Based on the requirements of Application Note F, the principles to be followed in determining the appropriate accounting for PFPs are as follows:
1. Where a PFP can be separated into elements that operate independently of each other, and where some of those elements relate only to services rather than the infrastructure, ignore any such service elements as they are not relevant to determining whether each party has an asset of the infrastructure.
2. Once any such separable service elements have been excluded, determine whether all of the remaining elements of the PFP are payments for the infrastructure (in which case they are akin to a lease and can be dealt with under Accounting Standard AASB 117 Leases) or whether they include some services (in which case they need to be analysed further).
3. Where the remaining elements do not fall wholly within the scope of AASB 117, analyse them to determine, on the basis of which entity has the majority of the risks and benefits, whether the purchaser or operator should recognise the infrastructure as an asset.
4. In determining the accounting treatment, give greater weight to those features that are more likely to have a commercial effect in practice.
5. In analysing the remaining elements, consider such factors as:
• demand risk
• the presence, if any, of third-party revenues
• who determines the nature of the property
• penalties for underperformance or non-availability
• potential changes in relevant costs
• obsolescence, including the effects of changes in technology
• the arrangements at the end of the contract and residual value risk.
These principles are discussed in greater detail in Application Note F which is attached here as Appendix 1.
Where it is concluded from the analysis that the public sector purchaser has an asset of the infrastructure and a liability to pay for it, record these in its balance sheet.
Where it is concluded that the public sector purchaser does not have an asset of the property, there may nevertheless be other assets or liabilities that require recognition. These can arise in respect of up-front contributions, the residual interest in the infrastructure at the end of the concession period, and other obligations of the purchaser.
Detailed guidance on applying the requirements of Application Note F to Australian PFPs has been prepared by a working party established under the sponsorship of the Heads of Treasuries (HoTs) of Australian Governments and issued in June 2005. This document builds on Technical Note No 1 How to Account for PFI Transactions, issued by the United Kingdom Treasury Task Force in relation to Application Note F. These documents are available on the NSW Treasury website together with this paper.