Top 5 considerations for assets in orbit
Authored by Mickey Moreno
Space Based Assets (SBAs) contribute increasingly valuable services to the global economy. According to recent estimates the number of satellites in orbit will quintuple over the next decade[1]. Commercial space satellite constellations are primarily made up of communications and broadcasting satellites in geostationary orbit; these satellites represent almost 50% of the $70 billion of commercial revenues expected over the decade. The two other large commercial markets for SBAs are for non-geostationary orbit satellite constellations for communications (25% of revenues) and earth observation (11% of revenues). New commercial markets are emerging for in-orbit services such as life extension[2].
SBAs are complex to develop and bring unique financial reporting challenges to remain compliant with Generally Accepted Accounting Principles (GAAP). Drawing on Baker Tilly’s extensive experience in all aspects of the development, operations and disposal lifecycle for SBAs, we work with the Program Management Offices (PMO) staff, Engineering Project Managers (PMs) and business managers to arrive at the appropriate accounting treatments and support the reporting and auditing processes.
The following are the top five accounting and reporting considerations for assets in orbit:
Determining consistent criteria for defining SBAs is critical to achieving accurate and repeatable costing procedures. Deciding whether to capitalize individual instruments and spacecraft versus complete flight models including launch vehicles has long-ranging effects on the complexity of cost accumulation procedures. The basis for defining the asset will also affect decisions for placed-in-service dates and the types of documentation available to support transactions.
SBAs are highly technical and complex; sometimes it is rocket science! There are many factors to consider in determining useful lives for SBAs including design life, mission life, historical average of similar assets and timeline for replacement. There are also salvage value considerations as many SBAs do not return to earth and some property management systems default to a pre-determined salvage value which can cause valuation issues.
SBAs have few apples-to-apples comparisons in commercial markets. If cost detail is unavailable the process for estimating a fair value is more complex than a traditional asset class and the standard valuation steps outlined in accounting standards are not always sufficient. Bringing together the right mix of technical and accounting resources is required to work through the value determination.
As assets in space degrade there is likely to be diminished service from the instruments. Understanding the SBA’s technical abilities to adjust data feeds from the ground to mitigate data loss and determine when it is appropriate to recognize an impairment is an important aspect of satellite reporting. Calculating the value of an impairment poses unique challenges based on the type of service loss and the use of the data or service.
End of lifecycle events carry special considerations for satellite assets, from providing congressional notification, retiring assets to long-term storage orbits or losing communication with a satellite. The reporting requirements for the end of lifecycle are critical to remain in compliance and accurately report the financial status of the assets.
Where we are today; where we’ll be tomorrow:
The future is bright for SBAs. As smaller scale satellites become increasingly viable from a technological and economic standpoint the number of assets in orbit will continue to increase. As overall costs and development timelines decrease we expect to see more satellite launches and more organizations that will need to address the reporting for on-orbit assets.
Given this expected increase, Baker Tilly is always available to assist with any financial reporting, budgeting and technical accounting services you may require, including current state program assessments, remediation implementation, process improvement and financial reporting improvements. Please contact us for more information about in-orbit accounting, our CFO Advisory services or anything else you need from Baker Tilly’s team of specialists.
[1] "The number of satellites orbiting Earth could quintuple in the next decade." MIT Technology Review, June 2019
[1] "Satellites to be Built & Launched by 2027." BusinessWire, March 2019
