Accounting for service concession arrangements and the implications of IPSAS 32

Abstract

Purpose: The purpose of this dissertation is to identify the Service Concession Arrangements undertaken by the Government of Malta, to understand the current accounting treatment of concessions by the Government, and to examine how such treatment will be affected once IPSAS 32 becomes effective. The research also analyses what is being proposed at a European level, and it considers any costs, challenges and benefits related with the application of IPSAS 32. Design: The objectives of the study were reached through a qualitative research approach, whereby primary data was collected through face-to-face interviews with a semi-structured format, within four Ministries, one government department, a government agency, and a private sector firm. Findings: The study suggested that the introduction of IPSAS 32 is likely to result in enhanced quality of information of the financial statements, especially in terms of accounting for concessions between the public and private parties. Conversely, the transition towards accrual accounting involves challenges and costs, which might hinder the value-for-money proposition for their application. Presently the cash methodology is not presenting a true and fair view of government assets and liabilities, and thus the introduction of IPSAS 32 is likely to discourage governments from undertaking PPPs, since they would be required to disclose debt and deficit to their full amount. Conclusions: The study concludes that the Maltese government is willing to introduce accrual accounting. However, improvements need to be made in various areas until the full changeover towards an accruals methodology is in place, and in order to reap the benefits of accrual accounting. It has transpired that IPSAS 32 is in conflict with what is being proposed at an EU level, and such standard needs to provide further guidance in order to cater or public sector requirements. Implications: It is anticipated that this study will become useful to government Ministries when introducing accrual accounting in service concessions. This study is especially applicable in view that IPSAS 32 has become effective in 2014.