FEDERAL ENERGY REGULATORY COMMISSION

Washington, D.C. 20426

In Reply Refer To:

Office of Enforcement

Docket No. AI20-2-000

May 7, 2020

TO ALL JURISDICTIONAL PUBLIC UTILITIES AND LICENSEES, NATURAL 

GAS COMPANIES, OIL PIPELINE COMPANIES, AND CENTRALIZED 

SERVICE COMPANIES

Subject: Accounting for Cumulative-Effect Adjustments to Retained Earnings 

Related to the Implementation of FASB’s Accounting Standard on Credit 

Losses

The Financial Accounting Standards Board (FASB) has issued Accounting 

Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 

326). ASU No. 2016-13 adds FASB Accounting Standards Codification, Topic 326, 

Measurement of Credit Losses on Financial Instruments, with the intent to provide 

financial statement users with more useful information about the expected credit losses 

on financial instruments and other commitments to extend credit held by a reporting 

entity. ASU No. 2016-13 requires companies to change the method of measuring credit 

losses, including uncollectible accounts receivable, from an incurred loss basis to a 

current expected credit loss (CECL) basis. ASU No. 2016-13 is required to be applied 

through a cumulative-effect adjustment to retained earnings as of the beginning of the 

first reporting period in which the guidance is effective (i.e., a modified-retrospective 

approach), and is generally effective January 1, 2020 for accounting and reporting 

compliance under generally accepted accounting principles (GAAP).

Based on the Commission’s Uniform System of Accounts, Commission

jurisdictional public utilities and licensees, natural gas companies, oil pipeline 

companies, and centralized service companies recognize expected credit losses on 

accounts receivable using a reasonable method. The method of measuring expected 

credit losses under ASU No. 2016-13 is a reasonable methodology and is acceptable for 

Commission financial accounting and reporting purposes.1 To the extent a jurisdictional 

 

1 The Commission's accounting requirements are not intended to automatically 

reflect changes in FASB's Accounting Standards Codification, and FASB updates should 

not be construed as required for regulatory accounting and reporting to the Commission. 

However, upon analysis, the Commission may issue accounting guidance to clarify how

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Docket No. AI20-2-000

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entity determines that a cumulative adjustment to its beginning retained earnings account 

is necessary to the implementation of ASU No. 2016-13, the entity is authorized to make 

such an adjustment, and is relieved of the requirement to seek Commission approval to 

do so.

2 This guidance is for Commission accounting and reporting purposes only and is 

without prejudice to the ratemaking practice or treatment that should be afforded the

items addressed herein.

The Commission delegated authority to act on this matter to the Director of the 

Office of Enforcement or his designee under 18 C.F.R. § 375.311 (2019). The Director 

has designated this authority to the Chief Accountant. This letter constitutes final agency 

action. Your company may file a request for rehearing with the Commission within 30 

days of the date of this order under 18 C.F.R. § 385.713 (2019).

Sincerely,

Steven D. Hunt

Chief Accountant and Director

Division of Audits and Accounting

Office of Enforcement

 

 

provisions of an ASU can be reflected within the Commission's existing accounting and 

financial reporting requirements.

2 See 18 C.F.R. Parts 101, 201, 367 (Account 439, Adjustments to Retained 

Earnings) and Part 352 (Account 705, Prior Period Adjustments to Beginning Retained 

Earnings Account).

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Document Content(s)

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