IFRIC 12 — Service Concession Arrangements
- IFRS 1 First-time Adoption of International Financial Reporting Standards
- IFRS 7 Financial Instruments: Disclosures
- Framework for the Preparation and Presentation of Financial Statements (in September 2010, replaced by Conceptual Framework for Financial Reporting)
- IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- IAS 11 Construction Contracts
- IAS 16 Property, Plant and Equipment
- IAS 17 Leases
- IAS 18 Revenue
- IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
- IAS 23 Borrowing Costs
- IAS 32 Financial Instruments: Presentation
- IAS 36 Impairment of Assets
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets
- IAS 38 Intangible Assets
- IAS 39 Financial Instruments: Recognition and Measurement
- IFRIC 4 Determining whether an Arrangement contains a Lease
- SIC 29 Disclosure - Service Concession Arrangements
- IFRIC D12, D13, D14 Issued 3 March 2005. Click for Press Release (PDF 61k).
- D12 Service Concession Arrangements - Determining the Accounting Model
- D13 Service Concession Arrangements - the Financial Asset Model
- D14 Service Concession Arrangements - the Intangible Asset Model
- Comment deadline was 31 May 2005
- IFRIC Interpretation 12 Service Concession Arrangements was issued 30 November 2006 Click for Press Release (PDF 56k)
- Effective date of IFRIC 12: Annual periods beginning on or after 1 January 2008. Earlier application permitted.
Summary of IFRIC 12
Service concession arrangements defined
A service concession arrangement is an arrangement whereby a government or other public sector body contracts with a private operator to develop (or upgrade), operate and maintain the grantor's infrastructure assets such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals. The grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement.
The objective of IFRIC 12 is to clarify how certain aspects of existing IASB literature are to be applied to service concession arrangements.
Two types of service concession arrangements
IFRIC 12 draws a distinction between two types of service concession arrangement.
- In one, the operator receives a financial asset, specifically an unconditional contractual right to receive a specified or determinable amount of cash or another financial asset from the government in return for constructing or upgrading a public sector asset, and then operating and maintaining the asset for a specified period of time. This category includes guarantees by the government to pay for any shortfall between amounts received from users of the public service and specified or determinable amounts.
- In the other, the operator receives an intangible asset – a right to charge for use of a public sector asset that it constructs or upgrades and then must operate and maintain for a specified period of time. A right to charge users is not an unconditional right to receive cash because the amounts are contingent on the extent to which the public uses the service.
IFRIC 12 allows for the possibility that both types of arrangement may exist within a single contract: to the extent that the government has given an unconditional guarantee of payment for the construction of the public sector asset, the operator has a financial asset; to the extent that the operator has to rely on the public using the service in order to obtain payment, the operator has an intangible asset.
Accounting – Financial asset model
The operator recognises a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator
- (a) specified or determinable amounts or
- (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements.
Accounting – Intangible asset model
The operator recognises an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service.
The operator measures the intangible asset at fair value.
The operator of a service concession arrangement recognises and measures revenue in accordance with IASs 11 and 18 for the services it performs.
Accounting by the government (grantor)
IFRIC 12 does not address accounting for the government side of service concession arrangements. IFRSs are not designed to apply to not-for-profit activities in the private sector or the public sector. However, the International Public Sector Accounting Standards Board (IPSASB) has started its own project on service concession arrangements, which will give serious consideration to accounting by grantors. The principles applied in IFRIC 12 will be considered as part of the project.
IFRIC 12 is effective for annual periods beginning on or after 1 January 2008. Earlier application is permitted.
Accounting by the grantor government – IPSASB standards
On 31 October 2011, the International Public Sector Accounting Standards Board (IPSASB) released IPSAS 32 Service Concession Arrangements: Grantor, which seeks to address a lack of international guidance on how governments and other public sector entities should report their involvement in service concession arrangements, often used to build the infrastructure necessary to maintain and improve critical public services.
IPSAS 32 provides for the recognition, measurement, and disclosure of service concession assets and related liabilities, revenues, and expenses by the grantor. The criteria in IFRIC 12 Service Concession Arrangements for determining whether the operator controlled the asset used in a service concession arrangement are also used in IPSAS 32 to assess whether the grantor controlled the asset. This approach minimises the possibility that neither the operator nor the grantor would recognise the service concession asset.
IPSAS 32 also creates symmetry with IFRIC 12 on relevant accounting issues (i.e. liabilities, revenues, and expenses) from the grantor's point of view. In addition, IPSAS 32 is consistent with SIC-29 Service Concession Arrangements: Disclosures.
Click for IPSASB press release (link to IFAC website).
Deloitte guide to IFRIC 12
Guide to IFRIC 12 Service Concession Arrangements In February 2011, Deloitte's IFRS Global Office published IFRIC 12 Service concession arrangements – A pocket practical guide.
The Guide is intended to serve as an illustrative tool for the reader in the application of IFRIC 12 Service Concession Arrangements, providing analysis of the requirements of IFRIC 12 and practical guidance with examples that address some of the more complex issues around service concession arrangements. The Guide provides guidance on scope, the determination of the accounting model, specific characteristics of concessions that are common (take-or-pay arrangements, capacity availability, etc.) and much more.
Click for IFRIC 12 Service concession arrangements – A pocket practical guide (PDF 241k, February 2011, 59 pages).