A common characteristic of PPPs is their complexity, and this complexity influences the accounting treatment of PPP assets and obligations adopted by governments and private sector operators.
While there is currently no international or Australian accounting standard for PPPs, significant work is underway within the International Accounting Standards Board (IASB) to develop a specific international standard for PPPs. The absence of an accounting standard has led to diverse accounting treatments for PPPs across jurisdictions and corresponding gaps in accountability obligations.
In the absence of a definitive standard, Australian jurisdictions have relied on the accounting profession's standard on leases (when applicable to particular PPPs), and guidance material issued by the Heads of Treasury Accounting and Reporting Advisory Committee. This is based on a standard in place in the United Kingdom.
The direction signalled in draft pronouncements of the IASB's financial reporting interpretations committee has attracted considerable criticism from Australian jurisdictions. At the date of this report, feedback received on the draft pronouncements was under consideration by the IASB.
The debate within the accounting profession has centred on three accounting approaches:
1. a 'control' approach favoured to date in the IASB's draft pronouncements
2. a 'risks and rewards' approach embodied in the United Kingdom's accounting standard and relied on in guidance issued by Australian Treasuries
3. a 'rights and obligations' approach based on proposed major revisions to the existing international lease standard.
This chapter outlines the principal features of each approach and of the views put forward by the main parties.
The Committee considers that the 'rights and obligations' method for accounting for PPPs offers the best option. It is hopeful that an accounting standard with universal support can be issued soon to provide uniformity of practice for this complex area of public sector financial reporting.