IFRIC X Service Concession Arrangements

Date recorded:

The objective on the session on service concession arrangements was to:

  • Update the Board on the public meeting held Monday 13 November where the Board had invited parties that had followed the IFRIC's work on this project to express their views on the proposed interpretation.
  • Ask the Board to approve the Interpretation and decide an effective date.

The staff had identified three main points raised at the public meeting:

  • That the Interpretation should clarify that the 'unit of production method' is an available amortisation method for intangibles in a service concession arrangement. This point was raised because BC 64 in the draft Interpretation refers to IAS 38.98 that states 'there is rarely, if ever, persuasive evidence to support an amortisation method…that results in lower amounts of accumulated amortisation than under the straight-line method'. The problem is that constituents read the 'rarely, if ever', as never. The staff proposed to remove the sentence. The Board supported the proposal of removing the sentence as the intention under IAS 38 is to permit other methods if that method is justified in reflecting the pattern of consumption better than the straight-line method. Alternatively the IFRIC could leave the sentence and outline the intention. The Board also discussed and agreed that the real issue with the sentence in BC 64 of the draft Interpretation was a problem with paragraph 98 of IAS 38. The Board decided that it therefore should address this issue in IAS 38 on their agenda for annual improvements.
  • The draft Interpretation has three illustrative examples. An issue was raised whether these put any limitation on whether the nature of the consideration given by the grantor to the operator gives rise to an intangible or a financial asset. The Board agreed that the nature of the consideration including government guarantees must be determined by reference to the specific terms in the contract. This is clarified in paragraph 16 as well as BC 54 of the draft interpretation.
  • The last issue was a point raised by the Spanish industry association. Highly geared arrangements may lead to losses in the first years when amortising intangibles. This does not reflect that the arrangement is profitable if viewed over the life of the arrangement. The staff commented that this was not unique for service concession arrangements and that nothing should be done. The Board agreed.

The Board voted to approve the draft Interpretation. It clarified that the vote would stand whether or not the IFRIC decided to make the amendments in the basis for conclusions of the draft interpretation.

The Board also confirmed that the interpretation should be effective from 1 January 2008.

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