On May 31, 2006, the Financial Accounting Standards Board (FASB) posted on its website proposed FSP No. AUG AIR-a, "Accounting for Planned Major Maintenance Activities."

The proposed FSP expressly would apply to all industries, not only the airline industry (although it amends guidance in the Airline Audit Guide).

Specifically, the proposed FSP notes there are four methods of accounting for planned major maintenance activities: direct expense, built-in overhaul, deferral, and accrual (accrue-in-advance).

The proposed FSP states that the FASB board believes that the accrue-in-advance method, when used for this purpose, results in the recognition of liabilities that do not meet the definition of a liability in FASB Concepts Statement No. 6, Elements of Financial Statements.

Therefore, the proposed FSP would preclude the use of the accrue-in-advance method for planned major maintenance by all industries.

There is a 60 day comment period on this proposed FSP, ending July 31.

Prepared May 31, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above