Power and Utility (P &U) entities enter into long- term contracts for the delivery of electricity and other commodities to a customer. And it’s coming faster than you think. What’s the impact on power and utility companies? What’s the impact on power and utility companies? The paper includes excerpts from large accelerated filers that were required to adopt the standard in the first quarter of 2018. 1. For further information . Increasingly, as electric utilities modernize and add capabilities to the grid, new program options are doing double or triple duty—providing benefits to customers, serving as a grid resource, and potentially growing earnings … Learn more about Fortis . 1. We are the American Institute of CPAs, the world’s largest member association representing the accounting profession. If you have: – transfers of assets from customers Figure 2 shows the main differences between the three modeled scenarios. Trying to log in to another AICPA website? Revenue is generated through the sale of commodities or the performance of services in exchange for consideration. We generate revenue from selling power to our customers (utilities and private enterprises), EPC contract management, and O&M services. This major overhaul of revenue recognition (effective for fiscal years starting after December 15, 2017 for public companies) affects almost every sector of the economy, and the power and utility (P&U) industry is no exception. current revenue recognition guidance, including industry-specific guidance.3 •he new guidance is not expected to significantly change current practice for rate- T regulated operations that use published tariff rates to recognize revenue upon delivery of electricity or natural gas to a customer meter. Issue status update. He currently serves as an Accounting Policy Advisor with HP, Inc. in Budapest, Hungary and previously served as a Senior Accounting Policy Manager for the company in Houston, TX (relocated in 2018 due to spousal expat assignment). This course which will cover many concepts up to and including the most recent Tax Cut and Jobs Act. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Public water utility companies lose money for three reasons: (a) low rates of revenue collection, (b) high levels of nonrevenue water, and (c) low tariff rates (World Bank, 2013). The ASU states that the core principle for revenue recog­ni­tion is that an “entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the con­sid­er­a­tion to which the entity expects to be entitled in exchange for those goods or services.” Some are essential to make our site work; others help us improve the user experience. Revenue Recognition for Fixed Price Contracts – Consideration of Different Pricing Conventions . 1. Working Draft: Proposed Implementation Issues for Revenue Recognition: Power & Utility Entities (#13-1): Accounting for Tariff Sales to Regulated Customers. Kelen Camehl, CPA, MBA. Expense recognition 25 Power and Utility Entities Revenue Recognition Task Force. the timing for revenue recognition – i.e. © 2021 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. Below is a list of potential revenue recognition implementation issues identified by the Power and Utilities Revenue Recognition Task Force. Spend your time wisely, and be confident that you're gaining knowledge straight from the source. In association with the KPMG Global Energy Institute. Life at Deloitte Podcast. The current emphasis on more testing on controls over revenue recognition now is largely a derivative of PCAOB interest in the topic in the past year or two. Association of International Certified Professional Accountants. The power and utilities sector faces radical transformation. US business impact of COVID-19; Deloitte Review; Economic weekly update; Future of mobility ; Future of work; Industry 4.0; Internet of Things; US business impact of COVID-19; Careers. Due to bundled sales … AICPA Revenue Recognition Task Forces are charged with developing revenue recognition implementation issues that will provide helpful hints and illustrative examples for how to apply the new Revenue Recognition Standard. Issue status update. Delivering insights to financial reporting professionals. Create your account. specific industry matters that remain outstanding with the AICPA’s Power and Utility Entities Revenue Recognition Task Force. Business Combinations Business Combinations — SEC Reporting Considerations Carve-Out Transactions Comparing IFRS Standards and U.S. GAAP Consolidation — Identifying a Controlling Financial Interest Contingencies and Loss Recoveries Contracts on an Entity's Own Equity Convertible Debt Current Expected Credit Losses Disposals of Long-Lived Assets and Discontinued Operations … Revenue from contracts with customers (ASC 606) Financial statement presentation ; Leases (ASC 842) Financing transactions ; Stock-based compensation ; Foreign currency ; Loans and investments (post ASU 2016-13 and ASC 326) Transfers and servicing of financial assets ; Utilities and power companies ; SEC reporting . Legacy utility and power plant projects: The company included adjustments related to the revenue recognition of certain utility and power plant projects based on percentage-of-completion accounting and, when relevant, the allocation of revenue and margin to our project development efforts at the time of initial project sale. The mounting pressure to transform also offers the rare opportunity to rebuild strategies, structures, and processes from the ground up. For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance. Contents ... All utility entities, whether gas, power or water utilities, face similar issues associated with sourcing the item, delivering it to the customer, and maintaining the infrastructure used to do so. The Power and Utility Entities Revenue Recognition Task Force issued the following working draft: Implementation Issue No. Applying IFRS in Power & Utilities The revised revenue recognition proposal — power and utilities March 2012 IASB — proposed standard. Revenue recognition for other projects sold to 8point3 is deferred until these projects reach commercial operations. whether to recognise revenue immediately or to defer it. Utility and power plant projects. Power and utilities companies will need to determine whether promised goods or services should be accounted for as a single performance obligation (i.e. Reporting revenue under IFRS 15 Revenue from Contracts with Customers is now one of your ordinary activities. Today, you'll find our 431,000+ members in 130 countries and territories, representing many areas of practice, including business and industry, public practice, government, education and consulting. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Not all CPE credits are equal. Background. Summary• Two requirements for revenue recognition: – Shipment of goods in case of sale of goods or completion of service in case of service AND – Insignificant risk of realization or collection 9. Wording to be Included in the Revenue Recognition Guide: Background . See more. Typically revenue should be recognised based on the transfer of control of the good or service to the customer. Close Start adding items to your reading lists: Sign in. KPMG insights into revenue recognition in financial reporting. What's New. Informing your decision-making. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. In association with the KPMG Global Energy Institute The new revenue standard – effective from 1 January 2018 – is likely to affect the way you account for revenue. As a result of the recognition and measurement guidance in ASC 606, some power and utilities companies have made changes to their financial statements. Current power price scenarios from Energy Brainpool model the expected average revenues of offshore wind plants in Germany until 2050 in three scenarios characterized by different sensitivities: Standard, Conservative and Low-Price. The impact of Ind AS 115 would vary by industry to industry. Intended to help power and utility companies with applying ASU No. Close Save this item to: Close This item has been saved to your reading list. industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. KPMG does not provide legal advice. SEC reporting . Draft Revenue Recognition Implementation Issues included for informal comment, when available, will be listed below. For additional information about the new standard, see Deloitte’s May 28, 2014, Heads Up. If your company hasn’t yet begun implementing the changes to revenue recognition, now is the time to start. Revenue does not include income from investments accounted for under the equity method, revenues arising from lease agreements, and income from government grants. This Power & Utilities Spotlight discusses the new revenue model and highlights key accounting issues and potential challenges for P&U entities that recognize revenue under U.S. GAAP or IFRSs. Power & Utility Revenue Recognition Task Force . Revenue Recognition for Fixed Price Contracts – Consideration of Different Pricing Conventions . But it's one that will reap big rewards if you choose to pursue it. Power & Utilities Investment Banking: Interviews, Industry Overview, Key Operating and Valuation Metrics, Deal Types, Exit Opportunities, and More. Staff Contact: kim.kushmerick@aicpa-cima.com, IDENTIFIED REVENUE RECOGNITION IMPLEMENTATION ISSUES. All rights reserved. Reporting entities in the power and utilities industry, including regulated and non-regulated power companies, will be affected by the new revenue recognition standard (the “new standard”), which replaces substantially all of the current U.S. GAAP and IFRS revenue recognition guidance. Actions to consider – Review the contractual terms of arrangements involving transfers of assets from customers to assess if the timing of revenue recognition will be affected under the new standard. Our history of serving the public interest stretches back to 1887. This may mean that the recognition of some revenue is delayed until there is more certainty around whether a discount will be given or a performance payment received. Highlights of the New Standard. Distributed renewable generation, new digital technologies and changing consumer expectations are creating a new energy world that is more complex, competitive and challenging. Read our privacy policy to learn more. A US-based utility generating power from coal, natural gas and wind turbine sites managed hundreds of thousands of assets worth a total of over $1 billion. The five-step model of revenue recognition as per Ind AS 115 is discussed below. Revenue recognition in the energy industry might appear to be simple. Project development. But it is more than just . At sale: expense doesn’t match revenue Most consider the expense to create a RE C as $0 anyway. The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle.They both determine the accounting period in which revenues and expenses are recognized. Fiscal years beginning after, Interim periods – Utilities can create new sources of revenue that hedge against declining sales growth and other competitive pressures, as well as improve customer satisfaction. The complex arrangements between power and utility companies, governments, and customers pose some of the most difficult issues. Mergers & Inquisitions . Access to additional resources and insights on the new standard. Power & Utility Revenue Recognition Task Force . AICPA Revenue Recognition Task Forces are charged with developing revenue recognition implementation issues that will provide helpful hints and illustrative examples for how to apply the new Revenue Recognition Standard. Expected Overall Level of Impact to Industry Accounting: Significant . According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received. 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