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 was 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 recommended finalising the agenda decision. Appendix A includes the wording for the proposed agenda decision.


The Interpretations Committee approved the staff recommendation to issue a [tentative] agenda decision. The staff will add more clarifications to the wording to reflect how they arrived at the conclusion reached in the agenda decision.


There was general agreement on the analysis prepared by the staff. The most common concerns raised during the discussion were:

(i) In relation to offset requirements: the requirements of IAS 32 should be considered rather than whether the entities involved are related parties, or under common control;

(ii) it was not clear why the staff had used IFRS 16 to analyse whether there was a liability when they had concluded that the operator was not a lessee—relatedly, the it was concluded not to make any explicit reference to IFRS 16;

(iii) the staff was asked to better explain the steps that led to the conclusions reached—the staff explained that having concluded that the transaction was a service concession the operator did not control the infrastructure;

(iv) how to deal with variable payments—the staff indicated that there was an issue recently discussed by the Interpretations Committee on variable payments for which no conclusion was reached;

There was also extensive discussion about the implications if the grantor and the lessor were related parties or under common control. The concerns were particularly related to whether the presentation should be gross or net.  For example, if the cash flows were circulating around the parties involved, would gross presentation be appropriate? The staff clarified that whether the grantor and lessor were controlled by the same party was not relevant to that assessment. Instead, the operator should analyse the right to offset. The staff also noted that the operator should analyse whether it had an obligation to make cash payments and whether that obligation could be avoided. That particular situation would be reflected in the contract. If the operator had an unavoidable obligation, then it should record a financial liability.

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