Building Competence. Crossing Borders. Budgeting and Accounting for PPP: The Accounting Approach Prof. Dr. Andreas Bergmann Member of the IPSAS Board

Building Competence. Crossing Borders.

Budgeting and Accounting for PPP: The Accounting Approach

Prof. Dr. Andreas Bergmann

Member of the IPSAS Board/Project Committee Member [email protected]

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


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)



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


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



Consultation paper

Definitions

Analysis of existing approaches

Proposed guidance

• Assets

• Inflows of Resources

• Guarantees and Commitments

• Relationship between Consolidation and SCA

• Disclosures



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



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




UK: Economic risk & rewards approach

Eurostat: Economic risk approach

IFRIC: Control approach

South Africa: Asset reversion approach

Lease approach

Unbundling approach




Essentially two groups of approaches

• Risk & Rewards

• Control

Slight preference given to Control Approach

But both will be part of consultation



Proposed guidance

• Assets

• Inflows of Resources

• Liabilities, Guarantees and Commitments

• Relationship between Consolidation and SCA

• Disclosures



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



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



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



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)



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



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



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)


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

Documents

Building Competence. Crossing Borders. Budgeting and Accounting for PPP: The Accounting Approach Prof. Dr. Andreas Bergmann Member of the IPSAS Board