IFRIC 12 — Service concession arrangements with leased infrastructure

Date recorded:


The Interpretations Committee discussed this issue at its meeting in November 2015 (agenda paper 13) and March 2016 (agenda paper 6). 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 operator is contractually required to pay the lessor for the lease of the infrastructure.   

The issues to be analysed are (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.

At those earlier meetings, 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.

The Interpretations Committee tentatively decided not to take this issue into its agenda.

In March 2016 the staff presented an analysis of its assessment of the accounting for the transaction submitted. Members of the Interpretations Committee raised significant concerns (see summary of the discussion for further analysis) and asked the staff to re-work the analysis and present it at this meeting.

The purpose of this session is to: (i) discuss that additional analysis of the recognition and presentation issues and (ii) decide whether to finalise the agenda decision.

Staff analysis

The staff conducted the analysis with the assumption that the transaction is within the scope of IFRIC 12.

The staff concluded that the accounting treatment should be similar even if the lessor and grantor are controlled by the same party. The staff believe that AG2 of IFRIC 12 applies only to the assessment of control and not for the accounting of the transaction. The fact pattern indicates that the grantor might guarantee the lease payments on behalf of the operator. The staff noted that such a situation was not relevant to assessing whether the operator has a financial obligation.

The staff also concluded that the obligation from the operator to make lease-related payments meets the definition of a financial liability. That obligation rises at the start of the service concession because: 

(i) the obligation arises from past events (i.e. infrastructure is made available by the lessor); and

(ii) the obligation results in future outflow of economic benefits from the operator.

The staff concluded that the transaction is not in scope of IFRS 16 (or IAS 17). This is because the operator does not have control over the infrastructure.

In relation to the presentation issues, the staff concluded that in this case the offsetting requirements of IAS 32 are not met. This is because the operator is contractually unable to offset its lease related payments with its right to receive cash from the operator.

Staff recommendation

The staff recommends finalising the agenda decision. Appendix A includes the wording for the proposed agenda decision.

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