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IFRIC 12 — Combined service concession and lease arrangements

Date recorded:

IFRIC 12 Service Concession Arrangements - Service concession arrangements with leased infrastructure - Agenda paper 6


The Interpretations Committee discussed this issue at its meeting in November 2015. The issue relates to a request for clarification on the accounting treatment related to arrangements whereby public transport services were provided by an operating company for a public transport authority.  The submitter described different scenarios for effecting the arrangement that could include affiliated entities or a service concession arrangement in which the infrastructure that was used was leased, perhaps with the public transport authority guaranteeing the lease payments.  

The issues to be analysed were (i) whether the arrangement is in scope of IFRIC 12;  (ii)          whether the operator is required to recognise lease assets and lease liabilities and  (iii) whether the recognised assets or liabilities should be presented on a gross or net basis and how they should be measured.

The Interpretations Committee noted that (i) assessing whether a particular arrangement is within the scope of IFRIC 12 requires careful consideration of all facts and circumstances and (ii) the operator is not required to provide construction or upgrade services with respect to the infrastructure to conclude that the arrangement is within the scope of IFRIC 12. With respect to the recognition and presentation issues, the Interpretations Committee noted that an agenda decision is likely to be appropriate for these issues, but directed the staff to perform further analysis of the issues.

Staff analysis

The agenda paper included a detailed analysis of the submission and the analysis of two alternatives: (i) the lessor was related to the grantor; and (ii) the lessor was not related to the grantor. In the first case, the staff considered that the operator would account for the lease-related payments to be made to the lessor applying the requirements for consideration payable to a customer in paragraphs 70-72 of IFRS 15. In these arrangements, the operator would account for the lease-related payments as a reduction of the transaction price and, therefore, of revenue. In the second case, the staff considered that at the start of the concession arrangement when the infrastructure was made available by the lessor, the operator would recognise a financial liability and a corresponding concession asset (a financial asset because the operator received an unconditional contractual right to receive cash from the grantor in relation to the provision of the lease-related services).

Staff recommendation

The staff concluded that the requirements in IFRS provide an adequate basis to enable an entity to determine how to account for the arrangement and recommended not adding this issue onto the Interpretations Committee agenda. The agenda paper included the proposed wording for the tentative agenda decision.


There was an extensive discussion on the topic and significant concerns were raised; it was concluded that the staff should re-work the agenda decision and it would be discussed at a future meeting.

On the first case where the grantor and the lessor where related parties, the following issues were noted:

  1. the fact pattern discussed in prior meetings indicated that the grantor and lessor were under common control whereas the agenda decision indicated that they were “related”; the staff agreed to modify the agenda to reflect the fact pattern as submitted to the Committee;
  2. there was a concern as to whether the fact that the  grantor and lessor were related parties should be relevant to determining the accounting treatment; it was considered that the analysis was only relevant to determine which party controlled the asset;
  3. the agenda decision referred to IFRS 15; however, that Standard was not designed to address this issue;
  4. it was not clear how the concept of offsetting in IAS 32 would apply in the analysis performed by the staff;
  5. the agenda decision should be more explicit on the accounting treatment;
  6. the agenda paper included some discussion about principal vs agent which was not included in the agenda decision.

On the second case where the grantor and lessor were not related parties, the following issues were noted:

  1. the agenda paper reflected that the conclusion that there was a liability was based on IFRS 16; however the agenda decision did not mention that assessment; the staff responded that providing references to IFRS 16 would be confusing because the submission related to the accounting of the operator and that party was not considered a lessee;
  2. the unit of account should be explored further to understand which party in substance had the liability; the fact pattern reflected an unconditional obligation to pay while the right to cash from the grantor was not unconditional;
  3. the discussion of principal vs agent was not relevant; the analysis of offsetting should be based on the requirements of IAS 32; and it should also analyse the implications of IAS 39 as to whether there was a pass through arrangement;
  4. the fact pattern did not provide enough indication that there was a financial asset; it was pointed out that the asset seemed more related to a contract asset due to the exposure of operating and technical risks;
  5. it was pointed out that the analysis for the accounting treatment should not be different as to whether the grantor and lessor where related parties or not.

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