# ASC 710-980: Compensation—General — Regulated Operations

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/710/980/)

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## ASC 710-980: Compensation—General — Regulated Operations

### Machine-generated study aids

```json
{
  "summary": "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": [
    "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)."
  ],
  "categories": [
    "Recognition",
    "Compensation and benefits",
    "Industry-specific"
  ],
  "audience_level": "intermediate",
  "student_note": "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.",
  "related_topics": [
    "710-10",
    "980-10",
    "980-340",
    "980-405",
    "712"
  ],
  "key_concepts": [
    "compensated absences",
    "regulated operations",
    "regulatory asset",
    "allowable costs",
    "accrual of liability",
    "rate-making",
    "probable future increased revenue"
  ]
}
```

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## ASC 710-980-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/710/980/#05-overview-and-background)

SEC content: no

##### [710-980-05-1](https://asc.understandingaccounting.org/asc/710/980/#710-980-05-1)

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

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## ASC 710-980-15: 15 Scope and Scope Exceptions

[Read section](https://asc.understandingaccounting.org/asc/710/980/#15-scope-and-scope-exceptions)

SEC content: no

#### Overall Guidance

##### [710-980-15-1](https://asc.understandingaccounting.org/asc/710/980/#710-980-15-1)

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

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## ASC 710-980-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/710/980/#25-recognition)

SEC content: no

#### Compensated Absences

##### [710-980-25-1](https://asc.understandingaccounting.org/asc/710/980/#710-980-25-1)

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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](https://asc.understandingaccounting.org/glossary/a/#allowable-costs "All costs for which revenue is intended to provide recovery. Those costs can be actual or estimated. In that context, allowable costs include interest cost and amounts provided for earnings on shareholders' investments.") when the compensation is paid.

##### [710-980-25-2](https://asc.understandingaccounting.org/asc/710/980/#710-980-25-2)

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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](https://asc.understandingaccounting.org/asc/405/980/#405-980-40-1)). 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](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-1)). Accordingly, the entity also shall record the asset that results from the regulator's actions.