IFRIC 12 — Service Concession Arrangements https://www.iasplus.

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IFRIC 12 — Service Concession Arrangements

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References
IFRS 1 (https://www.iasplus.com/en/standards/ifrs/ifrs1) First-time Adoption of International Financial
Reporting Standards
IFRS 7 (https://www.iasplus.com/en/standards/ifrs/ifrs7) Financial Instruments: Disclosures
Framework for the Preparation and Presentation of Financial Statements (in September 2010, replaced by
Conceptual Framework for Financial Reporting (https://www.iasplus.com/en/standards/other/framework))
IAS 8 (https://www.iasplus.com/en/standards/ias/ias8) Accounting Policies, Changes in Accounting
Estimates and Errors
IAS 11 (https://www.iasplus.com/en/standards/ias/ias11) Construction Contracts
IAS 16 (https://www.iasplus.com/en/standards/ias/ias16) Property, Plant and Equipment
IAS 17 (https://www.iasplus.com/en/standards/ias/ias17) Leases
IAS 18 (https://www.iasplus.com/en/standards/ias/ias18) Revenue
IAS 20 (https://www.iasplus.com/en/standards/ias/ias20) Accounting for Government Grants and
Disclosure of Government Assistance
IAS 23 (https://www.iasplus.com/en/standards/ias/ias23) Borrowing Costs
IAS 32 (https://www.iasplus.com/en/standards/ias/ias32) Financial Instruments: Presentation
IAS 36 (https://www.iasplus.com/en/standards/ias/ias36) Impairment of Assets
IAS 37 (https://www.iasplus.com/en/standards/ias/ias37) Provisions, Contingent Liabilities and Contingent
Assets
IAS 38 (https://www.iasplus.com/en/standards/ias/ias38) Intangible Assets
IAS 39 (https://www.iasplus.com/en/standards/ias/ias39) Financial Instruments: Recognition and
Measurement
IFRIC 4 (https://www.iasplus.com/en/standards/ifric/ifric4) Determining whether an Arrangement contains
a Lease
SIC 29 (https://www.iasplus.com/en/standards/sic/sic-29) Disclosure - Service Concession Arrangements

History
Date Development Comments
3 March 2005 (https://www.ias- IFRIC D12 Service Concession Arrangements - Determining Comment deadline 31
plus.com/en/news/2005/March the Accounting Model, IFRIC D13 Service Concession May 2005
/news2234) Arrangements - the Financial Asset Model and IFRIC D14
Service Concession Arrangements - the Intangible Asset
Model published
30 November 2006 IFRIC 12 Service Concession Arrangements issued Effective for annual
(https://www.iasplus.com periods beginning on
/en/news/2006/December or after 1 January
/news2628) 2008
Summary of IFRIC 12
Service concession arrangements defined

A service concession arrangement is an arrangement whereby a government or other public sector body contracts
with a private operator to develop (or upgrade), operate and maintain the grantor's infrastructure assets such as
roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals. The grantor controls or regu-

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IFRIC 12 — Service Concession Arrangements https://www.iasplus.com/en/standards/ifric/ifric12

lates what services the operator must provide using the assets, to whom, and at what price, and also controls any
significant residual interest in the assets at the end of the term of the arrangement.

The objective of IFRIC 12 is to clarify how certain aspects of existing IASB literature are to be applied to service
concession arrangements.

Two types of service concession arrangements

IFRIC 12 draws a distinction between two types of service concession arrangement.

In one, the operator receives a financial asset, specifically an unconditional contractual right to receive a
specified or determinable amount of cash or another financial asset from the government in return for con-
structing or upgrading a public sector asset, and then operating and maintaining the asset for a specified
period of time. This category includes guarantees by the government to pay for any shortfall between
amounts received from users of the public service and specified or determinable amounts.
In the other, the operator receives an intangible asset – a right to charge for use of a public sector asset
that it constructs or upgrades and then must operate and maintain for a specified period of time. A right to
charge users is not an unconditional right to receive cash because the amounts are contingent on the ex-
tent to which the public uses the service.

IFRIC 12 allows for the possibility that both types of arrangement may exist within a single contract: to the extent
that the government has given an unconditional guarantee of payment for the construction of the public sector as-
set, the operator has a financial asset; to the extent that the operator has to rely on the public using the service in
order to obtain payment, the operator has an intangible asset.

Accounting – Financial asset model

The operator recognises a financial asset to the extent that it has an unconditional contractual right to receive
cash or another financial asset from or at the direction of the grantor for the construction services. The operator
has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator
(a) specified or determinable amounts or
(b) the shortfall, if any, between amounts received from users of the public service and specified or deter-
minable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets
specified quality or efficiency requirements.
The operator measures the financial asset at fair value.
Accounting – Intangible asset model

The operator recognises an intangible asset to the extent that it receives a right (a licence) to charge users of the
public service. A right to charge users of the public service is not an unconditional right to receive cash because
the amounts are contingent on the extent that the public uses the service.

The operator measures the intangible asset at fair value.

Operating revenue

The operator of a service concession arrangement recognises and measures revenue in accordance with IASs 11
and 18 for the services it performs.

Accounting by the government (grantor)

IFRIC 12 does not address accounting for the government side of service concession arrangements. IFRSs are
not designed to apply to not-for-profit activities in the private sector or the public sector. However, the International
Public Sector Accounting Standards Board (IPSASB (https://www.iasplus.com/en/resources/global-organisations
/ipsasb)) has started its own project on service concession arrangements, which will give serious consideration to
accounting by grantors. The principles applied in IFRIC 12 will be considered as part of the project.

Effective date

IFRIC 12 is effective for annual periods beginning on or after 1 January 2008. Earlier application is permitted.

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Accounting by the grantor government – IPSASB standards

On 31 October 2011, the International Public Sector Accounting

Standards Board (IPSASB (https://www.iasplus.com/en/resources/global-
organisations/ipsasb)) released IPSAS 32 Service Concession
Arrangements: Grantor, which seeks to address a lack of international
guidance on how governments and other public sector entities should re-
port their involvement in service concession arrangements, often used to
build the infrastructure necessary to maintain and improve critical public
services.

IPSAS 32 provides for the recognition, measurement, and disclosure of

service concession assets and related liabilities, revenues, and expenses
by the grantor. The criteria in IFRIC 12 Service Concession Arrangements
for determining whether the operator controlled the asset used in a ser-
vice concession arrangement are also used in IPSAS 32 to assess
whether the grantor controlled the asset. This approach minimises the
possibility that neither the operator nor the grantor would recognise the
service concession asset.

IPSAS 32 also creates symmetry with IFRIC 12 on relevant accounting is-

sues (i.e. liabilities, revenues, and expenses) from the grantor's point of
view. In addition, IPSAS 32 is consistent with SIC-29 (https://www.ias-
plus.com/en/standards/sic/sic-29) Service Concession Arrangements:
Disclosures.

Click for IPSASB press release (http://www.ifac.org/news-events/2011-10

/ipsasb-approves-ipsas-32-service-concession-arrangements-grantor-
and-annual-impr) (link to IFAC website).

Deloitte guide to IFRIC 12

Guide to IFRIC 12 Service Concession Arrangements In February 2011, Deloitte's IFRS Global Office pub-
lished IFRIC 12 Service concession arrangements – A pocket practical guide.

The Guide is intended to serve as an illustrative tool for the reader in the application of IFRIC 12 Service
Concession Arrangements, providing analysis of the requirements of IFRIC 12 and practical guidance with
examples that address some of the more complex issues around service concession arrangements. The
Guide provides guidance on scope, the determination of the accounting model, specific characteristics of
concessions that are common (take-or-pay arrangements, capacity availability, etc.) and much more.

Click for IFRIC 12 Service concession arrangements – A pocket practical guide (https://www.iasplus.com
/en/publications/global/guides/ifric-12) (PDF 241k, February 2011, 59 pages).

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