1. 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-SCA andreas.bergmann@zhaw.ch

2. Session3_Bergmann.ppt 2 Budgeting and accounting for PPP The Accounting Approach Current lack of guidance IPSAS Board – The essence of Service Concession Arrangement (SCA) Project Definition Analysis of existing approaches Proposed guidance Way forward

3. 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)

4. 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

5. 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

6. 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

7. 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

8. Sesssion3_Bergmann.ppt 8 IPSAS Board – SCA project Definitions Guidance is sufficient for other forms of PPP

9. 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

10. 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

11. Sesssion3_Bergmann.ppt 11 IPSAS Board – SCA project Proposed guidance Assets Inflows of Resources Liabilities, Guarantees and Commitments Relationship between Consolidation and SCA Disclosures

12. 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

13. 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

14. 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

15. 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)

16. 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

17. 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

18. 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)

19. 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