As a result of the aforementioned difficulties, the International Accounting Standards Board (2011) has issued a new set of guidelines (IPSAS 32)34 that force an upfront accounting for PPPs and would significantly affect deficits and recognition of liabilities for general government-i.e., for both central and subcentral governments and related agencies. This ensures that the operator is effectively compensated for services rendered during the concession period. It requires the government or granting public agency to recognize assets and liabilities in their financial statements when the following conditions are met:
• The government or granting public agency controls or regulates the services to be provided, the target beneficiaries, or the price;
• The grantor controls a significant residual interest in the asset at the end of the arrangement through ownership, beneficial entitlement, or otherwise.
This avoids the situation where neither the public nor private partner recognizes the asset/liability at the end of the period. Indeed, as has been recently seen in Ireland and Spain (and with Mexican roads in the early 1990s), even if no explicit guarantees are made by the federal or state governments, when there is sufficient pressure on the banking system, the central government is likely to assume a significant portion of the liabilities.
The implications are as follows:
• The annual budgets for each level of government must be cast in a medium-term framework;
• It is essential to undertake a full and careful evaluation of assets and liabilities associated with accounting and reporting of risks with a sufficiently long time horizon (using international standards for budgeting and tracking liabilities, such as the GFSM, which also provides consistency with the System of National Accounts).