In the letter entitled "Consolidated budgeting guidance for 2009-10 (IFRS updated)" issued on 28 April 2009, HM Treasury set out the proposed changes to the budgeting rules as a result of the move to International Financial Reporting Standards ("IFRS"). As set out in that letter, the accounting and budgetary treatments in relation to PFI and similar transactions1 will diverge from 1 April 2009:
- departmental resource accounts will follow the guidance in IFRIC 12 as amended in the Financial Reporting Manual ("FReM"); and
- departmental budgets must follow National Accounting standards, these standards are laid out in Part IV of the Manual on Government Deficit and Debt ("MGDD")2 (that provides guidance on the application of the European System of Accounts 1995 ("ESA 95")), and the technical guidance given in this paper.
The effect of this de-coupling is that where a service concession arrangement is controlled by the public sector within the meaning of IFRIC 12, but nonetheless passes sufficient risk transfer to the private sector under the MGDD tests, dual reporting will be required. HM Treasury committed to provide supplementary technical detail on the application of the guidance contained within the MGDD to PFI and similar transactions. That guidance is contained within this paper. Appendix A contains further detail on the background to the issues that are dealt with in this paper.
This paper has been prepared by Russell Coleman (tel. 020 7303 7895 rucoleman@deloitte.co.uk) and Mark Williams (tel. 020 7303 7648 mawilliams@deloitte.co.uk) of the Government Accounting Advisory Team at Deloitte LLP in conjunction with HM Treasury and the Office for National Statistics.