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FMI
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IGF JOURNAL
VOLUME 25, NO. 1
• If a majority of the receipts that the
Concession Operator receives from the
government entity (or other users) are
variable, then the Concession Operator
has an intangible asset.
• There is also a hybrid model which
includes elements of both a financial
asset and intangible asset.
The most common structure in Canada
is the financial asset model, which will
be the focus in this article and illustrates
typical Concession Operator accounting.
The financial asset accumulates during
the construction period as the Concession
Operator
constructs
infrastructure.
After
substantial
completion,
and
commencement of the concession period,
the financial asset decreases as the
government payment stream begins.
IFRIC12, in essence, treats the accounting
in the Concession Operator’s financial
statements as a financing arrangement.
Assuming total contract receipts are in
excess of the construction costs plus interest
capitalized during construction, there
is a positive yield on the project which
constitutes finance income. Finance income
represents the incomeearnedonthefinancial
asset recognized on an effective yield basis.
When the Concession Operator receives a
payment during the concession period, it
will apportion the payment between (i) a
repayment of the financial asset, which will
be used to reduce the carrying amount of the
financial asset on its statement of financial
position, and (ii) effective interest income,
which will be recognized as finance income
in its statement of comprehensive income.
When the contract for constructing and
operating/maintaining the infrastructure
ends, the financial asset will have been fully
drawn down.
Accounting for P3s under Canadian
public sector accounting standards
Governments that have entered into P3s
account for these arrangements under
Canadian Public Sector Accounting
Standards (PSA standards). Unlike
International Public Sector Accounting
Standards, the PSA standards do not
include a specific standard or guideline
for P3s. Governments need to determine
whether to recognize assets, liabilities,
revenues and expenses based on the terms
of the contractual arrangement. Among the
key issues from an accounting perspective
are the recognition and measurement
of tangible capital assets which will be
explored further.
As noted above, P3s represent another
method of acquiring a tangible capital asset
and financing its acquisition. However, it
is important to consider the substance of
the arrangement, including the allocation
of risks amongst the parties to the
arrangement and the party that controls
any significant residual interest in the asset.
An asset is considered to have been acquired
when the risks and rewards of ownership
are transferred to the government.
Under PSA standards, an asset is
broadly defined as “an economic resource
controlled by a government as a result
of past transactions and events and from
which future economic benefits are
expected to be obtained”. Let’s look at each
of these three elements of the definition.
1 Economic resource controlled by
a government - The government
must control the future economic
benefit associated with the asset and
be able to regulate access to the asset.
Consideration should also be given as to
whether the agreement contains a lease.
2. As a result of past transactions or events
- The past transaction or event is the
contractual agreement that the parties
have entered into.
3. Future economic benefits are expected
to be realized - Assets held for use in the
supply of goods or services are expected
to produce economic benefits when the
risks and rewards of ownership have
transferred to the government.
PSA standard 3150,
Tangible Capital
Assets
, requires that tangible capital assets
are recorded at cost, including overhead
costs directly related to the construction of
the assets. A government usually chooses to
capitalize interest costs incurred during the
construction of the P3 asset. A government
will discontinue capitalizing costs when
construction has been completed and
the asset is ready to be brought into use.
Infrastructure assets are amortized over
their estimated useful lives which in most
cases are very long. In the event that a
tangible capital asset no longer contributes
to the government’s ability to provide
goods or services, or the value of future
economic benefits is less than its carrying
value, the asset would need to be written
down to reflect the decline in its value.
Increasing use of the P3 model
Today, Canada has one of the world’s
most significant P3 markets in terms of
both the capital size of transactions and
total volume. Part of the success of P3s in
Canada can be attributed to the creation of
dedicated P3 agencies at the provincial and
federal levels.
As part of the 2013 Budget and the
Economic Action Plan 2013, the federal
government announced its plans to renew
the P3Canada Fund by providing additional
funding totalling $1.25 billion over the
next five years. The Economic Action Plan
2013 proposes to implement a P3 screen on
projects with capital costs of more than $100
million submitted by provinces, territories,
and municipalities for funding under the
Building Canada Fund; it also proposes to
allocate $10 million from the P3 Canada
Fund to support procurement-option
assessments undertaken by provinces,
territories, and municipalities.
The current growth area for P3s
in Canada is at the municipal level of
government. Municipal interest in P3s
has been driven largely by the potential to
receive partial federal funding from the P3
Canada Fund.
About the Authors:
Mark Hodgson, P.Eng.,
MBA, leads Deloitte’s
Infrastructure Advisory
and Project Finance
practice in western
Canada. He primarily
advises governments
in the planning,
procurement and ongoing management of
infrastructure projects delivered under P3
models.
Tony Barke, CA, is a
senior partner in the
audit practice of Deloitte.
His practice includes
the audit of numerous
P3s and he has
significant expert witness
experience in accounting
for large infrastructure
projects.
Shirley Wolff, CA, leads
Deloitte audit public
sector practice across
British Columbia. She is
responsible for the audits
of many government
organizations and
presents on topics
relevant to this sector. Shirley is also a
member of the ICABC’s government
organizations accounting and auditing
forum.
ACCOUNTING FOR PUBLIC-PRIVATE PARTNERSHIPS
