9.2.2  Approaches currently applied in practice to determine whether a grantor should recognise the property

The fundamental accounting issue for PPP contracts in general is how the property that underlies the arrangement is accounted for.  This is a difficult issue, because in substance both the grantor (usually government) and the operator (generally the private sector party) are associated with the property, regardless of which party has legal title. There are a number of approaches considered by the AASB for addressing the recognition of the subject property, such as an approach based on assessing the risks or rewards arising from the property for each party or a control approach.

Under the risks and rewards approach a party which bears the majority of risks and rewards recognises the property underlying the PPP arrangement.  This approach is used in AASB 117 Leases and is adopted in the HoTARAC guidance.

Under the control approach, the entity that controls the property would recognise it as an asset.  This approach is embedded in AASB 116 Property, Plant and Equipment.  A range of factors have to be considered under this approach to determine if a grantor controls the property.  The factors may include, for example, restrictions on the operator to use the property for other purposes or provide services to other parties.

Another permissible approach seen in practice is a rights and obligations approach. Under this approach the property is viewed as a bundle of future economic benefits controlled by the parties to the arrangement. Both parties would recognise assets that arise from their association with the property.  Certain concepts of this approach are embedded in AASB 139 Financial Instruments: Recognition and Measurement and AASB 138 Intangible Assets.