Propuesta

The Committee acknowledges the widespread opposition to the IFRIC proposals, largely on the basis that the ‘control’ approach is too simplistic and does not address a range of factors:

• the IFRIC definition of ‘control’ assumes that the government has the power to regulate operations. This assertion is incorrect, apart from in emergency

situations and for other mandatory requirements such as building standards and occupational health and safety requirements;

• the IFRIC draft assumes that the operator does not have a right of use but in practice, operators can have considerable discretion as to use, including options

393 _{Australian Heads of Treasury Accounting and Reporting Advisory Committee, response to the International} Financial Reporting Interpretations Committee Draft Interpretation, D12 – Service Concession

such as sub-leasing, refusal of access to government in the event of payment default, additional services and restrictions on the disposal of the assets; • the IFRIC draft places the government in control of the asset but in some PPP

arrangements, the government will not actually assume control for 30 or 50 years. The government’s take-up of an asset on completion of construction without the ability, in many instances, to directly derive economic benefits from the asset would distort financial reports;

• although it could be argued that the government has a right to future economic benefits on expiration of the concession arrangement, these benefits are

incapable of measurement so far in advance;

• to raise venture capital, the private operator would need to be seen to be controlling the asset on completion of construction. Under the IFRIC proposal control of the asset would be with the government, despite the operator

assuming most of the risks in return for the economic benefits. Such a situation contradicts the concept of control under existing accounting standards. The removal of an asset from the accounts of the operator would also have serious commercial consequences for operations and for the financial industry. With such a large liability for borrowings without a corresponding asset, the net equity of the company could be seen to be negative and technically insolvent; • the IFRIC draft has not provided detailed information to explain why the ‘risk

and rewards’ model is not appropriate, despite the fact that to determine control, an analysis of risks and rewards is essential; and

• the IFRIC draft asserts that the operator only manages an asset that is

controlled by the government. Operators in fact often have wide discretion as to the design, construction and operation of an asset, all of which have a significant bearing on which party gains the benefits and bears the risks. Other major concerns raised in the submissions included:

• the draft IFRIC papers only considered the accounting entries from the

perspective of the operators, not the government, a major omission that must be addressed. Irrespective of the deemed transfer of risks seen to be borne by the private sector, in the event of a PPP project and/or the operator collapsing, the government will take back control of the project given its duty of care to the public. This draft does not recognise this overriding factor;

• although disputed by IFRIC, its definition of control conflicts with the principles for the preparation of financial reports embodied in the AASB’s

Framework for the preparation and presentation of financial statements issued by the Australian Accounting Standards Board on behalf of the Australian Government. The potential for conflict would need to be resolved before a standard dealing with accounting for PPPs was issued.

The Committee also noted that the Urgent Issues Group of the Australian Accounting Standards Board was so concerned about the draft interpretations that it was suggested to the International Accounting Standards Board that the IFRIC’s work on the interpretation draft be terminated, and in its place, the AASB commence work on a comprehensive project as a matter of urgency.394

9.3 Conclusion

Responses to the IFRIC draft demonstrate strong opposition to the ‘control’ approach, with a ‘risk and rewards’ approach being preferred. The principles surrounding the

‘rights and obligations’ approach appear to have considerable merit and may well reflect a compromise with the added advantages of recognising emerging assets as well as taking into account all assets and liabilities of the respective parties. As previously referred to, the ‘risk and rewards’ approach, which has been endorsed for use within Australia, does not take into account all major risks that could arise from contractual obligations. Measurement of emerging assets will require refinement under such an approach.

Given the diversity of opinions expressed about a proposed accounting standard for PPPs, it appears premature for a new accounting standard to be issued in the near future, particularly given the pending development of a new leasing standard. The

‘rights and obligations’ approach to determining accounting for PPP arrangements is a good option for this complex area of accounting and merits further consideration. Accordingly, the Committee encourages the Department of Treasury and Finance, in conjunction with other interested parties within Australia, to encourage the International Accounting Standards Board to further examine this option prior to formalising a new International Financial Reporting Standard, which would be applicable to the Victorian public sector.

The Committee will view with interest further developments on this important issue, especially given the impact of these multi million dollar developments on state finances and the potential for assets and liabilities of the state to be misrepresented in financial reports. At the date of this report, there had been no further developments on the new standard.