Service Concession Arrangements

Date recorded:

(afternoon only)

IFRIC staff conducted an educational session to:

  • explain the economics of service concession arrangements; and
  • update the Board on IFRIC's deliberations, including the tentative decisions made at the May IFRIC meeting.

No decisions were made during this session.

The IFRIC has focused its deliberations on accounting by the service provider, and especially accounting for:

  • Operation and maintenance-type concessions: Where a private entity takes on responsibility to operate and maintain an already existing government asset for a given period during which it also assumes significant risk.
  • Build and operate-type concessions: Where the private sector undertakes investments, and both operating and investment risks are substantially transferred to the private firm.

The IFRIC is focussing on these types of arrangements because the responsibilities between the service provider and the grantor are most intertwined and the accounting complexity is the greatest.

The IFRIC has tentatively concluded that two models apply under service concessions for the rights received by the service operator:

  • The financial asset model - the operator recognises a financial asset
  • The intangible asset model - the operator recognises an intangible asset

The discussion focused on the dividing line between the two models. The Board discussed this at length as they wanted to understand the criteria that determined the model a service provider should apply.

At the end of the session, IFRIC staff noted that the Board appeared to agree that the amendments made by IFRIC to the exposure drafts based on comments had not changed the fact that the draft interpretations are still consistent with IFRSs. The staff indicated that IFRIC intends to combine the original three drafts into one interpretation.

The IFRIC has not concluded its redeliberations and will therefore be discussing service concessions at its July and September meetings. The staff noted that the IFRIC will be discussing whether to re-expose the draft interpretations as a single interpretation where the material in all three previous draft interpretations is covered in one.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.