IPSAS 32 is adapted from IFRIC 12 Service Concession Arrangements and contains extracts from SIC 29 Service Concession Arrangements: Disclosures.
IPSAS 32 prescribes the accounting treatment for “Service Concession Agreements” by the grantor, a public service company. The standard is adapted (mirrored) from IFRIC 12 and SIC 29 which describe the accounting treatment from the point of view of the operator.
IPSAS 32 was issued in October 2011 and applies to annual periods beginning on or after 1 January 2014.
History of IPSAS 32
Annual periods beginning on or after 1 January 2014, earlier application possible if also IPSAS 5, IPSAS 13, IPSAS 17, IPSAS 29, and IPSAS 31 are applied at the same time.
Refer to IFAC website here
Summary of IPSAS 32 Service Concession Arrangements: Grantor
IPSAS 32 prescribes the accounting treatment for Service Concession Arrangements by the grantor, a public service entity [IPSAS 32.1].
This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 32.2]. IPSAS 32 applies to all public sector entities other than GBEs [IPSAS 32.3].
Key definitions [IPSAS 32.8]
Grantor: the entity that grants the right to use the service concession asset to the operator.
Operator: the entity that uses the service concession asset to provide public services subject to the grantor’s control of the asset.
Service concession arrangement: a binding arrangement between a grantor and an operator in which:
(i) The operator uses the service concession asset to provide a public service on behalf of the grantor for a specified period of time; and
(ii) The operator is compensated for its services over the period of the service concession arrangement.
Service concession asset: an asset used to provide public services in a service concession arrangement that:
(1) Is provided by the operator which:
(i) the operator constructs, develops, or acquires from a third party; or
(ii) is an existing asset of the operator
(2) Is provided by the grantor which:
(i) is an existing asset of the grantor; or
(ii) is an upgrade to an existing asset of the grantor.
Recognition of the asset
The grantor should recognize a service concession asset if [IPSAS 32.9]:
(i) The grantor controls or regulates what services the operator must provide with the asset, to whom it must provide them, and at what price; and
(ii) The grantor controls—through ownership, beneficial entitlement or otherwise—any significant residual interest in the asset at the end of the term of the arrangement.
If the asset is a ‘whole-of-life’ asset (i.e. an asset used in a service concession arrangement over the entire of the useful life), only the conditions under (i) need to be met [IPSAS 32.10].
Measurement of the asset
The grantor recognizes assets provided by the operator at fair value if the recognition criteria are met [IPSAS 32.11].
Existing assets of the grantor, meeting the conditions are reclassified as service concession assets and accounted for according to IPSAS 17 Property, Plant and Equipment or IPSAS 31 Intangible Assets [IPSAS 32.12].
Two types of service concession arrangements
In case the grantor recognizes an service concession asset, the grantor also recognizes a liability. The liability initially recognized, is measured on the same basis as the service concession asset adjusted for consideration paid by the grantor to operator or vice versa [IPSAS 32.14].
The nature of the liability recognized depends upon the way the grantor compensates the operator for its services [IPSAS 32.15]. The grantor may in exchange for the service concession asset [IPSAS 32.17]:
Make payments to the operator (“financial liability model”)
Compensate the operator in another way (“grant of a right to operator model”) such as:
o Right to earn revenue from third parties users of the asset
o Right to use another revenue generating asset
Any combination of the above compensation models may be possible.
When an existing asset of the grantor meets the criteria and is reclassified, no liability is recognized by the grantor, except when additional consideration is provided by the operator [IPSAS 32.14].
Financial Liability model
A financial liability has to be recognized if the grantor has an unconditional obligation to compensate the operator for the construction, development, acquisition, or upgrade of a service concession asset via a predetermined series of payments [IPSAS 32.18-19]. The IPSAS standards relating to financial instruments (IPSAS 28, 29 and 30) are applicable to this financial liability [IPSAS 32.20].
The grantor should allocate and account for the payments to the operator according to their substance as a reduction in the liability, a finance charge, and charges for services provided by the operator [IPSAS 32.21].
Grant of right to the operator model
Under this model the grantor does not have the unconditional obligation to pay cash to the operator. The grantor compensates the operator for the construction, development, acquisition, or upgrade of a service concession asset and related services by granting the operator the right to earn revenue from third-party users of the service concession asset or another revenue-generating asset. The grantor accounts for this liability as the unearned portion of the revenue arising from the exchange of assets between the grantor and the operator [IPSAS 32.24].
The grantor earns benefits associated with the service concession asset recognized in exchange for granting the right to the operator over the period of the arrangement. This exchange is regarded as a revenue generating exchange [IPSAS 32.26].
This revenue should be recognized and the liability reduced by the grantor according to the economic substance of the service concession arrangement [IPSAS 32.25].
Other Liabilities, Commitments, Contingent Liabilities and Contingent Assets
With regard to other liabilities, commitments, contingent liabilities and contingent assets arising from a service concession arrangement IPSAS 19, 28, 29 and 30 are applicable [IPSAS 32.29].
Other revenues should be accounted for in accordance with IPSAS 9 [IPSAS 32.30].
Required disclosures for service concession agreements are:
The grantor should present information in accordance with IPSAS 1 [IPSAS 32.31]
All aspects of a service concession arrangement shall be considered in determining the appropriate disclosures in the notes [IPSAS 32.32].
Following information in respect of each material service concession arrangements shall be disclosed in each reporting period [IPSAS 32.32-33]:
1) description of the arrangement;
2) significant terms of the arrangement that may affect the amount, timing, and certainty of future cash flows (e.g., the period of the concession, re-pricing dates, and the basis upon which re-pricing or re-negotiation is determined);
3) nature and extent (e.g., quantity, time period, or amount, as appropriate) of:
a. Rights to use specified assets;
b. Rights to expect the operator to provide specified services in relation to the service concession arrangement;
c. Service concession assets recognized as assets during the reporting period, including existing assets of the grantor reclassified as service concession assets;
d. Rights to receive specified assets at the end of the service concession arrangement;
e. Renewal and termination options;
f. Other rights and obligations (e.g., major overhaul of service concession assets); and
g. Obligations to provide the operator with access to service concession assets or other revenue-generating assets; and
4) changes in the arrangement
Issuance of IPSAS 28: Financial Instruments: Presentation
1 January 2013
Effective date of IPSAS 28