An Executive Guide to IFRS: Content, Costs and Benefits to Business

Concessions

One of the issues that faced the IASB when it came into being in 2001 was that it needed to make sure that its standards were suitable for European adoption in 2004/5. A gap that was identified was the lack of a standard for service concessions, or ‘public to private’ concessions. This is the provision, usually of some form of infrastructure, to a public authority by a private sector entity, in return for operating income. The infrastructure typically reverts to the public authority at the end of the contract. A typical example could be a motorway or a hospital. The advantage to the public body is that it gains the infrastructure without having to borrow money to finance its construction – it pays for it as it uses it. The Channel Tunnel was launched as exactly such a project where the private sector built and operates the tunnel, but ultimately ownership will revert to the British and French governments.

The IASB decided that it was not necessary to issue a standard to cover this: the topic could be dealt with as an Interpretation of existing standards. That choice was contested by some commentators, particularly the European Financial Reporting Advisory Group, who thought that the Interpretations Committee was in effect writing a new standard. Whatever one thinks about that, the rules are today to be found in Interpretation 12 Service Concession Arrangements.

The Interpretation uses the terms ‘grantor’ for the public authority issuing the concession, and ‘operator’ ...