Key findings of the Committee: 9.1 There is no Australian accounting standard or definitive guidance material on accounting for public private partnership arrangements. 9.2 In the absence of authoritative guidance, reliance has been placed on Australian Accounting Standard AASB117, Accounting for Leases, and on guidance material issued by the Heads of Treasury Accounting and Reporting Advisory Committee. The guidance material reflects the principles detailed in the United Kingdom Reporting Standard FRS5, Reporting the substance of transactions: private finance initiatives and similar contracts. 9.3 The International Accounting Standards Board has issued a series of draft interpretations seeking comments on an accounting model for PPP arrangements. The draft interpretations favour a 'control' approach where the party to the arrangements, that is deemed to control the assets, is to record the assets in their financial reports. 9.4 The draft interpretations rely on a new definition of control in contrast to existing accounting standards. If the residual interest in an asset passes to the government at the end of the concession agreement, the government should be considered as controlling the property on completion of construction. This concept is in contrast to the 'risks and rewards' approach embodied in the United Kingdom standard FRS5, currently recommended by Heads of Treasury in Australia and which often results in the private operator being deemed as controlling the assets. 9.5 The majority of submissions on the draft interpretations received by the International Accounting Standards Board did not support its proposed concept of control. The concept was commonly seen as too simplistic, and therefore may not properly address the substance of complex commercially negotiated arrangements. 9.6 The draft interpretations issued by the International Accounting Standards Board only reflected the accounting treatment from the view of the private operator and did not take into account a public sector perspective on an appropriate accounting treatment. 9.7 A 'rights and obligations' approach, where the respective rights and obligations of each party are scrutinised to determine the respective assets and liabilities of each party, merits further consideration. 9.8 The Committee acknowledges that the International Accounting Standards Board will ultimately determine the new International Financial Reporting Standard for PPP arrangements. The Committee, however, encourages the Department of Treasury and Finance in conjunction with other interested parties within Australia to further encourage the Board to examine a 'rights and obligations' approach prior to formalising a new accounting standard that will apply to the Victorian public sector. |