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IFRIC 12 — Payments made by an operator in a service concession arrangement

Date recorded:

The Committee previously considered a request to clarify the accounting for contractual costs to be incurred by an operator in a service concession arrangement. The request for clarification relates to whether these costs should be recognised at the start of the concession as an asset with an obligation to make the related payment, or treated as executory in nature and recognised over the term of the concession arrangement.

At previous meetings, the Committee tentatively decided that:

  • the operator should account for a distinct good or service in accordance with the applicable IFRS if the concession fee arrangement gives the operator a right to a good or service that is distinct from the service concession arrangement;
  • judgement should be used to determine whether the operator obtains control of the right of use of the asset and therefore whether the arrangement is within the scope of IAS 17 Leases when concession payments are linked to the right of use of a tangible asset; and
  • payments which do not give the operator a right to a distinct good or service or a right of use that meets the definition of a lease should consider the type of service concession arrangement (i.e. if the service concession results in the operator having a contractual right to receive cash from only the grantor, then the concession payment is accounted for as an adjustment to the consideration in a manner consistent with IAS 18 Revenue; if the service concession arrangement results in the operator having only a right to charge users of the public service, then the concession payment is accounted for as incremental consideration for the intangible asset; and if the operator has both a right to charge users of the public service and a contractual right to receive cash from the grantor, then judgement should be applied which considers the amount of the contractual right to receive cash from the grantor as compared to the fair value of the operator’s services).

At this meeting, the Committee analysed the issue of variable concession fees in a service concession arrangement. Given that the IASB’s projects on lease accounting and revenue recognition currently consider the accounting for variable payments (as discussed in the IAS 16 and IAS 38 subtopic), the staff proposed that the principles used in those projects should also govern the accounting for variable concession fees in a service concession arrangement.

Similar to the feedback expressed during the IAS 16 and IAS 38 session, two Committee members expressed a preference for applying IFRS 3 by analogy.

Another Committee member expressed concerned with delaying issuance of an interpretation on this topic until the completion of the IASB’s leasing project (which would be necessary in the view of Committee members given the interplay of the principles in the leasing project to that which is described in the staff’s proposals for this project). However, the staff noted that an issuance of an interpretation which does not include within its scope the issue of variable concession fees would be viewed negatively by constituents who have expressed uncertainty as to the distinction between fixed and variable concession fees and related accounting for each, and likewise, advancing this project before the completion of the Board’s redeliberations on the leasing project poses significant risks given uncertainties on the future direction of the leasing project.

With little additional feedback, the majority of the Committee expressed support for the direction proposed by the staff.

The Committee directed the staff to prepare draft amendments to IFRIC 12 and other IFRSs cross-referenced in the IFRIC 12 amendment, which incorporates the above principles. The draft amendments will be considered at a future meeting. The Committee intends to align the timing of amendment issuance with the release of the IASB’s revised exposure draft on leasing.

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