Clarity Mag

PPP operators - have you considered AASB Interpretation 12?

Governments, including local governments and other public sector entities, often enter into arrangements with private sector entities, including charities, to operate and fund public services.

These arrangements are commonly referred to as public private partnerships (PPPs). A common example is where, where a private sector entity (the operator), constructs and operates an asset (e.g. a hospital or a toll road) on behalf of a government or a public sector entity (the grantor) to provide public services (health services, roads). These arrangements are also referred to as Build Own Operate Transfer (BOOT) arrangements.

The benefits of PPPs include leveraging off private sector expertise and efficiency in asset construction and operation while allowing the grantor to maintain control over certain aspects of public services (e.g. pricing). Additionally, PPPs enable public sector entities to access additional private funding.

In states like New South Wales, PPPs cover a wide range of assets, including public transport systems, hospitals, car parks, water systems, tunnels, toll roads, prisons, land title registration systems, and health care facilities. Other examples include student accommodation facilities, social housing, and community housing providers. PPPs can even extend to the defence sector, such as naval shipbuilding in certain countries.

In accounting terms, many PPPs are classified as a Service Concession Arrangements, requiring the operator to apply the requirements of AASB Interpretation 12 Service Concession Arrangements.

What is AASB Interpretation 12?

AASB Interpretation 12 Service Concession Arrangements provides guidance on the accounting by operators for public-to-private service concession arrangements.

Does Interpretation 12 apply to all PPPs?

No. Interpretation 12 only applies if:

  • The grantor (i.e. the public sector entity) controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them and at what price, and
  • The grantor controls any significant residual interest int eh asset at the end of the term of the arrangement. (AASB Interpretation 12.5).

Some PPPs are outside the scope because:

  • The grantor does not control what price is charged, or
  • The operator themselves overlay their own criteria as to whom can access the service.

Impact of Interpretation 12 - Infrastructure asset is not the Operator’s PPE 

Under Interpretation 12, who has legal title to the asset during the period of the arrangement where the operator operates the asset is irrelevant, the asset is not recognised as property plant and equipment (PPE) of the operator.

Instead, the operator recognises either an intangible asset (for the right to charge users of the asset) or a financial asset (right to receive cash from the grantor for building the asset).

During the construction phase of the asset, the operator recognises revenue under AASB 15 Revenue from Contract with Customers. Any borrowing costs incurred is capitalised into the intangible/financial asset.


AASB Interpretation 12 significantly impacts an operator’s balance sheet and profit or loss throughout the arrangement’s life. The definition of public service is broad and extends to supporting ‘secondary assets,’ such as carparks for hospitals or university student accommodation.

Whether a PPP falls within the scope of Interpretation 12 depends on the precise terms and conditions of the arrangement and may involve substantial judgment. Private sector entities involved in a PPP should carefully assess whether Interpretation 12 applies.

Contact your local PKF advisor if you have any of these arrangements and need further guidance.

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