3.25  From April 2009, Departments and central public bodies will use International Financial Reporting Standards (IFRS) to produce their accounts. Local authorities will adopt IFRS from April 2010, but will apply an IFRS based approach to PFI accounting from 2009-10.

3.26  The implementation of IFRS provides an opportunity for a more consistent approach to PFI accounting.53 IFRS replaces UK GAAP's focus on the balance of risk with a focus on the balance of control.54 This means that a public authority's accounts will record the asset and liability of a PFI project on a balance sheet where it:

(i)  Controls or regulates what services the contractor must provide with the PFI asset, to whom it must provide them and at what price; and

(ii)  Controls any significant residual value interest in the fixed asset at the end of the arrangements (eg the public authority can control the use of the asset at the end of the contract, perhaps by an option to purchase it at a set price).

In practice, we expect that nearly all PFI projects will be on the published balance sheets of the individual public bodies after the implementation of IFRS.

3.27  The Office for National Statistics uses European System of Accounts 95 guidance (ESA 95) to prepare National Accounts. ESA 95 is produced by the European Commission to standardise economic statistics between EU Member States. ESA 95 is in turn consistent with the System of National Accounts, which was prepared under the auspices of the United Nations and is used globally.

3.28  Like UK GAAP, ESA 95 determines the treatment of PFI projects on the basis of the balance of risk. The Office for National Statistics had been able to take the pragmatic approach of using accounting judgements as a source for its data when the accounting judgements were based on UK GAAP, but it decided it could not do so when they were prepared using IFRS.

3.29  The Treasury announced in April 2009 that with the move to IFRS, departmental budgets would follow the treatment in the National Accounts using ESA 95's focus on the balance of risk, and would no longer align with the accounting treatment.55

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53  Financial Auditing and Reporting: General Report of the Comptroller and Auditor General, National Audit Office (HC 417, 2007-08).

54  This is based on principles set out in the International Financial Reporting Interpretations. See Committee interpretation No.12: Service concession arrangements (IFRIC 12), 2006. IFRIC 12 is designed for the private sector, but is also used as the basis of guidance for the public sector.

55  For a fuller explanation see Technical Guidance on the Application of the Standards used in the production of National Account to PFI and Similar Transactions, HMT (September 2009).