Business & Money

The application of FASB Statement No. 13 can result in unforeseen changes to the financial statements and, in turn, financial ratios of a utility.

 

Over the past eight months, accountants in public and private practice have seen two major pieces of guidance affect their utility clients. The Financial Accounting Standards Board (FASB) issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" and deliberated over the in-terpretation of Emerging Issues Task Force (EITF) No. 98-10.1 Both of these standards impact the determination of whether a contract is a derivative and recorded at fair value within the financial statements. However, the FASB also approved another topic of interest.

The FASB ratified EITF No. 01-08 (EITF 01-08), "Determining Whether an Arrangement Contains a Lease," which will affect any company that obtains a benefit from the use of a particular asset through a contract. For instance, if Company A contracts with Company B to purchase power from Plant X, both Company A and Company B have to evaluate that contract to determine whether a lease is present. But the focused financial executives might still be confused about how this contract might affect their company.

If the contract is considered to be a lease under EITF 01-08, the company will have to apply the requirements of FASB Statement No. 13 (FASB 13), "Accounting for Leases." The application of FASB 13 could result in unforeseen changes to the financial statements and, in turn, financial ratios of a utility.

Given the current refocusing in the market, the financial executive must take EITF 01-08 into consideration when contemplating asset transactions or contract amendments.