1 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution

1

Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution

Project Summary – November 2005

International Accounting Standards

Board

30 Cannon Street, London EC4M 6XH, EnglandPhone: +44 (20) 7246 6410, Fax: +44 (20) 7246 6411Email: [email protected] Website: http://www.iasb.org.uk

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.

2



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.

3



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-operate-transfer and build-operate own)

– Divestitures/privatisations/regulated industries under licence

– Technical provisions of contracts vary by sector and legal framework varies by country

Draft

4


Project Summary – November 2005Allocation of Key Responsibilities Under Main Options for Private Sector Participation in Public Services

Draft

Cle

ar

IFR

IC

Fo

cu

s

IFRSs

Cle

ar

Arrangement Type

Asset ownership

Operations and maintenance

Capital investment

Commercial risk

Typical Duration

Residual Interest

Examples of Applicable IFRSs

Service Contract (eg specific tasksdebt collection)

Public Private and or Public

Public Public 1-5 years Public IAS 18(renderingof services)

Lease(eg. lease of an asset)

Public Private Public Shared 8-20 years

Public

IAS 17

Concession (eg build-operate-transfer)

Public Private Private Private and Public

25-30 years

Public D12-14

Concession (eg build-own-operate)

Private Private Private Private 25-30 years

Private IAS 16, 23(PPE)

100% Divestiture/Regulated industries under licence

Private Private Private Private Indefinite or (may be limited by licence

Private IAS 16, 23

(PPE)Ge

ne

rall

y l

ine

s b

etw

ee

n t

he

op

tio

ns

are

blu

rre

d

5



Draft Flowcharts

Draft

•There are various ways to flowchart these complex arrangements. The following pages provide one example. Amendments may be required as IFRIC’s discussions progress.

6



Apply D12 – Operator has right to Access/Operate only – (Asset

remains PPE Of Grantor)

Apply D12 – Operator has right to Access/Operate only – (Asset

remains PPE Of Grantor)

Is there a Sale Of Infrastructure to

Operator? IAS 18.14 Test

Is there a Sale Of Infrastructure to

Operator? IAS 18.14 Test

Infrastructure comprises/includes pre-existing assets of GrantorInfrastructure comprises/includes pre-existing assets of Grantor

Is there a lease of the Infrastructure to the Op?

Is there a lease of the Infrastructure to the Op?

Apply IAS 17 Substantially all

R&R Op. = Fin LseR&R Gr. = Op Lse

Apply IAS 17 Substantially all

R&R Op. = Fin LseR&R Gr. = Op Lse

Apply IAS 16 Apply IAS 16

Treatment of Infrastructure – Books of Operator

Determine whether Operator should recognise PPE

Rec

og

nit

ion

/DeR

eco

gn

itio

n

D13 – Financial Asset ModelD13 – Financial Asset Model D14 – Intangible Asset ModelD14 – Intangible Asset Model

Does Grantor have primary responsibility to

pay

Does Grantor have primary responsibility to

pay

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

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

Gra

nto

r h

as r

igh

t o

f u

se

Explanation:-conveys right of use; -transfers risks and rewards to operator; and-grantor has no managerial involvement

Explanation:-conveys right of use; -transfers risks and rewards to operator; and-grantor has no managerial involvement

Flowchart A

No

No

Draft

Yes Yes

NoYes

7



Is there a Sale of Infrastructure to

Grantor?

Is there a Sale of Infrastructure to

Grantor?

Pre-existing Infrastructure of Operator (used exclusively for purposes concession)Pre-existing Infrastructure of Operator (used exclusively for purposes concession)

Apply IAS 17 R&R Gr. = Fin LseR&R Op. = Op Lse

Apply IAS 17 R&R Gr. = Fin LseR&R Op. = Op Lse

Apply IAS 18Apply IAS 18


Determine whether Operator should recognise PPE

Der

eco

gn

itio

n IA

S 1

6

Explanation:-conveys right of use and transfers risks and rewards to grantor; and -operator has no managerial involvement

Explanation:-conveys right of use and transfers risks and rewards to grantor; and -operator has no managerial involvement

Flowchart B

Is there a lease of the infrastructure to

Grantor?

Is there a lease of the infrastructure to

Grantor?

Apply IAS 16 (Asset remains PPE Of

Operator)

Apply IAS 16 (Asset remains PPE Of

Operator)

No

No

Yes

Yes

Draft

8



Infrastructure is constructed or acquired* by the OperatorInfrastructure is constructed or acquired* by the Operator

Operator supplied construction

services/acquires on grantors behalf

Operator supplied construction

services/acquires on grantors behalf

Operator constructed/acquired own

asset

Operator constructed/acquired own

asset


Determine whether Operator should recognise PPE`

* From 3rd Party

Explanation:Whose asset? -Definition of an asset from Framework; -Definition of PPE from IAS 16

Explanation:Whose asset? -Definition of an asset from Framework; -Definition of PPE from IAS 16

Flowchart C

See flowchart BSee flowchart B

Draft

OperatorGrantor

See flowchart ASee flowchart A

Documents

1 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution