January 22, 2020

Proposed New Accounting Standards for P3s in Canada Raises Concerns

The Public Sector Accounting Board (PSAB) of Certified Public Accountants (CPA) has developed new requirements for recognizing, measuring and classifying infrastructure procured through a public-private partnership.

As currently drafted these are likely to have a negative effect on the quantity and quality of PPP transactions in Canada.

CCPPP has drafted a detailed response to the PSAB Exposure Draft (PSAB 3160) to encourage the adoption of standards that strike a fair and balanced approach to the P3 model. Our draft response can be read here.

The Council recommends members voice any concerns they may have and/or add their support to the recommendations the Council is making by the comment period deadline of February 29, 2020.

Your response will enhance the likelihood that fair changes are enacted. The PSAB will make a decision on whether to publish or amend the standards within the next few months.

What You Can Do

Send a Letter: Write to PSAB directly outlining your concerns. We have drafted a suggested form letter, which you may wish to use or modify as you think appropriate. All responses must be sent by February 29, 2020. Details on how to submit letters can be found on the PSAB website.

Send Us Your Comments to include in CCPPP's Official Response: If you have areas of concern you’d like the Council to highlight in its official response to the PSAB, please send your comments to [email protected] with the email subject line Attn: PSAB Changes by January 31, 2020 for consideration.

Call Us with Your Thoughts: CCPPP will also host a call-in session with Nick Hann, the CCPPP board member who has drafted our response, on the PSAB changes on Tuesday, January 28 at 12 noon EST. Call in numbers are: 1.877.969.8433 toll-free within North America or 416.343.2285 in Toronto. The conference ID is 3348083

Quick Read: CCPPP's Concerns on Proposed New PPP Accounting Standards

The PSAB's proposed Exposure Draft is broadly consistent with the International Public Sector Accounting Standard IPSAS 32 in relation to Service Concession Arrangements.

However, this is problematic in a number of important areas and is often modified in practice by other forms of guidance. For example, in Europe the accounting rules set by the European System of Accounts excludes liabilities from public sector balance sheets if the private sector bears most of the project’s risks and rewards.

Key issues can be briefly summarized as:

  • There is no recognition of the risk transfer features of PPPs, differences from conventional delivery or the fact that choices between initial capital expenditures and life cycle costs may differ significantly. In most cases this means PPPs will reflect a higher capitalization of assets and liabilities (which affects government budgeting) than conventional delivery. This will discourage the use of high quality PPP transactions.
  • There is no distinction made between availability payment projects and those in which the private sector collects user pay revenue streams. User pay demand risk transactions will be consolidated on government balance sheets reflecting a liability equivalent to the forecast revenues. This will significantly discourage the use of user pay PPP transactions.
  • Overall under the proposed Exposure Draft the accounting treatment for the following transactions would be the same (assuming the same construction cost):
  1. A Design-Build of a road, paid entirely by government through milestone construction payments and/ or substantial completion payments (DBF);
  2. An availability payment based PPP concession with performance-based payments made over 30 years (DBFOM);
  3. A user pay transaction, where no payments are made directly by government but revenues are created by the right to levy a charge on users.