Accounting reforms might force regulators to abandon their live-now, pay-later practices.
John Ferguson, CDP, formerly was a principal with Deloitte & Touche, and now chairs the current issues committee of the Society of Depreciation Professionals. This article reflects the views of the author and not the Society. Email him at firstname.lastname@example.org.
When an advisory committee of the Securities and Exchange Commission (SEC) voted recently to phase out special accounting treatment for various industries, it signaled the end may be near for power plant depreciation deferral mechanisms. Such mechanisms are a mainstay of regulatory accounting in many states, and their discontinuation could send plant owners and regulators back to the drawing board to find a new, GAAP-compliant way to recognize asset depreciation in financial reports.
Specifically, the Advisory Committee on Improvements to Financial Reporting issued a report on Valentine’s Day 2008 recommending the Financial Accounting Standards Board (FASB) avoid special treatment for various industries in its accounting rules on transactions and activities.1 The committee identified 18 industries, including “regulated operations,” as having industry-specific guidance—i.e., exceptions to generally accepted accounting principles (GAAP) —that can create problematic complexities and inconsistencies in financial reports.