Electric Sector Says Lease Accounting Rule Causing Losses to Profitable Contracts

The Edison Electric Institute (EEI), a group that represents U.S. investor-owned electric companies (e.g., Consolidated Edison, PG&E, and American Electric Power), has asked FASB to narrowly amend its lease accounting rules for sales-type leases because a pervasive negative issue has emerged. Accounting Standards Codification Topic 842, “Leases,” was issued by FASB in February 2016 but went into effect in 2019 for public companies. The rules take effect in 2021 for private companies. The standard requires companies to record the full magnitude of their long-term lease obligations on the balance sheet for the first time. According to the EEI, the new rules cause electric companies to book an initial loss for sales-type leases, which in reality are profitable contracts with payments that significantly vary, the group said. “For sales-type leases with wholly or significant variable lease payments, the application of Topic 842 will result in the recognition of a loss at lease commencement by the lessor for profitable arrangements, and subsequent payments received by the lessor will be recognized as income in their entirety, as opposed to being split between lease income and recovery of a lease receivable,” said Richard McMahon, Jr., EEI’s vice president,


GASB to Revise Effective Date of Proposed Rate Reform Accounting Change

On January 9, GASB voted to revise one of the two effective dates it proposed to facilitate accounting changes for rate reform, a global regulatory change that will affect universities, housing authorities, and any large government that uses credit default swaps. In September 2019, the board proposed financial reporting changes to take effect for reporting periods beginning after June 15, 2020, for the general proposal, except for a portion of the changes related to the expiration of the London Interbank Offered Rate (LIBOR) as an appropriate benchmark interest rate, which would be effective for periods after December 15, 2020. Board members unanimously agreed that the narrow effective date for benchmark interest rate changes should be revised to take effect for “reporting periods ending after December 31, 2021,” with earlier application encouraged.


European Football Clubs’ Player Transfer Fees Won’t Qualify for Revenue Recognition Accounting, IFRS Panel Says

European football clubs need to be mindful of how they report initial player agreements because fees they would obtain to later transfer those players to other clubs might not qualify to be presented as revenues earned, according to the IFRS Interpretations Committee, the panel that works with the IASB on accounting implementation matters. To be able to report the transfer fee as revenue, the football club would need to have classified the registration right as inventory, and the transfer agreement would need to be within the scope of International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers, said Sue Lloyd, the chair of the IFRS Interpretations Committee and vice chair of the IASB. “The committee thought typically those costs would not be inventoried,” said Lloyd. “But for a club whose ordinary activities include the development and transfer of players, it is conceivable that such a club might have a portfolio of rights associated with some players that are inventories and a portfolio of rights associated with other players that are intangible assets.” The committee is seeking comments by February 14 on its tentative decision.