On the Horizon: FASB sets guidance on determining customer in service concession arrangement

Contents FASB
  ASU issued on determining the customer in a service concession arrangement
  Tentative decisions from May 18 meeting posted
  PCC releases minutes from April 4 meeting
  FAF issues annual report

  sets webinar on related-party transactions for brokers-dealers

  Statement 86 addresses certain debt extinguishment issues
  GASB Vice Chairman appointed

  publishes planning alert for auditors of brokers and dealers

Comment letter issued

FASB ASU issued on determining the customer in a service concession arrangement The FASB issued ASU 2017-10, Determining the Customer of the Operation Services – a consensus of the FASB Emerging Issues Task Force, to address diversity in practice in how an operating entity determines the customer of the operation services for transactions that are within the scope of ASC 853, Service Concession Arrangements. Existing guidance does not address how an operating entity should determine the customer of the operation services for these transactions.

In a service concession arrangement (SCA), a grantor (typically a government or public-sector entity) and an operating entity enter into a contract for the operating entity to operate the grantor’s infrastructure (for example, a toll road) for a specified period of time. An SCA is within the scope of ASC 853 when both

  • The grantor controls or has the ability to modify or approve (1) the services that the operating entity must provide using the grantor’s infrastructure, (2) to whom the operating entity must provide the services, and (3) at what price.
  • The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.

The ASU clarifies that the grantor is the customer in all cases for SCAs within the scope of ASC 853, because the operating entity does not own or lease the infrastructure and does not control the services provided to the third-party users.

The effective date of the new guidance aligns with the guidance in ASC 606, Revenue from Contracts with Customers, and entities are allowed to early adopt the new guidance irrespective of their decision to early adopt ASC 606. However, the transition approaches and practical expedients that may be available depend upon whether the entity adopts ASC 606 before or after the issuance of ASU 2017-10.

Tentative decisions from May 18 meeting posted All decisions reached at Board meetings are tentative and may be changed at future meetings.

The FASB met on May 18 to discuss comments received from external reviewers on a draft of a proposed ASU on improvements to the related-party consolidation guidance for variable-interest entities (VIEs). The Board made the tentative decisions summarized below.

The Board discussed the related private company accounting alternative and tentatively decided that

  • The guidance on determining whether common control exists would be consistent with the amendments in ASU 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements.
  • An entity would apply the VIE guidance on a prospective basis when any of the conditions in the private company accounting alternative no longer apply, except when the entity becomes a public business entity. In those situations, the entity would apply the VIE guidance in accordance with ASC 250, Accounting Changes and Error Corrections.
  • The effective date and transition provisions for all of the proposed amendments would be the same for all entities.

In connection with the guidance in the draft ASU related to decision-making fees and VIE related-party guidance, the Board tentatively decided to replace the term economic interest with variable interest throughout paragraph 810-10-53-37D of the proposed ASU.

The Board also tentatively decided that the comment period for the proposed ASU would be the later of 75 days from the issuance of the proposed ASU or September 29, 2017.

The Board directed the staff to draft a proposed ASU for vote by written ballot.

PCC releases minutes from April 4 meeting The Private Company Council (PCC) posted the minutes from its April 4 meeting. See the On the Horizon dated April 11, 2017 for the highlights of the meeting.

The next PCC meeting will be held on July 11.

FAF issues annual report The Financial Accounting Foundation (FAF) recently issued its 2016 Annual Report, “Better Standards. Better-Informed Decisions.” The report focuses on how the activities of its standard-setting boards, the FASB and the GASB, contribute to better-informed decisions by stakeholders and discusses the FAF’s actions to support these efforts. The report also provides a summary of 2016 standard-setting highlights.

PCAOB sets webinar on related-party transactions for brokers-dealers The PCAOB recently announced a webinar to take place on June 6 for auditors of broker-dealers, specifically focusing on related-party transactions. Such transactions are common for broker-dealers, and PCAOB Auditing Standard 2410, Related Parties, contains requirements relative to the auditor’s evaluation of those transactions and related disclosures.

Registration ends June 1. The webinar is free for members of PCAOB-registered firms. Participants are eligible to receive continuing education credits.

GASB Statement 86 addresses certain debt extinguishment issues The GASB issued Statement 86, Certain Debt Extinguishment Issues, which provides guidance for transactions when only existing resources are placed in a trust for the purpose of extinguishing debt prior to its maturity.

Under existing guidance, debt that remains outstanding is defeased in substance when sufficient resources are placed into an irrevocable trust to make the required principal and interest payments on the debt when due. When debt is defeased in substance, governments are no longer required to report the debt or the assets placed in trust in the financial statements, but must disclose this information in the notes to the financial statements.

Existing guidance applies to transactions when proceeds from sources other than existing resources (for example, bond proceeds) are placed in a trust for the future repayment of outstanding debt; however, this guidance does not apply if only existing resources are used for this purpose. Statement 86 aligns the accounting and reporting for transactions that meet the accounting requirements for an in-substance defeasance, regardless of the source of the resources used to refund the debt.

The new guidance also clarifies the accounting for prepaid insurance related to the extinguished debt, and adds new disclosures for all in-substance defeasance transactions. Statement 86, which applies to all state and local governments, is effective for financial statements for periods beginning after June 15, 2017 and should be applied retroactively by restating prior periods. If restatement of prior periods is not practicable, the cumulative effect of applying the new guidance should be reported as a restatement of beginning net position (or fund balance or fund net position, as applicable) for the earliest period that is restated. Earlier application is encouraged.

GASB Vice Chairman appointed The Financial Accounting Foundation (FAF) appointed current Board member, Jeffrey J. Previdi, as Vice Chairman of the GASB, effective July 1, 2017. Mr. Previdi will succeed Jan I. Sylvis, who has served in that role since January 1, 2015.

CAQ publishes planning alert for auditors of brokers and dealers The CAQ issued Alert 2017-02, Audit Planning Alert for Auditors of Brokers and Dealers, which provides considerations for auditors as they plan audit and attestation engagements for brokers and dealers. The topics and examples presented in the alert address common areas where audit deficiencies have been noted by the PCAOB during its interim inspection process. Those topics include risk assessment, related-party transactions, auditing information provided by service organizations, and supplemental information.

Comment letter issued On May 16, the firm issued a comment letter in response to the SEC’s proposed Rule, Inline XBRL Filing of Tagged Data.

© 2017 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.