPC with a revised version of the implementation guidance that included the requested clarifications as well as the ship example. The members provided some additional comments to the subgroup on the technical release and agreed to review a preballot exposure draft of the guidance before the July AAPC meeting and then have a ballot exposure draft available at the July meeting. A7. The AAPC released the exposure draft (ED), Implementation Guidance on Cleanup Costs Associated with Equipment on September 3, 2009. Upon release of the ED, notices and/or press releases were provided to: The Federal Register, the FASAB News, the Journal of Accountancy, AGA Today, the CPA Journal, Government Executive, the CPA Letter, and committees of professional associations commenting on past exposure drafts. A8. Ten letters were received from the following sources: FEDERAL (Internal) NON-FEDERAL (External) Users, academics, others 2 Auditors Preparers and financial managers 8 A9. AAPC received a comment on the exposure draft requesting clarification on financial transactions and reporting requirements for cleanup costs associated with permanent versus temporary shutdown of the asset. Further, the respondent requested the exposure draft to be changed to only report cleanup costs associated with permanent shutdown of equipment. SFFAS 6 paragraph 8515 requires reporting of cleanup costs associated with both temporary and permanent shutdown of assets. In addition, the AAPC G-PP&E, Disposal Subgroup is in the process of defining triggering events and associated financial transactions for permanent and temporary shutdown and/or closure of G-PP&E. Additional guidance related to financial transactions and accounting for cleanup costs at the time the asset is permanently and/or temporarily closed and/or shutdown will be provided as a result of that effort. 15 Cleanup costs are the costs of removing, containing, and/or disposing of (1) hazardous waste from property, or (2) material and/or property that consists of hazardous waste at permanent or temporary closure or shutdown of associated PP&E. Appendix B: Illustrations The examples shown in this appendix are for illustrative purposes only. The explanations and illustrations are presented to show how the standards may be applied but are not standards themselves. These illustrations are general in nature and may not apply to specific cases that appear similar but have unique circumstances. Example 1: Decommissioning of Used Perchloroethylene Dry Cleaning Equipment A dry cleaning operation uses the hazardous material perchloroethylene (perc). Perc is a colorless liquid with mild odor used primarily as a dry cleaning solvent. Perc is highly volatile; 80- 85% of the chemical used annually is released into the atmosphere with only 1% to water. The greatest health risk presented by perc is inhalation by industry workers. Studies of industry workers indicate a “probable” linkage between prolonged exposure and certain cancers. Drycleaners typically recycle used solvent on-site which creates several hazardous wastes. Although the quantities of waste have been greatly reduced through recycling, hazardous waste will continue to be removed and disposed as long as the hazardous solvent is used in the operation. In addition, leaks and spills represent a significant potential environmental hazard. Table 1 presents the hazardous waste removed and disposed of from dry cleaning operations throughout the life of the asset and at decommissioning. The second and third columns of the table list the regulatory categorization (i.e., EPA Hazardous Waste code), and method for managing the waste, respectively. The fourth column indicates if the hazardous waste is regulated and managed in a manner that is routine to the operations or unique to decommissioning and disposing of the equipment at the end of its useful life. Table 1. Hazardous Waste from Dry Cleaning Operations and Decommissioning Waste EPA HW Code Waste Management Method Routine/ Unique Accounting Practice Rationale Reuse/recycle exempts waste or same waste/mgmt as operational Used Filter Cartridges F002, D039 Ship to TSDF Routine Operational expense (SFFAS 1) Spent Solvent F0021, D0392 Reuse/recycl e on-site or Ship to TSDF3 Routine Operational expense (SFFAS 1) Same waste/mgmt as operational Distillation Residues F002, D039 Ship to TSDF Routine Operational expense (SFFAS 1) Same waste/mgmt as operational Cooked Powder Residues F002, D039 Ship to TSDF Routine Operational expense (SFFAS 1) Same waste/mgmt as operational Unused Perc D039 Reuse/recycl e on-site or return to distributor Routine Operational expense (SFFAS 1) Reuse/recycle exempts waste Wastewater from equipment cleaning F002, D039 Ship to TSDF Routine Operational expense (SFFAS 1) Same waste/mgmt as operational Key: 1F002: Represents waste containing the class of solvent that includes perchloroethylene. 2D039: Represents waste containing the specific solvent, perchloroethylene. 3TSDF: Facility permitted for Treatment, Storage, and Disposal of RCRA hazardous waste. All hazardous waste from this equipment falls under the same regulatory requirements (F002, D039) and waste management method (ship to TSDF), or it is recycled and not disposed as a hazardous waste. The hazardous waste removed at decommissioning is the same as waste from ongoing operations and managed the same, as determined by the regulatory requirements. Thus, the cost associated with removal and disposal of the waste produced at decommissioning is recognized as a liability/payable and operational expense in the period incurred in accordance with the guidance provided in SFFAS 6, paragraph 93 and SFFAS 1. References: 1. RCRA in Focus: Dry Cleaning, EPA530-K-99-005, June, 1999. 2. Proper Disposal of Used Perc Dry cleaning Equipment, Environmental Facilities Corp, April, 2002. 3. A Pollution Prevention Guide for the Dry Cleaning Industry, Delaware Department of Natural Resources and Environmental Control, www.dnrec.state.de.us/deldrycl.htm Example 2: Ship Disposal The disposal of ships belonging to federal agencies is a significant event within asset lifecycle management. Extensive planning and acquisition of services is required to prepare for the retirement of these large-scale assets. Ship disposal may occupy 6 months to 1 year scheduling time of the shipyard’s drydock space. Removal of hazardous materials from the ship requires careful planning since the presence of water in and around the ship provides a transport media for hazardous materials to the environment and for human exposure. In the late 1990’s, the U.S. Navy conducted a pilot study to evaluate the feasibility and cost associated with retiring ships, focusing on processes and costs for hazardous material removal. Four separate contractors performed complete ship disposal, using customized processes and in accordance with the environmental regulatory standards of their respective States. Tables 2 and 3 present the waste streams managed during the disposal operation and identify whether the waste regulation and management is operationally routine or unique to the disposal process. The fifth column indicates if the costs should be accrued as a liability over the life of the asset (i.e., estimated at the time the asset is placed into service and recognized over the life of the asset) in accordance with SFFAS 6, paragraph 98, or expensed and recorded as a payable when the cost is incurred in accordance with SFFAS 1. The tables present high and low volume wastes, respectively, based on the experience of the contractors from the study. Table 2. High Volume/Cost Waste Streams Waste Source of Waste Waste Management Method Routine/ Unique Accounting Practice Rationale Unique Accrued Liability (SFFAS 6, paragraph 98) Unique operation and disposal of regulated waste. Asbestoscontaining materials (ACM) Pipe and hull insulation and cloth, liner, mastic, plastic foam, gaskets Disposal in ACM approved landfill16 Unique Accrued Liability(SFFAS 6, paragraph 98) Unique operation and disposal; TSCA18 requires PCB removal from metal prior to further processing. Waste Oil (Petroleum products) PCB Containing Waste Cable coatings, felt backing, paint, rubber products PCB removal under TSCA; Disposal as Solid or TSCA regulated waste.17 Fuel, lube oil, hydraulic oil Recover and recycle. Routine Operational Expense (SFFAS 1) Recovery of useful materials (e.g., metal, fuel) is not a liability. 16One contractor disposed electrical cables with asbestos-containing sheathings in their entirety, thereby greatly increasing the volume of ACM waste. Others removed the sheathings to recycle the copper cables. Also, some managed all thermal insulation as ACM rather than sample to determine exact amounts. 17Contractors in States that did not adopt EPA’s PCB “Mega Rule” need to sample and dispose all PCB waste as TSCA regulated waste. Other States that did adopt the rule allow disposal of PCB Bulk Product Waste (BPW) in a (nonhazardous) Solid Waste Landfill. 18Toxic Substance Control Act (TSCA) effective 1/1/77 authorizes EPA to control any substance that was determined to cause unreasonable risk to public health or the environment. Table 3. Low Volume/Cost Waste Streams Waste Source of Waste Waste Management Method Routine/ Unique Accounting Practice Rationale Mercury Fluorescent light tubes, fire detectors, tank level indicators Universal waste recycling. Routine Operational Expense (SFFAS 1) Routine recycling. RCRAhazardous paint coatings on metal Ship transducers, ballast, paint coatings Transferred to scrap metals recycler, RCRA exempt. Routine Operational Expense (SFFAS 1) Routine recycling of useful materials. Equipment with RCRAhazardous materials Contained in equipment Sale and reuse with disclosure to buyers Routine Operational Expense (SFFAS 1) Recovery of useful materials (e.g., metal, fuel) is not liability. CFCs Small refrigerators, water coolers, small freezer units Sale or reuse; CFC recycled by authorized subcontractor. Routine Operational Expense (SFFAS 1) Routine recycling. Note to Tables 2 & 3: Estimated costs associated with two of the high volume wastes (i.e., PCB and asbestoscontaining wastes) from ship decommissioning and disposal should be accrued as a financial liability over the asset’s useful life as they are nonroutine wastes not otherwise managed over the life of the asset. Costs associated with the remainder of the wastes would be accounted for as operational expense in the period incurred in accordance with the guidance provided in SFFAS 6, paragraph 93 and SFFAS 1. These wastes are either routinely recycled materials due to their inherent value (e.g., fuel, oil, CFCs), sold, or routinely disposed as universal waste (e.g., fluorescent lights, batteries, gauges). However, as stated upfront in this example, ship decommissioning is a unique operation due to increased risk and need for specialized services and space. In addition, the environmental costs incurred by individual contractors vary due to factors such as State and local regulation, technical approach to ship disposal, and waste identification and management processes. As a result, the federal agency’s management will likely need to make environmental liability determinations based on planned disposal operations for the asset or group of assets, using the examples provided in this document as a guide. Appendix C: Abbreviations ACM Asbestos Containing Material CARC Chemical Agent Resistant Coating CFC Chlorofluorocarbon PCB Polychlorinated biphenyl PERC Perchloroethylene RCRA Resource Conservation and Recovery Act TSCA Toxic Substances Control Act TSDF Treatment Storage Disposal Facility Appendix D: Glossary Environmental Liability An environmental liability is a probable, measurable and reasonably estimable future outflow or expenditure of resources that exist as of the financial reporting date for environmental cleanup costs resulting from past transactions or events. Equipment Equipment is any tangible, nonexpendable, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit. (34 CFR 80.3). Probable That which can reasonably be expected or believed to be more likely than not on the basis of available evidence or logic but which is neither certain nor proven. (FASAB Consolidated Glossary 2009). Reasonably Estimable The ability to reliably quantify in monetary terms the outflow of resources that will be required. (TR 2) Routine Hazardous Waste Disposal Disposal of hazardous waste that is regulated and managed the same as hazardous waste disposed of from day-to-day operations and on a regular basis. Useful Life The normal operating life in terms of utility to the owner. (FASAB Consolidated Glossary 2009) Technical Release 12: Accrual Estimates for Grant Programs Status Issued August 4, 2010 Effective Date For fiscal periods beginning after September 30, 2010. Affects None. Affected by None. Summary This technical release addresses materiality considerations, risk assessment, and procedures for estimating accruals for grant programs, including acceptable procedures until sufficient relevant and reliable historical data is available for new grant programs or changes to existing programs. This technical release also provides guidance on acceptable sources of documentation for grant accrual estimates; internal controls, including monitoring of internal controls and validation of grant accrual estimates; training of grantees; and monitoring of grantee reporting. Table of Contents Page Summary 1 Scope 3 Effective Date 3 Technical Guidance 5 Definitions 5 Appendix A: Basis for Conclusions 14 Appendix B: Illustrative Decision Tree Diagrams for Developing and Validating Grant Accruals 17 Appendix C: Relevant Citations of Existing Guidance 20 Appendix D: AAPC Grants Accounting Task Force 23 Introduction Purpose 1. A series of roundtables in April 2009 indicated that guidance for estimating accruals for grant programs would be helpful for agencies. Specifically, agencies indicated a need for guidance that describes a cost-effective framework for developing reasonable estimates of accrued grant liabilities. Scope 2. This Technical Release (TR) applies to grants1 that are paid by a federal entity to a nonfederal entity. This TR does not apply to contracts or other purchases of goods or services. This TR does not establish new reporting requirements. This TR does not affect reporting in the Budget of the United States or special-purpose reports such as those required by law or regulation to be prepared in accordance with guidance other than generally accepted accounting principles. Effective Date 3. This technical release is effective for periods beginning after September 30, 2010, with earlier implementation encouraged. 1 Terms first appearing in bold are defined in the glossary. Background Overview 4. This TR addresses materiality considerations, risk assessment, and procedures for estimating accruals2 for grant programs, including acceptable procedures until sufficient relevant and reliable historical data is available for new grant programs or changes to existing programs. This TR also provides guidance on acceptable sources of documentation for grant accrual estimates; internal controls, including monitoring of internal controls and validation of grant accrual estimates; training of grantees; and monitoring of grantee reporting. Related Accounting Literature 5. Related accounting standards are listed below. Relevant excerpts are provided in Appendix C: Relevant Citations of Existing Guidance. a. Statement of Federal Financial Accounting Standards (SFFAS) 1, Accounting for Selected Assets and Liabilities, b. SFFAS 3, Accounting for Inventory and Related Property, c. SFFAS 5, Accounting for Liabilities of the Federal Government, d. SFFAS 21, Reporting Correction of Errors and Changes in Accounting Principles, Amendment of SFFAS 7, Accounting for Revenue and Other Financing Sources e. Statement of Federal Financial Accounting Concepts (SFFAC) 5, Definition of Elements and Basic Recognition Criteria for Accrual-Basis Financial Statements 2 Agencies must recognize and report balances due to or advanced to grantees at the end of the reporting period. Adjustments are needed to provide for eligible expenses that grantees have incurred as of the reporting date but have not yet reported to the agencies. Since these adjustments are based upon estimates, they are referred to as “accrual estimates” in this guidance. In particular: Advances: Amounts issued as advances must be adjusted, even if grantees have not yet reported expenses incurred. (See SFFAS 1, Accounting for Selected Assets and Liabilities, par. 57-59.) Accounts Payable: Where there is no advance or no remaining advance, agencies must estimate amounts payable to grantees. (See SFFAS 5, Accounting for Liabilities of the Federal Government, par. 24-25.) Technical Guidance Definitions 6. Grants: 31 USC Section 6304 defines grants as follows: An executive agency shall use a grant agreement as the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when (1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and (2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.3 Materiality Considerations and Risk Assessment 7. SFFAS 3, paragraph 14, states that “the accounting and reporting provisions of...standards should be applied to all items that would influence or change the users’ judgment of the entity’s efficiency and effectiveness and its compliance with laws and regulations in a material manner.”4 In particular, management should consider the materiality of the grant program relative to the agency’s statement of net cost. 8. The following list includes some of the factors that management should consider in determining which grant programs may have a higher risk of material misstatement that might cause financial statement users to make incorrect assessments regarding the efficiency and effectiveness of the program: a. the degree of variance between past estimates and the program’s actual operating cost (if applicable) 331 USC Section 6302 excludes the following from the definition of a grant agreement: agreements under which is provided only - (A) direct United States Government cash assistance to an individual; (B) a subsidy; (C) a loan; (D) a loan guarantee; or (E) insurance. 4 SFFAS 3, paragraph 14. See Attachment 1 for the full discussion of materiality from SFFAS 3. b. significant findings reported in past program audits (if applicable) c. the age of the program (other factors being equal, mature programs may have less risk than newer programs) d. Congressional and other public policy interest in a given program 9. For grant programs that are immaterial to the statement of net cost and/or that have a lower risk of misstatement, management might consider validating estimates less frequently. 10. Management should apply cost-benefit considerations to the process of estimating accruals for grant programs. Preparing Accrual Estimates for Grant Programs 11. Preparing reliable and timely accrual estimates for grant programs must be a joint effort between the budget, financial, and program offices at each agency. These offices should work together to ensure that the procedures and internal control recommendations5 outlined in this TR are implemented and operating as designed. However, some agencies may not be able to effectively implement all of these procedures, because they have not yet developed the necessary data stores and/or methods for preparing grant accrual estimates. Therefore, until sufficient relevant historical information on grant programs is available, the alternatives outlined in this TR should be utilized for developing grant accrual estimates. 12. Agencies should document and maintain support for the data and assumptions used to develop grant accrual estimates. The documentation will facilitate the agency’s review of the assumptions, a key internal control, and will also facilitate the auditor’s testing of the estimates. Documentation should be complete and stand on its own, i.e., a knowledgeable independent person could perform the same steps and replicate the same results. If the documentation were from a source that would normally be destroyed, then copies should be maintained in the file for the purpose of reconstructing the estimates. 5 Internal control is an integral component of an organization’s management that provides reasonable assurance regarding the achievement of reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Internal control consists of the control environment, risk assessment, control activities, information and communications and monitoring. Source: Summarized from Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations (COSO), consisting of the American Institute of CPAs (AICPA), the Institute of Management Accountants (IMA), the Institute of Internal Auditors (IIA), Financial Executives International (FEI), and the American Accounting Association (AAA). See http://www.aicpa.org (accessed 3-12-2010) 13. For both existing grant programs and new or modified grant programs, management’s documentation of relevant program design factors may include: a. program definition including legislation b. legislation or regulations changing the terms, maximum grant amount, total program size, or characteristics of the grantee population c. program eligibility requirements d. grant agreements detailing the terms and conditions of the grants Preparing Accrual Estimates for Existing (Mature) Grant Programs 14. Agencies must accumulate sufficient relevant and reliable data on which to base accrual estimates. Each agency should prepare grant accrual estimates based upon the best available data at the time the estimates are made. Guidance on the types of supporting documentation of procedures that are acceptable for existing (mature) grant programs is found in paragraphs 13 and15 of this document. 15. For existing programs, management should ensure that adequate documentation is available for accrual estimates relating to existing grant programs. Typical support documentation may include: a. procedures used for calculating the estimate b. documentation for the review and approval process for the estimate c. support for the calculation of the estimate, including the underlying assumptions used d. historical data supporting the assumptions e. relevant documentation of supporting actual cash and/or accrual experience (including the date and source of reports, whether grantees reported on a cash or accrual basis, and how recently the data were updated). The documentation may include: i. historical data and trends, citing sources of information and relevant time frame ii. an analysis that identifies the most critical factors iii. trend analysis developed from reports from the accounting or program management systems iv. evidence of experience by other agencies with similar programs v. evidence of emergencies or legislated changes, such as changes in program terms, program size, or characteristics of grant recipients vi. evidence of other relevant factors that may be identified by grant program managers f. explanation of any sampling process used, including, if applicable, treatment of grant programs with different payment patterns, and/or legislation g. explanation of the calculation concept used, such as simple linear regression, statistical analysis, or other appropriate method h. procedures for error checking, including procedures to validate the completeness and accuracy of the underlying data used in preparing the accrual estimate i. procedures for monitoring/validation subsequent to the end of the reporting period Preparing Accrual Estimates for New Grant Programs or Changes to Existing Grant Programs 16. In the absence of sufficient relevant and reliable historical data on which to base accrual estimates, agencies should prepare estimates based upon the best available data at the time the estimates are made. Paragraphs 13 and 19 of this document provide guidance on acceptable types of supporting documentation. 17. In certain limited instances, informed opinion may be used to support grant accrual estimates in the absence of sufficient relevant and reliable historical data. Informed opinion refers to the judgment of agency staff or others who make estimates based on their programmatic knowledge and/or experience without using a fully satisfactory information store and, in some cases, without using an econometric or other statistical model. Informed opinion may be used only as a last resort when relevant and reliable historical data and/or modeling capabilities are not available. This could occur when a new program has been established or when the Congress has changed an existing program in ways that cannot be represented by historical data. Informed opinion should therefore be used as an interim method only, and the agency should develop an action plan to establish an information store, appropriate models, and supporting documentation. 18. If an expert is used, the expert’s qualifications, such as professional or academic certification or length and kind of experience, must be assessed. The basis of the stated opinion must be articulated and documented in sufficient detail to allow review and validation by independent sources, including independent auditors. For example, a statistician may be best qualified to determine the appropriate model for grant accrual estimates using limited or imperfect data. 19. Management should ensure that adequate documentation is available for grant accrual procedures for new programs or changes to existing programs that do not have historical supporting documentation. In the absence of relevant and reliable historical experience as the support for estimates, the agency should document the basis for accrual estimates. Typical support may include: a. relevant experience from other programs within the reporting agency or programs at other agencies, including documentation of why another agency’s experience is relevant, as well as similarities and differences (particularly possible biases) between the other agency’s experience and the new programs or changes to existing programs of the agency relying on the experience of the other agency b. extrapolation from subsets of prior program activity, e.g., while prior grants were not specifically targeted to a certain pool of grantees, it may be possible to identify prior activity with grantees with the same or similar characteristics to the targeted pool c. information from program managers regarding grantee activity and spending patterns 20. When expert opinion is used as an interim measure, the agency should document the expert’s qualifications, such as professional or academic certification or length of experience, as well as the basis for the stated opinion. In addition, the following documents should be maintained in support of the expert’s opinion: i. reports and studies on relevant issues ii. minutes from internal meetings and other relevant communications describing the basis for any assumptions or changes in assumptions 21. An illustrative decision tree diagram of the grant accrual process is displayed in Figure 1 of Appendix B: Illustrative Decision Tree Diagrams for Developing and Validating Grant Accruals. Internal Controls: Developing Grant Accrual Estimates 22. Management should ensure that adequate internal control procedures are in place. Procedures in place should ensure that grant accrual estimates are based on historical transactions in previous years to the extent that relevant and reliable historical data exists. 23. Documented procedures are important to communicate relevant information on the grant accrual estimation to employees and management as well as other interested parties, such as auditors. As an agency experiences employee turnover, these documented procedures can provide vital information for new employees on how to complete reliable, well supported grant accrual estimates. Such documentation may be used to establish consistent procedures for developing grant accrual estimates across grant programs with similar characteristics. 24. Internal control documentation may include: a. documentation of the procedures and flow of information used in developing grant accrual estimates, e.g., flow chart with supporting narrative b. a discussion of who is responsible for each step of the estimate as well as the review and approval process followed c. the model(s) used, the rationale for selecting the specific methodologies, and, for programs with sufficient historical data, the degree of calibration within the projected spending model(s)6 d. the sources of information, the logic flow, and the mechanics of the model(s), including the formulas and other mathematical functions e. detailed subsidiary accounting records by grant program f. an audit trail from individual transactions to the subsidiary ledgers to the general ledger g. an assessment of the impact of changes in law or regulations on the reliability of estimates and should ensure that the grant accrual estimate model reflects these changes h. an assessment of the impact of subsequent events on the entity’s grant accrual estimates (Some subsequent events may require adjustments to the financial 6 Calibration is the degree of precision within the model, i.e., the model’s ability to accurately predict the trends of expenses incurred for a given grant program. The degree of calibration within the model can be documented by charts or graphs showing projected expenses incurred versus the actual expenses incurred by reporting period. This document would analyze the variance between projected and actual expenses incurred by grantees. statements while others may require disclosure in the notes to the financial statements.7) i. a trend analysis of grant accrual estimates from year to year, and results of investigations of unusual fluctuations that are identified Monitoring Internal Controls 25. Management should monitor controls to determine whether they are operating as intended and that they are modified as appropriate for changes in conditions. Monitoring is a process that assesses the quality of internal controls performance over time. The Office of Management and Budget (OMB) Circular A-123, Management’s Responsibility for Internal Control, is issued under the authority of the Federal Managers’ Financial Integrity Act (FMFIA) of 1982 and provides guidance to federal managers on improving the accountability, efficiency and effectiveness of federal programs and operations by establishing, assessing, correcting, and reporting on management controls. Circular A-1238 provides that: Instead of considering internal control as an isolated management tool, agencies should integrate their efforts to meet the requirements of the FMFIA with other efforts to improve effectiveness and accountability. Thus, internal control should be an integral part of the entire cycle of planning, budgeting, management, accounting, and auditing. It should support the effectiveness and the integrity of every step of the process and provide continual feedback to management. Federal managers must carefully consider the appropriate balance between controls and risk in their programs and operations. Too many controls can result in inefficient and ineffective government; agency managers must ensure an appropriate balance between the strength of controls and the relative risk associated with particular programs and operations. The benefits of controls should outweigh the cost. Agencies should consider both qualitative and quantitative factors when analyzing costs against benefits.9 7See requirements in SFFAS 39, Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the AICPA Statements on Auditing Standards, August 4, 2010. 8 OMB Circulars are not applicable to legislative and judicial branch entities. However, the general principles are appropriate for federal reporting entities in the legislative and judicial branches. 9 OMB Circular A-123, December 21, 2004, Section I, page 5. Validation of Grant Accrual Estimates 26. As part of agencies’ internal control procedures to ensure that grant accrual estimates for the basic financial statements were reasonable, agencies should validate grant accrual estimates by comparing the estimates with subsequent grantee reporting. 27. When subsequently validating the reasonableness of accrual estimates, an agency does not need to obtain data10 from 100% of grantees in order to validate the reasonableness of grant accrual estimates. For example, agencies may validate estimates based upon: a. grantee data that represents a majority of the total grant portfolio, or b. data from a statistically valid sampling of the total grantee portfolio. 28. When developing grant accrual estimates, agencies only have access to data that is available at the time. The nature and reliability of available grant data varies widely and, because of the relationship between the grantor and the grantee, is often only indirectly influenced by management. The validation process includes an understanding that estimates are inherently uncertain, and that management must use judgment in determining: a. whether differences between estimated and actual expenses are reasonable b. if different estimation methods could result in more accurate estimates of net cost in the future 29. A difference between an accounting estimate and actual result does not necessarily represent a misstatement of the financial statements. Rather, differences could be an outcome of inherent estimation uncertainty. However, it could result in a misstatement if, as described in SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles, the difference arises from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared. Differences between estimates and actual should be taken into consideration in developing the subsequent period’s estimate.11 10 Data refers to information provided by grantees regarding their actual expenses or expenditures. Sources of data may include, but are not limited to, grantee reports to agencies and audited amounts from Single Audit Act audits. 11 See SFFAS 21, paragraph 10. 30. An illustrative decision tree diagram of the validation process is displayed in Figure 2 of Appendix B: Illustrative Decision Tree Diagrams for Developing and Validating Grant Accruals. Training and Monitoring of Grantees 31. Since preparation of accrual estimates is dependent upon relevant and reliable data, accurate and timely reporting by grant recipients serves as the basis for historical data used in preparing future estimates and provides reliable actual data to which accrual estimates can be compared. Agencies should consider whether grant recipients need training on completing required financial reports. If needed, training may be delivered via agency sponsored conferences, workshops and/or seminars, customer service centers and help desks, or computer based sources such as webcasts or other training options available through the agency’s website. 32. Reports submitted by grantees should be reviewed to ensure their reasonableness. Agencies should have policies and procedures in place to review and verify the grantee expenditures (or expenses) reported.12 33. When agencies engage in on-site financial monitoring of grantees, protocols should include comparing grant expenses or expenditures reported with actual expenses or expenditures and to supporting documentation. Techniques for monitoring of grantee reporting of expenditures may also include stratified sampling. 34. Timely follow up of incorrect reporting should be performed to ensure a higher degree of compliance with reporting requirements. For example, inaccurate grant expenditures (or expenses) reported could be conveyed to grantees by an official letter requesting a corrective action plan. During on-site financial reviews, technical assistance could be provided when grant expenditures reported are inaccurate. The provisions of this Technical Release need not be applied to immaterial items. 12 At the time of this writing, grant recipients predominantly report expenditures. However, expenses may be reported in some cases and in the future. Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. Project History A1. A series of roundtables in April 2009 indicated that guidance for determining whether estimates of advances and payables for grant programs are reasonable would be helpful for agencies. Specifically, agencies indicated a need for guidance supporting cost-effective development of reasonable estimates. A2. A Task Force consisting of representatives from federal agencies and independent accounting and consulting firms assisted FASAB staff in identifying areas where guidance would be helpful. Specifically, members indicated a need for guidance regarding: a. appropriate reliance on the best available data in light of the often limited access grantee data b. situations where no historical data is available such as new or modified grant programs c. assessment about materiality and whether it is appropriate to focus on the statement of net cost when making such assessments d. cost-effective means of validating previous estimates A3. Proposed draft guidance was submitted to the FASAB’s Accounting and Auditing Policy Committee (AAPC) for consideration at the January 2010 AAPC meeting. The AAPC agreed to accept the project. Summary of Outreach Efforts A4. The exposure draft (ED), Accrual Estimates for Grants, was issued March 22, 2010, with comments requested by April 22, 2010. Upon release of the exposure draft, notices and press releases were provided to: a. the Federal Register b. FASAB News c. the Journal of Accountancy, AGA Today, the CPA Journal, Government Executive, the CPA Letter, and Government Accounting and Auditing Update d. the CFO Council, the Presidents Council on Integrity and Efficiency, and the Financial Statement Audit Network e. committees of professional associations generally commenting on exposure drafts in the past f. members of the Grants Accounting Task Force that helped develop the ED A5. To encourage responses, a reminder notice was provided on April 22, 2010 to the FASAB Listserv. Comments Received A6. We received 24 responses from the following sources: FEDERAL (Internal) NON-FEDERAL (External) Users, academics, others 0 3 Auditors 4 2 Preparers and financial managers 15 0 Total 19 5 A7. The majority of responses concurred with all aspects of the proposed guidance. Revisions were made for the following reasons: a. corrections (such as removing references to year-end, since the guidance can be applied to any reporting period) b. revisions to language that was more prescriptive than the AAPC intended (by adding phrases such as “typical support may include” rather than a list that might be interpreted as being a required checklist) c. improvements for clarity and to improve the logical flow of the guidance Netting of Grant-Related Advances and Accounts Payable A8. The ED included the following proposed guidance on netting grant-related advances and accounts payable on the face of the balance sheet with a requirement to report grant-related advances and accounts payable in a note to the financial statements: Display [26] When grant accrual estimates are prepared on an aggregate level, agencies may display a net amount on the balance sheet and report estimated disaggregated advances and liabilities in a note. (An illustrative example is displayed in Appendix C, Illustrative Example of Note on Netting Grant Advances and Accrued Liabilities.) A9. Although a majority of respondents concurred with the proposed guidance, a significant minority found the language confusing. In addition, the language appeared to allow netting in certain circumstances and to prohibit it in other circumstances, which was not the intent of the proposed TR. The AAPC believes that significant revisions to the guidance would be needed to clarify it. Generally, significant revisions are adopted only after providing an opportunity for public comment. Given the time involved in issuing a revised ED for comment, the AAPC decided to delete the proposed guidance on netting from this TR. The AAPC expressed willingness to address the issue of netting in the future if needed. Effective Date A10. The ED included a provision that the guidance was effective immediately. Two respondents indicated that the effective date should be postponed to a future fiscal year, with earlier implementation encouraged. Although TRs do not establish new reporting requirements, the AAPC has no objection to postponing the effective date to FY 2011 with earlier implementation encouraged. Appendix B: Illustrative Decision Tree Diagrams for Developing and Validating Grant Accruals The example decision tree diagram in Figure 1 below illustrates processes that agencies might use in the grant accrual process described in paragraphs 11– 19. This example is illustrative only and is not authoritative guidance. Figure 1: Illustrative Example of Grant Accrual Process Obtain most recent reports from grantees. Does relevant and reliable historical data exist? Yes No Search database for historical trends. Does similar historical data exist? Yes No Analyze similarities and differences. Determine a reasonable basis for initial estimate (e.g., straight-line projection). Apply to most recent data. Apply historical trend data to most recent data. Post accrual estimate. Post accrual estimate. Post accrual estimate. Proceed to validation/verification when grantee reports are received. This example decision tree diagram in Figure 2 below illustrates processes that agencies might use in validating grant accrual estimates in paragraphs 26 - 29. This example is illustrative only and is not authoritative guidance. Figure 2: Illustrative Example of Validation/Verification Process Obtain subsequent reports from a sufficient proportion of grantees that correlate to the reporting period that was estimated. (See paragraph 27 of this TR.) If reports represent less than 100% of grantees, perform an analysis and project available actual data to the estimate. Does difference cause any statements presented to be materially misstated? 1 Yes No Approve estimate and document verification. Was difference caused by misuse of information available at the time? 2 Yes No Restate prior period financial statements. Update data used to calculate accrual estimate for future periods. Consider updating process for estimating accruals. Incorporate adjustment into current period estimate Update data used to calculate accrual estimate for future periods. Consider updating process for estimating accrual. 1. See SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles, Amendment of SFFAS 7, Accounting for Revenue and Other Financing Sources, paragraph 11. 2. See SFFAS 21, paragraph 10. Appendix C: Relevant Citations of Existing Guidance Five elements of accrual-based federal financial statements – assets, liabilities, net position, revenues and expenses) are defined in Statement of Federal Financial Accounting Concepts 5, Definitions of Elements and Basic Recognition Criteria for Accrual-Basis Financial Statements. An asset is a resource that embodies economic benefits or services that the federal government controls.13 A liability is a present obligation of the federal government to provide assets or services to another entity at a determinable date, when a specified event occurs, or on demand.14 Statement of Federal Financial Accounting Standards (SFFAS) 1, Accounting for Selected Assets and Liabilities, defines advances as cash outlays made by a federal entity to its employees, contractors, grantees, or other to cover a part or all of the recipients’ anticipated expenses or as advance payments for the cost of goods and services the entity acquires. Examples include travel advances disbursed to employees prior to business trips, and cash or other assets disbursed under a contract, grant, or cooperative agreement before services or goods are provided by the contractor or grantee.15 SFFAS 5, Accounting for Liabilities of the Federal Government, states that: [24.] A nonexchange transaction arises when one party to a transaction receives value without directly giving or promising value in return. There is a one-way flow of resources or promises. For federal nonexchange transactions, a liability should be recognized for any unpaid amounts due as of the reporting date. This includes amounts due from the federal entity to pay for benefits, goods, or services16 provided under the terms of the program, as of the federal entity’s reporting date, whether or not such amounts have been reported to the federal entity (for example, estimated Medicaid payments due to health providers for service that has been rendered and that will be financed by the federal entity but have not yet been reported to the federal entity). 13 SFFAC 5, par. 18. 14 SFFAC 5, par. 39. 15 SFFAS 1, par. 57. 16 SFFAS 5, Footnote [12] Goods or services may be provided under the terms of the program in the form of, for example, contractors providing a service for the government on the behalf of the disaster relief beneficiaries. [25] Many grant and certain entitlement programs are nonexchange transactions. When the federal government creates an entitlement program or gives a grant to state or local governments, the provision of the payments is determined by federal law rather than through an exchange transaction. SFFAS 5 requires that for grant programs, the liability that should be reported includes the amount of allowable expense that the grantees have incurred as of the end of the period, but have not collected from the agency. Complying with SFFAS 5 requires that the agency estimate the amounts not reported by the grantee but due to the grantee as of the reporting date. When the grantee has submitted subsequent reports providing the grantee’s actual costs, the federal agency will be able to assess the grantee reports for accuracy and/or analyze the agency’s previous estimate for accuracy. SFFAS 3, Accounting for Inventory and Related Property, “Materiality” section, states that: [7.] The Board intends that the standards' application be limited to items that are material. "Materiality" has not been strictly defined in the accounting community; rather, it has been a matter of judgment on the part of preparers of financial statements and the auditors who attest to them. The Board proposes relying on the Financial Accounting Standards Board's (FASB) concept as modified by certain concepts expressed in governmental auditing standards. Presented below is the Board's position on the issue of materiality at this time. [8.] The accounting and reporting provisions of the Board's accounting standards need not be applied to immaterial items. The determination of whether an item is immaterial requires the exercise of considerable judgment, based on consideration of specific facts and circumstances. [9.] FASB's Statement of Accounting Concepts No. 2, "Qualitative Characteristics of Accounting Information," discusses the concept of materiality. According to this statement, the determination of whether an item is material depends on the degree to which omitting or misstating information about this item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. This concept includes both qualitative and quantitative considerations. An item that is not considered material from a quantitative standpoint may be considered qualitatively material if it would influence or change the judgment of the financial statement user. [10.] The Board believes that FASB's definition of materiality is generally appropriate for use in applying the accounting and reporting provisions of the Board's accounting standards. In the federal government environment, however, the definition is extended to apply to all financial information included in the annual financial report and, therefore, is not limited to the principal schedules and related notes. [11.] In applying the concept of materiality, the needs of the users of the annual financial report should also be considered. In the federal government environment, such needs generally differ from those of users of commercial entity financial statements. For example, federal government financial statement user needs extend to having the ability to assess the efficiency and the effectiveness of the entity's programs. Further, compliance with budget and other finance-related laws, rules, and regulations is also a significant consideration of such users. [12.] This is expressed well in the Government Auditing Standards (the "Yellow Book"): "In government audits the materiality level and/or threshold of acceptable risk may be lower than in similar-type audits in the private-sector because of the public accountability of the entity, the various legal and regulatory requirements, and the visibility and sensitivity of government programs, activities, and functions." (Ch. 3, par. 33.) [13.] While this standard applies to an auditor's evaluation of materiality rather than a preparer's, it does provide insight into the factors affecting materiality in the federal government. [14.] Therefore, the accounting and reporting provisions of the Board's recommended standards should be applied to all items that would influence or change the users' judgments of the entity's efficiency and the effectiveness and its compliance with laws and regulations in a material manner. [15.] In order to emphasize that materiality should be considered in applying all accounting standards, the Board has decided to place a notice at the end of each recommended accounting standard. The notice will read as follows: Appendix D: AAPC Grants Accounting Task Force Wendy M. Payne, Task Force Chair (AAPC Chair) Task Force Working Group: Department of Health and Human Services Patricia Irving DJ Business Solutions Denise Joseph Department of Transportation Katherine Lambert Grant Thornton LLP Shal Malhotra Kforce Government Solutions Jim McKay Department. of Justice Marcia Paull Department of Justice Frank Ramos KPMG LLP Catherine Supernaw KPMG LLP Derek Thomas Clifton Gunderson LLP Denise Wu Task Force Member Agencies Department of Agriculture U.S. Agency for International Development Department of Commerce Corporation for National and Community Service Corporation for National and Community Service OIG Defense Finance and Accounting Service Department of Education Environmental Protection Agency Executive Office of the President, Office of Administration General Services Administration Government Accountability Office Department of Health and Human Services Department of Health and Human Services OIG Department of Housing and Urban Development OIG Department of Justice Department of Justice OIG Department of Labor OIG National Aeronautics and Space Administration National Science Foundation Office of Management and Budget Small Business Administration Department of Transportation Department of Transportation OIG Department of the Treasury Task Force Member Firms Clifton Gunderson LLP Deloitte & Touche LLP DJ Business Solutions Grant Thornton LLP Kearney & Company Kforce Government Solutions KPMG LLP PricewaterhouseCoopers Technical Release 13: Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment Status Issued June 1, 2011 Effective Date Upon issuance Affects None. Affected by Technical Release 17. Summary This technical release addresses the historical cost estimating of G-PP&E. The guide provides direction on types of estimating methodologies and the documentation to support the valuation estimates of G-PP&E. This guidance provides a foundation for preparers to exercise judgment in formulating those estimates. The examples outlined illustrate the use of various estimating methodologies to derive the historical cost of G-PP&E in accordance with existing guidance permitting use of estimates. Table of Contents Page Summary 1 Technical Guidance 3 Appendix A: Basis for Conclusions 16 Appendix B: Abbreviations 18 Technical Guidance Paragraphs 1 through 10 were rescinded by Technical Release 17.1 Scope 10A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 10B. SFFAS 6, Accounting for Property, Plant, and Equipment, (as amended) provides that reasonable estimates may be used to establish historical cost of general property, plant, and equipment (PP&E) in accordance with the asset recognition and measurement provisions within SFFAS 6. This is also applicable to internal use software when the software meets the criteria for general PP&E in accordance with SFFAS 10, Accounting for Internal Use Software. 10C. SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35, amended SFFAS 6 to allow a reporting entity, under specific conditions, to apply alternative valuation methods in establishing opening balances for general PP&E. Effective Date 10D. This TR is effective upon issuance. Examples of Practice 11. The examples outlined in this guide illustrate the use of various estimating methodologies to derive the historical cost of general PP&E in accordance with SFFAS 6, as amended. 1 Footnote 1 was rescinded by Technical Release 17. Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E in accordance with the asset recognition and measurement provisions of SFFAS 6, as amended.1A 12. Reasonable estimates may be based on a. cost of similar assets at the time of acquisition; b. current cost of similar assets discounted for inflation since the time of acquisition (that is, deflating current costs to costs at the time of acquisition by general price index); or c. other reasonable methods, including latest acquisition cost and estimation methods based on information such as, but not limited to, budget, appropriations, engineering documents, contracts, or other reports reflecting amounts to be expended.2,3,4 12A. In some cases, the in-service date must be estimated. In estimating the year that the base unit was placed in service, if only a range of years can be identified, then the midpoint of the range is an acceptable estimate of the in-service date. 13. Agency management is responsible for establishing accounting policies, including the methodologies and bases for estimating historical cost. Management is also responsible for maintaining adequate documentation of the sources of data and the application of methodologies used when estimating historical cost. Management should expect to support estimates with verifiable documented information. Adequate documentation of the source of the data and the application of the methodology used will help support management’s assertion that the results are in compliance with accounting standards in all material respects. 14. The specific examples in this guidance are how agencies derived estimated historical costs using the following methods: a. Deflation of current replacement costs, 1A SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35, provides for deemed cost to be used for opening balances in some cases. Estimating historical cost is one of several deemed cost valuation methods. This TR addresses the estimation of historical cost and does not address other acceptable deemed cost methods. 2 Footnote 2 was rescinded by Technical Release 17. 3 Footnote 3 was rescinded by Technical Release 17. 4 Footnote 4 was rescinded by Technical Release 17. b. Appraisals (with deflation to the year of purchase), c. Expenditures, d. Budgets and appropriations, and e. G-PP&E in possession of Contractors. Estimates may be based on information such as, but not limited to, budget, appropriations, engineering documents, contracts, or other reports reflecting amounts to be expended. 15. The following examples provide methods used to estimate G-PP&E historical costs. However, the examples are for illustrative purposes only. The examples are not allencompassing and agencies may identify other more useful and relevant estimating methodologies. The examples are not meant to be step-by-step instructions on how to develop estimating methodologies. Users of this guidance should use the information provided in these examples to develop their own reasonable estimating methodologies. Federal entities implementing this guidance are also encouraged to discuss any new estimation methodologies with their auditors prior to implementation. EXAMPLE 1 – Deflation of Current Replacement5 16. The following example describes an estimation methodology used by Agency A to establish an estimate of the original cost of a building constructed in 1984. Agency A uses the estimated construction cost of the building in present day dollars and then discounts that value back to the year in which the asset was constructed. Agency A takes the current replacement costs of similar items and deflates those costs, through the Consumer Price Index (CPI). Note that other indices from the Department of Labor’s Bureau of Labor Statistics also may be appropriate but were not selected for use in this example. Population of Data 17. The agency determined the cost of replacing the building in its same physical form (with substantially the same materials and design); then the agency used a pricing index to discount the current asset cost to its estimated cost at the time of acquisition or construction. 5 Some of the information used in this example was obtained from the Public Sector Accounting Standards Board (PSAB) of the Canadian Institute of Chartered Accountants /Asset Management Newsletter No. 16 (prepared by KPMG). Assumptions Used 18. The following assumptions were used to estimate the cost of the building and land. a. Land was purchased in 1983 and is appraised at $1.5 million in 2008. b. A 50,000 square feet building was constructed in 1984, is well maintained and has not received any major betterments except for a 5,000 square foot addition in June 1999. c. 2008 replacement cost of the building was estimated at $8.5 million (including $500,000 replacement cost for the addition). d. Expected useful life of the building is 40 years and depreciation would be calculated at year 24 of a 40 year asset. e. CPI is used for deflating cost. 6 Calculation of Estimate 19. To estimate the original cost of the building in 1984, Agency A multiplied the current replacement cost of the building ($8.0 million - excluding an addition constructed in 1999) by the CPI (0.4505). Based on this calculation, the deflated cost of the building was approximately $3.604 million in 1984 dollars. Similar calculations using CPI for the addition and land yielded the estimated historical cost of these components of the property. The calculations are presented below. Table 1: 2008 Reproduction Cost Cost Index 19XX/2008 Estimate of Original Cost Building $8,000,000 .4505 $3,604,000 Addition $500,000 .6960 $348,000 Total Building $8,500,000 $3,952,000 Land $1,500,000 .4100 $615,000 Total $10,000,000 $4,567,000 6 For simplicity the example uses the Consumer Price Index to discount current replacement costs to the year of original purchase or construction. In some cases, the Consumer Price Index may be the only option. However, for some assets a more precise pricing index might be available. For example, the Department of Labor's Bureau of Labor Statistics has an extensive table of indices. Analysis of Data 20. Once the estimated historical cost of the building was established, the cost was amortized to the 2008 opening balance sheet date using appropriate depreciation rates in order to establish the opening net book value. Table 2: At October 1, 2008 Age/Useful Life Years Estimated Historical Cost Accumulated Depreciation Net Book Value Building 24/40 $3,604,000 $2,162,400 $1,441,60 0 Addition 9/15 348,000 208,800 139,200 Total Building 3,952,000 2,371,200 1,580,800 Land 615,000 0 615,000 Total $4,567,000 $2,371,200 $2,195,80 0 EXAMPLE 2 – Use of Appraisal Information 21. The following example describes an estimation methodology used by Agency B to establish the estimated cost of two vessel classes by the use of third-party appraisals to support asset record adjustments. The example uses estimates obtained from appraisals to validate the value of the vessels and to determine necessary adjustments to Agency B’s core accounting system. Population of Data 22. In order to populate the data for estimation, Agency B performed several of the following procedures. a. Agency B conducted a physical inventory to ensure that assets identified for appraisal could still be physically located and were still in service. Physical inventories were conducted using: i. on-site vouching, ii. digital photos with newspaper showing the date and location, or iii. authorized maintenance or operations applications to confirm existence. b. Agency B reviewed and, if needed, updated date-in-service (DIS) from historical information. c. Agency B determined that records in the accounting system were consistent with the inventory and DIS. d. Agency B ensured that assets within a class were similar in configuration. e. The Agency B program offices were used to gather “technical engineering” information (e.g. type of engines, technical updates). Assumptions Used 23. The following assumptions were used to estimate the cost of the sea vessels. a. Agency B did not provide cost, accumulated depreciation and net book value to appraisers to avoid the possibility that these values might influence the third-party appraisers output. Values are appraised using a deflation factor to year of purchase. b. If there was no DIS for a vessel, an average DIS was determined by using the DIS from the first and last vessels placed in service. The asset’s acquisition cost was then “indexed” by using an appropriate Bureau of Labor Statistics pricing index. c. Appraisal specialist determined appraisal value using a desktop appraisal approach.7 Analysis of Data 24. An appraisal report containing an individual valuation (estimated acquisition cost) for each asset as of the identified date of the report or appraised value as of original date in service (contract specific) was provided to Agency B. The agency performed many of the following analytical processes. a. An Agency B subject matter expert reviewed and approved appraisal report. 7 A “desktop” appraisal is when an appraiser estimates the value of a property without a physical inspection, but uses property records. The desktop approach was used by Agency B for appraisals and cost estimates due to the cost benefits; it is less costly to an agency than a physical inspection appraisal. b. If there was no DIS for a vessel, an average DIS was determined by using the DIS from the first and last vessels placed in service. The asset’s acquisition cost was then “indexed” by using an appropriate Bureau of Labor Statistics pricing index. c. The appraisal/calculated cost was compared to official fixed assets record cost to determine asset cost difference. d. Agency B prepared a detailed summary of differences by asset (and class) to compare cost and accumulated depreciation. e. The data was reviewed and approved by appropriate Agency B personnel. f. Documentation was prepared containing support of the fixed asset adjustments needed. Calculation of Estimate 25. Agency B then analyzed the financial statement impact of the appraisal process to determine needed adjustments. Table 3: Appraisal Value less Fixed Asset Records Acquisition Cost Appraisal Value less Fixed Asset Records Depreciation Expense Net Change Vessel Class I (16 VSLS) FY96 FY04 $607.9M $(60.1)M $3.0M $(57.1)M System Acquisition Cost per Fixed Asset Records ASSET CLASS (#) Delivery Start Delivery End Vessel Class II (65 VSLS) FY 98 FY06 287.4M 7.6M (5.7)M 1.9M Totals $895.3M $(52.5)M $(2.7)M $(55.2)M Once the appraised values were accepted, necessary adjustments were made to the system (asset by asset/lump sum) to determine the estimated historical cost of the vessel classes. EXAMPLE 3 – Use of Expenditure Information 26. Agency C used the following procedures to estimate its real property values by the use of expenditures. Expenditures were available on a project basis but each project produced multiple assets. The objective was to assign reliable project cost to individual assets based on estimates. Population of Data 27. Agency C real property personnel first examined their records to determine whether a complete and current inventory of real property by individual project was available. If the specific inventory of a complete project did not exist an inventory would be obtained from project personnel on-site. 28. An Agency C real property work group then obtained a summary of actual capitalized project costs by real property class (i.e., Land, Dams, Levees, Buildings, Grounds, etc.). Analysis of Data & Calculation of Estimate 29. Once the work group had both a project specific inventory of all real property assets and a breakout of the actual capitalized costs by project and class, they began the process of assigning a value to each asset within a project not to exceed the total project cost. Utilizing all available real estate records, project records, assistance from cost estimating personnel, comparative data at other projects, real estate financial information, operations data, engineer estimates, plus video tapes, photographs, narrative descriptions of the structure and professional judgment the work group either used actual cost or estimated the cost of each asset ensuring the total dollars assigned agreed with the total cost for each project as recorded in Agency C’s financial subsystem. EXAMPLE 4 – Use of Budget and Appropriation Information 30. The following example outlines steps for estimating the historical cost of existing assets using budget and appropriation information. Assumptions Used a. Congress appropriated funds to Agency D in FY 2007 to acquire 9 aircraft. b. As of the estimation date, 7 of the 9 aircraft have been delivered. Analysis of Data & Calculation of Estimate 31. The steps of this process include: a. Verification of existence of the asset acquired. b. Estimation of total historical cost for the asset group c. Documentation 32. Verification of existence a. Prior to delivery, all costs associated with the items were reported in an appropriate asset account. When the asset was delivered it was recorded in an accountability system of record (ASR) and the completed asset was subject to inventory/existence verification. b. The asset management system was updated when data on the receipt of the aircraft was sent from the reporting entity’s property accountability system of record. The acknowledgment of delivery serves as proof that the aircraft assets were received. Continued existence of the asset was verified through periodic inventories. 33. Estimation of total historical cost for the asset group a. The recorded cost of the assets should represent the “historical cost”, including costs associated with getting the asset to a form and location suitable for its intended use. b. The asset valuation is based on the Budget of the U.S. Government (commonly referred to as the President’s Budget request). The Budget and related budget justification materials provided detailed supporting information that facilitated congressional review of budget requests. As the entity is reviewing the budget information for inclusion in the estimate, the entity should also review related information, such as planning documents, to identify other material costs associated with getting the asset to a form and location suitable for its intended use. If material, such costs should be estimated. For simplification of this example, the other associated costs are not shown in the below example. Table 4 below shows the FY 2007- Funded aircraft cost based on amounts included in the Budget. Table 4 - Calculations to Determine the Cost of FY 2007-Funded Aircraft ($ in Millions) Procurement cost for 9 aircraft based on budget estimates $722.6 Less support equipment* (81.1) Total cost for the 9 aircraft $641.5 Average cost ($641.5M 9) $ 71.38 *The supporting equipment is subtracted from the aircraft procurement cost in order to capitalize this equipment separate from the cost of the aircraft. c. The Agency D Appropriation Act and/or the conference report accompanying it is used to identify the amount of program funding provided by Congress to address requirements identified in the Budget. Amounts appropriated may frequently differ from amounts requested in the Budget. The related congressional committee or conference report on the appropriation may explain the rationale for the change from the amount requested in the Budget. Table 5 below shows the amount of the congressional appropriation for the aircraft less the value of excluded amounts. Excluded amounts were based on detail included in the Budget. Table 5 - Appropriation Amount Less Excluded Items for Aircraft ($ in Millions) Provided in FY 2007 Appropriations Act $725.0 Less support equipment (Based on budget detail)* (81.1) Adjusted appropriated amount for the 9 aircraft $643.9 Average cost ($643.9M 9) $ 71.5 *The funding for support equipment was not separately identified in the appropriation. For cost purposes, the amount included in the Budget estimate ($81.1M) was used. d. Adjustments to funds available to a program may frequently occur over the life of the appropriation. These adjustments, which can increase or decrease available funds, 8Valuations based on budget information may need to be revised to address material revisions that occur subsequent to budget submission during the appropriation and funds allocation processes. result from actions including congressional rescissions and Departmental reprogrammings. Table 6 below shows the aircraft cost as adjusted to account for a subsequent year Congressional rescission. Table 6 - Appropriation Amount Less Excluded Items for Aircraft* ($ in Millions) Adjusted appropriated amount for the 9 aircraft $643.9 Less Congressional rescission for the aircraft (9.9) Total appropriated amount for the 9 aircraft $634.0 Average cost ($634.0M 9) $ 70.4 *The capitalized cost may not exceed the appropriated amount as adjusted by Departmental reprogramming and congressional rescissions, (i.e., the amount shown in Table 6). 34. Documentation a. Agency D maintains sufficient and appropriate documentation relating to: (1) existence; (2) cost analysis techniques; (3) data source; and (4) reasonableness of the estimation methodology. EXAMPLE 5 – G-PP&E in the Possession of Contractors 35. The following example summarizes the procedures used at Agency E for estimating the cost of G-PP&E in the possession of its contractors. This estimate may be used when the agency lacks internal documentation and/or when the cost of reconstructing records using internal documentation is cost prohibitive. 36. Contractors generally follow a process similar to the one described below, when estimating the value of G-PP&E manufactured or acquired for federal agencies, referred to in this example as contractor-held G-PP&E. These acquisitions may be held for use by the contractor, held for use by other contractors, or transferred to a federal entity for its direct use. The values are typically estimated by the contractor first obtaining a Bill of Material (BOM) for every part required to complete the G-PP&E asset being constructed. The BOM can have cost, quantity, part description, raw materials used, etc. Also, Contractors typically add estimated labor cost. This labor value is then added to the BOM cost to derive a total estimated direct cost for the G-PP&E asset. Further, Contractors apply overhead and, when applicable, other indirect markups. The sum total for the asset is the basis used to support GPP&E recorded by Agency E. 37. Agency E has procedures in place to provide reasonable assurance that the contractorprovided estimates of the value of manufactured items are reasonable. The processes described below are intended to provide Agency E with relevant, sufficient and reliable information on which to base its estimate of contractor-held G-PP&E. Population of Data 38. Agency E contractors are required to report information related to acquisitions, fabrications and/or disposals of individual G-PP&E items to Agency E on a regular basis. To facilitate reporting, Agency E utilizes an automated reporting tool, when appropriate, to receive this information from its contractors and maintains control over this information prior to it being entered into the property accounting system. Analysis of Data 39. Agency E employs a series of controls over the preparation of contractor accounting estimates and supporting data, including assessments and validation procedures that are applied through independent external parties and/or internal agency resources. External Third Party Procedures 40. When practical and cost effective, Agency E leverages to the extent possible independent assessments performed by external parties. The objective of these assessments is to provide Agency E with reasonable assurance that contractor property, logistics and cost accounting systems comply with federal requirements designed to provide a reasonable estimate of the G-PP&E data. 41. An Agreed upon Procedures (AUP) review of Agency E’s major contracts is one example of an independent assessment. The contracts subject to the AUP reviews are selected using a risk-based approach. The AUPs include a review of the contractor’s policies, procedures and internal controls relevant to the contractor's cost accounting, logistics and production systems. The intention of the assessments is to validate the accuracy, reliability, existence, and completeness of contractor reported G-PP&E data through an analysis of transaction samples. Internal Third Party Procedures 42. Agency E's procurement, logistics, project management, and finance personnel also performed oversight and validation activities over contractor estimate submissions on an ongoing basis. 43. Agency E procurement personnel, for example, oversee the execution of contractor work as required by the contracts in accordance with the FAR. This step is to provide reasonable assurance that the work for which costs are being estimated is being performed as contracted. Agency E contracting officers have a key role in the systems of controls and validation procedures by ensuring that specific clauses are included in the contracts and that contract terms and conditions are adhered to by the contractor. 44. Agency E logistics personnel, acting as Government Property Administrators, conduct reviews to assess the effectiveness of the contractor’s government property management systems. 45. Program and Project managers review the information provided by contractors against established plans and approve or disapprove contractor reported incurred costs, as appropriate. This critical information supports the reasonableness of contractor provided information. Calculation of Estimate 46. Agency finance personnel perform reviews of the information reported by contractors prior to recording G-PP&E estimates. Periodic validation procedures may include performing analytical procedures over the account balances to explain period-to-period fluctuations, reconciling the data reported by the contractor to the agency's financial system, tracing activity to supporting documentation, and validating ownership of property. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions A1. In January 2008, the Accounting and Audit Policy Committee established the General Property, Plant, & Equipment (G-PP&E) task force to assist in developing implementation guidance for federal G-PP&E as it relates to SFFAS 6, Accounting for PP&E, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E Guidance developed by the FASAB. The task force included federal agency representatives who were experiencing G-PP&E implementation issues and those who have G-PP&E implementation best practices to share with the federal community. A2. The G-PP&E task force was divided into four subgroups that addressed a set of related issues. The subgroups met separately on a regular basis to discuss their set of issues and reported back to the full task force on its progress towards the development of implementation guidance. The four subgroups were: G-PP&E Acquisition G-PP&E Use G-PP&E Disposal G-PP&E Records Retention A3. This guidance was developed by the Acquisition subgroup. The subgroup included members from the following federal agencies: Department of Defense Department of Energy Department of the Interior Government Accountability Office General Services Administration National Aeronautics and Space Administration A4. The purpose of this implementation guidance is to provide support and direction relative to the types of estimating methodologies and the documentation that could be used to support the valuation estimates as outlined in SFFAS 6, 23, and 35. It does not address the need to validate existence and completeness. This guidance provides a foundation for preparers to exercise judgment in formulating those estimates. A5. This implementation guide provides examples that federal entities can use as guidelines when developing G-PP&E estimates of original transactional data historical costs in accordance with the standards. A6. The AAPC released the exposure draft (ED), Implementation Guidance for Estimating the Historical Cost of General Property, Plant, and Equipment on December 10, 2010. Upon release of the ED, notices and/or press releases were provided to: The Federal Register, the FASAB News, the Journal of Accountancy, AGA Today, the CPA Journal, Government Executive, the CPA Letter, and committees of professional associations commenting on past exposure drafts. A7. Fifteen letters were received from the following sources: FEDERAL (Internal) NON-FEDERAL (External) Users, academics, others 2 Auditors 3 Preparers and financial managers 10 A8. Respondents were primarily supportive of the examples provided. Some respondents provided editorial suggestions and many were adopted. Records Retention Requirements Presented in the Exposure Draft A9. The Committee asked readers of the exposure draft to comment on the proposed recommendations of the AAPC G-PP&E task force -- Records Retention subgroup. No changes were suggested by respondents and these recommendations have now been forwarded to the National Archives and Records Administration (NARA) for consideration. Through its General Records Schedule (GRS) NARA specifies the minimum period for retaining paper and electronic financial records documenting the acquisition of PP&E. The Federal Acquisition Regulation (FAR) also provides guidance for retaining historical cost data. The subgroup was tasked with developing recommendations for the consistent records retention policies specifically for G-PP&E. A10. The objective of the Records Retention subgroup was to look into the issue of records retention timeframes and methods (hardcopy vs. electronic) for records that support G- PP&E reported in agencies’ general purpose financial statements and make cost-beneficial recommendations. The subgroup found that policies varying regarding retention timeframes and the types of records to support assertions related to G-PP&E. The subgroup’s research and recommendations were limited to records retention guidance and practices for the G- PP&E category. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee AICPA American Institute of Certified Public Accountants AUP Agreed Upon Procedures CEFMS Corps of Engineers Financial Management System CIP Construction in Process COEMIS Corps of Engineers Management Information System DIS Date-In-Service FAR Federal Acquisition Regulation FASAB Federal Accounting Standards Advisory Board FASB Financial Accounting Standards Board GAO Government Accountability Office G-PP&E General Property, Plant, and Equipment GRS General Records Schedule IPA Independent Public Accountant NARA National Archives and Records Administration OIG Office of the Inspector General OMB Office of Management and Budget PB President’s Budget PP&E Property, Plant, and Equipment SAS Statement on Auditing Standards SFFAS Statement of Federal Financial Accounting Standards TR Technical Release USACE United States Army Corps of Engineers USCG United States Coast Guard Technical Release 14: Implementation Guidance on the Accounting for the Disposal of General Property, Plant, and Equipment Status Issued October 6, 2011 Effective Date Upon issuance Affects None. Affected by Technical Release 21. Summary This technical release addresses implementation guidance that further clarifies applicable GAAP requirements for the disposal, retirement, or removal from service of general property, plant, and equipment as well as related cleanup costs. This includes but not limited to SFFAS 5, 6, 40, 42 and 44; Interpretation 9; Technical Bulletin 2006-1, 2017-2; and applicable TRs. The implementation guidance should help differentiate between permanent and other than permanent removal from service of G-PP&E assets. The implementation guidance also recognizes the many complexities involved in the disposal of G-PP&E, as well as delineates events that trigger discontinuation of depreciation and removal of G-PP&E from accounting records. Readers should incorporate both deferred maintenance and repairs (DM&R) guidance and asset impairment (AI) guidance. Specifically, SFFAS 40 and SFFAS 42 will assist entities in defining, measuring, and reporting estimated DM&R costs when G-PP&E assets are disposed, retired, or removed from service. SFFAS 44 will assist entities in determining the existence of any potential asset impairment indicators for any G-PP&E assets remaining in service. Table of Contents Page Summary 1 Introduction 3 Effective Date 3 Technical Guidance 3 Appendix A: Basis for Conclusions 9 Appendix B: Illustrations 13 Appendix C: Abbreviations 21 Appendix D: Glossary 22 1.-4. Paragraphs 1 through 4 were rescinded by Technical Release 21. Technical Guidance Scope 4A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. SFFAS 6: Disposal of G-PP&E 5. In accordance with SFFAS 6 paragraph 38, "in the period of disposal, retirement, or removal from service, general PP&EA shall be removed from the asset accounts along with associated accumulated depreciation/amortization." When G-PP&E assets are disposed of, retired, or removed from service, deferred maintenance and repair (DM&R) estimates as defined and required by SFFAS 40 and SFFAS 42, respectively, should be re-estimated to the extent such estimated costs are related to the G-PP&E assets disposed of, retired, or removed from service.B Additionally, to the extent any portion of a G-PP&E asset is not disposed of, retired, or otherwise continues to remain in service, SFFAS 44 should be consulted to ascertain whether partial impairments should be accounted for and reported, including additional DM&R information when necessary, such as changes in DM&R exclusions. Further, paragraph 39 (bold added)1 states that: A Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, provides that assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis. B For example, in situations where DM&R costs are estimated for an asset group and a component (or components) of that group is disposed of, retired, or removed from service, the DM&R re-estimate should be performed only for the assets remaining in the group. 1 Terms defined in the Glossary are shown in boldface type the first time they appear. General PP&E shall be removed from general PP&E accounts along with associated accumulated depreciation/amortization, if prior to disposal, retirement or removal from service, it no longer provides service in the operations of the entity. This either could be because it has suffered damage, becomes obsolete in advance of expectations, or is identified as excess. It shall be recorded in an appropriate asset account at its expected net realizable value. Any difference in the book value of the PP&E and its expected net realizable value shall be recognized as a gain or a loss in the period of adjustment. The expected net realizable value shall be adjusted at the end of each accounting period and any further adjustments in value recognized as a gain or a loss. However, no additional depreciation/amortization shall be taken once such assets are removed from general PP&E in anticipation of disposal, retirement, or removal from service. SFFAS 6: Recognition of Cleanup Costs Associated with Disposal of G- PP&E 6. Additionally, SFFAS 6 provides requirements for recognition and measurement of disposal related cleanup costs.1A A portion of estimated total cleanup costs shall be recognized as expense during each period that general PP&E is in operation. This shall be accomplished in a systematic and rational manner based on use of the physical capacity of the associated PP&E (e.g., expected usable landfill area) whenever possible. If physical capacity is not applicable or estimable, the estimated useful life of the associated PP&E may serve as the basis for systematic and rational recognition of expense and accumulation of the liability. Recognition of the expense and accumulation of the liability shall begin on the date that the PP&E is placed into service, continue in each period that operation continues, and be completed when the PP&E ceases operation. 1A Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6, provides clarification and guidance regarding cleanup cost liabilities for component reporting entities when the component reporting entity responsible for reporting on an asset during its useful life is different from the component reporting entity that will eventually be responsible for settling the liability for the cleanup cost of that asset. Other than Permanent vs. Permanent Removal from Service 7. The following section provides further clarification and guidance to the requirements stated in SFFAS 6, paragraphs 38, 39, 97, and 98 as those paragraphs relate to “removal from service.” The terms “disposal” and “retirement” are used in the above referenced SFFAS 6 paragraphs and are intended to describe G-PP&E disposals that are permanent in nature. However, “removal from service” may or may not be permanent. The paragraph below defines the term “removal from service”, as referenced in SFFAS 6, and further discusses the differences between other than permanent and permanent removal from service. SFFAS 44, Accounting For Impairment Of General Property, Plant, And Equipment Remaining In Use, provides guidance on potential impairment for G-PP&E that (1) is other than permanently removed from service or (2) remains in service but with a decline in service utility that is expected to be permanent. 8. “Removal from service”2 is defined as an event that terminates the use of a G-PP&E asset (e.g., shut down of a facility). Removal from service may occur because of a change in the manner or duration of use, change in technology or obsolescence, damage by natural disaster, or identified as excess to entity’s mission needs. The removal from service should be considered other than permanent, unless there is evidence of management’s documented decision to permanently remove the asset from service and the asset’s use is terminated.3 Permanent removal from service is evident from management’s documented decision to dispose of an asset by selling, scrapping, recycling, donating or demolishing the asset. An entity’s policies and procedures should require that documentation exists of management’s decision to permanently remove an asset from service. 9. Management’s decision to remove from service is evidenced by the actions taken to commence the retirement and/or disposal process in accordance with the entity’s policies and procedures. Other than permanent removal from service is evidenced by activities such as continuing low-level maintenance to sustain the asset in a recoverable status or until reutilization efforts are exhausted. For example, processing an aircraft or idling a facility in such a way as to retain the potential for its future operability would be persuasive evidence of intent to preserve an option to return the asset to service if warranted by evolving mission requirements. 2 The term “removal from service” does not include the “out grant” of an asset. “Out grant” is defined as interest or right granted to another entity to use government property by a lease, easement, license, or permit. Therefore, “removal from service” as defined in this document does not apply to out granted assets, because the government retains its ownership in the property and only the use of the property is given to the entity using the out granted asset. 3 The agency’s management may elect to identify and/or classify the operational status of assets to include those other than permanently removed from service in the property accountability system. 10. Two business events are necessary for the permanent removal from service: 1. Asset's use is terminated, and 2. There is documented evidence of management's decision to permanently remove the asset from service. If only one of the two business events has occurred, permanent removal from service has not occurred (i.e., considered other than permanent removal). However, in accordance with SFFAS 44, Accounting For Impairment Of General Property, Plant, And Equipment Remaining In Use, there could be a change in the G-PP&E reported value for other than permanently removed G-PP&E if an impairment indicator exists, such as changes in the manner or duration of use of G-PP&E or G-PP&E idled or unserviceable for excessively long periods. Depreciation continues on such G-PP&E to the extent not impaired. Likewise, in the case of G-PP&E cleanup costs, if only one of the two business events has occurred, permanent removal from service has not occurred (i.e., considered other than permanent removal) and, any cleanup costs associated with disposal, closure, and/or shutdown should continue to accumulate as a liability in accordance with relevant GAAP. Financial Accounting Transactions 11. The following section describes the financial accounting transactions that result from permanent removal, retirement, and/or disposal of G-PP&E. No disposal related entries are recognized prior to permanent removal from service. 12. G-PP&E Acquisition Cost & Depreciation at Permanent Removal - When the entity’s management decides to permanently remove, retire, and/or dispose of an asset from service and the asset’s use is terminated, the asset’s acquisition cost and associated accumulated depreciation are removed from the G-PP&E account and the asset is recorded at its net realizable value with an offsetting entry to gain or loss.4 Upon completion of the disposal of the asset, the entity should write off the asset from its financial records. Any difference between the expected net realizable value of the G-PP&E previously recorded and the actual disposition amount should be recognized as a gain or loss. 13. Spare Parts and Subcomponents - If during the permanent removal process, the asset is dissembled and spare parts or sub-components are salvaged to be used for other purposes, the spare parts or sub-components should be recorded as new and separate assets in accordance with SFFAS 6 or SFFAS 3, Accounting for Inventory and Related Property. 4 Refer to Appendix B: Table 1: Scenarios I & II, Step 2 for account transactions. 14. G-PP&E Acquisition Cost & Depreciation at Other than Permanent Removal - If the asset’s normal use is terminated but management has not decided to permanently remove the asset from service, the asset’s removal is considered other than permanent. In this case, there is no change in the G-PP&E reported value and depreciation continues.5 Likewise, if the asset is still in use even though management has decided to permanently remove, retire and/or dispose of the asset, the permanent removal from service has not occurred. There is also no change in the G-PP&E reported value and depreciation continues.6 15. G-PP&E Cleanup Costs7 - For assets permanently removed from service, the cleanup cost liability associated with the disposal, closure, and/or shutdown of the G-PP&E should be recognized in full. If removal from service is considered other than permanent, the liability and associated clean up cost expense shall continue to accumulate.8 16. G-PP&E Disposal When Group or Composite Depreciation is Used - G-PP&E subject to a group or composite method of depreciation should only apply the accounting transactions outlined in paragraph 12 when the entire group has been permanently removed from service (e.g., as if the entire group were one asset). Under the group or composite depreciation methods, no gain or loss is recognized on the sale of an asset within the group prior to removal of all assets in the group. The pro rata share of the total original group cost may be used to determine the cost of an asset within the group. 17. Table 1 in Appendix B illustrates two different scenarios, associated business events, and derived financial transactions to assist in interpretation and application of the guidance described in paragraphs - 11-15. 18. The appendices (that include nonauthoritative illustrations and examples) of TR 14 are not updated for amendments.8A Therefore, readers are cautioned to refer to the paragraphs 5 Refer to Appendix B: Table 1, Scenario I, Step 1. 6Refer to Appendix B: Table 1, Scenario II, Step 1. 7 SFFAS 6, paragraph 85: Cleanup costs are the costs of removing, containing, and/or disposing of (1) hazardous waste from property, or (2) material and/or property that consists of hazardous waste at permanent or temporary closure or shutdown of associated PP&E. 8Regardless of when cleanup is executed, at temporary or permanent shut down, as cleanup costs are paid, payments shall be recognized as a reduction in the liability for cleanup costs. (SFFAS 6, paragraph 100) 8A The FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend a pronouncement. For example, within the text of a Technical Release, the guidance sections are updated for changes. However, appendices are not updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending pronouncements for the rationale for each amendment. above for guidance that could impact the accompanying nonauthoritative illustrations and examples. Effective Date 19. This TR is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions A1. In January 2008, the Accounting and Audit Policy Committee established the General Property, Plant, & Equipment (G-PP&E) task force to assist in developing implementation guidance for federal G-PP&E as it relates to SFFAS 6, Accounting for Property, Plant, and Equipment, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E Guidance developed by the FASAB. The task force included federal agency representatives who were experiencing G-PP&E implementation issues and those who have G-PP&E implementation best practices to share with the federal community. A2. The G-PP&E task force was divided into four subgroups that addressed a set of related issues. The subgroups met separately on a regular basis to discuss their set of issues and reported back to the full task force on its progress towards the development of implementation guidance. The four original subgroups were: G-PP&E Acquisition G-PP&E Use G-PP&E Disposal G-PP&E Records Retention A fifth subgroup (G-PP&E Cost Accounting Issues) was added recently to address the complexities of allocating programmatic, managerial, and administrative costs to G-PP&E. A3. This guidance was developed by the Disposal subgroup. The subgroup included members from the following federal agencies: Department of Defense Department of Energy Department of the Interior Government Accountability Office General Services Administration National Aeronautics and Space Administration The subgroup included accountants, program managers, and functional PP&E experts. The program managers gave the subgroup the perspective of how the standards come into play on a day-to-day basis. A4. The scope of the implementation guidance is to address G-PP&E disposal as it applies to SFFAS 6. The guide focuses on when G-PP&E is disposed, retired, or removed from service. A5. This implementation guide provides steps that can be followed to help federal entities consistently apply existing standards in providing consistent and comparable information. A6. In reaching its conclusions, the subgroup deemed significant the unanimous agreement of its members that SFFAS 6 as currently written applies only to permanent removal from service of G-PP&E assets. Because some G-PP&E is removed from service in other than a permanent manner there are inconsistencies in interpretation and implementation of the guidance. The subgroup members presented numerous compelling examples of misinterpretation, confusion, and inefficient implementation. The subgroup was convinced that guidance is needed to clarify when G-PP&E has been removed from service as envisioned in SFFAS 6. A7. Additionally, subgroup members universally felt strongly that the implementation guidance should consider the cost vs. benefits of the many complexities involved in G-PP&E disposal, retirement, or removal from service and recognize the potential for reversing disposal decisions as mission requirements change. Therefore, the subgroup members decided to focus on permanent removal from service and ultimately continuing to depreciate and report assets as GPP&E that are other than permanently removed from service. The following reasons were discussed: a. Depreciation is a method of allocating the cost of the asset to those periods expected to benefit from use of the asset. When assets are other than permanently removed from service, there is a great possibility of returning the assets to service; therefore management continues to maintain the assets in a mission ready status and the assets are available for use. Given this, the entity should continue depreciating its assets. b. The subgroup members determined that the complexity and cost of continually suspending and reinstating depreciation for assets other than permanently removed from service outweighs the benefits. Further, SFFAS 6 does not provide guidance for the recognition of assets returned to service following other than permanent removal. c. Current guidance requires depreciation to be captured until the asset is either fully depreciated or permanently removed from service. In the cases where an entity depreciates its G-PP&E based on actual usage or production, the depreciation expense for the entity would stop when the asset is not in use. For example, an agency can decide to use a depreciation method, such as flying hours, that would account for an asset’s ‘lack of activity.’ d. Changes in value or useful lives of assets remaining in service regardless of the reason (e.g. impairment) are outside of the scope of this document. A8. The benefits of this guidance are: (1) it facilitates comparable implementation of federal accounting standards; and (2) it supports federal financial reporting objectives including the assessment of the performance of agencies in managing the cost and disposition of federal assets. A9. As part of the implementation of this guide, the federal agencies may incur additional costs to: (1) review and adjust the expected net realizable value at the end of each accounting period and any further adjustments in value recognized as a gain or a loss; (2) periodically review the status of those assets in the other than permanently removed from service group, but not all PP&E, to determine if any changes in status or actions would trigger a change in G-PP&E recognition; and (3) demonstrate and support management's intent to retain an asset for future use or permanently dispose of the asset and any associated financial transactions, when applicable. A10. The guidance defines “removal from service” as an event that terminates the use of a G- PP&E asset (e.g., shut down of a facility). Management’s decision to remove from service is evidenced by the actions taken in accordance with the entity’s policies and procedures to commence the retirement and/or disposal process. Permanent removal from service is evident from management’s documented decision to dispose of an asset by selling (including selling the asset to another entity for use as its original intended purpose), scrapping, recycling, donating or demolishing the asset. Removal from service may occur because of a change in the manner or duration of use, change in technology or obsolescence, damage by natural disaster, or identified as excess to entity’s mission needs. A11. The exposure draft, Implementation Guidance on the Accounting for the Disposal of General Property, Plant, & Equipment, was issued December 10, 2010, with comments requested by February 11, 2011. Upon release of the exposure draft, notices and press releases were provided to The Federal Register, FASAB News, The Journal of Accountancy, AGA Today, the CPA Journal, Government Executive, the CPA Letter, and Government Accounting and Auditing Update, The CFO Council, the Council of Inspectors General on Integrity and Efficiency, and the Financial Statement Audit Network, and, committees of professional associations generally commenting on exposure drafts in the past. A12. Eighteen letters were received from the following sources: FEDERAL (Internal) NON-FEDERAL (External) Users, academics, others 3 Auditors 3 2 Preparers and financial managers 10 A13. Respondents were predominantly supportive of the implementation guidance. Some respondents provided editorial suggestions and many were adopted. One respondent expressed the view that introduction of two key terms – temporary and permanent removal from service – which bifurcate the principles established in SFFAS 6 is inappropriate in a technical release. The AAPC believes SFFAS 6 addresses only permanent removal from service. To avoid introducing the new phrase “temporary removal from service” the guidance proposed in the exposure draft was revised to “other than permanently removed from service.” A14. The Technical Release was approved by the AAPC for release to the FASAB for issuance. The Board has reviewed this Technical Release and a majority of its members do not object to its issuance. Appendix B: Illustrations Table 1: Disposal, Retirement, Removal Business Events & Financial Accounting Transactions Table 1 below illustrates two different scenarios, associated business events, and derived financial accounting transactions to assist in interpretation and application of the guidance described in paragraphs 11-15. Further, it demonstrates that both business events (steps 1 and 2) must be in place to trigger a disposal financial transaction in accordance with SFFAS 6. These illustrative financial transactions are considered nonauthoritative guidance and are presented to show how the standards may be applied but are not standards themselves. These illustrations are general in nature and may not apply to specific cases that appear similar but have unique circumstances. Proprietary Disposal Financial Accounting Transaction Scenarios for SFFAS 6 Business Event Financial Event For Illustrative Purposes Only9 Step 1: Step 1: None SCENERIO I: Step 1. Asset’s use is FIRST terminated. Asset’s use is terminated and removed from service (e.g., asset is vacated, abandoned, or deactivated). At this point the removal from service (termination of use) is deemed other than permanent until management documents that it has decided to permanently retire/dispose of the asset (shown in step 2). No change in the financial status. Continue to carry book value in G-PP&E account and depreciate Proprietary Disposal Financial Accounting Transaction Scenarios for SFFAS 6 Business Event Financial Event For Illustrative Purposes Only9 Step 2. LATER management decides to permanently retire and/or dispose of the asset. Step 2: Step 2: Debit GPP&E Permanently Removed but not yet Disposed Management decides to permanently retire and/or dispose of the asset and documents its decision. Reclassify and remove G- PP&E and associated accumulated depreciation from the G-PP&E account. Debit Accumulated Depreciation on Improvements to Land Debit Accumulated Depreciation on Buildings, Improvements, and Renovations Record asset at the net realizable value. Any difference between the book value of the G-PP&E and the expected net realizable value should be recognized as a gain or a loss. Debit Accumulated Depreciation on Other Structures and Facilities Debit Accumulated Depreciation on Equipment Debit Accumulated Depreciation on Assets Under Capital Lease Recognize any unallocated/unamortized portion of the total estimated cleanup costs. Debit Accumulated Amortization on Leasehold Improvements Debit Losses Credit Gains Credit Land and Land Rights Credit Improvements to Land Credit Buildings, Improvements, and Renovations Credit Other Structures and Facilities Credit Equipment Credit Assets Under Capital Lease Proprietary Disposal Financial Accounting Transaction Scenarios for SFFAS 6 Business Event Financial Event For Illustrative Purposes Only9 Credit Leasehold Improvements Debit Future Funded Expenses Credit Estimated Cleanup Cost Liability Step 3: Step 3: Debit Fund Balance With Treasury Disposition is completed. The title and/or any legal interest in the asset has been transferred and/or ceased. (e.g., transfer/sale document or title has been signed and executed by the appropriate authority) Write off the asset from financial records and statements. Debit Accounts Receivable Debit Losses on Disposition of Assets Any difference between the expected net realizable value of the G-PP&E previously recorded and the actual disposition amount should be recognized as a gain or loss. Credit GPP&E Permanently Removed but not yet Disposed Credit Gains on Disposition of Assets SCENERIO II: Step 1: Step 1: None Management decides to permanently retire and/or dispose of the asset and documents its decision. At this point, the entity continues to use the asset. No change in the financial status. Continue to carry book value in G-PP&E account and depreciate Step 1. FIRST management decides to permanently retire and/or dispose of the asset while the entity continues to use/operate the asset. Proprietary Disposal Financial Accounting Transaction Scenarios for SFFAS 6 Business Event Financial Event For Illustrative Purposes Only9 Step 2. LATER the decision is made to terminate the asset’s use/operatio n. Step 2: Step 2: Debit GPP&E Permanently Removed but not yet Disposed Asset’s use is terminated and removed from service (e.g., asset is vacated, abandoned, or deactivated). Reclassify and remove G- PP&E and associated accumulated depreciation from the G-PP&E account. Debit Accumulated Depreciation on Improvements to Land Debit Accumulated Depreciation on Buildings, Improvements, and Renovations Record asset at the net realizable value. Any difference between the book value of the G-PP&E and the expected net realizable value should be recognized as a gain or a loss Debit Accumulated Depreciation on Other Structures and Facilities Debit Accumulated Depreciation on Equipment Debit Accumulated Depreciation on Assets Under Capital Lease Recognize any unallocated/unamortized portion of the total estimated cleanup costs. Debit Accumulated Amortization on Leasehold Improvements Debit Losses Credit Gains Credit Land and Land Rights Credit Improvements to Land Credit Buildings, Improvements, and Renovations Credit Other Structures and Facilities Credit Equipment Credit Assets Under Capital Lease Proprietary Disposal Financial Accounting Transaction Scenarios for SFFAS 6 Business Event Financial Event For Illustrative Purposes Only9 Credit Leasehold Improvements Debit Future Funded Expenses Credit Estimated Cleanup Cost Liability Step 3: Step 3: Debit Fund Balance With Treasury Disposition is completed. The title and/or any legal interest in the asset has been transferred and/or ceased. (e.g., transfer/sale document or title has been signed and executed by the appropriate authority) Write off the asset from financial records and statements. Debit Accounts Receivable Debit Losses on Disposition of Assets Any difference between the expected net realizable value of the G-PP&E previously recorded and the actual disposition amount should be recognized as a gain or loss. Credit GPP&E Permanently Removed but not yet Disposed Credit Gains on Disposition of Assets 9Any combination of these accounts could be recorded depending on the specifics of the individual transactions. For further guidance on account transactions, numbers and definitions, please refer to USSGL Treasury Financial Manual (TFM) at http://www.fms.treas.gov. Example of Practice B1. The example of practice shown in the following table is for illustrative purposes only. The explanations and illustrations are presented to show how the standards may be applied but are not standards themselves. These illustrations are general in nature and may not apply to specific cases that appear similar but have unique circumstances. B2. The table illustrates a federal entity’s various actions that may be considered as evidence of its management’s decision to either permanently remove, retire, and/or dispose of the asset or to retain the asset for future use (i.e., other than permanent removal from service). B3. A federal entity would normally categorize assets that have been removed from service (i.e., use has been terminated) into one of the following three categories: retain asset for future use, set aside for future disposal, or imminent planned disposal. B4. A federal entity would normally account for its G-PP&E in accordance with SFFAS 6 as well as the requirements for each category as established by the entity’s policies and procedures. The following table outlines the processes the entity may undertake when preparing its G-PP&E for assignment to each of the categories. The actions outlined for categories 2 and 3 may be used as evidence of management’s decision to permanently remove the asset from service, terminate its use and dispose of the asset. Once management’s decision is identified, using scenarios in Table 1, the relevant financial accounting transactions can be determined and recorded. Table 2: Illustrations of Management’s Actions Demonstrating Decision for Other than Permanent or Permanent Removal/Retirement/Disposal When the G-PP&E is Not in Use Actions Demonstrating Management’s Decision Category 1 Category 2 Category 3 Other than Permanent Permanent Retain for Future Use Set Aside for Future Disposal Imminent Planned Disposal G-PP&E is not in use G-PP&E is not in use G-PP&E is not in use Management Declare and report as “Vacant” XXX Declare and report as “Excess” X X Expend maintenance, sustainment, and repair funds as needed to maintain a watertight asset XXX Conduct assessment to identify environmental issues X X Complete required disposal documentation X X Maintenance Maintain utilities in acceptable condition (i.e., fully functioning) X Winterize plumbing (if required by local weather conditions) X Conduct sufficient grounds maintenance to preclude unsightliness XXX Maintain security to prevent vandalism and unauthorized use XXX Retain equipment and spare parts10 on asset X Install equipment and conduct maintenance procedures required to preserve interior space X 10Examples of spare parts may include mechanical & electrical repair parts, electronic spares, maintenance assistance modules, and ready service spares. Decommissioning Clean X X Dispose of excess personal property XXX Actions Demonstrating Management’s Decision Category 1 Category 2 Category 3 Other than Permanent Permanent Retain for Future Use Set Aside for Future Disposal Imminent Planned Disposal G-PP&E is not in use G-PP&E is not in use G-PP&E is not in use Turn off air conditioning X X Maintain heat to prevent frozen pipes X Disconnect utilities but maintain supply X X Drain water X X Disconnect utilities and remove supply X X Remove air conditioning/heating units/plumbing fixtures for future use or disposal X X Strip asset of attached equipment and spare parts for use on other assets X X Remove all other fixtures and sell if salvageable X X Dismantle asset X X Remove contaminants if identified by environmental assessment. X X Appendix C: Abbreviations AAPC Accounting and Auditing Policy Committee FASAB Federal Accounting Standards Advisory Board G-PP&E General Property, Plant, and Equipment SFFAS Statement of Federal Financial Accounting Standards TR Technical Release Appendix D: Glossary Term Definition Excess11 The term "excess property" means property under the control of a federal agency that the head of the agency determines is not required to meet the agency's needs or responsibilities Net Realizable Value12 The estimated amount that can be recovered from selling, or any other method of disposing of an item less estimated costs of completion, holding and disposal. Obsolete13 PP&E no longer needed due to changes in technology, laws, customs, or operations. 1140 USC Section 102 12FASAB Consolidated Glossary: http://www.fasab.gov 13Derived from FASAB’s definition for “Obsolete Inventory.” See SFFAS 3, Accounting for Inventory and Related Property, par 29. Technical Release 15: Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation Status Issued September 26, 2013 Effective Date Effective upon issuance Affects None. Affected by Technical Release 17. Summary The implementation guidance promotes an understanding of organizational considerations that affect the application of the standards for general property, plant, and equipment (G-PP&E) except for internal use software. The implementation guidance relates to: a) Recognition requirements for programmatic, managerial, administrative, and other elements of program costs incurred during the G-PP&E lifecycle, decisions regarding the granularity of cost information, and acceptable methods for recognizing those costs (i.e., capital costs captured on the Balance Sheet or period expense costs captured on the Statement of Net Costs [SNC]), b) The concept of a cost accumulation and allocation decision framework (i.e., acceptable methods of accumulating, assigning, and reporting cost data), and c) Management's role in applying the cost accumulation, assignment, and allocation decision framework. One of the objectives of this Technical Release is to enable federal reporting entities to use a consistent framework to apply existing guidance. The guidance also supports the objectives of ensuring that transactions involving G-PP&E are recorded in accordance with federal accounting standards, and the cost of producing federal financial information, as it relates to establishing the cost of G-PP&E, does not outweigh the benefits derived by the users of the financial information. Lastly, it provides a decision framework flowchart to assist entity management in applying the principles described throughout the Technical Release. Table of Contents Page Introduction 3 Materiality 6 Scope 6 Questions & Answers 8 Effective Date 10 Appendix A: Basis for Conclusions 12 Appendix B: Illustrations 16 Appendix C: Decision Framework Flowchart 23 Appendix D: Accounting Literature 25 Appendix E: Abbreviations 28 Introduction Purpose 1. Statement of Federal Financial Accounting Standards 6 (SFFAS 6), Accounting for Property, Plant, and Equipment, (as amended) outlines the recognition requirements for general property, plant, and equipment (G-PP&E) except for internal use software. Paragraph 26 states that, "All general PP&E shall be recorded at cost. Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E, in accordance with the asset recognition and measurement provisions herein. Cost shall include all costs incurred to bring the PP&E to a form and location suitable for its intended use." The AAPC G-PP&E Cost Accounting Issues Subgroup was developed to address a request for implementation guidance for these requirements. 2. The implementation guidance promotes an understanding of organizational considerations that affect the application of the standards for general property, plant, and equipment (G- PP&E) except for internal use software. The implementation guidance relates to: a. Recognition requirements for programmatic, managerial, administrative, and other elements of program costs1 incurred during the G-PP&E lifecycle, decisions regarding the granularity of cost information, and acceptable methods for recognizing those costs (i.e., capital costs captured on the Balance Sheet or period expense costs captured on the Statement of Net Costs [SNC]), b. The concept of a cost accumulation and allocation decision framework (i.e., acceptable methods of accumulating, assigning, and reporting cost data), and c. Management's role in applying the cost accumulation, assignment, and allocation decision framework. In promoting an understanding of the standards it is important to reiterate management's responsibility to consider the six2 qualitative characteristics of financial reporting established in Statement of Federal Financial Accounting Concepts (SFFAC) 1. More specifically, 1In this document, all subsequent references to these costs are collectively referred to as "program costs." 2Understandability, Reliability, Relevance, Timeliness, Consistency, and Comparability (SFFAC 1 paragraph 156) management should be mindful of comparability when establishing policies and procedures. This framework should aid management in selecting policies which are comparable because they are derived from underlying transactions or organizational characteristics rather than being attributable to preferences. 3. The accounting standards and related basis for conclusions consistently recognize management's role in interpreting and applying generally accepted accounting principles (GAAP) (i.e., management's decision framework) to its respective entity's operational environment. The standards are meant to provide wide-ranging, reasonable, and consistent principles for reporting entities to operate within and to apply, respectively. For example, paragraph 3 of SFFAS 4, Managerial Cost Accounting Standards and Concepts, states, "These standards are based on sound cost accounting concepts and are broad enough to allow maximum flexibility for agency managers to develop costing methods that are best suited to their operational environment." 4. Consistent with "management's decision framework" (see Decision Framework Flowchart at Appendix C), this Technical Release is intended to reemphasize the "framework" aspect of the managerial cost accounting concepts and standards as they relate to G-PP&E cost accounting and reporting as outlined in SFFAS 6 and SFFAS 4. Background 5. The Accounting and Auditing Policy Committee (AAPC) G-PP&E Cost Accounting Issue (CAI) subgroup was tasked with identifying and presenting recommendations to the AAPC to address the complexities of allocating program costs to G-PP&E consistent with the role of management's decision framework. This Technical Release (TR) addresses the following three central components of G-PP&E cost accounting and reporting: a. Recognition requirements for programmatic, managerial, administrative, and other elements of program costs incurred during the G-PP&E lifecycle, decisions regarding the granularity of cost information,, and acceptable methods for recognizing those costs (i.e., capital costs captured on the Balance Sheet or period expense costs captured on the Statement of Net Costs [SNC]), b. The concept of a cost accumulation and allocation decision framework (i.e., acceptable methods of accumulating, assigning, and reporting cost data), and c. Management's role in applying the cost accumulation and allocation decision framework. 6. The decision framework is intended to be used as a tool for management to leverage and guide professional judgment in the development and application of policies and practices to account for the cost incurred for G-PP&E in accordance with GAAP. Every entity has unique requirements and needs for financial management information to enable the successful execution of its mission and associated programs. Further, each entity needs varying levels of precision and granularity when allocating costs to end outputs or objectives. Therefore, each entity must assess and establish the appropriate cost benefit threshold for allocating program costs to G-PP&E in accordance with GAAP based on its mission requirements, operating environment, and stakeholder needs. The purpose of the decision framework is to provide guidelines and considerations, founded on a G-PP&E acquisition lifecycle approach, to guide management through the application of the G-PP&E accounting standards within their unique business environment. The decision framework incorporates the inherent application flexibility built into the accounting standards to assist management to reasonably apply the standards in order to appropriately recognize the cost of G-PP&E within their unique operating environment. 7. The decision framework discussed in this Technical Release recognizes that the financial management information needs of stakeholders, both internal and external, vary by entity depending on the entity's characteristics. An entity's revenue source (e.g., appropriated funds, revolving fund, user fee, etc.) significantly impacts the types of and level of cost detail required to be allocated to end assets. For example, entities operating under a fee -forservice or working capital fund structure may have a business need to accumulate and allocate relevant costs at a more granular level to ensure that their pricing models, rates and schedules facilitate the full recovery of costs under a non-appropriated, user-fee model. 8. The following three principles may be used by management to determine their stakeholder's financial management information needs: a. Relevance/usefulness of information (both to internal and external stakeholders); b. Level of precision (e.g., materiality) needed to properly manage and report costs; and c. Cost-benefit of establishing and executing cost assignment processes, methods and tools.3 When applying the principles listed above, management should develop formalized policies and procedures documenting its decisions. Such decisions should be based on an understanding of the entity's mission and operating model and how the entity's stakeholders use the information. 3A [costing] method is economically feasible if the benefits resulting from implementing the method outweigh its costs. It is not advantageous to use a costing method if it requires a large amount of resources and yet produces information of little value to users. (SFFAS 4 paragraph 142) 9. The decision framework described in the remainder of this Technical Release provides users with an organized approach for applying the principles described above to support their process for developing entity specific policies and procedures for accumulating, allocating, and reporting the cost of G-PP&E in compliance with relevant accounting standards. 10. Paragraph 10 was rescinded by Technical Release 17. Materiality 11. The provisions of this Statement need not be applied to immaterial items. The determination of whether an item is material depends on the degree to which omitting or misstating information about the item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. Scope 12. Readers of this Technical Release should first refer to the hierarchy of accounting standards in SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This Technical Release supplements the relevant accounting standards, but is not a substitute for and does not take precedence over the standards. This Technical Release clarifies but does not change guidance provided in SFFAS 4 or SFFAS 6 (as amended). 13. This Technical Release does not address Internal Use Software. (See instead SFFAS 10, Accounting for Internal Use Software.) Summary of Existing Standards 14. SFFAS 6 Paragraph 26 states: All general PP&E shall be recorded at cost. Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E, in accordance with the asset recognition and measurement provisions herein. Cost shall include all costs incurred to bring the PP&E to a form and location suitable for its intended use. For example, the cost of acquiring property, plant, and equipment may include: amounts paid to vendors; transportation charges to the point of initial use; handling and storage costs; labor and other direct or indirect production costs (for assets produced or constructed); engineering, architectural, and other outside services for designs, plans, specifications, and surveys; acquisition and preparation costs of buildings and other facilities; an appropriate share of the cost of the equipment and facilities used in construction work; fixed equipment and related installation costs required for activities in a building or facility; direct costs of inspection, supervision, and administration of construction contracts and construction work; legal and recording fees and damage claims; fair value of facilities and equipment donated to the government; and material amounts of interest costs paid [FN 16: "Interest costs" refers to any interest paid by the reporting entity directly to providers of goods or services related to the acquisition or construction of PP&E.] 15. The types of costs assigned to G-PP&E may vary depending on if the asset is purchased as a completed item, is contractor constructed, or is self-constructed. SFFAS 6 specifically states that the costs recorded in G-PP&E should include only those costs that "bring the (G-) PP&E to a form and location suitable for its intended use." These costs may include both direct and indirect costs. However, indirect production costs only occur when G-PP&E are produced or constructed. 16. According to SFFAS 4, paragraph 90, "direct costs are costs that can be specifically identified with an output." [For purposes of this guidance "output" is an item or items of G-PP&E.] A few examples of direct costs noted in SFFAS 6, paragraph 26, are amounts paid to vendors, labor and other direct production costs, an appropriate share of the cost of the equipment and facilities used in the construction work, and direct costs of inspection, supervision, and administration of construction contracts and construction work. The direct costs accumulated and identified as costs incurred to "bring the G-PP&E to a form and location suitable for its intended use" should be assigned to the cost of the G-PP&E item(s). If the direct costs are not identified as costs incurred to "bring the G-PP&E to a form and location suitable for its intended use", then the costs should be expensed or capitalized in accordance with other standards. The item(s) of G-PP&E must meet or will meet the entity's capitalization threshold or other capitalization recognition criteria. 17. Indirect costs are costs that cannot be identified specifically with or traced to a given cost object in an economically feasible way [SFFAS 6, Glossary]. [For purposes of this guidance "cost object" is an item or items of G-PP&E.] The example of indirect costs noted in SFFAS 6, paragraph 26, is indirect production costs (for assets produced or constructed). The indirect costs identified as costs incurred to "bring the G-PP&E to a form and location suitable for its intended use" should be accumulated, assigned or allocated to the cost of the G-PP&E item(s). If the accumulated indirect costs are not identified as costs incurred to "bring the G-PP&E to a form and location suitable for its intended use" (for example, administrative overheads that do not contribute to bringing the G-PP&E item to a form and location suitable for its intended use), then the costs should be expensed. Note also that if the item(s) of G-PP&E do not (or will not) meet the entity's capitalization criteria (e.g., capitalization threshold) then indirect costs are not a consideration. 18. A fundamental concept presented in this Technical Release is that it is reasonable to expect a difference in the level of granularity that federal entities use to allocate program costs to G-PP&E. Some entities have an inherent business/operational need to assign or allocate costs at a more granular level while others do not. This Technical Release emphasizes the concept that an entity management's role of establishing GAAP compliant policies and processes includes a critical element of flexibility. The flexibility allows management to create and execute policies and procedures that fit within the GAAP framework and align with the respective entity's business/operating model. 19. The below guidance is presented as responses to the three issues, previously identified in this Technical Release, posed as questions. Refer to Appendix D, Accounting Literature for a more extensive presentation of accounting literature relevant to this discussion. Questions & Answers 20. Q1. SFFAS 6, paragraph 26, requires G- PP&E to be recorded at the costs incurred to bring the G-PP&E to a form and location suitable for its intended use. Examples of costs of acquiring G-PP&E are provided. Does management have discretion in applying the cost assignment methods identified in SFFAS 4, paragraph 124, to accumulate acquisition costs? 21. A1. Yes. SFFAS 4 establishes a principle for management to apply. Of particular importance is the emphasis on economic feasibility with regard to direct tracing of costs to outputs. SFFAS 4, paragraph 124, provides that "[in] principle, costs should be assigned to outputs in one of the methods listed below in the order of preference: a. Directly tracing costs wherever economically feasible; b. Assigning costs on a cause-and-effect basis; and c. Allocating costs on a reasonable and consistent basis." 22. Each reporting entity should determine the appropriate detail for the cost accounting processes and procedures used to identify costs incurred to bring the G-PP&E to a form and condition suitable for its intended use per SFFAS 6, paragraph 26. The reporting entity should make this determination based on several factors, to include (SFFAS 4, paragraph 72): a. nature of the entity's operations; b. precision needed in cost information to meet managerial needs, including costrecovery decisions; c. practicality of data collection and processing; d. availability of electronic data handling facilities; e. cost of installing, operating, and maintaining the cost accounting processes; and f. any specific information needs of management. 23. Q2. How should general management and administrative support be applied in considering the acquisition cost of G-PP&E? 24. A2. Management should consider general management and administrative support costs when identifying the costs to bring the G-PP&E to a form and location suitable for its intended use. Entities may incur indirect costs4 that cannot be reasonably allocated to programs, segments, or outputs including G-PP&E acquisition. Because reporting entities have different organizational structures and missions, there will be differences in the level of allocation of such costs across all outputs including item(s) of G-PP&E. SFFAS 4, paragraph 92, explains that: A reporting entity and its responsibility segments may incur general management and administrative support costs that cannot be traced, assigned, or allocated to segments and their outputs. These unassigned costs are part of the organization costs, and they should be reported on the entity's financial statements (such as the Statement of Net Costs) as costs not assigned to programs. 25. Q3. How does the principle of "nonproduction costs" apply in considering the acquisition cost of G-PP&E? 26. A3. SFFAS 4, paragraph 104, explains that: A responsibility segment may incur and recognize costs that are linked to events other than the production of goods and services. Two examples of these nonproduction costs were discussed earlier: ? (1) Other Post-Employment Benefits 4Indirect production costs only occur when G-PP&E are produced or constructed. (OPEB) costs that are recognized as expenses when an OPEB event occurs, and (2) certain property acquisition costs that are recognized as expenses at the time of acquisition. Other nonproduction costs include reorganization costs, and nonrecurring cleanup costs resulting from facility abandonments that are not accrued. Since these costs are recognized for a period in which a particular event occurs, assigning these costs to goods and service produced in that period would distort the production costs. In special purpose cost studies, management may have reasons to determine historical output costs by distributing some of these costs to outputs over a number of past periods. Such distribution may be appropriate when: (a) experience shows that the costs are recurring in a regular pattern, and (b) a nexus can be established between the costs and the production of outputs that may have benefited from those costs. Nonproduction costs should not be assigned as G-PP&E acquisition costs, for instance, losses that arise from a natural disaster should not be attributed to G-PP&E acquisition costs even if the assets damaged are those being used to construct the G-PP&E. For example, if cranes used in constructing a building are completely destroyed in a hurricane, the cost of such damage should be treated as nonproduction costs and not as costs incurred to bring the building to a form and location suitable for use. Summary of Illustrations 27. The decision framework supports development of accounting policies and practices appropriate to each organization's characteristics in accordance with GAAP. The framework is meant to provide parameters or principles for reporting entities to consider in developing organizational accounting policies and practices that will best support their operating models, provide the financial information necessary to manage programs, and report in accordance with GAAP. Reporting entities should report the full costs of outputs in the general purpose financial reports. Full costs may be expensed or capitalized in accordance with GAAP and based on each entity's accounting policies and practices. 28. This Technical Release provides examples of three different agencies applying the framework (see Appendix B for examples), which demonstrate GAAP compliant G-PP&E cost accumulation and allocation methodologies appropriate for unique organizational characteristics including operating models. Effective Date 29. This Technical Release is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by AAPC members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendix-should govern the accounting for specific transactions, events, or conditions. Project History A1. In January 2008, the Accounting and Audit Policy Committee established the General Property, Plant, & Equipment (G-PP&E) task force to assist in developing implementation guidance for federal G-PP&E as it relates to SFFAS 6, Accounting for Property, Plant, & Equipment, SFFAS 23, Eliminating the Category National Defense Property Plant, & Equipment, and other related G-PP&E guidance developed by the FASAB. The task force includes federal agency representatives who are experiencing G-PP&E implementation issues and those who have G-PP&E implementation best practices to share with the federal community. A2. The G-PP&E task force was divided into four subgroups to address a set of related issues. The subgroups have met separately to discuss their set of issues and report back to the full task force on its progress towards the development of implementation guidance. The four subgroups are G-PP&E Acquisition G-PP&E Use G-PP&E Disposal G-PP&E Records Retention A3. A fifth subgroup, the G-PP&E Cost Accounting Issues (CAI), was later added to address the complexities of allocating programmatic, managerial, and administrative costs to G-PP&E. The subgroup's primary objective was to reinforce the FASAB's provisions for Federal reporting entities to apply a reasonable level of management interpretation and flexibility, within the standards, to their G-PP&E financial recording and reporting processes. The subgroup's objectives did not include prescribing specific types of costs that should be included in the capitalized cost of an asset. A4. This proposed guidance was developed by the CAI subgroup. The subgroup included industry representatives from several public accounting and consulting firms as well as representatives from the following federal agencies Department of Defense (DoD) (including the individual military departments) Department of Homeland Security (DHS) Federal Aviation Administration (FAA) General Services Administration (GSA) National Aeronautics and Space Administration (NASA) National Reconnaissance Office (NRO) Office of the Director of National Intelligence (ODNI) United States Bureau of Reclamation (USBR) A5. The subgroup developed the Asset Acquisition Lifecycle Phases (AALP) data call for the task force member agencies' representatives to complete and submit to the subgroup for consolidation and discussion. The data call was designed to highlight the commonalities across the federal G-PP&E acquisition process and to use those commonalities to outline a general acquisition decision framework to assist agencies with accounting for G-PP&E costs in accordance with GAAP. A6. The data call also focused on identifying the cost activities that occur in each AALP, the accounting treatments assigned to those activities, and the rationale for management's accounting policy that drives those cost accumulation and allocation determinations. Management's ability to document and implement a reasonable and consistent approach is a critical component of supporting management's application of GAAP. A7. In reaching its conclusions, the subgroup recognized the need to develop implementation guidance to address the complexities of allocating programmatic, managerial, and administrative costs to G-PP&E. The subgroup felt that clarification of this issue is especially critical given the ongoing and significant efforts and resources that many federal entities such as the DOD, DHS, and IC are expending to obtain and maintain unqualified audit opinions. There are a number of cost beneficial and reasonable changes (e.g., policies, systems, and processes) that federal entities can and should make in order to facilitate better financial management and reporting. However, entity management must be allowed to navigate within the parameters of GAAP to determine the point at which the costs of improving or providing financial information outweigh the derived benefits. A8. The decision framework discussed in this Technical Release recognizes that the financial management information needs of stakeholders, both internal and external, vary by entity. The agency-specific examples (detailed in Appendix B) demonstrate how G-PP&E cost accumulation methodologies may be tailored to different operating models and still be in accordance with GAAP. The implementation guidance does not provide a one-sized fits all solution, instead it is designed to give management a framework on which to base their stakeholder financial management information needs. The framework comprises the following three principles: a. Relevance/usefulness of information (both to internal and external stakeholders); b. Level of precision (e.g., materiality) needed to properly manage and report costs; and c. Cost-benefit of establishing and executing cost assignment processes, methods and tools. A9. One of the objectives of this Technical Release is to enable federal reporting entities to use a consistent framework to interpret existing guidance given the flexibility it provides. The proposal also supports the objectives of ensuring that (1) transactions involving G-PP&E are recorded in accordance with federal accounting standards, and (2) the cost of producing federal financial information, as it relates to establishing the cost of G-PP&E, does not outweigh the benefits derived by the users of the financial information. Lastly, it provides a decision framework flowchart to assist entity management in applying the principles described throughout the Technical Release. Responses to the Proposal A10. The AAPC received 15 response to the exposure draft from the following sources: Table 1.0 - - Types of Respondents Federal (Internal) Nonfederal (External) Users, academics, others 2 Auditors 0 2 Preparers and financial managers 11 A11. The AAPC considered responses to the exposure draft at its July 11, 2013, public meeting. The AAPC did not rely on the number in favor of or opposed to a given position. Information about the respondents' majority view is provided only as a means of summarizing the comments. The AAPC considered the arguments in each response and weighed the merits of the points raised. A12. Of the 15 responses, 14 supported the proposal. Of the remaining 1, offered comments. AAPC & Board Approval A13. The Technical Release was approved by the AAPC for release to the FASAB for issuance. The Board has reviewed this Technical Release and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB's offices. Appendix B: Illustrations The examples in this Appendix are illustrative only; they do not represent authoritative guidance. These illustrations only depict a portion of the entities’ operations and the inclusion of an illustration in this Technical Release does not mean the acceptance of the entities’ policies by the FASAB or the AAPC. Illustrations - Asset Acquisition Lifecycle Phases (AALP) B1. The subgroup defined the AALPs to highlight the commonalities across the federal PP&E acquisition process and to use those commonalities to outline a general acquisition decision framework to assist agencies to account for G-PP&E costs in accordance with GAAP. Note that the AALP and illustrations reflect practices as of the Technical Release date and are not updated for changes that may have occurred since. The five generic AALPs are as follows: 1) Preliminary Research and Development (R&D) - Concept Exploration, 2) Intermediate R&D -Concept Development, 3) Advanced R&D - Concept Design and Development, 4) Production - Asset Development and "In-service" Placement, and 5) Operations and Maintenance. Table 1 (below) lists the five generic AALPs, for several task force member agencies' corresponding phases, the subgroup's AALP descriptions, examples of activities that may indicate transition from one AALP to another [phase indicators (examples)] and general accounting treatments that apply to activities in each AALP. Table 1: Agency Summary Examples: Asset Acquisition Lifecycle Phases Task Force Member Agency Task Force Member Agency Phase Titles Used Generic Subgroup AALP Descriptions Generic Subgroup AAPL Titles Phase 1: Preliminary R&D - Concept Exploration DoD Material Solution Analysis Decision R&D activities directed at an identifiable current or emerging resource requirement(s). FAA Mission Analysis Phase GSA Identification Phase NASA Pre-Formulation (Concept Studies) NRO Concept Studies Phase 1 Indicators (Examples): Concept, feasibility, and trade studies. Phase 1 General Accounting Treatment: Expensed in the period incurred. Task Force Member Agency Task Force Member Agency Phase Titles Used Generic Subgroup AALP Descriptions Generic Subgroup AAPL Titles Phase 2: Intermediate R&D -Concept Development DoD Technology Development Targeted R&D activities that build upon the prior phase's Decision R&D activities and are directed at an identifiable current or emerging resource requirement(s). FAA Investment Analysis Phase GSA Pre-Award Phase NASA Formulation (Preliminary Design and Technical Completion) NRO Concept Development Phase 2 Indicators (Examples): Investment analysis and review of alternatives. Phase 2 General Accounting Treatment: Expensed in the period incurred. Phase 3: Advanced R&D - Concept Design and Development DoD Engineering and Manufacturing Development R&D closeout and the genesis of asset development activities. FAA Solution Development GSA Award NASA Formulation (Preliminary Design and Technical Completion) NRO Preliminary Design Phase 3 Indicators (Examples): Source selection decision and approval for final investment analysis Phase 3 General Accounting Treatment: Mixture of costs that are expensed in the period incurred and those that are capitalized and depreciated or amortized over the useful life of the asset. DoD Production & Deployment (P&D) Fully-engaged asset development activities. FAA Solution Implementation Phase 4: Production - Asset Development and "Inservice" Placement GSA Post-Award NASA Implementation (Final Design, Fabrication, Assembly, Integration & Test, Launch) NRO Build Phase 4 Indicators (Examples): Initiate asset development or acquisition. Phase 4 General Accounting Treatment: Capitalized and depreciated or amortized over the useful life of the asset. Phase 5: Operations and Maintenance DoD Operations & Support Activities aimed at maintaining the operability of the entity's assets. FAA In-Service Management GSA Operation and Maintenance NASA Implementation (Operation and Sustainment) NRO Operations Phase 5 Indicators (Examples): Asset is placed in service. Phase 5 General Accounting Treatment: Expensed in the period incurred (excluding costs incurred to extend the useful life, enhance existing capabilities, or add new capabilities to the asset). Agency Specific Examples: Asset Acquisition Lifecycle Phases B2. A given entity may consider certain costs, such as the agency head's office, to be period costs because the activities contribute to the entity's strategic objectives and mission rather than the acquisition of a particular asset. In contrast, another entity may have an operational or business need to allocate the same type of costs to individual assets because such costs are incurred in support of acquiring those assets. Examples from the FAA, GSA, and the NRO are included in this Technical Release to demonstrate how an entity's operating model may affect how management identifies and records certain program costs.5 The GSA's operating model requires more granular cost accumulation policies that allocate costs across the many individual assets it is responsible for acquiring. As shown in the following tables, this business need does not exist for the FAA or the NRO, where the mission is not primarily asset acquisition. B3. The FAA's mission includes the modernization and improvement of the National Airspace System (NAS) and Research, Engineering & Development (RE&D) activities to improve the safety and effectiveness of the air traffic control system. To support its mission the FAA incurs direct (burden base) and indirect (burden pool) costs. The FAA has developed a burdening process by which management allocates indirect costs to various projects. For example, the FAA "pools" indirect technical support services contract (TSSC) and systems engineering and technical assistance (SETA) costs and uses its burdening process to allocate those costs to capital projects. B4. A significant part of the GSA's mission is to serve as a supplier of goods and services to Federal agencies on a reimbursable basis. In this role, the GSA has a business need to capture costs (including overhead and indirect costs) at a very granular level. This permits the GSA to establish rates and develop pricing models that will recoup the full cost of operating under a non-appropriated, user-fee model. The difference in operational requirements results in GSA's personal property capitalization threshold of $10,000, which is lower than FAA and the NRO thresholds of $100,000. The GSA's personal property capitalization threshold is reflective of the types and quantities of property acquired by the GSA. This is an example of management's role in establishing internal policies and procedures that fit within the parameters outlined in GAAP and align to the entity's operating model. B5. The NRO's G-PP&E cost accumulation and allocation policies and procedures allow the agency to meet the intelligence needs of the Intelligence Community (IC), Department of 5SFFAC 1 paragraph 164 states, comparability implies that differences among financial reports should be caused by substantive differences in the underlying transactions or organizations rather than by the mere selection of different alternatives in accounting procedures or practices. Defense, Department of Homeland Security, and users of intelligence products. Unlike the GSA, the NRO does not operate on a fee-for-service or reimbursable basis. The NRO utilizes cost-plus contractual agreements, which allows them to procure large scale satellite assets, as well as a wide range of professional and technical services that cross multiple PP&E assets and lifecycle phases. This acquisition and funding model contributes to an operating environment which results in a different decision point at which the benefits of achieving more precise cost allocation information are outweighed by the cost to obtain that information. B6. The GSA has a business need to accumulate and allocate detailed cost information to ensure that their pricing models, rates and schedules facilitate the full recovery of costs under a non-appropriated, user-fee model. For GSA's real property construction and alteration projects, the cost object is a G-PP&E asset. In contrast, for the FAA and the NRO, the end program objective is enhanced information to meet a mission need. Each of these agencies utilizes their respective operating model as a component in the development and execution of their accounting policies and procedures. The G-PP&E cost accumulation policies and procedures of the FAA and the NRO are primarily related to their respective aerospace services and satellite-driven intelligence missions. The operating environments of these agencies are supported by low volume and high dollar value G-PP&E acquisitions. Consequently, these agencies have differing precision points at which accumulating and assigning costs to G-PP&E assets at a more granular level is ineffective and inefficient. B7. The following examples describe the primary differences between these three agencies: i. When a project meeting the capitalization threshold is deemed probable and feasible, the GSA will classify certain feasibility costs as eligible for capitalization. At the same time, the FAA and the NRO consider these costs to be period expenses. ii. The GSA capitalizes direct labor cost and various types of allocable indirect labor costs associated with its capital projects. The FAA "pools" indirect TSSC and SETA costs and uses its burdening process to allocate those costs to capital projects. iii. The NRO applies an allocation methodology to costs that are determined to be acquisition management costs (AMCs). AMCs include comingled government program management costs; costs associated with integration and support services provided on SETA, Federally Funded Research and Development Centers (FFRDC) and Contractor Assistance and Advisory Service (CAAS) contracts; directorate-level office support costs; and agency-level general and administrative costs. NRO's cost accounting system and processes do not facilitate direct tracing of AMCs and there is no inherent business or mission need to implement a system or reengineer processes that would do so. The NRO's allocation methodology capitalizes a portion of these AMCs to individual G-PP&E assets. B8. Tables 2-4 provide a summary-level view of the GSA's, the FAA's, and the NRO's PP&E acquisition lifecycle cost accounting policies and procedures. Table 2: General Services Administration Phase Activity Recognition Recognition Basis per Entity Internal Accounting Policies 1 Administrative Costs (Direct) of Developing & Fielding a System Capitalize Pre-acquisition Costs. Costs incurred prior to the formal project phase such as costs of feasibility studies, environmental studies, zoning and traffic studies, appraisals, surveys, and various planning and design costs may be capitalized if acquisition or approval of the project is probable and the costs can be directly identified to the project. If at a later date the project is canceled, then the previously capitalized costs are expensed. 2 Design Reviews (e.g., Formal Qualification Reviews, Preliminary And Critical Design Reviews): a. Expense b. Capitalize a. Before Technical Feasibility Has Been Determined. b. After Technical Feasibility Has Been Determined Capitalize Capitalized Projects. GSA's real property policy capitalizes projects that acquire land and/or construct new buildings and structures; improve land; or extend the useful life of buildings and their systems; or replace, enhance or upgrade a substantial portion of an asset with additional functionality or capacity. For a project to be capitalized, it must: (1) have a cost of $50,000 or greater; (2) have a useful life of 2 years or more. 3 Labor Costs During Construction (This includes the GSA's personnel and contract Direct Labor costs as well as Indirect costs allocated to capital projects.) 4 Project Management Costs - Baseline and Contractor Administration Capitalize 5 General Maintenance Expense The GSA considers the costs incurred in this phase inherently an expense. Table 3: Federal Aviation Administration Phase Example Cost Activities Recognition Recognition Basis per Entity Internal Accounting Policies 1 Research & Development costs: Mission Analysis Identify Projected Demand for Services Identify Technological Opportunities Mission Needs Analysis and Assessment Initial Requirements Definition Expense The FAA believes that the costs incurred in this phase are inherently expense. Phase Example Cost Activities Recognition Recognition Basis per Entity Internal Accounting Policies 2 Research & Development costs: Investment Analysis Initial Investment Decision Final Investment Decision Expense The FAA expenses all prototype costs incurred before technological feasibility has been established except for operational feasibility prototypes that will be used in operations if successful.. 3 Solution Development Program Management System Engineering Hardware/Software Design Physical Airspace (PHYS/AIRSP) Infrastructure Test and Evaluation Data/Documentation Comingled (i.e., Expense and Capitalize) At the completion of a final investment decision the FAA makes the decision to acquire (develop or purchase) a G-PP&E asset. Based on guidance from the FAA financial manual certain costs will be capitalized and certain costs will be expensed. All qualifying costs necessary to acquire a capital asset, or improve on an existing capital asset, are classified as capital costs. The purchase price and costs incurred to bring an asset to a form and location suitable for its intended use are examples of capital costs. Costs that do not meet these criteria are expensed. The FAA expenses all costs incurred on a first prototype before technological feasibility has been established. After technological feasibility has been established, the subsequent costs of constructing and installing a first prototype are eligible for capitalization. 4 Implementation Program Management Engineering Environmental/OSHA Site Selection Construction Install and Checkout Commissioning/Close Telecommunication Training Comingled (i.e., Expense and Capitalize) See above (Phase 3). 5 In-Service Management Program Support Second Level Engineering Expense At the completion of a joint acceptance inspection the asset is in a form and location suitable for its intended use. The FAA believes that the costs incurred in this phase are inherently expense. Table 4: National Reconnaissance Office Phase Activity Recognition Recognition Basis per Entity Internal Accounting Policies 1 Directorate Level Research and Development leading to the initial decision point (i.e., Key Decision Point A6) Expense Basic, applied, and advanced R&D costs incurred prior to the secondary decision point (i.e., Key Decision Point B) are expensed. 2 Costs related to the proposal review and contract award processes Expense Basic, applied, and advanced R&D costs incurred prior to Key Decision Point B are expensed. 3 At Key Decision Point B the Director of the NRO signs a Decision Memorandum Requirement and specification development Labor costs during construction Capitalize Key Decision Point B triggers the capitalization of costs for development. Comingled (Expense and Capitalize) The NRO uses an allocation methodology by which Acquisition Management Costs (AMC) incurred throughout the entire acquisition lifecycle (excluding the Operations and Maintenance phase) are "bucketed" and allocated to capital and expense accounts based on the proportional percentage of actual, non-AMC capital and expense expenditures incurred throughout the year. AMCs related to the program acquisition strategy management processes. These costs include: 1. Government program management costs, 2. Integration and support contracts for SETA, FFRDC, and CAAS, 3. Directorate level office support, Agency General and administrative costs 4 Costs related to final design, build, test, and delivery activities Capitalize Development costs continue to be capitalized in this phase. Project Management Costs - Baseline and Contractor Administration AMCs related to the government program management processes Comingled (Expense and Capitalize) See AMC explanation in above Phase 3. 5 Operations and Maintenance (O&M) Expense Initial operating capability (IOC) triggers the expense of costs for operations and maintenance. 6 Key Decision Points (KDP) are defined significant milestones in the National Security Space program of the Department of Defense acquisition lifecycle. For example, KDP B is the official program initiation of a National Security Space program of the Department of Defense, which triggers a formal review to determine maturity of technology and the program's readiness to begin the preliminary system design. Appendix C: Decision Framework Flowchart C1. As stated throughout this Technical Release, management should base their financial management information needs on the following three principles: a. Relevance/usefulness of information (both to internal and external stakeholders); b. Level of precision (e.g., materiality) needed to properly manage and report costs; and c. Cost benefit of establishing and executing cost assignment processes, methods and tools. C2. The decision framework flowchart provides users with an organized approach for applying the principles described above to support their process of developing entity specific policies and practices for accumulating, allocating, and reporting the cost of G-PP&E in compliance with relevant accounting standards. Appendix D: Accounting Literature Recognition D1. SFFAS 6 Accounting for Property, Plant, and Equipment, paragraph 26 provides the examples below as cost activities that reporting entities may incur in order to bring PP&E to a form and location suitable for its intended use. "For example, the cost of acquiring property, plant, and equipment may include: amounts paid to vendors; transportation charges to the point of initial use; handling and storage costs; labor and other direct or indirect production costs (for assets produced or constructed); engineering, architectural, and other outside services for designs, plans, specifications, and surveys; acquisition and preparation costs of buildings and other facilities; an appropriate share of the cost of the equipment and facilities used in construction work; fixed equipment and related installation costs required for activities in a building or facility; direct costs of inspection, supervision, and administration of construction contracts and construction work; legal and recording fees and damage claims; fair value of facilities and equipment donated to the government; and material amounts of interest costs paid." The Cost Assignment and Allocation Decision Framework D2. Office of Management and Budget (OMB) Circular A-136, Financial Reporting Requirements: Statement of Net Cost (SNC) introduces the following components of the cost accumulation and allocation decision framework: a. Costs that cannot be assigned to specific programs or outputs - Section II.4.4, "Statement of Net Cost", The "Components of Net Cost" subparagraph states that: "The statement should include a presentation of the following: (1) Program costs, (2) related exchange revenues, (3) the excess of costs over exchange revenues (net program costs), (4) gain/loss on pension, ORB, or OPEB assumption changes, (5) the costs that cannot be assigned to specific programs or outputs, and (6) the exchange revenues that cannot be attributed to specific programs and outputs. b. Program level versus output level cost allocation - Section II.4.4.3 "Gross Program Costs" states that: The reporting entity should report the full cost of each program's output, which consists of (a) both direct and indirect costs of the output, and (b) the costs of identifiable supporting services provided by other segments within the reporting entity and by other reporting entities. The reporting entity should accumulate and assign costs in accordance with the costing methodology in SFFAS No.4. Program costs should also include any nonproduction costs that can be assigned to the program but not to its outputs. c. Costs not assigned to programs - Section II.4.4.7 "Costs Not Assigned to Programs" states that: A reporting entity and its sub-organizations may incur: (a) high-level general management and administrative support costs that cannot be directly traced, assigned on a cause-and-effect basis, or reasonably allocated to segments and their outputs and (b) nonproduction costs that cannot be assigned to a particular program. These costs are part of the entity and sub-organization costs and should be reported on the SNC as "costs not assigned to programs." Management's Role in Applying the Cost Accumulation, Assignment, and Allocation Decision Framework D3. SFFAS 4 Managerial Cost Accounting Standards and Concepts7 introduces the following components of the cost allocation decision framework: a. Appropriate and consistent cost accumulation, assignment, and allocation - Costs of resources consumed by responsibility segments should be accumulated by type of resource. Outputs produced by responsibility segments should be accumulated and, if practicable, measured in units. The full costs of resources that directly or indirectly contribute to the production of outputs should be assigned to outputs through costing methodologies or cost finding techniques that are most appropriate to the segment's operating environment and should be followed consistently. The cost assignments should be performed using the following methods listed in the order of preference: (a) directly tracing costs wherever feasible and economically practicable, (b) assigning costs on a cause-and effect basis, or (c) allocating costs on a reasonable and consistent basis. 7SFFAS 4 Text box above paragraph 116. b. Factors for management's consideration - Each reporting entity should determine the appropriate detail for its cost accounting processes and procedures based on several factors. These include the: nature of the entity's operations; precision desired and needed in cost information; practicality of data collection and processing; availability of electronic data handling facilities; cost of installing, operating, and maintaining the cost accounting processes; and any specific information needs of management. Appendix E: Abbreviations AALP Asset Acquisition Lifecycle Phases AAPC Accounting and Auditing Policy Committee AMC Acquisition Management Costs ASID Accounting System Identification CAAS Contractor Assistance and Advisory Service CAI Cost Accounting Issues DHS Department of Homeland Security DoD Department of Defense FAA Federal Aviation Administration FASAB Federal Accounting Standards Advisory Board FFRDC Federally Funded Research and Development Centers GAAP Generally Accepted Accounting Principles G-PP&E General Property, Plant, and Equipment GSA General Services Administration IC Intelligence Community KDP Key Decision Point NAS National Airspace System NASA National Aeronautics and Space Administration NRO National Reconnaissance Office O&M Operations and Maintenance ODNI Office of the Director of National Intelligence OMB Office of Management and Budget OPEB Other Post-Employment Benefits ORB Other Retirement Benefits OSHA Occupational Safety and Health Administration PBS Public Buildings Service PHYS/AIRSP Physical Airspace PP&E Property, Plant, and Equipment RE&D Research, Engineering & Development R&D Research and Development SETA Systems Engineering and Technical Assistance SFFAC Statement of Federal Financial Accounting Concepts SFFAS Statement of Federal Financial Accounting Standards SNC Statement of Net Costs TSSC Technical Support Services Contract TR Technical Release USBR United States Bureau of Reclamation Technical Release 16: Implementation Guidance for Internal Use Software Status Issued January 19, 2016 Effective Date Effective upon issuance Affects Rescinds TR 5 Affected by TR 17 TR 20 TR 23 Summary This Technical Release (TR) assists reporting entities in implementing Statement of Federal Financial Accounting Standards (SFFAS) 10, Accounting for Internal Use Software. Since FASAB issued SFFAS 10 in 1998, software development practices have changed dramatically and reporting entities have experienced challenges applying the standards given the new terminology and techniques that have evolved. The TR provides implementation guidance regarding: a. The definition of IUS, component/module based IUS assets, software development practices including approaches that involve phases, and clarifying IUS recognition, measurement, and disclosure items (such as capitalized cost, capitalization cut off, capitalization threshold, enhancement, impairment, and related matters); b. New IUS challenges brought by changes in IUS development practices since the issuance of SFFAS 10; and c. Management's role in applying SFFAS 10. This objective of this guidance is to explain how to apply existing standards to the fast changing Internal Use Software (IUS) environment and help ensure that: a. Transactions involving IUS are recorded in accordance with federal accounting standards. b. The cost of producing federal financial information, as it relates to capitalization or expense of IUS cost, does not outweigh the benefits derived by the users of the financial information. Table of Contents Page Summary 1 Introduction 3 Technical Guidance 5 Appendix A: Basis for Conclusions 13 Appendix B: Illustrations 17 Appendix C: Abbreviations 25 Introduction Purpose 1. This Technical Release (TR) assists agencies in applying SFFAS 10, Accounting for Internal Use Software, to the new software development practices that have evolved since FASAB issued the standard in October 1998. The TR considers the software development terms and practices that reporting entities utilize currently and helps clarify the standards in light of those terms and practices. Specifically, the TR provides guidance regarding: a. The definition of internal use software (IUS), component/module based IUS assets, software development practices including approaches that involve phases, and clarifying IUS recognition, measurement, and disclosure items (such as capitalized cost, capitalization cut off, capitalization threshold, enhancement, impairment, and related matters); b. New IUS challenges brought by changes in IUS development practices since the issuance of SFFAS 10; and c. Management's role in applying SFFAS 10. 2. This TR introduces new terms used in current development practices and defines them in light of the application of this guidance. It provides a discussion of issues and examples to assist entity management in applying the principles described throughout the TR. The examples were selected because they were derived from underlying transactions or organizational characteristics rather than being attributable to preferences. 3. The accounting standards and related basis for conclusions consistently recognize management's role in interpreting and applying generally accepted accounting principles (GAAP) within its operational environment. This TR recognizes that management is responsible for establishing IUS accounting policies, methodologies, and for maintaining adequate documentation on the sources of data. It also recognizes that the cost of producing federal financial information, as it relates to capitalization or expense of IUS cost, should not outweigh the benefits derived by the users of the financial information. Background 4. The software development life cycle has dramatically changed since the issuance of SFFAS 10 in 1998. At that time the linear/waterfall1 software development practices were prevalent 1 The waterfall model is a sequential design process, used in software development processes, in which progress is seen as flowing steadily downwards (like a waterfall) through the software development phases. and characterized by three distinct life-cycle phases and long development cycles. Given the changes in development practices, technological advances, and significant new development techniques and architectures,2 guidance for implementation and sustainment of SFFAS 10 became critical. 5. This TR introduces new IUS development terms and defines them to aid in applying existing standards. The definitions provided are not all encompassing but are included to promote greater understanding, and more consistent application and implementation of the standards. The same principles used to develop the guidance on the current IUS development practices could be used for future IUS development practices. The business events and deliverables table and agency practice examples are provided in Appendix B. These examples are intended to illustrate use of professional judgment in the development and application of policy and practices to account for IUS in accordance with GAAP. The examples are not all encompassing and reporting entities may identify other more useful and relevant methodologies. Users of this guidance should use these examples to develop their own reasonable business processes. 6. This TR was developed to aid in meeting the operating performance reporting objective identified in Statement of Federal Financial Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting, paragraph 143: Federal financial reporting should assist report users in evaluating the service efforts, costs, and accomplishments of the reporting entity; the manner in which these efforts and accomplishments have been financed; and the management of the entity's assets and liabilities. Federal financial reporting should provide information that helps the reader to determine: a. The costs of providing specific programs and activities and the compositions of, and changes in, these costs; b. The efforts and accomplishments associated with Federal programs and the changes over time and in relation to costs; and c. The efficiency and effectiveness of the Government's management of its assets and liabilities. 7. [Paragraph 7 was rescinded by Technical Release 17.] 2 Such as cloud service, shared service, agile development, and spiral development with a focus on module based development and shorter development cycles. 3 This principle was also relied upon in Office of Management and Budget (OMB) Circular A-11 Preparation, Submission, and Execution of the Budget; Supplement to Circular A-11, Capital Programming Guide (July 2014), Page 61. Technical Guidance Scope 8. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards, but it is not a substitute for and does not take precedence over the standards. This TR clarifies but does not change guidance in SFFAS 4, 6 (as amended), and 10. 9. This TR rescinds TR5 Implementation Guidance on Statement of Federal Financial Accounting Standards 10: Accounting for Internal Use Software. 10. This TR applies to all internal use software that meet the definition of IUS as described in SFFAS 10 including the following: a. Software to be used in research and development where the software will have an alternate future use b. Software developed separately and installed on a number of different general property, plant, and equipment (PP&E) assets at different times4 Applying Existing Standards to Current Development Models 11. IUS Definition: SFFAS 10, paragraphs 8 - 9, defines "internal use software" as software that is "purchased from commercial vendors off-the-shelf (COTS), internally developed, or contractor-developed solely to meet the entity's internal or operational needs." The IUS development or modification can be performed by employees of the entity or contractors that the entity is paying to design, program, install, and implement. Software assets need to be evaluated for ownership to determine which entity is ultimately responsible for reporting the asset. 4 SFFAS 10, paragraph 22, provides that computer software that is integrated into and necessary to operate general PP&E, rather than perform an application, should be considered part of the PP&E of which it is an integral part and capitalized and depreciated accordingly. However, computer software could be developed separately and installed on several general PP&E assets at different times. For example, anti-ballistic missile software installed on multiple radar systems at different times can be treated as a separate IUS asset if the software meets the capitalization threshold. 12. Development Phases: SFFAS 10 presents three phases of software development that follow a linear approach to an IUS project: the preliminary design phase, the software development phase, and the post-implementation/operational phase. It states that costs incurred during the development phase should be capitalized, while the costs incurred in other phases should be expensed. However, software may not always be developed under this linear approach and capitalization decisions absent distinct phases are more difficult. Regardless of timing, the cost incurred for development phase activities should be capitalized or expensed based on provisions of SFFAS 10 and considering the substance of the activity. 13. Capitalized Cost: The full cost (direct and indirect cost as stated in SFFAS 4, paragraph 89, 90, and 91) incurred during the software development phases should be capitalized (SFFAS 10, paragraph 16 thru 18). Considering economic feasibility, a cost estimation technique could be developed to trace the costs to outputs based on the SFFAS 4, paragraph 124, provision that "[in] principle, costs should be assigned to outputs in one of the methods listed below in the order of preference: a. Directly tracing costs wherever economically feasible; b. Assigning costs on a cause-and-effect basis; and c. Allocating costs on a reasonable and consistent basis." 14. A specific software development project may include expenditures for improvements and maintenance that cannot be easily separated but may be reasonably and consistently allocated. One approach that can be used is a ratio based on the projected work hours for development phase activities relative to other types of work. Such a ratio can be applied to determine the expenditures that should be capitalized. The basis for allocating costs should be consistent with applicable standards and defensible. 15. Capitalization Cut Off: SFFAS 10, paragraph 20, states, "Costs incurred after final acceptance testing has been successfully completed should be expensed. Where the software is to be installed at multiple sites, capitalization should cease at each site after testing is complete at that site." In some development practices, each iteration5 within an IUS development has its own acceptance testing before moving forward to the next iteration and final acceptance testing may not always be performed. The entity should identify a predetermined agency milestone such as the go-live or in-service date which is equivalent to a final acceptance test for capitalization cut off purposes. 5 Iteration is the act of repeating a process with the aim of approaching a desired goal, target or result. Each repetition of the process is also called an "iteration," and the results of one iteration are used as the starting point for the next iteration. 16. Integrated Software: SFFAS 10, paragraph 22, states, "Computer software that is integrated into and necessary to operate general PP&E, rather than perform an application, should be considered part of the PP&E of which it is an integral part and capitalized and depreciated accordingly (e.g., airport radar and computer-operated lathes). The aggregate cost of the hardware and software should be used to determine whether to capitalize or expense the costs." In situations where software and the hardware on which it runs have independent service lives, the determination of the useful life of the software should be viewed independently of the useful life of the hardware. This determination should be made on a case by case basis for each entity and is at the discretion of management of the entity. The rationale for this determination should be documented. 17. Component Based IUS Asset: SFFAS 10, paragraph 33, states, "For each module or component of a software project, amortization should begin when that module or component has been successfully tested. If the use of a module is dependent on completion of another module(s), the amortization of that module should begin when both that module and the other module(s) have successfully completed testing." For example, an entity may develop an accounting software system containing three modules: a general ledger, an accounts payable sub-ledger, and an accounts receivable sub-ledger. In this example, each module could be analyzed to determine whether it could be treated as a separate asset. Specifically, if the module provides economic benefit through distinct, substantive functionality; and meets the tests for capitalization threshold, ownership, and eligibility for capital treatment, then the module could be treated as a separate IUS asset for the purposes of recognition, measurement including amortization, and disclosure in accordance with SFFAS 10. 18. Capitalization Threshold: SFFAS 10, paragraph 24, states, "Each federal entity should establish its own threshold as well as guidance on applying the threshold to bulk purchases of software programs (e.g., spreadsheets, word-processing programs, etc.) and to modules or components of a total software system." When establishing the capitalization threshold for IUS, the federal entity should include both qualitative and quantitative considerations as stated in SFFAC 2 paragraph 46. Qualitative considerations could be applied to IUS assets that require special management attention because of their importance to the agency mission; high development, operating, or maintenance costs; high risk; high return; or their significant role in the administration of agency programs, finances, property, or other resources. 6 19. When establishing a capitalization threshold for bulk software purchases, the threshold should not be based on unit price. The organization should consider the bulk value and 6 OMB Circular A-11 Preparation, Submission, and Execution of the Budget; Supplement to Circular A-11, Capital Programming Guide, Threshold for Capital Programming, page 2, July 2014. useful life established by the organization to avoid materially distorting period costs and understating asset values. 20. OMB notes that a stratified capital programming process involving more or less detail and review based on the size or strategic importance of proposed investments may be appropriate, particularly in large agencies. 7 Similarly, more than one capitalization threshold could be established for different components of a large agency. Agencies should have well documented thresholds clearly disseminated and implemented across the organization. 21. Enhancement: SFFAS 10, paragraph 25, states, "The acquisition cost of enhancements to existing internal use software (and modules thereof) should be capitalized when it is more likely than not that they will result in significant additional capabilities." Significant additional capabilities are modifications to existing IUS that result in additional functionality-that is, modifications to enable the software to perform tasks that it was previously incapable of performing. As stated in SFFAS 10 paragraph 26, capitalizable enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. Examples of enhancements could include augmenting existing business functions with new features and functions, developing additional new business functions, and/or adding new functionality and capability. 22. If one module is dependent upon another to function, then those modules should be evaluated together as one enhancement. All costs of an enhancement, including any costs carried over or allocated from the original software, should be amortized over the enhancement's estimated useful life. 23. Impairment: SFFAS 10, paragraphs 28-30, addresses how to determine if software is impaired during the post-implementation operational phases and the measurement of the impairment for the impaired software remaining in use or to be removed. Significant events or changes in operating circumstances warrant a review to determine whether the carrying value of an existing software asset is not recoverable and should be impaired. An assessment should be performed to determine the remaining useful life of the impaired software for amortization purposes. 24. When it is more likely than not that a developmental software project will not be completed, no further costs should be capitalized and any costs that have been capitalized should be written off in accordance with SFFAS 10, paragraph 31. Indications that the software may no longer be completed include: a. The expenditures are neither budgeted nor incurred to fund further development; 7 See note 6. b. The discontinuance of the business segment the software was designed for; c. The inability to resolve programming difficulties timely; or d. A decision to obtain COTS instead and abandon the current software development 25. When a developmental software project is suspended pending management's evaluation as to whether to resume or terminate the project, the software development cost may remain capitalized as long as it is more likely than not 8 that the developmental software project will eventually be completed and the cost incurred or expected to be incurred meets the capitalization threshold. The status of the project should be reevaluated periodically and the capitalized cost should be written off if management concludes that it is more likely than not that the software will not be placed into service in the future. 26. [Rescinded by TR 20.]9 26A.Perpetual Software License: If a software license is perpetual with an upfront cost9A to use the software for its entire lifetime, then the entity is purchasing IUS and should apply its existing policy for capitalization thresholds to determine if the license should be capitalized or expensed. 27. [Rescinded by TR 20.]10 27A. A license agreement may include costs for maintenance and technical support. Agency judgment should apply in determining what portions of license fees are attributable to software capitalizable costs versus maintenance or technical support costs. Guidance on Applying SFFAS 10 to Certain New IUS Developments Cloud Computing 28. A cloud computing service is a resource provided over the Internet that has the following essential characteristics: on-demand self-service, broad network access, resource pooling, rapid elasticity, and measured service. The most common cloud service resources are: software as a service, platform as a service, and infrastructure as a service.11 8 SFFAS 10, paragraph 31, provides for write off if it is more likely than not that the project will not be completed and placed in service. 9 [Footnote 9 was rescinded by TR 20.] 9A The cost could be charged as a onetime payment or financed over a set period of time. 10 [Footnote 10 was rescinded by TR 20.] 11 The full definition is available at The National Institute of Standards and Technology: The NIST Definition of Cloud Computing, Special Publication 800-145, September 2011. 29. If a cloud computing arrangement includes a perpetual software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses as discussed in paragraph 26A of this TR. SFFAS 10 is not applicable to a cloud computing arrangement that does not convey a contractual right to the IUS or to ones that do not include an IUS license. The entity that develops and owns the software, platform, or infrastructure that is used in the cloud computing arrangement would account for the software development in accordance with SFFAS 10. If the funding to develop cloud computing is shared among entities without clear ownership, the service provider entity that receives funding and is responsible for maintaining the software, platform, or infrastructure should account for the software in accordance with SFFAS 10 and the full cost/inter-entity cost requirements of SFFAS 4. Shared Services 30. Shared Service means a mission or support function provided by one business unit to other business units within or between organizations. The funding and resourcing of the service is shared and the providing entity effectively becomes an internal/external service provider. There are three types of shared service structures in the federal government: intra-agency, interagency and commercial. Intra-agency shared services include those provided within the boundaries of a specific organization such as a federal department or agency, to that organization's internal units. Interagency shared services are those provided by one federal oprovider's organizational boundaries. Commercial shared services are those provided by private vendors.12 31. For intra-agency shared services, a cost allocation methodology could be developed in accordance with SFFAS 4, paragraphs 120-125. For interagency shared services and commercial shared services, the service provider entity that owns (receives funding/responsible for maintaining) the software should account for the software in accordance with SFFAS 10. In the event that the entity receiving the service (the customer) has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software, then the customer should account for the software in accordance with SFFAS 10. 32. If the shared service arrangement includes a perpetual software license, the customer should account for the software license element of the arrangement consistent with the acquisition of their other software licenses, as discussed in paragraph 26A of this TR. SFFAS 10 is not applicable to a shared service arrangement that does not convey a contractual right to the IUS or to ones that do not include an IUS license. 12 Chief Information Office Council: Federal Shared Service Implementation Guide, April 2013, and OMB M-13-08: Improving Financial Systems Through Shared Services, March 25, 2013. Agile Software Development Method 33. Agile software development method is a group of software development methods in which requirements and solutions evolve through collaboration between self-organizing, crossfunctional teams. In an agile project, working software is deployed in iterations of typically one to eight weeks in duration, each of which provides a segment of functionality.13 Initial planning regarding cost, scope, and timing is usually conducted at a high level, and the project status is primarily evaluated based on software demonstrations. 34. The IUS development phases listed in SFFAS 10, paragraphs 10-14, and within this TR could be applied to agile development projects on an iteration basis. If an iteration developed meets the module or component asset definition in accordance with SFFAS 10, paragraph 33, and as discussed in paragraph 15 of this TR, then it could be treated as an individual IUS project and would be accounted for in accordance with SFFAS 10. If the numbers of iterations are dependent on the outcomes of multiple processes for a complete function, the cost incurred in these iterations should be grouped together based on the nature of the activities (capital or expense) and treated as one project for the purposes of recognition, measurement, and disclosure in accordance with SFFAS 10. Any future incremental releases that result in additional functionality can be treated as an enhancement of the original IUS project and accounted for in accordance with SFFAS 10. Spiral Software Development Method 35. Spiral software development method combines the features of the waterfall and prototyping14 incremental models, but with more emphasis placed on risk analysis and management. The spiral methodology projects are typically separated into phases like the waterfall method: planning, risk analysis, engineering, and evaluation. However, they are broken up into incremental releases of the product, or incremental refinement through each time around the spiral and through continuously analyzing the requirements and improving the definition and implementation. At each iteration around the cycle, the project is improved and extended. The release could be to an external or internal client, or to a partner. 36. The IUS development phases listed in SFFAS 10, paragraphs 10-14, and within this TR could be applied to a spiral development project on a process iteration basis. If an iteration 13 Government Accountability Office: Software Development Effective Practices and Federal Challenges in Applying Agile Methods, July 2012. 14 The Prototyping Model is a system development method in which a prototype (an early approximation of a final system or product) is built, tested, and then reworked as necessary until an acceptable prototype is finally achieved from which the complete system or product can now be developed. This model works best in scenarios where not all of the project requirements are known in detail ahead of time. It is an iterative, trial-and-error process that takes place between the developers and the users. developed meets the module or component asset definition in accordance with SFFAS 10 and as discussed in paragraph 15 of this TR, then it could be treated as an individual IUS project and would be accounted for in accordance with SFFAS 10. If the number of iterations are dependent on the outcomes of multiple spiral processes for a complete function, the cost incurred in these iterations should be grouped together based on the nature of the activities (capital or expense) and treated as one project for the purposes of recognition, measurement, and disclosure in accordance with SFFAS 10. Any future incremental releases that result in additional functionality can be treated as an enhancement of the original IUS project and accounted for in accordance with SFFAS 10. Summary of Illustrations 37. The Business Events & Deliverables for Software Development Phases and the Common Agency Practice tables listed in Appendix B support development of accounting policies and practices appropriate to each organization's characteristics in accordance with GAAP. The tables are meant to provide examples for reporting entities to consider in developing organizational accounting policies and practices that will best support their operating models, provide the financial information necessary to manage programs, and report in accordance with GAAP. Reporting entities should report the IUS in the general purpose financial reports. Full costs of IUS development should be expensed or capitalized in accordance with GAAP and each entity's accounting policies and practices should support cost beneficial implementation. Effective Date 38. This Technical Release is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by AAPC members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendix-should govern the accounting for specific transactions, events, or conditions. Project History A1. In June 2013, FASAB's AAPC established the IUS Task Force to assist in developing implementation guidance for IUS as it relates to SFFAS 10, Accounting for Internal Use Software and other related IUS guidance developed by the FASAB. The task force includes federal agency representatives who are experiencing issues with implementing SFFAS 10 and those who have implemented workable common practices to share with the federal community as well as industry representatives from several public accounting and consulting firms. A2. During the initial phase of the project, the IUS task force divided into three subgroups to conduct research and explore the best approach for addressing current IUS issues within the federal community, including whether a TR should be developed, or revisions should be made to SFFAS 10. The subgroups met separately to discuss their assigned issues and report their research findings. The three subgroups were: a. IUS Mapping Team b. IUS Benchmarking Team c. Standards Team A3. After presenting the results of their research to the FASAB and AAPC, the task force concluded that implementation guidance would address the current IUS issues within the federal community. As a result, the AAPC endorsed the approach. The group held a reentrance meeting on February 27, 2015 to re-engage agencies in drafting implementation guidance. This guidance focused on highlighting the common issues identified across the federal government IUS process, clarifying terminology, introducing new terms from the recent software development methodologies in light of application of SFFAS 10, and providing sample IUS practices adopted by the agencies. Based on the research, a TR would equip federal agencies with the knowledge and information needed to identify effective IUS practices that would in turn strengthen financial reporting in IUS area. It consists of two major topic areas: a. Standards Clarification b. Practical Examples of Implementation A4. The IUS FASAB Task Force, which included industry representatives from several public accounting and consulting firms, as well as representatives from the following federal agencies, developed this proposed guidance: a. Department of Commerce (DOC) b. Department of Defense (DOD) (including the individual military departments) c. Department of Health and Human Services (HHS) d. Department of Homeland Security (DHS) e. Department of Labor (DOL) f. Department of Transportation (DOT) g. Department of Treasury (Treasury) h. Environmental Protection Agency (EPA) i. Office of the Director of National Intelligence (ODNI) j. United States Securities and Exchange Commission (SEC) A5. Two subgroups were formed for standards clarification and best practices. The subgroups developed two data calls to highlight the commonalities across the federal IUS process. The first data call aided federal agencies in clarifying terminology and identified popular new IUS development items. The second data call highlighted IUS current practices adopted by the agencies and identified IUS development phase activities across the IUS development phases. The second data call also collected detail business events and typical deliverables during IUS development phases. Both data calls equip federal agencies with the knowledge and information needed to strengthen financial reporting. A6. In reaching conclusions, the subgroups recognized the need to develop implementation guidance to promote an understanding of rapid changes related to software development practices that have evolved since the inception of SFFAS 10. The IUS task force views clarification of implementation and sustainment issues as critical given the new IUS challenges related to environmental changes and technological advances. There are several cost-beneficial and reasonable changes (for example, policies, systems, and processes) that federal entities can make to facilitate better financial management and reporting of IUS. However, entity management must be allowed to navigate within the parameters of GAAP to determine the point at which the costs of improving or providing financial information outweigh the derived benefits. A7. This TR recognizes that the financial management information needs of stakeholders, both internal and external, vary by entity. The agency-specific examples (detailed in Appendix B) demonstrate how tracking costs to specific invoices may be tailored to different operating models and comply with GAAP. The implementation guidance does not provide a 'one-size-fits-all' solution; instead, it is designed to give management a tool on which to base stakeholder financial management information needs. A8. When applying the principles listed in SFFAS 10, management should develop formalized policies and procedures documenting their decisions. Management is responsible for maintaining adequate documentation on the sources of data and the application of methodologies used when estimating cost. A9. Implementation of SFFAS 10 and this guidance is a joint effort of an entity's Chief Finance Office and Chief Information Office. It is management's responsibility to provide for smooth communication between these two offices to foster an efficient and effective IUS implementation process. Responses to the Proposal A10. The AAPC received 12 responses to the exposure draft from the following sources: Table 1.0 - Types of Respondents Federal (Internal) Nonfederal (External) Users, academics, others 1 Auditors 1 Preparers and financial managers 10 Total 10 2 A11. The AAPC considered responses to the exposure draft at its November 19, 2015, public meeting. The AAPC did not rely on the number in favor of or opposed to a given position. Information about the respondents majority view is provided only as a means of summarizing the comments. The AAPC considered the arguments in each response and weighed the merits of the points raised. A12. Of the 12 responses, nine supported the proposal. The remaining three offered comments. The AAPC made editorial changes suggested by the respondents. AAPC & Board Approval A13. The Technical Release was approved by the AAPC for release to the FASAB for issuance. The Board has reviewed this Technical Release and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB's offices. Appendix B: Illustrations The examples in this Appendix are for illustration only; they do not represent authoritative guidance. These illustrations depict only a portion of the reporting entities' operations and their inclusion in this TR does not equate to policy acceptance, in whole or part, by the FASAB or the AAPC. Illustrations B-1: Business Events and Deliverables for Software Development Phases The table below provides examples of business events and deliverables which agencies may see within a typical software development life-cycle. The table is structured to follow the three software development phases as defined in SFFAS 10, paragraphs 11-14. When applying examples in this table to software development phases, the decision to capitalize or expense an item should be determined based on the nature of the cost activity when it is incurred, in accordance with SFFAS 10 paragraph 16 and as discussed in paragraph 12 of this TR: "It states that costs incurred during the development phase should be capitalized, while the costs incurred in other phases should be expensed. However, software may not always be developed under this linear approach and capitalization decisions absent distinct phases are more difficult. Regardless of timing, the cost incurred for development phase activities should be capitalized or expensed based on provisions of SFFAS 10 and considering their substance rather than their phase." The table may be used as a sample guide for categorizing business events and deliverables during IUS phases, but it is not intended to be comprehensive. Each agency is responsible for developing policies and procedures that are appropriate for its specific environment and needs and may differ in content and order from the table below. Business Event Typical Deliverables Preliminary Design Phase Formulation of Alternatives15 15 OMB Circular A-11 provides more information for alignment of agency IT investments with agency strategic plans. Major Information Technology (IT) Business Cases, Capital Investment Decision Paper, Information Resources Management Strategic Plan, Enterprise Architecture Roadmap, IT Capital Asset Summary, Agency IT Portfolio Summary Submissions, Alternative of Analysis Report -Justification of investment need -Conceptual formulation of alternatives -Evaluation and testing of alternatives -Determination of existence of needed technology -Final selection of alternatives Establish Project Governance Project Charter, Project Action/Risk Register, Quality Management Plan, Project Schedule, Project Plan, Work Breakdown Structure -Identify and incorporate vision, roles, responsibilities, governance, organizations, and authorizations in project charter -Identify and document risks specific to project, including security risks -Establish and document quality control practices -Develop high-level estimates and schedule -Update discoveries and additional information Determine Requirements -Develop high level list of functional and nonfunctional requirements -Obtain, review and document detailed business specifications for business requirements -Determine and document general data flows and interactions with other systems -Determine detailed business/system specifications to support requirements Vision documents, Requirement Specification Document, Requirement Traceability Matrix, Process Flow Diagrams, Supplementary Specifications, Use Cases, User Workflow Develop Software Development Plan -Create initial plan to define major releases of project and phases -Define configuration management practices -Define testing strategy for user acceptance, quality assurance and other necessary testing Project Schedule, Release Specifications, Software Development Plan, Test Strategy, Quality Assurance (QA) Test Plan Risk Management Plan, User Interface Design Documents, Solution Design Document Business Event Typical Deliverables Procurement -Create Request for Information (RFI) or Request for Proposal (RFP) for external vendor services or products -Evaluate and select externally provided services or products RFI/RFP, Procurement Management Plan, Contract Statement of Work Rapid Prototype/Pilot -Rapid prototype development and evaluation to refine requirements and prove concept -Pilot of proposed solution on small scale and over limited timeframe to prove concept and refine requirements -Update schedule and cost baseline based on discoveries from elaboration phase Prototype (executable version of function and interface), Requirements Survey, Pilot program, Evaluation of Pilot, Scope Management Plan Development Phase Software Development Initiation Software Architecture Description Document, Software Development Plan, Iteration Plan, Operational Plan, Software Design Description -Refine and execute practices for artifacts & configuration -Review work performed in prior iterative period, prioritize and assign work to be done in next iterative period -Coordinate updates to system interdependencies -Develop operations plan -Define and document architecture specifications -Develop and validate high value/high risk requirements of architecture components Rapid Development Risk Evaluation -Studies and analysis are performed during development environment to identify potential risks based on requirements & developed iteration Risk identification and Mitigation Plan, Contingency Plan Coding and System Design - Execute practices for version control of all software development artifacts - Create, design and modify system and associated hardware; coding and continuous refining. -Update project plan & business case -Add software development issues to the Issue Log to be prioritized and addressed -Conduct critical design review -Establish and document quality control practices Software Architecture Document, Development Plan, Updated Project Management Documents, Issue Log, Critical Design Review Memorandum, Quality Management Plan Business Event Typical Deliverables Testing Test Plan, Test Cases Scripts, Test Results, Operations Manual, Implementation Plan, Test Readiness Memorandum, Release Notes, Turnover Package, Transition Plan, Security Test Report, Security Certification and Accreditation, Security Test & Evaluation Plan, Software Architecture Document, Acceptance Test Plan, Acceptance Test Script -Identify tests and write test cases or scripts -Install hardware. Conduct unit and integration testing -Create operations manual and requirement documents for users -Document strategy and approach for system implementation (what will be deployed, where, and when) - Prepare turnover package to migration turnover and test readiness review and issue memo -Prepare detailed notes that describe the specific contents of a release for customer or outside testing party -Develop security test report and issue security certification and accreditation -Conduct user acceptance testing Readiness Review and Release Production Readiness Review Memo, Transition Plan, Operational Readiness Memorandum, Audit and Project Completion Reports, Certification of Production, Final User Acceptance Testing Memorandum, User Manual, Operational Support Plan, Installation Plan -Conduct production readiness review and issue memo -Audit and project completion reports finalized -Issue operational readiness memo, certification of production, and final user acceptance testing memorandum Post-implementation/ Operational Phase Deployment Update Project Management Documents, Scope Verification, Deployment/implementation plan -Determine criteria for exiting transition phase controls have been identified and met -Stakeholder provides written approval that product meets documented business requirements -Revise and finalize detail Deployment/implementation plan Training -Develop training delivery method, schedule, and plan -Develop training materials -Deliver training, record, and deliver webinars and communicate on-demand training Training Plan, Training Materials, Training Delivery Business Event Typical Deliverables Data Conversion -Development of software to facilitate data transfer or conversion -Develop data cleansing and transfer plan, including protocols for archiving legacy data -Perform activities to cleanse data and format for transfer -Perform mock migrations of data and analyze results -Perform final data migration and validation Data Transfer Software, Data Transfer Plan, Formatted Data, Mock Migration Results and Analysis Report, Data Migration Validation Report Operation and Maintenance Activities -Subsequent security accreditations (not included in user acceptance testing) -Software diagnostics -Repair processing and/or performance failures -Update documentation -Minor software updates -Minor corrections to design flaws Accreditation Certification, Diagnostic Reports, Software and Process Documentation Retirement of Software Disposal Certification -Information preservation -Configuration management and control -Media sanitization -Hardware and software disposal Illustrations B-2: Common Agency Practice The common agency practice table highlights IUS practices adopted by the agencies in the areas identified by the IUS working group as common challenges. It intends to equip federal agencies with the knowledge and information needed to identify effective IUS practices and does not provide a ‘one-size-fits-all’ solution; instead, it is designed to give management some practical examples. Users of this TR should use the information provided in these examples to develop their own reasonable business processes. This table covers four areas of IUS development: 1) Identifying Cost, 2) Software Amortization, 3) Enhancement to IUS, and 4) Impairment to IUS. Illustration Sample #1: Identifying Cost Challenge Statement: Trace Development Cost to Specific Invoice Task Force Member Agency Agency Practice Cyclical development methodologies make differentiating between development and maintenance costs within an invoice difficult Challenge Contributing Factors A Direct tracing or allocating the invoiced cost with the basis of estimate documented. Use status report or program/project documentation to evaluate activities and identify those that are development activities. B Contractual requirement for vendor to provide a data item description deliverable with the estimate of costs between development and nondevelopment activities along with each monthly invoice submitted. C IUS cost primarily attributable to government labor hours. Quarterly report from the program offices detailing the employee or contract hours for each IUS project phase (preliminary design, development, or operational). D Separate accounting lines used on purchase request and obligation document for development and nondevelopment activity cost by coding every software project on a requisition. The captalizable requisition must be coded with general ledger account IUS-In Development in the accounting string which drives the purchase order and vouchers, thereby requiring the vendor to invoice in accordance with the activity breakouts. Illustration Sample #2: Software Amortization Challenge Statement: Timing of Commencement of Depreciation/Amortization Task Force Member Agency Agency Practice Obtaining evidence to support the determination of commencement of amortization Challenge Contributing Factors A Open inter departmental communication facilitates decision to begin depreciation of software. B A sign off document confirming key development milestones such as acceptance test are met. C A certificate of production is issued communicating the software is in production and being utilized. Illustration Sample #3: Enhancement to IUS Challenge Statement: Define Enhancement to Internal Use Software Task Force Member Agency Determination of the significance of an enhancement to the IUS, incremental enhancement of capability, and the enhancement associated with new IUS development model Challenge Contributing Factors A Defines enhancement to be the replacement, upgrade, modification, or addition of new features or capabilities to an existing system, product, tool, service, or infrastructure to improve its functionality. It involves a change in the capabilities, requirements, design, and/or architecture. B Add additional capabilities and the enhancement costs are above agency's capitalization threshold. Repair a design flaw or perform minor upgrades that extend the useful life without adding capabilities, the costs are expensed and the useful life of the original asset is adjusted, as necessary. C Enhancement cost exceed capitalization threshold, and when it is more likely than not that such enhancements will result in a significant increase in functionality that is apparent to the user. The cost of routine or minor changes or modernizations that do not significantly add functionality should be expensed in the period incurred. Examples of minor enhancement include updating data tables, web-enabling, customizing reports, or changing graphic user interfaces. Enhancements that may extend the useful life of the software without adding significant capabilities are to be considered minor and expensed. D In Agile development model, enhancement follows the same capitalization criteria threshold for each release separately and tracks each version individually. Illustration Sample #4: Impairment to IUS Challenge Statement: Determination of Impairment for Internal Use Software Task Force Member Agency Agency Practice Determination of when the impairment is incurred without sufficient knowledge on the IUS operating status Challenge Contributing Factors A Scenario-based impairment checklist reviewed on a quarterly basis to monitor impairment. The checklist examines the following scenarios: cessation of demand for the IUS asset, changes with an adverse effect on the IUS asset have occurred within the policy, legal or technological environment, plans to discontinue or restructure the IUS asset, the IUS asset is not performing as intended, and elements of the IUS asset functionality are not used as intended. Appendix C: Abbreviations AAPC Accounting and Auditing Policy Committee COTS Commercial Off The Shelf DHS Department of Homeland Security DOC Department of Commerce DOD Department of Defense DOL Department of Labor DOT Department of Transportation EPA Environmental Protection Agency FASAB Federal Accounting Standards Advisory Board GAAP Generally Accepted Accounting Principles HHS Department of Health and Human Services IT Information Technology IUS Internal Use Software NIST National Institute of Standards and Technology ODNI Office of the Director of National Intelligence OMB Office of Management and Budget PP&E Property, Plant, and Equipment QA Quality Assurance RFI Request for Information RFP Request for Proposal SEC United States Securities and Exchange Commission SFFAC Statement of Federal Financial Accounting Concepts SFFAS Statement of Federal Financial Accounting Standards TR Technical Release Treasury Department of Treasury Technical Release 17: Conforming Amendments to Technical Releases for SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment Status Issued April 10, 2017 Effective Date Effective upon issuance Affects Technical Releases 13, 15 and 16 are amended. Affected by None. Summary Statement of Federal Financial Accounting Standards (SFFAS) 50, Establishing Opening Balances for General Property, Plant, and Equipment, amended SFFAS 6, Accounting for Property, Plant, and Equipment, and SFFAS 10, Accounting for Internal Use Software, and rescinded SFFAS 35, Estimating the Historical Cost of General Property, Plant, and Equipment: Amending Statements of Federal Financial Accounting Standards 6 and 23. This Technical Release (TR) provides amendments to previously issued TRs to acknowledge the rescission of SFFAS 35. It also clarifies that all standards-level implementation guidance for general property, plant, and equipment (with the exception of certain provisions applicable to internal use software) now resides in SFFAS 6, as amended. Specifically, this TR provides conforming amendments to the following documents: Technical Release 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment Technical Release 15, Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation Technical Release 16, Implementation Guidance For Internal Use Software This TR does not provide a complete update of the above TRs; the amendments conform the TR documents to the provisions of SFFAS 50. A separate TR will be issued that addresses SFFAS 50-specific implementation issues associated with the alternative methods of arriving at deemed cost. The provisions of this TR need not be applied to immaterial items. The determination of whether an item is material depends on the degree to which omitting or misstating information about the item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. Table of Contents Page Summary 1 Technical Guidance 3 Scope 3 Amendments to Existing Technical Releases 3 Effective Date 7 Appendix A: Basis for Conclusions 8 Appendix B: Abbreviations 11 Technical Guidance Scope 1. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 2. The amendments addressed in this TR conform the following documents to certain provisions established by SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35: Technical Release 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment Technical Release 15, Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation Technical Release 16, Implementation Guidance For Internal Use Software Amendments to Existing Technical Releases Technical Release 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment 3. This paragraph rescinds paragraphs 1-10 (including all section titles, subsection titles, and the accompanying footnote 1 to par. 3 contained within the introduction and background sections) of TR 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment. This will eliminate potentially confusing references to the rescinded SFFAS 35, Estimating the Historical Cost of General Property, Plant, and Equipment: Amending Statements of Federal Financial Accounting Standards 6 and 23, and amended portions of other Statements. 4. This paragraph amends the technical guidance section of TR 13 by inserting the subheading "scope" with paragraphs 10a-10c directly under "technical guidance" as follows: Technical Guidance Scope 10A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 10B. SFFAS 6, Accounting for Property, Plant, and Equipment, (as amended) provides that reasonable estimates may be used to establish historical cost of general property, plant, and equipment (PP&E) in accordance with the asset recognition and measurement provisions within SFFAS 6. This is also applicable to internal use software when the software meets the criteria for general PP&E in accordance with SFFAS 10, Accounting for Internal Use Software. 10C. SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35, amended SFFAS 6 to allow a reporting entity, under specific conditions, to apply alternative valuation methods in establishing opening balances for general PP&E. 5. This paragraph further amends the technical guidance in TR 13 by inserting the subheading "effective date" with the following paragraph directly under the scope section added in paragraph 4 above as follows: Effective Date 10D. This TR is effective upon issuance. 6. This paragraph amends the examples of practice provided in TR 13 by rescinding footnotes 2-4 of paragraph 12 and replacing paragraphs 11 and 12 as follows: 11. The examples outlined in this guide illustrate the use of various estimating methodologies to derive the historical cost of general PP&E in accordance with SFFAS 6, as amended. Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E in accordance with the asset recognition and measurement provisions of SFFAS 6, as amended.1A 1ASFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35, provides for deemed cost to be used for opening balances in some cases. Estimating historical cost is one of several deemed cost valuation methods. This TR addresses the estimation of historical cost and does not address other acceptable deemed cost methods. 12. Reasonable estimates may be based on a. cost of similar assets at the time of acquisition; b. current cost of similar assets discounted for inflation since the time of acquisition (that is, deflating current costs to costs at the time of acquisition by general price index); or c. other reasonable methods, including latest acquisition cost and estimation methods based on information such as, but not limited to, budget, appropriations, engineering documents, contracts, or other reports reflecting amounts to be expended. 12a. In some cases, the in-service date must be estimated. In estimating the year that the base unit was placed in service, if only a range of years can be identified, then the midpoint of the range is an acceptable estimate of the in-service date. Technical Release 15, Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation 7. This paragraph amends TR 15, Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation, by revising the last sentence of paragraph 12 as follows: "This Technical Release clarifies but does not change guidance provided in SFFAS 4, or SFFAS 6 (as amended)., SFFAS 23, or SFFAS 35. The revised paragraph 12 of TR 15 is as follows: Readers of this Technical Release should first refer to the hierarchy of accounting standards in SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This Technical Release supplements the relevant accounting standards, but is not a substitute for and does not take precedence over the standards. This Technical Release clarifies but does not change guidance provided in SFFAS 4 or SFFAS 6 (as amended). 8. This paragraph amends TR 15, paragraphs 1 and 14, by updating it for the amended SFFAS 6, paragraph 26, language and adding "as amended" after SFFAS 6. The following language was added as the second sentence of SFFAS 6, paragraph 26: "Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E, in accordance with the asset recognition and measurement provisions herein." The revised paragraph 1 of TR 15 is as follows: 1. Statement of Federal Financial Accounting Standards 6 (SFFAS 6), Accounting for Property, Plant, and Equipment, (as amended) outlines the recognition requirements for general property, plant, and equipment (G-PP&E) except for internal use software. Paragraph 26 states that, "All general PP&E shall be recorded at cost. Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E, in accordance with the asset recognition and measurement provisions herein. Cost shall include all costs incurred to bring the PP&E to a form and location suitable for its intended use. ...." The AAPC G-PP&E cost accounting issues subgroup was developed to address a request for implementation guidance for these requirements. The revised paragraph 14 of TR 15 is as follows: 14. SFFAS 6 (as amended), paragraph 26, states: All general PP&E shall be recorded at cost. Although the measurement basis for valuing general PP&E remains historical cost, reasonable estimates may be used to establish the historical cost of general PP&E, in accordance with the asset recognition and measurement provisions herein. Cost shall include all costs incurred to bring the PP&E to a form and location suitable for its intended use. For example, the cost of acquiring property, plant, and equipment may include: amounts paid to vendors; transportation charges to the point of initial use; handling and storage costs; labor and other direct or indirect production costs (for assets produced or constructed); engineering, architectural, and other outside services for designs, plans, specifications, and surveys; acquisition and preparation costs of buildings and other facilities; an appropriate share of the cost of the equipment and facilities used in construction work; fixed equipment and related installation costs required for activities in a building or facility; direct costs of inspection, supervision, and administration of construction contracts and construction work; legal and recording fees and damage claims; fair value of facilities and equipment donated to the government; and material amounts of interest costs paid [FN30: "Interest costs" refers to any interest paid by the reporting entity directly to providers of goods or services related to the acquisition or construction of PP&E.]. 9. This paragraph rescinds paragraph 10 (and the preceding title "Related Accounting Literature") of TR 15. Technical Release 16, Implementation Guidance for Internal Use Software 10. This paragraph rescinds paragraph 7 (and the preceding title "Related Accounting Literature") of TR 16, Implementation Guidance for Internal Use Software. 11. This paragraph amends TR 16, paragraph 8, by revising the last sentence as follows: "This TR clarifies but does not change guidance provided in SFFAS 4, 5, 6 (as amended), or 10., and 35." The revised paragraph 8 of TR 16 is as follows: Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. This TR clarifies but does not change guidance provided in SFFAS 4, 5, 6 (as amended), or 10. Effective Date 12. This TR is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendixshould govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Statements or other pronouncements. The FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend this Technical Release. Within the text of the Technical Release, the guidance sections are updated for changes. However, this appendix will not be updated to reflect future changes. The reader can review the basis for conclusions of the amending Statements or other pronouncements for the rationale for each amendment. PROJECT HISTORY A1. On August 4, 2016, the Federal Accounting Standards Advisory Board (FASAB or "the Board") issued SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35. SFFAS 50 amended several Statements and rescinded SFFAS 35, Estimating the Historical Cost of General Property, Plant, and Equipment: Amending Statements of Federal Financial Accounting Standards 6 and 23. A2. As a result of these amendments and this rescission, all standards-level implementation guidance for general PP&E, with the exception of specific provisions applicable to internal use software, now resides in SFFAS 6, Accounting for Property, Plant, and Equipment (as amended). The Board concluded that providing implementation guidance for general PP&E other than internal use software in SFFAS 6 provides a comprehensive guide for users in a single Statement. A3. During the due process of SFFAS 50, exposure draft (ED) respondents expressed concern about the rescission of SFFAS 35. These respondents relied on the guidance it provided and worried about audit issues that might result upon its rescission. TR 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment, remains in effect regardless of these amendments and this rescission. A4. Comments received during due process of SFFAS 50 made it apparent that users rely on the technical guidance provided in TR 13 when developing reasonable estimates. Further, TR 15, Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation, provides illustrations and implementation guidance related to recognition requirements for programmatic, managerial, administrative, and other elements of program costs incurred during the general PP&E lifecycle. TR 15 also provides illustrations and implementation guidance related to recognition requirements for decisions regarding the granularity of cost information and acceptable methods for recognizing those costs. Therefore, it was appropriate to ensure each significant provision of SFFAS 35 was incorporated in the amendments of TR 13, 15, and 16-including the ability to use estimates in the future. AMENDMENTS TO EXISTING TECHNICAL RELEASES A5. It was appropriate to update previously issued TRs to acknowledge the rescission of SFFAS 35 and that all standards-level implementation guidance for general PP&E (with the exception of certain provisions applicable to internal use software) resides in SFFAS 6 (as amended). A6. The conforming amendments apply to the following documents: Technical Release 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment Technical Release 15, Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation Technical Release 16, Implementation Guidance For Internal Use Software A7. The Accounting and Auditing Policy Committee (AAPC or "the Committee") concluded that it was appropriate to amend relevant sections of the TRs that discussed SFFAS 35 and other sections that referenced implementation guidance for general PP&E. The Committee removed certain language (from areas such as the introduction and background sections) because of the lengthy discussion and reference to the rescinded SFFAS 35 and portions of amended Statements. The Committee concluded that allowing the paragraphs to remain would be inconsistent with current references for generally accepted accounting principles and would lead to potential misapplication of the technical guidance. A8. SFFAS 50 allows a reporting entity, under specific conditions, to apply alternative valuation methods in establishing opening balances for general PP&E. A separate TR will be issued that addresses SFFAS 50 implementation issues associated with the alternative methods of arriving at deemed cost. Summary of Outreach Efforts and Responses A9. The ED titled Conforming Amendments to Technical Releases for SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment was issued November 22, 2016, with comments requested by January 9, 2017. A10. Upon release of the ED, FASAB provided notices and press releases to the FASAB subscription email list, the Federal Register, FASAB News, the Journal of Accountancy, Association of Government Accountants Topics, the CPA Journal, Government Executive, the CPA Letter, the Chief Financial Officers Council, the Council of the Inspectors General on Integrity and Efficiency, and committees of professional associations generally commenting on EDs in the past (for example, the Greater Washington Society of CPAs and the Association of Government Accountants Financial Management Standards Board). A11. The AAPC received seven responses from preparers, auditors, users of federal financial information, and professional associations. The majority of respondents agreed with the proposals in the TR. A12. The AAPC considered responses to the ED at its February 9, 2017, public meeting. The AAPC did not rely on the number in favor of or opposed to a given position. Information about the respondents' majority view is provided only as a means of summarizing the comments. The AAPC considered the arguments in each response and weighed the merits of the points raised. A13. Of the seven responses, six supported the proposal to acknowledge the rescission of SFFAS 35 and that all standards-level implementation guidance for general property, plant, and equipment (with the exception of certain provisions applicable to internal use software) now resides in SFFAS 6. One respondent neither agreed nor disagreed with the proposal. Further, of the seven responses, six did not believe there were additional amendments or issues that the AAPC should consider in this TR. AAPC & Board Approval A14. The TR was approved by the AAPC for release to the FASAB for issuance. The Board has reviewed this TR and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB office. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee ED Exposure Draft FASAB Federal Accounting Standards Advisory Board GAAP Generally Accepted Accounting Principles G-PP&E General Property, Plant, and Equipment PP&E Property, Plant, and Equipment SFFAS Statement of Federal Financial Accounting Standards TR Technical Release Technical Release 18: Implementation Guidance for Establishing Opening Balances Status Issued October 2, 2017 Effective Date Effective upon issuance Affects None. Affected by None. Summary Statement of Federal Financial Accounting Standards (SFFAS) 50, Establishing Opening Balances for General Property, Plant, and Equipment, permits a reporting entity, under specific conditions, to apply alternative methods in establishing opening balances for general property, plant, and equipment (PP&E). This Technical Release (TR) provides additional guidance to those reporting entities in applying the alternative methods. This TR explains the alternative valuation methods in greater detail and describes examples of the acceptable types of documentation that may support the valuation as outlined in SFFAS 6, Accounting for Property, Plant, and Equipment, as amended. This TR does not provide guidance on the validation of the existence and completeness of general PP&E. The alternative methods provided in SFFAS 50 are meant to be less costly options to implement generally accepted accounting principles when establishing opening balances for general PP&E. This TR acknowledges that the reporting entity may select any of the alternative methods and that there is no preferred method. Management is not required to select the most precise or best method. While this TR is specific to reporting entities that apply SFFAS 50 or the alternative methods, there are additional TRs the reporting entity may find helpful and still apply. For example, TR 13, Implementation Guide for Estimating the Historical Cost of General Property, Plant, and Equipment, addresses the estimation of historical cost, one of the deemed cost methods. Materiality The provisions of this TR need not be applied to immaterial items. The determination of whether an item is material depends on the degree to which omitting or misstating information about the item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. Table of Contents Page Summary 1 Technical Guidance 3 Scope 3 Alternative methods 3 Effective Date 24 Appendix A: Basis for Conclusions 25 Technical Guidance Scope 1. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 2. SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment, permits a reporting entity, under specific conditions, to apply alternative methods in establishing opening balances for general property, plant, and equipment (PP&E). This TR provides additional guidance to those reporting entities in applying the alternative methods. Alternative Methods 3. This implementation guidance provides assistance in applying the alternative methods for opening balances. It explains the alternative valuation methods1 in greater detail and describes documentation that may support the valuation, as outlined in SFFAS 6, Accounting for Property, Plant, and Equipment, as amended. This TR does not provide guidance on validation of the existence and completeness of general PP&E. 4. In Statement of Federal Financial Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting, the Federal Accounting Standards Advisory Board (FASAB or "the Board") acknowledges that accounting standards sometimes necessitate judgments about the cost and benefits of producing information or of reporting it differently. The standardssetter must, to some extent, be aware of these potential effects when considering the cost 1The Accounting and Auditing Policy Committee developed this guidance to explain the alternative valuation methods and describe the documentation that may support the valuation as outlined in SFFAS 6, as amended. Deemed cost (one of the alternative valuation methods) is also an acceptable valuation method for opening balances of inventory, operating materials, and supplies, and stockpile materials. SFFAS 48, Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile Materials, amended SFFAS 3, Accounting for Inventory and Related Property, to permit alternative valuation methods in establishing opening balances. Reporting entities may reference relevant portions of this guide when establishing opening balances in accordance with SFFAS 3, par. 20, 22-26, 42, 44, and 53, as amended. and benefits of any given accounting alternative. The benefits of the standards should exceed the cost of applying them. 5. A premise for issuing SFFAS 50 was to consider the cost and benefit associated with establishing general PP&E opening balance information. As explained in the basis for conclusions of SFFAS 50, the Board made the following conclusions: A6. The Board noted that while DoD has had numerous years to meet the standards and become GAAP compliant, they have not. Conditions remain that existed when FASAB issued many of these standards, and the cost to implement all the standards concurrently is greater than would have been incurred if standards were implemented in a timely manner. The goal of this Statement is to avoid requiring the expenditure of taxpayer dollars in recreating information that would have been of greater benefit in the past (for example, to evaluate major acquisition/construction programs as they were executed), but for which the current use is limited to accountability and assessing the cost of current services. The Board proposed less costly alternatives that will support this objective. A7. The Board believes assisting DoD with establishing a baseline benefits all parties. Providing a starting point will enable DoD to focus on needed improvements to systems and controls to process transactions going forward and thereby establish and maintain reliable financial information regarding future PP&E acquisitions. Establishing a sound financial management system is of primary importance. 6. The alternative methods provided in SFFAS 6, as amended by SFFAS 50, are meant to be less costly options to implement generally accepted accounting principles (GAAP) for general PP&E; this allows reporting entities to focus on needed improvements to systems and controls to process transactions going forward. By establishing and maintaining reliable financial information, such reporting entities will be more informed about costs of future general PP&E acquisitions. 7. The alternative methods provide the needed flexibility for establishing opening balances. At times, it is not practical or cost effective to determine the historical cost of general PP&E because of inadequate systems and/or insufficient documentation. 8. The alternative methods include (1) using deemed cost as an alternative valuation method for opening balances of general PP&E, (2) selecting between deemed cost and prospective capitalization of internal use software, and (3) allowing an exclusion of land and land rights from opening balances with disclosure of acreage information and expensing of future acquisitions. Management Responsibility and Documentation 9. Management is responsible for establishing accounting policies, including the determination of which method to use. Any of the methods provided by SFFAS 6, as amended, are acceptable. It appears management would apply cost-benefit considerations and other practical concerns under different alternatives. It is important to be mindful that the alternative methods for establishing opening balances are based on the concept of reasonable estimates and therefore do not seek precision.2 Also, assessments of materiality and cost versus benefit should be guiding factors because cost-beneficial options are a major goal of SFFAS 50. 10. The reporting entity may select any of the alternative methods when establishing opening balances; there is no preferred method among those permitted. Therefore, making comparisons among the methods or attempting to identify the best method is inappropriate. Management should expect to provide adequate documentation that is consistent with the method used and supports the overall reasonableness of the valuation. However, management is not required to select the most precise or best method. 11. Management is also responsible for maintaining adequate documentation of data sources and the application of methodologies. It is reasonable to expect that sufficient, relevant and reliable historical cost information may not be available for general PP&E when applying the alternatives provided by SFFAS 50. In the absence of sufficient, relevant and reliable historical cost information on which to base the valuation, reporting entities should maintain supporting documentation for the alternative method and data used to establish opening balances. Management should expect to support alternative methods with auditable documented information. Adequate documentation of the source of the data and the application of the methodology used will help support management's assertion that the valuations are in compliance with accounting standards in all material respects. 12. The documentation should describe the methodology (alternative method used and description) and the reporting entity's review process to determine that the valuations are reasonable. While the documentation may differ from what is expected to support historical cost, it "should be complete and stand on its own." That is, a knowledgeable, independent person could perform the same procedures in the methodology and replicate the results. This should be maintained in a manner to facilitate the auditor's testing of the alternative methods. If the documentation were from a source that would normally be destroyed, then copies should be maintained for the purpose of reconstructing the amounts. 13. Additional information, including specific examples of documentation that may be acceptable, is included under each alternative method. 2As used in this document, "precision" refers to an exact amount that represents the one correct amount. This is in contrast to a reasonable estimate, which refers to an amount that is within a reasonable range of possible amounts, based on what is being measured. Deemed Cost 14. The primary focus of this guidance is on the application of deemed cost. Deemed cost is a surrogate for initial amounts and an acceptable valuation method for opening balances for general PP&E. Use of deemed cost is intended to provide a cost-effective approach to the adoption of SFFAS 6, as amended, where historical cost information and systems do not support such balances. 15. Deemed cost may include several valuation methods because the reporting entity may have multiple component or subcomponent reporting entities3 (1) using different methods simultaneously and/or (2) adopting a method permitted under SFFAS 6, as amended, at different times prior to establishing opening balances. Large and complex reporting entities, such as the Department of Defense (DoD), may have used a variety of valuation methods. 16. It is acceptable for the reporting entity to have multiple component or subcomponent reporting entities that use various valuation methods simultaneously. Deemed cost should be based on one, or a combination, of the following three valuation methods permitted by SFFAS 6, as amended: (1) replacement cost, (2) estimated historical cost, or (3) fair value. While no disclosure of the distinction or breakout of the amount of deemed cost of general PP&E included in the opening balance is required, documentation should clearly indicate the valuation method applied to each asset or class of assets. 17. While flexibility is offered, some options require additional disclosures,4 such as when component or subcomponent reporting entities elect to apply alternative methods5 besides deemed cost. SFFAS 6, as amended, provides that in the event a different alternative method is applied by a subcomponent reporting entity consolidated into a larger reporting entity, the alternative adopted by each significant subcomponent should be disclosed. 3SFFAS 47, Reporting Entity, provides that "component reporting entity" is used broadly to refer to a reporting entity within a larger reporting entity. Examples of component reporting entities include organizations such as executive departments and agencies. Component reporting entities would also include subcomponents that may themselves prepare general purpose federal financial reports (GPFFRs). One example is a bureau that is within a larger department that prepares its own standalone GPFFR. 4See SFFAS 6, as amended, par. 40.h-i and SFFAS 10, par. 36.f-g for information about disclosures. 5As explained in par. 8, the alternative methods used to establish opening balances of general PP&E include (1) using deemed cost as an alternative valuation method for opening balances of general PP&E, (2) selecting between deemed cost and prospective capitalization of internal use software, and (3) allowing an exclusion of land and land rights from opening balances with disclosure of acreage information and expensing of future acquisitions. 18. Adoption of deemed cost includes various valuation methods that may require the use of assumptions to develop an approximate initial amount when there is no precise means of measurement. 19. There may be high uncertainty in the underlying assumptions used to establish opening balances under deemed cost methods. This guidance postulates that deemed cost will be subject to an inherent lack of precision because of the limitations regarding information available to the reporting entity. In using deemed cost, the reporting entity should consider the reasonableness of the assumptions selected, the relationship of the assumptions to the available documentation that is consistent with the methodology, and the overall reasonableness of the valuation. 20. This guidance provides a foundation for preparers to exercise judgment in developing surrogates for use as deemed cost. Unlike some judgments that management makes, deemed cost will not be "trued up" to reflect the actual value in the future. As addressed by SFFAS 50, deemed cost is a surrogate for the actual or historic cost associated with general PP&E, and there is no expectation the deemed cost will be updated or changed for the passage of time, except for error corrections. Said differently, when a reporting entity elects to adopt deemed cost to establish opening balances, the reporting entity establishes opening balances that are considered consistent with GAAP. The established opening balances are not expected to be updated at a later point in time (except for the recognition of the associated depreciation) or to be evaluated retrospectively. 21. The methods are described more fully below and not listed in order of preference. Replacement Cost 22. Replacement cost is the amount required for an entity to replace the remaining service potential of an existing asset in a current transaction at the reporting date, including the amount that the entity would receive from disposing of the asset at the end of its useful life.6 The use of replacement cost would be applied for valuing opening balances and not maintained through revaluation in the future. 23. SFFAC 7, Measurement of the Elements of Accrual-Basis Financial Statements in Periods After Initial Recording, explains replacement cost and that there may be several ways of arriving at an approximation of it: 6SFFAC 7, Measurement of the Elements of Accrual-Basis Financial Statements in Periods After Initial Recording, par. 46. 47. Replacement cost is a remeasured amount, an entry value that is often advocated for assets used in providing services, such as capital assets and inventory not held for sale. Replacing the remaining service potential of an existing asset is not the same as acquiring an identical asset. However, in practice, it may be difficult to measure remaining service potential directly. There may be several ways of arriving at an approximation. For example, one way would be to measure the current cost of a similar asset, reduced by an appropriate amount to allow for the lower service potential of the existing asset due to its age and condition. Thus, the replacement cost of an asset is not the same as the fair value of either an equivalent new asset or the existing asset at the reporting date. For example, to arrive at the replacement cost of a fifty-year-old office building at the midpoint of its expected life, the fair value of an equivalent, newly constructed office building would have to be adjusted for the value of the difference in age or service potential. In addition, the fair value of the existing building may be higher than the replacement cost because the building can be put to alternative uses that produce greater benefits to the owner. 48. The relevance of replacement cost is high, especially for assessments of financial position and future resource needs. The level of understandability, reliability, and comparability across entities of reported replacement cost amounts may vary according to the data used and the complexity of the calculation. 49. Reporting the replacement cost of capital assets used in providing services and related service costs can facilitate comparisons between program and activity costs and accomplishments related to the same period. An objection sometimes raised is that replacement cost is not an attribute of the asset that is actually owned. However, the asset being measured is not the physical asset but the services it can provide. 24. Generally, replacement cost is the amount that a reporting entity would pay to replace the service potential of an existing asset at current transaction prices with a similar asset. Replacement cost is different than reproduction cost. Reproduction cost is the cost to construct an exact duplicate of the structure at today's cost. Reproduction cost would result in reconstructing the item as is, using manufacturing/construction techniques and standards applicable at the time the asset (and any modifications) entered service. Replacement cost using today's materials and standards is typically lower than reproduction cost, as reproduction of older methods today is less efficient and more expensive. 25. As explained in SFFAC 7, a reporting entity must consider the remaining service potential or age of the general PP&E to arrive at replacement cost. For example, the cost of a new item of PP&E could be adjusted by the equivalent of accumulated depreciation based on the remaining useful life compared to the original useful life to arrive at replacement cost. 26. Under deemed cost, an effective managerial costing system that employs replacement cost information may be an acceptable source for replacement cost data. Plant Replacement Value7 One Acceptable Replacement Cost Method for Real Property) 27. Plant replacement value (PRV) represents the cost to design and construct a notional facility to current standards or to replace an existing facility at the same location. PRV was developed to support large-scale, program-level estimates for planning purposes and is used in the Federal Real Property Profile (FRPP).8 While not previously used for financial reporting purposes, PRV is used for decision making and management purposes. PRV may be an appropriate starting point in establishing replacement cost for real property. Figure 1: Plant Replacement Value Factors9 28. PRV is based on the factors identified in figure 1 above. The processes and methodology supporting the PRV model should be documented and maintained. To perform the calculation, the facility quantity (size or unit of measure, such as square footage) needs to be obtained for the real property asset. The replacement unit cost factors are derived from multiple sources, such as government-contract awards and commercial-estimating applications. Area cost factors are developed based on local conditions affecting construction costs. Actual contract award data may span multiple years due to the frequency of relevant awards. In collecting data for use in establishing area cost factors, timing issues will arise and some assets may take more than one year (often several) to plan, contract, and construct. Therefore, averaging the data represents a tradeoff, but is acceptable. While more precision could be available, it might require a broader search for relevant cost data that may or may not enhance the resulting valuation. 29. PRV also includes historical records adjustment; planning and design cost factors; supervision, inspection, and overhead cost factors; and contingency cost factors. Because PRV will lead to a replacement cost value, the asset characteristics and factors included in 7Plant Replacement Value (PRV) may also serve as a basis to establish estimated historical cost. If so, adjustments for inflation/deflation may be appropriate. 8The FRPP is a "database of all real property under the custody and control of all executive branch agencies, except when otherwise required for reasons of national security." Federal Real Property Profile Management System. Accessed May 15, 2017. https://www.realpropertyprofile.gov/FRPPMS/FRPP_Login. 9PRV is not limited to the factors included in this figure and described in the following paragraphs. This is an example of one agency's model and factors. Other agencies may have different factors. the model do not contain all possible attributes and factors associated with the actual asset. As noted in SFFAC 7 (par. 49), replacement cost is not an attribute of the actual asset; instead, it is the theoretical cost to replace the service potential embodied in the asset. Close alignment of the physical characteristics of the actual asset and the theoretical replacement asset is therefore not critical to arrive at a reasonable value. 30. Because of these inherent limitations, the PRV associated with a particular real property asset may not be indicative of all of the specific features of that asset. In fact, the specific features of the asset may not be consistent with current building codes, materials, or methods. Further, the specific characteristics of the asset may not be catalogued in sufficient detail to establish highly granular cost factors. 31. Potentially acceptable forms of supporting documentation10 for PRV11 or data elements include some or all of the following: a. A process to establish and verify the facility quantity b. Geospatial data and space management systems c. Maps with addresses or utilities d. Plot plans, as built blueprints, plats, and other schematics serving as facilities management documentation for the asset(s) in question e. State, city, and other municipality tax assessment documentation f. Designation letter 32. PRV is inclusive of capital improvements. For example, the primary sources of replacement unit costs are contract data and commercial estimating applications. Some of these factors are not explicitly addressed in PRV but are still embedded in the process. Further, the replacement-unit costs are intended to establish a notional amount for a large number of assets, rather than a specific asset. This representative amount is then applied to individual assets. 33. If PRV is used in establishing the opening balance for real property, then an adjustment for the difference in age between the existing asset and a replacement asset is required to 10The forms of documentation are not listed in any order of preference. They are examples and there may be others not included in this list. The list is not exhaustive. Certain documentation would be more significant based on the PRV formula or other factors, but such assessments require judgment. 11PRV does not represent actual cost and is based on several factors that may be made up of different supporting documents, elements, and formulas. arrive at replacement cost, per SFFAC 7, paragraph 47. This could be accomplished by recognizing accumulated depreciation based on the remaining useful life of the real property. Alternatively, other methods could be used to adjust the PRV for the difference between the remaining service potential of the asset and that of a new replacement asset. Statistical methods of approximating the remaining service potential may provide a costbeneficial option for making such adjustments. This adjustment is unrelated to inflation or deflation since the acquisition of the existing asset. Other Acceptable Replacement Cost Methods for General Property Plant & Equipment (PP&E) 34. There are several sources for current replacement-cost amounts for general PP&E. Potentially acceptable forms of supporting documentation12 for this method include the information obtained from the following sources, guides, or lists: a. Published price list-the basic price of an item as published in a catalog, list price, or advertisement before any discounts are taken. If the price is reasonably current,13 it may be used to establish replacement cost. Sources of price lists may include the following: i. The original equipment manufacturer ii. A vendor involved in the manufacture of the same or a similar asset iii. Federal Logistics Data (FED LOG) published by the Defense Logistics Agency (FED LOG prices may also serve as a basis to establish estimated historical cost.)14 12The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. 13Reasonably current means that no material adjustments are required for changes in the general price level or for changes in specific prices. 14 FED LOG may be a potentially acceptable form of supporting documentation unless unit pricing updates based on recent acquisitions and/or cost of living inflation factors are lacking. Assets listed in FED LOG will have a National Stock Number (NSN) or National Item Identification Number. FED LOG prices may also serve as a basis to establish estimated historical cost. Therefore, FED LOG is identified as a potentially acceptable form of supporting documentation under that discussion. In some situations, inactive acquisitions and older data may be indexed to derive estimated historical cost. In others, historical-cost information for certain types of assets (low-velocity items or major end items such as weapons systems or tanks) are likely to cover only the base asset value and not include later capital improvements or modifications. For example, when a major modification is made to a weapons system, typically a new NSN is created to differentiate the new capability from the older item. For example, FED LOG most likely will have an NSN for an Abrams M1A1 and a separate NSN for an Abrams variant M1A2. Therefore, flexibility must be allowed in determining if FED LOG can be used as replacement cost or estimating a reasonable historical cost. iv. General Services Administration schedule b. Published industry price guide-examples of such price guides include the Kelley Blue Book, Aircraft Blue Book, National Automotive Dealers Association guides, and Edmunds.com, which provide prices for the same or similar assets. c. Values based on sales by the reporting entity of the same or similar assets to outside parties Estimated Historical Cost (Initial Amount) 35. A reasonable estimate of historical cost may be based on one or more, or a combination, of the following methods: a. Cost of the same or similar assets at the time of acquisition b. Current cost of the same or similar assets discounted for inflation since the time of acquisition (that is, deflating current costs to costs at the time of acquisition by general price index) c. Other reasonable estimation methods, including latest acquisition cost and estimation methods based on information such as, but not limited to, budget, appropriations, engineering documents, contracts, or other reports reflecting amounts to be expended 36. This list of reasonable estimates is not intended to establish any hierarchy of methodologies. As noted, reasonable estimates of historical cost do not require a precise measure of cost. Materiality and cost should be considered when weighing the benefits of greater precision. 37. Management is responsible for estimates included in the financial statements. Estimates are based on both subjective and objective factors and, as a result, judgment is required to estimate opening balances. Although reasonable estimates are applicable to any general PP&E, certain special considerations would be applied when establishing opening balances. The following is additional guidance that may assist in establishing opening balances based on a reasonable estimate of historical cost. 38. As noted, cost-beneficial options are a major goal of SFFAS 50. Estimating historical cost of an asset is not the same as recreating the accounting records that would have been created had the reporting entity undertaken a GAAP-accounting approach at the time the asset was acquired. SFFAS 50 is intended to avoid the expenditure of taxpayer dollars in recreating information that would have been of greater benefit in the past (for example, to evaluate major acquisition/construction programs as they were executed), but for which the information's current use is limited to accountability and assessing the cost of current services. 39. Reporting entities must provide adequate supporting documentation appropriate for the deemed cost methodology selected to establish opening balances. SFFAS 50 and guidance clarified in this TR allows reporting entities flexibilities that should be considered when developing assumptions (see the next section) and documenting reasonable estimates of historical cost methodology. Assumptions 40. Assumptions are basic beliefs about the future operating and functional characteristics.15 For purposes of establishing opening balances of general PP&E, reasonable assumptions may be needed to make up for a lack of actual data. When reasonable assumptions are made, they should be documented and based on a consistent approach. Reporting entities should ensure that the assumptions are reasonable in the context of the asset, and that the overall valuation is reasonable. 41. Estimated historical cost is an estimate of the costs incurred to bring the PP&E to a form and location suitable for its intended use. SFFAS 6, as amended, paragraph 26, provides examples of the costs that may be included. When management opts to use "other reasonable estimation methods" (par. 35.c. above) such as budget records to estimate historical cost, this list is relevant.16 42. Many of the examples (such as direct costs of inspection, supervision, and administration of construction contracts and construction work) would require managerial cost accounting systems to calculate an appropriate capitalizable amount during the process of acquiring an asset. Including such costs in estimated historical cost would be especially challenging. The reporting entity may find that critical data elements are missing. For example, a reporting entity may utilize a contract for valuation of modifications even though the contract is missing one or more critical elements to allow for proper cost allocation. 43. The reporting entity should consider whether including all such costs is necessary or cost beneficial to arrive at a reasonable estimate. In doing so, the reporting entity may consider 15FASAB Handbook, Version 15 (06/16). 16Note that deemed cost methods other than estimated historical cost inherently include costs such as the costs identified in this list. Therefore, this list would not be relevant when management elects to apply methods identified at paragraphs 35.a. and 35.b. whether comparable costs today are material. If material, management may elect to use current cost-accounting information to estimate historical costs of a similar nature. For example, if inspection and supervision costs are approximately six percent of contract costs today, then that may be a reasonable and cost-beneficial assumption about past costs. 44. Determination of whether to capitalize a particular cost as a cost of general PP&E should be based on general guidance in SFFAS 4, Managerial Cost Accounting Standards and Concepts, and SFFAS 6, as amended. While these standards are imperative for the goforward approaches implemented, it is difficult to apply these approaches in establishing opening balances under the alternative methods. 45. For example, SFFAS 4 provides that each reporting entity should accumulate and report the cost of its activities on a regular basis for management-information purposes and that costs should be assigned to outputs in one of the methods listed below in the order of preference: a. Directly tracing costs wherever feasible and economically practicable b. Assigning costs on a cause-and-effect basis c. Allocating costs on a reasonable and consistent basis 46. A reporting entity eligible to apply the provisions of SFFAS 50 has not been in compliance with SFFAS 4 or SFFAS 6 in the past. There may be little benefit in retrospectively establishing cost-assignment processes to capture indirect costs for the purpose of establishing opening balances. In addition, given that many assets may be near fully depreciated, there may be an argument to expense indirect costs based on materiality. These factors should be considered in developing the reasonable estimate. 47. The discussion below provides examples (that are not required or expected) of considerations that may be appropriate for a reasonable estimate of historical cost in establishing opening balances. The list below is not exhaustive and additional considerations (even if not specifically identified in the list below) may be necessary. 48. Considerations that may be appropriate for a reasonable estimate of historical cost in establishing opening balances include the following: a. It is a reasonable estimate; it does not seek precision. b. Materiality is a guiding factor in arriving at assumptions and the cost of more precise assumptions should be considered in relation to the materiality of their effect. c. Multiple assumptions may be used to develop the reasonable estimate. This may include rates developed by other program offices, such as depot labor rates, maintenance, or other unique program rates that would be used for labor. d. While conflicting documentation may exist regarding a particular item of general PP&E, the reasonableness of the estimate should be based primarily on the method selected. For example, deflating the current cost of a similar asset may result in an estimate that differs from a reasonable estimate based on budget records. Both estimates may be reasonable despite arriving at different amounts. The reporting entity is responsible for establishing a reasonable estimate, and it is not necessary to validate the estimate against alternative ways of arriving at it. The reporting entity should ensure its method is documented. e. The deemed cost approach does not anticipate that the full series of entries related to general PP&E be recreated. i. For example, it would not be cost effective or beneficial to expect reporting entities to apply the full cost standards as they would have been applied17 in establishing opening balances for general PP&E. 1. Reporting entities may develop reasonable assumptions to determine the capitalizable portion of contract costs or pooled costs. An analysis of current contract costs, looking at the amount of capitalizable and non-capitalizable costs, may provide a reasonable proxy for historical experience. An analysis may provide for a certain percentage or to capitalize all costs of certain programs. 2. Reporting entities may develop reasonable assumptions or methodologies to determine the capitalizable indirect costs for programs. An analysis of a few select programs may support that applying a set indirect rate to all remaining programs is reasonable. 17Conditions remain that existed when FASAB issued many of these standards, and the cost to implement all the standards concurrently is greater than would have been incurred if standards were implemented in a timely manner. The goal of SFFAS 50 was to avoid requiring the expenditure of taxpayer dollars in recreating information that would have been of greater benefit in the past (for example, to evaluate major acquisition/construction programs as they were executed), but for which the current use is limited to accountability and assessing the cost of current services. The Board proposed less costly alternatives that will support this objective. (SFFAS 50, par. A6.) Documentation 49. Traditional supporting documentation often was not available for legacy weapon programs. The reporting entity may have relied on other supporting documentation that may have been subsequently removed from the acquisition and/or asset management processes. 50. For example, third-party documentation18 (such as congressional reports, cost documents, websites devoted to military weapon systems, historical newspaper articles referencing government sources, and other information obtained on the internet) and indexed appraisals may be considered acceptable. However, it is important that reporting entities document and maintain support for the data and assumptions used to develop reasonable estimates. 51. Examples of potentially acceptable documentation are included under each reasonable estimate method. Estimates-Budget Based 52. The Budget of the U.S. Government (commonly referred to as the President's Budget) and related supporting documentation for a program or asset may have adequate detail to support a reasonable estimate. Specifically, the budget detail provides visibility of the various cost estimates for the program or asset by year. To ensure the full program and funding amounts have been reviewed, the amounts should be reconciled and documented at the appropriation level with Public Laws and allocated to individual programs based on information provided in pertinent budgetary documents. Examples of such budgetary documents may include the following: 19 a. Executive agency budget submission/request information b. Congressional conference committee reports c. House and Senate committee reports d. Congressional budget requests 18The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. 19 The examples of budgetary documents are not listed in any order of preference. They are examples and there may be others not included on this list. e. Apportionment and Reapportionment Schedule (SF-132) forms and Report on Budget Execution and Budgetary Resources (SF-133) forms f. Other relevant documentation such as Department of the Treasury warrants, material supplemental appropriations, reprogramming, rescissions, transfers, or other budgetary documents that lead to a change in amount. 53. Although this method is relatively straightforward for individual assets or those recently acquired, it is much more complex when considering program or weapon systems that include a variety of assets and spare parts, logistics, and support equipment. The process is compounded when the information relates to assets, systems, and programs that date over 20 years or more. 54. Therefore, certain flexibilities should be afforded because reporting formats and information needs change over time. Examples may include the following: a. Budget-based estimates may need to be reconciled to the documents listed in paragraph 52.a. - f., if available, or to alternative documents. Older assets (such as assets acquired in 1990 or before) and legacy systems may have different supporting documentation available.20 b. Budget documents in a summary format do not preclude a budget-based estimate; estimates may be made at the summary level when adequately explained. 55. Potentially acceptable forms of documentation for this method include the following: 21 a. Budget justification materials and items discussed in paragraph 52.a. - f. b. Appropriation data c. Selected acquisition reports d. P-1 documents and R-1 documents 20Reporting entities may use a Selected Acquisition Report, a congressionally mandated report for major weapon programs outlining budget projections. They may also use a P-1 document, which provides a breakout of all procurement appropriations by line item and an R-1 document, which provides a breakout of all research, development, test, and evaluation appropriations by program element. 21The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. e. Program office analysis f. Allocated per unit cost report g. Technical specifications and estimates h. Industry estimates reports of amounts to be expended i. FED LOG22 Estimates-Contract Based 56. The best case scenario is a "conformed contract" providing all the information available that needs to be allocated to a particular asset, including all the modifications and delivery orders associated with the contract. However, this is not normally the case because costs to be capitalized are included in multiple contract line items and multiple contracts. This methodology involves valuing assets using the pricing data included in contracts. Although challenging, reasonable estimates based on contracts are still permitted. 57. Contracts contain specific contract line item numbers, which delineate specific production and nonproduction activities (for example, materials, installation, proposal prep, spare parts). As noted above, the determination of whether to capitalize a particular cost as a cost of general PP&E should be based on general guidance in SFFAS 4, and SFFAS 6, as amended. While these standards are imperative for the go-forward approaches implemented, it is difficult to apply these approaches in establishing opening balances under the alternative methods. 58. Potentially acceptable forms of documentation for this method include the following: 23 a. Acquisition contracts b. Time Compliance and Technical Orders (TCTOs) c. Comprehensive Cost and Requirement System Reports d. Program office delivery schedule 22See the FED LOG discussion on p. 10. 23The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. e. Maintenance delivery schedule f. DD Form-250, Material Inspection and Receiving Report, and other receiving reports g. Invoices h. Program office analysis i. FED LOG24 Estimates-Engineering Document Based 59. Detailed technical and engineering documents lay out the assumptions, materials, and estimated cost to produce an asset. In these instances, the engineering documents can provide a sufficient basis for estimating deemed cost for opening balances. 60. Potentially acceptable forms of documentation for this method include the following: 25 a. Technical specifications and estimates b. Maintenance delivery schedule c. Bill of material d. Invoices e. Vendor quotes on material costs/sale rates f. TCTOs g. Industry estimates h. FED LOG26 24See the FED LOG discussion on p. 10. 25The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. 26See the FED LOG discussion on p. 10. Estimate-Deflation of Current Cost 61. SFFAS 6, as amended, provides that general PP&E may be estimated based on current cost of the same or similar assets discounted for inflation since the time of acquisition (that is, deflating current costs to costs at the time of acquisition by general price index). This method is appropriate when a series of similar items are being acquired over time and there is a reliable value for a base asset. 62. Considerable flexibility is permitted within the framework as long as the method is properly indexed. For example, estimation may extend beyond current costs, provided it is properly indexed. It may be possible that the cost of a similar asset listed in a price guide two years before or after acquisition, properly indexed, is a reasonable estimate and likely more accurate than an indexed cost taken from a current price guide. 63. Potentially acceptable forms of documentation for this method include the following: 27 a. Current cost of a similar asset b. Appropriate pricing index to discount the current asset cost to its estimated cost at the time of acquisition i. Consumer Price Index ii. Other indices from the Department of Labor's Bureau of Labor Statistics c. FED LOG28 Cost Estimators29 64. In certain instances, an informed opinion of an expert cost estimator may be used to support reasonable estimates consistent with the provisions of SFFAS 50 and this TR. Informed opinion refers to the judgment of others who make estimates based on their programmatic knowledge and/or experience without using a fully satisfactory information store and, in some cases, without using an econometric or other statistical model. If an expert cost estimator is used, the expert's credentials or qualifications should be articulated and 27The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. 28See the FED LOG discussion on p. 10. 29Cost estimators may also serve as a basis to establish fair value. Therefore, cost estimators are identified as a potentially acceptable documentation under that discussion. documented in sufficient detail to allow review and validation by independent sources, including independent auditors. For example, reports and studies on relevant issues and other relevant communications describing the basis for any assumptions or changes in assumptions should be maintained in support of the expert's opinion. 65. Potentially acceptable forms of documentation for this method include the following: 30 a. Reports and studies b. Memos with outside experts and minutes from internal meetings describing the basis for any assumptions or changes in assumptions c. Previous studies conducted by the expert, including industry studies, journal articles, and third-party studies Fair Value 66. Fair value is the amount at which an asset or liability could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.31 When determining the value of opening property balances, fair value is an acceptable valuation method to use in absence of actual cost data and associated supporting documents. 67. FASAB has not developed detailed guidance regarding the approaches to use in establishing fair value. Other standards-setters have provided guidance. For example, the Governmental Accounting Standards Board (GASB) issued Statement No. 72, Fair Value Measurement and Application, which is summarized as follows: Fair value is described as an exit price. Fair value measurements assume a transaction takes place in a government's principal market, or a government's most advantageous market in the absence of a principal market. The fair value also should be measured assuming that general market participants would act in their economic best interest. Fair value should not be adjusted for transaction costs. To determine a fair value measurement, a government should consider the unit of account of the asset or liability. The unit of account refers to the level at which an asset or a liability is aggregated or disaggregated for measurement, recognition, or disclosure purposes as provided by the accounting standards. For example, the unit of account for investments held in a brokerage account is each individual security, whereas the unit of account for an investment in a mutual fund is each share in the mutual fund held by a government. 30The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. 31SFFAC 7, par. 38. This Statement requires a government to use valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. The techniques should be consistent with one or more of the following approaches: the market approach, the cost approach, or the income approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets and liabilities. The cost approach reflects the amount that would be required to replace the present service capacity of an asset. The income approach converts future amounts (such as cash flows or income and expenses) to a single current (discounted) amount. Valuation techniques should be applied consistently,32 though a change may be appropriate in certain circumstances. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. 68. SFFAS 6, as amended by SFFAS 50, permits use of fair value as one option for valuing opening balances and does not require that fair value be maintained through revaluation in the future. Generally, where fair value is applied in other circumstances it is maintained as a current value and updated each reporting period. Because SFFAS 50 seeks cost-effective approaches to a onetime valuation, the reporting entity should use fair value approaches that are cost effective. The data available should be appropriate to the circumstances of establishing a cost-effective opening balance for unique assets. 69. In such cases, the markets may be inherently limited given the unique nature of government assets, such as defense assets. In fact, many assets may be highly specialized, making fair value difficult to determine. For example, there may be few observable transactions and transactions may not be indicative of an active market between willing buyers and sellers. 70. 70. For these reasons, and to afford use of fair value in a cost-effective manner, opening balances at fair value may be determined based upon generally accepted approaches established by the GASB as well as a. market approaches where both the market and data are limited (hereafter "limited market approaches"); b. cost estimators; and/or c. desktop appraisals. 32Cost-beneficial options are a major goal of SFFAS 50. The reporting entity may select any method; there is no preferred method among the methods permitted. The reporting entity should consider the reasonableness of the methodology selected and its relation to the available documentation. However, making comparisons among the methods or attempting to identify the most cost-beneficial method would be inappropriate. Management is not required to select the most precise or the best method. 71. Limited market approaches may include transactions under the foreign military sales program, prices charged for sales between federal government agencies, and other transfer programs for which reimbursement occurs. 72. Fair value can be established through an appraisal performed by an independent, qualified professional. The appraisal must be performed in accordance with the Uniform Standards of Professional Appraisal Practice to be considered compliant. 73. Although appraisals require the expenditure of resources, they may be justified for significant assets or when multiple, or groups of, assets can be appraised at the same time. 74. For the purpose of establishing deemed cost, desktop appraisals that do not require physical inspection of the assets are acceptable. Mass appraisals, which leverage systematic procedures and statistical testing techniques to value multiple assets concurrently, are also acceptable for establishing deemed cost. 75. Potentially acceptable forms of documentation for this method include the following: 33 a. Appraisal documents from qualified professionals b. Methodology describing the fair value process c. Documentation showing a recent sales transaction and amount for a similar asset in similar condition d. Documentation showing a third-party sales price for a similar asset in similar condition e. Documentation to support the cost estimator Land Rights 76. One alternative method permitted under SFFAS 50 is an exclusion of land and land rights from opening balances with disclosure of acreage information and expensing of future acquisitions. 77. Reporting entities may elect to exclude land and land rights in establishing opening balances of general PP&E (consistent with the alternative method established in SFFAS 6, 33The forms of documentation are not listed in any order of preference. They are examples and there may be others not included on this list. as amended, par. 40.f.i). It is important to consider what information should be disclosed regarding land rights. 78. SFFAS 6, as amended, states that a component reporting 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. A reporting entity electing to exclude land and land rights from its general PP&E opening balance should continue to exclude future land and land rights acquisition amounts and provide the disclosures. (SFFAS 6, as amended, par. 40.h.ii) However, SFFAS 6, as amended, and the basis for conclusions for SFFAS 50, acknowledge the diverse nature of land rights. SFFAS 6 acknowledges that some land rights may be depreciable or amortizable while others are not. For example, land rights for a limited period of time are depreciated or amortized, whereas land rights that are permanent, such as with a deeded easement or right of way, are not. 79. The reporting entity should consider quantitative and qualitative criteria in determining if land rights disclosures of acreage are appropriate. A reporting entity electing to exclude land rights from the opening balances and to expense subsequent acquisitions of land rights would disclose acreage when a land right provides control of acreage. Generally, when a land right does not provide acreage to the entity (that is, by allowing the entity to control specific acreage), there would be no acreage to disclose. Therefore, there may not be land rights disclosures required by SFFAS 6, as amended, by SFFAS 50. 80. In addition, materiality is an overarching consideration in financial reporting. Effective Date 81. This TR is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendixshould govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Statements or other pronouncements. The Handbook is updated annually and includes a status section directing the reader to any pronouncement that changed this Technical Release. Within the text of the Technical Release, the guidance sections are updated for changes. However, this appendix will not be updated to reflect future changes. The reader can review the basis for conclusions of the amending Statements or other pronouncements for the rationale for each amendment. Project History and Guidance A1. FASAB issued SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment, on August 4, 2016, in response to DoD's request for guidance on establishing opening balances for general PP&E. A2. The alternative methods provided in SFFAS 50 are meant to be less costly options to implement GAAP when establishing opening balances for general PP&E. A3. In August 2016, the Accounting and Auditing Policy Committee (AAPC or "the Committee") approved two projects related to SFFAS 50. This guidance is a result of the AAPC's second project to develop timely implementation guidance to assist with issues related to SFFAS 50.34 The AAPC established a task force to assist in developing the guidance. The task force comprised subject matter experts from outside the federal government (such as independent public accounting firms and consulting firms) and inside the federal government (such as chief financial officer staff and program office staff) to ensure diverse perspectives were represented. A4. The AAPC task force was divided into subgroups (general PP&E, land rights, and broad issues) to assist FASAB staff and expedite the identification of issues. The task force 34The first project resulted in conforming amendments to existing TRs. FASAB issued TR 17, Conforming Amendments to Technical Releases for SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment, in April 2017. considered draft documents prepared by FASAB staff. As a result of the task force input, FASAB staff developed the implementation guidance presented in this TR. A5. This guidance applies to reporting entities electing to apply SFFAS 50. This TR provides additional guidance to those reporting entities strictly in applying the alternative methods in establishing opening balances. A6. This implementation guidance assists in applying the alternative methods for opening balances and provides clarification on how the foundation and flexibility of SFFAS 50 encourage reporting entities to consider cost-benefit based on the availability of information or other practical considerations. It confirms that reporting entities may select any of the SFFAS 50 methods and there is no preferred method. Management is not required to select the most precise or best method. A7. This guidance explains the alternative valuation methods and describes the documentation that may be used to support the valuation as outlined in SFFAS 6, as amended. This TR does not provide guidance on the validation of existence and completeness of general PP&E. Summary of Outreach Efforts and Responses A8. The exposure draft (ED), Implementation Guidance for Establishing Opening Balances, was issued June 21, 2017, with comments requested by July 21, 2017. A9. Upon release of the ED, FASAB provided notices and press releases to the FASAB subscription email list, the Federal Register, FASAB News, the Journal of Accountancy, Association of Government Accountants Topics, the CPA Journal, Government Executive, the CPA Letter, the Chief Financial Officers Council, the Council of the Inspectors General on Integrity and Efficiency, and committees of professional associations generally commenting on EDs in the past (for example, the Greater Washington Society of CPAs and the Association of Government Accountants Financial Management Standards Board). A10. The AAPC received six responses from preparers and users of federal financial information. The majority of respondents agreed with the proposals provided in the TR. A11. The AAPC considered responses to the ED at its August 17, 2017, public meeting. The AAPC did not rely on the number in favor of or opposed to a given position. Information about the respondents majority view is provided only as a means of summarizing the comments. The AAPC considered the arguments in each response and weighed the merits of the points raised. A12. Of the six responses, four agreed with the proposals. Specifically, the respondents agreed that the TR provides clear technical guidance, clarifies the flexibility intended in selecting among methods by SFFAS 50, and explains that management is not required to select the most precise or best method. Two respondents neither agreed nor disagreed with the proposal. One respondent provided a letter indicating they had no comments. The other respondent provided editorial comments. A13. Certain respondents provided suggestions and editorial comments. The respondents' comments were carefully considered by the Committee and several were adopted. AAPC & Board Approval A14. The TR was approved by the AAPC for release to FASAB for issuance. The Board has reviewed this TR and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB office. Technical Release 19: Rescission of Technical Release 8 Status Issued January 15, 2019 Effective Date Effective upon issuance. Affects TR 8 is rescinded. Affected by None. Summary Statement of Federal Financial Accounting Standards (SFFAS) 55, Amending Inter-entity Cost Provisions, amended SFFAS 4, Managerial Cost Accounting Standards and Concepts, and rescinded SFFAS 30, Inter-Entity Cost Implementation: Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts, and Interpretation 6, Accounting for Imputed Intradepartmental Costs: An Interpretation of SFFAS No. 4. As a result, Technical Release (TR) 8, Clarification of Standards Relating to Inter-Entity Costs, is no longer consistent with SFFAS 4, as amended, because the requirement to recognize interentity costs was revised significantly. This TR rescinds TR 8 because it is no longer consistent with SFFAS 4, as amended. The provisions of this TR need not be applied to immaterial items. The determination of whether an item is material depends on the degree to which omitting or misstating information about the item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. Table of Contents Page Summary 1 Technical Guidance 3 Scope 3 Rescission of Technical Release 8, Clarification of Standards Relating to Inter-Entity Costs 3 Effective Date 3 Appendix A: Basis for Conclusions 4 Appendix B: Abbreviations 9 Technical Guidance Scope 1. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. Rescission of Technical Release 8, Clarification of Standards Relating to Inter-entity Costs 2. This paragraph rescinds TR 8, Clarification of Standards Relating to Inter-Entity Costs, in its entirety because it is no longer consistent with SFFAS 4, Managerial Cost Accounting Standards and Concepts, as amended. Effective Date 3. This TR is effective upon issuance. The provisions of this Technical Release need not be applied to immaterial items. Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendixshould govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Statements or other pronouncements. The Handbook is updated annually and includes a status section directing the reader to any pronouncement that changed this Technical Release. Within the text of the Technical Release, the guidance sections are updated for changes. However, this appendix will not be updated to reflect future changes. The reader can review the basis for conclusions of the amending Statements or other pronouncements for the rationale for each amendment. Project History A1. SFFAS 4 (including Interpretation 6, Accounting for Imputed Intradepartmental Costs: An Interpretation of SFFAS No. 4), required reporting entities to recognize the full costs of services received from other federal reporting entities even if there was no requirement to reimburse the providing reporting entity for the full cost of such services. A2. The Federal Accounting Standards Advisory Board (FASAB) issued SFFAS 55, Amending Inter-entity Cost Provisions, on May 31, 2018. This Statement amended SFFAS 4 and rescinded SFFAS 30, Inter-Entity Cost Implementation: Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts, and Interpretation 6. A3. With the rescission of SFFAS 30, paragraphs 110 and 111 of SFFAS 4, as amended, were restored to their original language prior to the issuance of SFFAS 30. SFFAS 55 revised SFFAS 4 to provide for the continued recognition of significant inter-entity costs by business-type activities. Inter-entity costs continue to be imputed for those reporting entities conducting business-type activities1 because the information is directly tied to rates. A4. Per SFFAS 4, as amended, recognition of inter-entity costs by activities that are not business-type activities is not required with the exception of inter-entity costs for personnel 1Business-type activity is defined as a significantly self-sustaining activity that finances its continuing cycle of operations through collection of exchange revenue as defined in SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting. benefits and the Treasury Judgment Fund settlements unless otherwise directed by the Office of Management and Budget (OMB). Notwithstanding the absence of a requirement, nonbusiness-type activities may elect to recognize imputed cost and corresponding imputed financing for other types of inter-entity costs. Rescission of TR 8, Clarification of Standards Relating to Inter-Entity Costs A5. This TR rescinds TR 8 because it is no longer consistent with SFFAS 4, as amended. A6. Rescinding TR 8 rescinds guidance that is not in accordance with generally accepted accounting principles (GAAP) due to SFFAS 55 amendments. For example, TR 8 does not reflect that recognition of inter-entity costs by activities that are not business-type activities is not required with the exception of inter-entity costs for personnel benefits and the Treasury Judgment Fund settlements unless otherwise directed by OMB. However, nonbusiness-type activities may elect to recognize imputed cost and corresponding imputed financing for other types of inter-entity costs. A7. This TR also eliminates potentially confusing references to the rescinded SFFAS 30. The Accounting and Auditing Policy Committee (AAPC or "the Committee") believes it appropriate to rescind TR 8 because allowing it to remain is inconsistent with current GAAP and may lead to potential misapplication of the technical guidance. For example, paragraph 7 (the first paragraph under the "Technical Guidance" section) of TR 8 states: "This guidance is presented in response to three implementation issues identified by FASAB based on comments SFFAS 30 received from respondents." With SFFAS 30 being rescinded, allowing TR 8 to remain in effect could bring questions as to its applicability. A8. Considering the changes that have occurred in the accounting for inter-entity costs, the Committee's goal was to update TR 8 to ensure clear guidance going forward. The Committee carefully considered if any guidance should be maintained and if any additional guidance was necessary. Paragraph 111 of SFFAS 4, as amended, states: Recognition of all significant inter-entity costs is important when those costs constitute inputs to government goods or services provided for a fee or user charge. Generally, the fees and user charges should recover the full costs of those goods and services. [Footnote 33 omitted] Thus, the cost of inter-entity goods or services needs to be recognized by the receiving entity in order to determine fees or user charges for goods and services sold by the federal government. Recognition of inter-entity costs supporting business-type activities [Footnote 33A omitted] and recognition of inter-entity costs for nonbusiness type activities that elect to do so should be made in accordance with implementation guidance provided by FASAB through one or more Technical Releases.33B Activities that are not business-type activities are not required to recognize inter-entity costs other than inter-entity costs for personnel benefits and the Treasury Judgment Fund settlements unless otherwise directed by OMB. Notwithstanding the absence of a requirement, nonbusiness-type activities may elect to recognize imputed cost and corresponding imputed financing for other types of inter-entity costs. 33BTechnical Release (TR) 8, Clarification of Standards Relating to Inter-Entity Costs provides implementation guidance. Additional TRs may be provided by FASAB if needed. A9. The Committee believes that much of the guidance that was previously included in TR 8 is no longer necessary or relevant based on the amended standards. The purpose of TR 8 was to provide guidance in response to concerns raised during due process of SFFAS 30. TR 8 addresses three aspects of full costing specified in SFFAS 4: (1) guidance on costs that should be considered broad and general for all entities, (2) guidance on the directness of the relationship to the entity's operations as used in determining if a transaction should be considered material to the receiving entity, and (3) guidance on identifiability as used in determining if a transaction should be considered material to the receiving entity. A10. The Committee determined that the list of broad and general support goods and services that was provided in table 1 of TR 8 is not necessary to maintain. While the list was helpful to the community when TR 8 was issued in 2008, the Committee believes the conclusions presented in the list are now well established and do not need to be included in any form of updated guidance. Table 1 provided the following examples, which appear to be widely understood in the community today as broad and general support goods and services: a. Department of the Treasury services, such as disbursing electronic funds transfer and check payments, government-wide accounting and reporting policy and guidance, collection services, and trust fund maintenance b. Department of Justice services, such as debt collection activities and non-reimbursed services for criminal and civil litigation c. General Services Administration services, such as real and personal property disposal and central management functions d. Department of Labor services, such as administration of unemployment compensation and non-reimbursable administration and support services for the Federal Employees Compensation Account e. Office of Personnel Management services, such as administration of the Federal Employees Benefit Program (including pensions and post-retirement benefits) f. Executive Office of the President, including all support functions performed g. Government Accountability Office, such as accounting and auditing policy and guidance A11. When considering the need for guidance on the directness of a relationship to an entity's operations, TR 8 included specific excerpts from respondents to SFFAS 30, which has now been rescinded. In addition, the guidance included excerpts from SFFAS 4 as well as paraphrases from the "Managerial Cost Accounting Concepts" and "Basis for Conclusions" sections that reiterated key points. While important, the Committee determined the following TR 8 topics discussed key points that reside in SFFAS 4, as amended, and do not need to be included in any form of updated guidance: a. The directness of the relationship to entity operations is generally determined by matching goods or services received to the output of the entity. b. Managerial cost accounting should be performed to measure and report the costs of each responsibility segment level's output. c. The needs of the users of cost information must be taken into account. A12. The Committee found that the majority of the explanations on identifiability included direct excerpts and paraphrases from the "Managerial Cost Accounting Concepts" and "Basis for Conclusions" sections from SFFAS 4. The guidance in TR 8 related to the requirement for the provider to supply the receiving entity with information on the full cost of non-reimbursed or under-reimbursed inter-entity goods and services. The Committee believes this requirement and the requirements when information is not provided are well understood by the community. Therefore, this does not need to be included in any form of updated guidance. A13. In summary, the Committee believes that, while the guidance was useful during initial implementation of SFFAS 30, it is no longer necessary. Much of the guidance provided in TR 8 is now understood by the community. Further, portions of TR 8 reiterated key points from SFFAS 4 and quoted it directly. Other portions of TR 8 contained paraphrases from the "Managerial Cost Accounting Concepts" and "Basis for Conclusions" sections of SFFAS 4 that are still included within SFFAS 4. For example, including excerpts from SFFAS 4 (issued in 1995) is not practical or useful considering SFFAS 4 is available for reference. The Committee believes all necessary guidance resides in SFFAS 4, as amended. Summary of Outreach Efforts and Responses A14. The exposure draft (ED), Rescission of Technical Release 8, was issued August 21, 2018, with comments requested by October 5, 2018. A15. Upon release of the ED, FASAB provided notices and press releases to the FASAB subscription email list, the Federal Register, FASAB News, the Journal of Accountancy, Association of Government Accountants Topics, the CPA Journal, Government Executive, the CPA Letter, the Chief Financial Officers Council, the Council of the Inspectors General on Integrity and Efficiency, and committees of professional associations generally commenting on EDs in the past (for example, the Greater Washington Society of CPAs and the Association of Government Accountants Financial Management Standards Board). A16. The AAPC received nine responses from preparers, users of federal financial information, and professional associations. A17. The AAPC considered responses to the ED at its November 27, 2018, public meeting. The AAPC did not rely on the number in favor of or opposed to a given position. Information about the respondents' majority view is provided only as a means of summarizing the comments. The AAPC considered the arguments in each response and weighed the merits of the points raised. A18. All respondents supported the proposal to rescind TR 8, Clarification of Standards Relating to Inter-Entity Costs, because it is no longer consistent with SFFAS 4, as amended. AAPC & Board Approval A19. The TR was approved by the AAPC for release to FASAB for issuance. The Board has reviewed this TR and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB office. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee ED Exposure Draft FASAB Federal Accounting Standards Advisory Board GAAP Generally Accepted Accounting Principles OMB Office of Management and Budget SFFAS Statement of Federal Financial Accounting Standards TR Technical Release Technical Release 20: Implementation Guidance for Leases Status Issued November 4, 2021 Effective Date For periods beginning after September 30, 2023. Affects Rescinds TR 16, par. 26-27 TR 16, par. 29 Affected by TR 21 amends par. 17 and supersedes par. 100 TR 22 inserts par. 8A-8B, 11A, 24A, 32A, 52A, and 75A; and amends par. 25, 78, and 91 TR 23 superseded par. 101-102 Summary This Federal Financial Accounting Technical Release (TR) is intended to assist reporting entities in implementing Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases. This TR includes questions and answers-organized by topic areas-to address issues raised by stakeholders through: technical inquiries posed to FASAB, the AAPC, and FASAB staff during and prior to the inception of the implementation guidance project; analogous implementation guidance promulgated by the Governmental Accounting Standards Board (GASB); comments submitted in response to FASAB due process documents; and an AAPC-established task force on leases implementation. Other topic areas address issues identified by FASAB and its staff in anticipation of questions that could arise during implementation of SFFAS 54. This TR also includes conforming amendments to existing TRs related to leases. Materiality The provisions of this Technical Release need not be applied to information if the effect of applying the provision(s) is immaterial.1A A misstatement, including omission of information, is material if, in light of surrounding facts and circumstances, it could reasonably be expected that the judgment of a reasonable user relying on the information would change or be influenced by the correction or inclusion of the information. Materiality should be evaluated in the context of the specific reporting entity. Determining materiality requires appropriate and reasonable judgment in considering the specific facts, circumstances, size, and nature of the misstatement. Consequently, after quantitative and qualitative factors are considered, materiality may vary by financial statement, line item, or group of line items within an entity. 1A Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts. Table of Contents Page Introduction 4 Purpose 4 Technical Guidance 5 Scope of Technical Guidance 5 Scope and Definitions 5 Lease Term 13 Short-Term Leases 17 Contracts or Agreements that Transfer Ownership 19 Intragovernmental Leases 21 Lessee Recognition, Measurement, and Disclosures for Leases Other than Short-Term Leases, Contracts or Agreements that Transfer Ownership, and Intragovernmental Leases 22 Lessor Recognition, Measurement, and Disclosures for Leases Other than Short-Term Leases, Contracts or Agreements that Transfer Ownership, and Intragovernmental Leases 29 Component Reporting Entity Disclosure Requirements for Lessors 32 Lease Incentives and Lease Concessions 32 Contracts or Agreements with Multiple Components 34 Contract or Agreement Combinations 36 Lease Terminations and Modifications 36 Subleases 39 Sale-Leaseback Transactions 39 Lease-Leaseback Transactions 40 Transition Guidance for Implementation 41 Conforming Amendments to Existing Technical Releases 42 Effective Date 43 Appendix A: Basis for Conclusions 44 Appendix B: Abbreviations 47 Introduction Purpose 1. Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases, provides a comprehensive set of lease accounting standards to recognize federal lease activities in the reporting entity's general purpose federal financial reports and includes appropriate disclosures. 2. Questions and answers in this Federal Financial Accounting Technical Release (TR) are intended to provide guidance for applying the accounting and financial reporting requirements for leases in accordance with SFFAS 54. When reading the questions and answers, readers should note the related headings or subheadings under which the related questions and answers fall. Technical Guidance Scope of Technical Guidance 3. Readers of this TR should first refer to SFFAS 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements SFFAS 54 and other relevant accounting standards but does not substitute for or take precedence over the standards. This TR clarifies but does not change guidance provided in SFFAS 54. Scope and Definitions 4. A reporting entity enters into a 5-year agreement for the right to use a facility with no termination options. This entity has exclusive use of the facility 4 months per year. Other parties use the facility for the other 8 months. To meet the definition of a lease, is the entity required to have uninterrupted control of the right to use the facility? No, uninterrupted control is not required to meet the definition of a lease. In determining whether a contract conveys control of the right to use an underlying asset, the reporting entity should assess whether it has both (a) the right to obtain economic benefits or services from use of the underlying asset as specified in the contract or agreement; and (b) the right to control access to the economic benefits or services of the underlying asset as specified in the contract or agreement (emphasis added) in accordance with paragraph 3 of SFFAS 54. If the contract specifies that the government has control of those rights during 4 months of each year, the control criterion is met. The provision in the lease definition that the contract be for a period of time does not require uninterrupted control of the right to use the facility. In this example, the lease term would be five years. 5. Do easements, water and water power rights, diversion rights, submersion rights, rights-of-way, and other like interests in land meet the definition of a lease? Each of these can meet the definition of a lease. Paragraph 2 of SFFAS 54 states that, among other things, a lease is defined as a contract or agreement whereby the "right to control the use of property, plant, and equipment (underlying asset) is conveyed to another entity for a period of time as specified in the contract or agreement in exchange for consideration." Temporary land rights, easements, rights-of-way, and other like interests in land can qualify as a lease under paragraph 2 of SFFAS 54, with land being the underlying asset (see SFFAS 6, Accounting for Property, Plant and Equipment, par. 17-18, and footnote 18). Permanent easements, rights-of-way, and land rights, which last indefinitely without cancellation options, would not meet the "period of time" criterion and, therefore, would not meet the definition of a lease. In addition, easements, rights-of-way, and land rights obtained without consideration do not meet the "in exchange for consideration" criterion. Paragraph 3 of SFFAS 54 provides other criteria that may be relevant in determining whether an interest in land meets the definition of a lease. For example, the entity granting the interest may retain certain rights that may limit the rights of the lessee to control economic benefits or services derived from using the underlying asset. The entity granting the interest may also retain the right to control access to the economic benefits or services of the underlying asset. 6. A reporting entity signs a revocable agreement that formalizes the terms of temporary occupancy of property without creating the right to occupy the property for an explicitly-specified time in exchange for consideration. The agreement, however, specifies that the occupant shall give advance notice of intent to discontinue use, and that the party granting occupancy shall give advance notice to vacate. Does such an arrangement meet the definition of a lease? Yes; arrangements, as described in this question, would typically meet the definition of a short-term lease and be subject to the requirements of SFFAS 54, paragraphs 23-24. If such agreements are intragovernmental leases, they would be subject to the requirements of SFFAS 54, paragraphs 26-38. Although the agreement does not convey the right to control the use of the property for an explicitly-specified period of time, it specifies that the occupant shall give advance notice of intent to discontinue use, and that the party granting occupancy shall give advance notice to vacate. Therefore, in substance, this arrangement provides for a short, noncancelable period for use. The noncancelable period would be equal to the shorter of the required notice period for discontinuing use or notice period for vacating. The noncancelable period should be included in the lease term in accordance with SFFAS 54, paragraph 14. The additional period(s) subject to the requirements of SFFAS 54, paragraphs 15-18, for potential inclusion in the lease term, would be any period of time that the lease can be extended beyond the noncancelable period and prior to the cancelable period. Cancelable periods are defined as periods when both the lessee and the lessor have an option to terminate. In this case, the cancelable period(s) is the period beyond both the notice period for discontinuing use and the notice period for vacating. Cancelable periods should not be included in the lease term in accordance with paragraph 19.a of SFFAS 54. In summary, the total lease term for these types of agreements will usually, if not always, be 24 months or less. As such, these agreements typically meet the definition of short-term leases. 7. A reporting entity enters into separate and distinct agreements, each with a private party, for the right to use public lands, each for a period of 10 years, in exchange for consideration. Do each of these respective agreements meet the definition of a lease? a. Agreement #1: A right-of-way for an underground pipeline to transmit and distribute electricity for commercial purposes. The agreement does not convey the right to control access to the economic benefits derived from agricultural or other uses of that land derived by other parties. Yes, the agreement conveys the right to control the use of the underlying asset as provided for in paragraph 3 of SFFAS 54. The agreement gives the lessee both of the following: (a) the right to obtain economic benefits or services from use of the right-ofway (the underlying asset) as specified in the contract or agreement; and (b) the right to control access to the economic benefits or services derived from the underlying asset as specified in the contract or agreement. Although other economic benefits or services are derived from use of the public land, such rights are not relevant in establishing the right to control the use of this particular underlying asset specified in the agreement: the underground right-of-way for transport and distribution of electricity. b. Agreement #2: Public lands for livestock grazing. These lands must by law be managed for multiple uses, including public access and enjoyment, wildlife habitat conservation, wilderness, watershed protection, and other uses under various federal statutes. The terms and conditions, such as stipulations on forage use and seasons of use, for grazing on the lands are set forth in permits. Yes. Although other economic benefits or services may be derived by other parties from use of the public land, such rights are not relevant in establishing the right that was specified in the contract to control the use of this particular economic benefit (grazing rights) derived from the underlying asset. 8. A reporting entity enters into a contract with a private party wherein the private party will design and build a solar farm based on the reporting entity's specifications. The solar farm will be located on the reporting entity's property, but per the agreement the private party will not pay for the use of the land. During this time, the title to the solar equipment will be retained by the private party. The contract allows the reporting entity to purchase power generated from the solar farm and make payments at prevailing market rates based solely on the amount of power generated. The private party is not precluded from selling any power generated to other private parties. The contract also requires the private party to dismantle and remove the solar farm at the end of the contract. Does this contract result in a lease? No, it does not. To meet the definition of a lease, a contract is required to convey control of the right to use the underlying asset. Paragraph 3 of SFFAS 54 provides two criteria that should be present for a contract to convey control. In this example, the reporting entity does not have the right to control access to the economic benefits derived from the power generated. Therefore, the component of the contract that provides the reporting entity with the right to the power generated by the solar farm does not convey control and does not meet the definition of a lease. Furthermore, the component of the contract that allows the private party to use the reporting entity's property is not a lease because there is no exchange for consideration for use of that land as required by paragraph 2 of SFFAS 54 to meet the definition of a lease. 8A. A reporting entity enters into a 15-year contract with a utility company for the right to use a fiber optic cable network in exchange for consideration. The contract does not provide the reporting entity with specific, physically distinct dark fibers; nor does it provide the ability to deny and regulate the access of others to the fiber optic cable network. Rather, the utility company makes decisions about the transmission of data. For example, the utility company lights the fibers with its electronic equipment. Does this contract convey control and meet the definition of a lease? No, this contract does not convey control or meet the definition of a lease. Paragraph 2 of SFFAS 54 provides that the underlying asset should be identified either through explicit specification in the contract or implicit specification at the time the underlying asset is made available for use. The contract in this scenario does not specify, either explicitly or implicitly, the underlying asset. Relatedly, unlike the scenario under paragraph 8B below, the contract under this scenario does not meet the control criterion under paragraph 3.b of SFFAS 54 (criterion 2 of 2). The reporting entity cannot deny or regulate the access of other parties to the economic benefits or services of the underlying asset, as the contract does not convey control of specific, physically distinct dark fibers. The utility company makes decisions about the transmission of data. In this case, the utility company lights the fibers with electronic equipment under its control and makes decisions about which fibers are used to transmit data. In this scenario, the data transmission is effectively a service, consistent with paragraph 4 of SFFAS 54. 8B. A reporting entity enters into a 15-year contract with a utility company for the right to use specific, physically distinct dark fibers within a larger fiber optic cable connecting two operational sites (over a specifically identified route) in exchange for consideration. The reporting entity makes the decisions about the use of the fibers by connecting each end to its electronic equipment. For example, the customer lights the fibers and makes decisions about data transmission. Does this contract convey control and meet the definition of a lease? Yes, this contract conveys control and meets the definition of a lease. Paragraph 3 of SFFAS 54 provides that the reporting entity should assess whether the contract gives the lessee both of the following when determining whether a contract or agreement conveys the right to control the use of the underlying asset: a. The right to obtain economic benefits or services from the use of the underlying asset as specified in the contract b. The right to control access to the economic benefits or services of the underlying asset as specified in the contract The reporting entity has the right to obtain economic benefits or services of the underlying asset (criterion 1 of 2). Through a lease contract the government may control access to the economic benefits or services embodied in an underlying asset it does not own. In this scenario, the contract allows the reporting entity to deny or regulate the access of other entities to the economic benefits or services of the dark fibers, and the customer has the right to direct the use of the fibers. For example, the customer lights the fibers and makes decisions about data transmission (criterion 2 of 2). Therefore, the control criterion is met. Relatedly, in accordance with paragraph 2, the contract in this scenario specifies, either explicitly or implicitly (in this case, explicitly) the underlying asset. 9. Are cell phone tower or antenna placement agreements leases? It depends; these agreements typically meet the definition of a lease. If the agreements meet the definition in paragraphs 2-4 of SFFAS 54, including the control criterion, then such agreements are leases. The control criterion generally is met if a cell phone tower or antenna placement agreement conveys control of the right to use the land on which the tower is placed or a connection point to which the antenna is affixed (see also TR par. 11). 10. A contract allows the vendor to replace the underlying asset with an essentially identical asset. Does that substantive right of substitution affect the evaluation of whether the contract conveys control of the right to use the asset? No, it does not affect the evaluation. A lease conveys control of the right to use another entity's asset. That right is distinct from the underlying asset. That is, the right-to-use relates to both the right to obtain and control access to economic benefits or services from use of an underlying asset, rather than conveying control of the underlying asset itself. Substitution with an essentially identical asset allows the lessee to maintain control of the economic benefits or services from use of another entity's underlying asset and is consistent with the definition of a lease in paragraphs 2-4 of SFFAS 54. If a lease modification results in a substitution with an associated increase/decrease in price, then a lease modification would have occurred and the lease liability would have been remeasured in accordance with paragraph 44 as a result of the price change. 11. A reporting entity enters into a contract with a telecommunications company that allows the telecommunications company to install an antenna on the reporting entity's property for a period of time in exchange for consideration. The reporting entity will determine the location of the antenna on the pole and retains the right to move the antenna to another location on the pole. Does this contract convey control of the right to use the underlying asset? Yes, this is a lease. In this example, the reporting entity (lessor) conveys the right to use a connection point on the pole. A right of substitution (changing the location on a pole) does not affect the determination of whether a contract conveys control of the right to use an underlying asset. Even though the reporting entity can change the specific connection point, the telecommunications company maintains the substantive right to obtain economic benefits and services from use of a connection point (see also TR par. 9). 11A. A reporting entity (lessor) enters into an agreement that allows a private party (lessee) to use one floor of the reporting entity's building at a market rate. The contract states that the space is to be used only for a restaurant. Does the contract convey the right to control the use of the underlying asset? Yes. In accordance with paragraph 3 of SFFAS 54, the reporting entity should assess whether the contract gives the lessee both the right to obtain economic benefits or services from the use of the underlying asset as specified in the contract (emphasis added) and the right to control access to the economic benefits or services of the underlying asset as specified in the contract (emphasis added). In this example, the paragraph 3 control criterion is met notwithstanding the parameters of the contract regarding the nature and manner of use (see also TR par. 7.b). 12. Should reporting entities apply the requirements in SFFAS 54 to leases with the public that are less than market rent and intragovernmental leases that are less than full cost? Yes, reporting entities should apply SFFAS 54 requirements to such transactions. The definition of a lease in paragraph 2 of SFFAS 54 provides that a lease is a contract or agreement whereby one entity (lessor) conveys the right to control the use of property, plant, and equipment (PP&E) (the underlying asset) to another entity (lessee) for a period of time as specified in the contract or agreement in exchange for consideration. The right to use underlying assets in exchange for consideration, albeit under prevailing market rates, meets the description of consideration. Each party does not need to receive or give up equal value, thus the transaction should be recorded based on the terms of the lease agreement. For inter-entity transactions (that is, intragovernmental leases), to the extent that the consideration provided is less than the full cost incurred by the lessor, the receiving entity (lessee) should determine whether to recognize the difference in its accounting records as a financing source based on SFFAS 4, Managerial Cost Accounting Standards and Concepts (as amended by SFFAS 55, Amending Inter-entity Cost Provisions), paragraphs 8-9 and 108-113A. This difference would be based on the full cost to the lessor (for example, depreciation) rather than the market rent. 13. A reporting entity (lessee) enters into a lease agreement with a private company which will commence on October 1, 20X5, for a 5-year lease term. The underlying asset is under construction and scheduled to be completed on the date of lease commencement. The reporting entity is required to make payments to the lessor on October 1, 20X3 and October 1, 20X4 during the construction period in contemplation of the future receipt of the right-to-use asset. How should the reporting entity (lessee) account for these payments? The reporting entity (lessee) would account for payments during the construction of the underlying asset as advances paid in contemplation of the future receipt of the lease asset. These advances would be accounted for in a manner consistent with SFFAS 1, Accounting for Selected Assets and Liabilities, paragraphs 57-61, prior to the lease commencement date. Such advances and prepayments would be considered assets of the lessee. At lease commencement, the advance would be reclassified and included as part of determining the value of the lease asset in accordance with SFFAS 54, paragraph 49.b (see also TR par. 54). 14. A reporting entity (lessee) enters into an agreement to use an underlying asset. No payments are required for this use, nor does the lessee provide any in-kind services in the agreement. Does this agreement meet the definition of a lease in SFFAS 54? No, this agreement does not meet the definition of a lease because there is no consideration. 15. The term "consideration" is used throughout this Statement. Does "consideration" only refer to monetary consideration? No, consideration can be monetary or non-monetary. For example, in-kind services can also be consideration. 16. The term "probable" is used throughout this Statement. How is "probable" defined? "Probable" is defined elsewhere in FASAB literature as that which can reasonably be expected or is believed to be more likely than not (greater than 50% probability) on the basis of available evidence or logic. See SFFAS 5, Accounting for Liabilities of the Federal Government, paragraph 33. Reporting entities should continue to consistently apply the FASAB definition here.1 17. Paragraphs 37.b and 54.e of SFFAS 54 require disclosures of "annual lease expense." Since this term is not defined elsewhere, what types of lease expenses are included in these disclosures? For intragovernmental leases, disclosures of annual lease expenses by lessees (par. 37.b) include amounts incurred during the fiscal year as expenses in accordance with paragraphs 27, 31, and 36. For right-to-use lease assets, disclosures of annual lease expenses by lessees (par. 54.e) include amounts incurred during the fiscal year for the amortization of the lease assets, as initially capitalized in accordance with paragraph 49, and interest expense. 18. What is the difference between a right-to-use lease asset and the underlying asset? The underlying asset is the PP&E being leased. Lease arrangements unbundle the economic benefits and services embodied in leased property and give lessees the intangible right to derive economic services and benefits from tangible assets underlying the lease, which is represented by the recognition of the right-to-use lease asset over the lease term. Lessors have the right to rentals and any residual value of the leased property and, therefore, do not derecognize the PP&E asset underlying the lease, in accordance with paragraph 66 of SFFAS 54. 1In light of the discussion in SFFAS 54 basis for conclusions par. A35—although not authoritative in and of itself—this paragraph reflects the basis for the use of the term "probable" and the intended definition to be applied when implementing the Statement. 19. If the underlying asset of a lease is a heritage asset or stewardship land as defined by SFFAS 29, Heritage Assets and Stewardship Land, do the disclosure requirements of SFFAS 29 apply? If the agreement meets the definition of a lease in paragraphs 2-4 of SFFAS 54, then the SFFAS 29 disclosure requirements would not apply to lessees. In accordance with paragraph 66 of SFFAS 54, lessors should not derecognize heritage assets underlying their leases. They would continue to apply other applicable guidance, including SFFAS 29 disclosure requirements. Lease Term 20. A developer builds and leases a building to a reporting entity (lessee). The reporting entity is required to make payments during the 3-year construction period. The reporting entity does not have access to the building until right to occupancy is established at the end of the construction period. When does the lease term begin? The lease term begins when occupancy rights are established because that is when the reporting entity has the right to control the use of the underlying asset. Paragraph 3 of SFFAS 54 explains that control of the right to use the underlying asset is the right to both (a) obtain the economic benefits or services from its use as specified in the contract or agreement and (b) control access to the economic benefits or services as specified in the contract or agreement. Thus, the lease term commences when the lessee's right to occupancy is established and access to use the building is attained (see also: TR par. 54 and 95). 21. A lease contract has a noncancelable period of 5 years and specifies that at the end of the 5 years, both the lessor and lessee have the right to cancel the lease or may continue the lease, using the same terms on a month-to-month basis. Is the month-to-month period included in the initial assessment of the lease term? No, the month-to-month periods following the 5-year noncancelable period are excluded from the lease term under paragraph 19.a of SFFAS 54 in this scenario because both parties have the right to cancel. The lessee has not contracted for a noncancelable right to use the underlying asset beyond the 5 years, and the lessor is not required to continue providing the asset. 22. A lease contract has a noncancelable period of 5 years and specifies that at the end of the 5 years, both parties have a right to cancel or continue the lease. Periods beyond year 5 were not included in the original lease term by the lessee. At the end of the fifth year on May 31, 20X1, the lessee has not returned or vacated the underlying asset. Instead the lessee continues to occupy the premises while a new lease is negotiated with the lessor. One year later on June 1, 20X2, the lessee and lessor negotiate final terms of the lease with an effective date of June 1, 20X1, and ending May 31, 20X7. In this example, at May 31, 20X1, the lessee has no knowledge of the expected duration of the holdover period. How should the lessee account for these lease changes after May 31, 20X1? At the end of the original 5-year lease, the lessee would remove the right-to-use lease asset and accumulated amortization from its books. From June 1, 20X1, through May 31, 20X2, each period would be treated as a short-term lease. Once terms have been finalized on June 1, 20X2, the lessee should not measure the lease retroactively, as in substance, the long-term lease was not executed until June 1, 20X2, regardless that the lease documentation reflects an effective date of June 1, 20X1. On June 1, 20X2 the lessee should record a lease liability and lease asset at the net present value of payments due on June 1, 20X2 (a 5-year lease term) and thereafter, with the start date for amortization based on the signature date of the lease, in this particular case, rather than the effective date. 23. How does a bargain renewal option, such as a 20-year lease at a market rate with a lessee option to renew the lease for an additional 5 years at a 30 percent discount, affect the lessee's initial assessment of the lease term? Paragraph 20 of SFFAS 54 requires that, at the commencement of the lease term, a reporting entity assess all factors relevant to the likelihood that the lessee or the lessor will exercise lease extension or termination options identified in paragraphs 15-19. Relevant factors include significant economic incentives and disincentives, such as the cost of exercising the renewal option. In this example, if the reporting entity (lessee) determines that it is probable that the option will be exercised, the lease term would be 25 years. 24. A lease contract allows either party to unilaterally terminate the lease at any time but also provides for cancellation penalties. The cancellation penalties are so great that there is significant evidence that neither party will terminate the lease. Should the cancelable periods be included in the lease term? No, these cancelable periods are excluded from the lease term. Paragraph 19.a of SFFAS 54 states that periods for which both the lessee and the lessor have an option to terminate the lease without permission from the other party are excluded from the lease term as cancelable periods. 24A. A lease contract states that it will remain in effect for three years unless terminated before then. The contract allows the lessee to terminate the lease for any reason with 60 days' notice. The contract allows the lessor to terminate the lease with 60 days' notice only if the lessee defaults on payments. It is probable, based on all relevant factors, that the lessee will not exercise its termination option at any time during the three year contract. Is this a short-term lease? No. Although the lessee has an unconditional right to terminate, the lessor does not have an unconditional right to terminate because the lessor is only allowed to terminate on the condition that the lessee defaults on payments (see par. 19.b of SFFAS 54). Accordingly, there are no periods for which both the lessee and lessor have an option to terminate without permission, and paragraph 19.a criteria for excluding cancelable periods from the lease term are not triggered. 25. A lease contract allows only the lessee (reporting entity) to unilaterally terminate the lease at any time but also provides for cancellation penalties. The cancellation penalties are so great that it is probable the lessee will not terminate the lease. Should the periods covered by the lessee's option to terminate be included in the lease term by the lessee? Yes, these periods should be included in the lease term in this particular case. Paragraph 15.b of SFFAS 54 requires lessees to include periods in the lease term covered by their options to terminate if it is probable, based on all relevant factors, that they will not exercise those options. In determining whether it is probable that it will not exercise the option to terminate the lease, the lessee should assess all factors relevant to the likelihood that it will not exercise the option. Those factors include significant economic disincentives, such as cancellation penalties, as discussed in paragraph 20 (see also: TR par. 26-27). 26. When a reporting entity is assessing the lease term and evaluating option periods in accordance with paragraph 20 of SFFAS 54, is it reasonable that entity management may consider one of the four examples provided to be a predominant factor that is most relied upon when making probability assessments? For instance, if one factor is particularly indicative that options will be exercised, such as historical information (par. 20.c), would the entity need to consider other elements that would only further justify deeming an option as probable of being exercised? Yes, it is reasonable for a reporting entity to use a predominant factor in evaluating option periods. Particularly for reporting entities with large volumes of leasing activity that have reliable evidence (such as historical information) that is strongly predictive as to the probability of exercising options, management may place greater weight on such evidence in assessing elements of paragraph 20. In the example of an entity having historical trend evidence showing it to be very likely that options will (or will not) be exercised, management may make general assumptions when entering into new leases that the likelihood would continue to apply, limiting the need for further assessment of other factors. However, management must be cognizant of and consider known information that makes the historical trends less applicable for a particular lease. For instance, management may know that it has definitive plans to cease use of an asset in a particular timeframe that makes exercising renewal options highly unlikely and outweighs historical information. In such a case, management would consider all relevant factors of a particular lease in making the probability assessment. 27. A lease contract has a 20-year noncancelable period and a 5-year renewal option, exercisable only by the lessee, with below-market rates. How does the lessee determine if the renewal option should be included in the lease term? The lessee must assess whether the renewal option is probable of being exercised in accordance with paragraph 15.a of SFFAS 54. In this example, the renewal option offers below-market rates, which would make it more likely of being exercised by the lessee. However, the lessee must assess all relevant factors identified in paragraph 20 of SFFAS 54. Factors may include, but are not limited to, longevity of the operational need for the asset, level of dependency, ease of replacing the asset (for example, availability of other options), replacement costs, and possible operational disruptions associated with such transitioning. 28. A lease contract has a 20-year noncancelable period and a 5-year renewal option, exercisable only by the lessor, with below-market rates. How does the lessee determine if the renewal option should be included in the lease term? The lessee would need to determine if there is significant evidence that the renewal option will be exercised in accordance with paragraph 15.c of SFFAS 54. Determining whether or not significant evidence exists is a matter of professional judgment. In this example, the renewal option offers below-market rates, which may make it less likely to be exercised by the lessor. Without knowing the additional relevant factors of the lessor (for example, lessor dependency on revenue stream from this asset, ease of replacing tenant, cost of replacing tenant, past experience with lessor for similar types of leases), it may be challenging to gain the significant evidence needed to include this option in the lease term. However, counterevidence that the lessor will exercise the renewal option should also be considered. For example, perhaps the economic benefits derived from the underlying asset are of limited value to other parties and uniquely suited to the lessee. 29. A reporting entity (lessee) enters into a 10-year lease with a 5-year renewal option, exercisable by the lessee. At the beginning of the lease term, it is determined that it is not probable that the lessee will exercise the renewal option. Therefore, the lease term is determined to be 10 years. In year 8 of the lease, the lessee decides that it will exercise the renewal option; however, this intent is not communicated to the lessor nor is the renewal option exercised until year 9. At what point should the lease term be reassessed by the lessee and lessor? In accordance with paragraph 21.a of SFFAS 54, the lease term should be reassessed when the lessee elects to exercise an option that was previously presumed would not be exercised under the likelihood criteria in paragraphs 15 and 17. In this example, the lessee would reassess the lease term in year 9 when the renewal option election is made. The renewal option election is not made until the lessee communicates its intention to exercise the option. This approach imposes less of a burden on preparers because there will be little or no judgment involved and no requirement for ongoing reassessments. 30. One year into a lease with an original lease term of 2 years, a lessee elects to exercise a one-year renewal option that was previously assessed as not probable of being exercised. What is the new lease term? The lease should be reassessed in accordance with paragraph 21.a of SFFAS 54. At the time of reassessment, the lease term would be 3 years. This would require a change from short-term lease treatment to lease liability/lease asset treatment for the lessee. The calculation of the lease liability should be based on the remaining lease payments in accordance with paragraphs 40-41. In this example, although the new lease term is 3 years the lease liability would be calculated for the remaining 2 years of lease payments. 31. Do lease term reassessments consider periods prior to the reassessment date, or do they only consider periods following that date? Lease term reassessments must consider the entire lease term. The lease term is the noncancelable period plus certain periods subject to options to extend or terminate the lease under paragraphs 14-20 of SFFAS 54. These periods include any applicable periods prior to the reassessment date, except as provided for when applying prospective implementation requirements under paragraph 97.b. Accordingly, lease term reassessments would not consider periods that precede the implementation effective date of SFFAS 54. Short-term Leases 32. A reporting entity (lessee) enters into a 24-month noncancelable lease in which the lessee has options to renew for 12 months at a time, up to 3 times. Is this agreement a short-term lease under SFFAS 54? It depends. According to paragraph 22 of SFFAS 54, a short-term lease is required to be 24 months or less, including any options to extend if those options are probable to be exercised (par. 14-16, 19-21). If the probability of the lessee exercising the first renewal option were assessed as probable, then the lease term would be greater than 24 months and this would not be a short-term lease. However, if it is not probable that the first renewal option will be exercised by the lessee, then the lease term would be 24 months and this would be considered a short-term lease under paragraph 22. 32A.For the past 20 years, every two years a reporting entity (lessee) has consistently entered into new 24-month noncancelable lease contract with a lessor for the use of building space. The lease contract for the building space does not contain options to extend beyond the 24-month noncancelable lease term. The reporting entity expects to continue this practice. Is this a short-term lease? Yes. According to paragraph 14 of SFFAS 54, the lease term is the noncancelable period plus certain periods subject to options to extend or terminate the lease. In this scenario, the noncancelable period is 24 months and there are no subsequent periods subject to options to extend or terminate the lease and, therefore, this is a short-term lease. Although historical behaviors and expectations may be relevant factors in assessing the likelihood of exercising options (see par. 20 of SFFAS 54) when determining the lease term, such factors are only applicable to assessing options. 33. A reporting entity (lessee) enters into a lease with a lessor for 36 months. The reporting entity can cancel the lease at any time after 6 months. The lessor does not have the option to cancel the lease. Would this be considered a short-term lease? It depends. According to paragraph 22 of SFFAS 54, a short-term lease is defined as a lease with a term of 24 months or less. The lease term must be determined in accordance with paragraphs 14-16 and 19-21, which includes consideration of the period beyond a lessee's option to terminate the lease. If the likelihood of the lessee exercising the option to terminate the lease were assessed as probable, then the period following that option would be excluded from the lease term. If the remaining lease term is estimated to be 24 of months or less, this would be considered a short-term lease. 34. A reporting entity (lessee) signs a contract for a lease beginning January 1, 20X2, and ending December 31, 20X3. During the negotiations of that contract, a second contract with the same lessor for a lease of the same underlying asset was also being negotiated. Near the same time that the first contract was signed, the reporting entity signs the second contract with a term beginning January 1, 20X4, and ending December 31, 20X4. The amount of consideration in each contract is independent of the other contract. Can the reporting entity account for both contracts as short-term leases? Although each contract individually would meet the definition of a short-term lease, the reporting entity should consider whether either of the criteria for contract combinations in paragraph 78 are met. If so, these contracts would be considered part of the same lease contract and result in a 3-year lease term; it would not be a short-term lease. 35. A reporting entity enters into a lease with a noncancelable term of 24 months and a 12-month option to extend. At the commencement of the lease term, it is determined that the reporting entity will not exercise the option. However, 6 months into the lease the reporting entity elects to exercise the option. Is this a short-term lease? From the commencement of the lease term until the time that the election is made to exercise the option, this was a short-term lease because the lease term, at that time, was determined to be 24 months or less. Six months into the lease, when the reporting entity elects to exercise the option, the lease term should be reassessed (par. 21 of SFFAS 54). The noncancelable term is 24 months and the exercised option period is 12 months. Therefore, the reassessed lease term is 36 months. For reporting periods beginning after the election is made, the lease should no longer be considered a short-term lease and the lease liability should be calculated for the remaining lease payments. 36. A reporting entity (lessee) signs a 24-month lease with $60,000 in reduced rent to be given over the first 3 months of the lease ($20,000 each month). How should the lessee account for the lease concession? In accordance with paragraph 23 of SFFAS 54, the lessee should recognize the reduction in rental expense in each of the first 3 months of the short-term lease by recording $20,000 less than the normal monthly amount of lease rental expense during those months. Contracts or Agreements That Transfer Ownership 37. A vendor installs equipment in a reporting entity's building to increase energy efficiency. The reporting entity will own the equipment at the end of the agreement, and the contract does not contain a termination option. For financial reporting purposes, should this transaction be reported as a lease or a purchase? This transaction should be reported as a purchase by the reporting entity. If title to the equipment will transfer to the lessee at the end of the contract, the transaction is not accounted for as a lease for financial reporting purposes. Rather, the transaction is a purchase, as discussed in paragraph 25 of SFFAS 54. 38. A reporting entity (lessee) leases medical equipment from a manufacturer (lessor) and distributes it to private hospitals for use. At the end of the reporting entity's lease term, the private hospitals are given the option to purchase the medical equipment from the reporting entity. Regardless of whether or not the private hospitals purchase the equipment, the reporting entity is required to purchase the equipment from the lessor. The private hospitals do not have a termination option. Should this arrangement be reported as a lease or a purchase of the medical equipment by the reporting entity? The reporting entity should report the arrangement with the manufacturer as a purchase. Paragraph 25 of SFFAS 54 states that one criterion of a purchase is that the contract transfers ownership of the underlying asset to the lessee by the end of the contract. In this example the lessee is the reporting entity, not the hospitals. The contract transfers ownership of the medical equipment because the purchase by the reporting entity is required. The subsequent sale of the equipment to the hospitals is a separate transaction. 39. A reporting entity (lessee) leases PP&E from a nonfederal entity. At the end of the agreement the reporting entity will own the PP&E unless it exercises its option to terminate the lease, which it may do at any time. For financial reporting purposes, should this transaction be reported as a lease or as a contract or agreement that transfers ownership? This transaction should be reported as a lease by the lessee. Paragraph 25 of SFFAS 54 does not provide for a contract that contains termination options to be reported as a purchase of the asset (although they may contain availability of funding or cancellation clauses that are not probable of being exercised). In substance, this contract includes a purchase option rather than an ownership transfer. 40. A reporting entity (lessee) has a lease with a purchase option that is probable of being exercised. Is this a contract or agreement that transfers ownership? No, a purchase option that is probable of being exercised is not a transfer of ownership as specified in paragraph 25 of SFFAS 54. Rather, the purchase option should be included in the lease liability calculation in accordance with paragraph 40.e. Intragovernmental Leases Disclosures for Intragovernmental Leases 41. A reporting entity (lessee) has 120 lease agreements with a federal lessor. The majority of the leases are for office space with a typical term of 10 years. What information is required to be disclosed in the reporting entity's financial reports? The reporting entity should disclose a general description of significant intragovernmental leasing arrangements and the annual lease expense in total and by major underlying asset category in accordance with paragraph 37 of SFFAS 54. In this example, that would include language in the financial disclosures stating that the reporting entity has 120 leases with a federal lessor and that most are for office space (or buildings) with a typical term of 10 years. The annual lease expense for the year being reported should be disclosed as well. 42. A reporting entity (lessor) has several intragovernmental lease agreements with federal lessees. What information is required to be disclosed in the reporting entity's financial reports? The reporting entity should disclose a general description of significant intragovernmental leases in accordance with paragraph 38 of SFFAS 54. The contents of the general description are left to the discretion of the reporting entity. For example, the lessor may elect to summarize and describe the nature and general purpose of its intragovernmental leases. The reporting entity should also disclose the future intragovernmental lease payments that are to be received to the end of the lease term for each of the 5 subsequent fiscal years and in 5-year increments thereafter. 43. A reporting entity leases space from a nonfederal lessor and then subleases the space to a federal entity. Both leases are for a term of 10 years. How should the reporting entity disclose this arrangement? The reporting entity should disclose such agreements separately in accordance with paragraphs 87-88 of SFFAS 54. Therefore, the original lease agreement should be disclosed per the lessee requirements in paragraph 54, and the sublease agreement should be disclosed per the intragovernmental lessor requirements in paragraph 38. Lessee Recognition, Measurement, and Disclosures for Leases Other Than Short-term Leases, Contracts Or Agreements That Transfer Ownership, and Intragovernmental Leases Lease Liability 44. A reporting entity (lessee) enters into a lease with a nonfederal entity that includes an optional extension period of 3 years, exercisable only by the lessee. The payment amounts for the optional period will be negotiated at the time the option is exercised. The lessee has an ongoing relationship with the lessor, and it is probable that it will exercise its option to extend. Therefore, the optional renewal period is included in the lease term in accordance with paragraph 15.a of SFFAS 54. How should the lessee measure the lease liability if the payment amount for the optional period is not specified in the contract? Paragraph 15.a of SFFAS 54 requires that periods covered by a lessee option to extend the lease be included in the lease term if it is probable, based on all relevant factors, that the lessee will exercise that option. Payments for that optional period should be included in the lease liability, even if the amount is estimated. In many cases, a reporting entity will not find a renewal to be probable without having a reasonable estimate of the payment amount or range of amounts. In this example, the payments may be estimated based on the ongoing relationship with the lessor and professional judgment, maximizing the use of observable information. For example, if appropriate, the estimate may be based on the last known payment amount. 45. A lease contract for copy machines requires that a minimum amount be paid for toner and paper regardless of whether these supplies are obtained. Should some portion of the minimum amount to be paid for supplies be included in the measurement of the lease liability? Typically this component of the contract would be excluded from measurement. As discussed in paragraphs 75-76 of SFFAS 54, if the price allocation for the supplies component of the contract does not appear to be unreasonable, regardless of whether supplies are obtained, the reporting entity should account for the supplies component separately from the lease and therefore not include that amount in the measurement of the lease liability. If the price allocated to the supplies component of the contract appears to be unreasonable, professional judgment may be needed to determine whether some or all of the minimum amount is, in substance, a fixed lease payment that should be included in the amounts allocated to the lease component and included in the lease liability under paragraph 40.c of SFFAS 54. 46. Lease payments for a 5-year lease are indexed to the Consumer Price Index (CPI). The lease payments for the first year are $50,000 per month, which is the market rate based on the current CPI, and payments for subsequent years will increase or decrease based on the change in the CPI during the preceding year. The CPI at the commencement of the lease is 251. How should the initial lease liability be calculated? Paragraph 40.b of SFFAS 54 requires that variable payments that depend on an index or a rate initially be measured using the index or rate as of the commencement of the lease term. If lease payments are indexed to the CPI, the payments to be included in the initial measurement of the lease liability should be based on the CPI at the commencement of the lease. If the CPI is 251 at the commencement of the lease, a reporting entity would assume it will stay at 251 throughout the lease, which would result in consistent lease payments for initial measurement of the lease liability. Therefore, the lease liability should be measured at the present value of $50,000 per month for 60 months. Any variation from $50,000 paid in future periods due to changes in CPI will be recognized as expenses or reductions of expenses of those periods. 47. A reporting entity (lessee) enters into two leases. The first lease requires monthly lease payments based on a fixed percentage of sales or $10,000, whichever is more. The second lease includes a choice to pay either (a) a fixed monthly payment of $30,000 or (b) $100 per hour of equipment use with a monthly minimum payment of $10,000. The choice is made by the lessee at the beginning of each month. Which payment amounts from the two leases should be included in the lease liability? The minimum payment of $10,000 per month should be included in the lease liability calculations for both leases. Paragraph 40.c and 41 of SFFAS 54 require that the lease liability include "variable payments that are fixed in-substance" and exclude "variable payments based on future performance of the lessee or usage of the underlying asset." For both leases, the minimum amount that is required to be paid ($10,000 per month) is fixed insubstance and therefore should be included in the lease liability. 48. A reporting entity (lessee) leases cars for 3 years and is required to make variable payments based on the number of miles driven. There is no minimum payment requirement stated in the lease agreement. The reporting entity can establish a probable minimum number of miles that will be driven based on historical usage. Paragraph 40.h of SFFAS 54 requires that a lease liability include "any other payments to the lessor that are probable of being required based on an assessment of all relevant factors." Should the lease liability include the probable variable lease payments? No, paragraph 41 of SFFAS 54 requires that variable payments based on future performance of the lessee or usage of the underlying asset not be included in the measurement of the lease liability. Because such payments are covered by paragraph 41 they should not be included in the measurement of the lease liability in accordance with paragraph 40.h, even if it is probable that they will be required and they are estimable. Rather, those variable payments should be recognized as an expense in the reporting period incurred (see also: TR par. 61). 49. Paragraph 40.f of SFFAS 54 states that measurement of the lease liability should include "payments for penalties for terminating the lease, if the lease term reflects the lessee exercising (1) an option to terminate the lease or (2) an availability of funds or cancellation clause." Does "term" in that sentence refer to a provision of the contract or does it refer to the lease term as defined in paragraphs 14-21 of SFFAS 54? In paragraph 40.f of SFFAS 54, term refers to the lease term as defined in paragraphs 14- 21. If the lease term was calculated to reflect the lessee terminating the lease, whether through a termination option or an availability of funds or cancellation clause, the measurement of the lease liability should include all penalties that are expected to be incurred. 50. A reporting entity (lessee) installs physical assets on leased land and is required by the lease contract to remove those assets and restore the land to prelease condition at the end of the lease. Should the lessee include projected payments to remove the physical assets in the lease liability or should the lessee report a separate liability? It depends. Paragraph 40.h of SFFAS 54 requires that the lease liability include any other payments to the lessor that are probable of being required based on an assessment of all relevant factors. However, SFFAS 54 does not permit the inclusion of payments that are probable of being required from the lessee to parties other than the lessor in the lease liability, nor does it include payments that are not in exchange for the right to use the underlying asset. Such liabilities would be reported separately in accordance with other existing Statements, such as SFFAS 5 standards on liability recognition and measurement and SFFAS 6 standards on cleanup costs. If, however, these payments are deemed probable of being required and would be made to the lessor, inclusion of these payments would be appropriate. 51. A reporting entity (lessee) enters a lease agreement for 10 years with a 5-year renewal option. At lease commencement, the reporting entity determines that it is not probable that the renewal option will be exercised, and the lease term is determined to be 10 years. However, at the end of year 8 the reporting entity elects to exercise the renewal option. Should the lease liability be remeasured at that time? Yes, in accordance with paragraph 21.a of SFFAS 54, the lease term should be reassessed when the reporting entity elects to exercise the renewal option at the end of year 8. Paragraph 44.a would require the reporting entity to also remeasure the lease liability as a result of the change in the lease term at that time. 52. Should operating costs, such as utilities and janitorial services, included in a lease agreement, be excluded from the lease liability calculation? Yes, they should be excluded. Paragraph 73 of SFFAS 54 requires reporting entities with agreements that contain a lease and nonlease component to account for the lease and nonlease components as separate contracts or agreements, unless the contract or agreement meets the exception in paragraph 76. 52A.A reporting entity (lessee) leases a building. The lease term is 10 years. At the commencement of the lease, the reporting entity provides payment for the first three years and recognizes a liability for the present value of the payments for the remaining seven years, which will be paid starting in the fourth year of the lease. Should the reporting entity recognize interest expense during each of the first three years of the lease? Yes. In accordance with paragraph 43 of SFFAS 54, interest expense represents the amortization of the discount on the lease liability. That discount should be amortized over the entire lease term-including each of the first three years during which the reporting entity is not making payments-using the interest method. Lease Asset 53. Can reporting entities apply the same capitalization thresholds used for PP&E to lease assets? Generally it is not appropriate to apply PP&E capitalization thresholds to lease assets without considering the unique qualitative and quantitative characteristics of lease assets, and the lease liabilities to which they correspond, and their individual and collective significance in relation to the financial statements. Lease assets and liabilities that are significant, either individually or in the aggregate, should be recognized. Authoritative pronouncements do not provide specific guidance related to a determination of capitalization threshold amounts. However, reporting entities often establish capitalization thresholds. When applying a capitalization threshold to leases, lessees should consider the quantitative and qualitative significance of the lease assets, in addition to the quantitative and qualitative significance of the corresponding lease liabilities, both individually and in the aggregate. Capitalization thresholds should be established in a manner that provides due consideration to the materiality fundamentals discussed in Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, paragraphs 164.a- 164.g.2 54. A reporting entity (lessee) makes prepayments for rent during a construction period before gaining access to the building. Can rental prepayments made during the construction period be reported as a lease asset at the time they are paid? No, rental payments made before commencement of the lease term should be reported as prepayments (assets) rather than as lease assets. At the commencement of the lease term the right to occupancy is established. The right to use makes the underlying asset a resource to the lessee and provides the lessee with access to the underlying asset's present service capacity. Therefore, at the commencement of the lease term, the rental prepayments should be reclassified as part of the initial measurement of the lease asset, as provided in paragraph 49.b of SFFAS 54 (see also: TR par. 20 and 95). 55. Can composite or group methods be used to amortize lease assets? Yes, composite or group methods can be used to amortize lease assets. If a reporting entity has many similar leases, it may choose to amortize the lease assets as a group rather than individually. Similarly, if a collection of dissimilar leases comprises, for example, a network subsystem, composite amortization may be applied to the lease assets of the subsystem. However, assets should not be grouped in a way that would prevent the reporting entity from meeting the disclosure requirements of paragraph 54 of SFFAS 54. 56. A reporting entity leases an underlying asset that is nondepreciable and amortizes the lease asset because it is not probable that it will purchase the underlying asset. If the reporting entity subsequently determines that it is probable that it will purchase the underlying asset, should the lease asset be remeasured to the amount of the initial measurement before the lease asset was amortized (as though it had been a nondepreciable PP&E asset)? No. If a lease contract includes a purchase option and the lessee determines that it is probable of being exercised, paragraph 51 of SFFAS 54 requires that the lease asset be amortized over the useful life of the underlying asset, unless the underlying asset will be (a) capitalizable and nondepreciable in the reporting period the option is expected to be exercised or (b) non-capitalizable in the reporting period the option is expected to be exercised. 2Fundamentals are the underlying concepts of financial accounting that guide the selection of transactions, events, and circumstances to be accounted for; their recognition and measurement; and the means of summarizing and communicating them to interested parties. See Preamble to Statements of Federal Financial Accounting Concepts If the underlying asset will be capitalizable and nondepreciable in the reporting period the option is expected to be exercised, the reporting entity should cease amortizing the lease asset as of the date the reporting entity determines that it is probable that it will purchase the underlying asset. The reporting entity should not reclassify the lease asset as PP&E until the purchase occurs. However, the lessee should determine whether exercising the purchase option is expected to significantly affect the amount of the lease liability. A lease asset generally should be adjusted by the same amount as the corresponding lease liability when that liability is remeasured based on paragraphs 44-48 of SFFAS 54. Paragraph 44.c requires the lessee to remeasure the lease liability when an assessment of all relevant factors indicates that the likelihood of a purchase option being exercised has changed from probable to not probable, or vice versa. If the underlying asset will be non-capitalizable in the reporting period the purchase option is expected to be exercised, the reporting entity should continue to amortize the lease asset over the remaining lease term (see also: SFFAS 54, par. 51 footnote 8A). 57. A reporting entity leases equipment. If the reporting entity subsequently determines that it is probable that it will purchase the equipment, should the lease asset be remeasured to the amount of the initial measurement before the lease asset was amortized? No. The reporting entity should continue to amortize its lease asset once it is determined to be probable that it will purchase a depreciable underlying asset. However, the reporting entity should prospectively amortize the lease asset over the remaining useful life of the underlying asset, if different from the lease term. Additionally, the lease asset carrying value that is amortized may change if the lease liability is adjusted for the change in likelihood of the purchase option being exercised (see also: TR par. 56). 58. At the end of year 4 of a 5-year building lease, a pipe bursts and damages the leased building. Before the flood, the lessee reported a lease asset, net of amortization, of $50,000, and a lease liability of $60,000. Because of the damage, the lessor reduces the lessee's payments for 2 months by $3,000 per month. The damage is repaired, and the lessee is able to continue using the building for the remainder of the lease term. Would the lessee report this as impairment? No, this would not be a reportable impairment. Paragraph 19 of SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, describes impairment as (1) a significant decline in service utility and (2) expected to be permanent. In this case, the loss in service utility was not permanent. Moreover, the PP&E subject to impairment is on the books of the lessor in accordance with paragraph 66 of SFFAS 54; not the lessee. Therefore, this is not impairment for the lessee. However, since future lease payments will be reduced, the lessee should remeasure the lease liability in accordance with paragraph 44.d and adjust the lease asset as required by paragraph 52. Component Reporting Entity Disclosure Requirements for Lessees 59. Are SFFAS 6, paragraph 45 disclosure requirements applicable to lease assets? No, SFFAS 6 disclosure requirements are only applicable to PP&E. Lease assets are not PP&E for lessees; lease assets are a right to use and access economic benefits derived from underlying PP&E assets. Lessees should provide disclosures on lease assets required by paragraph 54 of SFFAS 54; they should not apply PP&E disclosure requirements to their lease assets. Accounting and reporting requirements for PP&E rest with lessors (see also: par. 66 of SFFAS 54 and TR par. 18). However, leasehold improvements paid for (financed) by the lessee represent lessee PP&E and, accordingly, such leasehold improvements are subject to SFFAS 6, paragraph 45 disclosure requirements. 60. Does a lessee's ability to group lease activities for the purpose of disclosure also apply to disclosures in other paragraphs, such as disclosures of sublease transactions required by paragraph 88 of SFFAS 54? Yes, the grouping provisions in paragraph 54 of SFFAS 54 apply to disclosures in which a grouping option is not specifically addressed in other disclosure requirements. 61. A reporting entity makes lease payments based solely on the usage of leased equipment. Future payments are variable based on usage of the underlying asset; therefore, the reporting entity does not record a lease asset or a lease liability. Is the reporting entity required to disclose the lease? Yes, the lessee should apply the disclosure requirements of SFFAS 54, paragraph 54 to leases other than short-term leases, contracts or agreements that transfer ownership, and intragovernmental leases (see also: TR par. 48). 62. A reporting entity purchases an underlying asset from the lessor and, as a result, terminates a lease. The reporting entity reclassifies the right-to-use lease asset balances to the appropriate PP&E asset class. How should this reclassification be disclosed in the notes to the financial statements? Paragraph 54.b of SFFAS 54 requires that lease assets, and the related accumulated amortization, be disclosed separately from PP&E assets. Upon termination of the lease and purchase of the underlying asset, the lease disclosures will reflect the reclassification (removal of) the lease asset in the ending balances of the related totals. The disclosures need not specifically identify amounts reclassified. The reclassification would also be reflected elsewhere in the notes to the financial statements to the extent that other disclosure requirements, such as SFFAS 6, paragraph 45, apply to the asset class. 63. A reporting entity (lessee) has a portfolio of leases, many of which include potential residual value guarantee payments. How would these potential payments be reported in the financial statements? Paragraph 40.d of SFFAS 54 provides that amounts that are probable of being required to be paid by the lessee under residual value guarantees be included in the measurement of the lease liability. Under SFFAS 5, paragraphs 40-42, contingent liabilities may be subject to disclosure requirements if the conditions for liability recognition are not met (that is, the residual value guarantee payments are not probable and/or reasonably measurable) and there is at least a reasonable possibility that a loss may have been incurred. Disclosure should include the nature of the residual value guarantee payment and an estimate of the possible liability, an estimate of the range of the possible liability, or a statement that such an estimate cannot be made. In some cases, residual value guarantee payments may be identified but the likelihood that such a payment will occur is assessed as remote and, therefore, no reporting is necessary under paragraph 42 of SFFAS 5. Lessor Recognition, Measurement, and Disclosures for Leases Other Than Short-term Leases, Contracts or Agreements That Transfer Ownership, and Intragovernmental Leases 64. Paragraph 55 of SFFAS 54 requires that initial direct lease costs incurred by the lessor be reported as an expense of the period. What are initial direct lease costs? Initial direct lease costs are defined in paragraph 13 of SFFAS 54. Examples of potential initial direct lease costs are: (a) costs to originate a lease incurred in transactions with independent third parties that (1) result directly from and are essential to acquiring that lease, and (2) would not have been incurred had that leasing transaction not occurred; and (b) certain costs directly related to specified activities performed by the lessor for that lease. Those activities include evaluating the prospective lessee's financial condition; evaluating and recording guarantees, collateral, and other security arrangements; negotiating lease terms; preparing and processing lease documents; and closing the transaction (see also: TR par. 76). Lease Receivable 65. A reporting entity leases retail space to a vendor for 3 years. The payment in the first year is $100,000; this amount is also considered the "minimum annual guarantee." The payment in the second year depends on sales in the first year. If the lessee's first year's sales exceed $1,000,000, the minimum annual guarantee for the second year is $110,000, but if the first year's sales are less than $1,000,000, the minimum annual guarantee for the second year is $100,000. The minimum annual guarantee for the third year is $90,000 regardless of sales. What amounts should be included in the lessor's lease receivable at the commencement of the lease? The individual payments (undiscounted) to be included in the present value calculation of the lease receivable total $290,000 (first year—$100,000, second year—$100,000, and third year—$90,000). The lease receivable should include only the variable payments that are fixed in-substance and not dependent upon the future performance of the lessee, as described in paragraph 57 of SFFAS 54. In this example, the payments that will be made if the lessee has $0 in sales each year should be included in the lease receivable at the commencement of the lease because that is the amount that is fixed in-substance. 66. In addition to fixed payments, a lease contract includes provisions for variable payments based on future performance and for a residual value guarantee that did not initially meet the criteria for inclusion in the initial lease receivable at lease inception. If those variable payments and the residual value guarantee subsequently meet the criteria for recognition, should the amounts be added to the existing lease receivable or be considered separate receivables? When the variable payments and residual value guarantee meet the criteria for recognition, the amounts should be considered separate receivables, and revenue should be recognized in the period to which those payments relate. Paragraphs 57-58 of SFFAS 54 state that variable payments based on future performance and residual value guarantees that are not fixed in-substance should not be included in the initial measurement of the lease receivable. Remeasurement of the lease receivable, as discussed in paragraph 61, is not required when those payments meet the criteria for recognition. Rather, the reporting entity would recognize a separate receivable and revenue when (a) a guarantee payment is required (as agreed to by the lessee and lessor) and (b) the amount can be reasonably estimated. 67. Can methodologies other than the interest method, such as straight-line amortization, be used to amortize the discount on lease receivables? Lease receivables should be amortized using the interest method. Paragraph 60 of SFFAS 54 states that lessors should calculate the amortization of the discount on the receivable and report that amount as interest revenue for the period. Any payments received should be allocated first to the accrued interest receivable and then to the lease receivable. 68. If the discount rate is updated based on the provisions in paragraph 63 of SFFAS 54, should the lease receivable be remeasured using the revised discount rate? Yes, if the criteria to update the discount rate are met in paragraph 63 of SFFAS 54, the lessor should remeasure the lease receivable using the revised discount rate. Unearned Revenue 69. Paragraph 50 of SFFAS 54 requires lessees to amortize their lease asset over the shorter of the lease term or the useful life of the underlying asset. Can the lessor recognize the unearned lease revenue over the useful life of the underlying asset if it differs from the lease term? No, the lessor should recognize revenue, including interest revenue, over the lease term, which may be different than the useful life of the underlying asset. The requirements for leases are based on the premise that leases are financings, whereby lessees agree to make payments over time for the right to use an underlying asset. 70. Halfway through a 10-year lease, a lessor remeasures the lease receivable from $5,000,000 to $100,000, due to a reduction in the lease term. The related unearned revenue balance at that date is $4,800,000. How does the remeasurement of the lease receivable affect the measurement of the remaining unearned revenue? The lessor should reduce the lease receivable by $4,900,000 and the unearned revenue by $4,800,000 and recognize a loss of $100,000. According to paragraph 65 of SFFAS 54, the unearned lease revenue generally should be adjusted by the same amount as the corresponding lease receivable when the receivable is remeasured. However, if that change reduces the carrying value of the unearned revenue to zero, any remaining amount should be reported as a loss. Underlying Asset 71. A reporting entity (lessor) leases a building to a nonfederal lessee. The lease includes an option for the lessee to purchase the building for a set price that reflects the estimated fair market value of the building at the end of the lease term. Should the reporting entity derecognize the building if it determines it is reasonably certain that the lessee will exercise the purchase option? No, the reporting entity (lessor) should continue to report the building as PP&E until the purchase option is exercised by the lessee, consistent with paragraph 66 of SFFAS 54. Paragraph 58 of SFFAS 54 states that amounts to be received for the exercise price of a purchase option should be recognized as a receivable and revenue when that option is exercised. 72. How should the lessor assess impairment of an underlying asset when the rights to that asset are controlled by the lessee and the lessor does not have physical access to the underlying asset? Absent any indication of impairment from the lessee, or other impairment information known to the lessor, the lessor should not recognize any impairment of the underlying asset, in accordance with the provisions of SFFAS 44. Paragraph 13 of SFFAS 44 states that annual or periodic surveys to identify potential impairments are not required. Rather, significant events or changes in circumstances affecting the PP&E that may indicate impairment are conspicuous or known to the entity's management or oversight entities and are generally expected to have prompted consideration by management, oversight entities, or others. However, existing asset management processes and lease agreements may include such surveys by the lessor. If potential impairments are identified by the lessor through such processes, they would test for impairment in accordance with SFFAS 44. Component Reporting Entity Disclosure Requirements For Lessors 73. Does a lessor's ability to group lease activities for the purpose of disclosure also apply to disclosures in other paragraphs, such as disclosures of sublease transactions required by paragraph 88 of SFFAS 54? Yes, the grouping provisions in paragraph 67 of SFFAS 54 apply to disclosures in which a grouping option is not specifically addressed in other disclosure requirements. Lease Incentives and Lease Concessions 74. Lease incentive payments provided by a lessor before the commencement of a lease term are included in the initial measurement of the lease asset. How are such payments reported by the lessee until the lease asset is recognized at the time the lease term commences? Lease incentives received by a lessee before the commencement of the lease term would be recognized as advances received (liability), since they were received prior to the lease term.3 Upon commencement, paragraph 49.b of SFFAS 54 provides that lease incentives received at or before the commencement of the lease term should reduce the lessee's initial measurement of the lease asset. In this case, the advances received liability would then be reclassified as a reduction to the lease asset.4 75. A reporting entity (lessor) makes incentive payments to a lessee for moving costs. The payments are made prior to the commencement of the lease term. How are such payments reported by the reporting entity (lessor)? The reporting entity (lessor) should recognize an advance (asset) at the time the payments are made, since they were made prior to the commencement of the lease term.5 Upon commencement, paragraph 64.b of SFFAS 54 provides that lease incentives paid at or before the commencement of the lease term should reduce the lessor's initial measurement of the unearned revenue. In this case, the advance asset previously recognized would then be reclassified as a reduction in unearned revenue upon commencement of the lease term. 75A.A lease with a lease term of 10 years requires fixed payments of $17 million to be made for each of the first 9 years. There is a rent holiday (during which the lessee is not required to pay any rent) for year 10. The useful life of the underlying asset is 15 years. How should the reporting entity (lessee) account for the rent holiday? A rent holiday is a type of lease concession, as described in paragraph 70 of SFFAS 54. In this example, the rent holiday is at the end of the lease term and affects the expected fixed payments to be made during the lease term (see par. 40 and 40.g of SFFAS 54). Therefore, the lease liability would be the present value of $17 million per year for 9 years, and the discount (the difference between the undiscounted cumulative $153 million in payments and the present value) would be amortized over 9 years. At the end of year 9, the lease liability would be zero. The lease asset, however, would be amortized in a systematic and rational manner over the entire 10-year lease term, in accordance with paragraph 50 of SFFAS 54 (as the lease term is shorter than the useful life of the underlying asset). 3Par. 60 of SFFAS 1 provides that advances received (liabilities) should not be netted against advances paid out (assets) in financial reports of the entity 4This guidance applies to leases other than short-term leases, contracts or agreements that transfer ownership, and intragovernmental leases. 5See par. 60 of SFFAS 1. Contracts or Agreements with Multiple Components 76. A reporting entity (lessee) leases equipment that will be installed by the lessor, prior to the commencement of the lease term, for an additional $100,000. The lease contract requires that the reporting entity pay the lessor for installation of the equipment in the subsequent reporting period. Should the reporting entity (lessee) record the installation costs as part of the lease liability or as a separate liability? Initial direct costs are not included in the measurement of the lease liability. Installation costs generally are considered a nonlease component because the payments are for installation costs and not for the right to use the equipment. Accordingly, the payments are not considered lease payments under paragraph 40 of SFFAS 54 and should be accounted for as a separate liability. However, installation costs are often ancillary charges necessary to place the lease asset into service and, therefore, should be included in the initial measurement of the lease asset in accordance with paragraph 49.c. 77. A reporting entity (lessee) leases two floors of an eight-floor building. A part of the lease payments covers the reporting entity's share of utilities and janitorial costs for maintaining a lobby that all tenants share. Should the utilities and janitorial costs for the lobby be included in the reporting entity's lease liability? Based on paragraph 73 of SFFAS 54, if it is practicable for the reporting entity to separate and estimate the costs for those services, the costs should not be included in the reporting entity's lease liability. For example, if the lease contract itself does not specify the amount (in dollars or percentage), the reporting entity could request that information from the lessor. Additionally, average charges per square foot may be used for estimation. However, if it is not practicable for the reporting entity to separate the costs and estimate them, based on the provisions in paragraph 76 of SFFAS 54, the janitorial services and utility costs for the lobby should be included in the reporting entity's lease liability. 78. A contract conveys the right to use a building for 30 years and the attached parking garage for 15 years. There is no stated interest rate included in the lease agreement. Should the discount rate be separately assessed for each component? Yes. Paragraph 74 of SFFAS 54 requires that lease contracts involving multiple underlying assets be accounted for as separate lease components if the underlying assets have different lease terms. The interest rate in this scenario would likely differ between the two components because of the considerable difference in lease terms. When the interest rates for each component are not stated in the lease agreement, the interest rate for each component should be based on the interest rate on marketable Treasury securities at the commencement of the lease term with a similar maturity to the term of the lease used, in accordance with paragraphs 42-42C (for lessees) and 59-59C (for lessors). 79. If a lease contract with multiple components meets the exception in paragraph 76 of SFFAS 54 to be accounted for as a single lease unit, paragraph 77 of that Statement requires that "the accounting for that unit should be based on the primary lease component within that unit." What factors may be useful in determining the primary lease component? The determination of which component is the primary lease component in a contract with multiple components requires professional judgment, maximizing the use of observable information. The following characteristics, among others, may be indicative of a primary component: a. The component performs a function that is the reporting entity's primary objective in entering into the contract. b. The component's fair value is substantial relative to the fair values of the other components. c. The lease term of the component is longer than the lease terms of the other components. d. The component's benefit to the reporting entity is substantial relative to the benefits of the other components. 80. A reporting entity (lessee) leases office space, lab space, and a parking garage as part of one lease agreement. The prices for the individual components are not broken out in the lease and are not easily determinable by the lessee. Instead, the total price per square foot is included in the lease agreement. How should a reporting entity account for those lease components? In this case, the contract with multiple components would meet the exception in paragraph 76 of SFFAS 54 because the individual component prices are not easily determinable. If it is not practicable to determine a best estimate for price allocation for some or all components in a contract or agreement, a reporting entity should account for those components as a single lease unit in accordance with paragraph 77. 81. A reporting entity (lessee) leases office space and has a flat-rate monthly fee included in the contract for print services. In this agreement, the lessor provides the printer/copier equipment, and the lessee pays a set monthly fee to use the equipment as part of the lease agreement. The payment amount does not change based on usage of the equipment, but rather it is fixed in nature. How should a reporting entity account for those lease components? The lessee should account for each underlying asset as a separate lease component in accordance with paragraphs 74-75 of SFFAS 54. Lessees should first use any prices for individual components that are included in the contract or agreement, as long as the price allocation does not appear to be unreasonable based on the terms of the contract or agreement and use professional judgment when necessary, maximizing the use of observable information, in accordance with paragraph 76. Contract or Agreement Combinations 82. A reporting entity solicits bids for a fleet of vehicles and leases the assets from the lowest qualified bidder. A separate lease agreement is used for each vehicle. The leases are entered into over the course of several months as the reporting entity reviews the specifications of each agreement. The lease contracts do not provide information about the reporting entity's objective(s). Can the reporting entity's procurement processes be used to determine whether there is a single objective? Yes. Paragraph 78 of SFFAS 54 requires that contracts that are entered into at or near the same time with the same counterparty be considered part of the same contract if negotiated as a package with a single objective. In this situation, in the absence of explicit information in the contracts about the reporting entity's objective(s), the reporting entity's procurement processes provide sufficient information to determine the reporting entity's objective(s) for entering into the lease agreements. 83. A reporting entity enters into a master vendor agreement that specifies models, prices, and contract terms for computers. Services and departments within the reporting entity subsequently contact the vendor for individual orders to lease the computers as needed. Should all the computers leased under a master vendor agreement be considered one contract for the purpose of applying the requirements in paragraph 78 of SFFAS 54? The use of a master vendor agreement does not require that the underlying individual orders (which are all with the same counterparty) be accounted for as part of the same contract unless the orders are entered into at or near the same time and at least one of the criteria in paragraphs 78 of SFFAS 54 is met. Lease Terminations and Modifications 84. While a lease contract is in effect, the provisions of the contract are amended to change the number of vehicles included in the contract. Are additions and subtractions of underlying assets in a lease accounted for as a lease modification or a lease termination? A lease amendment that adds an underlying asset to the contract is a lease modification (for example, increasing the lease from 15 vehicles to 20). A lease modification should be accounted for as either a separate lease (if it meets the criteria in par. 84 of SFFAS 54) or a remeasurement of the existing lease. Alternatively, a lease amendment that removes an underlying asset from the contract (for example, decreasing the lease from 20 vehicles to 15) should be accounted for as a partial lease termination (see par. 81-83 of SFFAS 54). 85. A 10-year lease contract includes an option to extend the lease for 5 years if both the lessor and lessee agree. The lease term was originally assessed as 10 years. Because both parties have to agree to extend, paragraph 19.a of SFFAS 54 refers to this as a cancelable period and, therefore, it has been excluded from the lease term. If, during the lease term, the lessor and the lessee agree to extend the contract for 5 years, should this be accounted for as a lease modification or as a new lease? Because both parties have to agree to the optional 5-year period, it is considered cancelable and, therefore, not subject to the lease term reassessment guidance in paragraph 21 of SFFAS 54 prior to the lease modification. However, once the lessor and the lessee agree to exercise the option to extend, the 5-year period becomes noncancelable and should be accounted for as a lease modification, thereby subjecting the lease to reassessment criteria under paragraph 21.d. Paragraph 80 of SFFAS 54 states that lengthening a lease term while the contract is in effect is an amendment that should be considered a lease modification. 86. Two years into a lease with an original lease term of 10 years, the remaining lease term is reassessed as a result of an amendment and reduced from 8 years to 5 years. At the time of the amendment, the carrying value of the lease liability is $80,000, and the carrying value of the lease asset is $76,000. How should the lessee account for the partial termination of the lease? In accordance with paragraph 82 of SFFAS 54, the lessee should account for the partial termination by reducing the carrying values of the lease liability and the lease asset and recognizing a gain or loss for the difference, if applicable. For example, if, in accordance with paragraph 44 of SFFAS 54, the lessee determines that the remeasured liability is $50,000, the lease liability and the lease asset each should be reduced by $30,000. Since both the liability and asset can be reduced by the same amount in this example, there would be no gain or loss to record. 87. Two years into a 10-year lease, the remaining lease agreement is canceled. The carrying value of the lease receivable is $80,000, and the related unearned revenue is $76,000. How should the lessor account for the full termination of the lease? In accordance with paragraph 83 of SFFAS 54, once the lease is terminated, the carrying value of the lease receivable and the related unearned revenue should be eliminated. A loss of $4,000 (the difference) would also be recognized. 88. Three years into a 4-year lease, a reporting entity (lessee) modifies its lease from 200 vehicles to 230 vehicles which, if remeasured, would change the remaining lease liability from $200,000 to $202,500. The reporting entity has determined that the increase in the lease payments appears to be unreasonable (as discussed in par. 84.b of SFFAS 54) because it is very low when compared to the value of the additional underlying assets. How should the reporting entity account for the amendment to the lease? Because the reporting entity has determined that the increase in the lease payments appears to be unreasonable, the reporting entity should account for this as a lease modification, but not as a separate lease, because the condition in paragraph 84.b of SFFAS 54 is not present. Paragraph 85 of SFFAS 54 states that unless a modification is reported as a separate lease as provided by paragraph 84, a lessee should account for a lease modification by remeasuring the lease liability. The lease asset should be adjusted by the difference between the remeasured liability and the liability immediately before the lease modification. Thus, the lease asset should be increased by $2,500, which represents the difference between the remeasured liability and the liability immediately before the lease modification. 89. A reporting entity (lessor) leases one floor of an office building to a private party for several years. In the middle of the lease, a significant downturn in the local real estate market occurs. The reporting entity and the lessee renegotiate the rental payments for the remainder of the lease. The lease receivable before the amendment was $500,000 and after it was $270,000. How should the reporting entity account for the lease modification? Paragraph 86 of SFFAS 54 states that unless a modification is reported as a separate lease as provided in paragraph 84, a lessor should account for a lease modification by remeasuring the lease receivable. Thus, the lease receivable should decrease by $230,000, which represents the difference between the receivable before the lease modification and the remeasured receivable. Additionally, the unearned revenue should decrease by $230,000. However, to the extent that the change in the lease receivable relates to payments for the current period, the change should be recognized as a decrease in revenue. Subleases 90. Paragraphs 87-88 of SFFAS 54 require subleases to be accounted for as separate transactions and disclosed separately. Do these requirements apply to short-term and intragovernmental leases? Yes, the requirements in paragraphs 87-88 of SFFAS 54 apply to short-term and intragovernmental leases that are part of sublease transactions. 91. Reporting entity Agency ABC enters into a lease agreement on behalf of the U.S. government for the right to use a residential property on international soil. The economic benefits and services of the underlying assets are expected to be derived by Agency XYZ. How should such a lease be reported, either by Agency ABC or Agency XYZ? It depends on whether Agency ABC is acting in the capacity of an agent or a principal. If Agency ABC is acting in an agent capacity (i.e., similar to a broker), Agency ABC is providing a service to Agency XYZ. Under this agreement, Agency ABC does not provide rent consideration to the lessor or receive rent consideration from Agency XYZ. Therefore, Agency ABC would not account for the lease. Rather, the lease payments are made to the nonfederal lessor directly from Agency XYZ's budgetary resources. Accordingly, if Agency ABC is acting in an agent capacity, Agency XYZ would account for the lease (as lessee) and record any lease liability with the nonfederal lessor, along with the corresponding lease asset, unless Agency XYZ's lease term is 24 months or less. If Agency ABC is acting in a principal capacity, Agency ABC is generally responsible for an original lease with the nonfederal lessor and a sublease with Agency XYZ. In such circumstances, Agency ABC would provide rent consideration to the original lessor and receive rent consideration from Agency XYZ relating to a sublease agreement. Accordingly, if Agency ABC is acting in a principal capacity, Agency ABC would record any lease liability with the nonfederal lessor (unless ABC's lease term is 24 months or less), and account for an intragovernmental sublease with Agency XYZ in accordance with paragraphs 87-88 of SFFAS 54. Sale-leaseback Transactions 92. The difference between the carrying value of PP&E that was sold and the net proceeds of the sale in a sale-leaseback transaction is reported by the seller-lessee as unearned lease revenue or deferred expense and subsequently recognized in the statement of net cost. Should the amount of revenue or expense recognized in subsequent years be considered part of the sale transaction or the lease transaction? The recognition of the unearned revenue or deferred expense should be considered a component of the sale transaction because this amount represents the overall gain or loss on the sale of the PP&E. 93. A reporting entity sells a building to a third party and leases a different but equivalent building from the same party. Is this a sale-leaseback transaction? No. A sale-leaseback transaction involves the sale and leaseback of the same underlying asset. Because the sale and the lease relate to two different underlying assets, the sale and the lease should be recorded as two separate transactions. Lease-leaseback Transactions 94. A reporting entity leases an office building to a nonfederal party and determines that, as a lessor, its initial lease receivable and related unearned revenue are $3,000,000. The reporting entity leases back one floor of the building to house its finance department and determines that, as a lessee, its initial lease liability and related lease asset are $700,000. How should the lease-leaseback transaction be reported? Paragraph 93 of SFFAS 54 requires that lease-leaseback amounts be disclosed separately but then displayed in the financial statements as net transactions. In a lease-leaseback transaction, each party is both a lessor and a lessee. Because each portion of the transaction is with the same counterparty, a right of offset exists. The lease liability and the lease receivable should be offset and reported as either a net lease liability or a net lease receivable. Similarly, the lease asset and the unearned lease revenue should be offset. In this example, the reporting entity should report a lease receivable (net of the leaseback) and an unearned revenue (net of the leaseback) of $2,300,000 on the statement of financial position. The reporting entity should disclose the amounts of the lease and leaseback separately. In this example, the reporting entity would include the $3,000,000 in lease receivable and unearned revenue and $700,000 in lease liability and lease asset in its lease-leaseback disclosures in accordance with paragraph 93. 95. A reporting entity leases land to a contractor on which the contractor will build a new building and lease both the land and the building back to the reporting entity. The reporting entity makes advance lease payments to the contractor during construction. How should the reporting entity report the lease during the construction period? Prior to the new building being made available to the reporting entity, the lease of the land to the contractor should be reported as a standalone lease. Any lease payments made to the contractor prior to the new building being made available should be reported as an advance. Once the new building is made available to the reporting entity, the lease and the prepayment should be accounted for as a lease-leaseback transaction (see also: TR par. 20 and 54). 96. Do the disclosures for lease-leaseback transactions apply to short-term and intragovernmental leases? Yes, the disclosure requirements of paragraph 93 of SFFAS 54 apply to short-term and intragovernmental leases that are part of lease-leaseback transactions. Transition Guidance for Implementation 97. For leases that were reported as operating leases prior to the implementation of SFFAS 54, should a reporting entity determine what the lease asset would have been at the commencement of the lease if it initially had been recognized and amortized in prior periods under the provisions of SFFAS 54? No. Paragraph 96 of SFFAS 54 states that leases should be recognized and measured using the facts and circumstances that exist at the beginning of the reporting period for implementation. The reporting entity should not estimate what the lease asset would have been if it initially had been recognized and amortized in prior periods as a lease under the provisions of SFFAS 54. The lease liability should be initially measured using the remaining lease term, associated lease payments, and discount rate as of the beginning of the period of implementation. The right-to-use lease asset should be measured based on the lease liability at that date. In accordance with paragraph 13 of SFFAS 21, Reporting Corrections of Errors and Changes in Accounting Principles, the cumulative effect of the change in prior periods should be reported as a "change in accounting principle" adjustment to the beginning balance of cumulative results of operations in the statement of changes in net position for the period the change is made. Prior period financials presented for comparative purposes should be presented as previously reported. The nature of the change in accounting principle and its effect on relevant balances should be disclosed in the period of implementation. 98. For leases that were reported as operating leases prior to the implementation of SFFAS 54, how should unamortized balances for previously-reported lease incentives/concessions be reported at implementation of SFFAS 54? Upon implementation of SFFAS 54, any unamortized balances for previously-reported lease incentives/concessions should be reduced to zero. Leases should then be evaluated in accordance with paragraphs 96-97 of SFFAS 54 at implementation. Any lease incentives and concessions affecting future lease payments would be included in the lease liability and lease asset measurement. For short-term and intragovernmental leases, lease incentives and lease concessions will be accounted for in accordance with paragraphs 23-24 and 31 of SFFAS 54, respectively. In accordance with paragraph 13 of SFFAS 21, the cumulative effect of the change in prior periods should be reported as a "change in accounting principle" adjustment to the beginning balance of cumulative results of operations in the statement of changes in net position for the period the change is made (see also TR par. 97). 99. Should leases that were reported as capital leases prior to the implementation of SFFAS 54, but have 24 months or less remaining at implementation be removed from the balance sheet? If so, should the difference between the carrying value of the asset and the remaining lease liability be recognized as a change in accounting principle? If there was a transfer of ownership at the end of the lease term, then paragraph 25 of SFFAS 54 would apply. If there was not a transfer of ownership, then the remaining lease term of 24 months or less would make this a short-term lease (par. 22 of SFFAS 54) in accordance with paragraph 97.b. The adjustment for the difference in the carrying value of the asset and remaining capital lease liability, which were previously on the books and then removed, should be made to the beginning balance of cumulative results of operations in the statement of changes in net position for the period in which the change is made as a "change in accounting principle." Conforming Amendments to Existing Technical Releases Amendments to Technical Release 10 100. The TR 20 amendment to footnote 4, paragraph 3 of TR 10, Implementation Guidance for Asbestos Cleanup Costs Associated with Facilities and Installed Equipment, was superseded by a subsequent amendment (TR 21, par. 3). Amendments to Technical Release 16 101. [Paragraph 5 of TR 23, Omnibus Technical Release Amendments 2024: Conforming Amendments to Technical Releases 10, 16, 20, and 21, superseded the TR 20 rescission of paragraphs 26-27 of TR 16, Implementation Guidance for Internal Use Software.] 102. [Paragraph 6 of TR 23 superseded the TR 20 amendment to paragraph 29 of TR 16.] Effective Date 103. This Technical Release is effective for reporting periods beginning after September 30, 2023. The provisions of this Statement need not be applied to information if the effect of applying the provision(s) is immaterial. Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts . Appendix A: Basis for Conclusions This appendix discusses factors considered significant by Committee members in reaching the conclusions in this guidance. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendix-should govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Technical Releases. The FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent Technical Releases that amend this Technical Release. The authoritative sections of the Technical Releases are updated for changes. However, this appendix will not be updated to reflect future changes. The reader can review the basis for conclusions of the amending Technical Release for the rationale for each amendment. Project History A1. Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases, was issued in April 2018 with an effective date for reporting periods beginning after September 30, 2020. The effective date was later amended by SFFAS 58, Deferral of the Effective Date of SFFAS 54, Leases, to reporting periods beginning after September 30, 2023. A2. In August 2019, the Federal Accounting Standards Advisory Board (FASAB or "the Board") and the Accounting and Auditing Policy Committee (AAPC or "the Committee") commenced projects on their technical agendas to identify implementation challenges and develop guidance related to SFFAS 54. A3. Previously, in February 2019, the Committee exposed conforming changes to Technical Release (TR) 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment, and TR 16, Implementation Guidance for Internal Use Software, as a result of the effects that SFFAS 54 had on such guidance. A4. The AAPC assembled a large group of task force members-over 100 stakeholders-as a means of crowdsourcing the identification and analysis of a wide breadth of potential SFFAS 54 implementation topics. The task force provided input to project staff by: a. Reviewing project staff's content analysis of questions and answers contained in Governmental Accounting Standards Board (GASB) Implementation Guide 2019-3, Leases, and determining the extent to which each question and answer contained therein was applicable in the federal context.6 b. Suggesting implementation topics not addressed in GASB 2019-3. c. Identifying and discussing potential omnibus SFFAS amendment candidates that may need to be issued in tandem with the implementation guidance for purposes of providing clarification or closing loopholes. Such candidates were then relayed to FASAB for its consideration. d. Providing editorial and technical comments and illustrative examples on draft versions of implementation guidance questions and answers developed by staff. The working drafts were developed and reviewed, by topic area, over the course of several task force meetings organized by project staff. A5. As a result of the prior collaboration between FASAB and the GASB on SFFAS 54 and Statement No. 87, Leases, respectively, staff met with GASB staff during the development of the proposed guidance to discuss implementation issues and approaches for developing consistent guidance in areas where the related standards and implementation issues align. As a result of this collaboration, similar wording appears in some sections of this guidance and analogous GASB implementation guidance. A6. Due to the high volume of implementation guidance, project staff provided drafts of proposed questions and answers to the AAPC piecemeal for its review and input prior to its respective actions to release the exposure draft (ED) for public comment. A7. The AAPC discussed working drafts of the guidance at length following each piecemeal review. A majority of implementation issues identified by or communicated to the Committee are addressed in the proposed questions and answers. Implementation issues that could not be addressed in the TR are primarily excluded for reasons set forth in FASAB's Rules of Procedure, which sets forth limitations regarding the purpose and scope of TRs. Such issues were referred to the Board and the AAPC chair as deemed appropriate for their consideration for purposes of (a) developing omnibus amendment proposals related to leases, and/or (b) considering additional projects on leases-related topics. 6The GASB material is copyrighted by the Financial Accounting Foundation (FAF), 401 Merritt 7, P.O. Box 5116,Norwalk, CT 06856-5116, and was used with permission. Complete copies of the documents are available from the FAF. Summary of Outreach and Responses A8. The AAPC released an ED proposal on November 2, 2020, for public comment, with comments requested by February 5, 2021. The proposal was released as a joint ED in tandem with an ED for a proposed Statement on omnibus amendments to leases-related topics. Upon release of the ED, FASAB notified constituents through the FASAB website and listserv, the Federal Register, and FASAB newsletter. FASAB also provided news releases to its press contacts, including various news organizations and committees of professional associations generally commenting on EDs in the past. To encourage responses, a reminder notice was provided to FASAB's listserv near the comment deadline. A9. Twenty-five comment letters were received in response to the joint ED. Respondents were generally supportive of the proposed TR. In response to comment letters, several questions and answers were improved and clarified. In addition, comments to the proposed omnibus amendments to leases-related topics Statement were coordinated between the AAPC and the Board where appropriate to ensure consistency. A10. The AAPC also resumed its analysis of comment letters related to the previously-exposed conforming amendment proposals for TR 10 and TR 16. FASAB staff elevated the issues raised by certain respondents of the ED to the Board. The Board expressed an intent to begin considering projects to comprehensively address intangible assets and service-based information technology arrangements. In light of the Board's decision, coupled with due process limitations surrounding the purposes and uses of TRs, the Committee agreed to conform TR 16 by rescinding certain guidance that requires Board action. The Committee also agreed to further conform TR 10 to omnibus proposals more recently agreed to by the Board. AAPC and Board Approval A11. The TR was approved by the AAPC for release to FASAB for issuance. The Board has reviewed this TR and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB office. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee ED Exposure Draft FAF Financial Accounting Foundation FASAB Federal Accounting Standards Advisory Board GASB Governmental Accounting Standards Board PP&E Property, Plant, and Equipment SFFAC Statement of Federal Financial Accounting Concepts SFFAS Statement of Federal Financial Accounting Standards TR Federal Financial Accounting Technical Release Technical Release 21: Omnibus Technical Release Amendments 2022: Conforming Amendments Status Issued September 6, 2022 Effective Date Effective upon issuance. Affects Technical Releases 10, 11, 14, and 20 are amended. Affected by TR 23. Summary Listed below are FASAB pronouncements that require updates to Technical Releases (TRs): SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32 SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use SFFAS 54, Leases SFFAS 60, Omnibus Amendments 2021: Leases-Related Topics Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & 6 Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities This TR provides conforming amendments to previously issued TRs to ensure the TRs are consistent with the aforementioned pronouncements. Specifically, this TR provides conforming amendments to the following: TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment TR 11, Implementation Guidance on Cleanup Costs Associated with Equipment TR 14, Implementation Guidance on the Accounting for the Disposal of General Property, Plant & Equipment TR 20, Implementation Guidance for Leases Materiality The provisions of this Technical Release need not be applied to information if the effect of applying the provision(s) is immaterial.1 A misstatement, including omission of information, is material if, in light of surrounding facts and circumstances, it could reasonably be expected that the judgment of a reasonable user relying on the information would change or be influenced by the correction or inclusion of the information. Materiality should be evaluated in the context of the specific reporting entity. Determining materiality requires appropriate and reasonable judgment in considering the specific facts, circumstances, size, and nature of the misstatement. Consequently, after quantitative and qualitative factors are considered, materiality may vary by financial statement, line item, or group of line items within an entity. 1Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts. Table of Contents Page Summary 1 Technical Guidance 4 Scope 4 Amendments to Existing Technical Releases 5 Effective Date 15 Appendix A: Basis for Conclusions 16 Appendix B: Abbreviations 19 Technical Guidance Scope 1. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 2. FASAB has issued the following pronouncements that require updates to TRs: SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32 SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use SFFAS 54, Leases SFFAS 60, Omnibus Amendments 2021: Leases-Related Topics Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & 6 Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities This TR provides conforming amendments to the following TRs: TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment TR 11, Implementation Guidance on Cleanup Costs Associated with Equipment TR 14,Implementation Guidance on the Accounting for the Disposal of General Property, Plant & Equipment TR 20, Implementation Guidance for Leases Amendments to Existing Technical Releases Technical Release 10, Implementation Guidance on Asbestos Cleanup Costs Associated With Facilities And Installed Equipment 3. This paragraph rescinds paragraphs 1-8 (including all section titles, subsection titles, and the accompanying footnotes 1 through 5 contained within these sections) of TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment. This will ensure outdated references are removed and sections are properly located in the authoritative section. Pertinent text will be updated and placed in the Summary of the TR. 4. This paragraph amends the technical guidance section of TR 10 by inserting the subheading "scope" with paragraphs 8A-8B and footnote 5A directly under "technical guidance." Technical Guidance Scope 8A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 8B. This guidance is limited to federal real property5A that contains any form of asbestos. It provides additional clarification of federal GAAP for identification and recognition of asbestos-related cleanup costs and a methodology for identifying and recognizing asbestos liabilities associated with federal properties. 5A [Paragraph 3 of TR 23, Omnibus Technical Release Amendments 2024: Conforming Amendments to Technical Releases 10, 16, 20, and 21, amended footnote 5A of TR 10.] 5. This paragraph amends the first sentence of paragraph 10 of TR 10 by inserting a new footnote 5B after the word "property" to reference recent pronouncements that should be considered: 10. The following steps may be taken to identify real property5B that may contain asbestos. 5B Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6, provides clarification and guidance regarding cleanup cost liabilities for component reporting entities when the component reporting entity responsible for reporting on an asset during its useful life is different from the component reporting entity that will eventually be responsible for settling the liability for the cleanup cost of that asset. Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, provides that assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis. 6. This paragraph amends paragraph 13, including footnote 11, of TR 10 to refer to all relevant GAAP related to cleanup recognition: Once the estimated asbestos cleanup cost associated with the removal, containment or disposal of the real property has been determined, the cost recognized and reported should be in accordance with SFFAS 6 relevant GAAP.11 11 See paragraphs 98 and 101, and Technical Bulletin 2006-1, paragraph 37. Relevant GAAP includes but is not limited to SFFAS 5, 6, 40, and 42; Interpretation 9; TB 2006-1, TB 2017-2; and related TRs. 7. This paragraph amends TR 10 by inserting a new paragraph 16 to include pronouncements that should be referenced to incorporate (1) the potential impacts to deferred maintenance and repairs (DM&R) estimates and loss of asset service utility or function and (2) applicable DM&R guidance and asset impairment (AI) guidance: 16. The guidance in SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes, SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32, and SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, may also be relevant when considering the impact of asbestos cleanup on financial reporting. 8. This paragraph amends Diagram 12 of TR 10 by providing corresponding and consistent changes as noted in the paragraphs above: 2 Diagram 1 of TR 10 is part of the technical guidance and accordingly should be updated. Box 13 - "Estimate cost of removal, containment or disposal and recognize in accordance with relevant GAAPSFFAS 61" Footnote 1 - Replace with the following: "Relevant GAAP includes but is not limited to SFFAS 5, 6, 40, and 42; Interpretation 9; Technical Bulletin 2006-1, 2017-2; and related TRs." Box 14 - Add footnote 3 at the end of the sentence as follows: Estimate and recognize any identifiable costs (e.g. survey cost).3 Insert footnote 3 immediately after footnote 2 to read as follows: "In estimating and recognizing identifiable costs, see SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, to determine if indicators of potential impairment exist." 9. This paragraph amends TR 10 by inserting a new paragraph 17 and footnote 12A to remind users that the nonauthoritative sections are not updated: 17. The appendices (that include nonauthoritative illustrations and examples) of TR 10 are not updated for amendments.12A Therefore, readers are cautioned to refer to the paragraphs above for guidance that could impact the accompanying nonauthoritative illustrations and examples. 12A The FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend a pronouncement. For example, within the text of a Technical Release, the guidance sections are updated for changes. However, appendices are not updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending pronouncements for the rationale for each amendment. 10. This paragraph further amends the technical guidance in TR 10 by inserting the subheading "effective date" with the following paragraph 18: Effective Date 18. This TR is effective upon issuance. Technical Release 11, Implementation Guidance on Cleanup Costs Associated With Equipment 11. This paragraph rescinds paragraphs 1-7 (including all section titles, subsection titles, and the accompanying footnotes 1 through 5 contained within these sections) of TR 11, Implementation Guidance on Cleanup Costs Associated with Equipment. This will ensure outdated references are removed and sections are properly located in the authoritative section. Pertinent text will be updated and placed in the Summary of the TR. 12. This paragraph amends the technical guidance section of TR 11 by inserting the subheading "scope" with the following paragraph 7A directly under "technical guidance." Technical Guidance Scope 7A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 13. This paragraph amends the subsection title "Cleanup Costs Associated with Equipment at Disposal" that precedes paragraph 8 by inserting footnote 5A, which replaces a footnote that was rescinded. The revised subsection title is as follows: Cleanup Costs Associated with Equipment5A at Disposal 5A Equipment is defined in Appendix D. 14. This paragraph amends paragraph 8 of TR 11 by inserting a sentence at the beginning of paragraph 8 to ensure it refers to all relevant GAAP related to cleanup costs: "Cleanup costs should be recognized in accordance with all relevant GAAP." 15. This paragraph further amends paragraph 8 of TR 11 by inserting two new sentences at the end of the paragraph (but before the example of practice) to reference recent pronouncements that should be considered: “Further, Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6, provides clarification and guidance regarding cleanup cost liabilities for component reporting entities when the component reporting entity responsible for reporting on an asset during its useful life is different from the component reporting entity that will eventually be responsible for settling the liability for the cleanup cost of that asset. Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, provides that assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis." 16. This paragraph replaces paragraph 13 (including footnote 13) of TR 11 to clarify the guidance. In accordance with SFFAS 6, paragraph 93,13 if such cleanup is an ongoing part of operations, the costs are to be accounted for in accordance with SFFAS 5, Accounting for Liabilities of the Federal Government, and are not subject to the recognition guidance provided in SFFAS 6, chapter 4 (par. 97 and 98). SFFAS 5 applies to all environmental liabilities not specifically covered in SFFAS 6, including cleanup resulting from accidents or when cleanup is an ongoing part of operations. Any accrued liability/payable and associated operating expense should be recognized in the period the cleanup occurs as part of ongoing operations. 13 SFFAS 6, paragraph 93: Other cleanup costs, such as those resulting from accidents or where cleanup is an ongoing part of operations, are to be accounted for in accordance with liability standards and are not subject to the recognition guidance provided in this standard. This guidance does not apply to these other types of cleanup since the cleanup effort is not deferred until operation of associated PP&E ceases either permanently or temporarily. 17. This paragraph amends the last sentence of paragraph 14 of TR 11 by inserting footnote 13A after the words "routine hazardous waste disposal," replacing a footnote that was rescinded. The revised last sentence of paragraph 14 is as follows: Example of Practice -- Cleanup Costs Associated with Equipment during Ongoing Operations: Determination of hazardous waste cleanup during ongoing operations of the equipment (routine hazardous waste disposal)13A at the time the equipment is being placed in service. 13A Routine hazardous waste disposal is defined in Appendix D. 18. This paragraph amends TR 11 by inserting paragraph 18 to include pronouncements that should be referenced to incorporate (1) the potential impacts to DM&R estimates and loss of asset service utility or function and (2) applicable DM&R guidance and asset impairment (AI) guidance: 18. The guidance in SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes, SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32, and SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use, may also be relevant when defining, measuring, and reporting estimated cleanup costs that are considered deferred and when considering the existence of any potential asset impairment indicators. 19. This paragraph amends Diagram 13 of TR 11 by providing corresponding and consistent changes as noted in the paragraphs above: Amend the title of Diagram 1 as follows: Recognizing Environmental Liabilities for Equipment Disposal in Compliance with relevant GAAP Technical Release 2 and SFFAS 1, 5 and 6 Amend language in the box for recognizing the liability: "Recognize estimate for environmental liability on financial statements in accordance with SFFAS 6 relevant GAAP, including but not limited to SFFAS 5, 6, 40, 42, and 44; Interpretation 9; Technical Bulletin 2006-1, 2017-2; and applicable TRs." 20. This paragraph amends TR 11 by inserting paragraph 19 and footnote 14A to remind users that the nonauthoritative sections are not updated: 19. The appendices (that include nonauthoritative illustrations and examples) of TR 11 are not updated for amendments.14A Therefore, readers are cautioned to refer to the paragraphs above for guidance that could impact the accompanying nonauthoritative illustrations and examples. 14AThe FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend a pronouncement. For example, within the text of a Technical Release, the guidance sections are updated for changes. However, appendices are not updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending pronouncements for the rationale for each amendment. 21. This paragraph further amends the technical guidance in TR 11 by inserting the subheading "effective date" with the following paragraph 20: 3Diagram 1 of TR 11 is part of the technical guidance and accordingly should be updated. Effective Date 20. This TR is effective upon issuance. Technical Release 14, Implementation Guidance On The Accounting for the Disposal of General Property, Plant & Equipment 22. This paragraph rescinds paragraphs 1-4 (including all section titles and subsection titles) of Technical Release 14, Implementation Guidance on the Accounting for the Disposal of General, Property, and Equipment. This will ensure outdated references are removed and sections are properly located in the authoritative section. Pertinent text will be updated and placed in the Summary of the TR. 23. This paragraph amends the technical guidance section of TR 14 by inserting the subheading "scope" with the following paragraph 4A directly under "technical guidance." Technical Guidance Scope 4A. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but is not a substitute for and does not take precedence over the standards. 24. This paragraph amends paragraph 5 of TR 14 by inserting (1) footnote A after "general PP&E" to reference Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, and (2) two sentences (including footnote B) after the first sentence to reference requirements contained at SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes; SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32; and SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use. 5. In accordance with SFFAS 6 paragraph 38, "in the period of disposal, retirement, or removal from service, general PP&EA shall be removed from the asset accounts along with associated accumulated depreciation/amortization." When G-PP&E assets are disposed of, retired, or removed from service, deferred maintenance and repair (DM&R) estimates as defined and required by SFFAS 40 and SFFAS 42, respectively, should be re-estimated to the extent such estimated costs are related to the G-PP&E assets disposed of, retired, or removed from service.B Additionally, to the extent any portion of a G-PP&E asset is not disposed of, retired, or otherwise continues to remain in service, SFFAS 44 should be consulted to ascertain whether partial impairments should be accounted for and reported, including additional DM&R information when necessary, such as changes in DM&R exclusions. ATechnical Bulletin 2017-2, Assigning Assets to Component Reporting Entities, provides that assets may be assigned by a reporting entity to its component reporting entities on a rational and consistent basis." BFor example, in situations where DM&R costs are estimated for an asset group and a component (or components) of that group is disposed of, retired, or removed from service, the DM&R re-estimate should be performed only for the assets remaining in the group. 25. This paragraph amends the first sentence of paragraph 6 of TR 14 by inserting footnote 1A after "cleanup costs" to reference Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6: 6. Additionally, SFFAS 6 provides requirements for recognition and measurement of disposal related cleanup costs.1A 1AInterpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6, provides clarification and guidance regarding cleanup cost liabilities for component reporting entities when the component reporting entity responsible for reporting on an asset during its useful life is different from the component reporting entity that will eventually be responsible for settling the liability for the cleanup cost of that asset. 26. This paragraph amends paragraph 7 of TR 14 by inserting a sentence at the end of the paragraph referring to SFFAS 44, Accounting For Impairment Of General Property, Plant, And Equipment Remaining In Use: The following section provides further clarification and guidance to the requirements stated in SFFAS 6, paragraphs 38, 39, 97, and 98 as those paragraphs relate to "removal from service." The terms "disposal" and "retirement" are used in the above referenced SFFAS 6 paragraphs and are intended to describe G-PP&E disposals that are permanent in nature. However, "removal from service" may or may not be permanent. The paragraph below defines the term "removal from service", as referenced in SFFAS 6, and further discusses the differences between other than permanent and permanent removal from service. SFFAS 44, Accounting For Impairment Of General Property, Plant, And Equipment Remaining In Use, provides guidance on potential impairment for G-PP&E that (1) is other than permanently removed from service or (2) remains in service but with a decline in service utility that is expected to be permanent. 27. This paragraph amends the last sentence of paragraph 10 of TR 14 by revising to ensure it refers to all relevant GAAP: Likewise, in the case of G-PP&E cleanup costs, if only one of the two business events has occurred, permanent removal from service has not occurred (i.e., considered other than permanent removal) and, any cleanup costs associated with disposal, closure, and/or shutdown should continue to accumulate as a liability in accordance with SFFAS 6, paragraphs 97 and 98 relevant GAAP. 28. This paragraph amends paragraph 10 of TR 14 by (1) deleting the statement that no change in G-PP&E reported value is in order and (2) referencing SFFAS 44 for potential impairment for G-PP&E not permanently removed from service that could result in a change to G-PP&E reported value: 10. Two business events are necessary for the permanent removal from service: 1. Asset's use is terminated, and 2. There is documented evidence of management's decision to permanently remove the asset from service. If only one of the two business events has occurred, permanent removal from service has not occurred (i.e., considered other than permanent removal). However, in accordance with SFFAS 44, Accounting For Impairment Of General Property, Plant, And Equipment Remaining In Use, and there is no there could be a change in the G-PP&E reported value for other than permanently removed G-PP&E if an impairment indicator exists, such as changes in the manner or duration of use of G-PP&E or G-PP&E idled or unserviceable for excessively long periods and depreciation continues. Depreciation continues on such G- PP&E to the extent not impaired. Likewise, in the case of G-PP&E cleanup costs, if only one of the two business events has occurred, permanent removal from service has not occurred (i.e., considered other than permanent removal) and, any cleanup costs associated with disposal, closure, and/or shutdown should continue to accumulate as a liability in accordance with SFFAS 6, paragraphs 97 and 98relevant GAAP. 29. This paragraph amends TR 14 by adding paragraph 18 and footnote 8A to remind users that the nonauthoritative sections are not updated: 18. The appendices (that include nonauthoritative illustrations and examples) of TR 14 are not updated for amendments.8A Therefore, readers are cautioned to refer to the paragraphs above for guidance that could impact the accompanying nonauthoritative illustrations and examples. 8AThe FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend a pronouncement. For example, within the text of a Technical Release, the guidance sections are updated for changes. However, appendices are not updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending pronouncements for the rationale for each amendment. 30. This paragraph further amends the technical guidance in TR 14 by inserting the subheading "effective date" with the following paragraph 19. Effective Date 19. This TR is effective upon issuance. Technical Release 20, Implementation Guidance for Leases 31. This paragraph amends paragraph 17 of TR 20 by revising the paragraph numbers referenced to conform to SFFAS 54, as amended by SFFAS 60: 17. Paragraphs 37.b and 54.e of SFFAS 54 require disclosures of "annual lease expense." Since the term is not defined elsewhere, what types of lease expenses are included in these disclosures? For intragovernmental leases, disclosures of annual lease expenses by lessees (par. 37.b) include amounts incurred during the fiscal year as expenses in accordance with paragraphs 27, and 31, and -36. For right-to-use lease assets, disclosures of annual lease expenses by lessees (par. 54.e) include amounts incurred during the fiscal year for the amortization of the lease assets, as initially capitalized in accordance with paragraph 49, and interest expense. EFFECTIVE DATE 32. This TR is effective upon issuance.. The provisions of this Statement need not be applied to information if the effect of applying the provision(s) is immaterial. Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendixshould govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Statements or other pronouncements. The Handbook is updated annually and includes a status section directing the reader to any pronouncement that changed this Technical Release. Within the text of the Technical Release, the guidance sections are updated for changes. However, this appendix will not be updated to reflect subsequent changes. The reader can review the basis for conclusions of the amending Statements or other pronouncements for the rationale for each amendment. Project History A1. FASAB issued the below pronouncements that require assessing and updating TRs: SFFAS 40, Deferred Maintenance and Repairs: Definitional Changes SFFAS 42, Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32 SFFAS 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use Interpretation 9, Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & 6 Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities A2. It is important to make conforming amendments to ensure TRs are consistent with other pronouncements. The Committee also recognizes that conforming amendments are important to incorporate because users rely on the technical guidance to assist with implementation efforts. Amendments to Existing Technical Releases A3. This TR provides conforming amendments to previously issued TRs to ensure TR guidance is consistent with other pronouncements. The amendments conform the TRs to ensure users are reminded of provisions of the aforementioned pronouncements and that they should be applied when appropriate. A4. This TR provides conforming amendments to the following documents: TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment TR 11, Implementation Guidance on Cleanup Costs Associated with Equipment TR 14, Implementation Guidance on the Accounting for the Disposal of General Property, Plant & Equipment TR 20, Implementation Guidance for Leases A5. The Committee believes that the amendments bring the technical guidance up to date to reflect the current pronouncements. For example, the amendment to paragraph 17 of TR 20 conforms paragraph references to SFFAS 54, as amended by SFFAS 60. A6. The Committee concluded that it is important to remind users (as detailed in the preamble to the Appendix) that nonauthoritative sections would not be updated. To help ensure this is clear, language was added to the amended TRs explaining appendices (that include nonauthoritative illustrations and examples) are not updated for amendments and readers should refer to the paragraphs in the amended guidance that could impact the accompanying nonauthoritative illustrations and examples. Summary of Outreach Efforts and Responses A7. The Accounting and Auditing Policy Committee (AAPC) issued the exposure draft (ED), Omnibus Technical Release Amendments 2022: Conforming Amendments, on March 30, 2022, with comments requested by May 31, 2022. A8. Upon release of the ED, FASAB notified constituents through the FASAB website and listserv, the Federal Register, and FASAB newsletter. FASAB also provided news releases to its press contacts, including various news organizations and committees of professional associations generally commenting on EDs in the past. To encourage responses, a reminder notice was provided to FASAB's listserv near the comment deadline. A9. The AAPC received twelve comment letters from preparers, users of federal financial information, and professional associations. The AAPC considered responses to the ED at its meeting on June 28, 2022. The AAPC did not rely on the number in favor of or opposed to a given position. The AAPC considered each response and weighed the merits of the points raised. A10. The majority of respondents generally agreed with the Technical Release. Specifically, the respondents agreed with the amendments and that the TR clarifies the technical guidance. Certain respondents provided minor edits or clarifications that were carefully considered by the Committee and incorporated as appropriate. AAPC & BOARD APPROVAL A11. The TR was approved by the AAPC for release to FASAB for issuance. The Board has reviewed this TR and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB office. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee DM&R Deferred Maintenance and Repairs ED Exposure Draft PP&E Property, Plant, and Equipment SFFAS Statement of Federal Financial Accounting Standards TB Technical Bulletin TR Technical Release Technical Release 22: Leases Implementation Guidance Updates Status Issued October 12, 2023 Effective Date For periods beginning after September 30, 2023. Affects TR 20, par. 8A-8B, 11A, 24A, 25, 32A, 52A, 75A, 78, and 91. Affected by None. Summary This Federal Financial Accounting Technical Release (TR) amends TR 20, Implementation Guidance for Leases, by incorporating minor conforming amendments related to Statement of Federal Financial Accounting Standards (SFFAS) 61, Omnibus Amendments 2023, inserting additional leases implementation guidance questions and answers within the related topic areas, and providing clarifying amendments / technical corrections on certain existing questions and answers under TR 20. Materiality The provisions of this Technical Release need not to be applied to information if the effect of applying the provision(s) is immaterial.1 A misstatement, including omission of information, is material if, in light of surrounding facts and circumstances, it could reasonably be expected that the judgment of a reasonable user relying on the information would change or be influenced by the correction or inclusion of the information. Materiality should be evaluated in the context of the specific reporting entity. Determining materiality requires appropriate and reasonable judgment in considering the specific facts, circumstances, size, and nature of the misstatement. Consequently, after quantitative and qualitative factors are considered, materiality may vary by financial statement, line item, or group of line items within an entity. 1Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts.. Table of Contents Page Summary 1 Technical Guidance 3 Scope of Technical Guidance 3 Conforming Amendments to TR 20 3 Updates to TR 20 4 Clarifying Amendments and Technical Corrections to TR 20 7 Effective Date 8 Appendix A: Basis for Conclusions 9 Appendix B: Abbreviations 13 Technical Guidance Scope of Technical Guidance 1. Readers of this Federal Financial Accounting Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but does not substitute for or take precedence over the standards. This TR clarifies but does not change guidance provided in SFFAS 54, Leases. 2. SFFAS 54 provides a comprehensive set of lease accounting standards to recognize federal lease activities in the reporting entity's general purpose federal financial reports and includes appropriate disclosures. 3. Questions and answers in TR 20, Implementation Guidance for Leases, provide guidance for applying the accounting and financial reporting requirements for leases in accordance with SFFAS 54. 4. This TR updates TR 20 with one conforming amendment, seven updates (that is, additional questions and answers), and two clarifying amendments / technical corrections. Conforming Amendments to TR 20 5. Paragraph 78 of TR 20 is amended as follows: 78. A contract conveys the right to use a building for 30 years and the attached parking garage for 15 years. There is no stated interest rate included in the lease agreement. Should the discount rate be separately assessed for each component? Yes. Paragraph 74 of SFFAS 54 requires that lease contracts involving multiple underlying assets be accounted for as separate lease components if the underlying assets have different lease terms. The interest estimated incremental borrowing rate in this scenario would likely differ between the two components because of the considerable difference in lease terms. When the interest rates for each component are not stated in the lease agreement, the interest estimated incremental borrowing rate for each component should be based on the interest rate on marketable Treasury securities at the commencement of the lease term with a similar maturity to the term of the lease used, in accordance with paragraphs 42-42C (for lessees) and 59-59C (for lessors). Updates to TR 20 6. Paragraphs 8A, 8B, and 11A are added to TR 20 (under the topic area for scope and definitions) as follows: 8A. A reporting entity enters into a 15-year contract with a utility company for the right to use a fiber optic cable network in exchange for consideration. The contract does not provide the reporting entity with specific, physically distinct dark fibers; nor does it provide the ability to deny and regulate the access of others to the fiber optic cable network. Rather, the utility company makes decisions about the transmission of data. For example, the utility company lights the fibers with its electronic equipment. Does this contract convey control and meet the definition of a lease? No, this contract does not convey control or meet the definition of a lease. Paragraph 2 of SFFAS 54 provides that the underlying asset should be identified either through explicit specification in the contract or implicit specification at the time the underlying asset is made available for use. The contract in this scenario does not specify, either explicitly or implicitly, the underlying asset. Relatedly, unlike the scenario under paragraph 8B below, the contract under this scenario does not meet the control criterion under paragraph 3.b of SFFAS 54 (criterion 2 of 2). The reporting entity cannot deny or regulate the access of other parties to the economic benefits or services of the underlying asset, as the contract does not convey control of specific, physically distinct dark fibers. The utility company makes decisions about the transmission of data. In this case, the utility company lights the fibers with electronic equipment under its control and makes decisions about which fibers are used to transmit data. In this scenario, the data transmission is effectively a service, consistent with paragraph 4 of SFFAS 54. 8B. A reporting entity enters into a 15-year contract with a utility company for the right to use specific, physically distinct dark fibers within a larger fiber optic cable connecting two operational sites (over a specifically identified route) in exchange for consideration. The reporting entity makes the decisions about the use of the fibers by connecting each end to its electronic equipment. For example, the customer lights the fibers and makes decisions about data transmission. Does this contract convey control and meet the definition of a lease? Yes, this contract conveys control and meets the definition of a lease. Paragraph 3 of SFFAS 54 provides that the reporting entity should assess whether the contract gives the lessee both of the following when determining whether a contract or agreement conveys the right to control the use of the underlying asset: a The right to obtain economic benefits or services from the use of the underlying asset as specified in the contract b The right to control access to the economic benefits or services of the underlying asset as specified in the contract The reporting entity has the right to obtain economic benefits or services of the underlying asset (criterion 1 of 2). Through a lease contract the government may control access to the economic benefits or services embodied in an underlying asset it does not own. In this scenario, the contract allows the reporting entity to deny or regulate the access of other entities to the economic benefits or services of the dark fibers, and the customer has the right to direct the use of the fibers. For example, the customer lights the fibers and makes decisions about data transmission (criterion 2 of 2). Therefore, the control criterion is met. Relatedly, in accordance with paragraph 2, the contract in this scenario specifies, either explicitly or implicitly (in this case, explicitly) the underlying asset. 11A. A reporting entity (lessor) enters into an agreement that allows a private party (lessee) to use one floor of the reporting entity's building at a market rate. The contract states that the space is to be used only for a restaurant. Does the contract convey the right to control the use of the underlying asset? Yes. In accordance with paragraph 3 of SFFAS 54, the reporting entity should assess whether the contract gives the lessee both the right to obtain economic benefits or services from the use of the underlying asset as specified in the contract (emphasis added) and the right to control access to the economic benefits or services of the underlying asset as specified in the contract (emphasis added). In this example, the paragraph 3 control criterion is met notwithstanding the parameters of the contract regarding the nature and manner of use (see also TR par. 7.b). 7. Paragraph 24A is added to TR 20 (under the topic area for lease term) as follows: 24A.A lease contract states that it will remain in effect for three years unless terminated before then. The contract allows the lessee to terminate the lease for any reason with 60 days' notice. The contract allows the lessor to terminate the lease with 60 days' notice only if the lessee defaults on payments. It is probable, based on all relevant factors, that the lessee will not exercise its termination option at any time during the three year contract. Is this a short-term lease? No. Although the lessee has an unconditional right to terminate, the lessor does not have an unconditional right to terminate because the lessor is only allowed to terminate on the condition that the lessee defaults on payments (see par. 19.b of SFFAS 54). Accordingly, there are no periods for which both the lessee and lessor have an option to terminate without permission, and paragraph 19.a criteria for excluding cancelable periods from the lease term are not triggered. 8. Paragraph 32A is added to TR 20 (under the topic area for short-term leases) as follows: 32A.For the past 20 years, every two years a reporting entity (lessee) has consistently entered into new 24-month noncancelable lease contract with a lessor for the use of building space. The lease contract for the building space does not contain options to extend beyond the 24-month noncancelable lease term. The reporting entity expects to continue this practice. Is this a short-term lease? Yes. According to paragraph 14 of SFFAS 54, the lease term is the noncancelable period plus certain periods subject to options to extend or terminate the lease. In this scenario, the noncancelable period is 24 months and there are no subsequent periods subject to options to extend or terminate the lease and, therefore, this is a short-term lease. Although historical behaviors and expectations may be relevant factors in assessing the likelihood of exercising options (see par. 20 of SFFAS 54) when determining the lease term, such factors are only applicable to assessing options. 9. Paragraph 52A is added to TR 20 (under the topic area for lessee recognition, measurement, and disclosures for leases other than short-term leases, contracts or agreements that transfer ownership, and intragovernmental leases) as follows: 52A.A reporting entity (lessee) leases a building. The lease term is 10 years. At the commencement of the lease, the reporting entity provides payment for the first three years and recognizes a liability for the present value of the payments for the remaining seven years, which will be paid starting in the fourth year of the lease. Should the reporting entity recognize interest expense during each of the first three years of the lease? Yes. In accordance with paragraph 43 of SFFAS 54, interest expense represents the amortization of the discount on the lease liability. That discount should be amortized over the entire lease term-including each of the first three years during which the reporting entity is not making payments-using the interest method. 10. Paragraph 75A is added to TR 20 (under the topic area for lease incentives and lease concessions) as follows: 75A. A lease with a lease term of 10 years requires fixed payments of $17 million to be made for each of the first 9 years. There is a rent holiday (during which the lessee is not required to pay any rent) for year 10. The useful life of the underlying asset is 15 years. How should the reporting entity (lessee) account for the rent holiday? A rent holiday is a type of lease concession, as described in paragraph 70 of SFFAS 54. In this example, the rent holiday is at the end of the lease term and affects the expected fixed payments to be made during the lease term (see par. 40 and 40.g of SFFAS 54). Therefore, the lease liability would be the present value of $17 million per year for 9 years, and the discount (the difference between the undiscounted cumulative $153 million in payments and the present value) would be amortized over 9 years. At the end of year 9, the lease liability would be zero. The lease asset, however, would be amortized in a systematic and rational manner over the entire 10-year lease term, in accordance with paragraph 50 of SFFAS 54 (as the lease term is shorter than the useful life of the underlying asset). Clarifying Amendments and Technical Corrections to TR 20 11. Paragraph 25 of TR 20 is amended as follows: 25. A lease contract allows only the lessee (reporting entity) to unilaterally terminate the lease at any time but also provides for cancellation penalties. The cancellation penalties are so great that it is probable the lessee will not terminate the lease. Should the cancelable periods covered by the lessee's option to terminate be included in the lease term by the lessee? Yes, these cancelable periods should be included in the lease term in this particular case. Paragraph 15.b of SFFAS 54 requires lessees to include periods in the lease term covered by their options to terminate if it is probable, based on all relevant factors, that they will not exercise those options. In determining whether it is probable that it will not exercise the option to terminate the lease, the lessee should assess all factors relevant to the likelihood that it will not exercise the option. Those factors include significant economic disincentives, such as cancellation penalties, as discussed in paragraph 20 (see also: TR par. 26-27). 12. Paragraph 91 of TR 20 is rescinded and replaced as follows: 91. Reporting entity Agency ABC enters into a lease agreement on behalf of the U.S. government for the right to use a residential property on international soil. The economic benefits and services of the underlying assets are expected to be derived by Agency XYZ. How should such a lease be reported, either by Agency ABC or Agency XYZ? It depends on whether Agency ABC is acting in the capacity of an agent or a principal. If Agency ABC is acting in an agent capacity (i.e., similar to a broker), Agency ABC is providing a service to Agency XYZ. Under this agreement, Agency ABC does not provide rent consideration to the lessor or receive rent consideration from Agency XYZ. Therefore, Agency ABC would not account for the lease. Rather, the lease payments are made to the nonfederal lessor directly from Agency XYZ's budgetary resources. Accordingly, if Agency ABC is acting in an agent capacity, Agency XYZ would account for the lease (as lessee) and record any lease liability with the nonfederal lessor, along with the corresponding lease asset, unless Agency XYZ's lease term is 24 months or less. If Agency ABC is acting in a principal capacity, Agency ABC is generally responsible for an original lease with the nonfederal lessor and a sublease with Agency XYZ. In such circumstances, Agency ABC would provide rent consideration to the original lessor and receive rent consideration from Agency XYZ relating to a sublease agreement. Accordingly, if Agency ABC is acting in a principal capacity, Agency ABC would record any lease liability with the nonfederal lessor (unless ABC's lease term is 24 months or less), and account for an intragovernmental sublease with Agency XYZ in accordance with paragraphs 87-88 of SFFAS 54. EFFECTIVE DATE 13. This Technical Release is effective for reporting periods beginning after September 30, 2023. The provisions of this Statement need not be applied to information if the effect of applying the provision(s) is immaterial. Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts Appendix A: Basis for Conclusions This appendix discusses some factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendixshould govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Statements or pronouncements. The FASAB Handbook is updated annually and includes a status section directing the reader to any pronouncement that affects this Technical Release. Within the text of the Technical Releases, the authoritative sections are updated for changes. However, this appendix will not be updated to reflect subsequent changes. The reader can review the basis for conclusions of amending Statements or other pronouncements for the rationale for each amendment. Project History A1. Statement of Federal Financial Accounting Standards (SFFAS) 54, Leases, was issued in April 2018. SFFAS 54, as amended, is effective for reporting periods beginning after September 30, 2023. A2. Federal Financial Accounting Technical Release (TR) 20, Implementation Guidance for Leases, was issued in November 2021. Questions and answers in the TR are intended to provide guidance for applying the accounting and financial reporting requirements for leases in accordance with SFFAS 54.. A3. After the issuance of TR 20: a Technical Bulletin 2023-1, Intragovernmental Leasehold Reimbursable Work Agreements, which addresses accounting issues related to intragovernmental reimbursable agreements that were not directly covered under SFFAS 54, was issued in March 2023. b SFFAS 61, Omnibus Amendments 2023, which provided targeted technical clarifications to further facilitate implementation, was issued in April 2023. c TR 21, Omnibus Technical Release Amendments 2022, which made a technical correction to paragraph 17 of SFFAS 54, was issued in September 2022. A4. These pronouncements resulted in the need for the Accounting and Auditing Policy Committee (AAPC) to implement a few minor conforming amendments to TR 20 (specifically, par. 59 and 78). These amendments do not substantively change the original TR 20 guidance. The paragraph 59 amendment provides helpful reference to Technical Bulletin 2023-1 for users of the guidance, while the paragraph 78 amendment aligns terminology and citations with corresponding SFFAS 61 amendments to SFFAS 54 guidance. A5. As was done when developing TR 20, the AAPC and technical staff continued to coordinate with Governmental Accounting Standards Advisory Board (GASB) technical staff on leasesrelated implementation guidance. When developing updates to TR 20, the Committee also considered leases implementation guidance issued by the GASB since the issuance of GASB Implementation Guide 2019-3, Leases, including: a GASB Implementation Guide 2020-1, Implementation Guidance Update-2020; b GASB Implementation Guide 2021-1, Implementation Guidance Update-2021; and c GASB Implementation Guide 2023-1, Implementation Guidance Update-2023. A6. FASAB project staff analyzed TR 20, SFFAS 61, Technical Bulletin 2023-1, practitioner requests and technical inquiries, and the aforementioned GASB implementation guidance updates to identify candidates for conforming amendments and additional questions and answers.2 Staff performed a content analysis in collaboration with independent coders from the leases task force to reach agreement on candidates. The Committee reviewed the results of the content analysis and generally agreed with the results, which are reflected in the proposed candidates. A7. Based on consultations with practitioners, technical inquiries, and feedback from AAPC members, staff identified implementation guidance candidates related to the definition of a lease and the control criterion under paragraphs 2-3 of SFFAS 54 (see proposal to add paragraphs 8A-8B to SFFAS 54 under paragraph 6). In developing this guidance, staff analyzed Financial Accounting Standards Board (FASB) implementation guidance related to fiber optic cable utility contracts and dark fiber leases. Staff implemented analogous guidance. While similar to the FASB guidance, staff aligned the proposals with SFFAS 54 and addressed certain technical differences.3 2 The GASB and FASB material is copyrighted by the Financial Accounting Foundation (FAF), 801 Main Ave., Norwalk, CT 06851, and was used with permission. 3 Ibid. A8. Although SFFAS 54 and GASB 87, Leases, are similar in many ways, certain aspects of the implementation guidance differ from analogous GASB implementation guidance due to technical differences between the standards. Examples include: a Differences in the definition of a lease (see par. 6, which adds par. 8A-8B and 11A to TR 20). b Differences in the definition of a short-term lease (see par. 7, which adds par. 24A to TR 20). A9. The AAPC also agreed to revise paragraph 91 of TR 20 after receiving additional information regarding international residential leases. Specifically, the AAPC learned that the Department of State oftentimes acts in the capacity of an agent with international residential leases. Specifically, the Department provides leasing services to other federal reporting entity customers, with rental consideration for these leases paid directly to the lessor by the reporting entity customer that leases the residential unit. Upon further consideration of this additional information, the AAPC agreed that paragraph 91 guidance should be modified. Summary of Outreach and Responses A10. The AAPC released an exposure draft (ED) proposal on May 30, 2023, for public comment, with comments requested by June 30, 2023. Upon release of the ED, FASAB notified constituents through the FASAB website and listserv, the Federal Register, and FASAB newsletter. FASAB also provided news releases to its press contacts, including various news organizations and committees of professional associations generally commenting on EDs in the past. To encourage responses, a reminder notice was provided to FASAB's listserv near the comment deadline. A11. Nineteen comment letters were received in response to the ED. Respondents were generally supportive of the proposed updates to TR 20. In response to the comment letters, several questions and answers were improved or clarified, including paragraph 8A, 52A, and 91 amendments to TR 20. Paragraphs 32A and 75A of TR 20 were also further revised based on feedback from respondents to enhance their consistency with SFFAS 54. A12. The AAPC also considered comments provided on proposals to further explain what types of expenses are included in "annual lease expense" disclosures required by paragraphs 37.b and 54.e of SFFAS 54. The AAPC discussed respondent feedback on the ED proposal to further amend paragraph 17 of TR 20, which provides guidance on this topic. Some respondents requested additional guidance on how to account for certain types of expenses mentioned under paragraph 27 of SFFAS 54, some of which are related to nonlease components of the contract or agreement under paragraph 73 of SFFAS 54. The AAPC agreed to continue to monitor implementation issues in this area and provide additional guidance or updates to paragraph 17 of TR 20 at a later time if necessary. FASAB staff will refer the topic to the Board for further consideration and potential action. AAPC and Board Approval A13. The TR was approved by the AAPC for release to FASAB for issuance. The Board reviewed this TR and a majority of its members do not object to its issuance. Written ballots are available for public inspection at the FASAB office. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee ED Exposure Draft FAF Financial Accounting Foundation FASAB Federal Accounting Standards Advisory Board FASB Financial Accounting Standards Board GASB Governmental Accounting Standards Board SFFAS Statement of Federal Financial Accounting Standards TR Federal Financial Accounting Technical Release Technical Release 23: Omnibus Technical Release Amendments 2024: Conforming Amendments to Technical Releases 10, 16, 20, and 21 Status Issued July 22, 2024 Effective Date For periods beginning after September 30, 2023. Affects TR 10, par. 8B, footnote 5A TR 16, par. 8, 26A-27A, 29, and 32 TR 20, par. 101-102 TR 21, par. 4 Affected by None. Summary This Technical Release (TR) amends TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment; TR 16, Implementation Guidance for Internal Use Software; TR 20, Implementation Guidance for Leases; and TR 21, Omnibus Technical Release Amendments 2022. The amendment to footnote 5A in TR 10 aligns the footnote with the guidance provided under paragraph 18 of Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for Property, Plant, and Equipment. This amendment also supersedes and replaces relevant portions of a previous amendment to this footnote under TR 21. The amendments to TR 16 restore portions of prior guidance for perpetual software licenses based on Board requirements under SFFAS 10, Accounting for Internal Use Software. These amendments also supersede previous amendments in TR 20 that rescinded portions of this guidance. Materiality The provisions of this Technical Release need not to be applied to information if the effect of applying the provision(s) is immaterial.1 A misstatement, including omission of information, is material if, in light of surrounding facts and circumstances, it could reasonably be expected that the judgment of a reasonable user relying on the information would change or be influenced by the correction or inclusion of the information. Materiality should be evaluated in the context of the 1 Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts. specific reporting entity. Determining materiality requires appropriate and reasonable judgment in considering the specific facts, circumstances, size, and nature of the misstatement. Consequently, after quantitative and qualitative factors are considered, materiality may vary by financial statement, line item, or group of line items within an entity. Table of Contents Page Summary 1 Technical Guidance 4 Scope Of Technical Guidance 4 Amendments to TR 10 and TR 21 4 Amendments to TR 16 and TR 20 4 Effective Date 6 Appendix A: Basis for Conclusions 7 Appendix B: Abbreviations 10 Technical Guidance Scope of Technical Guidance 1. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards but does not substitute for or take precedence over the standards. 2. This TR updates TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment; TR 16, Implementation Guidance for Internal Use Software; TR 20, Implementation Guidance for Leases; and TR 21, Omnibus Technical Release Amendments 2022. Amendments to TR 10 and TR 21 3. Paragraph 8B, footnote 5A, of TR 10 is amended as follows (TR 21, par. 4, amendments to this footnote are superseded and replaced): 5A For the purpose of this document, real property is defined as federal facilities and installed equipment within general PP&E, heritage, and stewardship categories. It includes 1) real property acquired through leases, including leasehold improvements, and 2) real property owned by the reporting entity in the hands of or leased to others (for example, state and local governments, colleges and universities, or federal contractors), and 3) real property acquired through contracts or agreements that transfer ownership (see SFFAS 6, par. 18). Installed equipment "fixture" is defined in GAO-08-978SP, Volume III, Third Edition of the Principles of Appropriation Law (13-199) as those equipment items that are (1) permanently attached to the realty, or (2) if not permanently attached, (a) it is necessary and indispensable to the completion and operation of the building, or (b) the structure was designed and built for the purpose of housing the equipment. Amendments to TR 16 and TR 20 4. Paragraph 8 of TR 16 is amended as follows: 8. Readers of this Technical Release (TR) should first refer to the hierarchy of accounting standards in Statement of Federal Financial Accounting Standards (SFFAS) 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board. This TR supplements the relevant accounting standards, but it is not a substitute for and does not take precedence over the standards. This TR clarifies but does not change guidance in SFFAS 4, 5, 6 (as amended), and 10. 5. Paragraphs 26A and 27A are added to TR 16 as follows (TR 20, par. 101, is superseded): 26A. Perpetual Software License: If a software license is perpetual with an upfront cost9A to use the software for its entire lifetime, then the entity is purchasing IUS and should apply its existing policy for capitalization thresholds to determine if the license should be capitalized or expensed. 9AThe cost could be charged as a onetime payment or financed over a set period of time. 27A. A license agreement may include costs for maintenance and technical support. Agency judgment should apply in determining what portions of license fees are attributable to software capitalizable costs versus maintenance or technical support costs. 6. Paragraph 29 of TR 16 is amended as follows (TR 20, par. 102, is superseded): 29. If a cloud computing arrangement includes a perpetual software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses as discussed in paragraph 26A of this TR. SFFAS 10 is not applicable to a cloud computing arrangement that does not convey a contractual right to the IUS or to ones that do not include an IUS license. The entity that develops and owns the software, platform, or infrastructure that is used in the cloud computing arrangement would account for the software development in accordance with SFFAS 10. If the funding to develop cloud computing is shared among entities without clear ownership, the service provider entity that receives funding and is responsible for maintaining the software, platform, or infrastructure should account for the software in accordance with SFFAS 10 and the full cost/inter-entity cost requirements of SFFAS 4. 7. Paragraph 32 of TR 16 is amended as follows: 32. If the shared service arrangement includes a perpetual software license, the customer should account for the software license element of the arrangement consistent with the acquisition of their other software licenses, as discussed in paragraph 26A 24 of this TR. SFFAS 10 is not applicable to a shared service arrangement that does not convey a contractual right to the IUS or to ones that do not include an IUS license. Effective Date 8. This TR is effective for reporting periods beginning after September 30, 2023. The provisions of this Statement need not be applied to information if the effect of applying the provision(s) is immaterial. Refer to Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting, chapter 7, titled Materiality, for a detailed discussion of the materiality concepts Appendix A: Basis for Conclusions This appendix discusses factors considered significant by Committee members in reaching the conclusions in this Technical Release. It includes the reasons for accepting certain approaches and rejecting others. Individual members gave greater weight to some factors than to others. The guidance enunciated in this Technical Release-not the material in this appendix-should govern the accounting for specific transactions, events, or conditions. This Technical Release may be affected by later Statements or pronouncements. The FASAB Handbook is updated annually and includes a status section directing the reader to any pronouncement that affects this Technical Release. Within the text of the Technical Releases, the authoritative sections are updated for changes. However, this appendix will not be updated to reflect subsequent changes. The reader can review the basis for conclusions of amending Statements or other pronouncements for the rationale for each amendment. Project History A1. The Accounting and Auditing Policy Committee (AAPC or "the Committee") identified conforming amendments to footnote 5A of TR 10, Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment. These amendments conform the footnote with relevant portions of SFFAS 6, Accounting for Property, Plant, and Equipment, paragraph 18, as amended by SFFAS 60, Omnibus Amendments 2021: Leases-Related Topics, paragraph 35. SFFAS 60 amendments to SFFAS 6 are effective for reporting periods beginning after September 30, 2023. A2. The AAPC agreed to amend TR 16, Implementation Guidance for Internal Use Software, to remove reference to SFFAS 5, Accounting for Liabilities of the Federal Government, when describing the scope of TR 16. After TR 20, Implementation Guidance for Leases, removed all software license guidance that relied on capital lease guidance, TR 16 no longer clarifies SFFAS 5 guidance. A3. Due to the issuance of SFFAS 54, Leases, TR 20 amended TR 16 to remove software license guidance that applied to the now rescinded capital lease guidance in SFFAS 5 and SFFAS 6, creating a gap in software license guidance. However, TR 20 also removed guidance for perpetual software licenses that was based on SFFAS 10, Accounting for Internal Use Software. The AAPC agreed that this aspect of the rescinded guidance did not rely on the rescinded capital leases guidance. A4. The AAPC agreed to amend TR 16 to restore prior guidance on perpetual software licenses, including perpetual software licenses that are part of cloud-computing arrangements and shared services, that TR 20 rescinded. These amendments do not update or add any new guidance for software licenses beyond what previously existed in TR 16. A5. The AAPC expressed its awareness of and reminded exposure draft (ED) respondents that the Board has an ongoing project that may affect guidance on information technology topics including, but not necessarily limited to, software licenses, cloud computing, and shared services. The Committee concluded it would be prudent to restore prior perpetual software license guidance in TR 16 in the meantime so that the gap in software license guidance is not greater than it needs to be. A6. The AAPC agreed that these amendments should be effective for reporting periods beginning after September 30, 2023, to allow the effective date to coincide with the effective reporting period of SFFAS 54. Summary of Outreach and Responses A7. The AAPC released an ED proposal on February 15, 2024, with public comments requested by April 15, 2024. Upon release of the ED, the Federal Accounting Standards Advisory Board (FASAB or "the Board") notified constituents through the FASAB website and listserv, the Federal Register, and FASAB newsletter. FASAB also provided news releases to its press contacts, including various news organizations and committees of professional associations generally commenting on EDs in the past. To encourage responses, a reminder notice was provided to FASAB's listserv near the comment deadline. A8. The AAPC received 17 comment letters in response to the ED. Respondents were generally supportive of the proposed amendments to TR 10 and TR 16 (and the corresponding changes to TR 21 and TR 20, respectively). A9. Some respondents questioned the reference to leasehold improvements in the conforming amendment to footnote 5A of TR 10. The conforming amendment does not create a new requirement, nor does it require federal lessees to recognize a liability for asbestos cleanup in non-applicable circumstances. Leasehold improvements are alterations to a leased property that are paid for (financed) by the lessee (par. 11 of SFFAS 54). Accordingly, TR 10 could apply to lessees that have implemented leasehold improvements that contained asbestos. In response to the AAPC's request for comment, one respondent cited a known example, and another indicated that asbestos-related cleanup cost liabilities on leasehold improvements could occur in rare situations. Accordingly, the AAPC concluded that the conforming amendment should include reference to leasehold improvements, as proposed in the ED. A10. Some respondents requested additional guidance in TR 16 to define various software license terms, address development costs, and provide clarity around maintenance and technical support costs associated with software licenses. This TR only restores portions of prior TR 16 guidance for perpetual software licenses based on Board requirements under SFFAS 10. The Board will consider these and other issues as part of the software technology project. A11. A few respondents requested additional guidance in TR 16 addressing how to account for term-based software licenses. Due to the issuance of SFFAS 54, the capital lease guidance from SFFAS 5 and 6 no longer exists and, therefore, is not applicable to term-based software licenses that TR 16 previously referenced. Furthermore, SFFAS 54 scopes out software licenses. Therefore, level-A lease guidance no longer provides for accounting for term-based software licenses. Accordingly, the AAPC is unable to provide guidance on term-based software licenses at this time. The Board will consider these and other issues as part of the software technology project. AAPC and Board Approval A12. The TR was approved by the AAPC for release to FASAB for issuance. The Board reviewed this TR and a majority of its members do not object to its issuance. Appendix B: Abbreviations AAPC Accounting and Auditing Policy Committee ED Exposure Draft FASAB Federal Accounting Standards Advisory Board IUS Internal Use Software SFFAS Statement of Federal Financial Accounting Standards TR Federal Financial Accounting Technical Release Staff Implementation Guidance 23.1: Guidance for Implementation of SFFAS 23, Eliminating the Category National Defense Property, Plant, and Equipment: Classification of Items Formerly Considered National Defense PP&E Status Issued January 31, 2005 Effective Date Effective upon issuance. Affects SFFAS 23 Affected by None. Summary The implementation guidance resolves an inconsistency between the implementation guidance provided in SFFAS 23 and definitions in existing standards. Table Of Contents Page Summary 1 Background 3 Effective Date 4 Background 1. Statement of Federal Financial Accounting Standards (SFFAS) 23, Eliminating the Category National Defense Property, Plant, and Equipment, rescinded SFFAS 11, Amendments to Accounting for Property, Plant, and Equipment - Definitional Changes in its entirety. SFFAS 11 established the definition of National Defense Property, Plant, and Equipment (ND PP&E). Its rescission eliminated the category ND PP&E along with the definition for that term. Implementing guidance contained in SFFAS 23 provides that: 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 [Accounting for Property, Plant, and Equipment], as amended, and should be the initial historical cost for the items, including any major improvements or modifications. (Emphasis added.) 2. The above text suggests that all items formerly considered ND PP&E should be classified as PP&E. In addition, par. II of SFFAS 23 provides that “all items previously considered ND PP&E are classified as general PP&E.” Par. 6b of SFFAS 23 also refers to classification as general PP&E. Staff Implementation Guidance 3. Q: Should par. 10 of SFFAS 23 limit the classification of items previously considered ND PP&E to general PP&E? 4. A: No. A reasonable approach would be to subordinate SFFAS 23’s general implementation guidance to the definitions in accounting standards. That is, assets being recognized due to the implementation of SFFAS 23 should be categorized in accordance with asset definitions in SFFAS 6 and other accounting standards. 5. Q: SFFAS 23 implementation guidance describes acceptable approaches to valuing those items of ND PP&E to be classified as general PP&E. How should items of ND PP&E not classified as general PP&E be valued? 6. A: Any items not properly classified as general PP&E should be valued in a manner consistent with the general principles established in SFFAS 23 implementation guidance and the specific measurement guidance provided in accounting standards for the relevant asset class. Basis for Conclusions 7. A literal application of SFFAS 23, par. 10 would result in de facto amendments to the PP&E definition contained in SFFAS 6 and any asset definitions promulgated by other standards. That is, all asset definitions other than general PP&E would have to exclude ND PP&E and the general PP&E definition would have to include ND PP&E. 8. Consequences of reading the implementation guidance as amending the definitions remaining in current standards include: a. Inconsistency in classification of assets between the components of the Department of Defense and all other federal entities, b. Possible inconsistent accounting for the items subject to implementation guidance in SFFAS 23 and items acquired in the future by the Department of Defense, and c. Reliance on a definition that has been purged from authoritative publications such as the Original Pronouncements volume. 9. Staff implementation guidance resolves the inconsistency between the definitions and the implementation guidance by subordinating par. 10 of SFFAS 23 to asset definitions in accounting standards. Effective Date 10. This guidance is effective upon issuance. The provisions of this Staff Implementation Guidance need not be applied to immaterial items. Staff Implementation Guidance 31.1: Guidance for Implementation of SFFAS 31, Accounting for Fiduciary Activities Status Issued March 19, 2009 Effective Date Effective upon issuance. Affects SFFAS 31 Affected by None. Summary This implementation guidance addresses questions on implementation of SFFAS 31, Accounting for Fiduciary Activities that were raised by federal preparers. Table of Contents Summary 1 Background 3 Staff Implementation Guidance 3 Effective Date 12 Basis for Conclusions 12 Background 1. After the issuance of Statement of Federal Financial Accounting Standards (SFFAS) 31, federal preparers had questions about its implementation. The below Staff Implementation Guidance (SIG) Q&As address questions that were raised by federal preparers. 2. SIG does not establish new requirements. Rather, SIG is intended to assist preparers in the application of FASAB literature. Staff Implementation Guidance 3. Q 1: Do the requirements of Statement of Federal Financial Accounting Standards (SFFAS) 31 extend to all reports required by law or administrative action? 4. No. SFFAS 31 explains the scope of the standards as follows: SFFAS 31 [8] This statement provides financial reporting standards for fiduciary activities in the general purpose financial statements for Federal entities. The standard does not affect reporting in the Budget of the United States or special-purpose reports. 5. Accordingly, SFFAS 31 does not apply to (a) reports such as stand-alone audited financial statements that are prepared under an "other comprehensive basis of accounting" (which may be considered "special purpose reports") or (b) individual statements provided to beneficiaries. 6. With respect to individual statements to beneficiaries, some have suggested that the SFFAS 31 disclosures should be based on information prepared at the beneficiary ownership level and aggregated for the component entity. Component entities using this approach would develop and report accrual basis information for the individual beneficiary. The Board does not intend that this approach be required. Rather, the Board intends the accrual of fiduciary activities to be implemented in a cost-effective manner. Therefore, a single aggregate accrual that supports information presented in the schedule of net assets and fiduciary activity in a note to the financial statements should be considered. This approach would support the disclosures required by SFFAS 31 in a cost-effective manner. 7. Q 2: May component entities aggregate fiduciary activities for disclosure purposes? 8. Yes. Further, discretion is permitted in selecting activities to be presented individually. 9. SFFAS 31 provides: SFFAS 31 [20] For component entities with several distinct fiduciary activities, summary financial information required in paragraph 18 should be provided for each fiduciary activity presented individually. Information for fiduciary activities not presented individually (see paragraph 21) may be aggregated. [21] Selecting fiduciary activities to be presented individually requires judgment. The preparer should consider both quantitative and qualitative criteria. Acceptable criteria include but are not limited to: quantitative factors such as the percentage of the reporting entity's fiduciary net assets or inflows; and qualitative factors such as whether a fiduciary activity is of immediate concern to beneficiaries, whether it is politically sensitive or controversial, whether it is accumulating large balances, or whether the information provided in the fiduciary note disclosure would be the primary source of financial information for the public. 10. Paragraph 20 of SFFAS 31 identifies the summary financial information that should be provided for each fiduciary activity presented individually and explains that this financial information should be presented as aggregated for all activities not presented individually. Paragraph 21 of SFFAS 31 recognizes that judgment should be exercised in deciding if any fiduciary activities should be presented individually. For example, subject to the considerations in paragraphs 20 and 21, an entity might present summary financial information for: a. all fiduciary activities in aggregate, b. fiduciary activities aggregated by type of activity such as leasing or investing activity, c. classes1 of beneficiaries separately as individual fiduciary activities, or 1Beneficiaries may belong to a class if they are (1) served by the same system or program office, (2) share certain traits or characteristics (e.g., local governments), or (3) both. d. fiduciary activities conducted by individual program offices. 11. The entity may present simply "total fiduciary funds" as a single column. Alternatively, the entity may present the information by program office to facilitate performance measurement. Yet another option is to present information by class of beneficiary. 12. Q 3: In some cases several bureaus within an agency or department perform activities that result in fiduciary balances that are distributed by another bureau of the agency. Should each bureau include fiduciary activities disclosures in its stand alone audited financial statements? 13. If the activity meets the definition of fiduciary activity it should be disclosed as such in each bureau's stand alone audited financial statements. (See paragraph 5 of this document for clarification regarding special purpose reports.) 14. Per SFFAS 31, par. 10, in a fiduciary activity a Federal entity collects or receives and subsequently manages, protects, accounts for, invests, and/or disposes of cash or other assets in which non-Federal individuals or entities (or "non-Federal parties") have an ownership interest2 that the Federal Government must uphold. 15. For an activity to meet the definition of a fiduciary activity, the Federal entity has to: a. collect and receive fiduciary cash or other assets and subsequently b. perform one or more of the other activities identified in the definition (manage, protect, account for, invest, and/or dispose of the fiduciary cash or other assets). 16. Q 4: In some cases, beneficiaries may direct third parties to make payments to a federal agency for credit to the beneficiaries' account. For example, the beneficiary may hold assets outside the trust and elect to liquidate the assets and have the proceeds deposited in the trust. At what point does this activity result in an asset that qualifies for disclosure as fiduciary activity? 17. The role of the federal entity must be understood in order to determine the extent of the fiduciary disclosure requirement in SFFAS 31. In some cases, there is no fiduciary or trust asset until an actual deposit is received. If, for example, the federal component entity has no collection responsibilities but merely receives funds directed to the entity by the 2The ownership interest must be enforceable against the Federal Government. Judicial remedies must be available for the breach of the fiduciary obligation. (SFFAS 31, par. 10) beneficiary, there is no account receivable. Instead, the entity would become responsible for disclosing cash only after a deposit is made. 18. Q 5: Is there any requirement to report fiduciary assets, liabilities or flows when the Federal entity does not perform any of the fiduciary activities listed in the definition, but does provide other services, such as advisory services that may lead to a contract being executed outside of the Federal government, with no further Federal role? 19. No. Certain activities that support beneficiaries may not lead to the creation of fiduciary or trust assets. 20. Per SFFAS 31, par. 10, in a fiduciary activity a Federal entity collects or receives and subsequently manages, protects, accounts for, invests, and/or disposes of cash or other assets in which non-Federal individuals or entities (or "non-Federal parties") have an ownership interest that the Federal Government must uphold. 21. For an activity to meet the definition of a fiduciary activity, the Federal entity has to: a. collect and receive fiduciary cash or other assets and b. subsequently perform one or more of the other activities identified in the definition (manage, protect, account for, invest, and/or dispose of the fiduciary cash or other assets). 22. Q 6: In some cases, courts may direct third parties to make payments to an escrow account in a commercial bank to be distributed to harmed parties. The escrow accounts are not the property of the Federal government, and the interest income is subject to taxes. In some of these cases, a Federal agency may have some control over disbursements (e.g., by approving or disapproving a third-party distribution plan). Does this situation meet the definition of fiduciary activity in SFFAS 31? 23. No. In this example, the Federal agency has not received or collected the cash or other assets. 24. The definition of fiduciary activities is stated in SFFAS 31, par. 10: In a fiduciary activity a Federal entity collects or receives and subsequently manages, protects, accounts for, invests, and/or disposes of cash or other assets in which non-Federal individuals or entities (or "non-Federal parties") have an ownership interest that the Federal Government must uphold. Non-Federal parties must have an ownership interest in cash or other assets held by the Federal entity under provision of law, regulation, or other fiduciary arrangement. The ownership interest must be enforceable against the Federal Government. Judicial remedies must be available for the breach of the fiduciary obligation. 25. Q 7: Does SFFAS 31 require reporting the monetary value of fiduciary land held in trust? 26. The reporting requirements for non-valued fiduciary assets are found in paragraph 18(d) of SFFAS 31: (bold added) SFFAS 31 [18(d)] Component entities also may have non-valued fiduciary assets. Non-valued fiduciary assets are fiduciary assets for which required disclosure does not include dollar values. Non-valued fiduciary assets may include land held in trust. Component entities holding non-valued fiduciary assets should disclose them in a Schedule of Changes in Non-Valued Fiduciary Assets, which should include a description of non-valued fiduciary assets, beginning quantity, quantity received, quantity disposed of, net increase/decrease in non-valued fiduciary assets, and ending total quantity. 27. Under federal accounting standards, the vast majority of land will be classified as a nonvalued asset. 28. Q: 8: How should the concept of materiality be applied to disclosures about fiduciary activities? 29. The Board's position on materiality is published in the Foreword to Original Pronouncements, Volume 1, available on the FASAB website at: https://fasab.gov/accounting-standards/document-by-chapter/ [Foreword, FASAB Original Pronouncements] Materiality The Board intends that all standards' application be limited to items that are material. "Materiality" has not been strictly defined in the accounting community; rather, it has been a matter of judgment on the part of preparers of financial statements and the auditors who attest to them. Presented below is the Board's position on the issue of materiality at this time. The accounting and reporting provisions of the Board's accounting standards need not be applied to immaterial items. The determination of whether an item is immaterial requires the exercise of considerable judgment, based on consideration of specific facts and circumstances. 30. Additional guidance on materiality is provided in SFFAC 2, SFFAS 1, SFFAS 3, and the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct. SFFAC 2 [78] Some of a reporting entity's components are likely to be required by law or policy to prepare and issue financial statements in accordance with accounting standards other than those recommended by FASAB and issued by OMB and GAO3, e.g., accounting standards issued by the Financial Accounting Standards Board or accounting standards established by a regulatory agency. Those components should continue to issue the required reports. The reporting entities of which the components are a part can issue consolidated, consolidating, or combining statements that include the components' financial information prepared in accordance with the other accounting standards. They need to be sensitive, however, to differences resulting from applying different accounting standards that could be material to the users of the reporting entity's financial statements. If these differences are material, the standards recommended by FASAB and issued by OMB and GAO should be applied. The components would need to provide any additional disclosures recommended by FASAB and included in the OMB-issued standards that would not be required by the other standards. 3 Note: After October 1999, FASAB issues standards absent an objection from the Office of Management and Budget (OMB) or the Government Accountability Office (GAO). SFFAS 1 [12] Except as otherwise noted, the accounting and reporting provisions of the accounting standards recommended in this Statement need not be applied to items that are qualitatively and quantitatively immaterial. [13] The determination of whether an item is material depends on the degree to which omitting or misstating information about the item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. SFFAS 3 [8] The accounting and reporting provisions of the Board's accounting standards need not be applied to immaterial items. The determination of whether an item is immaterial requires the exercise of considerable judgment, based on consideration of specific facts and circumstances. [9] FASB's Statement of Accounting Concepts No. 2, "Qualitative Characteristics of Accounting Information," discusses the concept of materiality. According to this statement, the determination of whether an item is material depends on the degree to which omitting or misstating information about this item makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or the misstatement. This concept includes both qualitative and quantitative considerations. An item that is not considered material from a quantitative standpoint may be considered material if it would influence or change the judgment of the financial statement user. 31. In addition, the AICPA Code of Professional Conduct, Rule 203 states (bold added): AICPA Rule 203 Accounting Principles A member shall not (1) express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. If, however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement. Materiality with respect to fiduciary disclosures should be based on professional judgment considering relevant qualitative and quantitative factors. Examples of quantitative factors include but are not limited to the relationship of fiduciary amounts to other appropriate information in the entity's principal financial statements including disclosures. For example, the quantitative materiality determination for each fiduciary item could be made based on the significance of those amounts to amounts recognized on the principal financial statements of the reporting entity, and/or on the significance of an individual item within the fiduciary amounts to all fiduciary amounts presented by the reporting entity. In all cases, qualitative materiality aspects should be appropriately considered. 32. Q 9: May estimating techniques be used when reporting fiduciary disclosures? 33. Yes, estimating techniques may be used when reporting fiduciary disclosures. For example, accrual estimates may be developed and reported on a summary level. 34. When estimates are used for summary information for fiduciary activities, the fiduciary note may include disclosure of the use of estimates and explain that the actual results may vary from the estimates reported. Effective Date 35. This guidance is effective upon issuance. The provisions of this Staff Implementation Guidance need not be applied to immaterial items. Basis for Conclusions A1. After the issuance of SFFAS 31, several federal agencies had questions about its implementation. Staff drafted an initial draft SIG based upon questions from agencies and hosted a public meeting to discuss the draft. A2. Revised draft SIG was posted for public comment for the required two-week comment period. Seven comment letters were received. Six comment letters were from federal preparers and one was from a nonfederal professional organization. Based upon comments received, staff drafted revised SIG and forwarded it to the Board on March 3, 2009 for a 15-day review period. The final SIG was issued on March 19, 2009. Staff Implementation Guidance 6.1: Clarification of Paragraphs 40-41 of SFFAS 6, Accounting for Property, Plant, and Equipment, as amended Status Issued July 17, 2018 Effective Date Effective upon issuance. Affects SFFAS 6, par. 40-41 Affected by None. Summary This guidance addresses implementation guidance provided in Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for Property, Plant, and Equipment, as amended. Specifically, it responds to a question raised since the issuance of SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35. Table of Contents Summary 1 Introduction 3 Technical Guidance 3 Effective Date 4 Basis for Conclusions 5 Introduction 1. After the issuance of Statement of Federal Financial Accounting Standards (SFFAS) 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35, Federal Accounting Standards Advisory Board (FASAB or "the Board") staff identified certain necessary clarifications1 regarding whether both of the alternative methods for establishing opening balances and the alternative for estimated net remaining cost per the second sentence in paragraph 41 of SFFAS 6, as amended, could be applied. 2. The below Staff Implementation Guidance (SIG) Q&A addresses the question raised by the Department of Defense (DoD). SIG does not establish new requirements. Rather, SIG is intended to assist preparers in the application of FASAB literature. Technical Guidance 3. Q1: Can both of the alternative methods for establishing opening balances provided by paragraph 40 of SFFAS 6, as amended, and the alternative to record property, plant, and equipment (PP&E) at its estimated net remaining cost provided by paragraph 41 of SFFAS 6, as amended, be applied? 4. Yes. Paragraph 40 of SFFAS 6, as amended, provides alternative methods for establishing opening balances for reporting entities that meet the specified conditions and elect to apply any of the alternative methods available. 5. For those reporting entities, the implementation guidance provided in paragraph 41 of SFFAS 6, as amended, may also be applied. Paragraph 41 states: Accumulated depreciation/amortization shall be recorded based on the estimated cost and the number of years the PP&E has been in use relative to its estimated useful life. Alternatively, the PP&E may be recorded at its estimated net remaining cost45 and depreciation/amortization charged over the remaining life based on that net remaining cost. 45Net remaining cost is the original cost of the asset less any accumulated depreciation/amortization to date. 1These clarifications were outside the scope of the implementation guidance that FASAB provided in Technical Release (TR) 18, Implementation Guidance for Establishing Opening Balances. 6. This alternative allows for PP&E to be recorded at its estimated net remaining cost (often called net book value), which is the original cost of the asset less any accumulated depreciation/amortization to date.2 This alternative was provided as a cost-beneficial option for the year of implementation. 7. An important premise for all the opening balance alternatives is that management should expect to provide adequate documentation that is consistent with the method used and supports the overall reasonableness of the valuation.3 Further, management is also responsible for maintaining adequate documentation of data sources and the application of methodologies.4 Applying the provisions of paragraph 41 does not alter the requirement to ensure adequate support for any values established for opening balances using the alternatives methods (such as deemed cost), including accumulated depreciation and inservice dates. Effective Date 8. This guidance is effective upon issuance. The provisions of this Staff Implementation Guidance need not be applied to immaterial items. 2Therefore, in the year of implementation the opening balance of accumulated depreciation would be zero and the depreciation/amortization expense would be charged based on the net remaining cost and the remaining life. This alternative also is applicable to required disclosures articulated in par. 45 of SFFAS 6, as amended. 3TR 18, par. 10. 4TR 18, par. 11. Basis for Conclusions FASAB has authorized its staff to prepare SIG to provide timely guidance on certain financial accounting and reporting problems, in accordance with the Board's rules of procedure, as amended and restated through October 2010. The provisions of SIG need not be applied to immaterial items. This appendix discusses some factors considered significant by staff in reaching the conclusions in this SIG. It includes the reasons for accepting certain approaches and rejecting others. Some factors were given greater weight than other factors. The guidance enunciated in the technical guidance section-not the material in this appendix-should govern the accounting for specific transactions, events, or conditions. This guidance may be affected by later Statements or other pronouncements. The FASAB Handbook is updated annually and includes a status section directing the reader to any subsequent pronouncements that amend this SIG. Within the text of the documents, the authoritative sections are updated for changes. However, this appendix will not be updated to reflect future changes. The reader can review the basis for conclusions of the amending Statement or other pronouncement for the rationale for each amendment. A1. After the issuance of SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35, DoD inquired whether the alternative methods for establishing opening balances could be applied in concert with the second sentence in paragraph 41 of SFFAS 6, as amended. Because "deemed cost" (as defined in the amendments to SFFAS 6) was not incorporated in paragraph 41, it may be unclear whether recording PP&E at "net remaining cost" is appropriate when deemed cost is used to establish initial amounts. A2. FASAB staff drafted a response based upon the question received from DoD. Because deemed cost is a surrogate for initial costs, staff concluded the alternative to record PP&E at estimated net remaining cost is appropriate even when the surrogate or deemed cost is used. Staff hosted a public meeting with the preparer and auditor community to discuss the draft response. A3. The participants discussed several issues regarding documentation and support for opening balances, including the underlying in-service dates, useful lives, and capital improvements. The participants noted concerns with these areas but understood that those particular issues went beyond the scope of the proposed SIG. Participants acknowledged that the proposed guidance related to a very narrow scope. A4. The scope of this guidance is strictly to answer the question put forth in paragraph 3; it does not provide guidance on useful lives, estimating remaining useful lives, or the treatment of capital improvements. A5. The proposed SIG 6.1: Clarification of Paragraphs 40-41 of SFFAS 6, Accounting for Property, Plant, and Equipment, as amended, was available for public comment for the required 15-day period. FASAB staff received four comment letters from federal preparers. No disagreements or suggestions were provided. A6. The Board has reviewed this SIG and a majority of members do not object to its issuance. This index provides references to the topics in this Volume. References to the pronouncements are organized as follows: The first character indicates that it is a Concepts Statement (C), a Standards Statement (S), an Interpretation (I), a Technical Release (T), a Technical Bulletin (B) or Staff Implementation Guidance (G). This letter is followed by a number to indicate which pronouncement it refers to. The number is followed by a “P” for paragraph which is followed by the paragraph number(s). This index does not encompass all topics addressed in FASAB pronouncements, may not include all references for each topic, and should not be considered authoritative. In addition to accounting topics, the index lists certain agencies or programs that have been used in illustrations or that have unique provisions within the standards. A ACCOMPLISHMENTS C1P128-129 ACCOUNTABILITY C1P73-74 ACCOUNTS PAYABLE Accounting for S1P74-80 Basis for Conclusions S1P151-156 ACCOUNTS RECEIVABLE Accounting for S1P40-52, B2020-1 Assessments S7P53-55 Basis for Conclusions S1P116-133 Interest Receivables S1P53-56 Sales of receivables S7P301 ACQUISITION COST Assets of other retirement benefit plans S5P85 Concepts C7P12-13 General PP&E S6P26, T13, T15 Inventory S3P20,S3P23 Investments in Treasury securities S1P68-70 Pension plan assets S5P68 ADVANCES (see also "Other Current Liabilities") Accounting for S1P57-61 Basis for Conclusions S1P137-139 AGRICULTURE, DEPARTMENT OF Inter-entity costs S4P225 AMORTIZATION Basis for Conclusions S1P147 Direct Loans S2P30-32 Investments in Treasury Securities S1P70-71 APPROPRIATIONS (see also "Other Financing Sources") Transactions S7P331-332 TOPIC REFERENCE Unexpended S7P71-72 ASBESTOS-RELATED CLEANUP COSTS Estimates of B2006-1P25-30 Liabilities for B2006-1P31-35 Expenses for B2006-1P36-41 Note disclosures about B2006-1P47-49 Implementation T10 ASSESSMENTS S7P53-55 AUDIT Legal Representation Letter T1 AUTHORITY TO BORROW Basis for Conclusions S1P112-113 Definition S1P34-35 B BAD DEBT (see also "Uncollectibles") Accounts Receivable S1P44-51 Loans post-1991 S2P71-72 pre-1992 direct S2P47 BALANCE SHEET (see also "Display") C2P84-85 BANK DEPOSIT INSURANCE S7P284 BUDGET ACCOUNTS C2P13-21 BUDGETARY INFORMATION S7P77-82 BUDGETARY INTEGRITY Budget Execution C1P46 Budget Statement C21P63-64 Financial Reporting C2P6 Financial Statements C2P56 Focus of SFFAC #1 C1P42 Information for Users C1P110 Objective 1 C1P112-121 User Groups C1P89-91 BUDGETARY RESOURCES character of S7P24 Financial & budgetary accounting S7P203-225 reporting of S7P77-82 Statement of Budgetary Resources C2P104-105 BUSINESS-TYPE ACTIVITIES S6P23-24 C CANCELLATION OF DEBT S7P313, I-11 TOPIC REFERENCE CAPITALIZATION THRESHOLD Basis for Conclusions S6P148-149 PP&E S6P13 CASH Accounting for S1P27-30 Basis for Conclusions S1P103-105 CASH BASIS OF ACCOUNTING financial reporting S7P25-26 Non-exchange Revenue S7P174 CHANGES IN ACCOUNTING PRINCIPLES S21P12-13 CHANGES IN ASSUMPTIONS Reporting for pensions, other retirement benefits and other post-employment benefits S33P19-25 CIVIL SERVICE RETIREMENT SYSTEM S5P61 CLASSIFICATION OF TRANSACTIONS (Illustrations) S7P235-370 CLASSIFIED ACTIVITIES S56,I8 CLEANUP COST Accounting for S6P85-111,19 Basis for Conclusions S6P182-199 Reimbursement for S7P292 Implementation T10, T11 COAST GUARD Cleanup Cost Reimbursement S7P292 COMMERCE, DEPARTMENT OF Inter-entity costs S4P225 COMMODITIES (see also "Goods Held Under Price Support and Stabilization Programs") S3P92-109 COMMODITY CREDIT CORPORATION Commodities S3P94 Crop Insurance S7P284 Transfers by CCC to FCIC S7P340 COMPARABILITY financial reports C1P164 performance C2P109 COMPLETENESS C2P109 COMPREHENSIVE LONG-TERM PROJECTIONS FOR THE U.S. GOVERNMENT S36P19-44 CONSISTENCY financial reports C1P163 performance C2P109 CONSOLIDATED FINANCIAL REPORT OF TOPIC REFERENCE THE U.S. GOVERNMENT C4P6-9,S24,S32,S35,S36,S45,S46, S47,S49,S51,S52 CONSOLIDATION S4P244-247 CONTINGENCIES S5P35-42 CONTRACT AUTHORITY S1P34 CONTRACTOR-DEVELOPED SOFTWARE S6P145 CORRECTION OF ERRORS S21P10-11 COST FINDING TECHNIQUES S1P74-76 COST-BENEFIT C1P151-155 COSTING METHODOLOGY (see also "Managerial Cost Accounting") S4P116-162 CUSTODIAL ACTIVITIES Basis for Conclusions S3P151-153 Custodial transfers S7P353 Property S3P57 Revenue S7P49 CUSTOMER-LESSEE B2023-1P15 CUSTOMS SERVICE Collecting revenue S7P289-291 Fees S7P250-255 D DEDICATED COLLECTIONS Definition S27P11-18 Reporting and disclosure S27P19-35 DEEMED COST Definition S48P7 Opening balances for inventory, OM&S, and stockpile materials S48P10-12 DEFERRED MAINTENANCE AND REPAIRS Condition Information S42P20 Measurement and Reporting S42P9-16 DEPRECIATION Basis for Conclusions S6P153-156 Expense S6P35-39 DIRECT LOANS AND LOAN GUARANTEES Accounting and reporting S2P21-61 Additional disclosure requirements S18P10-11 Preparing subsidy estimates T6 (See also "Federal Credit Reform Act of 1990") DIRECTED FLOWS OF RESOURCES Accounting for S7P69 TOPIC REFERENCE Basis for Conclusions S7P198-202 DISCOUNT ON BONDS S1P69 DISPLAY Balance Sheet C2P84-85 Financial Information C2P54-112 Financial Reporting C2P74-83 Flow Statements C2P58-62 Other Information C2P68-73 Required Supplementary Stewardship Information S8P21 Statement of Budgetary Resources C2P104-105 Statement of Changes in Net Position C2P100 Statement of Custodial Activities C2P101-103 Statement of Financing S7P95-102 Statement of Net Costs C2P86-99 Statement of Program Performance Measures C2P106-111 Stock Statements C2P57 DONATIONS definition S7P258 General PP&E S6P30 PP&E S6P26 Revenue S7P62 E EFFORTS C1P201 EMPLOYEE BENEFITS Contributions to health benefit plans S7P318-319 Contributions to pension and other retirement benefit plans S7P316-317 Unemployment benefits and workers comp S7P320-321 ENTITY C2, S47 ENTITY ASSETS Accounting for S1P25-26 Basis for Conclusions S1P100-102 ENVIRONMENTAL LIABILITIES Probable and Reasonably Estimable T2 ENVIRONMENTAL LIABILITIES (see also "Cleanup Cost") Contingencies S5P35-42 EXCHANGE REVENUE (see also "Revenue") S7P33-47 F FAIR VALUE S6P20 FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD C1P23-29 TOPIC REFERENCE FEDERAL COMMUNICATIONS COMMISSION Auction of the radio spectrum S7P278-279 FEDERAL CREDIT REFORM ACT OF 1990 S2P614 FEDERAL CROP INSURANCE Illustration S5P110 FEDERAL DEBT S5P47-55 FEDERAL DEPOSIT INSURANCE Illustration S5P110 FEDERAL EMPLOYEE CONTRIBUTIONS S7P285-288 FEDERAL EMPLOYEE RETIREMENT SYSTEM S5P61 FEDERAL FINANCIAL REPORTING ENVIRONMENT C1P177-179 FEDERAL RESERVE SYSTEM Deposits of Earnings S7P256-257 Entity S47 FIDUCIARY ACTIVITIES S31P10-30, G31.1 FINANCIAL POSITION C1P180-182 FINANCIAL REPORTING C1P21-70 FINES AND PENALTIES definition S7P260-262 delinquent taxes S7P263 FISCAL SUSTAINABILITY (See Long-Term Projections) FORECLOSED PROPERTY Accounting for S3P79-91 Basis for Conclusions S3P154-158 Sales of Property Associated with Pre-1992 Direct Loans and Loan Guarantees S7P300 FOREIGN CURRENCY (see also "Cash") S1P27 FORFEITED PROPERTY Accounting for S3P67-78 Basis for Conclusion S3P139-153 Forfeiture Revenue S7P264-269 FULL COST (see also "Managerial Cost Accounting") S4P89-104 FUND BALANCE WITH TREASURY Authority to borrow S1P35 Basis for Conclusions S1P106-115 Clearing account balances S1P32 Contract Authority S1P34 Obligated balances S1P37 Unobligated balances S1P37-38 FUND BALANCE WITH TREASURY S1P38 FUNDED LIABILITIES S1P94-96 TOPIC REFERENCE FUNDS FROM DEDICATED COLLECTIONS (See also "Dedicated Collections") S43P5-13 G GAINS S7P293-304 GENERAL SERVICES ADMINISTRATION Inter-entity costs S4P225 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Distinguishing Basic Information and Required Supplementary Information C2P73B-73E Hierarchy S34P5-8 Standards issued by the Financial Accounting Standards Board S34P9-12 GOODS HELD UNDER PRICE SUPPORT AND STABILIZATION PROGRAMS Accounting for S3P92-109 Basis for Conclusions S3P159-162 GOVERNMENTAL ASSETS AND LIABILITIES Basis for Conclusions S1P98-99 GOVERNMENTAL LIABILITIES Accounting for S1P21-24 H HARBOR MAINTENANCE TRUST FUND User Fees S7P249 HERITAGE ASSETS AND STEWARDSHIP LAND S29P19-27 Land S29P19-27 Asbestos-related cleanup costs B2006-1P42-46 HIERARCHY OF GAAP (see Generally Accepted Accounting Principles) HISTORICAL COST Concepts of S7P12 Estimating for PP&E S6P40, S6P45,S23P10-18 I IMPAIRMENT See also “Internal Use Software” S44 INCOME TAX BURDEN Post 1999 Direct Loans S7P69.1 INDIAN TRUST FUNDS Entity I1P3 INSURANCE AND GUARANTEES S5P97-121 INTER-ENTITY COSTS (see also "Managerial Cost Accounting")S4P105-115 TOPIC REFERENCE INTEREST Post 1999 Direct Loans S7P280 Receivables from custodial activities S7P281 Received by on fund from another S7P309 Received by Treasury S7P327 Treasury securities held by revolving funds S7P322-323 Treasury securities held by trust and special funds S7P306-308 Treasury securities held by trust revolving funds S7P324-325 Uninvested funds received by financing accounts S7P326 INTEREST METHOD S1P71 INTEREST RECEIVABLE Accounting for S1P55-56 Basis for Conclusions S1P134-136 INTEREST, DIVIDENDS, AND RENTS S7P272-273 INTERIOR, U.S. DEPARTMENT OF THE Natural Resources S38P13-29, B2011-1P12-29 INTERNAL USE SOFTWARE S10P8-36 Implementation Guidance TR16 INTRAGOVERNMENTAL ASSETS AND LIABILITIES Accounting for S1P18-24 Basis for Conclusions S1P98-99 INTRAGOVERNMENTAL LEASEHOLD REIMBURSABLE WORK AGREEMENTS B2023-1P14 INVENTORY HELD FOR SALE Accounting for S3P17-35 Alternative valuation method for opening balances S3P26 Basis for Conclusions S3P111-133 Held for repair or remanufacture S3P35, I7P10-12 Revaluations S7P349-350 INVESTMENTS IN TREASURY SECURITIES Basis for Conclusions S1P140-150 Market value disclosure S1P72 Marketable S1P65 Market-based S1P64 Nonmarketable par value S1P63 INVESTMENTS IN TREASURY SECURITIES S1P62-73 ITEMS HELD FOR REMANUFACTURE I7P10-17 J JUDGMENT FUND Accounting for I2P3 JUSTICE, DEPARTMENT OF TOPIC REFERENCE Diversion fees S7P283 Forfeitures S7P264-269 L LABOR, DEPARTMENT OF State unemployment taxes S7P247-248 LAST-IN, FIRST-OUT METHOD S3P132 LATEST ACQUISITION COST Inventory & Related Property S3P23 LEASES S54P2-4 LEGITIMACY C2P109 LIABILITIES Definition S5P19 Exchange transactions S5P22-23 Government-acknowledge events S5P30-32 Government-related events S5P27-29 Litigation S12P10-11 Nonexchange transactions S5P24-25 LIFE INSURANCE PREMIUMS S7P284 LOAN GUARANTEES (see Direct Loans and Loan Guarantees) LONG-TERM PROJECTIONS S36P19-44 LOSSES ON CONTRACTS S7P36 LOSSES S7P293-304 LOWER OF COST OR MARKET S3P118-120 M MANAGEMENT’S DISCUSSION AND ANALYSIS AND ANALYSIS (MD&A) MD&A Concepts C2P69 MD&A Standards S64P8-13 MANAGERIAL COST ACCOUNTING Cost Subsidies S7P333-337 Costing Methodology S4P116-162, T15 Full Cost S4P89-104, T15 Inter-Entity Costs S4P105-115 Managerial Cost Accounting Concepts S4P41-66 Purposes of Cost Information S4P31-40 Requirement for Cost Accounting S4P67-76 Responsibility Segments S4P77-88 MANAGERIAL COST ACCOUNTING CONCEPTS (see also "Managerial Cost Accounting") S4P41-66 MANAGERIAL COST ACCOUNTING S4P1-2 MARKET VALUE Investments S1P72 TOPIC REFERENCE Property S3P59-70 MILITARY RETIREMENT SYSTEM S5P61 MINERALS MANAGEMENT SERVICE Exchange revenue unrelated to recognized cost S7P140-147 Exchange revenue S7P45 Rents, royalties and bonuses S7P274-277 MODIFIED CASH BASIS Taxes & Duties S7P172-173 MORE LIKELY THAN NOT S1P44 N NATIONAL FLOOD INSURANCE Illustration S5P110 NATIONAL SCIENCE FOUNDATION Inter-entity costs S4P225 NATURAL RESOURCES Custodial activity S7P142-143 Federal oil and gas resources, accounting for S38P13-29 Meeting the asset definition C5P23, C5P32 Other federal natural resources, accounting for B2011-1P12-29 NET COSTS Display C2P100 Exchange Revenue S7P43-44 NET POSITION C2P84 NON-ENTITY ASSETS S1P26 NONEXCHANGE REVENUE Recognition by Recipients I5P2 NONEXCHANGE REVENUE (see also "Revenue") S7P48-69 NONRECOURSE LOANS (not subject to Credit Reform Act provisions) Accounting for S3P93-102 Basis for Conclusions S3P159-160 NON-VALUED SEIZED AND FORFEITED PROPERTY Reporting On T4 NOTE DISCLOSURES Concepts C2P68 NUCLEAR REGULATORY COMMISSION Fees S7P282 O OBLIGATIONS INCURRED S7P96 OFFICE OF PERSONNEL MANAGEMENT Retirement costs C2P51 TOPIC REFERENCE OPENING BALANCES Definition S48P8 Alternative valuation for property plant and equipment S6P40, T18 Alternative valuation for internal use software S10P36,T18, G6.1 Alternative valuation for inventory, OM&S, and stockpile materials S48P10-12, T18 OPERATING MATERIALS AND SUPPLIES Accounting for S3P36-50 Held for repair or remanufacture I7P13-14 OTHER ACCOMPANYING INFORMATION C2P73F-73G OTHER CURRENT LIABILITIES S1P158-160 OTHER FINANCING SOURCES Appropriations Unexpended S7P71 Used S7P72 Financing Imputed for Cost Subsidies S7P73 General S7P70 Transfers of Assets S7P74-75 OTHER FINANCING SOURCES S7P70-75 OTHER POSTEMPLOYMENT BENEFITS S5P94-96 Reporting changes in assumptions S33P19-25 Selecting discount rates S33P28-32 Selecting valuation dates S33P33-34 OTHER RETIREMENT BENEFITS S5P79-93 Reporting changes in assumptions S33P19-25 Selecting discount rates S33P28-32 Selecting valuation dates S33P33-34 OUTCOME Indicators C1P206-208 OUTER CONTINENTAL SHELF S7P274 OVERSEAS INVESTMENT INSURANCE Illustration S5P110 P PENALTIES (see also "Fines and Penalties") S7P61 PENSION BENEFIT GUARANTEE CORPORATION Illustration S5P110 Insurance S5P101 Premiums S7P284 PENSIONS TOPIC REFERENCE Accounting for Excess Payments I4P9-17 Reporting changes in assumptions S33P19-25 Selecting discount rates S33P28-32 Selecting valuation dates S33P33-34 PERFORMANCE MEASURES Purpose of S4P34-36 Statement on C2P65 PREMIUM ON BONDS S1P69 PREPAYMENTS (see also "Other Current Liabilities") S1P57-59 PRIOR PERIOD ADJUSTMENTS S7P76 PROBABLE S5P33 PROGRESS PAYMENTS Accounts Payable S1P78-79 Advances & Prepayments S1P58 PROPERTY, PLANT, AND EQUIPMENT (PP&E) Exchange S7P297-299 Impairment S44 Revaluations S7P37-348 Stewardship PP&E S8P11 PROVIDER-LESSOR B2023-1P16 PUBLIC-PRIVATE PARTNERSHIPS Definition S49P16-19 Disclosures S49P22-25 Risk Based Characteristics S49P20-21 PURCHASE AGREEMENTS S3P94-109 R RAILROAD RETIREMENT BOARD S7P341-343 RECOGNITION S5P19 RECONCILIATION STATEMENT S7P91-94 REFUNDS Exchange Revenue S7P41 Nonexchange Revenue S7P57-58 RELEVANCE C1P161 RELIABILITY Financial Reporting C1P160 Performance measure C2P109 RENTS AND ROYALTIES S7P274-277 REPAIR ALLOWANCE S3P32-33 REPORTING ENTITY (see also "Entity") C2, S47 REPORTING OBJECTIVES C1P105-150 REQUIREMENT FOR COST ACCOUNTING TOPIC REFERENCE (see also "Managerial Cost Accounting") S4P67-76 RESPONSIBILITY SEGMENTS Activities of C2P75 Cost of S7P122 RESPONSIBILITY SEGMENTS (see also "Managerial Cost Accounting") Standards for S4P77-88 RESTRICTED AMOUNTS Basis for Conclusions Cash S1P103-105 Funds for specific purposes S1P115 Cash S1P30 Fund Balance with Treasury S1P38 RESULTS OF OPERATIONS Appropriations S7P72 Balance Sheet-Net Position C2P84 Display C2P73 MD&A C1P181 Nonfinancial information C1P231-232 Other Financing Sources S7P70 Prior Period Adjustment S7P203 Reporting Objectives C1P47 Reports on C1P191 Revenue S7P17 Taxes & Duties S7P60 The Term "Results of Operations" S7P224-225 Transfers In & Out S7P220 RETIREMENT OF DEBT SECURITIES PRIOR TO MATURITY Revolving funds & trust revolving funds S7P329-330 Trust and special funds S7P311-312 RETIREMENT OF DEBT SECURITIES PRIOR TO MATURITY S7P303-304 REVENUE Classification of Transactions S7P235-370, B2017-1 Exchange Revenue S7P33-47 Nonexchange Revenue S7P48-69 REVENUE S7P30 S SALE OF ASSETS S7P294-300 SALES OF TOPIC REFERENCE Goods and services intragovernmental by a revolving fund S7P314 by other than a revolving fund S7P315 Goods and services in undercover operations S7P271 Goods and services S7P270 Government assets other than PP&E, forfeited and foreclosed property S7P294 PP&E S7P295-296 SECURITIES AND EXCHANGE COMMISSION Registration and filing fees S7P282 SEIGNIORAGE S7P305 SEIZED PROPERTY Accounting for S3P59-66 Basis for Conclusions S3P139-153 SOCIAL INSURANCE Accounting and reporting for, entities S17P22-27, S37P31-38 Accounting and reporting for, governmentwide...S17P29-32, S37P39 Characteristics of S17P15-21 Management's discussion and analysis of S37P23-27 Programs designated as social insurance S17P14 SOCIAL SECURITY (see also "Social Insurance") Federal employees coverage S7P310 SOFTWARE Accounting for S10P8-36 Amortization S10P32-34 Capitalizable Cost S10P16-18 Definitions S10P8-9 Development Phases S10P10-14 Enhancements S10P25-27 Impairment S10P28-31 SOVEREIGNTY C1P50 STANDARD COST Cost Accounting S4P160-162 Definition S3P123-128 System S3P22 STATE, DEPARTMENT OF Inter-entity costs S4P225 STEWARDSHIP LAND (See Heritage Assets and Stewardship Land) STOCKPILE MATERIALS TOPIC REFERENCE Accounting for S3P51-56 Basis for Conclusions S3P135-138 SUBSEQUENT EVENTS S39P11-17 SUPPLEMENTARY MEDICAL INSURANCE General Fund Contribution S7P338-339 Premiums S7P284 SYSTEMS AND CONTROL C1P146-150 T TAX BURDEN S7P69 TAX EXPENDITURES S7P192-197,S7P69,S52 TAX GAP Nonexchange Revenue Gap S7P188-191 OAI S7P69 TAXES AND DUTIES S7P49-60 TIMELINESS C1P162 TIMELINESS C2P109 TRANSFERS OF ASSETS Cash and other assets S7P344 Stewardship PP&E S7P345-346 TRANSFERS OF ASSETS S7P74-75 TREASURY SECURITIES Accounting for S1P62-73 Basis for Conclusions S1P140-150 TREASURY, DEPARTMENT OF Forfeitures S7P264-269 TRUST FUND Disclosures S7P68 Entity C2P19-20 Excise Taxes S7P60 Over- & Under-funding S7P177 Social Security Taxes S7P60 U UNCOLLECTIBLE AMOUNTS Bad Debts S7P39-40 Basis for Conclusions S7P126-131 Nonexchange revenue S7P56 UNDERSTANDABILITY OF INFORMATION C1P157-159 UNEARNED REVENUE S7P37 UNEMPLOYMENT TRUST FUND Deposits by States S7P247 UNRESERVED ASSERTION TOPIC REFERENCE Definition S48P10 UNUSED CAPACITY COSTS S4P258-263 USERS Classifications of C1P75-87 Cost Information S4P18-21 USERS’ NEEDS C1P88-104 V VETERANS AFFAIRS, DEPARTMENT OF Life Insurance S5P110 Medical Care Cost S5P182-184 Responsibility Segments S4P188 Whole Life Policies S5P115 Whole Life, Basis for Conclusions S5P191-193 W WEAPONS SYSTEM Federal Mission PP&E S7P50-51 Appendix B: Effective Dates of Statements, Interpretations, and Technical Releases Statement of Federal Financial Accounting Concepts (SFFAC) SFFAC 1 Objectives of Federal Financial Reporting SFFAC 2 Entity and Display SFFAC 3 Management’s Discussion and Analysis (RESCINDED 9/27/2024) SFFAC 4 Intended Audience and Qualitative Characteristics for the Consolidated Financial Report of the United States Government SFFAC 5 Definitions of Elements and Basic Recognition Criteria for AccrualBasis Financial Statements SFFAC 6 Distinguishing Basic Information, RSI, and OAI SFFAC 7 Measurement of the Elements of Accrual-Basis Financial Statements in Periods After Initial Recording SFFAC 8 Federal Financial Reporting SFFAC 9 Materiality: Amending Statement of Federal Financial Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting, And SFFAC 3, Management’s Discussion and Analysis SFFAC 10 Omnibus Concepts Amendments 2024: Amending SFFAC 2 with Note Disclosures and MD&A Concepts and Rescinding SFFAC 3 Statement of Federal Financial Accounting Standards (SFFAS) Effective for Fiscal Periods Beginning After SFFAS 1 Accounting for Assets and Liabilities 9/30/93 SFFAS 2 Accounting for Direct Loans and Loan Guarantees 9/30/93 SFFAS 3 Accounting for Inventory and Related Property 9/30/93 SFFAS 4 Managerial Cost Accounting Standards 9/30/97 SFFAS 5 Accounting for Liabilities of the Federal Government 9/30/96 SFFAS 6 Accounting for Property, Plant, and Equipment 9/30/97 SFFAS 7 Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting 9/30/97 SFFAS 8 Supplementary Stewardship Reporting (RESCINDED 9/30/2019) 9/30/97 SFFAS 9 Deferral of Implementation Date for SFFAS 4 9/30/97 SFFAS 10 Accounting for Internal Use Software 9/30/00 Statement of Federal Financial Accounting Standards (SFFAS) Effective for Fiscal Periods Beginning After SFFAS 11 Amendments to Accounting for PP&E—Definitions—(RESCINDED 9/30/2002) 9/30/98 SFFAS 12 Recognition of Contingent Liabilities from Litigation 9/30/97 SFFAS 13 Deferral of Paragraph 65.2—Material Revenue-Related Transactions Disclosures 9/30/98 SFFAS 14 Amendments to Deferred Maintenance Reporting (RESCINDED 9/30/2014) 9/30/98 SFFAS 15 Management’s Discussion and Analysis (RESCINDED 9/30/2025) 9/30/99 SFFAS 16 Amendments to Accounting for Property, Plant, and Equipment—MultiUse Heritage Assets (RESCINDED 9/30/2005) 9/30/99 SFFAS 17 Accounting for Social Insurance 9/30/99 SFFAS 18 Amendments To Accounting Standards For Direct Loans and Loan Guarantees In Statement of Federal Financial Accounting Standards No. 2 9/30/00 SFFAS 19 Technical Amendments to Accounting Standards for Direct and Guaranteed Loans 9/30/02 SFFAS 20 Elimination of Disclosures Related to Tax Revenue Transactions by the Internal Revenue Service, Customs and Others 9/30/00 SFFAS 21 Reporting Corrections of Errors and Changes in Accounting Principles 9/30/01 SFFAS 22 Change in Certain Requirements for Reconciling Obligations and Net Cost of Operations (RESCINDED 9/30/2018) 9/30/00 SFFAS 23 Eliminating the Category National Defense PP&E 9/30/02 SFFAS 24 Selected Standards for the Consolidated Financial Report of the United States Government 9/30/01 SFFAS 25 Reclassification of Stewardship Responsibilities and Eliminating the Current Services Assessment 9/30/02 SFFAS 26 Presentation of Significant Assumptions for the Statement of Social Insurance: Amending SFFAS 25 9/30/2005 SFFAS 27 Identifying and Reporting Earmarked Funds 9/30/2005 SFFAS 28 Deferral of the Effective Date of Reclassification of the Statement of Social Insurance: Amending SFFAS 25 and 26 Upon issuance SFFAS 29 Heritage Assets and Stewardship Land 9/30/2005 SFFAS 30 Inter-Entity Cost Implementation: Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts (RESCINDED 9/30/2018) 9/30/2005 SFFAS 31 Accounting for Fiduciary Activities 9/30/2008 Statement of Federal Financial Accounting Standards (SFFAS) Effective for Fiscal Periods Beginning After SFFAS 32 Consolidated Financial Report of the United States Government Requirements 9/30/2005 SFFAS 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 9/30/2009 SFFAS 34 The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board Upon issuance SFFAS 35 Estimating the Historical Cost of General Property, Plant, and Equipment -- Amending Statements of Federal Financial Accounting Standards 6 and 23 (RESCINDED 9/30/2016) Upon issuance SFFAS 36 Reporting Comprehensive Long-Term Fiscal Projections for the U.S. Government 9/30/2009 SFFAS 37 Social Insurance: Additional Requirements for Management's Discussion and Analysis and Basic Financial Statements 9/30/2010 SFFAS 38 Accounting for Federal Oil and Gas Resources 9/30/2011 SFFAS 39 Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the Statements of Auditing Standards Upon issuance SFFAS 40 Definitional Changes Related to Deferred Maintenance and Repairs: Amending SFFAS 6, Accounting for PP&E 9/30/2011 SFFAS 41 Deferral of the Effective Date of SFFAS 38, Accounting for Federal Oil and Gas Resources Upon Issuance SFFAS 42 Deferred Maintenance and Repairs: Amending Statements of Federal Financial Accounting Standards 6, 14, 29, and 32 9/30/2014 SFFAS 43 Dedicated Collections: Amending SFFAS 27, Identifying and Reporting Earmarked Funds 9/30/2012 SFFAS 44 Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use 9/30/2014 SFFAS 45 Deferral of the Transition to Basic Information for Long-Term Projections (RESCINDED 10/17/2014) Upon issuance SFFAS 46 Deferral of the Transition to Basic Information for Long-Term Projections Upon issuance SFFAS 47 Reporting Entity 9/30/17 SFFAS 48 Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile Materials 9/30/16 SFFAS 49 Public-Private Partnerships: Disclosures Requirements 9/30/18 SFFAS 50 Opening Balances for General PP&E 9/30/16 SFFAS 51 Insurance Programs 9/30/18 Statement of Federal Financial Accounting Standards (SFFAS) Effective for Fiscal Periods Beginning After SFFAS 52 Tax Expenditures 9/30/17 SFFAS 53 Budget and Accrual Reconciliation 9/30/18 SFFAS 54 Leases 9/30/2023 SFFAS 55 Amending Inter-Entity Cost Provisions 9/30/2018 SFFAS 56 Classified Activities 9/30/2018 SFFAS 57 Omnibus Amendments 2019 Multiple; see SFFAS 57 SFFAS 58 Deferral of the Effective Date of SFFAS 54, Leases Upon issuance SFFAS 59 Accounting and Reporting of Government Land The scope of this Statement (paragraphs 1- 3) is effective for reporting periods beginning after September 30, 2021. SFFAS 60 Omnibus Amendments 2021: Leases-Related Topics 9/30/23 SFFAS 61 Omnibus Amendments 2023: Leases-Related Topics II 9/30/23 SFFAS 62 Transitional Amendments to SFFAS 54 9/30/23 SFFAS 63 Omnibus Amendments 2024-1, Amending SFFAS 38, 49, and TB 2011-1 9/30/23 SFFAS 64 Management's Discussion and Analysis: Rescinding and Replacing SFFAS 15 9/30/25 Interpretations Date Issued I-1 Reporting on Indian Trust Funds 3/12/97 I-2 Accounting for Treasury Judgment Fund Transactions 3/12/97 I-3 Measurement Date for Pension and Retirement Health Care Liabilities (RESCINDED 9/30/2009 ) 8/29/97 I-4 Accounting for Pension Payments In Excess of Pension Expense 12/19/97 I-5 Recognition by Recipient Entities of Receivable Nonexchange Revenue 12/98 I-6 Accounting for Imputed Intradepartmental Costs (RESCINDED 9/30/2018 ) 6/00 I-7 Items Held for Remanufacture 3/16/2007 I-8 Classified Activities 3/15/2019 I-9 Cleanup Cost Liabilities Involving Multiple Component Reporting Entities: An Interpretation of SFFAS 5 & SFFAS 6 8/16/2019 I-10 Clarification of Nonfederal Nonentity FBWT Classification (SFFAS 1, Paragraph 31): An Interpretation of SFFAS 1 and SFFAS 31 5/10/2021 I-11 Debt Cancellation: An Interpretation Of SFFAS 7, Paragraph 313 11/29/2021 Technical Bulletins Date Issued 2000-1 Federal Accounting Standards Advisory Board Technical Bulletin 2000-1 6/1/00 2002-1 Assigning to Component Entities Costs and Liabilities that Result from Legal Claims Against the Federal Government 7/1/02 2002-2 Disclosures Required by Paragraph 79(g) of SFFAS 7 9/1/02 2003-1 Certain Questions and Answers Related to the Homeland Security Act of 2002 6/1/03 2006-1 Recognition and Measurement of Asbestos-Related Cleanup Costs 9/28/2006 2009-1 Deferral of the Effective Date of Technical Bulletin 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs 9/22/2009 2011-1 Accounting for Federal Natural Resources Other Than Oil and Gas 9/30/2013 2011-2 Extended Deferral of the Effective Date of Technical Bulletin 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs 11/22/2011 2017-1 Intragovernmental Exchange Transactions 11/1/2017 2017-2 Assigning Assets to Component Reporting Entities 11/1/2017 2020-1 Loss Allowance for Intragovernmental Receivables 2/20/2020 2023-1 Intragovernmental Leasehold Reimbursable Work Agreements 3/17/2023 2024-1 Seized and Forfeited Digital Assets 6/21/2024 Technical Releases Date Issued TR-1 Audit Legal Letter Guidance 3/1/98 TR-2 Environmental Liabilities Guidance 3/15/98 TR-3 Preparing and Auditing Estimates for Direct and Guaranteed LoansTR-3: (RESCINDED 1/22/2004) 2/99 TR-3 (Revised) Auditing Estimates for Direct Loan and Loan Guarantee Subsidies under the Federal Credit Reform Act – Amendments to Technical Release No. 3 Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal Credit Reform Act 1/04 TR-4 Reporting on Non-valued Seized and Forfeited Property 7/31/99 TR-5 Implementation Guidance on SFFAS 10: Accounting for Internal Use Software – Rescinded (RESCINDED 1/19/2016) 5/14/02 1/04 TR-6 Preparing Estimates for Direct Loan and Loan Guarantee Subsidies under the Federal Credit Reform Act – Amendments to Technical Release No. 3 Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal Credit Reform Act TR-7 Clarification of Standards Relating to the National Aeronautics and Space Administration's Space Exploration Equipment 5/25/2007 TR-8 Clarification of Standards Relating to Inter Entity Costs (RESCINDED 1/15/2019) 2/20/2008 TR-9 Implementation Guide for SFFAS29: Heritage Assets and Stewardship Land 2/20/2008 Technical Releases Date Issued TR-10 Implementation Guidance on Asbestos Cleanup Costs Associated with Facilities and Installed Equipment 6/2/2010 TR-11 Implementation Guidance on Cleanup Costs Associated with Equipment 6/2/2010 TR-12 Accrual Estimates for Grant Programs 8/4/2010 TR-13 Implementation Guide for Estimating the Historical Cost of General PP&E 6/1/2011 TR-14 Implementation Guidance on the Accounting for the Disposal of General Property, Plant & Equipment 10/6/2011 TR-15 Implementation Guidance for General Property, Plant, and Equipment Cost Accumulation, Assignment and Allocation 9/26/2013 TR-16 Implementation Guidance for Internal Use Software 1/19/2016 TR-17 Conforming Amendments to Technical Releases 4/10/2017 TR-18 Implementation Guidance for Establishing Opening Balances 10/2/2017 TR-19 Rescission of Technical Release 8 1/15/2019 TR-20 Implementation Guidance for Leases 11/4/2021 TR-21 Omnibus Technical Release Amendments 2022: Conforming Amendments 9/6/2022 TR-22 Leases Implementation Guidance Updates 10/12/2023 TR-23 Omnibus Technical Release Amendments 2024: Conforming Amendments to Technical Releases 10, 16, 20, and 21 7/22/2024 Staff Implementation Guidance Date issued SIG 23.1 Guidance for Implementing SFFAS 23, Eliminating the Category National Defense PP&E: Classification of Items formerly Considered National Defense PP&E 1/31/2006 SIG 31.1 Guidance for Implementation of SFFAC 31, Accounting for Fiduciary Activities 3/19/2009 SIG 6.1 Clarification of Paragraphs 40-41 of SFFAS 6, Accounting for Property, Plant, and Equipment, as amended 7/17/2018 Appendix C: Memorandum of Understanding Among The Government Accountability 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 This Memorandum of Understanding reflects the agreement of the Government Accountability Office (“GAO”), the Department of the Treasury (“Treasury”), and the Office of Management and Budget (“OMB”) on the procedures to be followed in setting federal government accounting standards and the composition and operation of the Federal Accounting Standards Advisory Board. Whereas GAO, Treasury, and OMB conduct a continuous program for improving accounting and financial reporting in the federal government; and Whereas the Comptroller General, the Secretary of the Treasury, and the Director of the Office of Management and Budget established an advisory board under the Federal Advisory Committee Act, as amended (5 U.S.C. App.), to consider and recommend accounting concepts and standards for the federal government; The Comptroller General, the Secretary of the Treasury, and the Director of the Office of Management and Budget (the Sponsors) each hereby agree to continue and serve as sponsors of the Federal Accounting Standards Advisory Board ("Board"). The Board will work under the general oversight of its Sponsors. In addition, the Sponsors each hereby agree to take related actions regarding federal government accounting standards. The Board shall be established as follows: Section 1. Establishment. A. Composition. The Board shall have the following nine members: one GAO member, one OMB member, one Treasury member, and six nonfederal members selected from the general financial community, the accounting and auditing community, and academia. B. Selections and Appointments. The GAO, OMB, and Treasury members will be selected by their respective agencies. The six nonfederal members will be selected by the Sponsors. In selecting the nonfederal members, the Sponsors shall: (1) seek nominations from a wide variety of sources; (2) consider, among other criteria, an individual's (A) broad professional background, and (B) expertise in federal government accounting, financial reporting, and financial management; and (3) consider the recommendations of a panel convened by the chairperson. The Sponsors will select a chairperson, who will be a nonfederal member. C. Tenure. The GAO, OMB, and Treasury members shall serve at the discretion of their respective agency heads. The six nonfederal members will serve initial terms of up to five years with a possible reappointment for one additional term of up to five years. D. Duties. The Board will consider accounting concepts and standards. The Board will not set or propose budget concepts, standards, and principles. In considering accounting concepts and standards, consideration will be given to the budgetary information needs of executive agencies and the needs of users of Federal financial information. Board recommendations on accounting concepts or standards will be submitted to the Comptroller General, the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Director of the Congressional Budget Office. E. Meetings and Agendas. The Board will meet whenever necessary or at the request of the Comptroller General, the Secretary of the Treasury, or the Director of OMB, and will establish detailed working procedures. Board members will be expected to attend all meetings. F. Funding. The Sponsors shall share in funding the Board on an equitable basis. Section 2. Support Staff and Other Groups. A. Staff. A core group of qualified technical staff will support the Board in carrying out its duties and functions. The staff will spend its time working on Board matters and, from time to time, may be augmented with staff assigned from government departments or agencies or other organizations. B. Task Forces. The Board may appoint task forces as necessary to advise it on a variety of accounting matters. Task forces will play an important role in the accounting standard-setting process. They will provide expert views and recommend solutions to issues or problems. Section 3. Accounting Concept and Standard-Setting Process. The Board will follow a six-step process for considering accounting concepts and standards. The steps in the process are: (1) Identification of accounting issues and agenda decisions, (2) Preliminary deliberations, (3) Preparation of initial documents (issues papers and/or discussion memorandums), (4) Release of documents to the public, public hearings, and considerations of comments, (5) Further deliberations, exposure draft, and consideration of comments, and (6) At least a two-thirds majority vote reached among Board members in favor of proposed concepts and standards submitted to the Comptroller General, the Secretary of the Treasury, and the Director of OMB. The Board will determine the detailed procedures necessary to implement these steps. Section 4. Concepts and Standards. Concepts and standards provide a frame of reference for resolving accounting issues. When the Board has developed a proposed concept or standard, the Board shall submit it to the Comptroller General, the Director of OMB, and the Secretary of the Treasury for their review. If, within 90 days after its submission, the Comptroller General or the Director of OMB, (or both) objects (object) to the concept or standard, then it shall not be issued and will be returned to the Board for further consideration; provided however, that the Comptroller General or the Director of OMB, may, in the event that unanticipated circumstances make it difficult for the Comptroller General or the Director of OMB to complete the 90 day review timely, extend the review time for one additional 90 day period. If the Comptroller General or the Director of OMB implements such an extension, he or she will notify the FASAB Chair. If neither the Comptroller General nor the Director of OMB objects to the concept or standard during the review time provided in this paragraph, including any extension of the review time, then it shall be issued and become a final concept or standard of the Board. Concepts and standards will be announced in the Federal Register. A proposed Interpretation or Technical Release shall be submitted to the members of the Board representing the three Sponsors for their review. If, within 45 days after its submission, any one of the members representing a Sponsor objects to the proposed Interpretation or Technical Release, then it shall be returned to the Board for further consideration. If, within 45 days after its submission, none of these officials objects to the Interpretation or Technical Release, then it shall become final. Final Interpretations and Technical Releases will be announced in the Federal Register. The Sponsors agree that standards set and promulgated following the Board’s Rules of Procedure are recognized to have substantial authoritative support, and those accounting standards contrary to such promulgation are not. The Sponsors retain their authorities, separately and jointly, to establish and adopt accounting standards for the federal government. Section 5. Termination. Any modification to this memorandum shall be effective if agreed to by each of the three signatory agencies. This memorandum shall remain in effect until 120 days after one of the Sponsors provides notice of intent to terminate the agreement. Section 6. Effective Date. This memorandum of understanding is effective when executed by the Sponsors. ___/s/_________________________ ____________ Timothy F. Geithner 12/3/2009 Secretary of the Treasury ___/s/_________________________ ____________ Peter R. Orszag 11/2/2009 Director, Office of Management and Budget ____/s/________________________ ____________ Gene L. Dodaro 10/5/2009 Acting Comptroller General of the United States Appendix D: Other Federal Accounting and Auditing Resources For other helpful resources, see http://www.fasab.gov/resources/.   Appendix E: Consolidated Glossary This glossary is a compilation of all terms presented in Statements of Federal Financial Accounting Standards. Some terms are designated as “Special Term from SFFAS #” and are terms defined specifically for the standard indicated. These terms are not intended for general application to other federal financial transactions. Abandoned Property Property of any type over which the rightful owner has relinquished possession and any claim of an ownership interest, without assertion of an adverse right to possession and control by the federal government. This would include property left at a government facility and unclaimed by the rightful owner following notice of intent to dispose. This property is a type of seized property. Abatement A reduction or cancellation of an assessed tax. Accountability Reports These reports are broader in scope than traditional general purpose financial reports. As explained by OMB: “Six pilot agencies volunteered to produce an ‘Accountability Report’ for FY 1995 to provide more useful information to decision makers by linking together information required by several management statutes Accountability Reports integrate the following information: the FMFIA report, the CFOs Act Annual Report (including audited financial statements); management’s Report on Final Action as required by the IG Act; Civil Monetary Penalty and Prompt Payment Act reports; and available information on agency performance compared with its stated goals and objectives, in preparation for implementation of GPRA.” Federal Financial Management Status Report and Five Year Plan, June 1996, pages 33-34. Twelve agencies produced accountability reports for FY 1997; eighteen plan to do so for FY 1998; the number will increase to 23 for FY 2000. (The requirement to include Civil Monetary Penalty and Prompt Payment Act reports has been deleted.) Accrual Accounting Records the effects on a reporting entity of transactions and other events and circumstances in the periods in which those transactions, events, and circumstances occur rather than only in the periods in which cash is received or paid by the entity. Accrual accounting is concerned with an entity’s acquiring of goods and services and using them to produce and distribute other goods and services. It recognizes that the buying, producing, selling, distributing, and other operations of an entity during a period, as well as other events that affect entity performance, often do not coincide with the cash receipts and payments of the period. Compare with cash accounting. [See Financial Accounting Standards Board Statement of Financial Accounting Concepts (SFAC) No. 4, Objectives of Financial Reporting by Nonbusiness Organizations, paragraph 50, SFAC No. 6, Elements of Financial Statements, pars. 139-141, 144-5; and Congressional Budget Office, Glossary of Budgetary and Economic Terms, “Accrual Accounting.”] (SFFAS 24) Acres of Land Held for Disposal or Exchange Land for which the entity has satisfied the statutory disposal authority requirements specific to the land in question. Disposal includes conveyances of federal land to nonfederal entities not limited to sale, transfer, exchange, lease, public-private partnership, and donation or any combination thereof. Activity The actual work task or step performed in producing and delivering products and services. An aggregation of actions performed within an organization that is useful for purposes of activitybased costing. Activity Analysis The identification and description of activities in an organization. Activity analysis involves determining what activities are done within a department, how many people perform the activities, how much time they spend performing the activities, what resources are required to perform the activities, what operational data best reflect the performance of the activities, and what customer value the activity has for the organization. Activity analysis is accomplished with interviews, questionnaires, observation, and review of physical records of work. It is the foundation for agency process value analysis, which is key to overall review of program delivery. Activity-based Costing A cost accounting method that measures the cost and performance of process related activities and cost objects. It assigns cost to cost objects, such as products or customers, based on their use of activities. It recognizes the causal relationship of cost drivers to activities. Actual Cost An amount determined on the basis of cost incurred including standard cost properly adjusted for applicable variance. Actual Custody Physical possession and control of property by government personnel. Actuarial Balance The difference between the summarized cost rate and the summarized income rate over a given valuation period. Actuarial Cost Methods A recognized actuarial technique used for establishing the amount and the incidence of employer contributions or accounting charges for pension costs under a pension plan. Actuarial Gains and Losses A change in the value of an estimated liability (or the benefit plan's assets) resulting from experience different from that assumed or from a change in an actuarial assumption. Past experience is reflected in current costs through actuarial gains and losses. Actuarial Liability A liability based on statistical calculations and actuarial assumptions (actuarial assumptions are conditions used to resolve uncertainties in the absence of information concerning future events affecting insurance, pension expenses, etc.). Actuarial Present Value The value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of actuarial assumptions. (Actuarial Standards of Practice No. 4) Actuarial Status The status of a program based on statistical calculations and actuarial assumptions about future economic, demographic, and other conditions and events. Adverse Event May be a single-occurring event or a series of events that cause losses to the beneficiary or beneficiaries as identified in the insurance arrangement. Aggregate Entry Age Normal A system of applying the entry age normal actuarial cost methodology using aggregate population models or groups instead of applying it individual by individual. Allocations As used in the context of the federal budget, the amount of obligational authority transferred from one agency, bureau, or account that is set aside in a transfer appropriation account to carry out the purpose of the parent appropriation or fund. (JFMIP, Project on Standardization of Basic Financial Information Requirements of Central Agencies, dated October 1991, hereafter cited as JFMIP Standardization Project) Allotment A distribution made within an entity of amounts available for obligation. [See OMB Bulletin A-34, Instructions on Budget Execution, Section 11, Terms and Concepts, “Allotment.”] Ammunition A generic term that includes a great variety of devices designed and constructed to inflict damage upon enemy personnel or material by action of an explosive, pyrotechnic, or chemical agent. Amortization The gradual extinguishment of any amount over a period of time through a systematic allocation of the amount over a number of consecutive accounting periods such as the retirement of a debt by serial payments to a sinking fund. Annual Cost Increment The annual cost increment component of expense is the actuarial present value of the future cash outflows for which a reporting entity becomes obligated during the reporting period. See Normal Cost below for pensions, ORB, and OPEB. Anticipated The word “anticipated” is used in a broad, generic sense in this document. In this context the term may encompass both “probable” losses arising from events that have occurred, which should be recognized on the face of the basic or “principal” financial statements, as well as “reasonably possible” losses arising from events that have occurred, which should be disclosed in notes to those statements. “Anticipated” may include the effects of future events that are deemed probable, for which a financial forecast would be appropriate. The term may also encompass hypothetical future trends or events that are not necessarily deemed probable, for which financial projections may be appropriate. (See below for definitions of “forecast” and “projection.”) Applied Research Systematic study to gain knowledge or understanding necessary for determining the means by which a recognized and specific need may be met. Apportionment A distribution made by OMB of amounts available for obligation in an appropriation or fund account into amounts available for specified time periods, programs, activities, projects, objects, or combinations thereof. The apportioned amount limits the obligations that may be incurred. (OMB Circular A-34) Appropriation In most cases, appropriations are a form of budget authority provided by law that permits federal agencies to incur obligations and make payments out of the Treasury for specified purposes. An appropriation usually follows enactment of authorizing legislation. An appropriation act is the most common means of providing budget authority, but in some cases the authorizing legislation itself provides the budget authority. Arrangement Period Is the period over which adverse events that occur are covered. Assessments Enforceable claims for nonexchange revenue for which specific amounts due have been determined and the person from whom the tax or duty is due has been identified. They include both self-assessments made by persons filing tax returns and assessments made by the collecting entities as a result of audits, investigations, and litigation. Although the term is normally used in connection with taxes, as used in this Statement (SFFAS 7) assessments also include determinations of amounts due for any other kind of nonexchange revenue. Specifically excluded from the definition of assessments, as used in this Statement, are compliance assessments. Compliance assessments, as defined by IRS and Customs, do not represent financial receivables. Assets A resource that embodies economic benefits or services that the federal government controls. Attribution The process of assigning pension benefits or costs to periods of employee service. [Financial Accounting Standard Board, Statement of Financial Accounting Standard No. 87, Employers’ Accounting for Pensions ] Assumptions Basic beliefs about the future operating and functional characteristics. Types of assumptions include: Actuarial: Assumptions as to the occurrence of future events affecting projected costs, such as mortality, withdrawal, disability, and future interest rates. Cash flow assumptions - all known and/or forecasted information about the characteristics and performance of a cash flow, e.g., a loan or group of loans or loan guarantees. Examples of assumptions pertaining to loans and loan guarantees include estimates of maturity, borrower interest rate, default/delinquency rate, timing of defaults, overall impact of changes in economic factors, etc. Hospital assumptions: Assumptions related to medical treatment including differentials between hospital labor and nonlabor indices compared to general economy labor and nonlabor indices; rates of hospital admission; the trend toward treating less complicated cases in outpatient settings; and continued improvement in the classification of patients according to type of treatment, age, diagnosis, etc. Key assumptions - Assumptions that have been established, through sensitivity analysis or other means, to be the elements that have a large impact on estimates, and thus are the most important factors in determining the cost of a loan or group of loans or loan guarantees. Model assumptions - determinations of how cash flow assumptions are applied through the life of the cohort. For example, determining whether the entire assumed amount of defaults should be applied in 1 year or whether a constant or variable proportion of the assumption value should be allocated to each year. The allocation of cash flows over time is the selected model form and is just as influential as the cash flow assumption. Social Security: Values relating to future trends in certain key factors. Demographic assumptions include fertility, mortality, net immigration, marriage, divorce, retirement patterns, disability incidence and termination rates, and changes in the labor force. Economic assumptions include unemployment, average earnings, inflation, interest rates, and productivity. Projections are normally provided based on the following three sets of economic assumptions the “low cost” set (Alternative I) that assumes relatively rapid economic growth, low inflation, and demographic conditions favorable to the plan; the “intermediate cost” set (Alternative II) that represents the trustees’ “best estimate” of future trends; and the “high cost” set (Alternative III) that assumes slow economic growth, more rapid inflation, and demographic conditions unfavorable to the plan. Authority To Borrow Authority to borrow is a subset of budget authority. (See budget authority.) Avoidable Cost A cost associated with an activity that would not be incurred if the activity were not performed. Baseline provisions Baseline provisions are the starting points used to measure the impact of tax expenditures on tax revenues as compared to revenues that would be collected otherwise, absent the special exclusion, exemption, deduction, credit, preferential rate, or deferral. Certain practical aspects of the code are incorporated into the baseline-such as progressive tax rates, personal exemptions, standard deductions, deductions of expenses incurred in order to earn income, and deferrals of unrealized income. Basic Financial Statements As used in SFFAS 7, the basic financial statements are those on which an auditor would normally be engaged to express an opinion. The term “basic” does not necessarily mean that other financial information not covered by the auditor’s opinion is less important to users than that contained in the basic statements; it merely connotes the expected nature of the auditor’s review of, and association with, the information. The basic financial statements in financial reports prepared pursuant to the Chief Financial Officers Act, as amended, are called the “principal financial statements.” The Form and Content of these statements are determined by OMB. (see also Principal Financial Statements) Basic Information Information that is essential for financial statements and notes to be presented in conformity with generally accepted accounting principles (GAAP). Basic Research Systematic study to gain knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications toward processes or products in mind. Beneficiary An individual or other entity legally entitled to enforce an obligation against the United States such as specified benefits from a fiduciary trust or agent. Betterment An expenditure having the effect of extending the useful life of an existing asset, increasing its normal rate of output, lowering its operating cost, increasing rather than merely maintaining its efficiency or otherwise adding to the worth of benefits it can yield. A betterment is distinguished from repair or maintenance in that the latter have the effect of merely keeping the asset in its customary state of operating efficiency without the expectation of added future benefits. Black Lung Benefits Program The Black Lung program consists of two parts: Part B and Part C. Recipients who filed claims from 1970 to mid-1973 are covered by Part B; all other recipients are covered by Part C. Part B is currently administered by the Social Security Administration (SSA). Former coal miners and their dependents are eligible for monthly cash benefits if the miner is totally disabled or died due to black lung disease. Benefits under Part B are reduced if the beneficiary receives state workers’ compensation, unemployment compensation, or state disability compensation. Certain pension benefits are subject to an excess-earnings test. The program is wholly funded by annual appropriations from the general fund. Part C is administered by the U.S. Labor Department, although some services are provided by SSA on a reimbursable basis. The program serves a declining population. Increased mechanization of coal mining operations and the industry’s improved health and safety regulations have resulted in very few new entrants into the program. Most current beneficiaries entered the program in the 1970s. Former coal miners who have black lung disease are eligible for Part C benefits if a responsible mine owner cannot be determined. Two-thirds of Part C benefits are funded by earmarked excise taxes on coal and one-third by general fund revenues. The latter takes the form of “repayable advances” rather than appropriations. Book Value The net amount at which an asset or liability is carried on the books of account (also referred to as carrying value or amount). It equals the gross or nominal amount of any asset or liability minus any allowance or valuation amount. Budget The Budget of the United States Government setting forth the President’s comprehensive financial plan for allocating resources. The Government uses the budget system to allocate resources among its major functions and individual programs. The budget process has three main phases: formulation, congressional action on the budget, and execution. Some presentations in the budget distinguish between “on-budget” and “off-budget” totals. “On-budget” totals reflect the transactions of all Government entities except those excluded from the unified budget totals by law. Likewise, “off-budget” totals reflect the transactions of Government entities that are excluded from the unified budget totals by law. Currently excluded are the social security trust funds and the Postal Service Fund. The onand off-budget totals are combined to derive unified or consolidated totals for Federal activity. The budget amounts and references in this exposure draft refer to the unified budget. [See FY 2003 Budget of the United States Government: Analytical Perspectives, “Budget System and Concepts and Glossary.”] Budget Authority The authority provided by Federal law to incur financial obligations that will result in immediate or future outlays. Specific forms of budget authority include: Appropriations -- which may be provided in appropriations acts or other laws and which permit obligations to be incurred and payments to be made; Borrowing authority -- which permits obligations to be incurred but requires funds to be borrowed to liquidate the obligation; Contract authority -- which permits obligations to be incurred but requires a subsequent appropriation or offsetting collections to liquidate the obligations; and Spending authority from offsetting collections -- which permits offsetting collections to be credited to an expenditure account and permits obligations and payments to be made using the offsetting collections (the offsetting collections credited to an account are deducted from gross budget authority of the account.) Budget authority may be classified by period of availability (one year, multiple-year, or no year), by nature of the authority (current or permanent), by the manner of determining the amount available (definite or indefinite), or as gross (without reduction of offsetting collections) and net (with reductions of offsetting collections). (OMB Circular A-11, Preparation and Submission of Budget Estimates, Executive Office of the President, Office of Management and Budget, hereafter cited as OMB Circular A-11; OMB, The Budget System and Concepts; and GAO, A Glossary of Terms Used in the Federal Budget Process, Exposure Draft, January 1993; hereafter referred to as GAO Budget Glossary.) Budget Obligation See Obligation below. Budget Outlay See Outlay below. Budget Receipt See Receipt below. Budget Surplus Or Deficit, Unified The unified budget surplus is the excess of budget receipts over budget outlays during a fiscal year and a deficit is the excess of budget outlays over budget receipts during a fiscal year. [See FY 2003 Budget of the United States Government: Analytical Perspectives, “Budget System and Concepts and Glossary.”] (SFFAS 24) Budget, Unified The budget presents combined onand off-budget totals to derive totals for Federal activity, which is sometimes called the unified budget. The off-budget receipts and outlays of the Social Security trust funds and the Postal Service Fund are added to the on-budget receipts and outlays to calculate the unified budget totals. Budgetary Accounting Budgetary accounting is the system that measures and controls the use of resources according to the purposes for which budget authority was enacted; and that records receipts and other collections by source. It tracks the use of each appropriation for specified purposes in separate budget accounts through the various stages of budget execution from appropriation to apportionment and allotment to obligation and eventual outlay. This system is used by the Congress and the Executive Branch to set priorities, to allocate resources among alternative uses, to finance these resources, and to assess the economic implications of federal financial activity at an aggregate level. Budgetary accounting is used to comply with the Constitutional requirement that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations Made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public money shall be published from time to time.” (See Statement of Federal Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting, September 1993, Paragraphs 45-46, 112-114, and 186-191.) Budgetary Resources The forms of authority given to an agency allowing it to incur obligations. Budgetary resources include the following: new budget authority, unobligated balances, direct spending authority, and obligation limitations. (GAO Budget Glossary) Business Type Activity Significantly self-sustaining activity which finances its continuing cycle of operations through collection of exchange revenue. Capitalize To record and carry forward into one or more future periods any expenditure the benefits or process from which will then be realized. Cash Accounting A system of accounting in which revenues are recorded when received in cash and expenses or expenditures are recorded when cash is disbursed. [See Financial Accounting Standards Board Statement of Financial Accounting Concepts No. 4, Objectives of Financial Reporting by Nonbusiness Organizations, paragraph 50; and Congressional Budget Office, Glossary of Budgetary and Economic Terms, “Cash Accounting.”] (SFFAS 24) Cash Flow Stream The agency’s projection of the dollar amount for the scheduled cash flows and deviations from scheduled cash flow items for each year, e.g., over the life of a cohort of loans. Cash Flows Estimates or payments to or from the Government. For example, for direct loans, these may include: loan disbursements, repayments of principle, payments of interest, and any other payments such as defaults, prepayments, fees, penalties, and other recoveries. For loan guarantees, these may include: payments by the government to cover defaults and delinquencies, interest subsidies, payments to the government, such as origination and other fees, penalties and recoveries, and any other payments. Cash Surrender Value Is the sum of money an insurance company will return to the policyholder if the policy is canceled before its maturity or the insured event (death) occurs. Category I nonfriable asbestos-containing material (ACM) Refers to asbestos-containing packings, gaskets, resilient floor covering, and asphalt roofing products containing more than 1 percent asbestos as determined using the method specified in appendix E, subpart E, 40 CFR part 763, section 1, Polarized Light Microscopy. (40 CFR § 61.141) Category II nonfriable ACM Refers to any material, excluding Category I nonfriable ACM, containing more than 1 percent asbestos as determined using the methods specified in appendix E, subpart E, 40 CFR part 763, section 1, Polarized Light Microscopy that, when dry, cannot be crumbled, pulverized, or reduced to powder by hand pressure. (40 CFR § 61.141) Central bank digital currency Central bank digital currencies are a type of digital asset that are a form of digital money or monetary value, denominated in the national unit of account that is a direct liability of the central bank. Central Fund A federal entity established to finance the costs of seizure, management and disposition of property seized for forfeiture, and to receive any proceeds from the sale or other disposition of that property. Changes In Accounting Principles A change in accounting principle is a change from one generally accepted accounting principle to another one that can be justified as preferable. For the purposes of SFFAS 21, changes in accounting principles also include those occasioned by the adoption of new federal financial accounting standards. (SFFAS 21) Claim Adjustment Expenses (CAE) Are incremental costs directly attributable to investigating, settling, and/or adjusting claims. An incremental cost is one that can result only when claims have been incurred. CAE include but are not limited to legal and adjuster's fees. CAE may be incurred through work performed by federal employees and/or contractors. Classified National Security Information also known as "classified information," is any information that has been determined pursuant to Executive Order (E.O.) 13526, as amended; or any successor orders, to require protection against unauthorized disclosure and is marked to indicate its classified status. Information may be classified at one of the following three levels: TOP SECRET, which is applied to information, the unauthorized disclosure of which reasonably could be expected to cause exceptionally grave damage to the national security that the original classification authority is able to identify or describe; SECRET, which is applied to information, the unauthorized disclosure of which reasonably could be expected to cause serious damage to the national security that the original classification authority is able to identify or describe; and CONFIDENTIAL, which is applied to information, the unauthorized disclosure of which reasonably could be expected to cause damage to the national security that the original classification authority is able to identify or describe. Cleanup Costs The costs of removing, containing, and/or disposing of (1) hazardous waste from property, or (2) material and/or property that consists of hazardous waste at permanent or temporary closure or shutdown of associated PP&E. Closed Group See “Closed group (to new entrants).” Closed Group (To New Entrants) Those persons who, as of a valuation date, are participants in a social insurance program as beneficiaries, covered workers, or payers of earmarked taxes or premiums. Cohort Those direct loans obligated or loan guarantees committed by a program in the same year even if disbursements occur in subsequent years. Post-1991 direct loans or loan guarantees will remain with their original cohort throughout the life of the loan, even if the loan is modified. Pre- 1992 loans and loan guarantees that are modified shall each, respectively, constitute a single cohort. (OMB Circular A-11) Collateral Real or personal property pledged as part or full security on a debt. Collections Amounts received by the federal government during the fiscal year. Collections are classified as follows: -- Budget receipts or off-budget receipts are collections from the public based on the government’s exercise of its sovereign powers, including collections from participants in compulsory social insurance programs. -- Offsetting collections are collections from government accounts (intragovernmental transactions) or from the public that are offset against budget authority and outlays rather than reflected as receipts in computing the budget and off-budget totals. They are classified as (a) offsetting receipts (i.e., amounts deposited to receipt accounts), and (b) collections credited to appropriation or fund accounts. The distinction between these two major categories is that collections credited to appropriation or fund accounts are offset within the account that contains the associated disbursements (outlays), whereas offsetting receipts are in accounts separate from the associated disbursements. Offsetting collections are deducted from gross disbursements in calculating net outlays. (Based on A Glossary Of Terms Used in the Federal Budget Process; and Related Accounting, Economic, and Tax Terms, Third Edition, General Accounting Office, March 1981.) Commercial Use Land Land or permanent land rights that are predominantly used to generate inflows of resources from nonfederal third parties, usually through special use permits, right-of-way grants, and leases. Such inflows may arise from exchange or non-exchange activities and may or may not be considered dedicated collections. [See SFFAS 6 paragraph 20B. for example commercial use land sources from which revenue or inflows are derived.] Common Cost The cost of resources employed jointly in the production of two or more outputs and the cost cannot be directly traced to any one of those outputs. Common Data Source All of the financial and programmatic information available for the budgetary, cost, and financial accounting processes. It includes all financial and much nonfinancial data, such as environmental data, that are necessary for budgeting and financial reporting as well as evaluation and decision information developed as a result of prior reporting and feedback. Component Entities The term “component entity” is used to distinguish between the U.S. Federal Government and its components. The U.S. Federal Government as a whole is composed of organizations that manage resources and are responsible for operations, i.e., delivering services. These include major departments and independent agencies, which are generally divided into suborganizations, i.e., smaller organizational units with a wide variety of titles, including bureaus, administrations, agencies, and corporations. (SFFAC No. 2, Entity and Display, pars. 11-12). Use of “component entity” in this standard is only intended to distinguish between the U.S. Federal Government’s consolidated financial statements and financial statements of its components. Component Reporting Entity “Component reporting entity" is used broadly to refer to a reporting entity within a larger reporting entity. Examples of component reporting entities include organizations such as executive departments, independent agencies, government corporations, legislative agencies, and federal courts. Component reporting entities would also include sub-components (those components included in the GPFFR of a larger reporting entity) that may themselves prepare GPFFRs. [FN: The larger reporting entity could be the government-wide reporting entity or another component reporting entity.] One example is a bureau that is within a larger department that prepares its own standalone GPFFR. Composite Depreciation Methodology 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. Condition The physical state of an asset. The condition of an asset is based on an evaluation of the physical status/state of an asset, its ability to perform as planned, and its continued usefulness. Evaluating an asset’s condition requires knowledge of the asset, its performance capacity and its actual ability to perform, and expectations for its continued performance. The condition of a longlived asset is affected by its durability, the quality of its design and construction, its use, the adequacy of maintenance that has been performed, and many other factors, including: accidents (an unforeseen and unplanned or unexpected event or circumstance), catastrophes (a tragic event), disasters (a sudden calamitous event bringing great damage, loss, or destruction), and obsolescence. Condition Assessment Surveys Periodic inspections of PP&E to determine their current condition and estimated cost to correct any deficiencies. Conservation and Preservation land Land or permanent land rights that are predominantly used for conservation or preservation purposes. Conservation and preservation, although closely linked, are distinct terms. Each term involves a certain type or degree of protection. Specifically, conservation is generally associated with the protection and proper use of natural resources, whereas preservation is associated with the protection of buildings, objects, and landscapes from use. [See SFFAS 6 paragraph 20C. for examples of land conserved or preserved for significant natural, historic, scenic, cultural, and recreational resources.] Conservatorship A conservatorship is the legal process in which a person or entity is appointed to establish control and oversight of a company to put it in a sound and solvent condition. In a conservatorship, the powers of the company’s directors, officers, and shareholders are transferred to the designated conservator. [FN: Federal Housing Finance Agency Fact Sheet, Questions and Answers on Conservatorship.] Constant Dollar A dollar value adjusted for changes in the average price level. A constant dollar is derived by dividing a current dollar amount by a price index. The resulting constant dollar value is that which would exist if prices had remained at the same average level as in the base period. Any changes in such constant dollar values would therefore reflect only changes in the real volume of goods and services, not changes in the price level. Constant dollar figures are commonly used to compute the real value of the gross domestic product and its components and to estimate the real level of Federal receipts and outlays. (GAO Budget Glossary) Constructive Custody Legal possession of property by federal government personnel through a nonfederal agent, such as a commercial contractor or state or local official, under a legal agreement or court order that the agent maintains physical possession and control of the property on behalf of, and subject to the orders of, the Federal government personnel. Consumption Method A method of accounting for goods, such as materials and supplies, where the goods are recognized as assets upon acquisition and are expensed as they are consumed. Contingency An existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an entity that will ultimately be resolved when one or more future events occur or fail to occur. Contra Account One of two or more accounts which partially or wholly offset another or other accounts; on financial statements, they may be either merged or appear together. Contract Authority Contract authority is a subset of budget authority. (See budget authority.) Contributions Also referred to as “taxes,” “payroll taxes,” or “premiums,” these terms refer to amounts paid into social insurance programs. The payments can be paid by (1) employers and employees based on wages from employment covered under a program; (2) the self-employed based on net earnings from selfemployment; (3) governments based on wages of state and local government employees; and (4) policyholders based on coverage under certain programs. Control with risk of loss or expectation of benefit Control with risk of loss or expectation of benefit is the power to impose will on and/or govern the financial and/or operating policies of another organization with the potential to be obligated to provide financial support or assume financial obligations or obtain financial resources or nonfinancial benefits. [FN: For example, a nonfinancial benefit would be one where the federal government benefits from a service being provided to it or on its behalf.] Controllable Cost A cost that can be influenced by the action of the responsible manager. The term always refers to a specified manager since all costs are controllable by someone. Cost Defined in SFFAC No. 1, Objectives of Federal Financial Reporting as the monetary value of resources used (para. 195). Defined more specifically in SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, as the monetary value of resources used or sacrificed or liabilities incurred to achieve an objective, such as to acquire or produce a good or to perform an activity or service (page 105). Depending on the nature of the transaction, cost may be charged to operations immediately, i.e., recognized as an expense of the period, or to an asset account for recognition as an expense of subsequent periods. In most contexts within Accounting for Revenue and Other Financing Sources, “cost” is used synonymously with expense. See also “Full Cost.” Cost Allocation A method of assigning costs to activities, outputs, or other cost objects. The allocation base used to assign a cost to objects is not necessarily the cause of the cost. For example, assigning the cost of power to machine activities by machine hours is an allocation because machine hours are an indirect measure of power consumption. Cost Assignment A process that identifies costs with activities, outputs, or other cost objects. In a broad sense, costs can be assigned to processes, activities, organizational divisions, products, and services. There are three methods of cost assignment: (a) directly tracing costs wherever economically feasible, (b) cause-and-effect, and (c) allocating costs on a reasonable and consistent basis. Cost-benefit Analysis The weighing of benefits against costs usually expressed as a ratio of dollar benefits to dollar costs for each of a variety of alternatives to provide a comparable basis of choice among them. Cost Driver Any factor that causes a change in the cost of an activity or output. For example, the quality of parts received by an activity, or the degree of complexity of tax returns to be reviewed by the IRS. Cost Finding Cost finding techniques produce cost data by analytical or sampling methods. Cost finding techniques are appropriate for certain kinds of costs, such as indirect costs, items with costs below set thresholds within programs, or for some programs in their entirety. Cost finding techniques support the overall managerial cost accounting process and can represent nonrecurring analysis of specific costs. Cost Object (Also Referred To As Cost Objective) An activity, output, or item whose cost is to be measured. In a broad sense, a cost object can be an organizational division, a function, task, product, service, or a customer. Cost Rate The ratio of expenditures for the program to the taxable payroll for the year. Covered Employment All employment and self-employment creditable for purposes of the social insurance program. For Social Security, almost every kind of employment and self-employment is covered. In a few employment situations, coverage must be elected by the employer. Covered employment for HI includes all federal employees, whereas covered employment for OASDI includes some, but not all, federal employees. Covered Worker A person having earnings creditable for a social insurance program. For Social Security, “creditable earnings” are based on earnings taxable under the program. The number of HI covered workers is slightly larger than the number of OASDI covered workers because of different coverage status for federal employment. Credit Program For the purpose of this Statement (SFFAS 19), a federal program that makes loans and/or loan guarantees to nonfederal borrowers. Crypto asset Crypto assets are a common subset of digital assets that use cryptographic techniques and distributed ledger technology, such as blockchain. Cryptocurrency Cryptocurrency is a crypto asset that is promoted to be an alternative payment instrument. Current Discount Rate With respect to the modification of direct loans or loan guarantees, it is the discount rate used to measure the cost of a modification. It is the interest rate applicable at the time of modification on marketable Treasury securities with a similar maturity to the remaining maturity of the direct or guaranteed loans, under either premodification terms, or post-modification terms, whichever is appropriate. [Special Term from SFFAS 2] Current Liabilities Amounts owed by a federal entity for which the financial statements are prepared, and which need to be paid within the fiscal year following the reporting date. Current Services Assessment Projections of future receipts and outlays from future activities based on the programs established by current law. The CSA focuses on the totality of Government operations rather than on individual programs, and shows the shortand long-term direction of current programs. Current Policy Without Change In federal financial reporting, "current policy without change" refers to the continuation of policies in place as of the valuation date (in other words, no policy change). Custodial Agency The federal agency that has actual possession of seized or forfeited property, or constructive possession of property through a nonfederal agent. The custodial agency would be responsible for reporting material quantities of non-valued items. Customer-lessee The reporting entity paying for the acquisition of, or improvements and/or alterations to, the underlying asset provided by the provider-lessor on a reimbursable basis. (Technical Bulletin 2023-1). Debt-to-GDP Ratio The debt-to-GDP ratio, for the purposes of federal financial reporting, is the amount of federal (Treasury) debt held by the public divided by gross domestic product. [An alternative ratio would be the amount of total public debt (federal, state, and local) divided by GDP.] Dedicated Collections Dedicated collections are specifically identified revenues, provided to the government by nonfederal sources, often supplemented by other financing sources, which 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 funds from dedicated collections are: 1. A statute committing the federal government to use specifically identified revenues and or other financing sources that are originally provided to the federal government by a nonfederal source* only for designated activities, benefits or purposes; 2. Explicit authority for the fund to retain revenues and other financing sources not used in the current period for future use to finance the designated activities, benefits, or purposes; and 3. A requirement to account for and report on the receipt, use, and retention of the revenues and other financing sources that distinguishes the fund from the government's general revenues. *In some cases, specifically identified revenues or other financing sources are collected from a nonfederal source by one agency and transferred or appropriated to another. For example, Social Security taxes are collected from nonfederal entities (employees and employers) by the Internal Revenue Service. Those amounts are subsequently appropriated and transferred to the Social Security Administration. This internal process does not change the nature of the revenue or other financing source (i.e., specifically identified revenues or other financing sources originally collected from a nonfederal source). Default The failure to meet any obligation or term of a credit agreement, grant, or contract. Often used to refer to accounts more than 90 days delinquent. (Treasury Financial Manual Supplement) Deemed Cost Amount used as a surrogate for initial amounts that otherwise would be required to establish opening balances. Deferred Maintenance and Repairs Maintenance and repairs that were not performed when they should have been or were scheduled to be and which, therefore, are put off or delayed for a future period. Deferred Maintenance and Repairs Maintenance and repairs that were not performed when they should have been or were scheduled to be and which, therefore, are put off or delayed for a future period. Deferred Maintenance and Repairs Maintenance and repairs that were not performed when they should have been or were scheduled to be and which, therefore, are put off or delayed for a future period. Demographic Assumptions Demographic assumptions address projected population trends (for example, birth rates, mortality rates, and net immigration). Deposit Fund Treasury Financial Management Service establishes deposit fund accounts to record monies that do not belong to the Federal government. A description of deposit fund criteria may be found in the Treasury Financial Manual, Section 1535, "Deposit Fund Accounts." Depreciation Accounting The systematic and rational allocation of the acquisition cost of an asset, less its estimated salvage or residual value, over its estimated useful life. Derivative Classification Is incorporating, paraphrasing, restating, or generating in new form information that is already classified, and marking the newly developed material consistent with the classification markings of the source of the information. Derivative classification includes the classification of information based on classification guidance. The duplication or reproduction of existing classified information is not derivative classification. Development Systematic use of the knowledge and understanding gained from research for the production of useful materials, devices, systems, or methods, including the design and development of prototypes and processes. Digital Asset Digital assets are electronic representations of value and operate as part of a complex and interconnected digital ecosystem. Direct Cost The cost of resources directly consumed by an activity. Direct costs are assigned to activities by direct tracing of units of resources consumed by individual activities. A cost that is specifically identified with a single cost object. Direct Loan A disbursement of funds by the government to a nonfederal borrower under a contract that requires the repayment of such funds within a certain time with or without interest. The term includes the purchase of, or participation in, a loan made by another lender. (Adapted from OMB Circular A-11) Directed Flows Of Resources Expenses to nonfederal entities imposed by federal laws or regulations without providing federal financing. In the case of state and local governments, directed flows are known as “unfunded mandates.” The costs and financing of federal regulations do not flow through the Government, but their effects are similar to direct federal expenditures and revenue. Disclosure Reporting information in notes or narrative regarded as an integral part of the basic financial statement. Discount The difference between the estimated worth of a future benefit and its present value; a compensation for waiting or an allowance for returns from using the present value of these returns in other ways. Discount Rate An interest rate that is used in present value calculations to equate amounts that will be received or paid in the future to their present value. Discretionary Spending In the federal budget process, "discretionary spending" refers to outlays from budget authority that is controlled by annual appropriation acts. Annual appropriation acts are required to fund the continuing operation of all federal programs that are not "mandatory." For additional information, see A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP. Dividend Fund Interest Rate The interest rate determined at policy issuance used to determine the amount of the dividend fund. It is the rate used to credit interest to the dividend fund, and against which experience is measured to determine the amount of the interest portion of dividends paid to individual policyholders. (AICPA Statement of Position 95-1, Glossary, p. 33] Donated Capital The amount of nonreciprocal transfers of assets or services from State, local, and foreign governments; individuals; or others not considered parties related to the Government. (JFMIP Standardization Project) Drawbacks Refunds of all or part of duties on imported goods that are subsequently exported or destroyed. Typically these arise when imported materials are used to manufacture a product that is later exported. In such cases, most of the duties originally paid are refundable when the finished product is exported. Econometric Model An equation or a set of related equations used to analyze economic data through mathematical and statistical techniques. Such models may be devised in order to depict the essential quantitative impact of alternative assumptions or government policies. (Dictionary of Banking and Finance, Jerry M. Rosenberg, Ph.D., Wiley & Sons, New York, 1982, hereafter cited as Rosenberg’s Dictionary.) Economic Assumptions Economic assumptions address the economic factors that are not under the direct legislative control of the federal government (for example, inflation and growth in GDP). Economic Life The period during which a fixed asset is capable of yielding services of value to its owner. (See “useful life”.) End User Any component of a reporting entity that obtains goods for direct use in its normal operations. The component may also be a contractor. Entitlement Period The period (such as, monthly) for which benefits become due. Entitlement Program A program in which the federal government becomes automatically obligated to provide benefits to members of a specific group who meet the requirements established by law. Entity A unit within the federal government, such as a department, agency, bureau, or program, for which a set of financial statements would be prepared. Entity also encompasses a group of related or unrelated commercial functions, revolving funds, trust funds, and/or other accounts for which financial statements will be prepared in accordance with OMB annual guidance on Form and Content of Financial Statements. Entry Age Normal Actuarial Method A method under which the actuarial present value of projected benefits of each employee is allocated on a level basis over the earnings or the service of the employee between entry age and assumed exit age. The portion of this actuarial present value allocated to a valuation year is called the normal cost. The portion of this present value not provided for at a valuation date by the present value of future normal cost is called the actuarial accrued liability. The assumption is made under this method that every employee entered the plan (entry age) at the time of initial employment or at the earliest eligibility date, if the plan had been in existence, and that contributions have been made from the entry age to the date of the actuarial valuation. The term “aggregate entry age normal” refers to an approach whereby costs are determined for the group as a whole rather than for each individual participant separately. Errors 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 the financial statements were prepared. (SFFAS 21) Estimated Cost The process of projecting a future result in terms of cost, based on information available at the time. Estimated costs, rather than actual costs, are sometimes the basis for credits to work-inprocess accounts and debits to finished goods inventory. Event A happening of consequence to an entity. It may be an internal event that occurs within an entity, such as the transforming of raw materials into a product. Or it may be an external event that involves interaction between an entity and its environment, such as a transaction with another entity, an act of nature, theft, vandalism, a tort caused by negligence, or an accident. (Adapted from Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements) Exchange Revenue Inflows of resources to a governmental entity that the entity has earned. They arise from exchange transactions, which occur when each party to the transaction sacrifices value and receives value in return. Exchange Transaction A transaction that arises when each party to the transaction sacrifices value and receives value in return. Exchange Transaction Insurance Programs Other Than Life Insurance Cover the risk of loss from adverse events, other than death of individuals, involved in exchange transactions as defined in SFFAS 7. Executory Contract A contract which has not been performed by all parties to it. (Trascona, Joseph L., Business Law, William C. Brown C. Publishers, 1981) Expected Value A statistical measurement attribute that is the sum of the products of each potential outcome multiplied by the probability of that potential outcome. Expended Appropriations The dollar amount of appropriations used to fund goods and services received or benefits or grants provided. Expenditure With respect to provisions of the Antideficiency Act (31 U.S.C. 1513-1514) and the Congressional Budget and Impoundment Control Act of 1974 (2 U.S.C. 622(i)), a term that has the same definition as outlay. (GAO Budget Glossary) Expense Outflows or other using up of assets or incurrences of liabilities (or a combination of both) during a period from providing goods, rendering services, or carrying out other activities related to an entity’s programs and missions, the benefits from which do not extend beyond the present operating period. Expired Appropriations (Accounts) Appropriation accounts in which the balances are no longer available for incurring new obligations because the time available for incurring such obligations has expired. (JFMIP Standardization Project) Fair Value Fair value is the amount at which an asset or liability could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Federally Funded Research and Development Center Federally Funded Research and Development Center (FFRDC) is a government-funded entity that has a long-term contractual relationship with one or more federal agencies.[FN: The Office of Federal Procurement Policy (OFPP) and Federal Acquisition Regulation (FAR) policies for FFRDCs apply to executive agencies, which includes “an executive department, a military department, or any independent establishment within the meaning of 5 U.S.C. 101, 102, and 104(1), respectively, and any wholly owned Government corporation within the meaning of 31 U.S.C. § 9101.” 48 C.F.R. § 2.101; see also 5 U.S.C. § 403.] FFRDCs can be privately owned or government-owned, and they serve to meet the long-term research and development needs of federal agencies that could not otherwise be met as effectively in-house or through existing contractors. 49 Fed. Reg. at 14,464; 48 C.F.R. § 35.017(a). FFRDCs are established either specifically in statute or under the statutory authority of agencies to enter into contracts, which can be inherent or specific authority, and are used to perform research and development and related tasks. Fiat money Fiat money is currency that is issued and backed by a government entity as legal tender. The value of fiat money is derived from supply and demand as a medium of exchange and the stability of the government backing it. This differs from money that is backed by a tangible commodity, such as gold, which sets the standard of its value. Fiduciary (noun) A Federal entity that holds assets in trust for non-Federal parties in which the nonFederal parties have an ownership interest that the Federal Government must uphold. (adjective) Relating to the process of the collection or receipt, and the management, protection, accounting, investment and disposition by the Federal Government of cash or other assets in which non-Federal individuals or entities have an ownership interest that the Federal Government must uphold. Fiduciary Activity An activity that relates to the collection or receipt, management, protection, accounting, investment and disposition by the Federal Government of cash or other assets in which nonFederal individuals or entities have an ownership interest that the Federal Government must uphold. Fiduciary Asset Fiduciary assets are assets in which non-Federal parties have an ownership interest and are held by a Federal entity under provision of law, regulation or other fiduciary arrangement. Fiduciary Collections Fiduciary collections are an inflow to a Federal entity of cash or other assets in which nonFederal parties have an ownership interest that the Federal Government must uphold. Fiduciary Fund Balance with Treasury Cash that is held in the U.S. Treasury and administered by a Federal entity on behalf of fiduciary beneficiaries. Fiduciary Relationship A fiduciary relationship exists when an authorized agent or entity of the Government accepts, recognizes, agrees to or consents to undertake fiduciary activity. Financing Account A non-budget account associated with each credit program account. The financing account holds fund balances, receives the subsidy cost payment from the credit program account, and includes all other cash flows to and from the government resulting from post-1991 direct loans or loan guarantees. (OMB Circular A-11, and OMB Circular A-34, Instructions on Budget Execution, Credit Apportionment and Budget Execution, hereafter cited as OMB Circular A-34.) First-in, First-out (FIFO) A cost flow assumption; the first goods purchased or produced are assumed to be the first goods sold. Fiscal Gap The fiscal gap is the change in non-interest spending and/or receipts that would be necessary to maintain public debt at or below a target percentage of GDP. The fiscal gap is the net present value of projected non-interest spending minus projected receipts, adjusted by the decrease (or increase) in public debt required to maintain public debt at the target level for the stated projection period. [FN: Since interest is factored into the present value calculation, the fiscal gap as a share of spending is expressed as a share of spending excluding interest.] The fiscal gap may be expressed as: (a) a summary amount in present value dollars, (b) a share of the present value of the GDP for the projection period, and/or (c) a share of the present value of projected receipts or projected non-interest spending. [FN: GDP is the total market value of goods and services produced domestically during a given period. The components of GDP are consumption (both household and government), gross investment (both private and government), and net exports.] Fiscal Sustainability Reporting In federal financial reporting, "Fiscal Sustainability Reporting" is the short term for the basic financial statement, disclosures and Required Supplementary Information required in the Financial Report of the U.S. Government. Fixed Cost A cost that does not vary in the short term with the volume of activity. Fixed cost information is useful for cost savings by adjusting existing capacity, or by eliminating idle facilities. Also called Non-Variable Cost or Constant Cost. Fixed Value Securities Securities that have a known maturity or redemption value at the time of issue. Forecast The term “forecast” in this document refers to prospective financial information, including but not limited to prospective financial statements, based on management’s assumptions about future conditions and actions that are deemed probable during the period covered. Forecasts are distinguished from “projections,” which provide prospective financial information based on one or more hypothetical assumptions or sets of assumptions. The hypothetical assumptions used in projections relate to future conditions and actions that may occur, but which are not necessarily deemed probable to occur. Both forecasts and projections may contain a range. Foreclosure A method of enforcing payment of a debt secured by a mortgage by seizing the mortgaged property. Foreclosure terminates all rights that the mortgagor has in the mortgaged property upon completion of due process through the courts. (Treasury Financial Manual Supplement) Forfeited Property Forfeited property is property for which title has passed to the Government. Forfeited property includes (1) monetary instruments, intangible property, real property, and tangible personal property acquired through forfeiture proceedings; (2) property acquired by the government to satisfy a tax liability; and (3) unclaimed and abandoned merchandise. Friable ACM Refers to material containing more than 1 percent asbestos as determined using the method specified in appendix E, subpart E, 40 CFR part 763, section 1, Polarized Light Microscopy, that, when dry, can be crumbled, pulverized, or reduced to powder by hand pressure. If the asbestos content is less than 10 percent as determined by a method other than point counting by polarized light microscopy (PLM), the asbestos content is verified by point counting using PLM. (40 CFR § 61.141) Full-absorption Costing A method of costing that assigns (absorbs) all labor, material, and service/manufacturing facilities and support costs to products or other cost objects. The costs assigned include those that do and do not vary with the level of activity performed. Full Cost The total amount of resources used to produce the output. More specifically, the full cost of an output produced by a responsibility segment is the sum of (1) the costs of resources consumed by the responsibility segment that directly or indirectly contribute to the output, and (2) the costs of identifiable supporting services provided by other responsibility segments within the reporting entity and by other reporting entities. (SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, para. 89) All direct and indirect costs to any part of the Federal Government of providing goods, resources, or services. (OMB Circular A-25). Fulfillment Cost Fulfillment cost includes all costs that an entity will incur in fulfilling the promises that constitute a liability. Fund Fund has more than one meaning. Depending on the context it may mean merely a resource as in funds available to pay an obligation. Or, for budgetary accounting, it may mean Federal funds or "trust funds," the two major groups of funds in the budget. [FN: An explanation of the two major categories of Federal Funds and Trust Funds may be found in Chapter 22, "Trust Funds and Federal Funds," of Analytical Perspectives, Budget of the U.S. Government, Fiscal Year 2006.] The Federal funds include all transactions not classified by law as being in trust funds. The main financing component of the Federal funds group is referred to as the General Fund, which is used to carry out the general purposes of Government rather than being restricted by law to a specific program and consists of all collections not earmarked by law to finance other funds. A fund can also mean a fiscal and accounting entity with a self-balancing set of accounts recording cash and other assets, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The term "fund" is used in multiple contexts in this standard. For example, the introductory and background material discusses funds in the context of budget accounting. On the other hand, when the standard refers to a fiduciary fund in the illustrations that follow this Glossary, it is in the context a self-balancing set of accounts. Fully Insured "Fully insured" status means that a social insurance participant is eligible for benefits. Social insurance benefits include pensions and health care for retirees and the disabled. For example, Social Security and Medicare participants become permanently fully insured when they attain at least 40 quarters of work in covered employment (QC). Social Security and Medicare participants may be fully insured without being permanently fully insured. This is important with respect to disability benefits, which include subsistence payments and medical care. Disability benefits may be needed well before the participants attained retirement age. A participant who receives disability benefits for 24 consecutive months is eligible for Medicare and, if he or she continues receiving disability benefits until attaining retirement age, he or she is converted to Social Security retirement benefits. To be fully insured, participants generally need a minimum of 6 QC. Once a worker has accumulated 40 QCs, he or she remains permanently fully insured, that is, no further QCs are required. Fund Balance with Treasury A Federal entity's fund balance with the Treasury is the aggregate amount of funds in the entity's accounts with Treasury for which the entity is authorized to make expenditures and pay liabilities. Fund balance with Treasury is an intra-governmental item. From the component entity's perspective, a fund balance with Treasury is an asset because it represents the entity's claim to the Federal Government’s resources. However, from the perspective of the Federal Government as a whole, it is not an asset; and while it represents a commitment to make resources available to Federal departments, agencies, programs and other entities, it is not a liability. An entity's fund balance with Treasury is increased by, among other things, amounts collected and credited to a fund that the entity is authorized to spend or use to offset its expenditures. Disbursements made to pay liabilities or to purchase assets, goods, and services, investments in Treasury or other securities, transfers and reimbursements to other entities or to the Treasury, and similar transactions reduce an entity's fund balance with Treasury. Garnishments Garnishments are a method of debt collection in which a portion of a person's salary or tax refund is paid to a third party in compliance with a statute or court order. Non-Federal Parties - See "Non-Federal Individuals and Entities." General Fund Accounts for receipts not earmarked by law for a specific purposes, the proceeds of general borrowing, and the expenditure of these moneys. (OMB, The Budget System and Concepts) General PP&E Land Land and permanent land rights acquired for or in connection with other general PP&E are considered general PP&E but are not to be capitalized on the balance sheet. General PP&E land shall exclude (1) withdrawn public lands or (2) land restricted for conservation, preservation, historical, or other like restrictions. General Purpose Federal Financial Reports General purpose federal financial reports (GPFFRs) is a generic term to refer to the report that contains the reporting entity’s financial statements that are prepared pursuant to generally accepted accounting principles. In the federal government, the report for the U.S. governmentwide reporting entity is known as the consolidated financial report of the U.S. Government (CFR) and for component reporting entities it is usually included in the performance and accountability report, the agency financial report, or the annual management report. General Purpose Financial Reports Reports intended to meet the common needs of diverse users who typically do not have the ability to specify the basis, form, and content of the reports they receive. Good A tangible product produced to provide to a customer. Government-acknowledged Events Events that are not a liability in themselves, but are those events that are “of financial consequence” to the federal government because it chooses to respond to the event. Governmental Receipts Collections from the public that result primarily from the exercise of the Government's sovereign or governmental powers. Governmental receipts consist mostly of individual and corporation income taxes and social insurance taxes but also include excise taxes, compulsory user charges, customs duties, court fines, certain license fees, gifts and donations, and deposits of earnings by the Federal Reserve System. They are compared to outlays in calculating a surplus or deficit. (OMB, The Budget System and Concepts) Government-related Events Nontransaction-based events that involve interaction between federal entities and their environment. Government Sponsored Enterprise Government Sponsored Enterprise (GSE) is created by Congress with its particular attributes defined in its enabling legislation and charter. Despite this diversity, there are at least four readily observable characteristics of GSEs: (1) private sector ownership, (2) limited competition, (3) activities limited by congressional charter, and (4) chartered privileges that create an inferred federal guarantee of obligations. [FN: Congressional Research Service Report for Congress Government-Sponsored Enterprises (GSEs): An Institutional Overview.] Grants 31 USC Sec. 6304 defines grants as follows: An executive agency shall use a grant agreement as the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when (1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and (2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement. Gross Domestic Product A nation's gross domestic product is one of the ways for measuring the size of its economy. The GDP of a nation is defined as the total market value of all final goods and services produced domestically during a given period of time. The components of GDP are: GDP = private sector consumption and investment + government consumption and investment + net exports (exports - imports). Group Depreciation Methodology 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. Hazardous Waste A solid, liquid, or gaseous waste, or combination of these wastes, which because of its quantity, concentration, or physical, chemical, or infectious characteristics may cause or significantly contribute to an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness or pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, disposed of, or otherwise managed. Held for Remanufacture Items in the process of (or awaiting) inspection, disassembly, evaluation, cleaning, rebuilding, refurbishing and/or restoration to serviceable or technologically updated/upgraded condition. Items held for remanufacture may consist of direct materials, (including repairable parts and subassemblies, also referred to as "carcasses" at the Department of Defense) and work-inprocess (including labor costs). Heritage Assets Property, plant, and equipment that are unique for one or more of the following reasons: historical or natural significance; cultural, educational or artistic (e.g., aesthetic) importance; or, significant architectural characteristics. Historical Cost Initially, the amount of cash (or its equivalent) paid to acquire an asset; subsequent to acquisition, the historical amount may be adjusted for amortization. Human Capital Expenses incurred for education and training programs financed by the Federal Government for the benefit of the public and designed to increase or maintain national economic productive capacity. Impacts In the context of discussing performance measurement, SFFAC 1 defines “impacts” as the difference between what actually occurred and what would have occurred in the absence of a Government program. SFFAC 1, paragraph 206 notes that, to the extent feasible and practical, effectiveness evaluation should focus on program results or effects in the sense of “impacts.” Assessing impacts of Governmental action in this sense typically requires program evaluations or other techniques that transcend annual performance reporting, though these techniques often will avail of information in the annual performance reports. These evaluations often require several years of data, are expensive to conduct, and typically are not performed on an annual basis for a given program. Impairments A significant and permanent decline in the service utility of G-PP&E or expected service utility for construction work in progress. [FN: The determination of whether or not an item is significant is a matter of professional judgment. Determining if a decline in service utility is significant is separate and distinct from materiality considerations that include considering the likely influence that such disclosure could have on judgments or decisions of financial statement users.] Imputed Financing Financing provided to the reporting entity by another Government entity covering certain costs incurred by the former. For example, part of Federal employee retirement benefits have been paid by the Government’s central personnel office. A reporting entity would recognize the full accruing cost of the benefits as well as the imputed financing so provided. [See SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, paragraph 73.] Imputed Interdepartmental Costs The unreimbursed (i.e. non-reimbursed and under-reimbursed) portion of the full costs of goods and services received by the entity from a providing entity that is not part of the same department or larger reporting entity other than the U.S. government as a whole. (Interpretation 6) Imputed Intradepartmental Costs The unreimbursed portion of the full costs of goods and services received by the entity from a providing entity that is part of the same department or larger reporting entity (i.e. other bureaus, components or responsibility segments within the department or larger reporting entity). (Interpretation 6) Income Rate The ratio of contributions and tax income to taxable payroll for the year. Incremental Cost The increase or decrease in total costs that would result from a decision to increase or decrease output level, to add a service or task, or to change any portion of operations. This information helps in making decisions such as to contract work out, undertake a project, or increase, decrease, modify, or eliminate an activity or product. Incurred But Not Reported (IBNR) Refers to estimated claims from adverse events that have occurred as of the end of the reporting period, but have not yet been reported to the insurance program for settlement. Indirect Cost A cost that cannot be identified specifically with or traced to a given cost object in an economically feasible way. In-Force Refers to arrangements that are unexpired as of a given date. Initial Direct Lease Cost Initial direct lease costs are costs that are directly attributable to negotiating and arranging a lease or portfolio of leases and would not have been incurred without entering into the lease. Insurance Arrangement (Arrangement) Is a general term used for a contract or other agreement between an insurance program and specific parties, such as but not limited to individuals, state, local, or foreign governments, other federal agencies, or businesses. An arrangement may include and/or identify: the term the insurance arrangement is in-force, the insurance program’s responsibilities, the risk assumed by the insurance program, such as: all risk for covered losses, partial risk by filling a gap where commercial insurance companies are not able or willing to provide the insurance, a timing risk wherein the insurance program provides compensation for losses in anticipation that future funding sources will be sufficient to cover all or part of past benefits paid or risks shared by a third party; the adverse event, the insured party or parties and their premium requirements, the beneficiary or beneficiaries and their responsibilities for filing claims, and/or the financial compensation. Insurance Claim Is a formal request for payment for losses as authorized under the insurance arrangement. Insurance Portfolios Is a grouping of insurance programs or arrangements that have some meaningful relationship based on arrangement period/duration, shared risks, management, customers, geographic regions, or other factors. Insurance Program Is a general term used to refer to a program that is 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. Internal Controls Insurance And Guarantee Programs Federal government programs that provide protection to individuals or entities against specified risks. Because the federal government frequently commingles aspects of insurance and guarantees within the same program, this Statement (SFFAS 5) treats the terms as a single type of activity. (Also see separate definition of social insurance). Inter-entity A term meaning between or among different federal reporting entities. It commonly refers to activities or costs between two or more agencies, departments, or bureaus. Interest The service charge for the use of money or capital, paid at agreed intervals by the user, commonly expressed as an annual percentage of outstanding principal. Interest Method (1) Under the interest method of amortization, an amount of interest equal to the carrying amount of the investment times the effective interest rate is calculated for each accounting period. This calculated interest is the effective interest of the investment (referred to as “effective yield” in some literature). The effective interest is compared with the stated interest of the investment. (The stated interest is the interest that is payable to the investor according to the stated interest rate.) The difference between the effective interest and the stated interest is the amount by which the discount or the premium should be amortized (i.e., reduced) for the accounting period. (2) A method used to amortize the premium or discount of an investment in bonds, or, as used in SFFAS 2, to amortize the subsidy cost allowance of direct loans. Under this method, the amortization amount of the subsidy cost allowance equals the effective interest minus the nominal interest of the direct loans times the effective interest rate (the discount rate). The nominal interest equals the nominal amount (face amount) of the direct loans times the stated interest rate (the rate stated in the loan agreements). [Special Term from SFFAS 2] Interest Rate The price charged per unit of money borrowed per year, or other unit of time, usually expressed as a percentage. Intergenerational Equity Intergenerational equity refers to the extent that different age groups are required to assume the financial burdens for services provided to other age groups. Internal Control “Internal control” is a process, effected by an agency’s management and other personnel, designed to provide reasonable assurance that the objectives of the agency are being achieved in the following categories: Effectiveness and efficiency of operations including the use of the entity’s resources. Reliability of financial reporting, including reports on budget execution, financial statements, and other reports for internal and external use. Compliance with applicable laws and regulations. Internal controls consist of the control environment, risk assessment, control activities, information and communication, and monitoring. A necessary implication or subset of these objectives is the safeguarding of agency assets against unauthorized acquisition, use, or disposition. Consequently, the definition of internal control, as it relates to safeguarding assets can be extended to include processes, effected by an agency’s management and other personnel, designed to provide reasonable assurance regarding prevention of or prompt detection of unauthorized acquisition, use, or disposition of the agency’s assets.” (From Standards for Internal Control in the Federal Government, Exposure Draft, U.S. GAO, December 1997.) Intragovernmental Fund Revolving funds that conduct business-type operations primarily within and between Government agencies. Intragovernmental Lease An intragovernmental lease is a contract or agreement occurring within a consolidation entity or between two or more consolidation entities as defined in SFFAS 47, Reporting Entity whereby one entity (lessor) conveys the right to control the use of PP&E (the underlying asset) to another entity (lessee) for a period of time as specified in the contract or agreement in exchange for consideration. [FN: SFFAS 47, Reporting Entity, outlines the characteristics as a whole that an organization would have to be considered a consolidated entity (SFFAS 47 par. 38–42).] Intragovernmental Leasehold Reimbursable Work Agreement An agreement whereby one reporting entity (the provider-lessor) acquires, constructs, and/or alters an underlying asset that is or will be leased to another reporting entity (the customerlessee), and the customer-lessee agrees to reimburse the provider-lessor for direct and indirect costs for the acquisition, construction, improvement, and/or alteration. The reimbursement of such acquisitions, construction, improvements, and/or alterations are beyond what may be included in the rent or tenant improvement allowances provided for in the lease agreement for the related underlying asset. Inventory Inventory is tangible personal property that is (1) held for sale, (2) in the process of production for sale, or (3) to be consumed in the production of goods for sale or in the provision of services for a fee. Job Order Costing A method of cost accounting that accumulates costs for individual jobs or lots. A job may be a service or manufactured item, such as the repair of equipment or the treatment of a patient in a hospital. Land Land is the solid part of the surface of the earth. Excluded from the definition of land are the natural resources (that is, depletable resources such as mineral deposits and petroleum; renewable resources such as timber, and the outer-continental shelf resources) related to land. Land Acquired for or in Connection with Other General PP&E Land acquired with the intent to construct general PP&E and land acquired in combination with general PP&E, including not only land used as the foundation, but also adjacent land considered to be the general PP&E's common grounds. Land Held for Disposal Acres of or Exchange Land for which the entity has satisfied the statutory disposal authority requirements specific to the land in question. Disposal includes conveyances of federal land to nonfederal entities not limited to sale, transfer, exchange, lease, public-private partnership, and donation or any combination thereof. Last-in, First-out (LIFO) A cost flow assumption; the last goods purchased are assumed to be the first goods sold. Land Rights Interests and privileges held by the entity in land owned by others, such as leaseholds, easements, water and water power rights, diversion rights, submersion rights, rights-of-way, mineral rights, and other like interests in land. Land rights such as easements or rights-of-way that are for an unspecified period of time or unlimited duration are considered permanent land rights. Temporary land rights are those land rights that are for a specified period of time or limited duration. Latest Acquisition Cost (LAC) Method A method that provides that all like units that are held be valued at the invoice price of the most recent like item purchased, less any discounts, plus any additional costs incurred to bring the item to a form and location suitable for its intended use. Latest Acquisition Cost Includes all amounts, except interest, paid to a vendor to acquire an item. Lease A lease is a contract or agreement whereby one entity (lessor) conveys the right to control the use of property, plant, and equipment (PP&E) (the underlying asset) to another entity (lessee) for a period of time as specified in the contract or agreement in exchange for consideration. Lease Concessions Lease concessions are rent discounts made by the lessor to entice the lessee to sign a lease. Lease concessions include rent holidays/free rent periods, reduced rents, or commission credits. Lease Incentives Lease incentives include lessor payments made to or on behalf of the lessee to entice the lessee to sign a lease. Lease incentives may include upfront cash payments to the lessee; for example, moving costs, termination fees to lessee’s prior lessor, or lessor’s assumption of the lessee’s lease obligation under a different lease with another lessor. Leasehold Improvements Leasehold improvements are additions, alterations, remodeling, renovations or other changes to a leased property that either extend the useful life of the existing property or enlarge or improve its capacity and are paid for (financed) by the lessee. Legacy Entity An entity from which a smaller entity or specific function is being transferred. (Technical Bulletin 2003-1) Lessor Improvements Lessor improvements are additions, alterations, remodeling, renovations or other changes to a leased property that either extend the useful life of the existing property or enlarge or improve its capacity and are paid for (financed) by the lessor rather than by the lessee. Level of Utilization The portion of the usable capacity currently being used. Liability For Federal accounting purposes, a probable future outflow or other sacrifice of resources as a result of past transactions or events. Liability for Losses on Remaining Coverage Is an accrued obligation to beneficiaries attributable to coverage of insured events anticipated to occur after the end of the reporting period through the open arrangement period. Life-cycle Costing An acquisition or procurement technique which considers operating, maintenance, and other costs in addition to the acquisition cost of assets. Life Insurance Programs Cover the risk of loss from death of individuals involved in exchange transactions as defined in SFFAS 7. Liquidating Account The budget account that includes all cash flows to and from the government resulting from pre- 1992 direct loans or loan guarantees (those originally obligated or committed before Oct. 1, 1991), except those pre-1992 direct loans and loan guarantees that have been directly modified and transferred to a financing account. (See OMB Circular A-11) Loan Guarantee Any guarantee, insurance, or other pledge with respect to the payment of all or part of the principal or interest on any debt obligation of a nonfederal borrower to a nonfederal lender but does not include the insurance of deposits, shares, or other withdrawable accounts in financial institutions. (OMB Circular A-11) Loan Guarantee Commitment A binding agreement by a federal agency to make a loan guarantee when specified conditions are fulfilled by the borrower, the lender, or any other party to the guarantee agreement. (OMB Circular A-11) Loss Any expense or irrecoverable cost, often referred to as a form of nonrecurring charge, an expenditure from which no present or future benefit may be expected. Long-term Assumptions Assumptions are considered long-term if the underlying event about which the assumption is made will not occur for five years or more. If the event is one of a series of events the entire series should be considered the event and, thus, the payment may commence within one year but would be required to extend at least five years. Otherwise, the asset or liability would be classified as short-term. Lower Of Cost Or Market A valuation rule that recognizes impairment of asset values but avoids anticipated gains. The rule is typically applied to individual items or groups of like items, such as inventory or marketable securities. In this rule, “cost” refers to historical cost and “market” refers to the current replacement cost by purchase or production. Maintenance The act of keeping fixed assets in usable condition. It includes preventive maintenance, normal repairs, replacement of parts and structural components, and other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected life. Maintenance excludes activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, those originally intended. Managerial Cost Accounting System The organization and procedures, whether automated or not, and whether part of the general ledger or stand-alone, that accumulates and reports consistent and reliable cost information and performance data from various agency feeder systems. The accumulated and reported data enable management and other interested parties to measure and make decisions about the agency’s/segment’s ability to improve operations, safeguard assets, control its resources, and determine if mission objectives are being met. Mandatory Spending "Mandatory spending" includes entitlement authority (for example, Social Security and Medicare and payment of interest on the national debt). Congress controls mandatory spending by controlling eligibility and setting benefit and payment rules, rather than by annual appropriation acts. For additional information, see A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP. Marketable Treasury Securities Debt securities, including Treasury bills, notes, and bonds, that the U.S. Treasury offers to the public and are traded in the marketplace. Their bid and ask prices are quoted on securities exchange markets. Market-based Treasury Securities Treasury securities issued to governmental accounts that are not traded on any securities exchange but mirror the prices of marketable securities with similar terms. (See Treasury Financial Manual 2-4100, Federal Agencies’ Financial Reports, Exhibit No. 3.) Market Value (1) The estimated amount that can be realized by disposing of an item through arm’s length transactions in the marketplace; the price (usually representative) at which bona fide sales have been consummated for products of like kind, quality, and quantity in a particular market at any moment of time. (2) For investments in marketable securities, the term refers to the value of such securities determined by prices quoted on securities exchange markets multiplied by the number of bonds or shares held in an investment portfolio. Measurable Can be determined with reasonable certainty or is reasonably estimable. Measurement Approach The measurement approach is how an asset or liability is measured in periods after initial recording-i.e., at the historical cost or initial transaction amount (with subsequent adjustments for amortization, depreciation, or depletion, if applicable) or at an amount, such as fair value, measured at each financial statement date. Measurement Attribute The measurement attribute (or measurement basis) is a measurable characteristic of an asset or liability, such as its fair value or settlement amount. Medicare A national, federally administered health insurance program authorized in 1965 to cover the cost of hospitalization, medical care, and some related services for most people over age 65, people receiving Social Security Disability Insurance payments for two years, and people with End-Stage Renal Disease. Medicare consists of two separate but coordinated programs: Part A, Hospital Insurance (HI) and Part B, Supplementary Medical Insurance (SMI). All persons entitled to HI are eligible to enroll in the SMI program on a voluntary basis by paying a monthly premium. Health insurance protection is available to Medicare beneficiaries without regard to income. Military Missions Functions performed by the Department of Defense or its component entities to prepare for the effective pursuit of war and military operations short of war; to conduct combat, peacekeeping, and humanitarian military operations; and to support civilian authorities during civil emergencies. Model A representation in mathematical symbols (or at least graphically) that depicts a formulated theory about the relationship among measurements of some phenomenon that varies. A model includes both cash flow assumptions and model assumptions. Modeling The process of developing and selecting an appropriate set of cash flows and model which generally have two aspects: (1) a choice of a general mathematical function (equation) describing a basic shape or process and (2) a choice of the model parameters that distinguish one specific shape from the general class of functional forms. The mathematical functions may take many forms. Commonly known examples of models are simple regression (y=ax+b), multiple regression (y=ax+by+z), and time series. Many other simple or more complex model forms related to cash flow modeling reform are possible. Model Parameters The values that identify a unique model from the general form. For example, y=2x+3 has parameters a=2 and b=3 for the simple regression model class. Note that “model parameter” is sometimes used in credit reform documents in lieu of the more appropriate term “input variable in the spreadsheet.” Modification A federal government action, including new legislation or administrative action, that directly or indirectly alters the estimated subsidy cost and the present value of outstanding direct loans (or direct loan obligations), or the liability of loan guarantees (or loan guarantee commitments). Direct modifications are actions that change the subsidy cost by altering the terms of existing contracts or by selling loan assets. Indirect modifications are actions that change the subsidy cost by legislation that alters the way in which an outstanding portfolio of direct loans or loan guarantees is administered. The term modification does not include subsidy cost reestimates, the routine administrative workouts of troubled loans, and actions that are permitted within the existing contract terms. Modification Adjustment Transfer A non-expenditure transfer from a financing account to the Treasury, or vice versa, to offset the difference between the cost of modification of direct loans (or loan guarantees) and the change in the book value of direct loans (or loan guarantee liabilities). (See also OMB Circular A-11) Moving Average An inventory costing method used in conjunction with a perpetual inventory system. A weighted average cost per unit is recomputed after every purchase. Goods sold are costed at the most recent moving average cost. Multi-use Heritage Assets Heritage assets whose predominant use is general government operations. Negative Subsidy Account the budget account for the receipt and/or expenditure of amounts paid from the financing account when there is a negative subsidy for the original estimate or a downward reestimate (not necessarily used for mandatory programs). Net Cost Of Operations Total costs incurred by the reporting entity less exchange revenue earned during the period. This is the “bottom line” of the statement of net costs. [See SFFAC 2, Entity and Display, pars. 86-99 and Appendix 1-B; and OMB Bulletin 01-09, Form and Content, Section 4.8, “Net Cost of Operations.”] Net Level Premium Reserve The excess, if any, of the present value of future guaranteed death endowment benefits over the present value of future net premiums. The net level premium reserve should be calculated based on the dividend fund interest rate, if determinable, and mortality rates guaranteed in calculating the cash surrender values described in the contracts. (AICPA Statement of Position 95-1) Net Operating Revenue (Or Cost) At the CFR level, the difference between the net cost of operations and, essentially, all nonexchange revenue. (SFFAS 24) Net Realizable Value The estimated amount that can be recovered from selling, or any other method of disposing of an item less estimated costs of completion, holding and disposal. Nominal Dollar The dollar value assigned to a good or service in terms of prices current at the time of the good or service is required. This contrasts with the value assigned to a good or service measured in constant dollars. Nominal (Or Face Or Par) Value Or Amount The amount of a bond, note, mortgage, or other security as stated in the instrument itself, exclusive of interest or dividend accumulations. The nominal amount may or may not coincide with the price at which the instrument was first sold, its present market value, or its redemption price. Often referred to as the stated value. Nonexchange Revenue Inflows of resources to the Government that the Government demands or that it receives by donations. The inflows that it demands include taxes, duties, fines, and penalties. Nonexchange Transaction A transaction that arises when one party to a transaction receives value without giving or promising value in return or one party to a transaction gives or promises value without receiving value in return. Nonexchange Transaction Insurance Programs Cover the risk of loss from adverse events through nonexchange transactions as defined in SFFAS 7. Non-Federal Individuals or Entities Individuals and entities acting in their private capacities outside of the authority and control of the Federal Government. Federal employees are "non-Federal individuals" when acting in their private capacities, e.g., with respect to their private retirement assets managed by a Federal plan. Nonfederal Physical Property Physical properties financed by grants from the Federal Government, but owned by state and local governments. Nonfriable ACM refers to any material containing more than 1 percent asbestos as determined using the method specified in appendix E, subpart E, 40 CFR part 763, section 1, Polarized Light Microscopy, that, when dry, cannot be crumbled, pulverized, or reduced to powder by hand pressure. (40 CFR § 61.141) Nonfungible tokens Nonfungible tokens (NFTs) are crypto assets that are not interchangeable. Each NFT is unique and often contains a pointer to a digital object, such as an image file. Nonrecognized events Subsequent events that provide evidence with respect to conditions that did not exist at the end of the reporting period but arose subsequent to that date. Non-Valued Fiduciary Assets Fiduciary assets for which required disclosure does not include dollar values. Non-valued fiduciary assets may include land held in trust. Fiduciary non-valued assets should be disclosed in accordance with generally accepted accounting principles. [FN: In the future, the Board may require dollar values for certain categories. In the event of such a change in accounting principles, the affected categories would no longer be included in non-valued fiduciary assets.] Normal (or Service) Cost The normal cost component of expense is the actuarial present value of the future cash outflows for which a reporting entity becomes obligated during the reporting period. For pensions, ORB, and OPEB, it represents that portion of the actuarial present value of benefits and expenses attributed to the valuation year by the benefit plan formula to work in covered employment or other service rendered by the participant in the period. The normal cost is a component of the annual expense and liability of the program and is not affected by the funded status of the plan. Obligated Balances The net amount of obligations in a given account for which payment has not yet been made. (JFMIP Standardization Project) Obligation Following the enactment of budget authority and the completion of required apportionment action, Government agencies incur obligations to make payments. Obligations are binding agreements that will result in outlays immediately or in the future. Obligations include, for example: current liabilities for salaries, wages, and interest; contracts for the purchase of supplies and equipment, construction, and the acquisition of office space, buildings, and land; and other arrangements requiring the payment of money. [See FY 2003 Budget of the United States Government: Analytical Perspectives, “Budget System and Concepts and Glossary“ (Obligations Incurred).] Obligations Amounts of orders placed, contracts awarded, services received, and other transactions occurring during a given period that would require payments during the same or a future period. (JFMIP Standardization Project) Offsetting Collections Collections from the public that result from business-type or market oriented activities and collections from other Government accounts. These collections are deducted from gross disbursements in calculating outlays, rather than counted in governmental receipts. Some offsetting collections are credited directly to appropriation or fund accounts; others, called offsetting receipts, are credited to receipt accounts. The authority to spend offsetting collections is a form of budget authority. (OMB, The Budget System and Concepts) Offsetting Receipts Offsetting receipts are a subset of offsetting collections. (See collections.) OMB Credit Subsidy Model Computer software developed by OMB for discounting cash flows in estimating credit subsidies. It uses agency cash flow inputs to compute the net present value at the point of disbursement and the subsidy rate associated with those cash flows. Open Group Population Those persons who are participating or who eventually will participate, during a specified period, in a social insurance program as contributors or beneficiaries. They include, for example, current workers, retirees, survivors, disabled persons, and new participants entering the workforce or becoming beneficiaries, including those who will be born or immigrate to the United States in the future. Opening Balances Account balances that exist at the beginning of the reporting period. Opening balances are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments. [Adopted from AU-C 510, Opening Balances - Initial Audit Engagements, Including Reaudit Engagements (AICPA Professional Standards)] Operational land Land or land rights predominantly used for general or administrative purposes. [See SFFAS 6 paragraph 20D. for the operational land subcategory functions]. Operating Materials and Supplies Operating Materials and Supplies consist of tangible personal property to be consumed in normal operations. Excluded are: (1) goods that have been acquired for use in constructing real property or in assembling equipment to be used by the entity, (2) stockpile materials, (3) goods held under price stabilization programs, (4) foreclosed property, (5) seized and forfeited property, and (6) inventory. Opportunity Cost The value of the alternatives foregone by adopting a particular strategy or employing resources in a specific manner. Also called Alternative Cost or Economic Cost. Original Classification Authority Is an individual authorized in writing, either by the President, the Vice President, or by agency heads or other officials designated by the President, to classify information in the first instance. Original Discount Rate The discount rate originally used to calculate the present value of direct loans or loan guarantee liabilities, when the direct or guaranteed loans were disbursed. [Special Term from SFFAS 2] Other Accompanying Information Information that accompanies basic information and required supplementary information, but is not required by a body that establishes GAAP. Other Financing Sources Inflows of resources that increase net position of a reporting entity during the reporting period but that are not revenues or gains. They include appropriations used, transfers of assets from other Government entities, and financing imputed with respect to any cost subsidies. Financing outflows may result from transfers of the reporting entity's assets to other Government entities or from exchange revenues earned by the entity but required to be transferred to the General Fund or another Government entity. Unexpended appropriations are recognized separately in determining net position but are not financing sources until used. Other Postemployment Benefits (OPEB) Forms of benefits provided to former or inactive employees, their beneficiaries, and covered dependents outside pension or ORB plans. Other Retirement Benefits (ORB) Forms of benefits, other than retirement income, provided by an employer to retirees. Those benefits may be defined in terms of specified benefits, such as health care, tuition assistance, or legal services, which are provided to retirees as the need for those benefits arises, such as certain health care benefits. Or they may be defined in terms of monetary amounts that become payable on the occurrence of a specified event, such as life insurance benefits. (Financial Accounting Standards Board, Statement of Financial Accounting Standard No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions) Outcome Defined in broad terms in SFFAC No. 1 (para. 204-208) as accomplishments or results that occur (at least partially) because of the service efforts of Government entities. Some authorities use terms like “impact,” “effect,” or “results” to distinguish the change in outcomes specifically caused by the Government activity from the total change in conditions that can be caused by many factors. Outlay The issuance of checks, disbursement of cash, or electronic transfer of funds made to liquidate a Federal obligation. Outlays also occur when interest on the Treasury debt held by the public accrues and when the Government issues bonds, notes, debentures, monetary credits, or other cash-equivalent instruments in order to liquidate obligations. Also, under credit reform, the credit subsidy cost is recorded as an outlay when a direct or guaranteed loan is disbursed. (GAO Budget Glossary) Output Measure A tabulation, calculation, or recording of activity or effort that can be expressed in a quantitative or qualitative manner. It shall have two key characteristics: 1) it shall be systematically or periodically captured through accounting or management information system, and 2) there shall be a logical connection between the reported measures and the program’s purpose. Ownership Interest The possession of substantially all of the benefits and risks incident to ownership. Partial impairment less than full or total impairment. Payroll withholdings Amounts that are withheld from payment of wages to an employee and subsequently remitted to other payees, such as Federal, State or local governments; or health or life insurance providers, on behalf of the employee. Performance Measurement A means of evaluating efficiency, effectiveness, and results. A balanced performance measurement scorecard includes financial and nonfinancial measures focusing on quality, cycle time, and cost. Performance measurement should include program accomplishments in terms of outputs (quantity of products or services provided, e.g., how many items efficiently produced? ) and outcomes (results of providing outputs, e.g., are outputs effectively meeting intended agency mission objectives? ). See Statement of Federal Financial Accounting Concepts No. 1, Objectives of Federal Financial Reporting, para. 192. Policy Assumptions Policy assumptions address the factors under the direct control of the federal government concerning the taxes and other receipts to be received by the federal government and the public services to be provided by the federal government. Policy assumptions address projected spending rules for both mandatory and discretionary spending as well as the framework for assessing taxes and fees. Post-1991 Direct Loans Direct loans obligated after September 30, 1991. [Special Term from SFFAS 2] Post-1991 Loan Guarantees Loan guarantees committed after September 30, 1991. [Special Term from SFFAS 2] Post-modification Liability The present value of the net cash outflows of the loan guarantees estimated at the time of modification under the post-modification terms, and discounted at the interest rate applicable to the time when the modification occurs on marketable Treasury securities that have a comparable maturity to the remaining maturity of the guaranteed loans under post-modification terms (simply stated, the post-modification terms at the current rate). (Special Term from SFFAS 19) Post-modification Value The present value of the net cash inflows of direct loans estimated at the time of modification under post-modification terms and discounted at the interest rate applicable to the time when the modification occurs on marketable Treasury securities that have a comparable maturity to the remaining maturity of the direct loans under post-modification terms (simply stated, the postmodification terms at the current rate). (Special Term from SFFAS 19) Predominant Use of Land The major or primary current use of an asset during the reporting period and does not include incidental or infrequent uses of the asset. An asset's predominant use should be consistent with the entity's authorizing legislation but may not always be consistent with the original intent or reason why the asset was initially acquired. Premiums Is a general term used to refer to exchange revenue billed by insurance programs. Programs may refer to their exchange revenue by various terms, including but not limited to premiums, assessments, and/or fees. Premodification Value The present value of the net cash inflows of direct loans estimated at the time of modification under premodification terms and discounted at the interest rate applicable to the time when the modification occurs on marketable Treasury securities that have a comparable maturity to the remaining maturity of the direct loans under premodification terms (simply stated, the premodification terms at the current rate). (Special Term from SFFAS 19) Premodification Liability The present value of the net cash outflows of loan guarantees estimated at the time of modification under the premodification terms and discounted at the interest rate applicable to the time when the modification occurs on marketable Treasury securities that have a comparable maturity to the remaining maturity of the guaranteed loans under premodification terms (simply stated, the premodification terms at the current rate). (Special Term from SFFAS 19) Pre-1992 Loan Guarantees Loan guarantees committed before October 1, 1991. [Special Term from SFFAS 2] Pre-1992 Direct Loans Direct loans obligated before October 1, 1991. [Special Term from SFFAS 2] Premium Deficiency A condition under which a liability for future policy benefits using current conditions exceeds the liability for future policy benefits using contract conditions. In such cases, the difference should be recognized as a charge to operations in the current period. Present Value (PV) The value of future cash flows discounted to the present at a certain interest rate (such as the reporting entity's cost of capital), assuming compound interest. (Adapted from Kieso and Weygandt, Intermediate Accounting, 7th ed., page 264.) Present value represents the amount of money that if invested today would grow to a specified amount in the future. Present value is an adjusted amount that takes the "time value of money" into consideration. The "time value of money" is illustrated by a question such as: "At ten percent interest (compounded annually), how much do I need to put into the bank today in order to have $110 one year from today? " The amount you would need today would be $100. Therefore, the present value of $110 in this example would be $100. Principal Financial Statements See SFFAC 2, paragraph 74, for a listing of the financial statements and other information that a financial report should include. The FASAB considers principal financial statements an essential part of a reporting entity’s financial reporting, and therefore recommends authoritative guidelines for the measurement and presentation of the information. [SFFAC 2, Entity and Display, paragraph 71, footnote 12.] (See also Basic Financial Statements) Prior Service Costs The cost of retroactive benefits granted in a plan amendment or accomplished through administrative change, legislation, or other means. In some cases there will not be a formal "plan" per se to amend, for example, certain postemployment benefits, and a program is amended through other means than a formal "amendment." Privacy coins Privacy coins are cryptocurrencies with enhanced features to reduce traceability. Probable That which can reasonably be expected or believed to be more likely than not on the basis of available evidence or logic but which is neither certain nor proven. Process The organized method of converting inputs (people, equipment, methods, materials, and environment), to outputs (products or services). The natural aggregation of work activities and tasks performed for program delivery. Process Costing A method of cost accounting that first collects costs by processes and then allocates the total costs of each process equally to each unit of output flowing through it during an accounting period. Process Value Analysis Tools and techniques for studying processes through customer value analysis. Its objective is to identify opportunities for lasting improvement in the performance of an organization. It provides an in-depth review of work activities and tasks, through activity analysis, which aggregate to form processes for agency program delivery. In addition to activity-based costing, quality and cycle time factors are studied for a complete analysis of performance measurement. Each activity within the process is analyzed, including whether or not the activity adds value for the customer. Product Any discrete, traceable, or measurable good or service provided to a customer. Often goods are referred to as tangible products, and services are referred to as intangible products. A good or service is the product of a process resulting from the consumption of resources. Program Account The budget account into which an appropriation to cover the subsidy cost of a direct loan or loan guarantee program is made and from which such cost is disbursed to the financing account. Usually, a separate amount for administrative expenses is also appropriated to the program account. (OMB Circular A-11) Projected Unit Credit Actuarial Method A method under which the projected benefits of each individual included in an actuarial present valuation are allocated by a consistent formula to valuation years. The actuarial present value of benefits allocated to the valuation year is called the normal cost. The actuarial present value of benefits allocated to all periods before a valuation year is called actuarial liability. (Actuarial Standard of Practice) Projection The term "projection" refers to prospective financial information, including but not limited to prospective financial statements, based on one or more hypothetical assumptions of sets of assumptions. The hypothetical assumptions relate to future conditions and actions that may occur, but which are not necessarily deemed probable (unlike the case with forecasts). Both forecasts and projections may contain a range. As used in Statement of Federal Financial Accounting Standards 36, Long-Term Projections for the U.S. Government, a projection is the calculation of future data based upon the application of trends to present data. Projections of deficits, or surpluses, and debt are a central feature of Fiscal Sustainability Reporting. Projections are not forecasts or predictions; they are designed to depict results that may occur under various conditions-for example, what if current policy without change regarding federal government public services and taxation are continued in the future? Projections are useful in order to display alternative future scenarios, but it is important to clearly explain the nature of the information being presented. Property, Detained Property taken into custody temporarily for purposes of preserving the status quo (items in or around a crime scene) or to protect the government from liability for loss (luggage of an arrested traveler, vehicle of an arrested drunk driver), or determining Customs admissibility, with the intent to release the property as soon as it is no longer necessary to preserve the status quo or the owner can assume responsible custody. This action is not a seizure under the law and thus detained property is not considered seized property. Property, Embargoed Property that may be legal to possess or own in the U.S., but whose import/export is prohibited (e.g., Iranian carpets, Cuban cigars). Property, Forfeited Property of any type (currency, monetary interests, realty, intangible property, and tangible personal property) for which title has vested in the Federal government, over any other asserted legal interest in the property, by exercise of a legal forfeiture process. Property, Plant, And Equipment, General PP&E used to provide government services or goods. The cost of general PP&E is capitalized, i. e. recorded as assets on the balance sheet. For detailed characteristics of and accounting for general PP&E, see paragraphs 23 through 34, SFFAS No. 6. Property, Prohibited Property for which no private right of ownership is recognized under U.S. law, or of which mere private possession is prohibited under U.S. law. Examples include certain controlled substances, counterfeit currency, counterfeit monetary and financial instruments, and certain firearms. This property is a type of seized property. Property, Seized Property of any type (currency, monetary interests, realty, intangible property, and tangible personal property) over which the federal government has exercised its power under law to assert possession and control in opposition to any other party asserting a legal interest in the property. Seized for evidence - Property the federal government has seized for the sole purpose of preserving and protecting the property for possible use in civil or criminal judicial proceeding. The expectation is that the property will be returned to its rightful owners upon conclusion of the judicial proceedings. However, circumstances can allow the status of property seized for evidence to change to property seized for forfeiture. Seized for forfeiture - Property the federal government has seized for the purpose of transferring title to the federal government through exercise of a legal forfeiture process. This includes property seized for forfeiture that also may be used in an evidentiary proceeding. Seized for tax purposes - Property the federal government has seized for the purpose of satisfying a tax liability to the federal government through exercise of a legal tax enforcement process. This includes property seized for tax purposes that also may be used in an evidentiary proceeding. Seized for other purposes - Property the federal government has seized for purposes other than for evidence, for forfeiture, or for tax purposes. Examples of property in this category include seizures for satisfaction of debts owed the government, for protection of public safety or navigation (adrift vessel), and for preservation of environmental conditions (sinking vessel). This includes property seized for these other governmental purposes that also may be used in an evidentiary proceeding. Proprietary Accounting Also known as financial accounting, a process that supports accrual accounting and financial reporting that attempts to show actual financial position and results of operations by accounting for assets, liabilities, net position, revenues, and expenses. (See Tierney, Cornelius E., Handbook of Federal Accounting Practices, Reading Massachusetts: Addison-Wesley, 1982: 122). Provider-lessor The reporting entity providing the acquisition/construction of, or improvements and/or alterations to, the underlying asset to the customer-lessee on a reimbursable basis. (Technical Bulletin 2023-1). Public Domain Land Land that was originally ceded to the United States by treaty, purchase, or conquest in contrast to acquired lands, which have been purchased by, given to, exchanged with, or transferred through condemnation proceedings to the federal government. Public-Private Partnerships Federal public-private partnerships (P3s) are risk-sharing arrangements or transactions with expected lives greater than five years between public and private sector entities. Such arrangements or transactions provide a service or an asset for government and/or general public use where in addition to the sharing of resources, each party shares in the risks and rewards of said arrangements or transactions. P3 Structural Arrangement P3s that are external to the government sponsor's or entity's operations and often involve the creation of an SPV, Trust, or Limited Partnership (LP), and other such arrangements. For example, military base housing. P3 Transactional Arrangement P3s that are internal to the government sponsor's or entity's operations. For example, work-share programs not involving the creation of a SPV, Trust, or LP, etc. Public Services In federal financial reporting, "public services" refers to all goods, benefits and services provided by the government. Federal public services include but are not limited to the provision of goods, cash (such as Social Security benefits) or other financial benefits (such as loan guarantees), as well as national defense, national security, transportation safety and the operation of national parks. Purchases Method A method of accounting for goods, such as materials and supplies, in which the acquisition cost is recognized as an expense upon purchase of the goods rather than upon their use. Railroad Retirement Program A federal program somewhat similar to Social Security, designed for workers in the railroad industry. The provisions of the Railroad Retirement Act provide for a system of coordination and financial interchange between the Railroad Retirement program and the Social Security program. Reappropriation Enacted legislation that continues the availability of unexpended funds that expired or would otherwise expire. (JFMIP Standardization Project) Reasonably Estimable The ability to reliably quantify in monetary terms the outflow of resources that will be required. (TR 2) Receipts Collections that result from the Government’s exercise of its sovereign power to tax or otherwise compel payment, and gifts of money to the Government. Receivership Receivership is the legal procedure for winding down the affairs of an insolvent institution. [Managing the Crisis: The FDIC and RTC Experience, Appendix B - List of Abbreviations and Glossary of Terms; available online at http://www.fdic.gov/bank/historical/managing/; last accessed October 11, 2012.] Receiving Entity An entity to which functions are transferred. (Technical Bulletin 2003-1) Recognition (Or Recognize) The term recognition bears the same meaning as used by the Financial Accounting Standards Board in its conceptual statements. Recognition is the process of formally recording or incorporating an item into the financial statements of an entity as an asset, liability, revenue, expense, or the like. A recognized item is depicted in both words and numbers, with the amount included in the statement totals. Recognition comprehends both initial recognition of an item and recognition of subsequent changes in or removal of a previously recognized item. (Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 5, A Replacement of FASB Concepts Statement No. 3, para. 6.) Recognize To determine the amount, timing, classification, and other conditions precedent to the acceptance and entry of a transaction. Hence, to give expression on the books of account; said of transactions. Recognized events Subsequent events that provide additional evidence with respect to conditions that existed at the end of the reporting period and affect the estimates inherent in the process of preparing basic information and RSI. Record To give expression to a transaction on (or in) the books of account; to enter. Recourse The rights of a holder in due course of a financial instrument (such as a loan) to force the endorser on the instrument to meet his or her legal obligations for making good the payment of the instrument if dishonored by the maker or acceptor. The holder in due course must have met the legal requirements of presentation and delivery of the instrument to the maker of a note or acceptor of a draft and must have found that this legal entity has refused to pay for or defaulted in payment of the instrument. Recoveries Include monies: returned from another agency through an indemnification agreement, a third party or commercial insurance company to repay all or part of a loss originally paid for by the program, recouped from the sale of salvageable parts through acquisition and disposal or salvage of assets, and/or received from adjustments to previously paid insurance claims. Reestimate Refers to estimates of the subsidy costs performed subsequent to their initial estimates made at the time of a loan’s disbursement. Regulated ACM Refers to (a) Friable ACM, (b) Category I nonfriable ACM that has become friable, (c) Category I nonfriable ACM that will be or has been subjected to sanding, grinding, cutting, or abrading, or (d) Category II nonfriable ACM that has a high probability of becoming or has become crumbled, pulverized, or reduced to powder by the forces expected to act on the material in the course of demolition or renovation operations regulated by this subpart. (40 CFR § 61.141) Reimbursements Sums received as payment or advance payment for goods or services furnished either to the public or to another federal government account. If authorized by law, these sums are credited directly to specific appropriation and fund accounts. These amounts are deducted from the total obligations incurred (and outlays) in determining net obligations (and outlays) for such accounts. (Budget Glossary) Reimbursements are offsetting collections. (See offsetting collections.) Related Parties Organizations are considered to be related parties in the GPFFR if the existing relationship or one party to the existing relationship has the ability to exercise significant influence over the other party’s policy decisions. Relationship, as used in this context, refers to material transactions or events involving both parties. Repairable An inventory item that is expected to be repaired when broken or worn out. Replacement Cost The cost to reproduce an inventory item by purchase or manufacture. In lower of cost or market computations, the term “market” means replacement cost, subject to ceiling and floor limitations. Replacement Cost (SFFAC 7) Replacement cost is the amount required for an entity to replace the remaining service potential of an existing asset in a current transaction at the reporting date, including the amount that the entity would receive from disposing of the asset at the end of its useful life. Reporting Entity Reporting entities are organizations that issue a GPFFR because either there is a statutory or administrative requirement to prepare a GPFFR or they choose to prepare one. The term "reporting entity" may refer to either the government-wide reporting entity or a component reporting entity. Statement of Federal Financial Accounting Concepts (SFFAC) 2 provides criteria for an entity to be a reporting entity. The criteria focus on whether: a. An entity's management is responsible for controlling and deploying resources, producing outputs and outcomes, and executing the budget or a portion thereof (assuming that the entity is included in the budget), and is held accountable for the entity's performance. b. An entity's financial statements would provide a meaningful representation of operations and financial condition. c. An entity's financial information could be used by nterested parties to help them make resource allocation and other decisions and hold the entity accountable. Required Information Information that consists of basic and required supplementary information. Required Supplementary Information Information that a body that establishes GAAP requires to accompany basic information. When an auditor is engaged to audit an entity's financial statements, basic information is subject to testing for fair presentation in conformity with GAAP. However, RSI for federal entities is unaudited but subject to certain procedures specified by Generally Accepted Government Auditing Standards for RSI. Responsibility Segment A significant organizational, operational, functional, or process component which has the following characteristics: (a) its manager reports to the entity’s top management; (b) it is responsible for carrying out a mission, performing a line of activities or services, or producing one or a group of products; and (c) for financial reporting and cost management purposes, its resources and results of operations can be clearly distinguished, physically and operationally, from those of other segments of the entity. Responsibility Center An organizational unit headed by a manager or a group of managers who are responsible for its activities. Responsibility centers can be measured as revenue centers (accountable for revenue/sales only), cost centers (accountable for costs/expenses only), profit centers (accountable for revenues and costs), or investment centers (accountable for investments, revenues, and costs). Restatement (Of Direct Loans Or Loan Guarantees) Refers to establishing a new book value of a direct loan or the liability of a loan guarantee. Revenue See "Exchange Revenue" and "Nonexchange Revenue." Revenue Adjustment A contra revenue account that is used to report reduction in revenue when realization is not probable (less likely than not). It includes, returns, allowances, and price redeterminations but not credit losses (due to the inability of the debtor to pay the established or negotiated price). Revolving Fund A fund consisting of permanent appropriation and expenditures of collections, from both the public and other Governmental agencies and accounts, that are earmarked to finance a continuing cycle of business-type operations. (OMB Circular A-34) Risk Category Subdivisions of a cohort of direct loans or loan guarantees into groups of loans that are relatively homogeneous in cost, given the facts known at the time of obligation or commitment. Risk categories will group all loans obligated or committed for a program during the fiscal year that share characteristics predictive of defaults and other costs. (OMB Circular A-11) Risk-free Interest Rate The rate on risk-free monetary assets that have maturity dates or durations that coincide with the period covered by the cash flows. See Time Value of Money below. Security tokens Security tokens are digital forms of financial instruments that represent ownership in another asset, such as real estate or equity in a company. Seized Property Seized property includes monetary instruments, real property and tangible personal property of others in the actual or constructive possession of the custodial agency. Seizing Agency The agency that seizes property as a part of its law enforcement activities. Selling Expense (Cost) Expenses incurred in selling or marketing, e.g., salaries, commissions, and promotion expenses. Sensitive Items Items that could be a hazard or threat to public safety or the economy in Federal custody that would cause discredit or embarrassment to the Federal government if it lost accountability over those items. Service An intangible product or task rendered directly to a customer. Service Utility The usable capacity that at acquisition was expected to be used to provide service. Settlement Amount Settlement amount is the amount at which an asset can be realized or a liability can be liquidated. Short Term Lease A short-term lease is a lease with a lease term of 24 months or less. Social Security Act The Social Security Act governs most operations of the Social Security program. The original Social Security Act is Public Law 74-271, enacted August 14, 1935. With subsequent amendments, the Social Security Act consists of 20 titles, of which four have been repealed. The OASDI program is authorized by Title II of the Social Security Act. Social Insurance Programs Income transfer programs financed by compulsory earmarked taxes and also, in certain cases, general revenues of the federal government. (Also see separate definition of insurance and guarantees). Special Fund Federal fund accounts for receipts earmarked for specific purposes and the associated expenditure of those receipts. (OMB, The Budget System and Concepts) Special Purpose Vehicles (SPVs) also commonly called Special Purpose Entities (SPEs), are entities created for a specific, limited and normally temporary purpose. An SPV can be a corporation, trust, partnership, limited-liability company or some type of Variable Interest Entity (VIE). They are often an integral part of public private partnerships because of their risk-containment nature of isolating participating entities from financial risk. Specific Identification An inventory system in which the seller identifies which specific items are sold and which remain in ending inventory. Spreadsheets Computer code, often a collection of programs, used to make calculations (e.g., cash flow estimates) according to the proposed models and assumptions. Spreadsheets are not models although the term “spreadsheet model” is sometimes used. Stablecoins Stablecoins are crypto assets that are backed by a portfolio of underlying assets and claimed to have a stable exchange value with these assets. Standard Costing A costing method that attaches costs to cost objects based on reasonable estimates or cost studies and by means of budgeted rates rather than according to actual costs incurred. The anticipated cost of producing a unit of output. A predetermined cost to be assigned to products produced. Standard cost implies a norm, or what costs should be. Standard costing may be based on either absorption or direct costing principles, and may apply either to all or some cost elements. Standard Costs Predetermined expected unit costs, which are acceptable for financial reporting purposes if adjusted periodically to reflect actual results. State And Local Governments State and local governments generally include: the 50 States and the District of Columbia; cities, counties, townships, school districts, special districts, public authorities, and other local governmental units as defined by the Bureau of the Census; and Puerto Rico, the Virgin Islands, and other US territories. Stewardship The Federal Government’s responsibility for the general welfare of the nation in perpetuity. Stewardship Investments Items recognized as expense in calculating net cost, but meriting special treatment to highlight the substantial investment and long-term benefit of the expenses. This would include nonfederal physical property, human capital, and research and development. Stewardship Land Public domain and acquired land and land rights owned by the federal government intended to be held indefinitely. [See SFFAS 29 paragraph 33. for examples of stewardship land reserved, managed, planned, used, or acquired for.] Stewardship Responsibilities The projected financial impact on the Government of sustaining the current services that it provides pursuant to laws already enacted. The commitments and constraints reflected in “current services” are inherent in the tax and spending policies contained in current law. Subsequent events Events or transactions that affect the basic information or RSI that occur subsequent to the end of the reporting period but before the financial report is issued. Subsidy Cost The cost of a grant of financial aid, usually by a governmental body, to some person or institution for particular purposes. Credit subsidy cost is the estimated long-term cost to the government of direct loans or loan guarantees calculated on a net present value basis, excluding administrative costs. (Adapted from OMB Circular A-11) Direct loan subsidy cost is the estimated long-term cost to the government of direct loans calculated on a present value basis, excluding administrative costs. The cost is the present value of estimated net cash outflows at the time the direct loans are disbursed. The discount rate used for the calculation is the average interest rate (yield) on marketable Treasury securities of similar maturity to the loan, applicable to the time when the loans are disbursed. (Adapted from OMB Circular A-11) Loan guarantee subsidy cost is the estimated long-term cost to the government of loan guarantees calculated on a present value basis, excluding administrative costs. The cost is the present value of estimated net cash outflows at the time the guaranteed loans are disbursed by the lender. The discount rate used for the calculation is the average interest rate (yield) on marketable Treasury securities of similar maturity to the loan guarantees, applicable to the time when the guaranteed loans are disbursed. (Adapted from OMB Circular A-11) Support Costs Costs of activities not directly associated with production. Typical examples are the costs of automation support, communications, postage, process engineering, and purchasing. Tax Expenditures The Congressional Budget and Impoundment Control Act of 1974 (Public Law 93-344) defines tax expenditures as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” While the term “revenue losses” is used in the statutory definition, tax expenditures have traditionally been measured as reductions in federal tax revenues relative to normal baseline provisions of an individual and corporate income tax system, which were properly approved and authorized by the Congress to accomplish identified policy objectives, recognizing that federal tax revenues would be reduced. Tax Gap An estimate of taxes (including duties) that are unpaid because of noncompliance with existing laws and regulations. Taxable Payroll Taxable wages and taxable self-employment income. When multiplied by the combined employee-employer tax rate, it yields the total amount of taxes incurred by employees, employers, and the self-employed for work during the period. Terminal Dividends Dividends to policyholders calculated and paid upon termination of a contract, such as on death, surrender, or maturity. If the payment of terminal dividends is probable and the amount can be reasonably estimated, the liability should be recognized. AICPA Statement of Position 95-1. Time Value of Money The time value of money is represented by the rate on risk-free monetary assets that have maturity dates or durations that coincide with the period covered by the cash flows (risk-free interest rate). For present value computations denominated in nominal U.S. dollars, the yield curve for U.S. Treasury securities determines the appropriate risk-free interest rate. U.S. Treasury securities are deemed (default) risk free because they pose neither uncertainty in timing nor risk of default to the holder. Title The right to property; the means by which such right is established. Total Cost Method An accounting method that includes the actual acquisition cost of each item held plus the costs of any additions, improvements, alterations, rehabilitations, or replacements that extend the useful life of an asset. Total (full) impairment G-PP&E is no longer capable of providing service in the operations of the entity prior to the end of its estimated useful life. Traceability The ability to assign a cost directly to a specific activity or cost object by identifying or observing specific resources consumed by the activity or cost object. Transaction A particular kind of external event involving the transfer of something of value concerning two or more entities. The transfer may be a two way or one way flow of resources or of promises to provide resources. (Adapted from Financial Accounting Standards Board, Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements) Transferred Entity An entity preparing stand-alone financial statements consolidated with a legacy entity’s financial statements prior to transfer and with a receiving entity’s financial statements after transfer. (Technical Bulletin 2003-1) Transfers Between Appropriation/Fund Accounts Occur when all or part of the budget authority in one account is transferred to another account when such transfers are specifically authorized by law. The nature of the transfer determines whether the transaction is treated as an expenditure transfer or a nonexpenditure transfer. (JFMIP Standardization Project) Treasury Warrant An official document that the Secretary of the Treasury issues pursuant to law and that establishes the amount of monies authorized to be withdrawn from the central accounts that Treasury maintains. Warrants for currently unavailable special and trust fund receipts are issued when requirements for their availability have been met. (GAO Budget Glossary) Trust Funds The term "trust funds" is often colloquially used to refer to Trust Fund Accounts (see definition below). Although earmarked monies are predominantly in funds that are designated by law as trust funds, the meaning of the term "trust" in the Federal Government differs significantly from its meaning in the private sector. Whereas earmarked funds in the Federal Government are distinct from fiduciary activities, a trust in the private sector necessarily involves a fiduciary relationship. An earmarked fund should not be characterized as a "trust" in general purpose external financial reports of Federal entities. (The use of the term "trust fund" is acceptable only in the fund's official title.) Trust Fund Accounts Accounts that are designated by law as trust funds, for receipts earmarked for specific purposes and the associated expenditure of those receipts. Collections may come from the public (e.g., earmarked taxes or user charges) or from intra-budgetary transfers. More than 150 Federal Government trust funds exist, of which the largest and best known finance several major benefit programs (including Social Security and Medicare) and certain infrastructure spending (the Highway and the Airport and Airway trust funds). Trust Revolving Funds Accounts that record permanent appropriation and expenditure of collections used to carry out a cycle of business type operations in accordance with a statute that designates the fund as a trust fund. (OMB Circular A-34) Trustees, Boards Of, OASDI And Medicare Boards established by the Social Security Act to oversee the financial operations of the Old-Age, Survivors, and Disability Insurance (“Social Security” or OASDI), the Hospital Insurance (HI), and the Supplementary Medical Insurance (SMI) trust funds. The Boards are composed of six members, four of whom serve automatically by virtue of their positions in the Federal Government: the Secretaries of Treasury (the managing trustee), Labor, and Health and Human Services and the Commissioner of Social Security (since March 1995). The other two members are appointed by the President and confirmed by the Senate to serve as public representatives to serve 4 year terms. Uncontrollable Cost The cost over which a responsible manager has no influence. Unemployment Insurance (UI) The UI program was created in 1935 to provide income assistance to unemployed workers who have lost their jobs through no fault of their own. The UI program is administered through a unique system of federal-state partnerships, established in federal law but executed by state officials through conforming state laws. The Federal Government provides broad policy guidance and program direction through the oversight of the U.S. Department of Labor. The UI program is financed by federal and state unemployment taxes. Federal unemployment taxes are used to pay for the UI administrative costs, to pay the federal share of extended UI benefits, and to maintain a loan account from which states may borrow to pay UI benefits. State UI taxes are used exclusively for the payment of regular UI benefits and the state’s share of extended benefits. In addition to the federal tax, individual states finance their UI programs through state tax contributions from subject employers on the wages of covered employees. (Three states also collect contributions from employees.) Within federal guidelines, state tax rates are assigned in accordance with an employer’s experience with unemployment. Actual tax rates vary greatly among the states. Unit Cost The cost of a selected unit of a good or service. Examples include dollar cost per ton, machine hour, labor hour, or department hour. Unobligated Balances Balances of budgetary resources that have not yet been obligated. (JFMIP Standardization Project) Unobligated balances expire (cease to be available for obligation) for: —1-year accounts at the end of the fiscal year; —multiple-year accounts at the end of the period specified; —no-year accounts only when they are 1) rescinded by law, 2) purpose is accomplished, or 3) when disbursements against the appropriation have not been made for 2 full consecutive years. (GAO Budget Glossary). Unreserved Assertion An unconditional statement. Useful Life The normal operating life in terms of utility to the owner. Valuation Account (Allowance Or Reserve) An account that partly or wholly offsets one or more other accounts; for example, accumulated depreciation is a valuation account related to specific depreciable assets and allowance for bad debts is a valuation account related to accounts receivable. If a valuation account is deducted from the related asset or liability it is sometimes referred to as a contra-asset or contra-liability account. Valuation (Or Accounting Valuation) Valuation methods and bases are numerous and varied; and may be expressed quantitatively and in monetary terms. Application may be made to a single asset, a group of assets, or an entire enterprise, as determined by various bases and methods. Valuation date A date as close to the end of the fiscal year being reported upon as possible and no more than one year prior to the end of the reporting year. Value-added Activity An activity that is judged to contribute to customer value or satisfy an organizational need. The attribute “value-added” reflects a belief that the activity cannot be eliminated without reducing the quantity, responsiveness, or quality of output required by a customer or organization. Valueadded activities should physically change the product or service in a manner that meets customer expectations. Value for Money (VFM) VfM is defined as the optimum combination of whole-of-life costs and quality (or fitness for purpose) of the good or service to meet the user's requirement. VfM is not the choice of goods and services based on the lowest cost bid. To undertake a well-managed procurement, it is necessary to consider upfront, and at the earliest stage of procurement, what the key drivers of VfM in the procurement process will be. In other words, VfM is a much broader concept than typical cost-benefit analysis because it emphasizes "value" in more of a qualitative than quantitative manner. Quantitatively, some VfM models use a project's Internal Rate of Return (IRR) to help determine project acceptability. Value in Use Value in use is the benefit to be obtained by an entity from the continuing use of an asset and from its disposal at the end of its useful life. Variable Cost A cost that varies with changes in the level of an activity, when other factors are held constant. The cost of material handling to an activity, for example, varies according to the number of material deliveries and pickups to and from that activity. Variable Value Securities Securities that have unknown redemption or maturity values at the time of issue. Values of these securities can vary on the basis of regulation or specific language in the offering. Variance (1) The amount, rate, extent, or degree of change, or the divergence from a desired characteristic or state. (2) The difference for a year or less between the elements (direct material, direct labor, factory overhead) of standard cost and actual cost. The term applies to (a) a money difference or (b) changes in the character or purpose of amounts expended. Weighted-average A periodic inventory costing method where ending inventory and cost of goods sold are priced at the weighted-average cost of all items available for sale. Whole Life Policies Policies that provide insurance over the insured’s entire life and the proceeds (face amount) are paid only upon death of the insured. Write-off An action to remove an amount from an entity’s assets. A write-off of a loan occurs when an agency official determines, after all appropriate collection tools have been used, that a debt is uncollectible. Active collection on an account ceases, and the account is removed from an entity’s receivables. (Treasury Financial Manual Supplement) Appendix F: Consolidated List of Abbreviations AALP Asset Acquisition Lifecycle Phases AAPC Accounting and Auditing Policy Committee ABA American Bar Association AGA Association of Government Accountants ASIC Accounting Standards and Implementation Committee AEAN aggregate entry age normal AFDC Aid to Families with Dependent Children AFR Agency Financial Report AICPA American Institute of Certified Public Accountants AMC Acquisition Management Costs ANPV actuarial net present value APB Accounting Principles Board APV actuarial present value ARB Accounting Research Bulletin ASB Auditing Standards Board ASC Accounting Standards Codification ASIC Accounting Standards Implementation Committee (formerly known as the Accounting and Auditing Policy Committee AU Auditing Standards AU-C Auditing Standards - Clarified AUP Agreed Upon Procedures BFC Basis for conclusions CAAS Contractor Assistance and Advisory Service CAI Cost Accounting Issues CAE Claim adjustment expense CARC Chemical Agent Resistant Coating CBO Congressional Budget Office CCC Commodity Credit Corporation CEFMS Corps of Engineers Financial Management System CERCLA Comprehensive Environmental Response Compensation and Liability Act of 1980 CFC Chlorofluorocarbon CFO Chief Financial Officers CFOC Chief Financial Officers’ Council CFO Act Chief Financial Officers Act CFR Code of Federal Regulations CFS consolidated financial statements CFR Consolidated Financial Report of the U.S. Government CIGIE Council of the Inspectors General on Integrity and Efficiency CIP Construction in process COEMIS Corps of Engineers Management Information System COLA cost of living adjustment COTS Commercial Off The Shelf CPA Certified public accountant CPI Consumer Price Index CRE Component Reporting Entity CSRS Civil Service Retirement System CRS Congressional Research Service D&D decontamination and decommissioning DHS Department of Homeland Security DI Disability Insurance DIS Date-In-Service DM-AI Deferred Maintenance and Asset Impairment (task force) DM&R deferred maintenance and repairs DOC Department of Commerce DoD Department of Defense DOL U.S. Department of Labor DOJ Department of Justice DOT Department of Transportation DSS Defense Security Service ED exposure draft EDP electronic data processing EO Executive Order EPA Environmental Protection Agency ESAA Employment Security Administration Account EUCA Extended Unemployment Compensation Account EUL Enhanced Use Lease FAA Federal Aviation Administration FAQ Frequently Asked Question FAR Federal Acquisition Regulation FASAB Federal Accounting Standards Advisory Board FASB Financial Accounting Standards Board FBWT Fund Balance with Treasury FDIC Federal Deposit Insurance Corporation FECA Federal Employees Compensation Account FED LOG Federal Logistics Data FEMA Federal Emergency Management Agency FERS Federal Employees Retirement Plan FFC Federal Facilities Council FFRDC Federally Funded Research and Development Centers FIFO first-in, first-out FMFIA Federal Manager’s Financial Integrity Act FR Financial Report of the U.S. Government FRPC Federal Real Property Council FRPP Federal Real Property Profile FRS Federal Reserve System FTCA Federal Tort Claims Act FUA Federal Unemployment Account FUTA Federal Unemployment Tax Act FY Fiscal Year GAAP generally accepted accounting principles GAGAS Generally Accepted Government Auditing Standards GAO Government Accountability Office GASB Governmental Accounting Standards Board GASBS Governmental Accounting Standards Board Statement GDP Gross Domestic Product GIS Geographic Information System GLTDAG General Long-Term Debt Account Group GPFFR general purpose federal financial report GPFS general-purpose financial statements GPRA Government Performance and Results Act GPRAMA Government Performance and Results Modernization Act G-PP&E General property, plant, and equipment GRS General Records Schedule GSA General Services Administration GSE government sponsored enterprises HHS Department of Health and Human Services HI Hospital Insurance (Medicare) IBNR incurred but not reported IC Intelligence Community IG Inspector General IPA Independent Public Accountant IPSAS International Public Sector Accounting Standards IPSASB International Public Sector Accounting Standards Board IRR Internal rate of return IT Information Technology IUS Internal Use Software JFMIP Joint Financial Management Improvement Program KDP Key Decision Point LAC latest acquisition cost LCM lower of cost or market LIFO last-in, first-out cost flow LP Limited Partnership MA Medicare Advantage MD&A management’s discussion & analysis M&R maintenance and repairs MRI Magnetic resonance imaging MRS Military Retirement System NAPA National Academy of Public Administration NARA National Archives and Records Administration NAS National Airspace System NASA National Aeronautics and Space Administration NCGAS National Council on Government Accounting Statement ND National Defense NFI Nonfinancial Information NIPA national income and product accounts NIST National Institute of Standards and Technology NSN National Stock Number NPR National Performance Review NPV net present value NRO National Reconnaissance Office O&M operation and maintenance OAI other accompanying information OASDI Old-Age, Survivors, and Disability Insurance OASI Old-Age and Survivors Insurance OCA Original Classification Authority OCS Outer Continental Shelf ODNI Office of the Director of National Intelligence OECD Organisation for Economic Co-Operation and Development OIG Office of the Inspector General OMB Office of Management and Budget OM&S Operating materials and supplies ORB other retirement benefits ORFNI Other Reported Financial and Non-Financial Information OPEB Other postemployment benefits OSHA Occupational Safety and Health Administration P3 Public-Private Partnership PB President’s Budget PBGC Pension Benefit Guaranty Corporation PBS Public Buildings Service PCB Polychlorinated biphenyl PERC Perchloroethylene PHYS/AIRSP Physical Airspace PP&E property, plant, and equipment PPP Public-Private Partnership PRP potentially responsible parties PRV Plant replacement value PSA Personal Security Accounts PSC Public Sector Comparato psf Per square foot PUC projected unit credit PV present value QA Quality Assurance RCRA Resource Conservation and Recovery Act) RE&D Research, Engineering & Development RFI Request for Information RFP Request for Proposal RI/FS remedial investigation/feasibility study RRB Railroad Retirement Board RSI required supplementary information RSSI required supplementary stewardship information SAS Statement of Auditing Standards SCA Service Concession Arrangement SCNP Statement of Changes in Net Position SCSIA Statement of Changes in Social Insurance Amounts SEC Securities Exchange Commission SETA Systems Engineering and Technical Assistance SFAS Statements of Financial Accounting Standards SFFAC Statements of Federal Financial Accounting Concepts SFFAS Statements of Federal Financial Accounting Standards SGL Standard General Ledger SL Stewardship Land SMI Supplementary Medical Insurance (Medicare) SNA System of National Accounts SNC Statement of Net Cost SOP Statement of Position SOSI Statement of Social Insurance SPV Special Purpose Vehicle SSA Social Security Administration TB Technical Bulletin TCTOs Time Compliance and Technical orders TR Federal Financial Accounting Technical Release TSCA Toxic Substances Control Act TSDF Treatment Storage Disposal Facility TSSC Technical Support Services Contract UI Unemployment Insurance U.S. United States USACE U.S. Army Corp of Engineers USBR United States Bureau of Reclamation USC United States Code USCG U.S. Coast Guard UTF Unemployment Trust Fund VA Veterans Affairs VFM Value for Money