4.1 One of the governing principles for PPP is that a successful PPP project must be for the provision of a service over a number of years rather than the purchase of an asset. Where a PPP contract results in the provision of a service or the purchase of an asset by the public sector these will be reflected in the accounting treatment of the transaction.
4.2 Where the assessment of the accounting treatment of a transaction is that it should be accounted for as the purchase of an asset on the balance sheet, then this is treated as capital expenditure and associated borrowing. This means that the cost of the asset will be charged in the first year of operation against Capital allocation.
4.3 The assessment of the accounting treatment of a PPP scheme is a helpful guide to assessing the level of risk transfer and related affordability implications. Schemes assessed as on balance sheet will require capital funding in the same way as publicly funded schemes. It is critical that the accounting implications of any changes to the basic contract structure are understood before they are agreed.