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Scope

considered to determine whether the customer made the decisions that established the design of the
asset. If the decisions were jointly made by the customer and the supplier, then it will be presumed
that the customer did not make the decisions that pre-determined the design of the asset.

If the customer’s involvement in the design is limited to determining what will be produced (e.g.,
electricity), and the supplier’s operational decisions determine when and how efficiently the output is
produced (when to operate what number of turbines), then the ability to direct the use goes beyond the
design of the asset and the supplier’s operational decision making rights are likely to preclude the
customer directing the use of the asset.

Design is expected to be a much more important indicator of the right to direct the use of the asset
when the economics are effectively fixed in an arrangement prior to use. In assessing the significance
of design, a reporting entity should consider how much variability is created during the operation of
the asset that is not determined through its design.

Other considerations

As discussed in ASC 842-10-15-23, an owner/supplier’s protective right to inspect their asset to ensure
it is being operated properly and maintained sufficiently should not be a factor in determining who
controls the asset. These rights are not decision making rights.

2.3.2.3 Examples — the right to control the use of an identified asset

Example 2-8, Example 2-9, Example 2-10, Example 2-11, Example 2-12, Example 2-13 and Example 2-
14 illustrate the determination of which party has the right to control the use of an identified asset.
EXAMPLE 2-8

Contract to manufacture parts on a customer’s property

Customer Corp contracts with Supplier Corp to manufacture parts in a facility on Customer Corp’s
property. Customer Corp designed the facility and stipulates its specifications. Supplier Corp owns the
facility and leases the land from Customer Corp. Customer Corp specifies how many parts it needs and
when it needs the parts to be available. Supplier Corp operates the machinery and makes all operating
decisions including how and when the parts are to be produced, as long as it meets the contractual
requirements to deliver the specified number on the specified date.

Which party has the right to control the use of the identified asset (i.e., building and equipment)
during the period of use?

Analysis

Customer Corp does not direct the use of the asset that most significantly drives the economic benefits
because Supplier Corp determines how and when the equipment is operated once the contract is
signed. Therefore, Supplier Corp has the right to control the use of the identified asset during the
period of use, as it determines when, whether, and how often the equipment is used. Although
Customer Corp stipulates the product to be provided and has input into the initial decisions regarding
the use of the asset through its involvement in the design of the asset, Customer Corp does not have
dispatch rights (i.e., the right to control the output at a given time). As such, Customer Corp does not

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