IPSAS 32: Service Concession Arrangements: Grantor, establishes the accounting and reporting requirements for the grantor in a service concession arrangement. In these kinds of arrangements the grantor is a public sector entity. Service Concession arrangements in the public sector are characterized by binding arrangements that involve private sector participation in the development, financing, operation and/or maintenance of assets used to provide public services. IPSAS 32 intention is to create symmetry with IFRIC 12: Service Concession Arrangements on relevant accounting issues (that is, liabilities, revenue and expenses) from the grantor’s point of view.
Required:
i) State and Explain TWO (2) conditions that a grantor can recognize Service Concession Asset. (4 marks)
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- The grantor shall recognize an asset provided by the operator and an upgrade to an existing asset of the grantor as a service concession asset if:
- The grantor controls or regulates what services the operator must provide with the asset, to whom it must provide them, and at what price; and
- The grantor controls—through ownership, beneficial entitlement or otherwise—any significant residual interest in the asset at the end of the term of the arrangement.
(2 marks for 1 point each = 4marks)
ii) Explain any THREE (3) information that the grantor shall present and disclose in its Financial Statements. (6 marks)
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- A description of the arrangement;
- Significant terms of the arrangement that may affect the amount, timing, and certainty of future cash flows (e.g., the period of the concession, re-pricing dates, and the basis upon which re-pricing or re-negotiation is determined);
- The nature and extent (e.g., quantity, time period, or amount, as appropriate) of:
- Rights to use specified assets;
- Rights to expect the operator to provide specified services in relation to the service concession arrangement;
- Service concession assets recognized as assets during the reporting period, including existing assets of the grantor reclassified as service concession assets;
- Rights to receive specified assets at the end of the service concession arrangement;
- Renewal and termination options;
- Other rights and obligations (e.g., major overhaul of service concession assets); and
- Obligations to provide the operator with access to service concession assets or other revenue-generating assets; and
- Changes in the arrangement occurring during the reporting period. The disclosures required in accordance with paragraph 32 are provided individually for each material service concession arrangement or in aggregate for each class of service concession arrangements
(2 marks for 1 point each = 6marks)