IFAC IPSASB
8th Annual OECD Public Sector Accruals
Symposium
Public – Private Partnerships/ Service Concession
Arrangements
IPSASB - Consultation Paper
Richard J. Neville F.C.A
March 2008
IFAC IPSASB
Background
Purpose of the Consultation Paper (CP)
• This “Accounting and Financial Reporting for Service
Concession Arrangements” CP has been under
development, as a collaborative effort between IPSASB
and NSS, since November 2006.
• Its purpose is:
– To determine which types of public-private
partnerships need specific accounting and financial
reporting guidance; and
– To provide accounting and financial reporting guidance
to the public sector.
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What is a Public – Private Partnership?
• No single definition for the term Public-Private Partnership (PPP) exists.
• Characteristics of PPP arrangements:
– Executed between public and private sector entities to deliver a public
sector asset and/or service;
– Encompass diverse types of infrastructure, public facilities and
associated services;
– Offer an alternative to traditional public sector procurement methods to
accomplish a public duty or responsibility;
– Allocate/share risks between public and private sector entities; and
– Leverage benefits from partnering to achieve “improved value for
money” for the public sector entity.
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Types of PPPs to be considered
Degree of Private Sector Risk and Responsibility
10. Privatization
9. Build-Own-Operate
8. Build-Own-Operate-Transfer
7. Design-Build-Finance-Operate
6. Design-Build-Operate-Maintain
5. Operations Concession
4. Design-Build
3. Management Contract
2. Service Contract
1. Government
Degree of Private Sector Involvement
March 2008
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Scope of the Consultation Paper (CP)
•
•
•
This CP addresses public-private partnerships known as Service
Concession Agreements (SCAs).
An SCA is an arrangement in which:
–
a public sector entity (grantor) conveys to a private sector entity
(operator) the right to provide services to the public through the
use of infrastructure or a public facility; and
–
the operator assumes the obligation to provide services, in
accordance with the grantor’s performance requirements.
This CP focuses on providing guidance for the grantor; it does not
address accounting and financial reporting related to PPPs that do not
involve SCAs (as sufficient guidance exists to address this).
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Scope of the Consultation Paper
Degree of Private Sector Risk and Responsibility
10. Privatization
9. Build-Own-Operate
Service
Concession
Arrangements
8. Build-Own-Operate-Transfer
7. Design-Build-Finance-Operate
6. Design-Build-Operate-Maintain
5. Operations Concession
4. Design-Build
3. Management Contract
2. Service Contract
1. Government
Degree of Private Sector Involvement
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March 2008
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Financial reporting of underlying property
Numerous approaches were reviewed:
•
•
•
•
•
•
Economic Risks and Rewards – UK ASB
Economic Risk – European Commission (EUROSTAT)
Control Approach –IASB’s - IFRIC
Asset Reversion Approach – South Africa ASB
Leasing – IPSAS 13
Unbundling/Components (rights/obligations) Approach
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Financial reporting of underlying property
The approach developed in this CP is based on the
definition of an asset in IPSAS 1:
• Resources controlled by an entity as a result of past
events; and
• From which future economic benefits or service
potential is expected to flow to the entity.
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Financial reporting of underlying property
Control
• Criteria in IFRIC 4, Determining whether an
Arrangement contains a Lease, used as the basis for
determining control over the underlying property for
this CP.
• An important aspect of control includes control over
any significant residual interest at the end of the
arrangement.
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Financial reporting of underlying property
Benefit
• The flow of benefits are often based on potential for
reward and assumption of risk.
• Grantor’s rewards often relate more to service
potential than economic benefit.
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Financial reporting of underlying property
Control and Benefit
• The grantor remains accountable for the services provided
through the use of the property.
• The service potential to flow from the use of the property to
the grantor and the political risk associated with the
property stem from the grantor’s accountability for the
services provided.
• Therefore, if the grantor controls the property, benefits
would flow to the grantor.
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Financial reporting of underlying property
Proposal
• Grantor should report the property underlying an SCA as
an asset if it controls the property for financial reporting
purposes.
• Criteria for grantor control – the grantor:
– controls - or regulates - services the operator provides,
to whom they must be provided, and rates that can be
charged for them; and
– controls - through ownership, beneficial entitlement or
otherwise -residual interest in the property at the end of
the arrangement.
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Financial reporting of underlying property
Proposal (cont’d)
• Regulation:
– restricted to arrangements agreed upon by the grantor
and the operator; and
– excludes generally legislated regulation that does not
establish control for the purposes of financial reporting
as concluded in IPSASs 6 & 23.
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Ancillary accounting issues
• Grantor financial reporting when the proposed
control criteria are met:
- Proposals
• Grantor financial reporting when the proposed
control criteria are not met:
- Proposals
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Guarantees and Commitments
• Guarantees or commitments may be made by the
grantor to the operator as part of an SCA including:
– Debt guarantees (contractual or constructive);
– Minimum revenue guarantees (contractual or
constructive); or
– “Step-in” commitments.
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Guarantees and Commitments
Proposal
•
Contractual guarantees related to the operator’s debt (meeting the
definition of a financial guarantee contract in IAS 39, Financial
Instruments: Recognition and Measurement) should be recognized as
a financial liability under the provisions of that Statement.
•
Guidance in IPSAS 19, Provisions, Contingent Liabilities and
Contingent Assets should be applied to determine the accounting and
financial reporting for other guarantees and commitments made by
grantors as part of SCAs.
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Inflows of resources from SCAs
• Two main opportunities exist for a grantor to receive
resources from SCAs:
– Revenue-sharing provisions; and
– Contractually determined payments (often
upfront payments).
• These usually result from the receipt of payment by
the operator from third-party users of the property.
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Inflows of resources from SCAs
revenue sharing
Proposal
• Grantors should recognize revenue and receivables
gained through revenue-sharing provisions as they
are earned in accordance with the relevant
agreement once contingent events, such as the
achievement of a revenue threshold, have occurred.
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Inflows of resources from SCAs
contractually determined (upfront) inflows
Proposal
• Recognize as revenue by the grantor over the life
of the SCA beginning at the commencement of
the concession term (when the property is fully
operational) and the operator can use the property
to generate third-party usage fees.
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Inflows of resources from SCAs
contractually determined (upfront) inflows (cont’d)
Proposal
•
•
Recognize the contractually determined inflows as revenue
using the straight-line method or a method that is more
reflective of the operator’s economic consumption of their
access to the underlying property and/or the time value of
money given the facts and circumstances of the SCA.
Any consideration received from the operator in advance of
performance should be reported by the grantor as a liability
until it is earned.
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Consolidation
Proposal
•
The relationship between the grantor and the operator
should be evaluated using the guidance in IPSAS 6,
Consolidated and Separate Financial Statements to
determine whether the grantor controls the operator for
purposes of inclusion in the grantor’s reporting entity.
•
The guidance in IPSAS 7, Investments in Associates
and IPSAS 8, Interest in Joint Ventures should also be
considered if the grantor has an ownership or equity
interest in the operator.
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Financial statement note disclosures
Proposal
•
Meaningful qualitative and quantitative disclosures
related to SCAs to be included in the financial
statements of grantors; and
•
Aggregation of information should be considered, as
appropriate.
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•
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•
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March 2008
IFAC IPSASB
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