This is what this is about – IFRIC 12 Service concessions accounting. There is no definition in IFRIC 12 but a characteristic included is as follows: a service concession: “typically involves a private sector entity (an operator) constructing the infrastructure used to provide the public service or upgrading it (for example, by increasing its capacity) and operating and maintaining it for a specified period of time. The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes”.
The following summary provides the headlines of items to deal with in service concessions as per IFRS 12:
Treatment of the operator’s rights over the infrastructure
Infrastructure within the scope of IFRIC 12 is not recognised as property, plant and equipment of the operator because the contractual service arrangement does not convey the right to control the use of the public service infrastructure to the operator. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the contract.
The operator recognises a financial asset to the extent that it has an unconditional contractual right to receive cash irrespective of the usage of the infrastructure. The subsequent accounting of the financial asset should consider the guidance in IFRS 9 ‘Financial instruments’.
The operator recognises an intangible asset to the extent that it receives a right (a licence) to charge users of the public service.
Recognition and measurement of arrangement consideration
Under the terms of contractual arrangements within the scope of IFRIC 12, the operator acts as a service provider. The operator recognises and measures revenue in accordance with IFRS 15 Revenue from contracts with customers for the services it performs.
Construction or upgrade services Service concessions – Summary
The operator accounts for revenue and costs relating to construction or upgrade services in accordance with IFRS 15 Revenue from contracts with customers. If the operator provides construction or upgrade services the consideration received or receivable by the operator is recognised at its fair value. The consideration may be rights to:
- A financial asset (as described below) if it has an unconditional right to receive cash or another financial asset. This when the grantor contractually guarantees to pay the operator a specified amount or the shortfall between amounts received from users and a specified amount.
- An intangible asset (see IAS 38 45-47 for guidance) if it receives a right (a licence) to charge users for a public service.
Financial asset Service concessions – Summary
The amount due from or at the direction of the grantor is accounted for in accordance with IFRS 9 Financial Instruments, as:
- A loan or receivable at amortised costs; or
- A financial asset at fair value through profit or loss, if so designated upon initial recognition and the conditions for that classification are met.
Operation services Service concessions – Summary
The operator accounts for revenue and costs relating to operation services in accordance with IFRS 15 IFRS 15 Revenue from contracts with customers.
Borrowing costs incurred by the operator Service concessions – Summary
In accordance with IAS 23 – Borrowing Costs, borrowing costs attributable to the arrangement are recognised as an expense in the period in which they are incurred unless the operator has a contractual right to receive an intangible asset. In this case borrowing costs attributable to the arrangement are capitalised during the construction phase of the arrangement in accordance with IAS 23.
IFRIC 12 applies to public-to-private service concession arrangements in which the public sector body (the grantor) controls and/or regulates the services provided with the infrastructure by the private sector entity (the operator).
The concession arrangement also addresses to whom the operator should provide the services and at what price. The grantor controls any significant residual interest in the infrastructure.
The operator accounts for revenue and costs relating to construction or upgrade services and operation services in accordance with IFRS 15, ‘Revenue from contracts with customers’.
See also: The IFRS Foundation
IFRIC 12 Service concessions accounting
IFRIC 12 Service concessions accounting IFRIC 12 Service concessions accounting IFRIC 12 Service concessions accounting IFRIC 12 Service concessions accounting IFRIC 12 Service concessions accounting IFRIC 12 Service concessions accounting