Having determined the balance sheet treatment for the purposes of National Accounts, consideration then needs to be given to the recording of the subsequent transactions over the life of the PFI or similar transaction. Two likely cases are distinguished:
- In those cases where the underlying assets are deemed to be on balance sheet in the financial statements under IFRIC 12 and there is insufficient risk transfer under the MGDD criteria to the private sector such that the underlying assets are considered to be on balance sheet for the purposes of National Accounts, then the treatment will be the same in both the financial statements and the National Accounts3. In these cases no special recording needs to be considered.
- Conversely, where the underlying assets are reported as being on balance sheet under IFRIC 12, but there is adequate risk transfer under the MGDD criteria such that the underlying assets are not treated as being on balance sheet for the purposes of National Accounts, then it will be necessary to maintain dual reporting. In these cases the impact on the National Accounts will be that of an operating lease, i.e. the recognition of the unitary charge as a current cost as it is incurred.
Figure 3 sets out these requirements:
| MGDD - on public sector balance sheet for the purposes of National Accounts | MGDD - off public sector balance sheet for the purposes of National Accounts |
IFRIC 12 - on individual entity financial statements balance sheet | No special reporting required | Dual report required |
IFRIC 12 - off individual entity financial statements balance sheet | Dual report required | No special reporting required |
The records required for dual reporting will depend into which of the shaded quadrants in Figure 3 the transaction falls. Where the assets are assessed as not being on the balance sheet for the purposes of the National Accounts but on balance sheet for the purposes of the financial statements, appropriate records that deal with the assets in a way similar to other non-current assets must be maintained. The associated consequences of the transaction (depreciation, interest payable and service payments) should be separately identified. In addition, a record of the payments made to the private sector partner must be maintained for the purposes of the production of the National Accounts and departmental budgets, and reported to HM Treasury separately.
Where the assets are assessed as being on the balance sheet for the purposes of the National Accounts but off balance sheet for the purposes of the financial statements, appropriate records that deal with the assets in a way similar to other non-current assets must be maintained for the purposes of National Accounts and budgets in addition to the records held for the purposes of the production of individual entity financial statements. Further, the associated consequences of the transaction (depreciation, interest payable and service payments) should be maintained for the purposes of the National Accounts and departmental budgets. Guidance on recording these is provided in PES 2009 (7).
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3 Note that the MGDD guidance explicitly states that where the underlying asset will be recognised for National Accounts purposes then it is appropriate to recognise assets under construction during the construction phase. However, in line with general principles on the recognition of assets in the National Accounts (as set out in the MGDD also), public sector bodies will not be required to record assets under construction for the purposes of National Accounts where they can demonstrate that, in their financial statements, they are not deemed to be the economic owner of the assets until completion of the construction phase. This is on the grounds that spending should be recognised for National Accounts on an accruals basis.