ACCOUNTING: Guideline for Public-Private Partnerships
Recent Western Cape Business News
The increasing use of Public-private Partnership (PPP) agreements by the public sector in the past few years has lead to the need for accounting guidance for such agreements, and the Accounting Standards Board has approved a guideline to facilitate such reporting.
PPP agreements are important in ensuring that public sector entities can use private sector skills and capacity in their work.
The Guideline that addresses the accounting and reporting of assets, liabilities, revenue and expenditure by public sector entities (entities) under a PPP agreement was approved by the Board on 24th November last year. It provides entities with practical explanatory guidance on how to account for PPP agreements under the accrual basis of accounting, and includes principles from relevant Standards of GRAP.
The Guideline is a prerequisite for entities that have to comply with the Standards of GRAP. They should apply the Guideline as and when the Minister of Finance determines the implementation dates of the applicable Standards of GRAP.
The Guideline will also be a very useful aide for entities that don’t have to comply with the Standards of GRAP. In particular, they will find the principles in the Guideline useful in determining the appropriate financial reporting of similar agreements.
The Guideline adopts a control approach in determining whether the entity should account for any assets and in determining whether it has incurred any related obligation in terms of a PPP agreement. This approach mirrors the approach applied by private parties in IFRIC 12 Service Concession Arrangements. This approach is also consistent with the definition of an asset in the Framework for the Preparation and Presentation of Financial Statements.
The approach that should be applied at the start of a PPP agreement requires the entity to apply the following criteria to determine whether it controls the use of the underlying asset in the PPP agreement, and ultimately has to recognise such an asset in its financial statements.
· The entity controls or regulates what services the private party must provide with the associated asset, to whom it must provide them and at what price.
· The entity controls - through ownership, beneficial entitlement or otherwise - any significant residual interest in the asset at the end of the agreement.
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