Chapter 14


Sec. 1. Scope. This Chapter provides standards, policies, guidelines and procedures of accounting for service concession arrangements by the grantor, a public sector entity. This includes the recognition of service concession asset, liability, revenue, expenses and equity, and the required presentation and disclosures in the financial statements.

Sec. 2. Definition of Terms. For the purpose of this Manual and this Chapter, the terms used as stated below shall be construed to mean as follows:

a. Binding Arrangement - describes contracts and other arrangements that confer rights and obligations on the parties thereto as if it were a contract.

b. Grantor - is the public sector entity that grants the right to use the service concession asset to the operator. For the purpose of this Manual, the grantor is a NGA which may be a department, commission,

c. Operator - is the entity that uses the service concession asset to provide public services subject to the grantor's control of the asset.

d. Service Concession Arrangement - is a binding arrangement between a grantor and an operator in which the operator uses the service concession asset to provide a public service on behalf of the grantor for a specified period of time; and the operator is compensated for its services over the period of the service concession arrangement.

e. Service Concession Asset - is an asset used to provide public services in a service concession arrangement that:

1. Is provided by the operator which the operator constructs, develops, or acquires from a third party; or is an existing asset of the operator; or

2. Is provided by the grantor which is an existing asset of the grantor; or is an upgrade to an existing asset of the grantor.

Sec. 3. Recognition and Measurement of a Service Concession Asset. The grantor shall recognize an asset provided by the operator and an upgrade to an existing asset of the grantor as a service concession asset if:

a. 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

b. 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.

The grantor does not need to have complete control of the price: it is sufficient for the price to be regulated by the grantor, binding arrangement, or a third party regulator that regulates other entities that operate in the same industry or sector (e.g., hospitals, schools, or universities) as the grantor (e.g., by a capping mechanism). If an arrangement gives the operator freedom to set prices, but any excess profit is returned to the grantor, the operator's return is capped and the price element of the control test is met.

Control should be distinguished from management. If the grantor retains both the degree of control described in paragraph 9(a) and any significant residual interest in the asset, the operator is only managing the asset on the grantor's behalf-even though, in many cases, it may have wide managerial discretion.

Back | Next

| Table of Contents | Home |