Budgeting and Accounting for PPP:
The Accounting Approach
Prof. Dr. Andreas Bergmann
Member of the IPSAS Board/
Project Committee Member PPP-SCA
andreas.bergmann@zhaw.ch
Building Competence. Crossing Borders.
Budgeting and accounting for PPP
The Accounting Approach
 Current lack of guidance
 IPSAS Board – The essence of
Service Concession Arrangement (SCA) Project
• Definition
• Analysis of existing approaches
• Proposed guidance
 Way forward
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Current lack of guidance
Not complete lack – but limitations
 Public sector accounting standards
• United Kingdom: Application Note F to FRS5 (also basis for
AUS/NZ)
• South Africa: Proposed guideline (September 2005)
 Financial Statistics
• Eurostat: ESA95 Manual on Government Deficit and Debt 
additional chapter on „long term contracts“ (2004)
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Current lack of guidance
Not complete lack – but limitations (2)
 Private sector guidance
• IFRIC 12: Interpretation of IFRS
- Recognition and measurement
- Specifically only for operators (usually the private sector
role) and not for grantors (the typical public sector role)
• SIC 29: Interpretation of IFRS
- Disclosure
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IPSAS Board – SCA project
Project so far
 March 2007: Approval of the project. Support by National
Standard-Setters (Big 4 plus 1), especially GASB, granted.
 May 2007: Kick-off
 October 2007: Sub-committee issues consultation paper
 November 2007: IPSAS-Board approves consultation
paper with modifications
 Spring 2008: Consultation paper to be issued for
comments
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IPSAS Board – SCA project
Consultation paper
 Definitions
 Analysis of existing approaches
 Proposed guidance
• Assets
• Inflows of Resources
• Guarantees and Commitments
• Relationship between Consolidation and SCA
• Disclosures
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IPSAS Board – SCA project
Definitions
 Limitation to Service Concession Arrangements (SCA)
 SCA is defined as an arrangement in which the
• Grantor (normally public sector) conveys to the operator
(normally private sector)
• the right to provide services
• directly or indirectly to the public
• through the use of infrastructure or a public facility.
 For SCA additional guidance is needed
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IPSAS Board – SCA project
Definitions
 Guidance is sufficient for other forms of PPP
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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IPSAS Board – SCA project
Analysis of existing approaches
 UK: Economic risk & rewards approach
 Eurostat: Economic risk approach
 IFRIC: Control approach
 South Africa: Asset reversion approach
 Lease approach
 Unbundling approach
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IPSAS Board – SCA project
Analysis of existing approaches
 Essentially two groups of approaches
• Risk & Rewards
• Control
 Slight preference given to Control Approach
 But both will be part of consultation
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IPSAS Board – SCA project
Proposed guidance
• Assets
• Inflows of Resources
• Liabilities, Guarantees and Commitments
• Relationship between Consolidation and SCA
• Disclosures
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IPSAS Board – SCA project
Proposed guidance: Assets
 Grantor to report property/infrastructure as an asset, if
control criteria are met
 Control criteria
• Control of the services to be provided (i.e. to whom, at what
price range)
• Control of significant residual interest at the end of
arrangement if there is any
 Follow guidance of IPSAS 17 Property, Plant and
Equipment
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IPSAS Board – SCA project
Proposed guidance: Inflow of resources
 Recognize revenues once contingent event has occurred
 For upfront payments: Recognize revenue over time of life
of SCA arrangement beginning when infrastructure is fully
operational
• Method reflecting economic consumption (e.g. straight line);
and/or
• Time value of the money
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IPSAS Board – SCA project
Proposed guidance: Liabilities, Guarantees and
Commitments
 Certain outflow of resources  two possible approaches
• Financial Leasing (IPSAS 13)  recognition of liability
• Financial Instruments (IAS 39)  recognition of liability
 Measurement may or may not turn out different depending
on approach taken, depending on circumstances
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IPSAS Board – SCA project
Proposed guidance: Liabilities, Guarantees and
Commitments
 Uncertain outflow of resources: Apply existing guidance in
IPSAS 19 Provisions, Contingent Liabilities and Assets
 Provision, i.e. liability in the balance sheet, if
• Present obligation due to past event
• Outflow of resources is probable
• Reliable estimate possible
 Contingent liability, i.e. presentation in notes only, if
outflow is not probable, but also not remote (or if reliable
estimate is not possible – which in my opinion does not apply to SCA)
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IPSAS Board – SCA project
Proposed guidance: Consolidation
 Use guidance in IPSAS 6, 7 and 8 to determine if operator
of SCA is a
• Controlled entity (IPSAS 6)  Consolidation
• Associate (IPSAS 7)  Equity method
• Joint venture (IPSAS 8)  Quota method
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IPSAS Board – SCA project
Proposed guidance: Disclosure
 Required disclosure for
• Each individual SCA contract if material
• Aggregate of SCA contracts
 Information to be disclosed
• Future cash flows
• Terms related to renewal, termination, ownership, guarantees
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IPSAS Board – SCA project
What about budgeting?
 IPSAS is no budgeting standard
 If budget is prepared on same basis
• Accounting principles to be applied on budget
 Otherwise reconciliation for presentation of budget
comparison required (IPSAS 24)
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Way forward
Consultation paper is only first step
 Comments sought from you!
 Comments received will be discussed by IPSASB
 Possibly a Exposure Draft of a Standard to be developed
 Comments sought from you!
 Standard to be issued
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