Building Competence. Crossing Borders. Budgeting and Accounting for PPP: The Accounting Approach...

Building Competence. Crossing Borders.

Budgeting and Accounting for PPP: The Accounting Approach

Prof. Dr. Andreas Bergmann

Member of the IPSAS Board/Project Committee Member PPP-SCAandreas.bergmann@zhaw.ch

Session3_Bergmann.ppt 2

Budgeting and accounting for PPP

The Accounting Approach

Current lack of guidance

IPSAS Board – The essence ofService Concession Arrangement (SCA) Project

• Definition

• Analysis of existing approaches

• Proposed guidance

Way forward

Sesssion3_Bergmann.ppt 3

Current lack of guidance

Not complete lack – but limitations

Public sector accounting standards

• United Kingdom: Application Note F to FRS5 (also basis for AUS/NZ)

• South Africa: Proposed guideline (September 2005)

Financial Statistics

• Eurostat: ESA95 Manual on Government Deficit and Debt additional chapter on „long term contracts“ (2004)

Sesssion3_Bergmann.ppt 4

Current lack of guidance

Not complete lack – but limitations (2)

Private sector guidance

• IFRIC 12: Interpretation of IFRS

- Recognition and measurement

- Specifically only for operators (usually the private sector role) and not for grantors (the typical public sector role)

• SIC 29: Interpretation of IFRS

- Disclosure

Sesssion3_Bergmann.ppt 5

IPSAS Board – SCA project

Project so far

March 2007: Approval of the project. Support by National Standard-Setters (Big 4 plus 1), especially GASB, granted.

May 2007: Kick-off

October 2007: Sub-committee issues consultation paper

November 2007: IPSAS-Board approves consultation paper with modifications

Spring 2008: Consultation paper to be issued for comments

Sesssion3_Bergmann.ppt 6

IPSAS Board – SCA project

Consultation paper

Definitions

Analysis of existing approaches

Proposed guidance

• Assets

• Inflows of Resources

• Guarantees and Commitments

• Relationship between Consolidation and SCA

• Disclosures

Sesssion3_Bergmann.ppt 7

IPSAS Board – SCA project

Definitions

Limitation to Service Concession Arrangements (SCA)

SCA is defined as an arrangement in which the

• Grantor (normally public sector) conveys to the operator (normally private sector)

• the right to provide services

• directly or indirectly to the public

• through the use of infrastructure or a public facility.

For SCA additional guidance is needed

Sesssion3_Bergmann.ppt 8

IPSAS Board – SCA project

Definitions

Guidance is sufficient for other forms of PPP

1. Government

2. Service Contract

10. Privatization

3. Management Contract

4. Design-Build

5. Operations Concession

6. Design-Build-Operate-Maintain

7. Design-Build-Finance-Operate

8. Build-Own-Operate-Transfer

9. Build-Own-Operate

Degree of Private Sector Involvement

De

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Se

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sib

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Service Concession

Arrangements

Sesssion3_Bergmann.ppt 9

IPSAS Board – SCA project

Analysis of existing approaches

UK: Economic risk & rewards approach

Eurostat: Economic risk approach

IFRIC: Control approach

South Africa: Asset reversion approach

Lease approach

Unbundling approach

Sesssion3_Bergmann.ppt 10

IPSAS Board – SCA project

Analysis of existing approaches

Essentially two groups of approaches

• Risk & Rewards

• Control

Slight preference given to Control Approach

But both will be part of consultation

Sesssion3_Bergmann.ppt 11

IPSAS Board – SCA project

Proposed guidance

• Assets

• Inflows of Resources

• Liabilities, Guarantees and Commitments

• Relationship between Consolidation and SCA

• Disclosures

Sesssion3_Bergmann.ppt 12

IPSAS Board – SCA project

Proposed guidance: Assets

Grantor to report property/infrastructure as an asset, if control criteria are met

Control criteria

• Control of the services to be provided (i.e. to whom, at what price range)

• Control of significant residual interest at the end of arrangement if there is any

Follow guidance of IPSAS 17 Property, Plant and Equipment

Sesssion3_Bergmann.ppt 13

IPSAS Board – SCA project

Proposed guidance: Inflow of resources

Recognize revenues once contingent event has occurred

For upfront payments: Recognize revenue over time of life of SCA arrangement beginning when infrastructure is fully operational

• Method reflecting economic consumption (e.g. straight line); and/or

• Time value of the money

Sesssion3_Bergmann.ppt 14

IPSAS Board – SCA project

Proposed guidance: Liabilities, Guarantees and Commitments

Certain outflow of resources two possible approaches

• Financial Leasing (IPSAS 13) recognition of liability

• Financial Instruments (IAS 39) recognition of liability

Measurement may or may not turn out different depending on approach taken, depending on circumstances

Sesssion3_Bergmann.ppt 15

IPSAS Board – SCA project

Proposed guidance: Liabilities, Guarantees and Commitments

Uncertain outflow of resources: Apply existing guidance in IPSAS 19 Provisions, Contingent Liabilities and Assets

Provision, i.e. liability in the balance sheet, if

• Present obligation due to past event

• Outflow of resources is probable

• Reliable estimate possible

Contingent liability, i.e. presentation in notes only, if outflow is not probable, but also not remote (or if reliable

estimate is not possible – which in my opinion does not apply to SCA)

Sesssion3_Bergmann.ppt 16

IPSAS Board – SCA project

Proposed guidance: Consolidation

Use guidance in IPSAS 6, 7 and 8 to determine if operator of SCA is a

• Controlled entity (IPSAS 6) Consolidation

• Associate (IPSAS 7) Equity method

• Joint venture (IPSAS 8) Quota method

Sesssion3_Bergmann.ppt 17

IPSAS Board – SCA project

Proposed guidance: Disclosure

Required disclosure for

• Each individual SCA contract if material

• Aggregate of SCA contracts

Information to be disclosed

• Future cash flows

• Terms related to renewal, termination, ownership, guarantees

Sesssion3_Bergmann.ppt 18

IPSAS Board – SCA project

What about budgeting?

IPSAS is no budgeting standard

If budget is prepared on same basis

• Accounting principles to be applied on budget

Otherwise reconciliation for presentation of budget comparison required (IPSAS 24)

Sesssion3_Bergmann.ppt 19

Way forward

Consultation paper is only first step

Comments sought from you!

Comments received will be discussed by IPSASB

Possibly a Exposure Draft of a Standard to be developed

Comments sought from you!

Standard to be issued