Transcript INTOSAI Privatisation Working Group

INTOSAI Privatisation Working Group (PWG)
Technical case study
Series 2 – PPP
1. Accounting for PFI/PPP Projects
Table of Contents
SUMMARY
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Defining Characteristics of PFI/PPP Deals
Some Potential Benefits/Dangers of PFI/PPP
The Accounting Issue for the Public Sector
Application of FRS5
Whose Balance Sheet?
Risk Factors
Public or Private?
International Accounting Standards
Statistically Based National Accounts
Case Studies
5
6
7
8-9
10-11
12-15
16-17
18
19-20
21-24
CONCLUSION
25
REFERENCES
26
2
Summary
PFI/PPP is being used internationally to deliver investment in new public sector projects
PFI/PPP has been used to fund major new public investment, including schools, hospitals, prisons and roads.
Introduced back in early the 1990’s, the scheme has become a major element of private sector involvement in the UK’s
public services.
Under PFI/PPP, a capital project such as a school is designed, built, financed and managed by a private sector consortium,
under a long term contract to provide services. In return, once the development is operational, the contractor is paid a
single “unitary” payment in each period, usually relating to availability and performance.
There are advantages and disadvantages of PFI/PPP. This technical case study primarily focuses on the accounting
treatment of PFI/PPP projects rather than the merits of PFI/PPP itself.
Accounting for PFI/PPP contracts is often not straightforward in practice
The accounting issue is whether the fixed asset and the associated finance should be counted as on or off the public sector
balance sheet.
Analysis of who bears the risks is relevant. The key risks are usually demand risk and residual value risk.
There can be incentives on the public sector to seek off balance treatment even when this is not appropriate.
In the UK this has sometimes resulted in inappropriate and inconsistent treatment. There are examples of an asset and the
associated finance being on no-one’s balance sheet.
Is there any guidance for auditors that show how PFI/PPP contracts should be correctly accounted for by the
public sector?
Within the UK, the accounting treatment of PFI projects is governed by an Application Note ‘Private Finance Initiative and
Similar Contracts’ to the Financial Reporting Standard No. 5 – ‘Reporting the substance of Transactions’. The objective of
FRS5 is to ensure that the substance of an entity’s transaction is reported in its financial statements rather than the strict
legal form.
3
Summary (cont.)
Is there any guidance for auditors that show how PFI/PPP contracts should be correctly accounted for by the
public sector? (cont)
•
The Treasury has produced its own guidance on PFI in the form of the Treasury Technical Note 1 (TN1) – ‘How to
account for PFI Transactions’. Whilst it was based upon FRS5 and provides practical guidance on how the standard
should be applied, some advisors and auditors have taken the view that it represents an alternative source of guidance
to FRS5 that allows more off balance sheet outcomes. After pressure from the Financial Reporting Advisory Board and
others, it is likely that the Technical Note will be withdrawn.
•
A number of EU states have favoured the use of statistically based information to produce national accounts.
Statistically based National Accounts in the European Union states follow the European System of National and Regional
Accounts (ESA). This is an internationally compatible accounting framework for systematic and detailed description of a
total economy (that is a region, country or group of countries), its components and its relations with other total
economies. It was most recently updated in 1995. ESA95 uses the concept of control to decide if an entity belongs to
the public or private sector; to some extent this requires judgement and can lead to different auditors reaching different
conclusions.
•
Currently, efforts are being made to develop relevant accounting standards applicable on an international level.
Interpretations of the International Financial Reporting Standards (IFRS) are being drafted and are expected to be
issued in early 2007. The interpretations are only, strictly speaking, applicable to the private sector. Hence this case
example for accounting for PFI transactions will be largely UK focussed, though many issues that arise will certainly be
applicable to other nations.
4
1. Defining characteristics of PFI deals
•
Contract for private sector participation in the development, financing and operation of public
projects.
•
Public sector purchases services from a private sector contactor who Designs, Builds, Finances
and Operates the relevant infrastructure.
•
Long-term contract to provide a specified level of services.
•
Single (‘unitary’) payment made in each period, linked to factors such as availability and
performance. Payment is only made once the service is operational, i.e. after construction of the
associated asset.
•
The contract specifies arrangements for the property at the end of the contract term.
•
Various operational risks transferred are to the contractor.
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2. Some potential benefits/dangers of PFI/PPP
Benefits
•
Allocation of those risks to the private sector that it is better at dealing with.
•
Better integration of design, construction and operation.
•
Less prescriptive specifications – more innovation.
Dangers
•
Contractor’s margin and financing costs outweigh efficiency savings.
•
Inflexible, long-term contracts.
•
Inappropriate risk transfer.
•
Off balance sheet accounting.
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3. The accounting issue for the public sector
Should the fixed asset and the associated finance be On or Off Balance Sheet?
Why is the accounting an issue?
•
Macro considerations
Public expenditure and borrowing statistics.
(e.g. in the UK – Maastricht criteria and the ‘Sustainable Investment’ rule)
•
Micro considerations
Departmental cash and capital budgets (‘affordability’)
The danger of deals being constructed to count as “off balance sheet” when this is
not appropriate eg the State retains too little control compared to responsibilities.
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4. Application of FRS5
Introduction to FRS5 – Substance over Form
•
In the UK the accounting treatment of PFI projects is governed by an Application Note ‘Private Finance Initiative and
Similar Contracts’ to the Financial Reporting Standard No. 5 – ‘Reporting the substance of Transactions’. FRS5 sets
out to ensure all assets and liabilities are fully disclosed and that the financial statements provide a true and fair view.
Only assets that are deemed off-balance sheet items should be excluded.
•
The underlying principle of FRS5 is known as ‘substance over form’ and its aim is to reflect the true commercial effect
of a transaction that may not be adequately expressed by its legal form.
•
A example to illustrate this is when a company issues redeemable preference shares to investors. These shares will
pay out a fixed amount of dividend per year up until the preference shares are redeemed by the investor. A share
issue transaction has taken place in legal terms, but in substance, the redeemable preference shares are like a loan:
the dividend payments act as interest payments. Hence the share issue will be reflected in the accounts as a liability
rather than share capital.
•
A central principle of FRS5 is that the risks inherent in the benefits provided by an asset determine which entity has
the asset. A party will have an asset of the property where that party has access to the benefits of the property and
exposure to the risks inherent in those benefits.
•
As an addendum to FRS5 there are application notes showing how to apply FRS5 to particular transactions.
Following debate about the accounting treatment of PFI, the Accounting Standards Board (ASB) published Application
note F to aid in the accounting of PFI and similar contracts.
8
4. Application of FRS5 (cont.)
Application note F – Private Finance Initiative and similar contracts
•
Application note F clarifies the question of separability within contracts and which potential variations in profits
(and losses) should be taken into account when determining whose balance sheet the asset should be disclosed
on.
•
A contract is separable if payments can be separated into elements covering the payment for the asset itself and
other services provided (e.g. services such as laundry and catering etc). These separable service elements are
excluded from the decision of where the asset should be disclosed.
•
Once any separable service elements have been excluded, PFI contracts can be classed into:
(a) those where the only remaining elements are payments for the property. These will be akin to a lease and
SSAP21 ‘Accounting for leases and hire purchase contracts’ should be applied.
(b) other contracts where the remaining elements include some services. These contracts will fall directly
within FRS5 rather than SSAP21.
•
At this point it is important to understand and decide on whose balance sheet (private or public sector) the fixed
asset is to be shown on. This is decided by the extent to which each party bears the potential variations in profits
(or losses). Only those variations that relate to the asset can be included for the purpose of this analysis.
•
It will therefore be necessary to assess all factors that can affect the variation in profits.
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5. Whose Balance Sheet?
The factors or risks that might affect balance sheet treatment.
The FRS5 risk analysis looks to establish who will bear the risks (potential variations in profits/losses) associated with the
asset.
The principal factors that, depending on the particular circumstances, may be relevant are:
•
•
•
•
•
•
•
Demand risk – the risk that demand for the asset will be greater or less than expected
The presence, if any, of third-party revenues
Who determines the nature of the property (design risk)
Penalties for underperformance or non-availability
Potential changes in relevant costs
Obsolescence, including the effects of changes in technology
The arrangements at the end of the contract and residual value risk – the risk that the actual residual value of the asset
at the end of the contract will be different from that expected.
It should be noted that construction risk – who bears the financial implications of cost and time overruns during the
construction period (and related warranty repairs caused by poor building work after the asset has been completed) is not
generally relevant to determining which party has an asset of the property once construction is completed, because such
risk normally has no impact during the property’s operational life.
The following pages elaborate on the above factors.
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5. Whose Balance Sheet (Cont.)?
Application of FRS5
•
Assuming that FRS5 is applicable the Application Note sets out a number of factors or risks that could affect
the property related profits/losses. Two other indicators based on the financing of the contract and
arrangements if the contract is terminated early are:
Feature
Indication that the asset belongs to the
public sector
Indication that the asset belongs to the
private sector
Termination for private
sector default
“a financing agreement would be indicated where,
in the event that the contract is terminated early, the
bank financing will be fully paid out by the public
sector under all events of default including operator
default”
The bank financing will be fully paid out by
the public sector only in the event of public
sector default.
Nature of the private sector’s
financing
High levels of debt financing might indicate that
insufficient risk has been transferred and that
the contract is in effect a financing agreement.
If the private sector’s funding includes a
significant amount of equity this may
indicate that the transaction is consistent
with the property being an asset of the
private sector.
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6. Risk Factors
Demand Risk
•
This is the risk that demand for the asset will be greater or less than predicted/expected. Where demand risk is
significant, it will normally give the clearest evidence of who should record an asset on their balance sheet. For
example, the demand for hospital beds by patients may be less or more than what was predicted.
•
The length of the contract may influence the significance of demand risk, since it is difficult to forecast for later periods.
•
Once it is established that demand risk is significant, it is necessary to determine who will bear it.
Third Party Revenues
•
A feature of some PFI contracts is that the asset in question may be used by third parties. Where the private sector
partner relies on revenues from third parties to cover its property costs, this is evidence that the asset should be on
their balance sheet.
•
Conversely if third party usage is minimal or is restricted by the public sector then this is evidence that the asset should
be on the public sector’s balance sheet.
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6. Risk Factors (cont.)
Who determines the nature of the property/Design Risk
•
If the public sector determines the key features of the asset and how it will be operated, this is evidence that the asset
should be on their balance sheet. Conversely if the private sector has significant ongoing discretion over what property
is to be built and how it will be operated, that indicates that the asset belongs on their balance sheet. In this case the
private sector is bearing ‘design risk’.
•
This is defined as the risk that the design of the asset is such that, even if it is constructed satisfactorily, it will not fully
meet the requirements of the contract.
•
One of the key features of a PFI transaction is that the Private sector partner can make investment decisions
concerning the design and build of the asset (before, during and after construction) that affect operational efficiency
during the life of the contract.
•
For example, the private sector partner may choose to use more expensive insulating materials and triple glazing to
improve the energy efficiency of a building during the operating phase. If the design solution is not as energy efficient
as expected the private sector may need to spend more on heating costs to maintain the asset at the require
temperature range.
Penalties for underperformance or non-availability
•
Many PFI contracts provide for penalties if the asset is below a specified standard or is unavailable because of private
sector default (It should be noted that penalties relating purely to services, such as catering and laundry, however, are
not relevant and should not be brought into the assessment). For example, in a PFI contract involving a catering
service, penalties caused by a leaking kitchen roof are relevant but penalties due to meals being too small are not.
•
Where potential penalties are not significant i.e. they will not affect the private sector’s profits (e.g. the contract itself
gives the private sector ample time to rectify a fault), this provides evidence that the asset belongs to the public sector.
•
Conversely if potential penalties are significant in that they can affect the private sector’s profits then this would provide
evidence that the asset belongs on their balance sheet . For example, a PFI contract for a road may contain penalty
clauses if lanes are closed for maintenance for more than a specified period.
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6. Risk Factors (cont.)
Potential changes in relevant costs
•
These relate only to property costs and not changes in service costs. PFI contracts may deal with potential relevant
costs in different ways. Relevant costs includes any planned expenditure on the property itself, such as
– replacement of parts of the fabric of the building (e.g. windows)
– replacement of certain items of plant, machinery and equipment
– property maintenance
•
The contract may have the effect that any significant future cost increases can be passed on to the public sector, which
would be evidence that the property is an asset of the public sector. For example, this would be the case where the PFI
payments will vary with specific indices so as to reflect the private sector’s costs.
•
Conversely, where the private sector’s costs are both significant and highly uncertain, and there is no provision for cost
variations to be passed on to the public sector, then this is evidence that the property is an asset of the private sector.
For example, this would be the case where the payments are fixed or vary in relation to a general inflation index such
as the Retail Prices Index in the UK.
Obsolescence, including the effects of changing in technology
•
This may be relevant depending on the nature of the contract. For PFI deals involving information technology systems
this will be of great significance as to who bears the future costs associated with obsolescence or changes in
technology. In other cases like roads contracts, the issue of obsolescence will not be so relevant.
•
Where the potential for obsolescence or changes in technology are significant, the party that bears the cost and any
associated benefits will be the one that should be most likely to have the asset on their balance sheet.
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6. Risk Factors (cont.)
Arrangements at the end of the contract and Residual Value Risk
•
Residual risk is the risk that the actual residual value of the asset at the end of the contract will be
different from that expected. The risk is more significant the shorter the PFI contract is in relation to
the useful economic life of the asset.
•
Where this risk is significant, who bears it will depend on the arrangements at the end of the contract.
For example, the public sector will bear the residual value risk where:
- it will purchase the asset for a substantially fixed or nominal amount at the end of the
contract
- the property will be transferred to a new private sector partner, selected by the public sector,
for a substantially fixed or nominal amount; or
- payments over the term of the PFI contract are sufficiently large for the private sector not to
rely on an uncertain residual value for its return.
•
Conversely, the private sector will bear residual value risk where:
- it will retain the asset at the end of the PFI contract; or
- the asset will be transferred to the public sector or another private sector partner at the
prevailing market price.
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7. Public or Private?
Feature
Indication that the asset belongs to the public
sector
Indication that the asset belongs to the private sector
Demand risk
Demand risk is significant and borne by the public sector
a)Payments between the private sector and the public sector will
not vary to reflect usage
b)The public sector gains where future demand is greater than
expected
Demand risk is significant and borne by the private sector:
1.Payments between the private sector and the public sector will vary to
reflect usage
2.The private sector gains where future demand is greater than expected.
Third Party Income
Genuine scope for significant third party use of the property but the
public sector significantly restricts usage.
The property can be used, and paid for, to a significant extent by third
parties and such revenues are necessary for the private sector to cover its
costs.
Who determines the
nature of the property
The public sector determines the key features of the property and
how it will be operated.
The operator has significant discretion over the property to be built and how
it will be operated.
Under-performance
and Non-availability
Potential penalties are not significant or are unlikely to occur.
Potential penalties for under performance or non-availability of the property
are significant and have a reasonable possibility of occurring.
Changes in relevant
cost
Relevant costs are both significant and highly uncertain, and all
material cost variations will be passed on to the public sector
Relevant costs are both significant and highly uncertain, and all material
cost variations will be borne by the private sector operator.
Obsolescence
Obsolescence or changes in technology are significant and the cost
and benefits will be borne by the public sector.
Obsolescence or changes in technology are significant and the cost and
benefits will be borne by the private sector.
Residual Value
Residual Value risk is significant (the term of the PFI contract is
materially less than the life of the property) and borne by the public
sector.
Residual Value risk is significant (the term of the PFI contract is materially
less than the life of the property) and borne by the private sector.
In determining whether each party has as asset, it will not be appropriate to focus on one feature in isolation. Rather,
the combined effect of all relevant factors should be considered for a range of reasonably possible scenarios, with
greater weight being given to more likelier outcomes.
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7. Public or Private - Flow Chart
This flow chart summarises
the decision route that should be
taken in order to assess the balance
sheet treatment between the
public sector and the private sector
Can the contract be separated
into asset and service
elements?
Yes
No
After excluding separable service
elements, is the remaining element
only for the asset itself?
Yes
No
Apply accounting treatment
for leases
Apply FRS5 – assess who has the benefits and risks
of the property.
Public Sector
Public sector recognises
asset and liability
to pay for it.
Private sector recognises a
debtor.
Private Sector
Public sector does not
recognise asset.
Private sector recognises asset.
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8. International Accounting Standards
International developments
•
The accounting treatment of PFI deals has been scrutinised.
•
As at September 2006, this issue is being looked at by the International Financial
Reporting Interpretations Committee (IFRIC) of the International Accounting Standards
Board (IASB). The IASB is “committed to developing, in the public interest, a single set
of high quality, understandable and enforceable global accounting standards that require
transparent and comparable information in general purpose financial statements”.
•
IFRIC have produced draft interpretations concerning the accounting treatment of
“Service Concession Arrangements”. These draft interpretations (numbers 12-14) are,
strictly speaking, only applicable to the private sector operators, providing guidance on
the balance sheet and profit and loss accounting in the contractor’s accounts.
•
The draft interpretations are based on the concept of control rather than risk and
rewards. For assets used to provide services to the public, If the public sector body:
- controls or regulates the services the private sector operator provides, and
- has the residual interest in the fixed asset, which is significant
then the fixed asset is deemed to belong on the public sector’s balance sheet.
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9. Statistically Based National Accounts
National Accounts
•
The national accounts are an internationally comparable accounting framework that describes the activities in a national
economy, including the transactions that take place between sectors of that economy.
•
The Office for National Statistics, ONS produce the national accounts for the UK; they are compiled on a legal basis
following a 1996 regulation from the Council of the European Union.
•
The relevant international manuals are the European System of Accounts 1995 (ESA95) and the System of National
Accounts 1993 (SNA93), which ESA95 is based on.
•
ESA95 is designed as an integrated system of economic statistics that are broken down into broad sectors (e.g.
government, households and corporations). They record the economic activity of those sectors rather than the
individual entities within them. It is not used to account for individual entities.
•
National Accounts based on ESA95 are used for international comparisons within Europe, and because it is based on
SNA93, can be used for worldwide comparisons.
•
The Statistical Office of the European Communities, Eurostat is the statistical arm of the European Commission. They
produce data for the European Union by using the data provided from the statistical offices of the member states.
Eurostat’s main aim is to promote harmonisation of statistical methods across the member states.
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9. Statistically Based National Accounts
(cont.)
Public or Private Entity
•
ESA95 uses the concept of control rather than ownership to determine if an entity belongs in the public or private
sector. This is effectively similar to analysing the risk transfer between the public and private sector.
•
It recommends that assets involved in PFI deals should be off balance sheet for government, if both of the following
conditions are met:
1.the private partner bears the construction risk, and
2.the private partner bears at least one of either availability or demand risk.
•
If the above criteria is not met then the asset is deemed to be a government asset and should be present on their
balance sheet.
Analysis of risks in PFI
•
Many risks may be observed in practice under a PFI contract, hence Eurostat have selected three main categories of
‘generic’ risks:
1.Construction risk – covers risk as to who bears the financial implications of cost and time overruns during the
construction period
2.Availability risk – (as explained under the FRS5 section)
3.Demand risk – (as explained under the FRS5 section)
•
Eurostat is of the opinion that information on such risks can easily be obtained by statisticians and that the burden of
the different risks is generally identifiable in the contracts.
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10. Case study 1
Major Office Refurbishment
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Complete refurbishment of existing, architecturally listed, office
buildings
Provision of accommodation services therein over 30 years for
4,300 staff
Capital spend £500m
Services such as management services considered not
separable, thus application of FRS5 required.
This PFI contract was deemed to be on the public sector
balance sheet as the public sector retained demand and
residual value risk and these were considered to outweigh the
other risks.
Risk and other
factors
Public Sector
Demand Risk
This lies solely with the
public sector- the unitary
payment does not vary
with usage.
Design Risk
Private sector
responsible for design of
refurbishment.
Penalties for underperformance or nonavailability
Penalty deductions (up to
20% max of yearly
contract payments).
Changes in relevant
costs
Unitary payment indexed
by formula based on
Retail Prices Index (RPI).
Residual Value
Termination for private
sector default and
Financing
21
Private Sector
Reversion to public
sector at nil
consideration, in a
defined condition.
Senior debt 90%, equity
and subordinated debt
10%. No guarantee that
senior debt will be fully
repaid in event of
termination due to
operator default.
10. Case study 2
PFI contract for custodial facility
•
•
•
•
•
•
Assumed useful economic life of building more than 25
years, ‘Design, Construct, Manage and Finance’ contract.
Planned size - 800 individuals.
Contractor’s accounting of capital cost under FRS 5 - as a
finance debtor.
Contractor provides:
Security
Staffing
Maintenance and repair
Medical and health care assistance
Drug tests and treatment programme
Educational programme
Risk and other factors
Public Sector
Demand risk
The yearly contract charge is
based on a guaranteed
minimum number of
prisoners (800) but….
Design risk
some extra payments made
if numbers exceeded.
some flexibility in meeting
specifications given to
private sector.
Penalties for under-performance or
non-availability
Penalty deductions (up to
5% max of yearly contract
payments as long as
availability continues).
Changes in relevant costs
This lays with the private
sector (indexation will be
RPI-based), unless caused
by specific changes in
relevant legislation.
Contract length 30 years, after which asset reverts to
public sector. Built on public sector land.
Maintenance + lifecycle costs £500k per annum
Contract payment £25m per annum
Some risk if costs increase
due to legislative changes.
Residual value
This PFI property asset was deemed to be on the public
sector balance sheet (a treatment that was symmetrical
with the private sector operator’s decision to account for
the capital asset as a finance debtor). One factor in the
decision was the difficulty in predicting likely demand.
Considered to be shared –
major design constraints
imposed by public sector,
but…..
Private Sector
Termination for private sector default
and Financing.
22
Reversion to public sector at
nil consideration, in a
defined condition.
Bank finance 91%, equity
9%. No guarantee that
bank finance will be fully
repaid in event of
termination due to operator
default.
10. Case study 3
New Build Offices
Risk and other
factors
Public Sector
•
•
•
Demand risk
This lies solely with
the public sector- the
unitary payment does
not vary with usage.
•
•
•
•
New build landmark building, some degree of specialisation
35 year contract
Service elements were not all separable – FRS5 was therefore
applicable
Reversion – to purchaser at nil cost, in defined condition.
Expected depreciated replacement cost £200m
No third party revenue, obsolescence risk considered small
95% debt funded
This PFI contract is on the public sector balance sheet
Design Risk
With the private sector but
with steer from the public
sector towards a high capital
specification expenditure
Penalties for underperformance or nonavailability
Underperformance, non
availability penalties regime
in place - non-availability
penalty potentially 60% of
contract payment
Changes in relevant cost
risk
This lays with the private
sector. Indexation will be
RPI-based.
Residual value
Termination for private
sector default and
Financing.
23
Private Sector
Reversion to public
sector at nil
consideration, in a
defined condition.
Bank finance 95%, equity
5%. No guarantee that bank
finance will be fully repaid in
event of termination due to
operator default.
10. Case study 4
Flight Simulator and associated training services
•
•
•
•
Provision of a comprehensive training programme
for a particular aircraft type
Major capital equipment requirement is several
flight simulators, capital spend £50m
Contract length 30years but with public sector
option to ‘walk away‘ at year 20.
This PFI contract would probably be deemed to be
off balance sheet for the public sector as the
private sector has taken on a substantial element
of demand risk and the residual value risk.
Risk and other
factors
Public Sector
Private Sector
Demand Risk
Shared. Payment for simulator
use is on an hourly basis, but
subject to a guaranteed minimum –
see opposite.
Shared. Guaranteed ‘take or pay’
payment, at 75% of expected usage.
And public sector has option to walk
away from contract at year 20.
Third party revenues
Shared. Private sector operator
can sell simulator time to third
parties when not required for public
sector use – see opposite.
Shared. Third party proceeds are
shared 50:50 between the public
and private partners.
Design Risk
With private sector, especially with
regard to systems configuration.
Penalties for underperformance or nonavailability
Penalty deductions apply in the
event of failure to achieve training
objectives and equipment downtime.
Changes in relevant
costs
Unitary payment indexed by formula
based on Retail Prices Index (RPI).
Residual Value
Simulators and associated IT
equipment remain with private sector
at end of 30 years (or after 20 years
if public sector exercises option to
end contract then).
Termination for
private sector default
and Financing
Debt finance 83%, equity 17%. No
guarantee that senior debt will be
fully repaid in event of termination
due to operator default.
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Conclusion
•
The accounting treatment of Private Finance Initiative contracts can be complex and has proved controversial.
•
In the UK, there are guidelines set out by the Accounting Standards Board and the Treasury which aim to clarify the
balance sheet treatment of PFI assets.
•
As at September 2006 IFRIC, which is part of the International Accounting Standards Board (IASB), is aiming to
develop a set of high quality, understandable and enforceable global accounting standards for PFI and similar projects.
These standards, strictly, will only have to apply to the private sector.
•
The major issue relating to the accounting treatment of PFI deals is whether the private or the public sector bears the
risks.
•
It is important to ensure that the PFI contract is value for money rather than whether or not it can be excluded from the
public sector balance sheet.
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References
•
Treasury Technical Note No. 1 – How to account for PFI Transactions
http://www.hm-treasury.gov.uk/media/8e294/ppp_ttf_technote1.pdf
•
Application Note F – Private Finance Initiative and Similar Contracts –Issued 1998
http://www.frc.org.uk/images/uploaded/documents/frs_5_amendment.pdf
•
Evaluating the operation of PFI on roads and hospitals: Association of Chartered Certified Accountants, Research
Report 84,1999
http://image.guardian.co.uk/sys-files/Society/documents/2004/11/24/PFI.pdf
•
Management Paper - Building for the future – the management of procurement under the private finance initiative:
Audit Commission, June 2001.
http://www.audit-commission.gov.uk/Products/NATIONAL-REPORT/2DEA4286-58A0-4d5a-A2DA3DE70F2CEEC3/BuildingfortheFuture.pdf
•
Accounting treatment of Network Rail Ltd - www.hm-treasury.gov.uk/media/86F/45/rail_accounting062002.pdf
http://www.hm-treasury.gov.uk/media/86F/45/rail_accounting062002.pdf
•
Meeting the investment challenge, HM Treasury, July 2003
http://www.hm-treasury.gov.uk/media/648B2/PFI_604.pdf
•
Local Government and the Private Finance Initiative - Department of the Environment, Transport and the Regions
http://www.local.odpm.gov.uk/pfi/index.htm
•
Guardian website - http://society.guardian.co.uk/privatefinance
http://society.guardian.co.uk/privatefinance
•
International Federation of Accountants (IFAC) website - www.ifac.org
http://www.ifac.org
•
Public Finance website – www.publicfinance.co.uk
http://www.publicfinance.co.uk
•
International Accounting Standards Board website – www.iasb.org
http://www.iasb.org
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