The Financial Accounting Standards Board has issued an accounting standards update for determining the customer of service concession arrangements.
A service concession arrangement is one in which a business operates infrastructure, such as airports, roads, bridges, tunnels, prisons and hospitals, on behalf of a grantor such as a state or local government, for a certain period of time. Last November, FASB’s Emerging Issues Task Force proposed a set of changes for determining the customer of the operation services after finding some differences in practice (see FASB proposes accounting changes for service concession arrangements). FASB finalized the changes Tuesday and issued the accounting standards update.
Topic 853 in FASB’s U.S. GAAP Codification provides guidance for operating entities when they enter into a service concession arrangement with a public-sector grantor. According to that guidance, the operating entity shouldn’t account for the infrastructure as a lease or as property, plant and equipment. However, some of FASB’s stakeholders found that when they tried to apply the guidance in FASB’s new revenue recognition standard, it wasn’t clear whether the customer of the operation services is the grantor or the third-party users for certain service concession arrangements. That uncertainty in turn resulted in some diversity in practice.
Under the new update, if a public-sector grantor enters into an arrangement with a business under which the entity provides services such as operation and maintenance of a toll road used by a third party (such as car drivers), the grantor (that is, the government), rather than the third-party (the car driver), is the customer of the operation services in all cases for service concession arrangements.
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