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IFRIC 12 — Service Concession Arrangements

References

  • 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

History

DateDevelopmentComments
3 March 2005 IFRIC D12 Service Concession Arrangements - Determining the Accounting Model, IFRIC D13 Service Concession Arrangements - the Financial Asset Model and IFRIC D14 Service Concession Arrangements - the Intangible Asset Model published Comment deadline 31 May 2005
30 November 2006 IFRIC 12 Service Concession Arrangements issued Effective for annual periods beginning on or after 1 January 2008

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.
The operator measures the financial asset at fair value.

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.

Operating revenue

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.

Effective date

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

Deloitte guide to IFRIC 12