U.S. PATENT AND TRADEMARK OFFICE NOTES TO FINANCIAL STATEMENTS As
of and for the years ended September 30, 2003 and 2002
NOTE 1. Summary of Significant Accounting Policies
Reporting Entity
The United States Patent and Trademark Office (USPTO) is an agency of the United States within the U.S.
Department of Commerce (Commerce). The USPTO administers the laws relevant to patents and trademarks and
advises the Secretary of Commerce, the President of the United States, and the Administration on patent,
trademark, and copyright protection, and trade-related aspects of intellectual property.
These financial statements include the USPTOs two core business activities - processing patent applications
and registering trademarks - that promote the use of intellectual property rights as a means of achieving
economic prosperity. These activities give innovators, businesses, and entrepreneurs the protection and
encouragement they need to turn their creative ideas into tangible products, and also provide protection
for their inventions and trademarks.
These financial statements report the accounts for salaries and expenses (13X1006), special fund receipts
(revenue withheld) (135127), customer deposits from the public (13X6542), customer deposits from other Federal
agencies (13F3885), and patent cooperation treaty collections (13X6538), which are under the control of
the USPTO. The Federal budget classifies the USPTO under the Commerce and Housing Credit (376) budget function.
The USPTO does not have custodial responsibility, nor does it have lending or borrowing authority. The USPTO
does not transact business among its own operating units, and therefore, no intra-entity eliminations are
necessary.
Basis of Presentation
As required by the Chief Financial Officers Act of 1990 and 31 U.S.C. 3515 (b), the accompanying
financial statements present the financial position, net cost of operations, budgetary resources, and cash
flows for the USPTOs core business activities. The books and records of the USPTO serve as the source
of this information.
These financial statements were prepared in accordance with accounting principles generally accepted in
the U.S. (GAAP) and the form and content for entity financial statements specified by the Office of Management
and Budget (OMB) in Bulletin Number 01-09, Form and Content of Agency Financial Statements, as
well as the accounting policies of the USPTO. Therefore, they may differ from other financial reports submitted
pursuant to OMB directives for the purpose of monitoring and controlling the use of the USPTO's budgetary
resources. The GAAP for Federal entities are the standards prescribed by the Federal Accounting Standards
Advisory Board (FASAB), which is the official body for setting the accounting standards of the Federal Government.
Throughout these financial statements, intra-governmental assets, liabilities, revenues, and costs have
been classified according to the type of entity with which the transactions are associated. Intra-governmental
assets and liabilities are those from or to other Federal entities. Intra-governmental earned revenues are
collections or accruals of revenue from other Federal entities and intra-governmental costs are payments
or accruals to other Federal entities.
Basis of Accounting
Transactions are recorded on the accrual basis of accounting as well as on a budgetary basis. Accrual
accounting allows for revenue to be recognized when earned and expenses to be recognized when goods or services
are received, without regard to the receipt or payment of cash. Budgetary accounting allows for compliance
with the requirements for and controls over the use of Federal funds. The accompanying financial statements
are presented on the accrual basis of accounting.
Budgets and Budgetary Accounting
Appropriated funds from general taxpayer revenue were eliminated gradually following the passage of the
Omnibus Budget Reconciliation Act (OBRA) in 1990. The OBRA established revenue withholding on statutory
patent fees. Subsequent legislation extended the revenue withholding through the end of fiscal year (FY)
1998. This withheld revenue constitutes offsetting receipts, and was deposited into a restricted special
fund receipt account at the U.S. Department of the Treasury (Treasury). The USPTO may use moneys from this
account only as authorized by the U.S. Congress, and only as made available by the issuance of a Treasury
warrant. The U.S. Patent and Trademark Reauthorization Act, Fiscal Year 1999, as amended by Public
Law 106-113, reset patent statutory fees without the OBRA surcharge. The USPTO has not collected or deposited
any fees in the restricted special fund receipt account since FY 1998. The special fund receipt account
has no liabilities currently, and the entire fund balance will remain restricted until appropriated.
Fees other than the restricted revenue withholding are offsetting collections subject to an annual congressional
limitation, and are available to the USPTO until expended. Funds authorized but not used in a given fiscal
year are carried forward for use in future periods, as appropriated by the U.S. Congress.
The USPTO receives an appropriation of Category A funds from the U.S. Congress, which apportions budgetary
resources by fiscal quarter. The USPTO does not receive any Category B funds, or those exempt from apportionment.
Category B fund appropriations typically distribute the budgetary resources by program reporting categories,
activities, projects, objects, or a combination of these categories.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these estimates.
Revenue and Other Financing Sources
The USPTOs fee rates are established by law and, consequently, in some instances may not represent
full cost or market price. Since FY 1993, the USPTO funding has been primarily through the collection of
user fees. Fees that are remitted with initial applications and requests for other services are recorded
as exchange revenue when received, with an adjustment to defer revenue for services that have not been performed.
All amounts remitted by customers without a request for service are recorded as liabilities in customer
deposit accounts until services are ordered.
The USPTOs share of the cost to the Federal Government for providing pension and other post-retirement
benefits to eligible USPTO employees is recognized as an imputed financing source.
The USPTO also receives some financial gifts and gifts-in-kind from anonymous donors. All such transactions
are included in the consolidated Gifts and Bequests Fund financial statements of the Commerce. These gifts
are not of significant value and are not reflected in the USPTOs financial statements. Most gifts-in-kind
are used for official travel to further attain the USPTO mission and objectives.
Entity/Non-Entity
Assets that an entity is authorized to use in its operations are termed entity assets, while assets that
are held by an entity and are not available for the entitys use are termed non-entity assets. All
of the USPTOs assets are entity assets and are available to carry out the mission of the USPTO within
existing budget constraints, with the exception of a portion of the Fund Balance with Treasury, as highlighted
in Note 2.
Fund Balance with Treasury
The USPTO deposits revenue in commercial bank accounts maintained by the Treasurys Financial Management
Service (FMS). All moneys maintained in these accounts are transferred to the Federal Reserve Bank on the
next business day following the day of deposit. In addition, many customer deposits are wired directly to
the Federal Reserve Bank. All banking activity is conducted in accordance with the directives issued by
the FMS. Treasury processes all disbursements.
Accounts Receivable
Accounts receivable from the public represent a very small portion of the USPTOs assets as the USPTO
requires payment prior to the provision of goods or services during the course of its core business activities.
Public accounts receivable are comprised mainly of amounts due from former employees for the reimbursement
of education expenses and other benefits.
The USPTO recorded an $8 thousand and $13 thousand allowance for uncollectible amounts to reduce the gross
amount of its public accounts receivable to its net realizable value as of September 30, 2003 and 2002,
respectively. The allowance is established for receivables that have been transferred to Treasury. Typically,
most items transferred to Treasury are subsequently collected. The gross amount of USPTOs public accounts
receivable as of September 30, 2003 and 2002 was $8,899 thousand and $4,547 thousand, respectively.
Advances and Prepayments
On occasion, the USPTO prepays amounts in anticipation of receiving future benefits. Although a payment
has been made, an expense is not recorded until goods have been received or services have been performed.
The largest advance, in the amount of $20,100 thousand, is with the U.S. General Services Administration
(GSA) for the construction of the USPTO headquarters in Alexandria, Virginia. In addition, the USPTO maintains
deposit accounts with the U.S. Government Printing Office and Commerce to facilitate recurring transactions.
The USPTO also advances funds to personnel for travel costs, which are expensed after travel has occurred.
Cash
Most of the USPTOs cash balance consists of undeposited checks for fees that were not processed
at the Balance Sheet date due to the lag time between receipt and initial review. All such undeposited check
amounts are considered to be cash equivalents. As of September 30, 2003 and 2002, the cash balance includes
undeposited checks of $11,452 thousand and $9,268 thousand, respectively. Of these balances, $800 thousand
and $224 thousand were non-entity assets as of September 30, 2003 and 2002, respectively. Cash is also held
outside the Treasury to be used as imprest funds. An imprest fund of $2 thousand was held as of September
30, 2003 and 2002.
Property and Equipment
The USPTOs capitalization policies are summarized below:
USPTO's Property and Equipment Capitalization Policies
Classes of Property and Equipment |
Capitalization Threshold for Individual Purchases |
Capitalization Threshold for Bulk Purchases |
IT Equipment |
$25 thousand or greater |
$500 thousand or greater |
Software |
$25 thousand or greater |
Not applicable |
Software in Progress |
$25 thousand or greater |
Not applicable |
Furniture |
$25 thousand or greater |
$50 thousand or greater |
Equipment |
$25 thousand or greater |
$500 thousand or greater |
Construction in Progress |
$25 thousand or greater |
Not applicable |
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Contractor costs for developing custom internal use software are capitalized when incurred for the design,
coding, and testing of the software. Software in progress and construction in progress is not amortized
until placed in service.
Property and equipment acquisitions that do not meet the capitalization criteria are expensed upon receipt.
Injury Compensation
Claims brought by USPTO employees for on-the-job injuries fall under the Federal Employees Compensation
Act (FECA) administered by the U.S. Department of Labor (DOL). The DOL bills each agency annually as its
claims are paid, but payment on these bills is deferred two years to allow for funding through the budget
process. As of September 30, 2003, the USPTO recorded a $1,358 thousand liability for claims paid on its
behalf during the benefit period July 1, 2001 through September 30, 2003. As of September 30, 2002, the
USPTO recorded a $1,091 thousand liability for claims paid on its behalf during the benefit period July
1, 2000 through September 30, 2002.
Post-employment Compensation
USPTO employees who lose their jobs through no fault of their own may receive unemployment compensation
benefits under the unemployment insurance program administered by the DOL. The DOL bills each agency quarterly
as its claims are paid. As of September 30, 2003 and 2002, the USPTO liability was $211 thousand and $89
thousand respectively, for claims paid by the DOL on behalf of the USPTO.
Annual, Sick, and Other Leave
Annual leave and compensatory time are accrued as earned, with the accrual being reduced when leave is
taken. An adjustment is made each fiscal year to ensure that the balances in the accrued leave accounts
reflect current pay rates. No portion of this liability has been obligated. To the extent current or prior
year funding is not available to pay for leave earned but not taken, funding will be obtained from future
financing sources. Sick leave and other types of non-vested leave are expensed as used.
Accrued leave as of September 30, 2003 and 2002 was $38,046 thousand and $34,461 thousand, respectively.
Employee Retirement Systems and Benefits
USPTO employees participate in either the Civil Service Retirement System (CSRS) or the Federal Employees
Retirement System (FERS). The FERS was established by the enactment of Public Law 99-335. Pursuant to this
law, the FERS and Social Security automatically cover most employees hired after December 31, 1983. Employees
who had five years of Federal civilian service prior to 1984 and who are rehired after a break in service
of more than one year may elect to join the FERS and Social Security system or be placed in the CSRS offset
retirement system.
The USPTOs financial statements do not report CSRS or FERS assets or accumulated plan benefits that
may be applicable to its employees. The reporting of such liabilities is the responsibility of the U.S.
Office of Personnel Management (OPM). While the USPTO reports no liability for future payments to employees
under these programs, the Federal Government is liable for future payments to employees through the various
agencies administering these programs. The USPTO does not fund post-retirement benefits such as the Federal
Employees Health Benefit Program (FEHB) and the Federal Employees Group Life Insurance Program (FEGLI).
The USPTO also is not required to fully fund the CSRS pension liabilities. The financial statements of the
USPTO recognize an imputed financing source and corresponding expense that represents the USPTOs share
of the cost to the Federal Government of providing pension, post-retirement health, and life insurance benefits
to all eligible USPTO employees.
For the year ended September 30, 2003, the USPTO made contributions equivalent to approximately 7.1 percent
(7.5 percent from October through December and 7.0 percent from January through September) and 10.7 percent
of the employees basic pay for those employees covered by CSRS and FERS, respectively, based on OPM
cost factors. For the year ended September 30, 2002, the USPTO made contributions equivalent to approximately
8.5 percent and 10.7 percent of the employees basic pay for those employees covered by CSRS and FERS,
respectively, based on OPM cost factors.
All employees are eligible to contribute to a thrift savings plan. For those employees participating in
the FERS, a thrift savings plan is automatically established, and the USPTO makes a mandatory one percent
contribution to this plan. In addition, the USPTO makes matching contributions ranging from one to four
percent for FERS-eligible employees who contribute to their thrift savings plans. No matching contributions
are made to the thrift savings plans for employees participating in the CSRS. Employees participating in
the FERS are also covered under the Federal Insurance Contributions Act (FICA), for which the USPTO contributes
a matching amount to the Social Security Administration.
For the years ended September 30, 2003 and 2002, the USPTOs retirement plan contributions for CSRS
and FERS participants were $49,433 thousand and $47,664 thousand, respectively. The USPTO also contributed
to the Social Security Administration for FICA benefits $31,744 thousand and $30,788 thousand for the years
ending September 30, 2003 and 2002, respectively.
Deferred Revenue
Deferred revenue represents fees that have been received by the USPTO for requested services that have
not been substantially completed. Two types of deferred revenue are recorded. The first type results from
checks received, with requests for services, which were not yet deposited due to the lag time between receipt
and initial review. The second type of deferred revenue relates primarily to fees for applications that
have been partially processed.
Environmental Cleanup
The USPTO does not have any liabilities for environmental cleanup.
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