How to Report Deferred Maintenance Actions Accurately

To report deferred maintenance accurately, you need to identify every scheduled repair or upkeep task that has been postponed, estimate what it will cost to bring the affected assets back to acceptable condition, and disclose that information under the accounting standard that applies to your organization. For federal agencies, that standard is Statement of Federal Financial Accounting Standards 42 (SFFAS 42), which treats deferred maintenance and repairs (DM&R) data as Required Supplementary Information in annual financial reports.¹ State and local governments follow separate Governmental Accounting Standards Board (GASB) rules, and private companies address the same underlying issue through asset impairment testing under ASC 360. The mechanics differ by sector, but the discipline is the same: show stakeholders the true cost of the work you have put off.

What Qualifies as Reportable Deferred Maintenance

Maintenance is reportable when it was scheduled, has been delayed past that date, and the delay affects the asset’s ability to serve its intended purpose. SFFAS 42 covers both funded work that has been pushed to a later period and unfunded work with no budget currently attached.¹ It reaches capitalized general property, plant, and equipment (PP&E), non-capitalized land and permanent land rights, and stewardship PP&E such as heritage assets and national parkland. Inactive or excess property is still in scope if maintenance is needed to comply with law or preserve value pending disposal.

Routine cleaning and cosmetic work don’t meet the threshold. The task must be the kind that prevents physical degradation and preserves service life. A leaking roof that is starting to compromise structural integrity is reportable. Repainting a lobby is not.

Each federal agency sets its own capitalization threshold rather than working from a government-wide dollar figure, and that threshold determines which assets appear on the balance sheet and are therefore subject to DM&R tracking.² Agencies must disclose their thresholds. If management decides not to measure or report DM&R for certain PP&E categories, SFFAS 42 requires a written rationale for that exclusion.¹

Choose a Measurement Method and Apply It Consistently

SFFAS 42 permits three approaches for calculating DM&R: condition assessment surveys, life-cycle cost forecasts, or other methods similar to those two. Management picks the method and defines what “acceptable condition” means, but once chosen, both the method and the standards have to be applied consistently from year to year.¹ Any change requires a documented explanation of the rationale and the impact on the DM&R estimate.

Condition Assessment Surveys

A condition assessment survey is a physical inspection of property by trained professionals. Inspectors examine the asset, catalog every deficiency, and price out labor, materials, and equipment at current market rates.¹ This method works best for older assets where the actual state of deterioration is unknown without hands-on evaluation. SFFAS 42 does not require inspecting the whole portfolio every year; agencies can rotate surveys on a cyclical basis or prioritize by risk. The Department of Energy’s guidance recommends that inspections be performed under the supervision of a qualified Professional Engineer.³

Life-Cycle Cost Forecasts

Life-cycle costing uses historical data and industry benchmarks to forecast when components will wear out and what replacement will cost. The technique compares those forecasted expenses against what was actually spent, and the gap becomes the DM&R estimate.¹ Organizations with large fleets of similar equipment or buildings with predictable wear patterns often prefer this approach. The Department of the Interior uses parametric modeling alongside condition assessments as part of its lifecycle investment planning.⁴

Whichever method you use, consistency is what makes the numbers meaningful. If the formula changes every year, no one can tell whether the backlog is growing because assets are deteriorating or because someone tweaked the calculation. OMB Circular A-136 requires significant entities to describe their estimation method and explain how they adjust annually for inflation in labor and materials.⁵

Documentation to Gather Before You Draft the Disclosure

An accurate DM&R report starts with an updated inventory of every piece of PP&E subject to maintenance requirements. Without a complete inventory, cost estimates will undercount the backlog and auditors will flag the gap. Beyond the inventory, you need:

Condition assessment records showing the current state of each asset and the estimated cost to correct deficiencies.
Original maintenance schedules that establish when the work was planned before being delayed, so the maintenance is genuinely deferred rather than not yet due.
Delay justifications explaining why each repair was postponed, whether for insufficient funding, lack of technical expertise, or competing priorities.
Consequence assessments describing what happens if the deferred work continues to slip, from higher future repair costs to the risk of total asset failure.
Remediation timelines with estimated dates for when the deferred work will actually be performed.

A Computerized Maintenance Management System (CMMS) can automate much of this by logging completion dates, costs, findings, and recommendations as maintenance actions occur, rather than forcing someone to reconstruct a paper trail at year-end. Management should also decide upfront which PP&E categories are included or excluded from DM&R measurement, since SFFAS 42 requires a rationale for exclusions and OMB Circular A-136 reinforces that this information must not contradict what the agency reports in its budget materials.⁵

What the Disclosure Must Contain

Once cost estimates are finalized, DM&R figures are presented as Required Supplementary Information in the annual financial report. SFFAS 42 requires both qualitative and quantitative disclosures at the component-entity level.¹ At minimum, the report includes:

A summary of the entity’s maintenance and repairs policies, including the measurement method used.
How the entity ranks and prioritizes maintenance activities against competing needs such as new construction or disposal.
The factors used to determine acceptable condition for each asset category.
Whether DM&R figures cover only capitalized and stewardship PP&E or also include non-capitalized or fully depreciated assets.
Which PP&E categories are excluded from measurement and why.
Beginning and ending DM&R balances for each major PP&E category, showing the opening and closing backlog for the fiscal year.

OMB Circular A-136 adds requirements beyond the SFFAS 42 baseline. Significant entities must describe how they adjust estimates for inflation and report the minimum maintenance amount needed to keep mission-critical facilities operational.⁵ Those revisions, effective following a 2024 update, responded to GAO findings that agencies were not giving Congress and the public enough information to assess DM&R backlogs.⁶

Common Reporting Errors Auditors Catch

Underreporting is the most consequential mistake. GAO found that the Navy understated its ship deferred maintenance in its 2021 financial reports by roughly $1.6 billion, reporting only about $181 million in unfunded ship DM&R when its own internal estimates showed a backlog approaching $1.8 billion.⁷ The root cause was the absence of clear internal guidance for what ship DM&R information belonged in the financial reports.

Inaccurate DM&R figures can produce audit findings, modified opinions, or material weakness determinations. When auditors from the GAO or an independent firm find that deferred maintenance is significantly understated, the financial statements may be deemed unreliable. The most avoidable errors are failing to distinguish between needed capital improvements and needed repairs, omitting funded DM&R from the totals, and neglecting to explain significant year-over-year changes in the backlog. Each has been called out in FASAB’s basis for conclusions as a recurring source of inconsistency across federal reporting.

How Reporting Differs Outside the Federal Government

State and local governments do not follow SFFAS 42. GASB addresses deferred maintenance primarily through infrastructure asset reporting and impairment standards. Governments that report infrastructure assets using the modified approach must maintain up-to-date inventories, perform condition assessments at least every three years, and estimate the annual amounts needed to preserve assets at the condition level they have established.⁸ They present as RSI a comparison of estimated maintenance needs against actual expenses over the past ten fiscal years, along with condition assessment results from the three most recent complete evaluations.

When deferred maintenance causes a significant, unexpected decline in an asset’s usefulness, GASB Statement No. 42 (a separate standard from the federal SFFAS 42 that happens to share the number) requires governments to evaluate whether the asset is impaired.⁹ Physical damage from neglected maintenance is a triggering event, and impairment from physical damage is measured using a restoration cost approach.

Private companies do not face a direct equivalent of the federal DM&R disclosure. Under GAAP, routine maintenance costs are expensed as incurred, and major maintenance can be handled through direct expensing, deferral, or built-in overhaul accounting. There is no standalone requirement to disclose a maintenance backlog figure. Deferred maintenance becomes a reporting issue through asset impairment under ASC 360: when neglected upkeep causes a long-lived asset’s carrying value to exceed its fair value, the company tests for recoverability, and if the asset fails that test, an impairment loss equal to the difference between carrying value and fair value must be recognized. A previously recognized impairment loss cannot be reversed in later periods even if the asset’s condition improves. The practical difference is that federal agencies report the estimated cost to fix what they’ve deferred, while private companies only report the financial hit after neglect has already destroyed enough value to trigger an impairment test.

Safety Exposure That Should Shape Prioritization

Deferred maintenance also creates legal exposure that belongs in the prioritization conversation, even though it does not appear as a separate line in the disclosure. OSHA’s Safety and Health Program Management Guidelines identify neglected maintenance as a source of workplace hazards and call for routine preventive maintenance of equipment, facilities, and controls.¹⁰ When deferred maintenance creates a condition likely to cause death or serious physical harm, employers face potential violations of the General Duty Clause under Section 5(a)(1) of the OSH Act, which requires a workplace free from recognized hazards.¹¹ Specific standards that intersect with maintenance obligations include process safety management for facilities handling hazardous chemicals, powered industrial truck maintenance, and fall protection systems that depend on upkeep to remain effective. Condition assessments that flag safety hazards deserve immediate escalation regardless of where they fall in the prioritization queue.

1
Federal Accounting Standards Advisory Board. Statement of Federal Financial Accounting Standards 42: Deferred Maintenance and Repairs
2
Federal Accounting Standards Advisory Board. Statement of Federal Financial Accounting Standards 6: Accounting for Property, Plant, and Equipment
3
Department of Energy. Condition Assessment Survey Quick Reference Guide
4
Department of the Interior / Bureau of Indian Affairs. Standards for Deferred Maintenance and Repairs, Repair Needs, Investment Categories, and Other Requirements
5
The White House. OMB Circular A-136
6
U.S. Government Accountability Office. Federal Real Property: Agencies Should Provide More Information About Increases in Deferred Maintenance and Repair
7
U.S. Government Accountability Office. Navy Ships: Applying Leading Practices and Transparent Reporting Could Help Reduce Risks Posed by Nearly $1.8 Billion Maintenance Backlog
8
Governmental Accounting Standards Board. Preliminary Views: Infrastructure Assets
9
GASB.org. Summary of Statement No. 42: Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
10
Occupational Safety and Health Administration. OSHA Safety and Health Program Management Guidelines
11
Occupational Safety and Health Administration. OSH Act of 1970 – Section 5: Duties