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ASC 853 Service Concession Arrangements
Perspective and Issues
Subtopic
ASC 853, Service Concession Arrangements, contains one subtopic:
- ASC 853-10, Overall, which addresses the accounting for service concession arrangements between a public sector entity grantor and an operating entity where the operating entity operates the grantor's infrastructure.
Scope
ASC 853 applies to the accounting:
- by operating entities
- of a service concession arrangement
- under which a public-sector entity grantor enters into a contract with an operating entity
- to operate the grantor's infrastructure.
The operating entity also may provide the construction, upgrading, or maintenance services of the grantor's infrastructure. (ASC 853-10-15-2)
It is important to note that a service concession arrangement within the scope of ASC 853 must meet both of the following conditions:
- 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.
- The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
(ASC 853-10-15-3)
Scope Exception
A service concession arrangement meeting the scope criteria in Topic 980 on regulated operations should apply the guidance in Topic 980.
Overview
ASC 853 addresses a narrow issue and limits the scope of the guidance to arrangements in which the grantor is a public-sector entity.
Definitions of Terms
See Appendix A, Definitions of Terms, for terms relevant to this topic: Not-for-Profit Entity, Public Business Entity
Concepts, Rules, and Examples
Accounting for Service Concession Arrangements
The topic has two main provisions:
- Service concession arrangements in scope are accounted for in accordance with ASC 606 to recognize revenue on construction, upgrade, or operation services. The grantor is the customer for ASC 853 service concession arrangements. Operating entities should look to other Topics to account for other aspects of service concession arrangements. (ASC 853-20-25-1)
- The infrastructure involved in the arrangements should not be recognized as the operating entity's property, plant, and equipment. Service concession arrangements within the scope of ASC 853 are not within the scope of ASC 840 or ASC 842. (ASC 853-10-25-2)
Service Concession Arrangements
The infrastructure that an entity operates may be airports, roads, bridges, hospitals, prisons, etc. The operating entity may also provide construction or maintenance services to the grantor's infrastructure. A key feature of a service concession arrangement is that it is generally for the public good. The operator usually receives payment for the services performed over a specified time. The operator may have the right to charge users of the infrastructure. The arrangement may include unconditional guarantees for guaranteed minimum payments.
Economic Substance
The grantor controls or has the ability to modify or approve the services provided and the price charged for the service. The grantor controls any residual interest in the infrastructure at the end of the term. This control is important in deciding the economic substance of the transaction and the reason why it is not appropriate for the operating entity to recognize a lease or property, plant, and equipment. (ASC 853-10-05-01 and 05-02)