ASC 710-980

Regulated Operations

710 Compensation—General

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Source downloaded: 2026-09-10T00:58:16.201Z.Record version 09d837d9fc83. Effective date must be checked in the source.

In brief

IntermediateRecognition Compensation and benefits Industry-specific

This Subtopic addresses compensated absences and other compensation-related costs for entities with regulated operations. Even though a regulator may allow such compensation in rates only when paid, the entity must still accrue the liability under Topic 710 because regulator rate actions cannot eliminate obligations the regulator did not impose. Because the cost will be recoverable in future rates as paid, the entity simultaneously records a regulatory asset representing the probable future increased revenue.

Key points (5)

Compensation-related costs of entities with regulated operations follow the scope of Section 980-10-15 (710-980-15-1).
A liability for employees' compensation for future absences must be accrued under Topic 710 even when the regulator includes such compensation in allowable costs only on an as-paid basis (710-980-25-1; 710-980-25-2).
Rate actions of a regulator cannot eliminate obligations that were not imposed by the regulator (710-980-25-2, referencing 980-405-40-1).
Including the accrued compensation in future allowable costs on an as-paid basis gives reasonable assurance of the existence of a regulatory asset (710-980-25-2, referencing 980-340-25-1).
The regulatory asset recorded is the probable future benefit—increased revenue—resulting from regulatory treatment of the subsequent payment of the liability (710-980-25-2).

For students. Classic regulated-utility twist: rate treatment changes the timing of recovery, not whether GAAP requires accrual. The common mistake is assuming that because the regulator allows the cost only when paid, the entity can use cash-basis recognition\u2014instead you accrue the liability and record an offsetting regulatory asset.

compensated absences regulated operations regulatory asset allowable costs accrual of liability rate-making probable future increased revenue

Machine-generated study aid for ASC 710-980. Check the source paragraphs below.

710-980-05Overview and Background

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710-980-05-1

This Subtopic provides guidance for compensation-related costs for entities with regulated operations.

710-980-15Scope and Scope Exceptions

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Overall Guidance

710-980-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 980-10-15.

710-980-25Recognition

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Compensated Absences

710-980-25-1

Topic 710 specifies criteria for accrual of a liability for employees' compensation for future absences. For rate-making purposes, compensation for employees' absences may be included in allowable costs when the compensation is paid.

710-980-25-2

The liability, if any, shall be accrued in accordance with Topic 710 because rate actions of the regulator cannot eliminate obligations that were not imposed by the regulator (see paragraph 980-405-40-1). By including the accrued compensation in future allowable costs on an as-paid basis, the regulator provides reasonable assurance of the existence of an asset. The asset is the probable future benefit (increased revenue) that will result from the regulatory treatment of the subsequent payment of the liability (see paragraph 980-340-25-1). Accordingly, the entity also shall record the asset that results from the regulator's actions.