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Service Concession Agreement Gasb

Service Concession Agreement GASB: A Comprehensive Guide

The Governmental Accounting Standards Board (GASB) established Statement No. 60, “Accounting and Financial Reporting for Service Concession Arrangements,” to provide guidance on the accounting and financial reporting of service concession arrangements (SCAs).

An SCA is a contractual arrangement where a government (or any other reporting entity) grants a private entity the right to operate, maintain, and enhance a facility or infrastructure for a specified period in exchange for compensation. An example of an SCA is a toll road concession where a private company operates and maintains the road and collects tolls on behalf of the government.

SCAs are becoming increasingly common, particularly in the infrastructure sector, as they enable the government to leverage private sector expertise and resources to deliver improved services and infrastructure to the public. However, the accounting and financial reporting of SCAs can be complex and require careful consideration.

This article provides a comprehensive guide to the accounting and financial reporting of SCAs under GASB Statement No. 60.

Scope of GASB Statement No. 60

GASB Statement No. 60 applies to all SCAs entered into by a government or other reporting entity, including:

– Toll road concessions

– Airport concessions

– Water and wastewater concessions

– Transit system concessions

– Parking concessions

Accounting and Financial Reporting of SCAs

Under GASB Statement No. 60, governments must account for SCAs using the following approach:

1. Classify the SCA as either an operating or capital lease.

If the SCA meets the criteria for a lease under GASB Statement No. 87, “Leases,” then it must be classified as either an operating or capital lease. The classification will depend on whether the SCA transfers ownership of the underlying asset to the private entity at the end of the contract term.

2. Recognize the concession asset and liability.

The government must recognize a concession asset and liability for the SCA. The concession asset represents the right to operate, maintain, and enhance the facility or infrastructure, while the concession liability represents the obligation to provide the private entity with compensation for performing these services.

The concession asset and liability must be recognized at fair value at the inception of the SCA. The fair value of the concession asset may be based on the present value of the expected cash flows over the contract term, while the fair value of the concession liability may be based on the present value of the expected payments to the private entity over the contract term.

3. Recognize ongoing revenues and expenses.

The government must recognize ongoing revenues and expenses related to the SCA. The revenue will generally be recognized as the private entity earns it, while the expenses will be recognized as they are incurred.

The revenue may include fees, tolls, or other charges paid by users of the facility or infrastructure, while the expenses may include operating, maintenance, and enhancement costs incurred by the private entity.

4. Disclose information about the SCA.

The government must disclose information about the SCA in its financial statements, including:

– The terms of the SCA

– The fair value of the concession asset and liability

– The amount of revenue and expenses recognized

– Any contingent payments to the private entity

GASB Statement No. 60 provides detailed guidance on the accounting and financial reporting of SCAs, but governments should also consider the specific terms and conditions of their individual agreements when preparing their financial statements.

Conclusion

SCAs are a popular tool for governments to leverage private sector expertise and resources to deliver improved services and infrastructure to the public. However, the accounting and financial reporting of these arrangements can be complex and require careful consideration.

GASB Statement No. 60 provides guidance on the accounting and financial reporting of SCAs, including the recognition of a concession asset and liability, ongoing revenue and expense recognition, and disclosure requirements. Governments should carefully consider this guidance when preparing their financial statements.

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