3. In its "Consolidated budgeting guidance for 2009-10 IFRS Updated" issued on 28 April 2009, HM Treasury set out the proposed changes to the budgeting rules as a result of the move to International Financial Reporting Standards (IFRS). Essentially there is a divergence in the accounting and budgetary treatments in relation to PFI from 1 April 2009:
• Resource accounts (DRAc) follow the guidance in IFRIC 12
• Budgets will follow National Accounting standards. These standards are laid out in Part IV of the Manual on Government Deficit and Debt which provides guidance on the application of the European System of Accounts 1995 (ESA 95).
4. Under IFRIC 12 the Balance Sheet treatment is based on who has control over the use of the asset/s in question whilst under ESA 95 (as under UKGAAP) the Balance Sheet treatment is determined on the basis of which party bears most of the risk and reward attached to the asset/s in question.
5. The effect of this change is that where a PFI is controlled by the MOD within the meaning of IFRIC 12, but nonetheless passes sufficient risk transfer to the Operator under ESA95, dual reporting will be required.
6. Whilst the classification of all PFI contracts signed before 1.4.09 has been reviewed under both IFRIC 12 and ESA 95, significant contract amendments (or series of smaller ones) may fundamentally change the allocation of risk in the contract. Consequently the effect of contract amendments will also need to be reviewed under IFRIC 12 and ESA95.