Financial Reporting FR

SIC-29 Disclosure – Service Concession Arrangements

ISA 545 Auditing Fair Value Measurements and Disclosures
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SIC-29 Disclosure – Service Concession Arrangements (SCAs) is an accounting standard issued by the International Accounting Standards Committee (IASC) that provides guidance on the disclosure requirements for SCAs. SCAs are arrangements between a government or a public sector entity and an operator, where the operator provides services that are essential to the public using infrastructure, such as roads, airports, or water treatment plants.

 

Definitions:

 

Service Concession Arrangement (SCA):

An arrangement between a government or a public sector entity and an operator, where the operator provides services that are essential to the public using infrastructure. The arrangement typically involves the construction, financing, operation, and maintenance of the infrastructure, and the operator is entitled to receive consideration for the services provided.

Operator:

The party that operates the infrastructure and provides the services under the SCA. The operator may be a private company, a joint venture, or a public-private partnership.

Grantor: The party that grants the right to the operator to operate the infrastructure and provide the services under the SCA. The grantor is typically a government or a public sector entity.

 

Explanations:

 

SCAs are unique arrangements that involve both the construction and operation of infrastructure, as well as the provision of services to the public. Therefore, the disclosure requirements for SCAs are comprehensive and cover various aspects of the arrangement. Some of the key disclosure requirements of SIC-29 include:

 

Nature and Terms of the SCA: Disclose the nature of the SCA, including the type of infrastructure involved, the services provided, and the duration of the arrangement. Provide details of the terms and conditions of the SCA, including any renewal or termination options, and any significant rights and obligations of the operator and the grantor.

 

Significant Accounting Policies: Disclose the accounting policies applied for the recognition, measurement, and presentation of SCAs in the financial statements. This should include details of the accounting treatment for construction, operation, and maintenance costs, as well as the recognition of revenue and expenses related to the services provided.

 

Construction Activities: Disclose the progress and status of construction activities related to the infrastructure under the SCA. This should include information on the progress of construction, significant events or changes in the construction process, and any delays or issues affecting the construction timeline.

 

Operation and Maintenance Activities: Disclose the details of the operation and maintenance activities performed by the operator under the SCA. This should include information on the performance standards or service levels agreed upon, any penalties or incentives related to the performance, and any significant events or changes in the operation and maintenance activities.

 

Consideration for Services: Disclose the consideration received or receivable by the operator for the services provided under the SCA. This should include details of any fixed or variable payments, any minimum guarantees, and any contingent consideration that may be receivable in the future.

 

Financial Instruments: Disclose any financial instruments involved in the SCA, such as loans, guarantees, or other financial arrangements. This should include details of the terms and conditions of these financial instruments, and any significant events or changes related to these instruments during the reporting period.

 

Case Studies:

Let’s look at two case studies to further illustrate the disclosure requirements of SIC-29.

 

Case Study 1:

Airport Concession Arrangement

A government grants a concession to a private company to operate and maintain an airport for a period of 30 years. The private company is responsible for the construction, financing, operation, and maintenance of the airport. The consideration for the services provided by the private company includes fixed annual payments from the government and variable payments based on passenger traffic.

In this case, the disclosures required by SIC-29 would include the nature and terms of the airport concession arrangement, including the duration of the concession, the rights and obligations of the private company as the operator, and the details of the fixed and variable payments received or receivable by the private company for the services provided. The disclosures would also include the progress and status of the airport construction activities, the performance standards or service levels agreed upon for operation and maintenance, and any financial instruments involved in the concession arrangement, such as loans or guarantees.

 

Case Study 2:

Water Treatment Plant Concession Arrangement

A public sector entity grants a concession to a joint venture between a private company and a government entity to construct, operate, and maintain a water treatment plant for a period of 20 years. The joint venture is entitled to receive consideration based on the volume of water treated and the quality of the treated water.

In this case, the disclosures required by SIC-29 would include the nature and terms of the water treatment plant concession arrangement, including the rights and obligations of the joint venture as the operator, and the details of the consideration based on volume and quality of water treated. The disclosures would also include the progress and status of the construction activities, the performance standards or service levels agreed upon for operation and maintenance, and any financial instruments involved in the concession arrangement.

 

In conclusion, SIC-29 Disclosure – Service Concession Arrangements provides guidance on the comprehensive disclosure requirements for SCAs, which are unique arrangements involving the construction, operation, and maintenance of infrastructure, as well as the provision of services to the public. The examples and case studies discussed