In November 2006, the IASB's International Financial Reporting Interpretation Committee issued "Interpretation 12, Service Concession Arrangement" (IFRIC 12).
IFRIC 12 provides guidance to the private sector on the reporting of assets associated with service concession agreements. It defines service concession agreements as including both arrangements where the non-government partner directly charges the public (as third party users) and agreements where the nongovernment partner charges the government for the service provided. In the latter case, the government may pay the non-government partner either on behalf of the public (as third party users) or because it receives directly the service. In other words, IFRIC 12 deals in part with PPPs.
This interpretation provides accounting and financial reporting guidance for "operators" of PPPs. In other words, IFRIC 12 addresses only accounting by the nongovernment partner.
IFRIC 12 requires the reporting of PPP assets on the basis of a "control" test or criterion. In particular, IFRIC 12 is applicable to PPPs where the government controls or regulates (i) the asset-related services that the non-government partner provides, to whom it must provide them, and at what price and (ii) any significant residual interest in the assets at end of the PPP11.
Critically, IFRC 12 requires the non-government partner not to report PPP assets on the private partner's balance sheet if the private partner does not control use of the assets. The test, therefore, is wholly based on control and is independent of which party holds the legal title to the assets. It should be noted that IFRIC 12, as a private sector standard, does not require that the assets should be recorded by a government in this case.
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11 The second condition is not required if the asset is used for its entire economic life of the PPP.