This is the accessible text file for GAO report number GAO-03-42 
entitled 'Financial Management: Survey of Capitalization Threshold and 
Other Policies for Property, Plant, and Equipment' which was released 
on October 15, 2002.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

United States General Accounting Office:

GAO: 

Report to Agency Officials: 

October 2002: 

Financial Management: 

Survey of Capitalization Threshold and Other Policies for Property, 
Plant, and Equipment: 

GAO-03-42: 

Contents: 

Letter: 

Results in Brief: 

Objectives, Scope, and Methodology: 

Background: 

Federal Agency Capitalization Thresholds Have Risen Significantly and 
Are Substantially Higher than Private Sector Capitalization Thresholds: 

Federal Agencies’ Estimated Useful Lives for Like Assets Are Similar: 

Observations: 

Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Survey Participants: 

Appendix III: Capitalization Threshold Increases by Federal Agency: 

Appendix IV: Capitalization Thresholds for Personal Property: 

Appendix V: Capitalization Thresholds for Software: 

Appendix VI: Capitalization Thresholds for Real Property: 

Appendix VII: Useful Life Ranges for Personal Property (in Years): 

Appendix VIII: Useful Life Ranges for Real Property (in Years): 

Appendix IX: Federal Agency Survey: 

Appendix X: Private Sector Company Survey: 

Appendix XI: Comments from the Department of Agriculture: 

Appendix XII: Comments from the Department of the Interior: 

Appendix XIII: Comments from the National Aeronautics and Space 
Administration: 

Appendix XIV: Comments from the Department of State: 

Appendix XV: Comments from the Department of the Treasury: 

Appendix XVI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Capitalization Threshold Ranges for Personal Property: 

Table 2: Capitalization Threshold Ranges for Real Property: 

Table 3: Useful Life Ranges for Personal Property: 

Table 4: Useful Life Ranges for Real Property: 

Figures: 

Figure 1: Increase in Capitalization Threshold Levels at Federal 
Agencies: 

Figure 2: Percentage of Federal Agencies and Private Sector Companies 
at Various Software Capitalization Threshold Levels: 

Abbreviations: 
BOP: Bureau of Prisons: 

DOC: Department of Commerce: 

DOE: Department of Energy: 

DOI-Rec: Department of the Interior-Bureau of Reclamation: 

DOJ: Department of Justice: 

DOT: Department of Transportation: 

FAA: Federal Aviation Administration: 

FASAB: Federal Accounting Standards Advisory Board: 

GAAP: generally accepted accounting principles: 

GSA: General Services Administration: 

NASA: National Aeronautics and Space Administration: 

NOAA: National Oceanic and Atmospheric Administration: 

OMB: Office of Management and Budget: 

PMA: Power Marketing Administration: 

PP&E: property, plant, and equipment: 

PSC: Private Sector Council: 

SFFAC: Statements of Federal Financial Accounting Concepts: 

SFFAS: Statements of Federal Financial Accounting Standards: 

SSA: Social Security Administration: 

TVA: Tennessee Valley Authority: 

USPS: United States Postal Service: 

USDA: Department of Agriculture: 

VA: Department of Veterans Affairs: 

[End of section] 

United States General Accounting Office: 
Washington, D.C. 20548: 

October 15, 2002: 

The Honorable Mark W. Everson: 
Deputy Director for Management: 
Office of Management and Budget: 

Mr. Donald V. Hammond: 
Fiscal Assistant Secretary: 
Department of the Treasury: 

In passing the 1990 Chief Financial Officers (CFO) Act and a range of 
other financial management reform legislation, the Congress has sought 
to overcome the historical lack of reliable, useful, and timely 
information with which to make informed decisions, measure and control 
costs, manage for results, and ensure financial accountability on an 
ongoing basis. 

The government’s general property, plant, and equipment (PP&E), reported
at almost $307 billion, net of accumulated depreciation, as of 
September 30, 2001, represents approximately one-third of the reported 
assets on the balance sheet of the U.S. government’s consolidated 
financial statements. General PP&E is often referred to as fixed 
assets, and includes land, buildings, equipment, and improvements 
acquired by the government to be used in providing goods and services 
to citizens. [Footnote 1] Capitalization threshold and useful life 
policies affect whether and how the costs of acquiring PP&E or 
construction of PP&E are capitalized and allocated through depreciation
to the periods benefiting from such assets, and are critical to the fair
presentation of an entity’s financial position and results of 
operations. Excessively high capitalization thresholds can have a 
significant impact on financial reporting by reducing the amount of 
federal assets that are reported on the balance sheet and, most 
important, by jeopardizing the matching of costs to the appropriate 
period of asset utilization so that the cost of programs and operations 
are properly measured. 

For the past 5 fiscal years, in our audits of the consolidated financial
statements, we have reported [Footnote 2] that because the government 
lacked complete and reliable information to support PP&E holdings, we 
could not satisfactorily determine that all assets were included in the 
financial statements, verify that certain reported assets actually 
existed, or substantiate the amounts at which they were valued. PP&E 
reporting was one of the primary reasons for our disclaiming an opinion 
on the consolidated financial statements again in fiscal year 2001. 
[Footnote 3] As the government continues to make progress in addressing 
major audit issues, such as PP&E reporting, and the prospect of 
auditable consolidated financial statements draws closer, issues such 
as useful lives and capitalization thresholds are now in sharper focus. 

Under the Statement of Federal Financial Accounting Standard (SFFAS)
No. 6, Accounting for Property, Plant, and Equipment, federal agencies
are to record as property and equipment all items that meet certain
characteristics, such as a useful life of 2 years or more, and are 
permitted to establish individual capitalization thresholds and useful 
life policies due to their diverse size and uses of PP&E. SFFAS No. 6 
was issued in November 1995 and was effective for fiscal years 
beginning after September 30, 1997. Previously, the capitalization 
threshold for federal agencies was $5,000. [Footnote 4] 

We have noted large increases in federal agency capitalization 
thresholds over the past 5 years, and our audit work at two major 
agencies has highlighted problems in this area. In prior audit work 
performed at the Internal Revenue Service (IRS), we found that 
Treasury’s $50,000 capitalization threshold contributed to a material 
understatement in PP&E. IRS has since revised its capitalization 
threshold accordingly. We previously raised concerns with the 
Department of Defense (DOD), which holds the majority of the U.S. 
government’s reported PP&E, about the basis for its $100,000 
capitalization threshold, in part because of issues surrounding the 
quality of the data available to make such a determination. 

As an initial step to address this issue governmentwide and as part of a
series of planned work on key audit issues pertaining to the 
consolidated financial statement audit, we undertook a survey of PP&E 
capitalization threshold and useful life policies at 14 federal 
agencies that reported significant amounts of PP&E. We also surveyed 12 
private sector companies on these same PP&E policies. Our survey was 
designed to determine the federal agencies’ (1) current capitalization 
threshold practices for PP&E and how such policies compare to the 
practices being applied to PP&E in the private sector and (2) useful 
life policies and how they compare to those used in the private sector. 
Our survey work was not designed to conclude on the reasonableness of 
the capitalization threshold levels being applied by federal agencies. 
Instead, our survey results are intended to provide useful baseline 
information to responsible parties in federal financial reporting. We 
plan to review the adequacy of capitalization threshold levels and 
useful life policies at selected agencies in future work. 

Results in Brief: 

Reported capitalization threshold levels at the 14 agencies we surveyed
ranged from zero [Footnote 5] to $250,000. [Footnote 6] Federal 
capitalization threshold levels have risen significantly over the past 
5 years. Nine out of the 14 agencies surveyed reported that they had at 
least doubled their capitalization thresholds in the past 5 years, for 
at least one category of property. Furthermore, 6 of these 9 agencies’ 
capitalization thresholds were at least 5 times higher, with 2 raising 
the threshold from $5,000 to $100,000, a 20-fold increase. Two of the 
agencies cited materiality [Footnote 7] as a factor that caused the 
increase, while 4 identified the implementation of SFFAS No. 6. 
[Footnote 8] Other reasons cited included that the threshold 
represented a management decision or that it was based on the external 
auditor’s recommendation. The vast majority (12 out of 14) of the 
federal agencies surveyed responded that they had performed some type 
of formal analyses or studies to develop or validate the capitalization 
threshold level. Despite the sharp increase in the capitalization 
threshold, all but 1 of the 14 agencies responded that they maintained 
property records for PP&E not capitalized on the balance sheet, citing 
safeguarding of PP&E and supporting agency operations as the key 
reasons for maintaining such information. 

Federal capitalization thresholds are significantly higher than those
reported by the private sector entities we surveyed. In some cases, the
federal capitalization thresholds for real property were up to 50 times
higher than those noted in the private sector. Interestingly, one of our
surveyed federal entities, the United States Postal Service (USPS), 
[Footnote 9] which sets its rates and fees to recover its costs, 
reported capitalization thresholds [Footnote 10] that are in line with 
the surveyed private sector companies’ capitalization threshold levels. 
Of the 14 agencies surveyed, capitalization thresholds for equipment 
were as high as $200,000 in the federal government, compared to a 
maximum of $5,000 in the 12 private sector companies. 

In contrast to the wide variance between federal agency and private 
sector capitalization threshold policies, federal agency useful life 
policies were generally similar to those found in the private sector. 
Estimated useful life classifications within the federal government 
ranged from 2 years to 40 years for personal property and 5 years to 
100 years for real property. For example, the estimated useful life 
classifications for computer software were within a range of 2 to 10 
years for the federal agencies surveyed and 3 to 10 years for the 
private sector participants. The estimated useful life classifications 
for motor vehicles were within a range of 3 to 12 years for the federal 
agencies surveyed and 2 to 10 years for the private sector companies. 
We did identify several differences attributable to the variety of 
assets owned by the entities that participated in our survey, rather 
than any systemic differences in useful life classifications. For 
example, several federal agencies in our survey owned assets such as 
dams, canals, and reactors for which they reported useful lives of 50 
years or more. However, our private sector participants did not include 
a utility company with similar assets for like comparisons. Given the 
relatively recent introduction of consolidated financial reporting in 
the federal government, the appropriate and consistent useful life 
classification is an area that also needs to be periodically 
reevaluated for impact on financial reporting, performance measurement 
data, and the financial statement audits. 

We received comments on a draft of this report from the Department of 
the Treasury, the Office of Management and Budget (OMB), and 4 of the 14
federal agencies that took part in our survey. We also received 
primarily editorial comments from 7 federal agency survey participants 
and 3 private sector survey participants. The 3 remaining federal 
agencies told us they had no comments on a draft of this report. In 
general, the 6 federal entities that commented on the draft took issue 
with any comparison of capitalization threshold levels in the federal 
government to those in the private sector and/or our discussion of the 
wide range of capitalization thresholds at the various federal agencies 
surveyed. 

Certain operating differences and different financial incentives between
the federal government and the private sector and between various 
federal agencies could account for different threshold levels. At the 
same time, given the wide variance in capitalization thresholds, the 
sharp increases in recent years, and the significant differences from 
private sector companies of comparable size, across government, this 
issue may have a significant effect on the government’s consolidated 
financial statements. This survey was designed to be the first step in 
analyzing these significant PP&E policies and their impact on the 
financial reports of the U.S. government and is being provided as a 
baseline tool as agencies, Treasury, and OMB consider these issues and 
their impact on financial reporting. 

Objectives, Scope, and Methodology: 

Our work was performed primarily using survey instruments to gather data
on PP&E policies at 14 selected federal agencies and 12 private sector
companies. Appendix II provides a list of all survey participants. We 
also held discussions with certain representatives of the participating 
federal agencies and private sector companies in developing the survey 
and in gathering follow-up information based upon the survey responses. 
We did not verify the accuracy of the data provided to us by the survey
participants. We conducted our work from May 2001 through February
2002 in accordance with U.S. generally accepted government auditing
standards. We requested comments on a draft of this report from the
Department of the Treasury, OMB, all 14 federal agencies that 
participated in the survey, as well as the 12 private sector council 
member survey participants. Further details on our scope and 
methodology are included in appendix I. 

Background: 

The Secretary of the Treasury, in coordination with the Director of 
OMB, is required to submit annually to the President and the Congress 
audited consolidated financial statements of the U.S. government 
beginning with those for fiscal year 1997. We are required to audit 
those statements. The principal financial statements required for 
federal agencies are the Balance Sheet, the Statement of Net Cost, the 
Statement of Changes in Net Position, the Statement of Budgetary 
Resources, and the Statement of Financing. These statements are to be 
prepared in accordance with U.S. generally accepted accounting 
principles. The balance sheet for the federal government presents the 
total balances of assets, liabilities, and net position as of a 
specific point in time. The government’s general PP&E, reported at 
almost $307 billion, net of accumulated depreciation as of September 
30, 2001, represents approximately one-third of the assets on its 
balance sheet. 

Federal Accounting Standards: 

Federal accounting standards, which agency CFOs use in preparing 
financial statements, are promulgated by the Federal Accounting 
Standards Advisory Board (FASAB). [Footnote 11] FASAB develops 
accounting standards after considering the financial and budgetary 
information needs of the Congress, executive agencies, other users of 
federal financial information, and the public. FASAB forwards the 
standards to the three principals—the Comptroller General, the 
Secretary of the Treasury, and the Director of OMB—for a review period, 
after which the standards are considered final, then published on 
FASAB’s Web site and in print. The American Institute of Certified 
Public Accountants recognizes the federal accounting standards 
promulgated by FASAB as being generally accepted accounting principles
(GAAP) for the federal government. Currently, there are 22 SFFAS and
three Statements of Federal Financial Accounting Concepts (SFFAC). 
[Footnote 12] The concepts and standards are the basis for OMB’s 
guidance to agencies on the form and content of their financial 
statements and the government’s consolidated financial statements. 

FASAB significantly relied upon SFFAC No. 1, Objectives of Federal
Financial Reporting, in drafting accounting standards for PP&E. The two
principle reporting objectives relevant to PP&E are operating 
performance and stewardship. In developing PP&E standards to meet the 
operating performance objective, FASAB established the goal of 
measuring the cost associated with using PP&E and including that cost 
in entity operating results. In seeking to fulfill the stewardship 
objective, FASAB developed the PP&E accounting standards to result in 
reporting information on (1) asset condition, (2) changes in the amount 
and service potential of PP&E, (3) the cost of PP&E where applicable, 
and (4) spending for acquisition of PP&E versus noncapital spending. 

Capitalization Thresholds and Estimated Useful Lives: 

Although FASAB established the reporting objectives framework in 
developing the PP&E accounting standards, it concluded that 
capitalization thresholds should be established by the federal entities 
themselves, based on their diversity in size and uses of PP&E. FASAB’s 
requirements in terms of establishing appropriate capitalization 
thresholds are that they be based on consideration of the entities’ 
financial and operational conditions, consistently applied, and 
disclosed in the financial reports. Before 1991, accounting principles, 
standards, and related requirements for executive agencies were 
published in appendix I of Title 2, “Accounting,” of the GAO Policy and 
Procedures Manual for Guidance of Federal Agencies, in accordance with 
31 U.S.C. 3511. The capitalization threshold for federal agencies 
included in Title 2 was $5,000. In addition, under Federal Acquisition 
Regulations, government contractors are required to capitalize all 
assets costing $5,000 or more. Capitalization thresholds are tied to
materiality as well, in that they generally are established at a level 
that would not omit a significant amount of assets from the balance 
sheet, which could materially misstate the financial statements of an 
entity or its components. 

There is not an authoritative standard issued in the private sector
specifically addressing capitalization threshold levels. However, the
underlying GAAP state that all normal expenditures of purchasing or
constructing an asset and readying it for use are capitalized, thereby
achieving the matching principle by distributing the costs of such 
assets to the periods benefited through depreciation. Capitalization 
thresholds are set at levels that would not approach materiality in any 
foreseeable circumstances. 

SFFAS No. 6 requires that depreciation expense be recognized on all
general PP&E, except land and land rights of unlimited duration.
Depreciation is the systematic and rational allocation of the costs of
general PP&E to the operating periods benefiting from the asset, also
referred to as the estimated useful life. FASAB again did not prescribe
specific classifications of estimated useful lives. Instead, it 
requires that the useful life consider economic, environmental, and 
technological factors such as physical wear and tear and obsolescence. 

In the private sector, GAAP state that depreciation method and rate 
depend upon such factors as time, usage, maintenance policies, and asset
obsolescence, and recognize certain prescribed methods for allocating 
the cost to the periods benefited. 

Federal PP&E: 

PP&E consists of tangible assets, including land, that have estimated 
useful lives of 2 years or more, are not intended for sale in the 
ordinary course of operation, and have been acquired or constructed 
with the intention of being used or being available for use by the 
entity. SFFAS No. 6, Accounting for Property, Plant, and Equipment, 
identifies four categories of PP&E: (1) general PP&E, (2) national 
defense PP&E, [Footnote 13] (3) heritage assets, and (4) stewardship 
land. General PP&E is used to provide general government services or 
goods and is reported on the balance sheet for federal financial 
reporting. National defense PP&E, heritage assets, and stewardship land 
are collectively referred to as stewardship PP&E and are reported in 
Supplementary Stewardship Information for federal financial reporting 
and are not included on the balance sheet or any other principal 
statement. FASAB has approved issuing a standard [Footnote 14] that 
would eliminate the category of national defense PP&E, and all items 
previously considered national defense PP&E would be classified as 
general PP&E. The focus of this report is on general PP&E, reported on 
the balance sheet of the U.S. government, which under current federal 
accounting standards does not include national defense PP&E. 

General PP&E consists of items that (1) could be used for alternative
purposes but are used by the federal entity to produce goods or 
services or to support the mission of the entity, (2) are used in 
business-type activities, or (3) are used by entities in activities 
whose costs can be compared to other entities. SFFAS No. 6 requires 
that all general PP&E be recorded at cost, which shall include all 
costs incurred to bring the PP&E to a form and location suitable for 
its intended use. General PP&E includes land acquired for or in 
connection with other general PP&E and heritage assets, [Footnote 15] 
whose predominant use is general government operations. 

General PP&E is often classified into two main categories, personal and
real property. Personal property includes vehicles, machinery, 
furniture, equipment, and software. Real property is land, buildings, 
and generally anything built or constructed on land, growing on land, 
or attached to the land. 

Federal Agency Capitalization Thresholds Have Risen Significantly and 
Are Substantially Higher than Private Sector Capitalization Thresholds: 

Capitalization threshold levels at federal agencies have risen 
significantly over the past 5 years. Over 60 percent of the agencies 
surveyed have at least doubled their capitalization thresholds in the 
past 5 years. Further, federal capitalization threshold levels are 
significantly higher than those reported by the 12 private sector 
entities we surveyed. The maximum federal capitalization threshold 
levels reported for personal and real property were much higher than 
those reported by the private sector companies. Inappropriate or 
excessive capitalization thresholds have a significant impact on 
financial reporting and related oversight issues and may not comply 
with SFFAS No. 6 requirements. 

Federal Capitalization Thresholds Have Risen Significantly in the Past 5
Years: 

Nine out of the 14 agencies surveyed reported that they had increased 
their capitalization thresholds in the past 5 years by 100 percent or 
more, for at least one category of property (excluding software). 
Figure 1 displays the increases by agency. Six agencies increased the 
capitalization threshold by 400 percent or more, 2 raising the 
threshold from $5,000 to $25,000, 2 raising the threshold from $5,000 
to $100,000, 1 raising the threshold from $25,000 to $200,000, and 1 
raising the threshold from $5,000 to $250,000. Appendix III provides 
detailed lists of the current capitalization level for both personal 
and real property by federal agency. 

Figure 1: Increase in Capitalization Threshold Levels at Federal 
Agencies: 

[See PDF for image] 

This figure is a bar graph depicting the increase in capitalization 
threshold levels at Federal Agencies. The following data is depicted, 
with capitalization threshold levels listed as dollars in thousands: 

Federal government agency: DOC-NOAA; 
Prior to October 1997: 25; 
Current Threshold: 200. 

Federal government agency: DOI-Rec[A]; 
Prior to October 1997: 5; 
Current Threshold: 15. 

Federal government agency: DOJ-BOP[B]; 
Prior to October 1997: 50; 
Current Threshold: 100. 

Federal government agency: DOT-FAA; 
Prior to October 1997: 5; 
Current Threshold: 25. 

Federal government agency: Education[C]; 
Prior to October 1997: N/A; 
Current Threshold: 50. 

Federal government agency: DOE; 
Prior to October 1997: 25; 
Current Threshold: 25. 

Federal government agency: GSA[D]; 
Prior to October 1997: 5; 
Current Threshold: 10. 

Federal government agency: NASA; 
Prior to October 1997: 5; 
Current Threshold: 100. 

Federal government agency: SSA[E]; 
Prior to October 1997: 5; 
Current Threshold: 100. 

Federal government agency: State[B]; 
Prior to October 1997: 5; 
Current Threshold: 250. 

Federal government agency: TVA[B]; 
Prior to October 1997: 25; 
Current Threshold: 25. 

Federal government agency: USDA; 
Prior to October 1997: 5; 
Current Threshold: 5. 

Federal government agency: USPS[A]; 
Prior to October 1997: 2; 
Current Threshold: 3. 

Federal government agency: VA; 
Prior to October 1997: 5; 
Current Threshold: 25. 

Note: Unless noted below, these are maximum reported capitalization 
threshold levels for real and personal property (excluding software) at 
14 surveyed federal agencies. 

[A] The numbers represent maximum reported capitalization threshold 
levels for personal property. 

[B] The numbers represent maximum reported capitalization threshold 
levels for real property. 

[C] Education did not have a consistent capitalization threshold policy 
prior to October 1997. 

[D] GSA established a capitalization threshold of $5,000 in August 
1998. Information prior to August 1998 was unavailable. The numbers 
represent maximum reported capitalization threshold levels for
personal property. 

[E] SSA increased its capitalization threshold to $100,000 in April 
1996. Prior to April 1996, its threshold was $5,000. The numbers 
represent maximum reported capitalization threshold levels for personal
property. 

Source: GAO analysis of survey data. 

[End of figure] 

Reasons given by the surveyed federal agencies for changing the
capitalization thresholds included materiality, implementation of 
federal accounting standards, management decision, or external auditor
recommendation. 

Twelve out of 14 federal agencies surveyed responded that they had
performed some type of formal analyses or studies to develop or validate
the capitalization threshold level. In some instances, the studies 
concluded that the threshold level was too low, prompting agency 
management to increase the capitalization threshold. Many agencies’ 
approaches to the capitalization threshold analyses involved applying 
varying threshold levels to PP&E balances to identify a capitalization 
level that resulted in a certain desired percentage of PP&E being 
captured on the balance sheet in relation to total PP&E. Although our 
survey asked for a brief description of the methodology used in the 
analyses, we did not request copies of the analyses from the federal 
agencies or assess the methodology or conclusions reached. We did note, 
however, that 5 of the 12 agencies solicited outside assistance in 
performing the analyses, and of those 5, 2 involved their respective 
offices of the inspector general. 

Although DOD was not included in this review, the department holds a
significant portion of federal PP&E. DOD’s reported general PP&E
holdings for fiscal year 2001 were $113.8 billion, net of accumulated
depreciation, representing approximately 37 percent of the federal
government’s PP&E reported on the U.S. government’s consolidated
balance sheet. DOD’s capitalization threshold has risen from $5,000 in 
1994, to $50,000 in 1995, and to $100,000 in 1996, which remains the 
current level. DOD had contractors perform a study to validate its 
capitalization thresholds and useful life policies for personal and 
real property. We reviewed the contractors’ work and agreed that 
certain limitations they cited in their reports—such as that the 
databases they analyzed may not have been appropriate, complete, and 
accurate—could directly affect the assessment of the adequacy of the 
capitalization threshold and useful life policies. The contractor 
recommended that DOD undertake similar periodic analyses in future 
years. 

Further, federal agency capitalization thresholds varied widely. They
ranged from $0 to $250,000, excluding computer software, where the
capitalization threshold ranged from $5,000 to $5 million. The lack of
consistency in capitalization threshold levels among federal agencies 
could potentially lead to reporting problems in the U.S. government’s
consolidated financial statements and performance measurement
comparisons. For example, at some agencies major assets such as motor
vehicles may be capitalized and at others they may not due to the 
varying capitalization threshold levels. As a result, the costs of 
vehicles used by certain agencies could be expensed in 1 fiscal year 
and not allocated to all the years benefiting from their use. Further, 
GAAP require that the capitalization threshold, including any changes 
in the threshold during the reporting period, be disclosed on the 
financial statements. Treasury has not disclosed the capitalization 
threshold used in the consolidated financial statements, or the fact 
that many reporting agencies have different capitalization thresholds. 

Despite the sharp increase in the capitalization threshold, almost all 
of the surveyed agencies responded that they maintained property 
records for PP&E not capitalized on the balance sheet, for purposes of 
safeguarding PP&E, supporting agency operations, or fulfilling external 
reporting requirements. For example, all surveyed agencies indicated 
that they have policies and procedures in place, such as bar coding and 
periodic inventories, for safeguarding and maintaining accountability 
over pilferable and sensitive items. We did not evaluate the adequacy 
of the design of the agency policies and procedures or the 
effectiveness of the controls or their implementation. Even though 13 
of the 14 federal agencies in our survey reported that they maintain 
property records for PP&E not capitalized on the balance sheet, most 
were unable to provide the cumulative value of PP&E recorded in 
property records but not capitalized on the balance sheet as of the end 
of fiscal year 2000. Only the National Aeronautics and Space 
Administration (NASA) and the Federal Aviation Administration (FAA) 
responded with the cumulative value of PP&E not reported on their 
balance sheets as of September 30, 2000—approximately $4.9 billion and
$1.6 billion, respectively. However, we noted that NASA’s auditors for 
fiscal year 2001 reported a material weakness related to PP&E, so the 
amount NASA reported as being expensed may not be reliable. 

Federal Capitalization Thresholds Differ Significantly from the Private 
Sector: 

Federal capitalization thresholds are significantly higher than those
reported by the 12 private sector entities we surveyed. We found that 
the agency capitalization thresholds for personal property ranged from 
$3,000 to $200,000, and in some cases were 40 times higher than the 
maximum levels reported by the private sector participants. Table 1 
compares the ranges of capitalization thresholds noted at the federal 
agencies surveyed to those of the private sector participants. Appendix 
IV provides the specific personal property responses for all survey 
participants by category. 

Table 1: Capitalization Threshold Ranges for Personal Property: 

Personal property category: Equipment; 
Range of threshold: Levels at federal agencies: $3,000 - $200,000; 
Range of threshold: Levels at private sector companies: $250 - $5,000. 

Personal property category: Furniture and fixtures; 
Range of threshold: Levels at federal agencies: 3,000 - 100,000; 
Range of threshold: Levels at private sector companies: 250 - 5,000. 

Personal property category: Motor vehicles; 
Range of threshold: Levels at federal agencies: 0 - 200,000; 
Range of threshold: Levels at private sector companies: 250 - 5,000. 

Source: GAO analysis of survey data. 

[End of table] 

As shown in table 1, private sector respondents’ threshold levels for
personal property ranged from as low as $250 up to $5,000. Under these
threshold levels, office equipment costing $20,000 with an estimated 
useful life of 5 to 7 years, would not be capitalized at more than half 
(9 out of 14) of the federal agencies surveyed, but would be 
capitalized at all of the private sector company participants. 

Five of the surveyed federal agencies responded as having a separate
capitalization threshold level for bulk purchases. A bulk purchase 
policy generally refers to capitalization guidelines when acquiring 
significant asset quantities in bulk at one time, where the individual 
unit price falls below the original threshold. For example, the 
National Oceanic and Atmospheric Administration’s (NOAA) policy is to 
capitalize a bulk procurement of $1 million or more for personal 
property with a unit price from $25,000 to its individual 
capitalization threshold of $200,000, if the items are identical. The 
Department of Education has a $500,000 bulk purchase policy, and the 
Social Security Administration (SSA) has a $10 million bulk purchase 
policy for computer hardware and software. Personal computers acquired 
individually would not be capitalized at many surveyed federal agencies 
under the current capitalization threshold levels, and bulk purchases 
of personal computers would have to rise to the capitalization 
threshold level, or higher at some agencies, as noted above, to be 
capitalized on the balance sheet. The remaining nine federal agencies
responded that the capitalization threshold levels apply to both single 
item and bulk purchases of PP&E, as did the majority of the private 
sector companies surveyed. However, the few private sector respondents 
with bulk purchase policies indicate an emphasis on capitalizing assets 
and minimizing the impact on net income. For example, Pfizer responded 
that acquisitions of multiple like items would be capitalized if they 
exceed $10,000 in the aggregate, even though each item is under its 
$1,000 threshold level. 

Certain federal agencies in our survey, as well as some private sector
companies, reported capitalization thresholds specifically for software,
classified as personal property on the balance sheet. The agencies’
capitalization thresholds for software ranged from $5,000 to $5 
million, or 20 times higher than the maximum level reported by the 
private sector participants. The private sector respondents that 
reported specific capitalization threshold levels for software 
indicated ranges from $1,000 to $250,000. Figure 2 displays the 
percentages of surveyed federal agencies and private sector companies 
at each capitalization threshold level for software. As shown in figure 
2, 92 percent of the federal agencies surveyed have threshold levels 
greater than $10,000 for software, compared to the private sector, with 
25 percent of respondents in that category. The majority of the private 
sector software capitalization threshold levels were $10,000 and below.

Figure 2: Percentage of Federal Agencies and Private Sector Companies 
at Various Software Capitalization Threshold Levels: 

[See PDF for image] 

This figure is a pair of pie-charts that depict the percentage of 
Federal Agencies and Private Sector Companies at various software 
capitalization threshold levels. The following data is depicted: 

Surveyed federal agencies: Software capitalization threshold level; 
$10,000 and below: 8%; 
$10,001-100,000: 46%; 
$100,001-500,000: 23%; 
$500,001-5,000,000: 23%. 

Surveyed private sector entities: Software capitalization threshold 
level; 
$10,000 and below: 75%; 
$10,001-100,000: 8%; 
$100,001-500,000: 17%; 
$500,001-5,000,000: 0. 

Source: GAO analysis of survey data. 

[End of figure] 

SFFAS No. 10, Accounting for Internal Use Software, effective for 
reporting periods after September 30, 2000, was cited by several federal
agencies as the basis for establishing a separate threshold just for 
software or increasing their capitalization threshold levels for 
software. SFFAS No. 10 requires the capitalization of the full cost 
(direct and indirect) of internal use software whether it is commercial-
off-the-shelf, contractor developed, or internally developed. A 
specific capitalization threshold for software, separate from the 
threshold for all other personal property, may be warranted at many 
agencies due to the varying and incremental nature of the costs that go 
into software development, such as salaries. However, the threshold 
level for software also varies quite significantly among the federal 
agencies surveyed, which could result in the consolidation and 
comparison problems discussed previously. Appendix V provides the
specific software responses for all survey participants. 

Capitalization thresholds for real property ranged from zero, or no
threshold, indicating that all such assets are capitalized on the 
balance sheet, to $250,000, which is 50 times the highest level 
reported by the private sector participants. Table 2 displays the 
capitalization threshold ranges for real property at the federal 
agencies surveyed compared to those in the private sector. Appendix VI 
provides the specific real property responses for all survey 
participants by category. 

Table 2: Capitalization Threshold Ranges for Real Property: 

Real property category: Buildings; 
Range of threshold: Levels at federal agencies: $0 - $200,000; 
Range of threshold: Levels at private sector companies: $0 - $5,000. 

Real property category: Building improvements; 
Range of threshold: Levels at federal agencies: 0 - 250,000; 
Range of threshold: Levels at private sector companies: 500 - 5,000. 

Real property category: Other structures and facilities; 
Range of threshold: Levels at federal agencies: 0 - 200,000; 
Range of threshold: Levels at private sector companies: 0 - 5,000. 

Real property category: Leasehold improvements; 
Range of threshold: Levels at federal agencies: 0 - 250,000; 
Range of threshold: Levels at private sector companies: 500 - 5,000. 

Source: GAO analysis of survey data. 

Private sector respondents’ threshold levels for real property ranged 
from $0 to $5,000. Under these threshold levels, a building costing 
$95,000 with an estimated useful life of 30 years would not be 
capitalized at some federal agencies surveyed, but would be capitalized 
at all of the private sector company participants. For example, 
Gillette, a large corporation with over $10 billion in assets, has a 
uniform threshold level of $2,500 for both real and personal property, 
with the exception of software. 

As shown in tables 1 and 2, the threshold levels in the private sector 
for most personal property and real property are relatively low, and 
more consistent with the $5,000 capitalization threshold level 
previously established for federal agencies in Title 2 of the GAO 
Policy and Procedures Manual for Guidance of Federal Agencies, in 
accordance with 31 U.S.C. 3511. In addition, under Federal Acquisition 
Regulations, [Footnote 16] government contractors are required to 
capitalize all assets costing $5,000 or more. 

Potential Impact of High Capitalization Thresholds on Financial 
Reporting: 

Our survey work was not designed to conclude on the reasonableness of
the capitalization threshold levels being applied at the federal 
agencies or the private sector companies. However, the widely varying 
threshold levels among the federal agencies, the sharp increases in 
recent years, and the differences from private sector companies of 
considerable size in terms of reported PP&E and total assets raise some 
concerns. Inappropriate or excessive capitalization thresholds have a 
significant impact on financial reporting and related oversight issues 
and may not comply with SFFAS No. 6 requirements to capitalize all 
items that meet certain characteristics, such as a useful life of 2 
years or more. FASAB believed that not specifying a threshold level, 
and allowing agencies broad latitude in establishing capitalization 
thresholds suited to their respective financial and operational 
conditions, would lead to a more cost-effective application of the 
accounting standard. [Footnote 17] However, objectives outlined by 
FASAB in the SFFAC No. 1, such as (1) stewardship responsibility, (2) 
capturing the full cost of operations, and (3) reliable financial 
reporting, may not be met as a result of the wide range and significant 
increase in threshold levels that we identified in our survey. 

Excessively high capitalization thresholds reduce the amount of federal
assets that are reported on the balance sheet, distorting financial 
reporting by potentially jeopardizing the matching of costs to the 
appropriate period of asset utilization. For example, in February 2000, 
we reported that an inappropriate capitalization threshold contributed 
to a material understatement in PP&E of approximately $1 billion, 
representing about 77 percent of the IRS’s total PP&E balances as of 
September 30, 1999. IRS had been following the Department of the 
Treasury’s standard $50,000 capitalization criterion, and now 
capitalizes most property and equipment regardless of the dollar 
amount, based upon the capitalization issues raised as a result of our 
financial audit of IRS. 

Further, six of the agencies surveyed reported that they expensed a 
total of almost $2 billion in PP&E for the fiscal year ended September 
30, 2000, and therefore did not report this amount on the U.S. 
government’s consolidated balance sheet as assets. While the $2 billion 
is a relatively small amount compared to the total PP&E or total assets 
reported on the consolidated financial statements of the U.S. 
government, this amount is incomplete, as the remaining eight agencies 
surveyed could not readily provide the amount expensed for the same 
period as a result of the PP&E acquisition costs not meeting the 
capitalization threshold. An assessment of whether the capitalization 
threshold has a material effect on financial reporting is difficult to 
make if agencies cannot provide the amount of assets that does not meet 
the capitalization threshold and is therefore expensed in a given year. 

Interestingly, one of our surveyed federal entities, USPS, which sets 
its rates and fees to recover its costs, reported a $3,000 personal 
property capitalization threshold and $5,000 real property threshold, 
which is more in line with the surveyed private sector companies’ 
capitalization threshold levels. For example, Exxon Mobil Corporation, 
a global company with net PP&E of $90 billion as of December 31, 2000, 
also has a capitalization threshold of $3,000, excluding software. In 
fact, in looking at capitalization threshold levels for personal 
property in the private sector excluding software, all but 2 of the 12 
participants had a threshold of $3,000 or less, and the remaining 2 had 
a $5,000 threshold. 

As reported in our High-Risk Series, [Footnote 18] some federal 
entities do not yet have reliable financial and operational information 
to measure performance based on the costs of providing goods and 
services and therefore appear to have little incentive to maintain 
assets on the balance sheet through lower capitalization thresholds. 
For example, we reported [Footnote 19] in January 2001 that the 
Department of Agriculture (USDA) lacked financial accountability over 
billions of dollars of assets. FAA’s financial management was also 
designated as high risk because of serious and long-standing accounting
and financial management weaknesses, including property system issues.
Reliable information on the costs of federal programs and activities, of
which PP&E is a major factor, is crucial for effective management of
government operations. 

Federal Agencies’ Estimated Useful Lives for Like Assets Are Similar: 

Useful lives for personal property ranged from 2 to 40 years among the
surveyed federal agencies, but include a wide array of assets. Upon
comparing the recovery periods for like assets, the range narrows. For
example, the useful lives for motor vehicles ranged from 3 to 12 years 
in the federal agencies surveyed. Useful lives for real property at the 
surveyed federal agencies ranged from 5 to 100 years, which is a wide 
range that encompasses numerous and varying types of real property. The 
federal government’s real property is quite diverse, and includes items 
such as office buildings, dams, laboratories, courthouses, postal 
facilities, and embassies. However, when comparing the useful lives for 
similar buildings or structures across the federal government, the 
recovery periods are similar. For example, 12 out of the 14 surveyed 
federal agencies indicated useful life classifications for buildings of 
30 to 40 years. 

The useful life policies within the federal government were generally
similar to those found in the private sector. No significant 
differences were noted between the federal government and the private 
sector survey respondents in the useful life policies for certain 
personal property categories such as equipment, furniture and fixtures, 
motor vehicles, and software. The ranges of useful life classifications 
for both federal and private sector company participants are shown in 
table 3 for personal property and in table 4 for real property. 
Appendixes VII and VIII detail the useful life ranges for personal and 
real property for each survey participant. 

Table 3: Useful Life Ranges for Personal Property: 

Personal property category: Equipment; 
Useful life ranges (in years), Federal agencies: 2 - 40; 
Useful life ranges (in years), Private sector companies: 2 - 25. 

Personal property category: Furniture and fixtures; 
Useful life ranges (in years), Federal agencies: 4 - 20; 
Useful life ranges (in years), Private sector companies: 3 - 20. 

Personal property category: Motor vehicles; 
Useful life ranges (in years), Federal agencies: 3 - 12; 
Useful life ranges (in years), Private sector companies: 2 - 10. 

Personal property category: Software; 
Useful life ranges (in years), Federal agencies: 2 - 10; 
Useful life ranges (in years), Private sector companies: 3 - 10. 

Source: GAO analysis of survey data. 

[End of table] 

As noted above, the useful life ranges by category at the surveyed 
federal agencies are similar to those at the surveyed private sector 
companies. The high useful life of 40 years for equipment pertains to 
certain items at the Department of Energy (DOE), such as compressors 
and metal tanks. If such equipment were excluded, the maximum useful 
life classification for equipment at the surveyed federal agencies 
would be 25 years—identical to that in the private sector. 

Table 4: Useful Life Ranges for Real Property: 

Real property category: Buildings; 
Useful life ranges (in years), Federal agencies: 5 - 75; 
Useful life ranges (in years), Private sector companies: 10 - 50. 

Real property category: Other structures and facilities; 
Useful life ranges (in years), Federal agencies: 5 - 100; 
Useful life ranges (in years), Private sector companies: 10 - 40. 

Real property category: Other; 
Useful life ranges (in years), Federal agencies: 5 - 75; 
Useful life ranges (in years), Private sector companies: 5 - 50. 

Source: GAO analysis of survey data. 

[End of table] 

The few differences that we identified between federal agency and 
private sector useful lives are due to the different types of assets 
owned by the survey participants rather than any systemic differences 
in the useful life policies. For example, the maximum useful life 
classification for buildings was reported as 75 years by two surveyed 
agencies, the Department of the Interior’s Bureau of Reclamation and 
USPS. At the Bureau of Reclamation, the building useful life range of 
30 to 75 years was reported for service facilities, which consist of 
houses, buildings, garages, and shops owned by the bureau and used in 
electric, irrigation, municipal and industrial, or multipurpose 
operations and are not included in the plant accounts of a specific 
project. At USPS, the 75-year building useful life was reported only
for pre-July 1970 monumental (indicating stone or stone ornamentation)
buildings. Other than these two specific classifications within the 
buildings category, the maximum useful life classification for 
buildings at the surveyed federal agencies would be 50 years, and 
identical to that in the private sector. Similarly, the 100-year useful 
life for other structures and facilities at the surveyed federal 
agencies was for dams and related property at the Bureau of 
Reclamation. The longest useful life reported by the private sector 
respondents is 40 years for other structures and facilities, but none 
of the private sector respondents reported an asset similar to a dam. 
We did not receive survey results from any private sector utility 
companies for comparison purposes because we were limited to the 
Private Sector Council (PSC) members that voluntarily participated in 
our survey. 

Adequate useful life classifications also serve as a mechanism to 
achieve fair presentation of an entity’s financial position and results 
of operations in accordance with GAAP. New additions to PP&E that 
replace old or obsolete assets generally occur as the useful lives of 
the older assets are reaching completion, and the typical financial 
statement impact of the removal of an almost fully depreciated asset or 
a fully depreciated asset is minimal to none. However, if the useful 
life assigned to an asset or a class of assets does not reflect its 
actual service life, then the financial statement impact could be 
greater. For example, if an asset is assigned a useful life that 
exceeds its actual service life, the preliminary result would be an
overstatement on the agency’s balance sheet and an understatement on its
statement of net cost for a period.[Footnote 20] Conversely, if an 
asset’s designated useful life were lower than its actual service life, 
the preliminary result would be an understatement on the agency’s 
balance sheet and an overstatement on its statement of net cost for a 
period. [Footnote 21] 

Observations: 

Our survey results identified widely varying capitalization threshold 
levels, sharp increases in recent years, and significant differences 
from private sector companies of comparable size. Because 
capitalization thresholds may have a significant effect on the 
consolidated financial statements of the U.S. government, this survey 
was designed as the first step in providing baseline information to 
analyze these significant PP&E policies and assess their impact on the 
financial reports of the U.S. government. In addition, agency 
management and auditors also have continuing responsibilities to ensure 
that established capitalization threshold levels are appropriate. These 
issues are especially critical for agencies that establish user fees 
based on actual costs and will become even more important as the 
government moves toward matching revenues and costs for performance
measurement purposes. The information obtained as a result of our survey
can be used as a tool for further analysis and assessment of these 
issues. 

Comments and Our Evaluation: 

We provided a draft of this report to 14 federal agencies and 12 private
sector companies that participated in our survey, as well as to the
Department of the Treasury and OMB. We received comments from Treasury, 
OMB, and 4 of the 14 federal agencies surveyed, including USDA, the 
Department of the Interior (Bureau of Reclamation), NASA, and the 
Department of State (see appendixes XI through XV). Seven federal 
agencies, including the departments of Education, Energy, Justice Bureau
of Prisons (BOP)), Transportation (FAA), and Veterans Affairs (VA), as 
well as the Tennessee Valley Authority (TVA) and USPS, provided 
primarily editorial comments, which we have incorporated into the 
report as appropriate. The remaining 3 agencies, which include the 
Department of Commerce (NOAA), the General Services Administration 
(GSA), and SSA, reviewed a draft of this report and told us they had no 
comments. Three PSC members that participated in the survey, Allstate, 
McGraw-Hill, and PPG Industries, also provided primarily editorial 
comments, which we have incorporated into the report as appropriate. 

The substantive comments we received from the Treasury, OMB, and 
federal entities had a common theme, in that they all generally took 
issue with comparing the capitalization threshold levels in the federal
government to those in the private sector. For example, the Department 
of the Treasury stated that the private sector has income tax 
considerations that affect capitalization thresholds, but these are not 
an issue at federal agencies. In this regard, our private sector survey 
instrument (see appendix X) recognized this consideration by 
specifically asking for information regarding practices for financial 
reporting, or book purposes, and not for income tax reporting. USDA 
referred to inherent differences between the government and the private 
sector in reporting cost and income. NASA and the State Department 
commented that the report did not acknowledge the private sector’s 
profit objective, which they viewed as the main force behind its PP&E 
policies and practices, as distinctly different from the financial 
reporting objectives of the U.S. government. 

Our views on asset capitalization are based upon two fundamental 
accounting concepts: the matching principle and materiality. The 
matching principle aims to assign costs to the proper period. In the 
case of capital assets, this is done through depreciation to recognize 
the use of the asset and can only occur if the asset is capitalized and 
not totally expensed when placed in service. The concept of materiality 
overlays the matching principle to provide relief from capitalizing and 
tracking assets that are immaterial to an entity’s financial 
statements. The establishment of a capitalization threshold policy must 
be supported by a detailed analysis, anchored by these two fundamental 
principles of matching and materiality. Furthermore, capitalization 
thresholds should be periodically reevaluated to help ensure their 
continuing relevance. Our report provides baseline data that we believe 
could be useful to federal agencies in analyzing capitalization 
thresholds. For example, NASA’s reported total assets as of September 
30, 2000, were $34.5 billion, similar to Pfizer’s reported $33.5 
billion at its fiscal year-end of December 31, 2000. NASA’s 
capitalization threshold for both real and personal property is $100,000
compared to Pfizer’s $1,000 threshold. Further, NOAA’s reported total
assets at September 30, 2000, were $5.5 billion, similar to McGraw-
Hill’s reported $4.9 billion at its fiscal year-end of December 31, 
2000. NOAA’s capitalization threshold for both real and personal 
property is $200,000 compared to McGraw-Hill’s $2,000 threshold. 

Our survey work was not designed to conclude on the reasonableness of
the capitalization threshold levels being applied at the federal 
agencies or the private sector companies nor do we draw any 
conclusions. However, the widely varying threshold levels among the 
federal agencies, the sharp increases in recent years, and the large 
differences from private sector companies of considerable size in terms 
of reported PP&E and total assets are issues that we plan to review 
further. Inappropriate or excessive capitalization thresholds can have 
a significant impact on financial reporting by reducing the amount of 
federal assets that are reported on the balance sheet and by 
jeopardizing the matching of costs to the appropriate period of asset 
utilization. 

While certainly differences exist between federal financial reporting
objectives and those in the private sector, there are similarities as 
well. Both federal financial statements and those of private sector 
companies seek to provide reliable, useful, and timely information to 
their users. Similar to private sector companies’ responsibility to 
fairly state profits or net income, federal entities have a 
responsibility to fairly state the net cost of operations. This is also 
important in determining fees to be charged, in other efforts to recoup 
costs through any reimbursement arrangement, and in the ability to 
match costs with performance. 

OMB’s comments also included similar concerns related to comparing
federal capitalization threshold levels to those in the private sector. 
In addition, OMB noted that a comparison to the capitalization threshold
levels of state and local governments would be informative, and 
referred to a recent survey of state comptrollers, done by the National 
Association of State Comptrollers (NASC). The results of the survey 
were reported in the July 2002 newsletter of the National Association 
of State Auditors, Comptrollers and Treasurers. While the NASC survey 
and its reported results appeared after we had completed our fieldwork, 
OMB felt strongly that the survey and its results should be mentioned 
in our report. Although a review of the NASC survey was not within the 
scope of our work, we noted that a significant [Footnote 22] portion of 
the states participating in the survey reported a $5,000 threshold, 
which is also the threshold required by the federal government for 
grant recipients’ recovery of costs under OMB Circular A-87. [Footnote 
23] These thresholds, particularly those for personal property, are in 
line with those used by most of the private sector survey participants. 
Federal Acquisition Regulations [Footnote 24] also require federal 
government contractors to apply a capitalization threshold not to 
exceed $5,000. 

OMB, Treasury, and the Bureau of Reclamation took issue with our 
statement that the lack of consistency in capitalization threshold 
levels among federal agencies could potentially lead to reporting 
problems in the U.S. government’s consolidated financial statements and 
performance measurement comparisons. As stated in our report, individual
capitalization threshold levels are permissible under federal accounting
standards, and because each federal agency was established with a 
specific mission, they may possess unique assets to achieve their 
respective goals. At the same time, consistent treatment of like assets 
is critical to accurate performance measurement and reliable, relevant 
consolidated financial reporting. Management has a responsibility to 
ensure that the financial statements are fairly stated, in all material 
respects, and the auditor’s role is to provide an opinion on that basic 
assertion, based on its work. As the auditor of the U.S. government’s 
financial statements, we must ensure that the varying capitalization 
thresholds do not result in or contribute to a material misstatement at 
the consolidated level. The results of our survey can provide useful 
baseline data to OMB and Treasury in their respective roles, and to 
agencies and their auditors as they continue to periodically assess the 
adequacy of the capitalization threshold in terms of material
impact on financial reporting. 

We are sending copies of this report to the Chairman and Ranking 
Minority Member, Senate Committee on Governmental Affairs; the Chairman 
and Ranking Minority Member, House Committee on Government Reform; the
Chairman and Ranking Minority Member, Subcommittee on Government
Efficiency, Financial Management and Intergovernmental Relations, House
Committee on Government Reform; and other interested congressional
committees. We are also sending copies to the Chief Financial Officers, 
the Inspectors General and other interested parties, including the 
survey participants, the Private Sector Council, and the Chairman of 
the Federal Accounting Standards Advisory Board. In addition, the 
report will be available at no charge on the GAO Web site at hyperlink, 
http://www.gao.gov]. If you have any questions on this report, please 
contact me at (202) 512-9505 or Mary Arnold Mohiyuddin at (202) 512-
3087. 

Signed by: 

Gregory D. Kutz: 
Director: 
Financial Management and Assurance: 

[End of section] 

Appendix I: Appendixes Objectives, Scope, and Methodology: 

The objectives of this report were to determine (1) what are the federal
government’s current capitalization threshold practices for PP&E and how
such federal government policies compare to those practices being 
applied to PP&E in the private sector and (2) what are the useful life 
policies within the federal government and how they compare to those 
used in the private sector. 

To fulfill these objectives, we developed two surveys, one for federal
agencies and one for private sector companies. The surveys were used to
collect information on capitalization thresholds and useful life 
policies, studies or analyses supporting those policies, and other 
related data that would assist us in determining the rationale for 
these PP&E policies as well as give us an indication of any differences 
or similarities between federal practices and private sector practices 
in the PP&E policy area. 

For the federal government, we considered the 24 federal agencies 
responsible for annual audited financial statements as required under 
the CFO Act as expanded by the Government Management and Reform Act of 
1994. We sent the survey to federal agencies with a reported $4 billion 
or more of net PP&E at September 30, 2000, except for DOD. For four 
agencies (Commerce, Interior, Justice, and Transportation), we surveyed 
a single component of the entire department due to the significant 
number of reporting components or because of the possibility of 
differing PP&E accounting policies for the various components. For each 
of those four agencies, we selected the component with the largest 
percentage of the total reported PP&E for that department. In addition, 
we randomly selected two federal agencies with net PP&E as of September 
30, 2000, well below $4 billion to participate in the survey. We 
received completed surveys from all 14 federal agencies we contacted. 

Although DOD is the largest holder of PP&E in the federal government, we
chose not to include it in this survey. DOD had a study performed by
contractors to validate its capitalization thresholds and useful life 
policies for personal and real property. We reviewed the contractors’ 
work and agreed that certain limitations they cited in their reports 
pertaining to the reliability and completeness of the data could 
directly affect the assessment of the adequacy of the capitalization 
threshold and useful life policies. Nonetheless, the reported value of 
net PP&E for federal survey participants represents over half of the 
federal government’s reported net PP&E as of September 30, 2000. 
Appendix II lists all agency survey participants. 

We also surveyed member companies of the PSC, a nonprofit, nonpartisan
public service organization committed to helping the federal government
improve its efficiency, management, and productivity through cooperative
sharing of knowledge. We sent our survey to all member companies,
approximately 40, and received completed surveys from 12 PSC members.
Appendix II contains the complete list of PSC survey participants. 

We did not audit or verify the information provided by the federal 
agency or private sector survey participants in any way. We summarized 
the data collected from both survey groups, as reported to us by the 
respondents. We conducted telephone interviews with personnel at 
certain agencies and PSC members for follow-up questions or 
clarification purposes as needed. 

The practical difficulties of conducting any survey may introduce 
errors, commonly referred to as nonsampling errors. For example, 
difficulties in how a particular question is interpreted, in the 
sources of information that are available to respondents, or in how the 
data are entered into a database can introduce unwanted variability 
into the survey results. We took steps in the development of the 
questionnaires, the data collection, and the data editing and analysis 
to minimize the nonsampling errors. For example, we pretested the 
questionnaires with a number of respondents to refine the survey 
instruments, we edited the surveys and called respondents to clarify
answers, and we verified a sample of the survey data that was entered 
into our database for any keypunch errors. 

We reviewed GAAP and concepts that related to PP&E accounting, as well 
as federal reporting guidelines issued by Treasury and OMB. In addition,
we reviewed the financial statements and related notes to the financial
statements of the federal agencies and private sector companies that
participated in the survey. 

We performed our work from May 2001 through February 2002 in accordance 
with generally accepted government auditing standards. We provided a 
draft of this report to 14 federal agencies and 12 private sector 
companies that participated in our survey, as well as to the Department 
of the Treasury and OMB. We received comments from Treasury, OMB, and 4
of the 14 federal agencies surveyed, including USDA, the Department of 
the Interior (Bureau of Reclamation), NASA, and the Department of State.
Seven federal agencies, including the departments of Education, Energy,
Justice (BOP), Transportation (FAA), and Veterans Affairs, as well as 
TVA and USPS, provided primarily editorial comments, which we have 
incorporated into the report as appropriate. The remaining 3, which 
include the Department of Commerce (NOAA), GSA, and SSA reviewed a 
draft of this report and told us they had no comments. Three PSC members
that participated in the survey, Allstate, McGraw-Hill, and PPG 
Industries, also provided primarily editorial comments, which we have 
incorporated into the report as appropriate. 

[End of section] 

Appendix II: Survey Participants: 

Federal agencies: Agriculture; 
Net PP&E at 9/30/00: %5.4; 
Total assets at 9/30/00: $124.4; 
Net PP&E/total assets (percentage): 4.3. 

Federal agencies: Bureau of Prisons (DOJ); 
Net PP&E at 9/30/00: 4.6; 
Total assets at 9/30/00: 6.7; 
Net PP&E/total assets (percentage): 68.7. 

Federal agencies: Bureau of Reclamation (DOI); 
Net PP&E at 9/30/00: 13.2; 
Total assets at 9/30/00: 20.1; 
Net PP&E/total assets (percentage): 65.7. 

Federal agencies: Education; 
Net PP&E at 9/30/00: 1.3 million; 
Total assets at 9/30/00: 119.0
Net PP&E/total assets (percentage): 0.0.

Federal agencies: Energy (except PMA PP&E); 
Net PP&E at 9/30/00: 13.5; 
Total assets at 9/30/00: 81.4; 
Net PP&E/total assets (percentage): 16.6. 

Federal agencies: FAA (DOT); 
Net PP&E at 9/30/00: 11.5; 
Total assets at 9/30/00: 27.2; 
Net PP&E/total assets (percentage): 42.3. 

Federal agencies: GSA; 
Net PP&E at 9/30/00: 15.7; 
Total assets at 9/30/00: 22.2; 
Net PP&E/total assets (percentage): 70.7.

Federal agencies: NASA; 
Net PP&E at 9/30/00: 25.5; 
Total assets at 9/30/00: 34.5; 
Net PP&E/total assets (percentage): 73.9. 

Federal agencies: NOAA (Commerce); 
Net PP&E at 9/30/00: 3.6; 
Total assets at 9/30/00: 5.5; 
Net PP&E/total assets (percentage): 65.6. 

Federal agencies: SSA; 
Net PP&E at 9/30/00: 0.3; 
Total assets at 9/30/00: 1,029.2; 
Net PP&E/total assets (percentage): 0.0.

Federal agencies: State; 
Net PP&E at 9/30/00: 4.7; 
Total assets at 9/30/00: 23.0; 
Net PP&E/total assets (percentage): 20.4. 

Federal agencies: TVA; 
Net PP&E at 9/30/00: 29.1; 
Total assets at 9/30/00: 34.0; 
Net PP&E/total assets (percentage): 85.6. 

Federal agencies: USPS; 
Net PP&E at 9/30/00: 24.1; 
Total assets at 9/30/00: 58.3; 
Net PP&E/total assets (percentage): 41.3. 

Federal agencies: VA; 
Net PP&E at 9/30/00: 11.6; 
Total assets at 9/30/00: 44.0; 
Net PP&E/total assets (percentage): 26.4. 

Federal agencies: Total; 
Net PP&E at 9/30/00: $162.8; 
Total assets at 9/30/00: $1,629.5; 
Net PP&E/total assets (percentage): 10.0. 

Note: All figures in billions, except where otherwise noted. 

Source: GAO analysis of agency fiscal year 2000 accountability reports. 

[End of table] 

Private sector companies: Allstate; 
Net PP&E at fiscal year-end in 2000: $1.0; 
Total assets at fiscal year-end in 2000: $104.8; 
Net PP&E/total assets (percentage): 1.0. 

Private sector companies: Boeing; 
Net PP&E at fiscal year-end in 2000: 8.8; 
Total assets at fiscal year-end in 2000: 42.0; 
Net PP&E/total assets (percentage): 21.0. 

Private sector companies: ExxonMobil; 89.8 149.0 60.3
Net PP&E at fiscal year-end in 2000: 89.8; 
Total assets at fiscal year-end in 2000: 149.0; 
Net PP&E/total assets (percentage): 60.3. 

Private sector companies: Fluor; 
Net PP&E at fiscal year-end in 2000: 0.8; 
Total assets at fiscal year-end in 2000: 3.7; 
Net PP&E/total assets (percentage): 21.6. 

Private sector companies: Gillette; 
Net PP&E at fiscal year-end in 2000: 3.6; 
Total assets at fiscal year-end in 2000: 10.4; 
Net PP&E/total assets (percentage): 34.6. 

Private sector companies: Kaiser Permanente; 
Net PP&E at fiscal year-end in 2000: 7.6; 
Total assets at fiscal year-end in 2000: 14.2; 
Net PP&E/total assets (percentage): 53.5. 

Private sector companies: McGraw-Hill; 
Net PP&E at fiscal year-end in 2000: 0.4; 
Total assets at fiscal year-end in 2000: 4.9; 
Net PP&E/total assets (percentage): 8.2. 

Private sector companies: Meredith Corp.;
Net PP&E at fiscal year-end in 2000: 0.2; 
Total assets at fiscal year-end in 2000: 1.4; 
Net PP&E/total assets (percentage): 14.3. 

Private sector companies: Pfizer; 
Net PP&E at fiscal year-end in 2000: 9.4; 
Total assets at fiscal year-end in 2000: 33.5; 
Net PP&E/total assets (percentage): 28.1. 

Private sector companies: PPG Industries; 
Net PP&E at fiscal year-end in 2000: 2.9; 
Total assets at fiscal year-end in 2000: 9.1; 
Net PP&E/total assets (percentage): 31.9. 

Private sector companies: SBC Communications; 
Net PP&E at fiscal year-end in 2000: 47.2; 
Total assets at fiscal year-end in 2000: 98.7; 
Net PP&E/total assets (percentage): 47.8. 

Private sector companies: Xerox; 
Net PP&E at fiscal year-end in 2000: 2.5; 
Total assets at fiscal year-end in 2000: 29.5; 
Net PP&E/total assets (percentage): 8.5. 

Private sector companies: Total; 
Net PP&E at fiscal year-end in 2000: $174.2; 
Total assets at fiscal year-end in 2000: $501.2; 
Net PP&E/total assets (percentage): 34.8. 

Note: All figures in billions, except where otherwise noted. 

Source: GAO analysis of financial statements in private sector company 
annual reports. 

[End of table] 

[End of section] 

Appendix III: Capitalization Threshold Increases by Federal Agency: 

Federal agency: Agriculture; 
Maximum personal property thresholds, Previous: $5,000; 
Maximum personal property thresholds, Increase: $0; 
Maximum personal property thresholds, Current: $5,000; 
Maximum personal property thresholds, Percentage increase: 0. 

Federal agency: Bureau of Prisons; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 0; 
Maximum personal property thresholds, Current: 5,000; 
Maximum personal property thresholds, Percentage increase: 0. 

Federal agency: Bureau of Reclamation; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 10,000; 
Maximum personal property thresholds, Current: 15,000;
Maximum personal property thresholds, Percentage increase: 200. 

Federal agency: Education; 
Maximum personal property thresholds, Previous: [A]; 
Maximum personal property thresholds, Increase: [A]; 
Maximum personal property thresholds, Current: 50,000; 
Maximum personal property thresholds, Percentage increase: [Empty]. 

Federal agency: Energy; 
Maximum personal property thresholds, Previous: 25,000; 
Maximum personal property thresholds, Increase: 0; 
Maximum personal property thresholds, Current: 25,000; 
Maximum personal property thresholds, Percentage increase: 0. 

Federal agency: FAA; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 20,000; 
Maximum personal property thresholds, Current: 25,000; 
Maximum personal property thresholds, Percentage increase: 400. 

Federal agency: GSA; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 5,000; 
Maximum personal property thresholds, Current: 10,000; 
Maximum personal property thresholds, Percentage increase: 100; 

Federal agency: NASA; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 95,000; 
Maximum personal property thresholds, Current: 100,000; 
Maximum personal property thresholds, Percentage increase: 1900. 

Federal agency: NOAA; 
Maximum personal property thresholds, Previous: 25,000; 
Maximum personal property thresholds, Increase: 175,000; 
Maximum personal property thresholds, Current: 200,000;
Maximum personal property thresholds, Percentage increase: 700. 

Federal agency: SSA; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 95,000; 
Maximum personal property thresholds, Current: 100,000;
Maximum personal property thresholds, Percentage increase: 1900. 

Federal agency: State; 
Maximum personal property thresholds, Previous: 25,000; 
Maximum personal property thresholds, Increase: 0; 
Maximum personal property thresholds, Current: 25,000; 
Maximum personal property thresholds, Percentage increase: 0. 

Federal agency: TVA; 
Maximum personal property thresholds, Previous: 25,000; 
Maximum personal property thresholds, Increase: 0; 
Maximum personal property thresholds, Current: 25,000; 
Maximum personal property thresholds, Percentage increase: 0. 

Federal agency: USPS; 
Maximum personal property thresholds, Previous: 2,000; 
Maximum personal property thresholds, Increase: 1,000; 
Maximum personal property thresholds, Current: 3,000; 
Maximum personal property thresholds, Percentage increase: 50. 

Federal agency: VA; 
Maximum personal property thresholds, Previous: 5,000; 
Maximum personal property thresholds, Increase: 20,000; 
Maximum personal property thresholds, Current: 25,000; 
Maximum personal property thresholds, Percentage increase: 400. 

[A] Capitalization threshold prior to current level not reported by 
agency, therefore no increase calculated. 

Source: GAO analysis of survey data. 

[End of table] 

Federal agency: Agriculture; 
Maximum real property thresholds, Previous: $5,000; 
Maximum real property thresholds, Increase: $0; 
Maximum real property thresholds, Current: $5,000; 
Maximum real property thresholds, Percentage increase: 0. 

Federal agency: Bureau of Prisons; 
Maximum real property thresholds, Previous: 50,000; 
Maximum real property thresholds, Increase: 50,000; 
Maximum real property thresholds, Current: 100,000; 
Maximum real property thresholds, Percentage increase: 100. 

Federal agency: Bureau of Reclamation; 
Maximum real property thresholds, Previous: 0; 
Maximum real property thresholds, Increase: 0; 
Maximum real property thresholds, Current: 0;
Maximum real property thresholds, Percentage increase: 0. 

Federal agency: Education; 
Maximum real property thresholds, Previous: [A]; 
Maximum real property thresholds, Increase: [A]; 
Maximum real property thresholds, Current: 50,000; 
Maximum real property thresholds, Percentage increase: [Empty]. 

Federal agency: Energy; 
Maximum real property thresholds, Previous: 25,000; 
Maximum real property thresholds, Increase: 0; 
Maximum real property thresholds, Current: 25,000; 
Maximum real property thresholds, Percentage increase: 0. 

Federal agency: FAA; 
Maximum real property thresholds, Previous: 5,000; 
Maximum real property thresholds, Increase: 20,000; 
Maximum real property thresholds, Current: 25,000; 
Maximum real property thresholds, Percentage increase: 400. 

Federal agency: GSA; 
Maximum real property thresholds, Previous: 10,000; 
Maximum real property thresholds, Increase: 0; 
Maximum real property thresholds, Current: 10,000; 
Maximum real property thresholds, Percentage increase: 0; 

Federal agency: NASA; 
Maximum real property thresholds, Previous: 5,000; 
Maximum real property thresholds, Increase: 95,000; 
Maximum real property thresholds, Current: 100,000; 
Maximum real property thresholds, Percentage increase: 1900. 

Federal agency: NOAA; 
Maximum real property thresholds, Previous: 25,000; 
Maximum real property thresholds, Increase: 175,000; 
Maximum real property thresholds, Current: 200,000;
Maximum real property thresholds, Percentage increase: 700. 

Federal agency: SSA; 
Maximum real property thresholds, Previous: 25,000; 
Maximum real property thresholds, Increase: 0; 
Maximum real property thresholds, Current: 25,000;
Maximum real property thresholds, Percentage increase: 0. 

Federal agency: State; 
Maximum real property thresholds, Previous: 5,000; 
Maximum real property thresholds, Increase: 245,000; 
Maximum real property thresholds, Current: 250,000; 
Maximum real property thresholds, Percentage increase: 4900. 

Federal agency: TVA; 
Maximum real property thresholds, Previous: 25,000; 
Maximum real property thresholds, Increase: 0; 
Maximum real property thresholds, Current: 25,000; 
Maximum real property thresholds, Percentage increase: 0. 

Federal agency: USPS; 
Maximum real property thresholds, Previous: 5,000; 
Maximum real property thresholds, Increase: 0; 
Maximum real property thresholds, Current: 5,000; 
Maximum real property thresholds, Percentage increase: 0. 

Federal agency: VA; 
Maximum real property thresholds, Previous: 5,000; 
Maximum real property thresholds, Increase: 20,000; 
Maximum real property thresholds, Current: 25,000; 
Maximum real property thresholds, Percentage increase: 400. 

[A] Capitalization threshold prior to current level not reported by 
agency, therefore no increase calculated. 

Source: GAO analysis of survey data. 

[End of table] 

[End of section] 

Appendix IV: Capitalization Thresholds for Personal Property: 

Federal agency: Agriculture; 
Equipment: $5,000; 
Furniture and fixtures: $5,000; 
Motor vehicles: $5,000. 

Federal agency: Bureau of Prisons; 
Equipment: 5,000; 
Furniture and fixtures: [A]; 
Motor vehicles: 5,000. 

Federal agency: Bureau of Reclamation; 
Equipment: 15,000; 
Furniture and fixtures: [A]; 
Motor vehicles: 15,000. 

Federal agency: Education; 50,000 a
Equipment: 50,000; 
Furniture and fixtures: 50,000; 
Motor vehicles: [A]. 

Federal agency: Energy; 
Equipment: 25,000; 
Furniture and fixtures: 25,000; 
Motor vehicles: 25,000. 

Federal agency: FAA; 
Equipment: 25,000; 
Furniture and fixtures: 25,000; 
Motor vehicles: 25,000. 

Federal agency: GSA; 
Equipment: 10,000; 
Furniture and fixtures: 10,000; 
Motor vehicles: 10,000. 

Federal agency: NASA; 
Equipment: 100,000; 
Furniture and fixtures: 100,000; 
Motor vehicles: 100,000. 

Federal agency: NOAA; 
Equipment: 200,000; 
Furniture and fixtures: [A]; 
Motor vehicles: 200,000. 

Federal agency: SSA; 
Equipment: 100,000; 
Furniture and fixtures: 100,000; 
Motor vehicles: [A]. 

Federal agency: State; 
Equipment: 25,000; 
Furniture and fixtures: 25,000; 
Motor vehicles: 0. 

Federal agency: TVA; 
Equipment: [B]; 
Furniture and fixtures: [B]; 
Motor vehicles: [B]. 

Federal agency: USPS; 
Equipment: 3,000; 
Furniture and fixtures: 3,000; 
Motor vehicles: 3,000; 

Federal agency: VA; 
Equipment: 25,000; 
Furniture and fixtures: 25,000; 
Motor vehicles: 25,000. 

Federal agency: Minimum federal; 
Equipment: 3,000; 
Furniture and fixtures: 3,000; 
Motor vehicles: 0. 

Federal agency: Maximum federal; 
Equipment: 200,000; 
Furniture and fixtures: 100,000; 
Motor vehicles: 200,000. 

[A] Federal agency did not report a capitalization threshold for this 
property category. 

[B] TVA was not included in the above because it capitalizes entire 
projects instead of individual assets. 

Source: GAO analysis of survey data. 

[End of table] 

Private sector company: Allstate; 
Equipment: $250; 
Furniture and fixtures: $250; 
Motor vehicles: $250. 

Private sector company: Boeing; 
Equipment: 5,000; 
Furniture and fixtures: 5,000; 
Motor vehicles: 5,000. 

Private sector company: ExxonMobil; 
Equipment: 3,000; 
Furniture and fixtures: 3,000; 
Motor vehicles: 3,000. 

Private sector company: Fluor; 
Equipment: 1,500; 
Furniture and fixtures: 1,500; 
Motor vehicles: 1,500. 

Private sector company: Gillette; 
Equipment: 2,500; 
Furniture and fixtures: 2,500; 
Motor vehicles: 2,500. 

Private sector company: Kaiser Permanente; 
Equipment: 1,000; 
Furniture and fixtures: 1,000; 
Motor vehicles: 1,000. 

Private sector company: McGraw-Hill; 
Equipment: 2,000; 
Furniture and fixtures: 2,000; 
Motor vehicles: 2,000. 

Private sector company: Meredith Corp.; 
Equipment: 5,000; 
Furniture and fixtures: 2,000; 
Motor vehicles: 5,000. 

Private sector company: PPG Industries; 
Equipment: 3,000; 
Furniture and fixtures: 3,000; 
Motor vehicles: 3,000. 

Private sector company: Pfizer; 
Equipment: 1,000; 
Furniture and fixtures: 1,000; 
Motor vehicles: 1,000. 

Private sector company: SBC Communications; 
Equipment: 2,000; 
Furniture and fixtures: 2,000; 
Motor vehicles: 2,000. 

Private sector company: Xerox; 
Equipment: 3,000; 
Furniture and fixtures: 3,000; 
Motor vehicles: 3,000. 

Private sector company: Minimum private; 
Equipment: 250; 
Furniture and fixtures: 250; 
Motor vehicles: 250. 

Private sector company: Maximum private; 
Equipment: 5,000; 
Furniture and fixtures: 5,000; 
Motor vehicles: 5,000. 

Source: GAO analysis of survey data. 

[End of table] 

[End of section] 

Appendix V: Capitalization Thresholds for Software: 

Federal agency: Agriculture; 
Maximum: $100,000. 

Federal agency: Bureau of Prisons; 
Maximum: 5,000. 

Federal agency: Bureau of Reclamation; 
Maximum: 100,000. 

Federal agency: Education; 
Maximum: 50,000. 

Federal agency: Energy; 
Maximum: 750,000. 

Federal agency: FAA; 
Maximum: 200,000. 

Federal agency: GSA; 
Maximum: 1,000,000. 

Federal agency: NASA; 
Maximum: 100,000. 

Federal agency: NOAA; 
Maximum: 200,000. 

Federal agency: SSA; 
Maximum: 100,000. 

Federal agency: State; 
Maximum: 500,000. 

Federal agency: TVA; 
Maximum: [A]. 

Federal agency: USPS; 
Maximum: 5,000,000. 

Federal agency: VA; 
Maximum: 25,000. 

Federal agency: Minimum federal; 
Maximum: 5,000. 

Federal agency: Maximum federal; 
Maximum: 5,000,000. 

[A] TVA was not included in the above because it capitalizes entire 
projects instead of individual assets. Also, it has no specific 
software threshold. 

Source: GAO analysis of survey data. 

[End of table] 

Private sector company: Allstate; 
Maximum: $250,000. 

Private sector company: Boeing; 
Maximum: 5,000. 

Private sector company: ExxonMobil; 
Maximum: 5,000. 

Private sector company: Fluor; 
Maximum: 10,000. 

Private sector company: Gillette; 
Maximum: 5,000. 

Private sector company: Kaiser Permanente; 
Maximum: 100,000. 

Private sector company: McGraw-Hill; 
Maximum: 250,000. 

Private sector company: Meredith Corp.; 
Maximum: 2,000. 

Private sector company: PPG Industries; 
Maximum: 3,000. 

Private sector company: Pfizer; 
Maximum: 1,000. 

Private sector company: SBC Communications; 
Maximum: 2,000. 

Private sector company: Xerox; 
Maximum: 3,000. 

Private sector company: Minimum private; 
Maximum: 1,000. 

Private sector company: Maximum private; 
Maximum: 250,000. 

Source: GAO analysis of survey data. 

[End of table] 

[End of section] 

Appendix VI: Capitalization Thresholds for Real Property: 

Federal agency: Agriculture; 
Buildings: $5,000; 
Building improvements: $5,000; 
Other structures and facilities: $5,000; 
Leasehold improvements: $5,000. 

Federal agency: Bureau of Prisons; 
Buildings: 100,000; 
Building improvements: 100,000; 
Other structures and facilities: 100,000; 
Leasehold improvements: 100,000. 

Federal agency: Bureau of Reclamation; 
Buildings: 0; 
Building improvements: 0; 
Other structures and facilities: 0; 
Leasehold improvements: 0.

Federal agency: Education; 
Buildings: [A]; 
Building improvements: [A]; 
Other structures and facilities: [A]; 
Leasehold improvements: 50,000. 

Federal agency: Energy; 
Buildings: 25,000; 
Building improvements: 25,000; 
Other structures and facilities: 25,000; 
Leasehold improvements: 25,000. 

Federal agency: FAA; 
Buildings: 25,000; 
Building improvements: 25,000; 
Other structures and facilities: 25,000; 
Leasehold improvements: 25,000. 

Federal agency: GSA; 
Buildings: 0; 
Building improvements: 10,000; 
Other structures and facilities: 10,000; 
Leasehold improvements: 10,000. 

Federal agency: NASA; 
Buildings: 100,000; 
Building improvements: 100,000; 
Other structures and facilities: 100,000; 
Leasehold improvements: 100,000. 

Federal agency: NOAA; 
Buildings: 200,000; 
Building improvements: [A]; 
Other structures and facilities: 200,000; 
Leasehold improvements: 200,000. 

Federal agency: SSA; 
Buildings: 0; 
Building improvements: [A]; 
Other structures and facilities: [A]; 
Leasehold improvements: 25,000. 

Federal agency: State; 
Buildings: 0; 
Building improvements: 250,000; 
Other structures and facilities: [A]; 
Leasehold improvements: 250,000. 

Federal agency: TVA; 
Buildings: 25,000; 
Building improvements: 25,000; 
Other structures and facilities: 25,000; 
Leasehold improvements: 25,000. 

Federal agency: USPS; 
Buildings: 0; 
Building improvements: 5,000' 
Other structures and facilities: [A]; 
Leasehold improvements: 5,000. 

Federal agency: VA; 
Buildings: 25,000; 
Building improvements: 25,000; 
Other structures and facilities: 25,000; 
Leasehold improvements: 25,000. 

Federal agency: Minimum federal; 
Buildings: 0; 
Building improvements: 0; 
Other structures and facilities: 0; 
Leasehold improvements: 0. 

Federal agency: Maximum federal; 
Buildings: 200,000; 
Building improvements: 250,000; 
Other structures and facilities: 200,000; 
Leasehold improvements: 250,000. 

[A] Federal agency did not report a capitalization threshold for this 
property category. 

Source: GAO analysis of survey data. 

[End of table] 

Private sector company: Allstate; 
Buildings: $0; 
Building improvements: $500; 
Other structures and facilities: $0; 
Leasehold improvements: $500. 

Private sector company: Boeing; 
Buildings: 5,000; 
Building improvements: 5,000; 
Other structures and facilities: 5,000; 
Leasehold improvements: 5,000. 

Private sector company: ExxonMobil; 
Buildings: 3,000; 
Building improvements: 3,000; 
Other structures and facilities: 3,000; 
Leasehold improvements: 3,000. 

Private sector company: Fluor; 
Buildings: 1,500; 
Building improvements: 1,500; 
Other structures and facilities: 1,500; 
Leasehold improvements: 1,500. 

Private sector company: Gillette; 
Buildings: 2,500; 
Building improvements: 2,500; 
Other structures and facilities: 2,500; 
Leasehold improvements: 2,500, 

Private sector company: Kaiser Permanente; 
Buildings: 0; 
Building improvements: 5,000; 
Other structures and facilities: 5,000; 
Leasehold improvements: 5,000. 

Private sector company: McGraw-Hill; 
Buildings: 2,000; 
Building improvements: 2,000; 
Other structures and facilities: 2,000; 
Leasehold improvements: 2,000. 

Private sector company: Meredith Corp.; 
Buildings: 5,000; 
Building improvements: 5,000; 
Other structures and facilities: 5,000; 
Leasehold improvements: 5,000. 

Private sector company: PPG Industries; 
Buildings: 3,000; 
Building improvements: 3,000; 
Other structures and facilities: 3,000; 
Leasehold improvements: 3,000. 

Private sector company: Pfizer; 
Buildings: 1,000; 
Building improvements: 1,000; 
Other structures and facilities: 1,000; 
Leasehold improvements: 1,000. 

Private sector company: SBC Communications; 
Buildings: 2,000; 
Building improvements: 2,000; 
Other structures and facilities: 2,000; 
Leasehold improvements: 2,000. 

Private sector company: Xerox; 
Buildings: 3,000; 
Building improvements: 3,000; 
Other structures and facilities: 3,000; 
Leasehold improvements: 3,000. 

Private sector company: Minimum private; 
Buildings: 0; 
Building improvements: 500; 
Other structures and facilities: 0; 
Leasehold improvements: 500. 

Private sector company: Maximum private; 
Buildings: 5,000; 
Building improvements: 5,000; 
Other structures and facilities: 5,000; 
Leasehold improvements: 5,000. 

Source: GAO analysis of survey data. 

[End of table] 

Appendix VII: Useful Life Ranges for Personal Property (in Years): 

Federal agency: Agriculture; 
Equipment: 5; 
Furniture and fixtures: 8; 
Motor vehicles: 6.

Federal agency: Bureau of Prisons; 
Equipment: 10; 
Furniture and fixtures: N/R; 
Motor vehicles: 10. 

Federal agency: Bureau of Reclamation; 
Equipment: 2 - 25; 
Furniture and fixtures: 10 - 20; 
Motor vehicles: 6 - 10. 

Federal agency: Education; 
Equipment: 3; 
Furniture and fixtures: 5; 
Motor vehicles: N/R. 

Federal agency: Energy; 
Equipment: 5 - 40; 
Furniture and fixtures: varies; 
Motor vehicles: 5 - 8. 

Federal agency: FAA; 
Equipment: 7; 
Furniture and fixtures: 5; 
Motor vehicles: 5. 

Federal agency: GSA; 
Equipment: 5; 
Furniture and fixtures: 5; 
Motor vehicles: varies. 

Federal agency: NASA; 
Equipment: 5 - 15; 
Furniture and fixtures: 10; 
Motor vehicles: 10. 

Federal agency: NOAA; 
Equipment: 8 - 20; 
Furniture and fixtures: N/R; 
Motor vehicles: 6. 

Federal agency: SSA; 
Equipment: 7; 
Furniture and fixtures: 10; 
Motor vehicles: N/R. 

Federal agency: State; 
Equipment: 5 - 8; 
Furniture and fixtures: 4 - 12; 
Motor vehicles: 3 - 6. 

Federal agency: TVA; 
Equipment: 5 - 20; 
Furniture and fixtures: 5 - 10; 
Motor vehicles: 6 - 12. 

Federal agency: USPS; 
Equipment: 3 - 10; 
Furniture and fixtures: 5 - 10; 
Motor vehicles: 6 - 12. 

Federal agency: VA; 
Equipment: 3 - 15; 
Furniture and fixtures: 10 - 15; 
Motor vehicles: 5 - 10. 

Federal agency: Range; 
Equipment: 2 - 40; 
Furniture and fixtures: 4 - 20; 
Motor vehicles: 3 - 12. 

Note: N/R indicates that survey participant either did not respond to a 
useful life classification for this particular category of personal 
property or the category did not apply to the participant. 

Source: GAO analysis of survey data. 

[End of table] 

Private sector company: Allstate; 
Equipment: 3 - 10; 
Furniture and fixtures: 10; 
Motor vehicles: 3. 

Private sector company: Boeing; 
Equipment: 3 - 11; 
Furniture and fixtures: 10; 
Motor vehicles: N/R. 

Private sector company: ExxonMobil; 
Equipment: 3 - 5; 
Furniture and fixtures: 15; 
Motor vehicles: 5 - 10. 

Private sector company: Fluor; 10 5
Equipment: 5 - 7; 
Furniture and fixtures: 10; 
Motor vehicles: 5; 

Private sector company: Gillette; 
Equipment: 5 - 20; 
Furniture and fixtures: 3 - 15; 
Motor vehicles: 3 - 7. 

Private sector company: Kaiser Permanente; 
Equipment: 3 - 20; 
Furniture and fixtures: 5 - 20; 
Motor vehicles: 4. 

Private sector company: McGraw-Hill; 
Equipment: 2 - 10; 
Furniture and fixtures: 10; 
Motor vehicles: 3. 

Private sector company: Meredith Corp.; 
Equipment: 3 - 10; 
Furniture and fixtures: 5 - 10; 
Motor vehicles: 3 - 10. 

Private sector company: PPG Industries; 
Equipment: 5 - 25; 
Furniture and fixtures: 3 - 20; 
Motor vehicles: 6 - 10. 

Private sector company: Pfizer; 
Equipment: 3 - 5; 
Furniture and fixtures: 13; 
Motor vehicles: 4. 

Private sector company: SBC Communications; 
Equipment: 10; 
Furniture and fixtures: 15; 
Motor vehicles: 8. 

Private sector company: Xerox; 
Equipment: 3 - 12; 
Furniture and fixtures: 15; 
Motor vehicles: 4 - 5. 

Private sector company: Range; 
Equipment: 2 - 25; 
Furniture and fixtures: 3 - 20; 
Motor vehicles: 3 - 10. 

Note: N/R indicates that survey participant either did not respond to a 
useful life classification for this particular category of personal 
property or the category did not apply to the participant. 

Source: GAO analysis of survey data. 

[End of table] 

[End of section] 

Appendix VIII: Useful Life Ranges for Real Property (in Years): 

Federal agency: Agriculture; 
Buildings: 30; 
Other structures and facilities: 20 - 50; 
Other[A]: 10 - 50. 

Federal agency: Bureau of Prisons; 
Buildings: 30; 
Other structures and facilities: 20; 
Other[A]: 20. 

Federal agency: Bureau of Reclamation; 
Buildings: 30 - 75; 
Other structures and facilities: 25 - 100; 
Other[A]: 30 - 75. 

Federal agency: Education; 
Buildings: N/R; 
Other structures and facilities: N/R; 
Other[A]: N/R. 

Federal agency: Energy; 
Buildings: 25 - 50; 
Other structures and facilities: 25 - 50; 
Other[A]: varies. 

Federal agency: FAA; 
Buildings: 40; 
Other structures and facilities: 10 - 20; 
Other[A]: 10. 

Federal agency: GSA; 
Buildings: 30; 
Other structures and facilities: 30; 
Other[A]: 5 - 20. 

Federal agency: NASA; 
Buildings: 40; 
Other structures and facilities: 15; 
Other[A]: 15. 

Federal agency: NOAA; 
Buildings: 10 - 40; 
Other structures and facilities: N/R; 
Other[A]: varies. 

Federal agency: SSA; 
Buildings: 50; 
Other structures and facilities: N/R; 
Other[A]: 6. 

Federal agency: State; 
Buildings: 30; 
Other structures and facilities: N/R; 
Other[A]: 10. 

Federal agency: TVA; 
Buildings: 20 - 40; 
Other structures and facilities: 20 - 40; 
Other[A]: 20. 

Federal agency: USPS; 
Buildings: 30 - 75; 
Other structures and facilities: 10; 
Other[A]: N/R; 

Federal agency: VA; 
Buildings: 5 - 40; 
Other structures and facilities: 5 - 40; 
Other[A]: 5 - 40. 

Federal agency: Range; 
Buildings: 5 - 75; 
Other structures and facilities: 5 - 100; 
Other[A]: 5 - 75. 

Note: N/R indicates that survey participant either did not respond to a 
useful life classification for this particular category of real 
property or the category did not apply to the participant. 

[A] Other includes any real property that is not a building, structure, 
or facility. 

Source: GAO analysis of survey data. 

[End of table] 

Private sector company: Allstate; 
Buildings: 40; 
Other structures and facilities: N/R; 
Other[A]: N/R. 

Private sector company: Boeing; 
Buildings: 45; 
Other structures and facilities: N/R; 
Other[A]: 10 - 25. 

Private sector company: ExxonMobil; 
Buildings: 20 - 50; 
Other structures and facilities: 20 - 30; 
Other[A]: 20 - 30. 

Private sector company: Fluor; 
Buildings: 20 - 30; 
Other structures and facilities: N/R; 
Other[A]: 20 - 30. 

Private sector company: Gillette; 
Buildings: 10 - 40; 
Other structures and facilities: 40; 
Other[A]: 14 - 20. 

Private sector company: Kaiser Permanente; 
Buildings: 20 - 40; 
Other structures and facilities: 10 - 40; 
Other[A]: 5 - 25. 

Private sector company: McGraw-Hill; 
Buildings: 50; 
Other structures and facilities: N/R; 
Other[A]: 50. 

Private sector company: Meredith Corp.; 
Buildings: 10 - 45; 
Other structures and facilities: 20; 
Other[A]: 10 - 20. 

Private sector company: PPG Industries; 
Buildings: 20 - 50; 
Other structures and facilities: N/R; 
Other[A]: 20 - 30. 

Private sector company: Pfizer; 
Buildings: 33; 
Other structures and facilities: N/R; 
Other[A]: 33. 

Private sector company: SBC Communications; 
Buildings: 44; 
Other structures and facilities: N/R; 
Other[A]: N/R. 

Private sector company: Xerox; 
Buildings: 25 - 50; 
Other structures and facilities: N/R; 
Other[A]: 20. 

Private sector company: Range; 
Buildings: 10 - 50; 
Other structures and facilities: 10 - 40; 
Other[A]: 10 - 50. 

Note: N/R indicates that survey participant either did not respond to a 
useful life classification for this particular category of real 
property or the category did not apply to the participant. 

[A] Other includes any real property that is not a building, structure, 
or facility. 

Source: GAO analysis of survey data. 

[End of table] 

[End of section] 

Appendix IX: Federal Agency Survey: 

United States General Accounting Office: 

Survey of Federal Property, Plant, and Equipment (PP&E) Policies: 

Introduction: 

On November 30, 1995, the Federal Accounting Standards Advisory Board 
(FASAR) issued Statement of Federal Financial Accounting Standards 
(SFFAS) No. 6, "Accounting for Property, Plant, and Equipment." SFFAS 
No. 6, effective for fiscal years beginning with 1998, defined 
property, plant, and equipment (PP&E) and its various categories, as 
well as the minimum disclosure requirements for reporting general PP&E. 
Minimum disclosure requirements for reporting general PP&E on the 
balance sheet include:

* Cost, associated accumulated depreciation, and book value by major 
class; 
* Estimated useful lives for each major class; 
* Method(s) of depreciation for each major class; 
* Capitalization threshold(s), including any changes in threshold(s) 
during the period; and; 
* Restrictions on the use or convertability of general PP&E.

Since organization capitalization thresholds and useful life policies 
have a direct impact on PP&E information reported on organization 
financial statements, the propriety of these policies is critical to 
the reliability and usefulness of reported PP&E and the overall 
financial statements.

The objective of this survey is to gather information on your 
organization's capitalization thresholds and useful life category 
policies, studies or analyses supporting those policies, and other 
related data to determine how this information may impact financial 
statement reporting governmentwide. This survey is divided into three 
areas: (I) Capitalization Thresholds and Accountability; (II) 
Depreciation/Useful Lives; and (III) Other Comments. 

Your participation in this survey is essential for obtaining a 
governmentwide perspective of PP&E policies and for ensuring the 
reliability and usefulness of PP&E data. We will be contacting your 
organization to confirm that the survey has been received and to answer 
any questions. 

Instructions: 

1. The survey should be completed by your entity's Office of the Chief 
Financial Officer, or by other organization personnel authorized to 
provide the information requested.

2. We would appreciate if you would return the survey no later than 
November 9, 2001. Due to recent events, we request that you fax the 
completed survey to Mary Arnold Mohiyuddin at (202) 512-9193. We also 
request that you return the survey by mail using the enclosed postage-
paid envelope. We recommend that you keep a photocopy for your records. 
If the envelope is misplaced, the return address is:

U.S. General Accounting Office: 
Mrs. Mary Arnold Mohiyuddin: 
441 G Street, NW, Room 5T45: 
Washington, D.C. 20548: 

If you have any questions, please contact Mrs. Mary Arnold Mohiyuddin 
at (202) 512-3087 or email mohiyuddinm@gao.gov or Mr. Cleggett 
Funkhouser at (202) 512-5126 or email funkhouserc@gao.gov.

Thank you for your cooperation and assistance.

Please provide the following information so that we may contact you if 
further clarification is needed: 
Organization: 
Contact Name: 
Title: 
Phone: 
Email address: 

I. Capitalization Thresholds and Accountability

1. What dollar threshold level(s) and effective date(s) does your 
organization use for capitalizing general PP&E assets for financial 
reporting purposes? [Please provide dollar threshold levels for each 
different asset type(s), including personal property (e.g., equipment 
and software), real property (e.g., buildings, structures, and land), 
capital improvements, leasehold improvements, other. Also, provide the 
effective date of implementation for each of the current dollar 
threshold level(s).]

Types of General PP&E Assets: 
Dollar Threshold Level: 
Other Factors that Impact Captialization (e.g., useful life): 
Effective Date (mm/yyyy): 

2. Does your organization have a different capitalization dollar 
threshold for bulk purchases of PP&E than for purchases of a single 
item? (Check one.)
1. Yes; Please describe: 
2. No; 
3. To what extent, if any, did each of the following factors contribute 
to the establishment of your organization's current capitalization 
dollar threshold level(s)? (Check one box in each row.) 

Factor: External auditor recommendations: 
To a very great extent (1); 
To a great extent (2); 
To a moderate extent (3); 
To some or little extent (4); 
To no extent (5). 

Factor: Materiality in relation to the overall financial statements; 
To a very great extent (1); 
To a great extent (2); 
To a moderate extent (3); 
To some or little extent (4); 
To no extent (5). 

Factor: Industry practice; 
To a very great extent (1); 
To a great extent (2); 
To a moderate extent (3); 
To some or little extent (4); 
To no extent (5). 

Factor: Other (please specify); 
To a very great extent (1); 
To a great extent (2); 
To a moderate extent (3); 
To some or little extent (4); 
To no extent (5). 

4. Have any of your organization's capitalization dollar level(s) 
changed within the past five years? (Check one.) 
Yes: Continue with question five. 
No: Skip to question seven. 

5. For those assets for which dollar threshold levels have changed in 
the past five years, what was your organization's previous 
capitalization dollar threshold level(s)? [Please provide levels for 
different asset types, if applicable. Also provide any other factor(s) 
that impact capitalization, such as useful life. Finally, provide the 
effective date for each of the threshold level(s).] 

PP&E Asset Type: 
Previous Dollar Threshold Level: 
Other Factors that Impact Capitalization (e.g., useful life): 
Effective date (mm/yyyy): 

6. Which of the following are reasons why the capitalization dollar 
threshold level(s) changed? (Check all that apply): 
Implementation of Statement of Federal Financial Accounting Standards 
(SFFAS) No. 6, Accounting for Property, Plant, and Equipment; 
Management decision- please explain; 
External auditor recommendation; 
Other- please specify; 

7. Within the past five years, has there been any formal analysis 
performed (in-house or external) to develop (or validate) you 
organization's capitalization dollar threshold level(s)? (Check one): 
Yes: How many analysis were performed? Continue with questions 8. 
No: Skip to question 12. 

8. Which of the following groups performed your analysis and when were 
they completed? (Check all that apply and enter date(s) of completion- 
mm/yyyy.) 
Internal: Date of completion: 
Consultant: Date of completion: 
Inspector General's Office: Date of completion: 
Independent Public Accountant: Date of completion: 
Other (please specify): Date of completion: 

9. Which of the following best describes the conclusion of the most 
recent analysis? (Check one): 
Dollar threshold level(s) appear reasonable: 
Dollar threshold level(s) did not appear reasonable, new dollar 
threshold level(s) proposed: (Enter proposed dollar threshold):
Dollar threshold level(s) did not appear reasonable, but no new dollar 
threshold level proposed: 
Inconclusive analysis: 
Other (Please specify): 

10. If a new dollar threshold level was proposed as a result of the 
most recent analysis, was it implemented at your organization? (Check 
one): 
Yes: 
No: Explain why: 
Not applicable, new dollar threshold level was not proposed. 

11. Please describe, in as much detail as possible, the methodology 
that was applied in performing the most recent analysis? 

12. Which of the following factors does your organization consider in 
determining whether additions/modifications to existing property are 
capitalized? (Check all that apply.) 
Capitalize if the cost of additions/modifications meets or exceeds the 
capitalization dollar threshold: 
Capitalize regardless of cost if additions/modifications to an existing 
capitalized asset: 
Capitalize if the additions/modifications extend the useful life or 
capacity of the asset: 
Other — please specify:	

13. Does your organization maintain property records for PP&E not 
capitalized on the balance sheet? (Check one.) 
Yes: Continue with question 14. 
No: 4 Skip to question 16. 

14. What is your organization's objective in maintaining property 
records for PP&E not capitalized on the balance sheet? (Check all that 
apply.) 
Information needed for agency operations: 
Information needed to track items for safeguarding and other controls: 
Information needed for external reporting purposes (e.g., regulatory, 
Congressional, etc.) 
Other — please specify:	

15. What was the cumulative value of PP&E recorded in property records, 
but not capitalized on the balance sheet, as of September 30, 2000? 
$: 
Information not available: 

16. Please estimate the value of PP&E expensed as a result of not 
meeting or exceeding your organization's dollar threshold level for the 
fiscal ear ending September 30, 2000. 

$:
Information not available: 

17. Do your auditors address your organization's capitalization policy, 
such as the adequacy of the dollar threshold level(s), as part of their 
audit of your organization's annual financial statements? (Check one.) 
Yes: 
No: 
Not known: 

18. Does your organization use barcoding or any other asset control 
procedure(s) for PP&E? (Check one) 

Yes, for all PP&E (i.e., capitalized and non-capitalized): 
Yes, but only for capitalized PP&E: 
Yes, but only for non-capitalized PP&E: 
No –- Skip to question 20. 

19. Please describe your asset control procedure(s). 

20. Other than the asset control procedures you specified in questions 
18 and 19, does your organization have a specific policy or 
procedure(s) for safeguarding sensitive and/or pilferable items (e.g., 
laptop computers, cell phones, etc.)? (Check one.) 
Yes –- Please describe policy:
No: 

21. Please describe how your organization accounts for computer 
hardware. (Please distinguish purchases versus lease arrangements and 
issues related to personal computers versus mainframes.) 

22. Does your organization have internally developed software? (Check 
one): 
Yes: Continue with question 23. 
No: Skip to question 25. 

23. Does your organization capitalize internally developed software in 
accordance with Statement of Federal Financial Accounting Standard 
(SFFAS) No. 10, Accounting for Internal Use Software? (Check one.)
Yes: 
No: Please explain: 

24. Does your organization have any process(es) in place to track 
internally developed software costs? (Check one.) 
Yes: 
No: 

25. Does your organization have any leased PP&E recorded as capital 
leases? (Check one.) 
Yes: 
No: 

26. Does your organization have a procedure in place for leased PP&E to 
determine whether they should be recorded as capital leases? (Check 
one.)
Yes: Please describe: 
No: 

27. Does your organization currently own property in the possession of 
government contractors? (Check one.) 
Yes: Continue with question 28.
No: Skip to question 31. 

28. Does your organization have only one capitalization dollar 
threshold for property in the possession of government contractors or 
does it have multiple thresholds depending on the property type? (Check 
one. Please enter dollar threshold amount(s) and property type(s), if 
applicable.)
One dollar threshold for property in the possession of government 
contractors (Please enter dollar threshold amount.) 
$: 	
Different dollar thresholds for different types of property. (Please 
enter dollar thresholds by type of property.) 
$: Property Type: 	

29. Is the dollar threshold level for property in the possession of 
government contractors different from that for agency-held property? 
(Check one.)
Yes: Please explain: 
No: 

30. Who maintains the records for property in the possession of 
contractors? (Check all that apply.) 
Your agency: 
Government contractor: 
Outsource company: 
Other - Please specify: 

II. Depreciation/Useful Lives: 

31. For depreciation purposes, how many years (useful life) does your 
organization use to depreciate the following real property, 
classifications? (Check all that apply and enter the useful life in 
years. For your convenience, feel free to attach your own schedule of 
real property classifications and their useful lives in lieu of 
responding to this question.)
Buildings: years: 
Other Structures: Please specify: 	
Leasehold Improvements:	years: 
Facilities-Please specify: 	
Capital Leases: years: 	
Other-Please specify: years: 

32. For depreciation purposes, how many years (useful life) does your 
organization use to depreciate the following personal property 
classifications? (Check all that apply and enter the useful life in 
years. For your convenience, feel free to attach your own schedule of 
personal property classifications and their useful lives in lieu of 
responding to this question.) 
Equipment: years: 
Software: years: 
Furniture and Fixtures: years: 
Motor Vehicles:	years: 
Property in the possession of contractors (by type): type: years: 
Other-please specify: years: 

33. Which of the following is used by your organization for assigning 
useful life categories to PP&E? (Check all that apply.) 
Organization historical experience: 
IRS table: 
OMB circular A-76, Appendix 3 (Useful Life and Disposal Value Table 
estimated by Defense Logistics Agency): 
Other - please specify: 

34. Which of the following best describes the depreciation method used 
by your organization? (Check one.)
Straight Line Method: 
Decreasing Charge Method (such as sum-of-years digits, or double-
declining balance): 
Activity Method: 
Accelerated Method: 
Other - please specify: 

35. Within the past 5 years, have there been any formal analyses 
performed (in-house or external) to develop or validate your 
organization's useful life policies? (Check one.) 
Yes: Continue with question 36. 
No: Skip to question 40. 

36. Who performed these analyses and when were they completed? (Check 
all that apply and enter date(s) of completion - mm/yyyy.) 
Internal —- Date of completion: 
Consultant —- Date of completion: 
Inspector General's Office —- Date of completion: 
Independent Public Accountant -- Date of completion: 
Other – please specify: Date of completion: 

37. Which of the following, if any, best describes the conclusion of 
the most recent analysis? (Check one.)
Useful life policy appeared reasonable: 
Useful life policy did not appear reasonable, new useful life policy 
proposed –- Please explain: 
Useful life policy did not appear reasonable, but no new policy 
proposed: 
Inconclusive results: 
Other, please specify: 

38. If a different useful life policy was proposed as a result of the 
most recent analysis, was it implemented at your organization? (Check 
one): 
Yes: Please describe the new policy: 
No: Explain why: 
Not applicable, new useful life category was not proposed: 

39. Please describe, in as much detail as possible, the methodology 
that was applied in performing the most recent analysis? 

40. Do your auditors address the adequacy of your organization's useful 
life categories as part of their audit of your organization's annual 
financial statements? (Check one.) 
Yes: 
No: 
Not known: 

41. Approximately what percentage of your organization's PP&E that is 
still in use is fully depreciated? (Check one): 
None: 
1-5%: 
6-10%: 
11-15%: 
16-20%: 
Greater than 20%: 
Not known: 

42. Which of the following best describes how your organization treats 
fully depreciated PP&E assets? (Check one): 

Fully depreciated PP&E are removed from property records immediately: 
Fully depreciated PP&E are maintained on subsidiary records if asset is 
still in use: 
Fully depreciated PP&E are removed from property records but tracked by 
another means: 
Other - please explain:	

III. Other Comments: 

43. If you have any comments concerning PP&E policies or you would like 
to elaborate on any of your answers, please use the space below. Be 
sure to indicate the question number beside your comment. If you wish, 
you may attach additional pages to this survey. 

Thank you for your assistance!

[End of section] 

Appendix X: Private Sector Company Survey: 

United States General Accounting Office: 

Survey of Private Sector Council Members Regarding Certain Property, 
Plant, and Equipment (PP&E) Policies: 

Introduction: 

On November 30, 1995, the Federal Accounting Standards Advisory Board 
(FASAR) issued Statement of Federal Financial Accounting Standards 
(SFFAS) No. 6, "Accounting for Property, Plant, and Equipment." SFFAS 
No. 6, effective for fiscal years beginning with 1998, defined 
property, plant, and equipment (PP&E) and its various categories, as 
well as the minimum disclosure requirements for reporting general PP&E. 
Minimum disclosure requirements for reporting general PP&E on the 
balance sheet include:

* Cost, associated accumulated depreciation, and book value by major 
class; 
* Estimated useful lives for each major class; 
* Method(s) of depreciation for each major class; 
* Capitalization threshold(s), including any changes in threshold(s) 
during the period; and; 
* Restrictions on the use or convertability of general PP&E.

Since organization capitalization thresholds and useful life policies 
have a direct impact on PP&E information reported on organization 
financial statements, the propriety of these policies is critical to 
the reliability and usefulness of reported PP&E and the overall 
financial statements.

The objective of this survey is to gather information on your 
organization's capitalization thresholds and useful life category 
policies, studies or analyses supporting those policies, and other 
related data to determine how this information may impact financial 
statement reporting governmentwide. This survey is divided into three 
areas: (I) Capitalization Thresholds and Accountability; (II) 
Depreciation/Useful Lives; and (III) Other Comments. 

Your participation in this survey is essential for obtaining a 
governmentwide perspective of PP&E policies and for ensuring the 
reliability and usefulness of PP&E data. We will be contacting your 
organization to confirm that the survey has been received and to answer 
any questions. 

Instructions: 

1. The survey should be completed by your entity's Office of the Chief 
Financial Officer, or by other organization personnel authorized to 
provide the information requested.

2. We would appreciate if you would return the survey no later than 
November 9, 2001. Due to recent events, we request that you fax the 
completed survey to Mary Arnold Mohiyuddin at (202) 512-9193. We also 
request that you return the survey by mail using the enclosed postage-
paid envelope. We recommend that you keep a photocopy for your records. 
If the envelope is misplaced, the return address is:

U.S. General Accounting Office: 
Mrs. Mary Arnold Mohiyuddin: 
441 G Street, NW, Room 5T45: 
Washington, D.C. 20548: 

If you have any questions, please contact Mrs. Mary Arnold Mohiyuddin 
at (202) 512-3087 or email mohiyuddinm@gao.gov or Mr. Cleggett 
Funkhouser at (202) 512-5126 or email funkhouserc@gao.gov.

Thank you for your cooperation and assistance.

Please provide the following information so that we may contact you if 
further clarification is needed: 
Organization: 
Contact Name: 
Title: 
Phone: 
Email address: 

I. Capitalization Thresholds and Accountability: 

1. What dollar threshold level(s) and effective date(s) does your 
organization use for capitalizing general PP&E assets for financial 
reporting purposes? [Please provide dollar threshold levels for each 
different asset type(s), including personal property (e.g., equipment 
and software), real property (e.g., buildings, structures, and land), 
capital improvements, leasehold improvements, other. Also, provide the 
effective date of implementation for each of the current dollar 
threshold level(s)]: 
Asset Type: 
Dollar Threshold Level: 
Date Threshold Level Implemented (mm/yyyy): 

2. Does your organization have a different capitalization dollar 
threshold for bulk purchases of PP&E than for purchases of a single 
item? (Check one.)
1. Yes; Please describe: 
2. No: 
3. Which of the following statements best describes the origin of your 
organization's current capitalization dollar threshold levels? (Check 
one): 
Factors: 
Established internally by management, based on materiality: 
Established internally by management, based on industry practice: 
Established internally by management, based on other - Please describe:
Recommended by auditors: 
Recommended by others - Please describe: 
Other not indicated above - Please describe: 

4. Within the past 5 years, has there been any formal analyses 
performed (in-house or external) to develop or validate your 
organization's capitalization dollar threshold level(s)? (Check one): 
Yes: How many analyses were performed: Continue with question 5. 
No: Skip to question 9. 

5. Which of the following group(s) performed your analyses and when 
were they completed? (Check all that apply and enter date(s) of 
completion - mm/yyyy): 
Internal: Date of completion: 
Consultant: Date of completion: 
Independent Public Accountant: Date of completion: 
Other - please specify:	Date of completion: 

6. Which of the following best describes the conclusion of the most 
recent analysis? (Check one): 
Dollar threshold level(s) appeared reasonable: 
Dollar threshold level(s) did not appear reasonable, new dollar 
threshold level proposed - Enter proposed dollar threshold: 	
Dollar threshold level(s) did not appear reasonable, but no new dollar 
threshold level proposed: 
Inconclusive analysis: 
Other - please specify: 

7. If a new dollar threshold level was proposed as a result of the most 
recent analysis, was it implemented at your organization? (Check one): 
Yes: 
No: Explain why: 
Not applicable, new dollar threshold level was not proposed: 

8. Please describe in as much detail as possible, the methodology that 
was applied in performing the most recent analysis? 

9. Which of the following factors does your organization consider in 
determining whether additions/modifications to existing property are 
capitalized? (Check all that apply): 
Capitalize if the cost of additions/modifications meet or exceed the 
capitalization dollar threshold: 
Capitalize regardless of cost if additions/modifications are to an 
existing capitalized asset: 
Capitalize if the additions/modifications extend the useful life or 
capacity of the asset: 
Other — please specify:	

10. Does your organization maintain property records for PP&E not 
capitalized on the balance sheet? (Check one): 
Yes: Continue with question 11. 
No: Skip to question 13. 

11. What is your organization's objective in maintaining property 
records for PP&E not capitalized on the balance sheet? (Check all that 
apply): 
Information needed for company operations: 
Need to track all items for safeguarding and other controls: 
Need information for tax reporting: 
Other – please specify: 

12. What was the cumulative value of PP&E recorded in property records, 
but not capitalized on the balance sheet, as of your company's most 
recent fiscal year-end? 
$: 
Information not available: 

13. Please estimate the value of PP&E expensed as a result of not 
meeting or exceeding your organization's dollar threshold level during 
your company's most recent fiscal year? 
$: 
Information not available: 

14. Do your auditors address your organization's capitalization policy, 
such as the adequacy of the dollar threshold level(s) as part of their 
audit of your annual financial statements? (Check one): 
Yes: 
No: 
Not known: 

15. Does your organization use barcoding or any other asset control 
procedure(s) for PP&E? (Check one): 
Yes, for all PP&E (i.e., capitalized and non-capitalized): 
Yes, but only for capitalized PP&E: 
Yes, but only for non-capitalized PP&E: 
Yes, but only for certain types of capitalized PP&E: 
No: Skip to question 17. 

16. Please describe your asset control procedure(s): 

17. Other than the asset control procedures you specified in questions 
E5 and 16, does your organization have a specific policy or 
procedure(s) for safeguarding sensitive and/or pilferable items (e.g., 
laptop computers, cell phones, etc.)? (Check one): 
Yes: Please describe policy: 
No: 

18. Please describe how your organization accounts for computer 
hardware. (Please distinguish between purchases versus lease 
arrangements and issues related to personal computers versus 
mainframes): 

19. Does your organization have internally developed software? (Check 
one): 
Yes: Continue with question 20. 
No: Skip to question 22. 

20. Does your organization capitalize internally developed software in 
PP&E? (Check one): 
Yes: 
No: 

21. Does your organization have any processes in place to track 
internally developed software costs? (Check one): 
Yes: 
No: 

22. Does your organization currently own property in the possession of 
another organization? (Check one): 
Yes: Continue with question 23. 
No: Skip to question 25. 

23. Is the dollar threshold level for property in the possession of 
another organization different from that described in question one? 
(Check one): 
Yes: 
No: 

24. Does your organization have only one capitalization dollar 
threshold for property in the possession of other organizations or does 
it have multiple thresholds depending on the property type? (Check one. 
Please enter dollar threshold amount(s) and properly type(s), if 
applicable): 
One dollar threshold for property in the possession of other 
organizations (Please enter dollar threshold amount): 
Different dollar thresholds for different types of property. (Please 
enter dollar thresholds by type of property): 

25. Which of the items listed below describe factors attributable to 
the differences between your organization's book and tax basis of 
property, plant, and equipment? (Check all that apply): 
IRS Section 179 deduction: 
Different dollar threshold levels used for book and tax reporting: 
Certain costs capitalized on book basis but expensed on tax basis: 
Certain costs capitalized on tax basis but expensed on book basis: 
Other - Please describe: 
Not applicable, book and tax basis of PP&E are the same: 

II. Depreciation/Useful Lives: 

Please note: For questions 26 through 37, please base your responses on 
depreciation for financial reporting (i.e., book basis) and not 
depreciation for income tax reporting.

26. For depreciation purposes, how many years (useful life) does your 
organization use to depreciate its real property classifications? 
(Check all that apply and enter the useful life in years. If more space 
is needed, please use the space in question 38 to respond. For your 
convenience, feel free to attach your own schedule of real and personal 
property classifications and their useful lives in lieu of responding 
to this question): 
Real Property (Please specify type, e.g., office buildings, plants, 
warehouses, sheds, etc.) 
Real Property Type: 
Useful life: 
Personal Property (Please specify type, e.g., furniture, machines, 
office equipment, motor vehicles, software, computer equipment, etc.)
Personal Property Type:	
Useful life: 

27. Which of the following, if any, is used by your organization for 
assigning useful lives to PP&E? (Check all that apply):
Organization historical experience: 
Industry practices: 
IRS table: 
Internal study/tables: 
Other - please specify: 

28. Which of the following best describes the book depreciation method 
used by your organization? (Check one): 
Straight Line Method: 
Decreasing Charge Method (such as sum-of-years digits, or double 
declining balance): 
Activity Method: 
Accelerated Method: 
Different methods for different types of PP&E – Please describe or 
attach sheet detailing methods: 
Other - please specify:	

29. Within the past 5 years, have there been any formal analyses 
performed (in-house or external) to develop or validate your 
organization's useful life policies? (Check one): 
Yes: Continue with question 30. 
No: Skip to question 34. 

30. Who performed these analyses and when were they completed? (Check 
all that apply and enter date(s) of completion mm/yyyy): 
Internal: Date of completion: 
Consultant: Date of completion:	
Independent Public Accountant: Date of completion: 
Other–please specify: Date of completion: 

31. Which of the following, if any, best describes the conclusion of 
the most recent analysis? (Check one): 
Useful life policy appeared reasonable: 
Useful life policy did not appear reasonable, new useful life policy 
proposed: Please explain: 
Useful life policy did not appear reasonable, but no new policy 
proposed: 
Inconclusive results: 
Other, please specify: 

32. If a different useful life policy was proposed as a result of the 
most recent analysis, was it implemented at your organization? (Check 
one): 
Yes: Please describe the new policy: 
No: Explain why: 
Not applicable, new useful life category was not proposed: 

33. Please describe, in as much detail as possible, the methodology 
that was applied in performing the most recent analysis? 

34. Do your auditors address the adequacy of your organization's useful 
life categories as part of their audit of your organization's annual 
financial statements? (Check one): 
Yes: 
No: 
Not known: 

35. Approximately what percentage of your organization's PP&E that is 
still in use is fully depreciated? (Check one): 
None: 
1-5%: 
6-10%: 
11-15%: 
16-20%: 
Greater than 20%: 
Not known: 

36. Which of the following best describes how your organization treats 
fully depreciated PP&E assets? (Check one): 
Fully depreciated PP&E are removed from property records immediately: 
Fully depreciated PP&E are maintained on property records if asset is 
still in use: 
Fully depreciated PP&E are removed from property records but tracked by 
another means: 
Other - please explain:	

37. Which of the following best describes your organization's 
depreciation policies for financial reporting (book) purposes as 
compared to those for tax reporting? (Check one): 
Accelerated methods of depreciation used for tax depreciation causing 
depreciation expense to typically exceed depreciation expense for 
financial reporting: 
Depreciation expense recorded for financial reporting and tax purposes 
are the same: 
Organization useful life categories are such that depreciation expense 
for financial reporting typically exceeds depreciation expense for tax 
reporting: 
Other - Please describe: 

III. Other Comments: 

38. If you have any comments concerning PP&E policies or you would like 
to elaborate on any of your answers, please use the space below. Be 
sure to indicate the question number beside your comment. If you wish, 
you may attach additional pages to this survey. 

Thank you for your assistance! 

[End of section] 

Appendix XI: Comments from the Department of Agriculture: 

United States Department of Agriculture: 
Office of the Chief Financial Officer: 
1400 Independence Avenue, SW: 
Washington, DC 20250: 

July 10, 2002: 

Ms. Mary Arnold Mohiyuddin: 
Assistant Director: 
Financial Management and Assurance: 
United States General Accounting Office: 
Washington, D.C. 20548: 

Dear Ms. Mohiyuddin:

Thank you for the opportunity to comment on your draft report entitled 
"Financial Management: Survey of Capitalization Threshold and Other 
Policies for Property, Plant, and Equipment (GAO-02-607)".

Our review focused on the areas where the Department of Agriculture 
(USDA) and its survey responses specifically are mentioned. In 
addition, we offer some observations for your consideration on the 
contents of the report and the methodology used to conduct the survey.

Please consider the following corrections and/or comments regarding 
USDA survey responses:

1. Page 17, [now on p.11] "USDA did not report a capitalization 
threshold level prior to October 1997."

The effective date of USDA's capitalization threshold for personal and 
real property should have been February 1994, in accordance with 
Departmental Regulation 2200-2, Capitalization and Depreciation of Real 
and Personal Property instead of October 1997, as indicated in the 
survey response.

2. Page 38, [now on p. 30] "Capitalization threshold prior to current 
level not reported by agency, therefore, no increase calculated."

At the time of the survey, USDA's capitalization threshold had not 
changed in the past five years. USDA established new thresholds for 
real and personal property in June 2002.

3. Page 41, [now on p. 38[ "Federal agency did not report a 
capitalization threshold for this property category."

A capitalization threshold for building improvements was not separately 
disclosed, but the capitalization threshold for buildings also applies 
to building improvements.

In addition to the editorial points above, we would like to offer some 
comments about the contents and the research methodology used in the 
report for your consideration.

On page 8 [now on p. 4] the report states that government agencies 
would be using lower capitalization thresholds if they were doing a 
better job of measuring performance based on cost. However, we believe 
it would also be useful to note that there are inherent differences in 
the ways government and private sector entities approach cost and 
income.

The private sector's drive for shareholder value through higher net 
income is difficult to compare with the government's drive to control 
costs and better manage assets. In their push to increase short-term 
net income, private sector companies are likely to capitalize as many 
assets as possible and spread out the costs over the longest 
justifiable useful life. Government agencies do not have the same 
incentives when it comes to managing their costs and may be less likely 
to use lower capitalization thresholds.

On pages 5 and 6 [now on p. 4] the report mentions that most of the 
federal agencies that had increased their capitalization thresholds 
have still retained lower accountability thresholds in order to 
properly account for and safeguard their assets. We believe this factor 
should be emphasized in more detail in the report analysis. In the 
private sector, if you do not capitalize an asset, you do not usually 
track it; therefore there is an incentive to capitalize at a lower 
level in order to safeguard your assets. Government agencies have 
typically used other tools to properly account for and track assets, 
and therefore shouldn't need to capitalize property at a lower 
threshold to safeguard assets.

Finally, we recommend that your office discuss the methodology used to 
prepare the survey and the limited amount of follow-up in this report. 
While it is helpful to provide examples of the best practices used by 
private companies in the financial management arena, these comparisons 
to government-wide practices must also recognize and compare the 
inherent differences. Additional face-to-face discussions with private 
sector companies and federal agencies may be needed to determine the 
best course of action for federal agencies.

If you have any questions or wish to discuss these comments, please 
call me at (202) 720-8345 or have a member of your staff call Kathy 
Donaldson at (202) 720-1893. 

Sincerely, 

Singed by: 

Joseph B. Marshall, Jr.: 
Associate Chief Financial Officer, Policy and Planning: 

[End of section] 

Appendix XII: Comments from the Department of the Interior: 

United States Department of the Interior: 
Office Of The Secretary: 
Washington, D.C. 20240: 

June 24, 2002: 

Ms. Mary Arnold Mohiyuddin: 
Assistant Director: 
U.S. General Accounting Office: 
441 G Street, NW: 
Washington, DC 20548: 
mohiyuddinm@gao.gov: 

Dear Ms. Mohiyuddin: 

Thank you for the opportunity to comment on your proposed report. 
"Financial Management: Survey of Capitalization Threshold and Other 
Policies for Property, Plant and Equipment" (GAO-02-607).

The information included in the draft report as it relates to the 
Bureau of Reclamation is correct with one exception. In Appendix VII on 
page 42, Useful Lives for Personal Property, for Furniture & 
Fixtures,"N/R" should be changed to "10 - 20".

In addition, on page 19, [now on p. 13] the draft report states that: 
"The lack of consistency in capitalization threshold levels among 
federal agencies could potentially lead to reporting problems in the 
U.S. government's consolidated financial statements and performance 
measurement comparisons". It should be noted, however, that certain 
Federal agencies, including the Bureau of Reclamation, have unique 
characteristics which necessitate the use of specific capitalization 
thresholds, including the use of a zero threshold by Reclamation.

The Bureau of Reclamation's policies regarding capitalization threshold 
levels and useful lives are based on the potential recoverability of 
the costs of major water projects. The majority of Reclamation's 
property, plant, and equipment capital costs pertain to its 
multipurpose water projects. A portion of the costs of these water 
projects are reimbursable from project beneficiaries. For example, 
capital costs allocated to irrigation, municipal and industrial water, 
and power generation are generally reimbursable from the respective 
beneficiaries. Conversely, some costs, such as those allocated to flood 
control, fish and wildlife, and recreation are generally non-
reimbursable. Reimbursements generally occur over the useful life of 
the project which may exceed 40 years.

To ensure that all reimbursable costs are recovered, Reclamation 
specifically defines costs that should be capitalized versus those 
costs that should he expensed. All water infrastructure costs, 
including additions and replacements, are capitalized. Since 
Reclamation's water projects have a long useful life, this zero 
threshold ensures that project beneficiaries will repay these costs 
over the repayment period, as provided for by legislation. This 
treatment also provides a more accurate measure of net cost by 
depreciating these facilities over their useful lives. The use of any
other capitalization threshold by Reclamation would adversely impact 
Reclamation's recovery of reimbursable capital investment costs from 
the public.

The Federal Accounting Standards Advisory Board concluded in Statement 
of Federal Financial Accounting Standards #6 that Federal entities 
should have the discretion to set appropriate capitalization 
thresholds. We believe that this conclusion remains valid. Additional 
guidance may be needed regarding the determination of appropriate 
capitalization thresholds to reduce the significant variance in 
established thresholds and ensure accurate cost reporting of government 
operations. This could narrow the range of capitalization thresholds 
used in capitalizing Federal assets. However, we do not believe that 
the capitalization thresholds across the government must be identical 
to produce consistent and accurate financial and management reporting. 
As long the capitalization thresholds are developed using consistent 
standards, are appropriate to the individual agencies and do not 
distort full cost reporting, these variations will not misstate the 
consolidated financial statements. The range of capitalization 
thresholds would be disclosed in the notes to the consolidated 
government-wide financial statements in the same manner that useful 
lives are commonly reported as a range.

Thank you for the opportunity to comment on this draft. Please contact 
R. Schuyler Lesher at (202) 208-4701 if you need any further 
information.

Sincerely, 

Signed by: 

P. Lynn Scarlett: 
Assistant Secretary, Policy Management and Budget: 

[End of section] 

Appendix XIII: Comments from the National Aeronautics and Space 
Administration: 

National Aeronautics and Space Administration: 
Office of the Administrator: 
Washington, DC 20546-0001: 

June 24, 2002: 

Mary Arnold Mohiyuddin, Assistant Director: 
Financial Management and Assurance: 
United States General Accounting Office: 
Washington, DC 20548: 

Dear Ms. Mohiyuddin: 

Thank you for the opportunity to review and comment upon the draft 
report on your "Survey of Capitalization Threshold and Other Policies 
for Property, Plant and Equipment." As you requested, we focused our 
review upon the areas where NASA and its survey responses were 
discussed. We have no comments on those parts of the draft report, but 
we do have a more general comment for your consideration.

On page 7 [now on p. 5] of the report, it is stated that "...the widely 
varying threshold levels among the federal agencies, the sharp 
increases in recent years, and the drastic differences from private 
sector companies of considerable size in terms of reported PP&E and 
total assets raise some questions." Further discussion of this matter 
appears on page 25 [now on p. 18] of the draft. In drawing comparisons 
with private sector companies' practices, however, the report does not 
recognize that the private sector's objectives in capitalizing and 
depreciating property differ dramatically from the Government's. The 
profit motive driving the private sector clearly leads to different 
policies and practices than those established by the Federal Accounting 
Standards Advisory Board for the Government. In addition, Internal 
Revenue Service regulations regarding depreciation are a significant 
contributing factor to private companies' policies. Without recognition 
of these differing objectives and restrictions, the comparison drawn in 
the report could be misleading to some readers.

We believe the report provides useful and interesting information. 

Cordially, 

Signed by: 

Michael D. Christensen: 
Associate Deputy Administrator for Institutions: 

[End of section] 

Appendix XIV: Comments from the Department of State: 

United States Department of State: 
Washington, D.C. 20520: 

June 14, 2002: 

Ms. Susan S. Westin: 
Managing Director: 
International Affairs and Trade: 
U.S. General Accounting Office: 

Dear Ms. Westin: 

We appreciate the opportunity to review your draft report, "Financial 
Management: Survey of Capitalization Threshold and Other Policies for 
Property, Plant and Equipment," GAO-02-607, GAO Job Code 192021.

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report.

If you have any questions concerning this response, please contact Jim 
Fishenden, Director, Office of Financial Policy and Management Control, 
Bureau of Resource Management, at (202) 261-8643.

Sincerely, 

Signed by: 

Christopher B. Burnham: 
Assistant Secretary and Chief Financial Officer: 

Enclosure: 

As stated. 

cc: GAO/FMA - Gregory Kutz: 
State/OIG - Mr. Berman: 
State/RM - Mr. Chris Flaggs: 

Enclosure: 

Department of State Comments on GAO Draft Report: 

Financial Management: Survey of Capitalization Threshold and Other 
Policies for Property, Plant and Equipment, (GAO-02-607, GAO Code 
192021): 

The Department of State welcomes the opportunity to comment on GAO's 
survey of Capitalization Threshold and Other Policies for Property, 
Plant and Equipment. The report is well done, but overlooks two 
important factors, which require attention or the report may risk 
misleading the reader:

1. The distinct differences between private sector and public sector 
capitalization in threshold capitalization thresholds; and

2. The factors that cause Cabinet Departments to change threshold 
levels in the first place.

The comparison of capitalization thresholds between private industry 
and the Federal government may be useful in some ways, but we believe 
there are some distinct differences that should be indicated in the 
report. The profit motive, along with income tax consequences of 
transactions, sometimes dictate accounting treatment in private 
industry. An across-the-board comparison of private industry to Federal 
government capitalization thresholds may not be useful in that some 
companies may lease large amounts of PP&E and not apply the lower 
thresholds being reported.

The comparison of thresholds for personal property and real property 
throughout the document is misleading to the reader. Overall comments 
are made regarding changes in capitalization thresholds without respect 
to personal versus real property. As a result, Figure 1: Increase in 
Capitalization Threshold Levels at Federal Agencies is confusing and 
difficult to interpret. This chart leads the reader to a conclusion 
that a major percentage of the capitalization thresholds have been 
substantially increased in the past five years. In fact less than 25% 
of the total thresholds (personal and real property) have increased 
substantially. We recommend either comparing like categories (personal 
and real) or include all thresholds in the illustrative charts to 
alleviate any confusion.

We suggest that the events that occurred in the past five years that 
required the analysis and review of capitalization thresholds be 
explained in the discussion on page 15 [now on p. 10]. Namely, the 
primary motivating impetus for analysis of capitalization thresholds 
and PP&E in general, was the requirement to prepare audited financial 
statements. In addition, the implementation of the Statement of Federal 
Financial Accounting Standards No. 6 Accounting for Property, Plant, 
and Equipment on September 30, 1997 was also a factor in the review and 
analysis of capitalization thresholds. These two major events prompted 
departments or agencies to review carefully their capitalization 
thresholds determining the levels for real vs. personal property that 
present fairly the financial position without overburdening those 
actually completing the accounting transactions. Readers of the report 
may reach an erroneous conclusion that departments simply changed 
capitalization thresholds without appropriate empirical analysis if the 
report is not modified.

Technical Comments: 

Footnote 8 referred to on page 5 is not found on that page. The actual 
footnotes are numbered 7, 7, 9 so 8 is missing. The second footnote 7 
which is located on page 6 is, we believe, footnote 8 that should be 
reflected on page 5.

Page 41 Appendix VI: Capitalization Thresholds for Real Property 
illustrates that the Department of State did not report thresholds for 
Building Improvements, Other Structures & Facilities and Leasehold 
Improvements. Some numbers were reported in the initial survey and 
subsequently additional numbers were reported during phone 
conversations requesting additional information. In reality, the 
$250,000 threshold is applicable for Building Improvements and 
Leasehold Improvements as well as Capital Improvements. Once this 
information in included in Appendix VI, footnote "b" should be deleted.

[End of section] 

Appendix XV: Comments from the Department of the Treasury: 

Department Of The Treasury: 
Assistant Secretary: 
Washington: 

June 19, 2002: 

Ms. Mary Arnold Mohiyuddin: 
Assistant Director: 
Financial Management and Assurance Team: 
General Accounting Office: 
441 G Street, NW Mail Stop 5T45: 
Washington, DC 20548: 

Dear Ms. Mohiyuddin: 

I appreciate the opportunity to offer comments on your draft report 
entitled Financial Management: Survey of Capitalization Threshold and 
Other Policies for Property, Plant, and Equipment (GAO-02-607). Our 
detailed comments are included as an enclosure.

Sincerely yours, 

Singed by: 

Donald V. Hammond: 
Fiscal Assistant Secretary: 

Enclosure: 

Comments on Financial Management: Survey of Capitalization Threshold 
and Other Policies for Property, Plant, and Equipment (GAO-02-607): 

Page 15 [now on p. 10] : "Inappropriate or excessive capitalization 
thresholds have a significant impact on financial reporting and related 
oversight issues and may not comply with SFFAS No. 6 requirements." 

Page 32 [now on p. 22]: "In addition, agency management and auditors 
also have individual responsibilities to ensure that established 
capitalization thresholds levels are not resulting in significant 
departure from GAAP."

Consideration of whether established capitalization thresholds are a 
significant departure from GAAP is already a required part of the 
financial statement audits at the federal agencies cited. None of these 
agencies were found to have a major audit finding for capitalization 
thresholds. Ten of the Federal agencies cited were audited by CPA firms 
that have many years' experience auditing large entities. These same 
CPA firms also audit the private sector entities that were cited by 
GAO. As these CPA firms have been recognized experts in financial 
reporting and auditing for many years, we are confident in their 
findings, and those of the IG auditors, that the Federal agencies cited 
are not in significant departure from GAAP with regards to 
capitalization thresholds.

The private sector may have lower capitalization thresholds as a result 
of risk associated with corporate income tax. This is an additional 
risk that is obviously not a factor in Federal agencies as they are not 
subject to income tax. Private sector companies would have an incentive 
to raise their capitalization thresholds, which would lead to increased 
expenses, lower net income, and thus, lower income taxes. Therefore, 
private sector companies have to be wary of not being prone to this 
potential tax audit finding. Accordingly, auditors of private sector 
companies also pay additional attention to this area to compensate for 
this additional risk. This is not a risk that is present in Federal 
agencies as they are not subject to potential income tax audits.

Page 7 and page 27 [now on pp. 18-19]: "Further, six of the agencies 
surveyed reported that they expensed a total of almost $2 billion in 
PP&E for the fiscal year ended September 30, 2000, and therefore did 
not report this amount on the U.S. government's consolidated balance 
sheet as assets. While the $2 billion may not approach overall audit 
materiality for the consolidated financial statements, this amount is 
incomplete, as the remaining eight agencies survey could not readily 
provide the amount expensed for the same period as a result of the PP&E 
acquisition costs not meeting the capitalization threshold."

The paragraph leads the reader to believe that there may be a 
governmentwide materiality problem with regards to PP&E. However, PP&E 
materiality problems were not cited as financial statement audit 
findings at any of the surveyed agencies.

Page 19 [now on p. 12]: "The lack of consistency in capitalization 
threshold levels among Federal agencies could potentially lead to 
reporting problems in the U.S. government's consolidated financial 
statements and performance measurement comparisons."

This statement appears to be contrary to the FASAB standard, which 
allows variances in the threshold levels between agencies.

SFFAS No. 6, para. 13 Capitalization Thresholds: The Board believes 
that capitalization thresholds should be established by Federal 
entities rather than centrally by the Board. Because Federal entities 
are diverse in size and in uses of PP&E, entities must consider their 
own financial and operational conditions in establishing an appropriate 
capitalization threshold or thresholds. Once established, this 
threshold(s) should be consistently followed and disclosed in the 
financial reports.

Page 26 [now on pp.17-18]– bottom paragraph: 

This paragraph leads the reader to think that an inappropriate 
capitalization threshold caused the $1 billion material understatement 
of PP&E at IRS. However, according to the testimony by Gregory Kutz 
before the Subcommittee on Government Management, Information and 
Technology on February 29, 2000, the inappropriate capitalization was 
only one of several components contributing to the $1 billion 
adjustment. The IRS had numerous problems with its PP&E records, which 
resulted in there being no reliance on the records and IRS hiring a 
consulting firm to develop a balance based primarily on a statistical 
estimate, resulting in the $1 billion adjustment.

Editorial Comments
Page 1 – 2nd sentence - add comma after "financial information." 

Page 2 – 2nd paragraph, first sentence – "property, plant, and 
equipment (PP&E)" should be changed to just "PP&E" since the acronym 
had already been defined on page 1.

Page 5 – In the text, there is a footnote #8 being referenced, but it 
does not show up on the page. However, there is a second #7 footnote 
that shows up on the bottom of page 6.

Page 9 – last sentence before Background section. Need to add an "s" to 
"threshold."

Page 11 – The footnote printing on the bottom of the page is on the 
incorrect page. It should be showing up on page 10.

Page 12 – The footnote printing on the bottom of the page is on the 
incorrect page. It should be showing up on page 11.

[End of section] 

Appendix XVI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mary Arnold Mohiyuddin, (202) 512-3087: 

Acknowledgments: 

Staff members making key contributions to this report were Linda J.
Brigham, Amy C. Chang, Francine M. DelVecchio, Cleggett S. Funkhouser,
Stuart M. Kaufman, David C. Merrill, and Lisa M. Warde. 

[End of section] 

Footnotes: 

[1] General PP&E does not presently include national defense PP&E, 
which is the PP&E components of weapons systems and support PP&E owned 
by the Department of Defense or its component entities for use in the 
performance of military missions, as well as vessels held in a 
preservation status by the Maritime Administration’s National Defense 
Reserve Fleet. Existing U.S. generally accepted accounting principles 
requiring that national defense PP&E be disclosed separately in 
financial reports are undergoing change, pending final publishing of 
the Statements of Federal Financial Accounting Standards No. 23,
Eliminating the Category National Defense Property, Plant, and 
Equipment, which was approved for issuance by the Federal Accounting 
Standards Advisory Board in June of 2002. 

[2] The Secretary of the Treasury, in coordination with the Director of 
the Office of Management and Budget, is required to annually submit 
financial statements of the U.S. government to the President and the 
Congress. We are required to audit these statements. The Government 
Management Reform Act of 1994 has required such reporting, covering the
executive branch of government, beginning with financial statements 
prepared for fiscal year 1997. 31 U.S.C. 331 (e). The government has 
elected to include certain financial information on the legislative and 
judicial branches in the consolidated financial statements as well. 

[3] U.S. General Accounting Office, U.S. Government Financial 
Statements: FY 2001 Results Highlight the Continuing Need to Accelerate 
Federal Financial Management Reform, GAO-02-599T (Washington, D.C.: 
Apr. 9, 2002). 

[4] Title 2 of the GAO Policy and Procedures Manual for Guidance of 
Federal Agencies. 

[5] All PP&E additions would be capitalized. 

[6] This capitalization threshold range does not include software. Some 
participants responded that they have a separate capitalization 
threshold for software, which ranged from $5,000 to $5,000,000. 

[7] Materiality is defined in the GAO/PCIE Financial Audit Manual as 
the magnitude of an item’s omission or misstatement in a financial 
statement that, in light of surrounding circumstances, makes it 
probable that the judgment of a reasonable person relying on the 
information would have been changed or influenced by the inclusion or 
correction of the item. 

[8] Prior to the issuance of SFFAS No. 6, the capitalization threshold 
for all federal agencies was limited to $5,000, in accordance with 
Title 2, of the GAO Policy and Procedures Manual for Guidance of 
Federal Agencies. 

[9] USPS is an independent establishment of the executive branch, with 
a goal to operate on a break-even basis and cover its expenses almost 
entirely through postal revenues. 

[10] The USPS capitalization threshold is $3,000 for personal property 
and $5,000 for real property. 

[11] In October 1990, the Secretary of the Treasury, the Director of 
OMB, and the Comptroller General established FASAB to develop a set of 
generally accepted accounting standards for the federal government. 

[12] Accounting standards are authoritative statements of how 
particular types of transactions and other events should be reflected 
in financial statements. Accounting concepts explain the objectives and 
ideas upon which FASAB develops the standards. 

[13] National defense PP&E is a term established by SFFAS No. 11 to 
replace the term federal mission PP&E used in SFFAS No. 6 and SFFAS No. 
8. National defense PP&E consists of (1) PP&E weapons systems and 
support PP&E owned by the Department of Defense or its component 
entities for use in the performance of military missions and (2) the 
vessels held in a preservation status by the Maritime Administration’s 
National Defense Reserve Fleet. 

[14] In June of 2002, FASAB approved issuing SFFAS No. 23, Eliminating 
the Category National Defense Property, Plant, and Equipment. The 
standard was submitted to the Congress and the three sponsors of the 
FASAB. If no member of the Congress and none of the sponsors object, 
FASAB will publish the standard. 

[15] SFFAS No. 16 describes reporting standards for heritage assets 
that serve dual purposes, in that they have heritage characteristics 
and are used in general government operations. These assets were 
referred to as multi-use heritage assets in SFFAS No. 6 and SFFAS No. 
8. 

[16] Title 48, U.S. Code of Federal Regulations, Section 9904.404-40. 

[17] SFFAS No. 6, Accounting for Property, Plant, and Equipment, 
Appendix A, Basis for Conclusions. 

[18] GAO-01-263 and GAO-01-241 through GAO-01-262. 

[19] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: Department of Agriculture, GAO-01-242 (Washington, D.C.: 
January 2001). 

[20] The period would be equivalent to the difference between the 
assigned useful life and the actual service life. 

[21] See footnote 19. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office: 
441 G Street NW, Room LM: 
Washington, D.C. 20548: 

To order by Phone: 
Voice: (202) 512-6000: 
TDD: (202) 512-2537: 
Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Jeff Nelligan, Managing Director, AndersonP1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: