Satisfaction of performance obligations under IFRS 15 is discussed in Chapter 28 at 8.
5.4.2
IFRIC 12 Illustrative Example 2 – The grantor gives the operator an
intangible asset (a license to charge users)
The terms of the arrangement are the same as in Example 26.4 at 4.3 above and
Example 26.12 at 5.2 above.
Illustrative Example 2 to IFRIC 12 assumes that that the operator’s annual receipts are
constant over the concession period, that cash flows and fair values remain the same as
those forecast, that no contract modifications occur over the concession period, and
that there is no change to the timing of delivery from that anticipated at contract
inception. Any changes in these assumptions or facts and circumstances would need to
be assessed by reference to the requirements of IFRIC 12 and IFRS 15 and could result
in a change to the accounting illustrated in Illustrative Example 2.
5.4.2.A
Step 1: Identify the contract(s) with a customer
Under IFRS 15, a contract is defined as an agreement between two parties that creates
enforceable rights and obligations. [IFRS 15 Appendix A]. A customer is defined in IFRS 15 as
a party that has contracted with an entity to obtain goods or services that are an output
of an entity’s ordinary activities in exchange for consideration. [IFRS 15 Appendix A].
Because the public sector grantor of the concession retains control over the
infrastructure asset, construction and upgrade (resurfacing) services are provided to the
grantor. The grantor pays consideration, in the form of an intangible asset, to the
operator in exchange for those services.
Because of the public service nature of the obligation undertaken by the operator, the
operating services are provided to the public users the road. There could be a written
contract between the operator and each road user, if, for example, the road user takes
a ticket from the toll booth on entering the road. Even in the absence of a written
1856 Chapter 26
contract, the public users of the road transfer consideration to the operator in exchange
for using the road, and therefore could be considered to have an implied contract with
the operator. IFRS 15 does not require the existence of a written contract; a contract
may be oral or implied, although it must be legally enforceable. [IFRS 15.10]. The specified
good or service in the contract between the operator and the road user is the provision
of access to the toll road. Access is physically controlled by the operator through the
operating services that they provide.
We believe that Illustrative Example 2 to IFRIC 12 reflects two contractual customer
relationships within the arrangement, being (1) a contract with the grantor for the
provision of construction services to build toll road; and (2) many contracts with
individual public road users to provide access to the toll road by way of a service fulfilled
by the operator, and reflects the operator acting as principal in both of these contractual
customer relationships.
Identification of the contract(s) with the customer under IFRS 15 is discussed in
Chapter 28 at 4.
5.4.2.B
Step 2: Identify the performance obligations in the contract
In Illustrative Example 2 to IFRIC 12, the operator recognises revenue in respect of the
following performance obligations:
• contract with the grantor – a distinct performance obligation, being construction
services; [IFRIC 12.IE11] and
• many contracts with road users – a distinct performance obligation for operation
services. [IFRIC 12.IE18].
In Illustrative Example 2, the contract with the grantor requires the operator to
resurface the road when the original surface has deteriorated below a specified
condition. Resurfacing is not identified as a separate performance obligation. Because
the resurfacing is required when the original surface has deteriorated below a specific
condition, rather than being required at a specified point in time, the operator treats this
as a contractual obligation to maintain or restore the infrastructure, with the contractual
obligation to restore the road recognised and measured in accordance with IAS 37.
[IFRIC 12.21]. This is similar to the treatment required for assurance-type warranties under
IFRS 15. An assurance-type warranty is a warranty that provides the customer with
assurance that the product complies with agreed-upon specifications and is not a
separate performance obligation. [IFRS 15.B30].
Identification of performance obligations in a contract under IFRS 15 is discussed in
Chapter 28 at 5.
5.4.2.C
Step 3: Determine the transaction price
The consideration in the contract with the grantor is the amount that the operator
expects to be entitled to in exchange for construction services. The consideration is a
right to charge toll road users, i.e. non-cash consideration which would be measured at
fair value, unless the entity cannot reasonably estimate the fair value of the non-cash
consideration, in which case it should be measured indirectly by reference to the stand-
alone selling price of the promised goods or services. [IFRS 15.67]. In Illustrative Example 2
Service concession arrangements 1857
to IFRIC 12, the fair value of the intangible asset has been measured indirectly by
reference to the stand-alone selling price of the promised construction services.
Illustrative Example 2 to IFRIC 12 does not identify a significant financing component
related to the provision of construction services by the operator, despite the timing
difference between the operator providing construction services in years 1 and 2, and
delivery of the intangible asset once construction is complete at the end of year 2. This
may be because payment is in the form of an intangible asset rather than cash. The impact
of the delay between provision of services and payment would be incorporated into the
fair value of the non-cash consideration determined at the inception of the contract for
the purposes of measuring construction revenue.
The operator will receive cash consideration from each toll road user in exchange for
operating services. The total amount of consideration for operating services will vary
depending upon how many vehicles use the toll road. However, as each contract is with
a separate road user (customer), it would seem appropriate to consider each contract in
isolation. The transaction price for each contract is the cash toll paid by each road user.
Determination of the transaction price under IFRS 15 is discussed in Chapter 28 at 6.
5.4.2.D
Step 4: Allocate the transaction price to the performance obligations in
the contract
IFRS 15 requires the transaction price to be allocated to each performance obligation in
proportion to their relative stand-alone selling prices. [IFRS 15.74]. If stand-alone selling
prices are not readily observable, they must be estimated, considering all information
that is reasonably available to the entity. The operator may choose to estimate stand-
alone selling prices using an expected cost plus margin approach, [IFRS 15.79], although
other approaches are permitted.
As discussed at 5.4.2.B above, there i
s only one distinct performance obligation in the
contract with the grantor, being construction services. The transaction price is therefore
allocated to construction services. Similarly, each contract with individual road users
has one distinct performance obligation, being the provision of operating services.
Allocation of the transaction price to performance obligations under IFRS 15 is
discussed in Chapter 28 at 7.
5.4.2.E
Step 5: Recognise revenue when (or as) the entity satisfied a performance
obligation
Illustrative Example 2 to IFRIC 12 shows revenue being recognised over time for
construction and operating services.
One criteria within IFRS 15 for recognising revenue over time is that an entity’s
performance creates or enhances an asset that the customer controls. [IFRS 15.35(b)]. In order
to be in scope of IFRIC 12, the grantor to a service concession arrangement must control
the infrastructure asset, including any significant residual interest. It therefore appears
reasonable to conclude that this criteria for recognising revenue over time is met for
construction services. Progress over time may be measured using an input method to
recognise revenue on the basis of the operator’s inputs to the satisfaction of the
performance obligation (e.g. costs incurred or time elapsed) relative to the total expected
1858 Chapter 26
efforts to the satisfaction of that performance obligation. [IFRS 15.B18]. Other methods are
also permitted, although the entity should determine the best method that faithfully
depicts the entity’s performance. In Illustrative Example 2 to IFRIC 12, construction
revenue appears to be recognised over time by reference to costs incurred relative to total
expected costs required to satisfy the construction services performance obligation.
An alternative criteria in IFRS 15 for recognising revenue over time is that the customer
simultaneously receives and consumes the benefit as the entity performs. [IFRS 15.35(a)].
Each road-user simultaneously receives and consumes the benefits provided by the
operator as the operator provides the road operating services and therefore the
operator recognises revenue over time. However, given the short time period over
which the operator provides road operating services to each road user in Illustrative
Example 2 (i.e. the duration of the time it takes the road user to travel the length of the
toll road), the operator recognises toll revenue when it collects the tolls.
Satisfaction of performance obligations under IFRS 15 is discussed in Chapter 28 at 8.
6 DISCLOSURE
REQUIREMENTS:
SIC-29
IFRIC 12 has no specific disclosure requirements although the disclosure requirements
of the various applicable standards (such as IFRS 9, IFRS 7 – Financial Instruments:
Disclosures, [IFRIC 12.23], and IAS 38) will have to be made as appropriate. SIC-29, which
pre-dates IFRIC 12 by several years, includes additional disclosure requirements.
[IFRIC 12.10]. It is important to note that the scope of SIC-29 is not defined in terms of
IFRIC 12 and is potentially broader in scope than IFRIC 12. It applies to a type of
transaction that is described although not really defined and which does not depend on
the control criteria described at 3 above. It also applies to both sides of the transaction,
whereas IFRIC 12 applies only to the operator under the concession agreement.
SIC-29 describes service concessions as arrangements in which an entity (the operator)
provides services on behalf of another entity (the grantor, which may be a public or
private sector entity, including a governmental body) that give the public access to major
economic and social facilities. The examples of service concession arrangements given
by SIC-29 include water treatment and supply facilities, motorways, car parks, tunnels,
bridges, airports and telecommunication networks. [SIC-29.1].
SIC-29 states that the common characteristic of all service concession arrangements is
that the operator both receives a right and incurs an obligation to provide public
services. [SIC-29.3]. It excludes from its scope an entity outsourcing the operation of its
internal services (e.g. employee cafeteria, building maintenance, and accounting or
information technology functions). [SIC-29.1]. This means that some of the arrangements
that do not include the construction of a major capital asset, as discussed above, may
not be caught by the requirements of the SIC, although there is no hard-and-fast
dividing line between service concessions and outsourcing arrangements. For example,
a contract between a government department and an operator to maintain the existing
computer system, including replacement of hardware and software as appropriate, may
be outside the scope of SIC-29.
SIC-29 summarises the rights and obligations as follows:
Service concession arrangements 1859
For the period of the concession, the operator has received from the grantor:
(a) the right to provide services that give the public access to major economic and
social facilities; and
(b) in some cases, the right to use specified tangible assets, intangible assets, and/or
financial assets;
in exchange for the operator:
(a) committing to provide the services according to certain terms and conditions
during the concession period; and
(b) when applicable, committing to return at the end of the concession period the
rights received at the beginning of the concession period and/or acquired during
the concession period. [SIC-29.2].
The disclosure requirements in respect of such projects are set out below:
SIC-29 requires disclosure in addition to that required by other standards that may
cover part of the transaction, such as IAS 16 (see Chapter 18), IFRS 16 (see Chapter 24)
(or formerly, IAS 17 (see Chapter 23)) and IAS 38 (see Chapter 17). [SIC-29.5]. All aspects
of a service concession arrangement should be considered in determining the
appropriate disclosures in the notes to the financial statements. [SIC-29.6].
An operator and a grantor should disclose the following in each period:
(a) a description of the arrangement;
(b) significant terms of the arrangement that may affect the amount, timing and
certainty of future cash flows (e.g. the period of the concession, re-pricing dates
and the basis upon which re-pricing or re-negotiation is determined);
(c) the nature and extent (e.g. quantity, time period or amount as appropriate) of:
(i) rights to use specified assets;
(ii) obligations to provide or rights to expect provision of services;
(iii) obligations to acquire or build items of property, plant and equipment;
(iv) obligations to deliver or rights to receive specified assets at the end of the
concession period;
(v) renewal and termination options; and
(vi) other rights and obligations (e.g. major overhauls);
(d) changes in the arrangement occurring during the period; and
(e) how the service arrangement has been classified. [SIC-29.6].
These disclosures should be provided individually for each service concession
arrangement or in aggregate for each class of service concession arrangements. A class
is a grouping of service
concession arrangements involving services of a similar nature
(e.g. toll collections, telecommunications and water treatment services). [SIC-29.7].
IFRIC 12 added a requirement to disclose ‘the amount of revenue and profits or losses
recognised in the period on exchanging construction services for a financial asset and
an intangible asset’. [SIC-29.6A].
1860 Chapter 26
Vinci has made aggregate disclosures for the principal terms of its arrangements. The
following extract is part only of the extensive disclosures that separately address
concession arrangements under the intangible asset model, financial asset model and
bifurcated model.
Extract 26.4: VINCI SA (2017)
Notes to the consolidated financial statements [extract]
F.
Concession and PPP contracts [extract]
12.2
Main features of concession and PPP contracts – intangible asset model [extract]
The main features of contracts for concession and PPP contracts operated by controlled subsidiaries are as follows:
Control
and
Remuneration
Grant or
Residual value
Concession end
regulation of
paid by
guarantee
date
prices by
from
concession
concession
grantor
grantor
VINCI Autoroutes [extract]
ASF group
ASF
Pricing law as
Users
Nil
Infrastructure returned to
2036
2,737 km of toll
defined in the
grantor for no
motorways
concession
consideration at end of
(France)
contract. Price
contract unless purchased
increases
before term by the grantor
subject to
on the basis of the
agreement by
economic value
grantor
Escota
Pricing law as
Users
Nil
Infrastructure returned to
2032
471 km of toll
defined in the
grantor for no
motorways
concession
consideration at end of
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 366
