The Financial Accounting Standards Board has issued a proposed accounting standards update for service concession arrangements, focused on determining the customer of the operation services.

The proposal, which was released last Friday, comes from FASB’s Emerging Issues Task Force. It involves service concession arrangements. These are arrangements between a public sector entity that acts as the grantor, such as a state highway authority, and an operating entity under whose terms the operating entity operate the grantor’s infrastructure (such as airports, roads, bridges, tunnels, prisons and hospitals) for a specified period of time.

FASB has found some differences in practice in how an operating entity determines the customer of the operation services, and the proposed update aims to address them. In a service concession arrangement, an operating entity should account for revenue relating to construction, upgrade or operation services in accordance with FASB’s revenue recognition standard. But in applying the revenue guidance, stakeholders have told FASB it is not clear who is the customer of the operation services (that is, the grantor or the third-party users) for certain service concession arrangements.

For example, if a public-sector entity grantor such as a state government has an arrangement with an operating entity to provide operation and general maintenance for a toll road, the amendments in the proposed update would clarify that the grantor (that is, the state government), rather than car and truck drivers, would be the customer of the operation services. The amendments would eliminate the diversity in practice to reduce complexity and allow for more consistent application of other aspects of the revenue guidance affected by the customer determination.

FASB is asking for comments on the exposure draft of the proposed standards update until Jan. 6, 2017.

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