Accounting Changes Needed in the Railroad Industry
AFMD-81-26: Published: Feb 4, 1981. Publicly Released: Feb 4, 1981.
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Betterment accounting is the method that railroads are required to use to account for the track structure in reports to the Interstate Commerce Commission (ICC), and is generally used in reports to the Securities and Exchange Commission (SEC) and stockholders. Under betterment accounting, the original cost of the track structure is added to the asset account, and no systematic depreciation is taken. The cost of replacements of track structure material of equal quality is charged to expense in the periods when replacements occur. "Betterments" occur when track structure materials are replaced by superior quality assets. The added cost of the new superior material over the current cost of the material removed is also added to the asset account.
The use of a depreciation accounting system by the railroad industry would improve expense recognition and net income determinations, improve balance sheet presentations, and enhance comparability of financial information between railroads. These improvements would assist Congress in deciding regulatory and subsidy questions for the industry and would aid Federal agencies in exercising regulatory responsibilities. In addition, depreciation accounting would help shippers in assessing rates and investors in making financial decisions. Since the industry's net income will probably be greater if it uses depreciation accounting, concern has been expressed over the resulting increase in Federal income taxes. However, legislation has been enacted which mitigates the impact of higher taxes on railroads.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Commissioners of SEC should complete the April 1977 Advance Notice of Proposed Rulemaking on railroad accounting by adopting depreciation accounting for the track structure.
Agency Affected: United States Securities and Exchange Commission
Status: Closed - Implemented
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: The Commissioners of ICC should complete the October 1978 Advance Notice of Proposed Rulemaking and adopt depreciation accounting for the track structure.
Agency Affected: Interstate Commerce Commission
Status: Closed - Not Implemented
Comments: The railroads' adoption of depreciation accounting puts their deferred maintenance reporting on a comparable basis with other industries.
Recommendation: The Commissioners of ICC should coordinate future changes in deferred maintenance reporting requirements with SEC to guard against conflicting requirements being placed on the railroad industry.
Agency Affected: Interstate Commerce Commission
Status: Closed - Not Implemented
Comments: The railroads' adoption of depreciation accounting puts their deferred maintenance reporting on a comparable basis with other industries.
Recommendation: The Commissioners of SEC should complete the study of deferred maintenance reporting covered by the April 1977 Advance Notice of Proposed Rulemaking and require railroads to report deferred maintenance information which fulfills SEC needs yet does not conflict with ICC requirements.
Agency Affected: United States Securities and Exchange Commission
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