Project Summary – November 2005 30 Cannon Street, London EC4M 6XH, England Phone: +44 (20) 7246 6410, Fax: +44 (20) 7246 6411 Email: iasb@iasb.org.uk Website: http://www.iasb.org.uk International Accounting Standards Board Service Concession Arrangements IFRIC Project Updates are provided for the information and convenience of constituents who wish to follow the IFRIC’s deliberations. All conclusions reported are tentative and may be changed at future IFRIC or IASB meetings. Decisions become final only after formal approval by the IASB to issue an International Financial Reporting Interpretation. 1 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Broadening D12-14 D12-14 concentrate on situations where existing IFRSs are unclear. Many respondents believed that the draft Interpretations were complex or that they failed to deal with significant areas of the topic. The following pages provide an outline of an approach to broaden D12-14 -Amendments may be required as the IFRIC’s discussions progress. 2 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Concessions Many different types of arrangements exist: – Service Contracts (specific tasks eg debt collection or routine repair and maintenance) – Leases (eg operator leases asset from public sector and has responsibility for operating and maintaining asset) – Concessions (maintenance and operation, build-operatetransfer and build-operate own) – Divestitures/privatisations/regulated industries under licence – Technical provisions of contracts vary by sector and legal framework varies by country 3 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Allocation of Key Responsibilities Under Main Options for Private Sector Participation in Public Services Commercial risk Typical Duration Residual Interest Examples of Applicable IFRSs Arrangement Type Service Contract (eg specific tasks debt collection) Public Private and or Public Public Public 1-5 years Public Lease (eg. lease of an asset) Public Private Public Shared 8-20 years Public Concession (eg build-operatetransfer) Public Private Private Private and Public 25-30 years Public D12-14 Concession (eg build-ownoperate) Private Private Private Private 25-30 years Private IAS 16, 23 (PPE) 100% Divestiture/ Regulated 4 industries under licence Private Private Private Private Indefinite or (may be limited by licence Private IAS 18 (rendering of services) Clear Capital investment IAS 17 IAS 16, 23 (PPE) Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution IFRIC Focus Operations and maintenance Asset ownership Clear Generally lines between the options are blurred IFRSs Project Summary – November 2005 Draft Flowcharts •There are various ways to flowchart these complex arrangements. The following pages provide one example. Amendments may be required as IFRIC’s discussions progress. 5 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Flowchart A Treatment of Infrastructure – Books of Operator Determine whether Operator should recognise PPE Grantor has right of use Recognition /DeRecognition Infrastructure comprises/includes pre-existing assets of Grantor Apply IAS 16 Yes Is there a Sale Of Infrastructure to Operator? IAS 18.14 Test Explanation: -conveys right of use; -transfers risks and rewards to operator; and -grantor has no managerial involvement No Is there a lease of the Infrastructure to the Op? No Apply D12 – Operator has right to Access/Operate only – (Asset remains PPE Of Grantor) Does Grantor have primary responsibility to pay Yes 6 Yes D13 – Financial Asset Model Apply IAS 17 Substantially all R&R Op. = Fin Lse R&R Gr. = Op Lse Explanation: -grantor not the operator has ‘right of use’ because the grantor : (a): controls or regulates services provided by the operator and (b) controls the significant residual interest in the infrastructure at the end of the concession No D14 – Intangible Asset Model Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Flowchart B Treatment of Infrastructure – Books of Operator Determine whether Operator should recognise PPE Derecognition IAS 16 Pre-existing Infrastructure of Operator (used exclusively for purposes concession) Is there a Sale of Infrastructure to Grantor? Is there a lease of the infrastructure to Grantor? No Yes Apply IAS 17 R&R Gr. = Fin Lse R&R Op. = Op Lse Yes Apply IAS 18 7 Explanation: -conveys right of use and transfers risks and rewards to grantor; and -operator has no managerial involvement No Apply IAS 16 (Asset remains PPE Of Operator) Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Flowchart C Treatment of Infrastructure – Books of Operator Determine whether Operator should recognise PPE` Infrastructure is constructed or acquired* by the Operator Grantor Operator supplied construction services/acquires on grantors behalf Explanation: Whose asset? -Definition of an asset from Framework; -Definition of PPE from IAS 16 See flowchart A 8 Operator Operator constructed/acquired own asset See flowchart B * From 3rd Party Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution