Draft abstract on contracts for sales of capacity
Entities in some industries (such as telecommunications and electricity) sell rights to use capacity on their networks, sometimes entering into exchange or reciprocal transactions, referred to as ‘capacity swaps’. A draft abstract, published in November in Information Sheet 56, addresses issues concerning the recognition and reporting of revenues from such contracts.

Applying the principles of FRS 5 ‘Reporting the Substance of Transactions’, the draft abstract sets out the limited circumstances under which a transaction in capacity should be reported as the immediate sale of a component of a network, where income is recognised immediately rather than over the life of the contract. It goes on to propose that the proceeds of such sales should be reported as turnover (ie as part of operating results) rather than as fixed asset disposals only if the assets were classified as stock rather than fixed assets when they were acquired or constructed.

The draft abstract also proposes that revenues or gains on capacity swaps should be recognised only if the assets or services provided or received have a readily ascertainable market value, and that no accounting recognition should be given to transactions that are artificial or lacking in substance. Comments are requested by 28 January.

Abstract 10 ‘Disclosure of directors’ share options’ withdrawn
Abstract 10 was withdrawn with effect for accounting periods ending on or after 31 December 2002. The abstract has served its purpose because new legal requirements for directors’ remuneration reports (the Directors’ Remuneration Report Regulations 2002), applicable to quoted companies, include equivalent disclosures to those recommended in Abstract 10.

Appointments

There have been several changes in the membership of the Public Sector and Not-for-profit Committee. Professor John Arnold, Michael Dallas, Professor Irvine Lapsley and Vernon Soare have left the committee. David Creed of the Housing Finance Corporation, Virginia Grace of the Moat Housing Group, Sean Nolan of East Sussex County Council and John Stanford of CIPFA have joined.

Geoff Poulter has left the Committee on Accounting for Smaller Entities.

Staff Changes

Andrew Buchanan has come to the end of his short secondment working on the revenue recognition project. He returns to KPMG.