ASB proposes guidance on PPPs and APAs

June 13, 2019

Published: Journal of Accountancy

GASB proposed new guidance that it said is intended to improve accounting and financial reporting for public-private and public-public partnership arrangements (both referred to as PPPs) and availability payment arrangements (APAs).

GASB said in a press release that the proposal would define a PPP as an arrangement in which a government transferor contracts with a governmental or nongovernmental operator to provide public services by conveying control of the right to operate or use an infrastructure or other nonfinancial asset — the underlying PPP asset — for a period of time in an exchange or exchange-like transaction. Some PPPs meet the definition of a service concession arrangement (SCA). GASB said the proposed statement includes the following definition of an SCA:

– The transferor conveys to the operator the right and related obligation to provide public services through the use and operation of the underlying PPP asset;

– The operator collects and is compensated by fees from third parties;

– The transferor determines or has the ability to modify or approve which services the operator is required to provide, to whom the operator is required to provide the services, and the prices or rates that can be charged for the services; and

– The transferor is entitled to significant residual interest in the service utility of the underlying PPP asset at the end of the arrangement.

The proposed statement carries forward the financial reporting requirements for SCAs that currently are included in Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements, GASB said. For PPPs that meet the definition of a lease, but not the definition of an SCA, the proposed statement would require governments to apply the requirements of Statement No. 87, Leases. For all other PPPs that are not SCAs and are not leases, the proposed statement generally would require a transferor to recognize an asset for the underlying PPP asset and a deferred inflow of resources for consideration received or to be received as part of the PPP.

The proposal would require a governmental operator to report an intangible right-to-use asset related to the underlying PPP asset that either is owned by the transferor or is the underlying asset of an SCA.

APAs

The proposal would define an APA as an arrangement in which a government compensates an operator for services that may include designing, constructing, financing, maintaining, or operating an underlying infrastructure or other nonfinancial asset for a period of time in an exchange or exchange-like transaction.

Governments would be required to account for APAs related to those activities and in which ownership of the asset transfers by the end of the contract as a financed purchase of the underlying infrastructure or other nonfinancial asset.

A government would be required to report an APA that is related to operating or maintaining an infrastructure or other nonfinancial asset as an outflow of resources in the period to which payments relate.

The proposed statement would be effective for fiscal years beginning after June 15, 2021, and all reporting periods thereafter. Earlier application would be encouraged. The exposure draft is available on the GASB website. Comments are due by Sept. 13.

https://www.journalofaccountancy.com/news/2019/jun/gasb-guidance-ppp-apa-201921472.html

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