Prescription for Trouble?
In “A Prescription for Regulatory Lag” (April 2011), author Joe Rosebrock proposes and illustrates the use of sinking fund depreciation for new assets as a way to reduce the impact of regulatory lag. However, sinking fund depreciation has some problems, one of which is that it is prohibited by SFAS 92 Regulated Enterprises - Accounting for Phase-in Plans, (an amendment to SFAS 71, Accounting for the Effects of Certain Types of Regulation) from being utilized by enterprises that qualify for SFAS 71. SFAS 92 merely extends this prohibition to regulated enterprises, because sinking fund depreciation is prohibited for non-regulated enterprises by U.S. GAAP. Not being able to reflect Rosebrock’s proposal in financial statements would complicate things for any enterprise for which his proposal is adopted or imposed.