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FASB issues guidance in response to EITF consensus related to service concession arrangements

Published on: 28 Jan 2014

Last week, in response to the consensus reached by the EITF on Issue 12-H,1 the FASB issued ASU 2014-05,2 which prohibits an operating entity from accounting for certain service concession contracts as a lease and from recognizing a grantor’s infrastructure as property, plant, or equipment in its statement of financial position. In addition, entities are directed to look to other ASC topics for guidance on accounting for different elements in a service concession contract (e.g., the guidance in ASC 6053 on recognizing revenue resulting from performance by the operating entity under a service concession contract).  


ASU 2014-05 affects operating entities that enter into service concession contracts4 with a public-sector entity grantor to operate the grantor’s infrastructure to provide a public service. The ASU specifies that to qualify as a service concession arrangement, an arrangement must meet both of the following criteria:

1.   The grantor 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.

2.   The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.

Transition and Effective Date

The guidance is effective for public business entities for fiscal years beginning after December 15, 2014, and interim periods therein. For other entities, the ASU is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early adoption is permitted. Entities will apply the guidance “on a modified retrospective basis to service concession arrangements that exist at the beginning of an entity’s fiscal year of adoption,” recognizing the cumulative effect of any income-statement effects as an adjustment to beginning retained earnings.


1    EITF Issue No. 12-H, “Accounting for Service Concession Arrangements.” See Deloitte’s November 2013 EITF Snapshot for additional information about EITF Issue 12-H.

2    FASB Accounting Standards Update No. 2014-05, Service Concession Arrangements.

3    FASB Accounting Standards Codification Topic 605, Revenue Recognition.

4  Service concession arrangements within the scope of ASC 980 are outside the scope of ASU 2014-05 and should continue to to be accounted for under ASC 980.

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