B-125032, B-114858, APR. 4, 1962

B-114858,B-125032: Apr 4, 1962

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TO THE SECRETARY OF THE INTERIOR: WE WERE PLEASED TO RECEIVE YOUR LETTER OF FEBRUARY 26. (2) APPLY TO EACH MAJOR PLANT ACCOUNT DEPRECIATION RATES WHICH ARE TO BE DETERMINED BY ENGINEERING ESTIMATES BASED ON THE BEST AVAILABLE INFORMATION AS TO THE EXPECTED SERVICE LIFE OF THE COMPOSITE GROUP. WE CONSIDER YOUR PROPOSAL TO BE CONSISTENT WITH OUR ACCOUNTING PRINCIPLES AND STANDARDS SINCE WE DO NOT BELIEVE THAT UNDUE PRECISION AND DETAIL IS NECESSARY IN ACCOUNTING FOR DEPRECIATION. WE HAVE EXPRESSED THE VIEW THAT PROCEDURES WHICH PROVIDE DEPRECIATION RATES AT THE FEDERAL POWER COMMISSION FEATURE ACCOUNT LEVEL ARE ACCEPTABLE. PROCEDURES SIMILAR TO THESE ARE FOLLOWED BY THE BUREAU OF RECLAMATION FOR THE PROJECTS IN THE COLUMBIA RIVER POWER SYSTEM.

B-125032, B-114858, APR. 4, 1962

TO THE SECRETARY OF THE INTERIOR:

WE WERE PLEASED TO RECEIVE YOUR LETTER OF FEBRUARY 26, 1962, IN WHICH YOU ADVISED US OF YOUR DECISION TO INCLUDE DEPRECIATION CHARGES IN THE ACCOUNTS AND FINANCIAL STATEMENTS OF THE DEPARTMENT'S POWER BUREAUS COVERING THAT PART OF THE FEDERAL PLANT INVESTMENT IN WATER RESOURCE PROJECTS ALLOCATED TO POWER.

WE NOTE THAT, WITH RESPECT TO THE BUREAU OF RECLAMATION, YOU PROPOSE TO (1) COMPUTE ANNUAL DEPRECIATION CHARGES ON THE BALANCE OF MAJOR PLANT ACCOUNTS, RATHER THAN ON INDIVIDUAL UNITS OF PROPERTY, AND (2) APPLY TO EACH MAJOR PLANT ACCOUNT DEPRECIATION RATES WHICH ARE TO BE DETERMINED BY ENGINEERING ESTIMATES BASED ON THE BEST AVAILABLE INFORMATION AS TO THE EXPECTED SERVICE LIFE OF THE COMPOSITE GROUP. WE CONSIDER YOUR PROPOSAL TO BE CONSISTENT WITH OUR ACCOUNTING PRINCIPLES AND STANDARDS SINCE WE DO NOT BELIEVE THAT UNDUE PRECISION AND DETAIL IS NECESSARY IN ACCOUNTING FOR DEPRECIATION.

IN PREVIOUS DISCUSSIONS BETWEEN OFFICIALS OF OUR OFFICE AND YOUR DEPARTMENT, WE HAVE EXPRESSED THE VIEW THAT PROCEDURES WHICH PROVIDE DEPRECIATION RATES AT THE FEDERAL POWER COMMISSION FEATURE ACCOUNT LEVEL ARE ACCEPTABLE. PROCEDURES SIMILAR TO THESE ARE FOLLOWED BY THE BUREAU OF RECLAMATION FOR THE PROJECTS IN THE COLUMBIA RIVER POWER SYSTEM, WHERE MEMORANDUM DEPRECIATION ACCOUNTS HAVE BEEN MAINTAINED FOR SEVERAL YEARS.

WE DO NOT BELIEVE THAT YOU SHOULD ESTABLISH AN ESTIMATED SERVICE LIFE OF OVER 100 YEARS FOR ANY OF THE ASSETS FOR WHICH DEPRECIATION IS TO BE RECORDED, EVEN THOUGH SOME OF THE STRUCTURES, SUCH AS DAMS, MAY BE EXPECTED TO PHYSICALLY LAST LONGER THAN 100 YEARS. IT IS OUR OPINION THAT A LIMITATION SUCH AS THIS IS NECESSARY TO GIVE RECOGNITION TO POSSIBLE ECONOMIC OBSOLESCENCE DUE TO SCIENTIFIC AND TECHNOLOGICAL CHANGES WHICH ARE UNPREDICTABLE AND NOT SUBJECT TO PRECISE MEASUREMENT.

WE ALSO NOTE THAT YOU PROPOSE TO SEND TO US FOR APPROVAL COPIES OF PROCEDURES TO BE DEVELOPED FOR BRINGING DEPRECIATION INTO THE ACCOUNTS OF THE BUREAU OF RECLAMATION. WE WILL BE GLAD TO REVIEW THESE PROCEDURES IN OPERATION DURING OUR AUDITS.

THE REVISED ACCOUNTING SYSTEM OF THE BUREAU OF RECLAMATION WAS APPROVED BY OUR OFFICE ON OCTOBER 6, 1950, SUBJECT TO FOUR QUALIFICATIONS, TWO OF WHICH ARE NO LONGER APPLICABLE. IN VIEW OF THE PASSAGE OF TIME AND THE FACT THAT CHANGES HAVE BEEN MADE IN THE SYSTEM OF THE BUREAU, WE PLAN TO REEXAMINE THE ENTIRE ACCOUNTING SYSTEM OF THE BUREAU UNDER THE GUIDELINES ISSUED BY OUR OFFICE IN MY LETTER OF MAY 28, 1959 (B-115390), TO THE HEADS OF DEPARTMENTS AND AGENCIES ON APPROVAL OF AGENCY ACCOUNTING SYSTEMS.

I AM VERY PLEASED WITH YOUR DECISION TO COOPERATE IN REVISING YOUR ACCOUNTING PROCEDURES IN THE INTERESTS OF OVERALL IMPROVED FINANCIAL REPORTING IN THE FEDERAL GOVERNMENT. REPRESENTATIVES OF OUR OFFICE WILL BE AVAILABLE TO CONSULT WITH YOUR DEPARTMENT AND TO FURNISH SUCH ASSISTANCE AS MAY BE NEEDED IN THIS MATTER.