EU endorses IFRIC 12 for accounting for PPP

On 12-June-2008, the European Commission endorsed IFRIC 12 guidance for accounting for service concessions on the part of the concessionaires-operators.

IFRIC 12 is an "interpretation". A more formal "standard" of accounting for PPP will be defined in due course.

According to the EU study, companies note that it is hard, but useful to identify whether their contracts were in fact in the scope of IFRIC 12 or of another standard or interpretation. This helps companies to clarify different kinds of risk exposure and assess the underlying risk allocation and performance of each type of contract. Therefore, IFRIC 12 can have positive effects for internal management purposes.

IFRIC 12 applies to service concessions when grantor (Concedente) regulates/controls the service to be provided by the operator and has residual interest in the infra (reversão). Service concessions then fall under two classifications:
1. The concessionaire/operator books a financial asset if it has unconditional right to receive explict cash revenues from the grantor (pagamento por disponibilidade); “revenues” under previous fixed asset classification are replaced by “reimbursement of financial asset”
2. operator books intangible asset if its revenues are contingent on the public using the infrasructure and paying the tolls (portagem ou contagem ) ; progressive amortization (lower than straight line) of toll licence in line with consumption/utilization is allowed

Principal impacts for the concessionaires
1) reclassification of tangible fixed assets as either financial assets or intangible assets requires evaluation of risk allocation, especially of traffic risk, which is the major test and brings value added to contract management
2) less amortization, less capitalization of interest during operations
3) IFRIC 12 useful in assessing risk exposure and performance under service concession contracts

IFRIC 12 applies to accounting by the concessionaires.

Eurostat norms which apply to public sector accounting, which apply to the accounting by the Concedent or grantor of the public service concession.