IFRIC 12 Service Concession Arrangements - Service concession arrangements with leased infrastructure - Agenda paper 7

Date recorded:


The Interpretations Committee discussed this issue at its meeting in November 2015 and March and May 2016. It relates to a request for clarification on the accounting treatment related to arrangements whereby public transport services are 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.

The Interpretations Committee noted that assessing whether a particular arrangement is within the scope of IFRIC 12 requires consideration of specific facts and circumstances. The Interpretations Committee also noted that if the arrangement is within the scope of IFRIC 12, then: a) the operator assesses if it is obliged to make payments to the lessor or whether the grantor has this obligation; b) if the operator is obliged to make payments to the lessor, then the operator recognises a liability when it is committed to the service concession arrangement and the infrastructure is available by the lessor; c) the liability is a financial liability and the operator can only offset the liability against the receivable from the grantor only when the offsetting criteria in IAS 32 is met. The Interpretations Committee decided not to add this issue into its agenda because the Standard provides a basis for accounting for this transaction.

The purpose of this session is for the staff to present the analysis of the comment letters and their recommendation.

Comment letter analysis

The staff indicates that there was agreement with the conclusion; however:

a) The Interpretations Committee should explain in the agenda decision the facts and circumstances that an operator considers in determining which party is obliged to make payments. The staff believes that adding further explanation would not be practical or useful due to the unique situation of the case presented.

b) One respondent disagreed that in the fact patter presented, the operator recognises a liability when the infrastructure is available by the lessor. The staff believes that at this point the lessor has performed under the contract and accordingly, the operator has a liability. The staff also notes that if the arrangement is in scope of IFRIC 12, the operator does not control the leased infrastructure and accordingly, the arrangement is not a lease. However, the staff only considers the requirement of the lease standard only to assess whether the lessor has performed under the contract.

Staff recommendation

The staff recommends finalising the agenda decision with no further changes.

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