IPSASB discusses guidance on accounting for infrastructure assets

IPSASB discusses guidance on accounting for infrastructure assets

The IPSASB has been through a process of identifying issues on infrastructure assets to determine the areas where additional guidance may be needed. They are considering proposals to address the issues raised by stakeholders at their meetings in 2020.

What issues has the IPSASB considered to date?

Stakeholders shared potential issues related to infrastructure assets with the IPSASB. The IPSASB has considered whether guidance should be provided in the following areas:

What decisions has the IPSASB taken?

At the March 2020 meeting the IPSASB agreed that infrastructure assets should be recognised as property, plant and equipment when they satisfy the IPSAS 17 definition and the recognition criteria. Therefore, infrastructure assets should be treated as a subset of property, plant and equipment and accounted for in accordance with the principles of IPSAS 17. The proposed guidance will be included in IPSAS 17, together with proposed guidance on heritage assets (see an upcoming article on guidance the IPSASB is considering for heritage assets).

Definition: characteristics of infrastructure assets

Existing financial reporting guidance of national standard-setters, guidance included in the Government Finance Statistics Manual and the System of National Accounts, and other relevant literature were considered by the IPSASB to determine the characteristics that describe infrastructure assets.

From a list of possible characteristics, the IPSASB agreed that the following characteristics are important for infrastructure assets:

• infrastructure assets comprise networks or systems; and
• infrastructure assets have long useful lives.

The intention is not to describe all the potential characteristics of infrastructure assets. The IPSASB determined the above characteristics to be important because (a) they distinguish infrastructure assets from other items of property, plant, and equipment, and (b) they present complexities in applying the existing principles in the Standard.

Other characteristics that the IPSASB considered include that infrastructure assets may be immovable, it may be difficult to dispose them, and they are specialised. They found none of these to be unique to infrastructure assets.

The characteristics will not be included in a definition of infrastructure. Instead, the characteristics will be included as application guidance in IPSAS 17, and further illustrative examples and/or implementation guidance will be considered in future.

Definition: control of infrastructure assets

At its March 2020 meeting, the IPSASB agreed that control is a cross cutting issue that impacts property, plant, and equipment including infrastructure assets.

IPSAS 17 defines property, plant and equipment as:

… tangible items that (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and (b) are expected to be used during more than one reporting period.

The IPSASB agreed to replace the term “tangible items” with “tangible assets” because it would imply that an entity controls the asset.

To further address the issues raised by stakeholders on when an entity controls infrastructure assets, the IPSASB agreed to provide application guidance in IPSAS 17. The proposed guidance includes a discussion on the indicators of control from the IPSASB’s conceptual framework.

The IPSASB will consider illustrative examples and implementation guidance at a future meeting.

Other issues

The IPSASB agreed that no additional guidance is necessary on:

• the recognition of spare parts; and
• costs to dismantle infrastructure assets

because authoritative guidance exists in IPSAS 17 and IPSAS 19 on Provisions, Contingent Liabilities and Contingent Assets.

They further agreed that these are not infrastructure specific issues but rather generic issues for all property, plant and equipment.

What are the timelines for the IPSASB’s project?

According to the IPSASB’s current work programme, proposed amendments to IPSAS 17 will be issued for comment in February 2021.

The views expressed in this article are those of Secretariat and not the ASB Board.