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Business and Policy Areas
Business and Policy Areas

GASB Issues Revised Proposal on Service Concession Arrangements

June 18, 2010

In light of comments received to its June 2009 Exposure Draft (ED) on service concession arrangements, the Governmental Accounting Standards Board (GASB) has issued a revised ED, "Accounting and Financial Reporting for Service Concession Arrangements." The proposed Statement would apply only to those arrangements in which a transferor - such as a public institution - retains specific control criteria. Comments are due August 17, 2010.

For over two decades, higher education institutions have entered into various types of arrangements with private business enterprises to deliver services to university students, faculty, and staff. These arrangements are typically called public-private partnerships. GASB's use of the term service concession arrangements (SCA) more broadly includes partnerships or arrangements between a transferor (a governmental entity such as a public institution) and an operator (either private sector or governmental) in which (1) the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset (a "facility") and (2) the operator collects and is compensated with fees from third parties.

The revised ED is only applicable when the government maintains elements of control over the arrangement (such as determination of services, clientele, and prices and entitlement to a significant residual interest in the facility). The proposed statement provides the control criteria. Arrangements in which control is transferred to the operator would not be subject to the requirements of the proposed Statement.

Capital Assets

Existing or new facilities transferred to an operator for service are subject to the accounting and reporting provisions of the ED. Existing facilities continue to be reported as capital assets that are subject to depreciation, impairments, and disclosure. New or improved facilities are reported at fair value on the date that operation of the facility begins. After initial measurement, the capital asset is subject to existing requirements for depreciation, impairment, and disclosures. Whether facilities are new, improved, or existing, the capital asset should not be depreciated if the arrangement requires the operator to return the facility to the transferor in its original or an improved condition.

Deferred Inflows of Resources

When operators improve or purchase facilities for use in a SCA, the estimated fair value of the asset less any related liabilities would be considered a deferred inflow of resources. The deferred inflow of resources should be reduced and revenue should be recognized in a systematic and rational manner over the term of the arrangement, beginning when the facility is placed into operation.


A transferor should recognize a liability for certain obligations to sacrifice financial resources under the terms of the arrangement. Liabilities associated with the SCA should be recorded at their present value if a contractual obligation is significant and meets either of the following criteria:

(1) The contractual obligation directly relates to the facility (for example, obligations for capital improvements, insurance, or maintenance on the facility). This obligation could relate to ownership of the facility or could arise from the transferor's responsibility to assure that the facility remains fit for the particular purpose of the arrangement.

(2) The contractual obligation relates to a commitment made by the transferor to maintain a minimum or specific level of service in connection with the operation of the facility (for example, providing a specific level of police and emergency services for the facility or providing a minimum level of maintenance to areas surrounding the facility).

If a liability is recorded to reflect a contractual obligation to sacrifice financial resources then the liability should be reduced as the transferor's obligations are satisfied.

Effective Date

The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2011, or FY13 for the vast majority of public institutions.

NACUBO encourages public institutions to submit comments to GASB by August 17, 2010, or send comments to NACUBO for inclusion in the industry comment letter. The ED is available on GASB's website.


Sue Menditto
Director, Accounting Policy