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In November 2019 the Public Sector Accounting Board (PSAB) issued an Exposure Draft (ED) proposing to issue new Section PS 3160
Public Private Partnerships. The ED provides proposed guidance on the accounting for a public private partnership (P3).
A P3 is an alternative finance and procurement model available to public sector entities to design, build, acquire or better infrastructure, and includes the following types of P3s:
Currently, there is no guidance regarding the accounting for a P3. This is causing difficulties for financial statement users and other stakeholders in comparing financial results for similar types of P3s.
The main features of the ED are:
A public sector entity should recognize an asset in relation to infrastructure or a betterment to infrastructure, where, through the terms and economic substance of a P3, the public sector entity controls:
A public sector entity should recognize a liability when the public sector entity has recognized an infrastructure asset in relation to a P3 and has an obligation to provide consideration to the private sector partner. The type of consideration provided to the private sector partner will determine whether the public sector entities recognizes a financial liability (i.e. a financial liability model) or a performance obligation (i.e. a user-pay model), or a combination of both.
The initial cost of an infrastructure asset constructed or acquired as part of a P3 arrangement should be measured at its fair value. Fair value is the price a market participant would pay for an equivalent infrastructure asset with the same service potential and risk profile. The discount rate used for initial measurement is the contract rate, which is the rate implicit in the P3 arrangement and best reflects the cost of the asset and the borrowing costs charged to the public sector through a P3 transaction. In subsequent periods, the cost of an infrastructure asset with a limited life, less any residual value, is amortized over its useful life in a rational and systematic manner.
If a liability has been recognized, it is initially measured at the same amount as the related infrastructure asset, reduced for any financial or non-financial consideration previously provided to the private sector partner. In the financial liability model, subsequent measurement of the financial liability should be at amortized cost using the effective interest method. When the public sector entity recognizes a liability in the user-pay model as part of granting the private sector partner the right to earn revenue from third-party users or from another revenue-generating asset, revenue should be recognized, and the liability reduced according to Section PS 3400
The following disclosures are required by a public sector entity for its P3s:
Public sector entities must consider the usefulness of the information when deciding on the level of detail to disclose.
The ED proposes that this Section may be applied retroactively or prospectively, as described under Section PS 2120
Accounting Changes, to fiscal years beginning on or after April 1, 2022. Once the final Section is released, earlier adoption is encouraged.
Comments for this ED were due by February 29, 2020. PSAB will deliberate the feedback once the responses are received.
Full details on the project can be found
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of March 27, 2020. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2020. All rights reserved.
Categories:Public Sector Standards
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