10.2.1 Accounting framework

The AASB Framework sets out the concepts that underline the preparation and presentation of financial reports and assists preparers of financial reports in dealing with specific financial reporting topics. However, PPP accounting by the public sector is yet to form the subject of the Australian accounting standards. As a result, the accounting for PPP transactions by the public sector has generally relied on guidance provided by international accounting bodies. Specific AASB standards have been consulted as appropriate and are typically used in instances where concepts considered by the Australian accounting standards are, in substance, relevant to procurement using a PPP approach.

AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors requires that transactions and other events are accounted for in accordance with their substance and economic reality, and not merely their legal form. It is important to note that in certain circumstances, the accounting for several transactions shall not be determined in isolation, especially if they have been negotiated as a single package and are performed in a continuous sequence.

The following guidance is currently in place for accounting for PPPs:

• Guidance issued by the Heads of Treasuries Accounting and Reporting Advisory Committee (HoTARAC) for government bodies, based on a predominant economic ownership model, using seven risk and reward categories. The predominant owner's balance sheet should recognise the property;

• Australian Interpretation 12 issued by the AASB in February 2007 applicable for financial reporting periods commencing from 1 January 2008. It applies specifically to private operators (not government grantors). Private operators should not recognise property controlled by a government body; and

• A consultation paper ITC 16 of the International Public Sector Accounting Standards Board (IPSASB) on Accounting and Financial Reporting for Service Concession Arrangements, which proposes that a public sector party (referred to as a grantor) that controls the property underlying the PPP arrangement should recognise that property as an asset in its financial statements.

Further details on the current and proposed guidance are included in Appendix G to this guidance.