Sample Disclosure – Accounting Policy Of Concesssion Contracts (26 November 2010)

Concession contracts

A substantial portion of the Group’s assets are created and used due to concession contracts granted by public sector customers (‘grantors’) and/or by concession companies purchased by the Group on full or partial privatisation. The characteristics of these contracts vary significantly depending on the country and activity concerned. Nonetheless, they generally provide, directly or indirectly, for the grantors’ involvement in the determination of the service and its charges levied on users, and the return of the assets necessary to carry out the performance of the service at the end of the contract to the grantors concerned. In order to fall within the definition of concession contracts, a contract must satisfy the following two criteria:

  • the grantor controls or regulates what services the operator must provide with the type of the infrastructure required, the users of the services, and at an agreed price; and
  • the grantor controls the residual interest in the infrastructure at the end of the term of the arrangement.

Such infrastructure is not recognised in the balance sheet of the Group as property, plant and equipment but as financial assets (under ‘financial asset model’) and/or intangible assets (under ‘intangible asset model’) depending on the remuneration commitments given by the grantor.

Financial asset model

The financial asset model applies when the Group has an unconditional right to receive cash or another financial asset from the grantor.

In the case of concession services, the Group have such an unconditional right if the grantor contractually guarantees the payment of:

  • amounts specified or determined in the contract or
  • the shortfall, if any, between amounts received from users of the public service and amounts specified or determined in the contract.

Financial assets from the application of this policy are recorded in the balance sheet under the heading ‘Operating financial assets’ and recognised at amortised cost. Unless otherwise indicated in the contract, the effective interest rate is equal to the weighted average cost of capital of the entities carrying the assets concerned.

An impairment loss is recognised if the carrying amount of these assets exceeds the fair value, as estimated during impairment tests. Fair value is estimated based on the recoverable amount, calculated by discounting future cash flows (value in use method).

The portion falling due within less than one year is presented in the balance sheet as ‘Operating financial assets’ under current assets heading, while the portion falling due within more than one year is presented in the non-current assets heading.

Revenue associated with financial model includes:

  • revenue determined on completion basis in the case of construction operating financial assets;
  • the remuneration of the operating financial asset recorded in revenue from operating financial assets (excluding principal payments);
  • Remuneration from services rendered to users

Intangible asset model

The intangible asset model applies where the operator is paid by the users or where the concession grantor has not provided a contractual guarantee in respect of the amount recoverable. The intangible asset corresponds to the right granted by the concession grantor to the operator to charge users of the public service.

Intangible assets resulting from the application of this policy are recorded in the Balance Sheet under the heading ‘Concession intangible assets’ and are amortised, generally on a straight-line basis, over the contract term. However, fees paid to local authorities that are part of intangible costs are disclosed under item ‘Other intangible assets’.

Under the intangible asset model, Revenue includes:

  • revenue from the construction of the infrastructure;
  • operating revenue of the infrastructure.

Mixed model

The choice of the financial asset or intangible asset model depends on the existence of payment guarantees granted by the concession grantor. However, certain contracts may include a payment commitment on the part of the concession grantor covering only part of the investment, with the balance covered by royalties charged to users.

Where this is the case, the investment amount guaranteed by the concession grantor is recognised under the financial asset model and the residual balance is recognised under the intangible asset model.

Sample Disclosure – Accounting Policy Of Operating Segments Reporting (25 November 2010)

Operating Segments Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker of the Group. The chief operating decision-maker of the Group, who is responsible for allocating resources and assessing performance of the operating segments, is the Chief Operating Officer (“COO”) of the Group who has the authority to make strategic decisions on the operations of the Group.

Sample Disclosure – Change In Accounting Policy Due To Early Adoption Of FRS 4 Insurance Contracts (23 November 2010)

Early Adoption of FRSs and Amendments to FRSs

During the financial year, the Group early adopted FRS 4 Insurance Contracts in accordance with the transitional provisions require simultaneous adoption of Financial Guarantee Contracts (Amendments to IAS 39 and IFRS 4) issued by the International Accounting Standards Board (“IASB”) in August 2005. This pronouncement permits the accounting policy choice of scoping financial guarantee contracts in accordance with FRS 139 Financial Instruments: Recognition and Measurement, or as insurance contracts in accordance with FRS 4.

The disclosure requirements in FRS 4 need not apply to comparative information that relates to annual periods beginning before 1 January 2010.

Consequently, the Group designates corporate guarantees given to banks for credit facilities granted to subsidiaries as insurance contracts as defined in FRS 4. The Group recognises these insurance contracts as recognised insurance liabilities when there is a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

At every reporting date, the Group shall assess whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If this assessment shows that the carrying amount of the insurance liabilities is inadequate, the entire deficiency shall be recognised in income statement.

Recognised insurance liabilities shall only be removed from the balance sheet when and only when, it is extinguished via a discharge, cancellation or expiration.

The early adoption of FRS 4 does not result in any adjustment to recognised items of assets, liabilities, income and expense of the Group in both, the current year and prior years. Financial guarantees of the Company are disclosed in Note XX to the financial statements.