November 6, 2017
The Financial Accounting Standards Board (FASB) issued an update to the accounting standards on service concession agreements (Accounting Standards Update No. 2017-10, Service Concession Arrangements (Topic 853):
Determining the Customer of the Operation Services
in May 2017.
Service concession arrangements (SCAS) are generally between a public-sector grantor and an operating entity. In this type of arrangement, the grantor will hire an operating entity to operate its infrastructure (airports, roads, bridges, tunnels, prisons, and hospitals) for a specific period-of-time. The infrastructure may be preexisting or constructed by the operating entity.
As part of the SCA, the operating entity may also be required to maintain the infrastructure, and provide periodic capital-intensive maintenance (major maintenance) to enhance or extend the life of the infrastructure.
The intention of the update is to clarify how an operating entity determines the customer of the operation services for transactions. Generally accepted accounting principles (GAAP) did not address this which led to diversity in practice. Topic 853 clearly defines who the customer is in a SCA. For example, a public-sector grantor (government entity) enters into an arrangement with an operating entity to provide general maintenance of a toll road that is used by a third party (drivers). The update clarifies that the grantor (government entity), not the drivers, is the customer of the operation services in all cases for SCAs within the scope of Topic 853.
Topic 853 applies to operating entities when they enter into a SCA with a public-sector grantor who both controls:
- Or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide them, and at what price.
- Through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
For entities that have not adopted Topic 606 before this update was issued, the effective date for the new amendments is the same as the date for Topic 606 (early adoption or the required adoption date).
For entities that have adopted Topic 606, the effective date for this update varies. The standard is effective for fiscal years beginning after Dec. 15, 2017, including interim periods within those fiscal years for certain entities such as a:
- Public business
- Non-profit that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market
- Employee benefit plan that files or furnishes financial statements with or to the Securities Exchange Commission (SEC).
The update is effective for fiscal years beginning after Dec. 15, 2018, and interim periods within fiscal years beginning after Dec. 15, 2019 for all other entities that have adopted Topic 606.