The FASB on May 16, 2017, published an update to U.S. GAAP to clarify the accounting for agreements in which private-sector operators manage publicly owned facilities such as toll roads, airports, and bridges.
The amendment, Accounting Standards Update (ASU) No. 2017-10, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, a Consensus of the FASB Emerging Issues Task Force, clarifies that the government agency or other public body involved in the deals is always the customer. The clarification aims to answer questions from businesses about tallying revenues from operating prisons, hospitals, airports, bridges, or other publicly owned facilities. Identifying the customer is a key piece in following U.S. GAAP’s revenue recognition guidance.
For example, the FASB said in the update, if a state or local government sets up an arrangement with a business to run a toll road, the government is the customer in the transaction, not the drivers who use the road.
The FASB said it expects most companies and other organizations to adopt the requirements in the update at the same time they adopt the FASB’s revenue recognition standard, which was published in May 2014 as ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), and goes into effect for public companies in 2018. Private companies have until 2019 to comply with it.
If a company wants to adopt the amendments in ASU No. 2017-10 early, it may do so without adopting the revenue standard early, the FASB said.
The update covers outsourcing deals that are covered by Topic 853, Service Concession Arrangements. In these arrangements, a business or organization from the private sector may receive revenues or a portion of the revenues for operating the facility. In some cases, the government may guarantee the private-sector operator a minimum threshold for the proceeds for its services but collect a percentage.
The update is based on a proposal crafted by the FASB’s Emerging Issues Task Force (EITF) and released in November via Proposed ASU No. EITF-16C, Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services, a consensus of the FASB Emerging Issues Task Force.
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