Public Private Partnerships
FASAB Contact, Domenic Savini, firstname.lastname@example.org, 202-512-6841
|Request(s) for Comment||Comment Letters||Final Pronouncement|
|Public-Private Partnerships: Disclosure Requirements (PDF)||Comment Letters||Public-Private Partnerships: Disclosure Requirements (PDF)|
NOTE: The issuance of SFFAS 49, Public-Private Partnerships: Disclosure Requirements, on April 27, 2016, effectively concluded the first phase of the Board’s two-phased project on public-private partnerships. The second phase of the project will address measurement and recognition, some of which is directly related to the disclosures required by SFFAS 49. Staff expects to convene a task force to review implementation issues prior to addressing measurement and recognition.
This project was added to the agenda because federal agencies have increasingly turned to public-private partnerships (P3s) to accomplish goals. Budget pressures are likely to further increase the use of P3s. Making the full costs of such partnerships transparent would be the overall objective of the project. Active work on this project would begin in FY2013 with final standards or guidance expected following a two to three year effort..
Specific objectives could include:
- Defining terms (e.g., service concession arrangements, P3s)
- Providing guidance for the recognition and measurement of:
- assets and liabilities
- revenues and expenses
- establishing disclosure requirements
- Considering guidance for other arrangements related to P3s (sale-leaseback or other long-term arrangements)
Why is a project on Public-Private Partnerships needed?
What questions / issues does the Public-Private Partnerships Project plan to address?
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
October 17-18, 2023
The Board agreed with staff’s proposed edits to eliminate the “where available” exception and tentatively identified additional clarifying edits consistent with its August and October 2023 deliberations. For more information, see the omnibus amendments project page.
Staff updated the members concerning the types of implementation guidance the public-private partnerships (P3s) task force recommends in accordance with the Board’s October 2022 direction.
The Board generally agreed with the task force’s direction, scope, and proposed plan to develop implementation guidance in the form of a Technical Release to assist preparers and auditors with implementing and complying with the SFFAS 49 disclosure requirements.
Nevertheless, members made the following points:
- Further task force work and analysis may lead the Board to make necessary scope changes and identify additional areas for study.
- Given that some preparers will follow the case studies or illustrations and, in so doing, fail to meet the disclosure requirements, the Board should ascertain if the case studies or illustrations should be non-authoritative.
- The board should exercise care when referencing SFFAS 47 because it is a principles-based document that requires significant agency judgment for effective implementation.
- The Board should clarify distinctions between related party disclosures and P3 disclosures.
- The focus on capturing risk and the barriers to properly disclosing risk loom large in the task force’s rankings.
- There is confusion about the relationship between SFFAS 47, Reporting Entity, SFFAS 49, Public-Private Partnerships: Disclosure Requirements, and SFFAS 54, Leases.
- The Board should clarify descriptions of qualitative factors (some mentioned within SFFAC 9, Materiality).
Staff plans on briefing the Accounting and Auditing Policy Committee in November to seek formal project approval to begin work on a Technical Release in accordance with the Board’s direction.
If you are interested in joining this implementation work group or know someone who might be interested, please contact Mr. Domenic Savini.
Briefing Materials – Topic B
August 22, 2023
On August 22, 2023, FASAB released for public comment the exposure draft titled Omnibus Amendments: Amending Statements of Federal Financial Accounting Standards 38, 49, and Technical Bulletin 2011-1. The comment period is 30 days, ending on September 21, 2023.
The ED proposes retaining the reporting of federal oil and gas and other natural resource information as required supplementary information per SFFAS 38, Accounting for Federal Oil and Gas Resources, and Technical Bulletin (TB) 2011-1, Accounting for Federal Natural Resources Other than Oil and Gas. The ED also proposes eliminating an exception provided in SFFAS 49, Public Private Partnerships: Disclosure Requirements, to avoid reporting inconsistencies and to increase comparability.
Staff has conducted approximately a dozen meetings with the following three different task force working teams: team 1 – SFFAS 47, Reporting Entity; team 2 – SFFAS 54, Leases; and team 3 – case study illustrations and sample note disclosures. The first and second teams are finalizing draft implementation guidance, demonstrating how SFFAS 49 serves as a “safety-net” to SFFAS 47 and SFFAS 54. The primary objective is to ensure that the SFFAS 49 disclosures do not repeat information and complement disclosures required by the overarching standards. The third team is working on five sample case studies, from simple to complex, that address the SFFAS 49, paragraph 24, disclosure requirements.
Upon completion of each team’s assignment, staff plans on developing (1) a decision flow diagram along with accompanying instructions to help bring consistency to preparer implementation and entity reporting formats and (2) case study illustrations to assist preparers in identifying P3 risk, assess remote risk and materiality, and develop sample note disclosures deemed beneficial to financial statement users.
Task force members generally agreed that several of the implementation challenges previously noted can be addressed concurrently with one another. The task force teams are addressing these challenges and recommending discrete actions such as possible amendments, draft case studies and note illustrations, etc., for the Board’s consideration and review.
The SFFAS 49, Public-Private Partnerships: Disclosure Requirements, implementation working group began meeting to address implementation challenges identified by the financial management community. The working group has determined that the highest priority challenges requiring near-term attention include: understanding risk assessments germane to public-private partnerships, including remote risk; materiality assessments; and harmonization with SFFAS 47, Reporting Entity, and SFFAS 54, Leases. The working group’s objective is to carefully study these matters and develop recommended actions for the Board’s consideration, which may include amendments, interpretations, and/or illustrative guidance.
In preparation for the implementation working group’s inaugural meeting scheduled for December 2, staff held an SFFAS 49 primer/refresher session on November 17 for working group members. At this voluntary session the following matters were discussed:
- SFFAS 49 serves as a “safety-net” to overarching standards addressing long-term arrangements such as SFFAS 47, Reporting Entity; SFFAS 54, Leases; Credit Reform, etc.
- Most P3s so far identified (FY 20) are energy savings contracts, but reporting formats vary and offer users inconsistent information.
- A Firm Fixed Priced contract that can only be extended up to five years in and of itself does not abrogate the need for a risk analysis as well as expected life analysis.
- An arrangement acquiring new assets is in fact an indicator of risk and triggers P3 reporting.
- Whether control as defined by SFFAS 47, which could lead to consolidating a P3 as if it were a “governmental entity,” recasts the private partner as “governmental” and thus excludes it from the SFFAS 49 P3 disclosures that would apply to a “private” partner.
- Agencies may need to go beyond individual transactions and focus at the obligation level to help identify P3s.
At the December 2nd inaugural meeting the full working group began ranking/rating the 15 implementation challenges as well as evaluating how FASAB can best address each one. The working group’s next planned meeting is scheduled for January 18.
October 25-26, 2022
At the October 2022 Board meeting, the Board agreed with the staff recommendation to form an implementation working group. The following will be taken into consideration as the implementation working group comes together:
- Coordinating with the CFO Council
- Validating and prioritizing the implementation challenges
- Communicating technical guidance in a question and answer forma
- Identifying other potential challenges as well as solutions
- Establishing firm task force goals and timeframes
- Keeping in mind the task force composition
- Considering how auditors are applying materiality
For context purposes, staff provided an initial review of the project’s recent history, specifically noting that the Board’s intention for SFFAS 49 is that it be treated as supplemental guidance to other (primary) guidance addressing long term arrangements. The Board also discussed staff’s review of the fiscal year 2020 annual financial reports of all 24 CFO Act Agencies and the 16 significant entities.
Staff noted that the term “public-private-partnership(s)” used by agencies is not always in fact the term as defined in SFFAS 49, which may be the reason why there is some variability in the use of this term in agency reports. Additionally, lessons learned thus far include understanding that direct loans, loan guarantees, and insurance programs, while not P3s in and of themselves, can in fact be used in a P3 arrangement or transaction.
Members provided an array of advice and consultation regarding the implementation challenges so far identified that is best captured and underscored by one member’s question, “What are the Board’s goals and are we achieving them?” For example, if the goal is to report risk or off-balance sheet activity, is this being done? The example of energy savings or utility contracts reported by some agencies was raised. In the end, what do these disclosures mean to the users?
The Board generally agreed with (1) validating and prioritizing challenges with the task force, (2) coordinating with the CFO Council as appropriate, and (3) seeking task force consultation on what types of implementation guidance they would recommend issuing.
Lastly, one member noted the importance of public-private partnerships in light of recent legislative and administration efforts in dealing with major infrastructure initiatives. The member noted the importance of keeping this in mind and maintaining a forward-looking posture relative to P3 accounting and reporting.
If you are interested in joining this implementation work group or know someone who might be interested, please contact Domenic Savini at email@example.com by December 16th.
Briefing materials – Topic C
Staff continues to train and conduct outreach efforts with a focus towards gathering information to assist improving implementation. To date, staff has held eleven training venues attended by ~500 agency personnel representing 28 agencies/bureaus. In addition to meetings with DoD, Labor, and NASA Inspectors General and an outside audit firm, staff has held several conversations with agency financial policy experts. Staff is attempting to identify implementation challenges and possible solutions from diverse financial management community perspectives; that is, preparer, business-area (operational), auditor, and policy expert views.
Staff continues to train and conduct outreach efforts with a focus towards gathering information to assist improving implementation.
As discussed at the February meeting, staff continues to train and conduct outreach efforts with a focus towards gathering information to assist improving implementation. As of May 3rd, staff has held nine trainings attended by ~445 agency personnel representing approximately 24 agencies/bureaus. Additionally, staff has held meetings with DoD, DoL, and NASA Inspectors General, as well as an outside audit firm. Staff also discussed the importance of P3 reporting at a panel on property hosted by the AGA DC chapter on March 31st.
Implementation challenges raised by some attendees include:
- CFO relationships are lacking, as well as an understanding of program operations.
- Agencies have trouble identifying overall P3 risk.
- Potential P3 analysis requires access to numerous contracts and arrangements contained in different agency/departmental data sets.
- Some only focus on entity P3 risk, applying measurement and recognition guidance from SFFAS 5 for disclosing remote risks.
- Some agencies misinterpret that, because debt arrangements may pose less risk than equity arrangements, SFFAS 49 risk sharing is non-existent. Subjective assessments of risk make it difficult to conclude that SFFAS 49 risk exists. Lack of agency expertise and resources creates an inordinate amount of preparer burden.
- Database “flags” to identify P3s are absent and conflate contract periods as expected life indicators.
- CFO personnel are not involved from the beginning of the P3 award, creating a lack of awareness/knowledge and inadequate (sub) contractor access to records.
Lastly, as requested by members, staff has created an issues log that captures and retains for future use potential measurement and recognition issues, as well as balance sheet recognition approaches/options.
February 23-24, 2022
At the February meeting, staff contextualized implementation of SFFAS 49, Public-Private Partnerships: Disclosure Requirements, explaining that the Board had initiated the public-private partnership (P3) project in 2012. It did so with the understanding that existing guidance was available for addressing most foreseeable long-term implications of such agreements (for example, SFFAS 47, Reporting Entity, and SFFAS 2, Accounting for Direct Loans and Loan Guarantees).
Nevertheless, the Board desired a principles-based Statement specifically for P3s, which culminated with the issuance of SFFAS 49. This was to be followed by measurement and recognition once the Board sufficiently identified the types of P3s in the federal space.
Staff further noted that SFFAS 49 preceded leases guidance (SFFAS 54) and was developed in connection with reporting entity guidance (SFFAS 47). The Board intended for SFFAS 49 to be treated as supplemental guidance to not only existing guidance at the time, but for any future guidance addressing long-term implications commonly found in P3s.
Some key highlights of Board deliberations include the Board agreeing to (1) continue training and outreach efforts with a focus towards gathering information to assist improving implementation; (2) focus on SFFAS 49 implementation challenges and potential solutions; and (3) capture and retain for future use any potential measurement and recognition issues not yet identified by staff. Members reiterated their position not to proceed with measurement and recognition until the Board gains additional insight from its training and outreach efforts.
Briefing materials – Topic D
Staff has begun (1) researching potential implementation issues identified by the Board at the August 2021 meeting, (2) assisting entities with any potential measurement and recognition problems, and (3) as appropriate, coordinating with Treasury and OMB to better present the information to help reduce reporting variability.
To that end, staff is scheduling SFFAS 49 (P3 disclosures) training with federal entities. The training will be interactive and include P3 task force members to help answer questions. The training will be designed to also better understand the processes used by entities in identifying P3s and those disclosures entities are having difficulty implementing. For example, understanding how the P3 definition, exclusions, risk-based characteristics, and materiality guidance is being used or understood by preparers and their auditors and gaining additional insight and research into why cash flows were not disclosed.
Moreover, staff has identified the following five broad balance sheet measurement and recognition alternatives:
- Capital asset classification has three approaches: a. Treat as a fee-simple acquisition, b. Treat as PP&E acquired through an Exchange, c. Treat as a leased asset acquisition.
- Investment asset classification has three approaches: a. Cost approach – initial plus future investments, b. Fair value approach – percentage of the partnership net assets, c. Equity approach – adjust investment yearly for P&L, dividends, etc.
- Reporting entity classification has one approach: consolidation.
- Subsidy classification has one approach: net present value of cash flows.
- Intangible asset classification: leased asset approach.
Staff has begun (1) researching how the P3 definition, exclusions, risk-based characteristics, and materiality guidance is being used by a sample of entities, (2) researching why cash flows (re: disclosure 24d) were not disclosed, especially in light of their disclosed contractual risks-of-loss, and (3) assisting entities with any potential measurement and recognition problems by coordinating with Treasury and OMB as appropriate.
August 24-25, 2021
At the August 2021 Board meeting, members reviewed the results of staff’s analysis concerning the FY 2020 note disclosures pursuant to SFFAS 49, Public-Private Partnerships: Disclosure Requirements. Staff also addressed four questions concerning measurement and recognition. The overall objective of this project is to make the full cost of P3s transparent in financial reporting.
Staff began by explaining that the public-private partnerships project was initiated in 2012 primarily as a result of federal agencies using these alternative financing arrangements/transactions to conduct various types of operations. Both the Government Accountability Office (GAO) and the Congressional Budget Office (CBO) reported on their increased use, and economists/academics expressed concern over their off- budget and off-balance sheet nature; that is, hidden (federal) debt. Staff then reviewed the results of its analysis of the FY 2020 disclosures of all 24 CFO Act agencies and the 16 significant entities. This was based on feedback and the varying member concerns from the June meeting.
The majority of the members agreed not to proceed with measurement and recognition until the Board has additional insight and research regarding how the P3 definition, exclusions, risk-based characteristics, and materiality guidance contributed to the disclosures or lack thereof in the FY 2020 reporting cycle.
Briefing materials – Topic C
June 22-23, 2021
At the June meeting, members were provided with an overview of the topic E materials for the session on public-private partnerships: phase 2 (measurement and recognition). The discussion started with an educational session on public-private partnerships (P3s). Phase 1 of the project culminated in the issuance of SFFAS 49, Public-Private Partnerships: Disclosure Requirements. The overall objective of both phases of this project is to make the full cost of P3s transparent in financial reporting.
Key topics covered in the educational session included the following:
- Definitions of P3s and how they vary widely, reflecting a variety of arrangements
- P3’s and how they relate to SFFAS 47, Reporting Entity, and SFFAS 54, Leases
- Challenges associated with P3s, including risks and financing costs
- Examples of P3s in the state, local, and federal environments that did not work well
- Existing FASAB guidance in SFFAS 49, including the broad definition of P3s, the key characteristic (sharing risks and rewards), and the disclosure requirements
- Most current GASB and IPSASB guidance on P3s
- Major measurement and recognition issues that may need to be addressed in phase 2
- Balance sheet presentation and valuation
- Interest in a special purpose entity or vehicle
- Single or unitary payments
- Asset capitalization
- Reversionary or residual interests
- Non-monetary exchanges
- In-kind consideration (donated assets)
- Unearned revenue
Although the majority of the members generally agreed with the major measurement and recognition issues identified by staff, they noted that reviewing a greater sampling of the entity disclosures would be most beneficial before activating a task force and commencing phase 2. Some members noted that the complexity around P3s raises a need to define where and how such reporting should be presented. Other members noted the importance of clarifying the types of losses or exposures (for example, exposure beyond the balance sheet or losses from natural disasters) that should be identified and specifically addressing the SFFAS 49 term, “risk of loss.” Members discussed reviewing what other standard setters are doing regarding P3s, identifying lessons learned from preparers, canvassing views from auditors and users concerning SFFAS 49, and assessing disclosures overload and cost-benefit considerations.
As a first step, staff will analyze additional FY 2020 entity disclosures to help address the varying member concerns and noted observations.
Briefing materials – Topic E
December 16-17, 2015 Board Meeting
As a follow-up to the October Board meeting, staff added language to the Public-Private Partnership (P3) standards to provide preparers with conditions to consider when assessing the expected life of a P3. As a result of this additional language, the Board reballoted the Statement at the December 2015 Board meeting, and it was approved with a vote of eight members in favor of its issuance and one member dissenting. The Statement is expected to be issued in late April, following successful completion of the 90-day review period.
October 21-22, 2015 Board Meeting
At the October 22nd meeting the Board considered a ballot draft of SFFAS 49, Public-Private Partnerships: Disclosure Requirements.
Members discussed whether due process was sufficient regarding references to the expected term of P3 arrangements or transactions in connection to the contractual period or the expected longer-term relationship involved in P3s. After a review of the Exposure Draft and related due process procedures, the members generally concluded that the revision noted at footnote 10 at paragraph 16 was further clarification of the definition and would not be considered a substantive revision. Although the majority of the members present favored going forward with the ballot draft as shown at TAB I, in order to get broader member satisfaction with the guidance, they generally agreed to adding language to footnote 10 at paragraph 16 to provide preparers with things to consider when assessing the expected life of a P3 (that is, clarifying the expected life concept). Members generally agreed to conduct this process via email wherein the Board will be provided language for the footnote and re-ballot accordingly.
Issue Paper for October 2015 – Tab I
August 26-27, 2015 Board Meeting
The Board considered a revised draft Statement on Public-Private Partnerships: Disclosure Requirements located at Tab C.
One of the most substantial changes from the prior draft is to delete the word “contractual” from the P3 definition to avoid creating a loophole that would exclude the types of arrangements or transactions intended for disclosure.
Subject matter experts during a fatal-flaw review have advised that because the federal government can only enter into contracts no longer than 5 years (base year and up to 4 option year renewals), a literal or strict reading of the definition would therefore serve as a basis to exclude all contractual arrangements/transactions lasting longer than 5 years. Staff further noted that a subject matter expert overseeing a billion dollar parts sustainment program suggested substituting “long-term” for “contractual.” Members then noted how such a literal or strict reading of the term “contractual” would impact disclosures regarding the appropriate period for cash flow reporting. The Board generally agreed noting that adding language possibly in a footnote about economic incentives and other evidence of the “expected term” of the arrangement or transaction will be needed.
The other significant issue discussed was whether to clarify language about disclosures of remote risks in paragraph 23d to make it clear that such risks are limited to those identified explicitly in the terms of the arrangement or transaction. The majority of the Board members agreed with this change.
Issue Paper for August 2015 – Tab C
June 24-25, 2015 Board Meeting
The Board reviewed a draft of the revised standards for disclosure requirements for public-private partnership (P3s) that included changes made based upon respondent comments, P3 working group suggestions, and Board re-deliberations/discussions. Also, an illustrative flowchart outlining how preparers can determine if an arrangement or transaction is eligible for disclosure was reviewed. The TAB C materials are available at /board-activities/meeting/meetings/june-2015-briefing-materials/index.html.
Principal edits to this draft included (1) changing the P3 definition to add the requirement that the arrangement or transaction needs to exceed 5 years in order to be considered a P3 for reporting purposes, (2) deleting the 4 features contained in the P3 definition and realigning them directly into the risk-based characteristics, and (3) removing language that references materiality.
Mr. Dacey, who authored the alternative view, suggested that (1) clarification be made concerning materiality. Specifically, the Basis for Conclusions can explain what the general materiality box applies to and how materiality should be implemented and (2) that the use of the term “contractual” in paragraph 23d in connection with risks should be revisited.
It appeared that members generally agreed that through these modifications to the standards that the issues in the Exposure Draft’s alternative view as well as respondent comments to the Exposure Draft have been satisfactorily addressed.
The project’s next step will be moving to a complete standard for review and then balloting.
Issue Paper for June 2015– Tab C
April 29-30, 2015 Board Meeting
The Board continued its consideration of comments received pursuant to the Exposure Draft (ED), Public-Private Partnerships: Disclosure Requirements, including the working group’s preliminary views on proposed changes to the standards section of the ED. At this meeting the Board considered the working group’s preliminary feedback and suggestions. The working group was comprised primarily of those ED respondents who had concerns over the breadth and scope of the proposed definition and offered written suggestions and rationale for improvement.
Although the definition was primarily left intact by the working group, one suggestion to exempt arrangements and transactions with a life of five years or less would probably result in a realignment of the definition with the proposed risk-based characteristics.
The working group proposed additional exclusions including (1) grants to other governments or public institutions, (2) arrangements and transactions with foreign governments and (3) the sharing of nominal or incidental resources. The working group also proposed adding a risk-based characteristic (Conclusive) for those grants that are part of a P3 and exempt from OMB requirements. The Board seemed in general agreement with the working group’s suggestions regarding the additional exclusions and the inclusion of an OMB risk-based characteristic.
The Board did not appear to object to the substance of the working group’s suggested language concerning risk-sharing intended to accompany the definition but noted areas when the language used may not be as clear as it could be. The Board confirmed that the distinction between the conclusive and suggestive risk-based characteristics will not be eliminated so as to better facilitate materiality assessments.
Issue Paper for April 2015 – Tab B
February 25-26, 2015 Board Meeting
The Board began its re-deliberations by reviewing the comment letter responses received pursuant to the Exposure Draft, Public-Private Partnerships: Disclosure Requirements, and the staff-proposed changes to the standards section in response to the comments received. Staff noted that it had followed up with some of the respondents to better understand their concerns and to review potential solutions to these concerns, some of which have been incorporated as changes. After reviewing the content of the comment letters and staff’s related analysis, the Board generally agreed that a public hearing was not needed.
However, the Board suggested that staff conduct additional outreach as appropriate, to obtain feedback on (1) other suggested revisions, (2) whether concerns had been satisfactorily addressed in staff’s proposed changes, and (3) specific language changes some respondents might suggest.
The Board then discussed the staff proposed changes to the standards section of the document. Specifically, staff’s attempt to address some respondent views that the definition was too broad by adding 2 additional carve-outs: (1) exclusion for basic property, plant, and equipment acquisitions and (2) formal as well as informal arrangements that might be interpreted as being a P3 but do not share risks/rewards.
Suggestions were made to better convey the approach of applying a series of filters from the universe of all P3s to those that are ultimately reportable; those requiring disclosure. Members generally noted that the filters include: the exclusions, the conclusive and suggestive risk-based characteristics, and consideration of quantitative and qualitative materiality.
However, some questioned whether the language of the materiality filter sufficiently conveys the concept of qualitative materiality whereas some questioned whether a discussion of materiality is even needed.
Primarily regarding the reporting of risk, the respondents clearly favored the alternative view with respect to the discussion of when disclosure of remote risks is required. Mr. Dacey, who authored the alternative view, questioned whether the inclusion of a discussion of remote risks within the discussion of the materiality filters was needed. He suggested that the terminology from SFFAS 5, Accounting for Liabilities of the Federal Government, on contingencies (specifically “probability of loss”) should be used rather than “remote risks”, and was also concerned with the use of “significant” in discussing a higher threshold for the disclosure of remote risks.
The next step is for staff to incorporate the Board’s suggestions and prepare another draft for consideration at the next meeting.
Issue Paper for February 2015 – Tab B
December 17-18, 2014 Board Meeting
Comment letters on the Exposure Draft (ED) entitled, Public-Private Partnerships: Disclosure Requirements were due by January 2nd and we are currently processing respondent comments for Board analysis. We wish to thank everyone who took time to respond to the ED. Respondent comment letters can be found at this link: /documents-for-comment/
Should you have any questions or would like to contact staff concerning either the ED or the P3 project, please contact the undersigned.
October 22-23, 2014 Board Meeting
P3 Phase 1 – Disclosures
The Board requests comments on the Public-Private Partnerships: Disclosure Requirements exposure draft, including the alternative view, by January 2, 2015 and encourages respondents to provide the reasons for their positions. The exposure draft in PDF format and the specific questions for respondents in Word format are available on the FASAB website at /documents-for-comment/
In the press release dated October 1, 2014, the Board Chairman, Mr. Tom Allen notes that “federal entities are increasingly turning to the private sector to help finance and deliver infrastructure, facilities, goods, and services. The resulting arrangements involve risk sharing, are financially complex, and may impose long-term commitments. The information provided as a result of this proposed standard will help users answer questions concerning budgetary resources obtained and used, the costs of providing specific programs and activities, and the associated long-term risks.”
From the outset of the public-private partnerships project members agreed on the objectives of disclosing risks and in particular remote risks, noting the importance of establishing clear and appropriate principles related to risk disclosures while minimizing disclosure overload. Most members believe the proposed standards meet these objectives. However, one member supports an alternative view and proposes three changes to the proposed standards. The member supports (1) narrowing the definition of P3s, (2) limiting disclosure of remote contingencies and more clearly defining the disclosure threshold, and (3) excluding disclosure of business risks.
Mr. Allen says that “this exposure draft represents an important step in meeting the federal reporting objectives because the federal government is directly accountable to citizens for the proper administration of its resources to include the disclosure of long-term risks related to its programs and activities.”
Lastly, respondent comment letters can found at this link: /public-private-partnerships-disclosure-requirements/
We wish to thank all Task Force participants and their sponsoring entities for providing the expertise and advice in developing the exposure draft.
P3 Phase 2 – Measurement and Recognition
At the October 22nd Board meeting, members considered three options for inclusion in its three-year plan concerning the P3 project’s second phase addressing measurement and recognition. The first option was to proceed at a regular pace finalizing guidance in 2016, a second was to temporarily defer and finalize guidance in 2019, and the third was to proceed, but with a lengthened timeline and finalize guidance in 2018. The staff recommendation was to include the third option in the three-year plan.
The Board’s discussion included the benefits as well as drawbacks of each option. Initially, no consensus existed as evidenced by each option receiving a fair amount of support among members. However, as discussions ensued, support for the deferral option gained momentum primarily due to its benefit of (1) allowing time to get results from the disclosure phase of the project and (2) knowing more about the lease standards and seeing results of the reporting entity standards. During the deferral, staff time can be assigned to other priorities. In a formal vote, the majority of members agreed to present the P3 project under the deferral option in the three-year plan. One member disagreed and voted for the third option and another member abstained.
The Board is actively seeking stakeholder input on the merits of its plan to defer this phase. The three-year plan will be released in mid-November and we encourage your input on this decision and other aspects of the plan.
August 27-28, 2014 Board Meeting
The Board briefly discussed and approved the final edits to its Exposure Draft (ED) entitled, Public-Private Partnerships: Disclosure Requirements. Mr. Dacey noted that he would be offering an alternative view expressing concerns about (1) the disclosure of remote risks, (2) the scope of the definition being overly broad, and (3) risks not being limited to contractual risks.
Staff began collecting ballots and advised members that they will see another version of the ED. It will include the alternative view and staff will share their view on whether any additional discussion in the Basis for Conclusions is necessary. Members will have an opportunity to retract their ballots pending the alternative view process.
During the Board’s review of its Annual Report and 3-Year Plan, members reviewed and discussed options for the P3 project’s next phase scheduled to address recognition and measurement issues. The central question was whether to defer the project’s second phase after issuance of the standard on disclosures. Some members noted that deferring the next phase allows the Board to follow and study implementation issues and resulting disclosures, thus providing additional insight into how best to proceed with the second phase; recognition and measurement. However, other members expressed a need to proceed directly to the recognition and measurement phase. These members noted that the prevalence of P3s and their apparent increase in use makes the next phase highly important. In addition, potential interaction with other projects such as leases and reporting entity, illustrates a need to proceed directly to the next phase.
To accommodate both views, some members suggested lengthening the P3 project’s time frame so that additional research and feedback initiatives can continue uninterrupted in the short-run, while any residual staff resources can be directed to other priorities. Staff was asked to consider such options and report back to the Board in October.
June 25-26, 2014 Board Meeting
Staff sought the Board’s input on the draft Exposure Draft (ED) with the objective of resolving any remaining technical issues. Members discussed four concerns: (1) whether materiality factors should be present in the document, (2) making it clearer that the guidance applies only to contractual arrangements, (3) that the draft guidance assessing remote risks is extremely broad, and (4) whether disclosures about remote risks would be understandable to users.
Specific to disclosures, it was generally agreed to add disclosures concerning financial statement amounts recognized related to the P3 arrangement/transaction and any contingent losses. Members also agreed to combine the most salient points of certain disclosures and to clarify that the amounts to be received or paid in the future would be for the next five years and in aggregate, thereafter. Members instructed staff to incorporate revisions as appropriate.
Members spent considerable time discussing issues related to materiality noting that the Board has historically provided flexibility by avoiding proscriptive guidance. Members seemed satisfied with the existing draft language around materiality and were not convinced that significant changes were needed. Staff noted a clear distinction between disclosing losses versus disclosing risks of losses and that the Board previously opined that different materiality thresholds could exist regarding each. There was general agreement to ask respondents whether they agree with the ED’s general premise of disclosing significant risks of losses which may be deemed remote and whether such a requirement would result in agency disclosure.
Members generally agreed to revise the draft ED’s response date to be after November 15 to ease administrative burdens due to the fiscal year-end close and to move the document into the pre-balloting phase.
April 23-24, 2014 Board Meeting
The Board reviewed a revised draft Exposure Draft (ED) on P3 disclosure requirements that reflects changes from the draft reviewed in March as well as changes subsequent to TAB G’s mailing. In reviewing the revised draft ED, members began with a review of the P3 definition that resulted in a change to indicate that the government may also share financing with the private sector.
The Board then discussed the language in paragraph 8 about the association of the guidance in SFFAS 5, Accounting for Liabilities of the Federal Government (contingencies) regarding recognition and disclosure thresholds and disclosures related to remote risks of loss. Members generally agreed to re-phrase the guidance in a manner to better facilitate application and to clarify the relationship between this proposed statement and SFFAS 5. The Board was clear that preparers should not dismiss disclosing risks that are deemed to be remote and asked staff to make this clear in the next revision.
In an attempt to narrow and focus the scope of this proposed statement, staff suggested the inclusion of two conditions in paragraph 17 which would in essence pre-screen arrangements prior to applying the risk-based characteristics. The Board discussed paragraph 17 and noted the overlap between the first condition (long-lived asset) and the fist conclusive characteristic. The Board agreed to take out the entire paragraph and to ask respondents about whether they believe a need exists for some type of front-end filter and to suggest some possible filters. Staff was asked to address this in the Questions for Respondents section of the ED.
A Board member was concerned that the ED did not sufficiently explain how probability and materiality are related or how to evaluate the materiality of a disclosure. Staff noted that historically, the Board has taken the position that because materiality is best left to the preparer and auditor, a standard-setter should not be seen as interfering in such judgments. Addressing this sensitivity, members discussed that a potential solution is to use the word “significant” and indicate what features are associated with significance. Furthermore, members discussed how materiality could differ in a disclosures-only standard compared to a measurement and recognition standard. Staff was asked to make the concept of materiality more operational in the proposed standards.
As a final topic, the proposed disclosures were discussed, and there was general agreement to require additional details about the payments expected to be paid or incurred over the life of the agreement. Various other edits were suggested, most notably the elimination of the illustrations in Appendix B. Staff was asked to begin preparing for the next step which is to draft a pre-ballot Exposure Draft.
If you or someone you know would like to join the P3 Task Force or if you have any questions, please contact Dom Savini.
March 5-6, 2014 Board Meeting
The objective of the P3 session was to review a draft Exposure Draft (ED) document entitled, Public-Private Partnerships: Disclosure Requirements. Some Board members were concerned that the P3 definition (par. 17 on page 16) was so broad and the conclusive characteristics so easy to meet that many contracts the Board would not want included in the scope, such as contracts for the acquisition of almost any large capital asset, would be included. Staff was requested to draft language that would exclude more contracts and/or adding a question to respondents about the breadth of the scope.
The Board considered the Conclusive and Suggestive characteristics beginning at paragraph 19 on page 16. Staff noted that the requirements are written such that if an arrangement first meets the definition of a P3 and has any one of the four Conclusive characteristics, disclosures are required. However, if none of the four Conclusive characteristics are met, then the Suggestive characteristics are applied and if an arrangement has one or more of these, there is discretion as to whether disclosure would be presented.
A Board member was concerned with how probability is considered in conjunction with the Conclusive characteristics suggesting that disclosures should not be required for P3s for which the risks of loss are remote. However, others expressed the view that considering the materiality of the risk would address that concern. Others questioned whether there was a sufficiently clear boundary around the population of risks that should be disclosed. Staff noted that circumstances in which the risk of loss is remote would fail to meet the definition of P3s, which discusses the sharing of presumably significant or material risks. Staff was advised that the language that filters-out remote risks should be improved if possible.
The Board then discussed the proposed disclosures at paragraph 23 on page 22. Although members seemed generally satisfied with the proposed disclosures, some Board members questioned the need for the disclosure (i.e., 23d.) of amounts expected to be paid and received over the life of the P3 and whether that helps explain the risks of the P3. However, others believed that this was needed because (1) some P3 arrangements are not required to be reported as liabilities and (2) commitments, as represented by payments are fixed.
Lastly a Board member questioned whether early exit (e.g., termination) costs were required to be disclosed as part of any of the proposed disclosures. Staff was requested to consider alternatives for this item.
December 18-19, 2013 Board Meeting
At the December meeting staff briefed the Board concerning four matters: (1) an updated draft P3 definition, (2) inclusion of an introduction to precede the draft P3 definition, (3) suggested revisions to the P3-Centric reporting characteristics, and (4) developing and harmonizing P3-Centric Disclosures in accordance with the Risk Disclosure Framework as presented at TAB B.
There was some discussion about whether the definition should refer to arrangements or transactions in which the government provides the financing as well as what constitutes multi-sector skills and expertise. Primarily because the definition is intended to be broad, without a formal vote, the Board agreed to proceed with the proposed definition as-is and the concept of including an introduction.
The Board then considered the example of an introductory section preceding the definition (as shown on pages 9 through 11 of TAB C) and discussed whether it is appropriate to refer to the concept of a legal liability as opposed to a concept referring to the acceptance of a responsibility that entities might not otherwise accept.
The Board also considered the content for the introduction; proposed to include the scope, general purpose, and general nature of P3s, as well as risks associated with them and the use of quantitative and qualitative disclosures. The discussion focused on how to determine when information should be disclosed based upon its qualitative aspects and whether auditors can attest to that information, such as the rationale for entering in to the P3. Staff reviewed two examples of potential qualitative disclosures and some members noted concern with how auditors might be perceived as needing to evaluate management’s decisions.
The final area of discussion was the proposal to develop disclosures considering the views of the task force and with the application of the risk disclosure framework. There was a general discussion about the unique aspects of certain P3s, what risks are present, and what disclosures might be made about them. All Board members agreed to the proposal to develop and harmonize disclosure requirements in accordance with the framework presented at TAB B.
Staff will meet with the P3 Task Force to discuss these matters and to further develop and refine P3-Centric disclosures and characteristics, respectively. Should you be interested in joining the P3 Task Force, please contact Mr. Domenic N. Savini at 202-512-6841 or via email at firstname.lastname@example.org.
October 23-24, 2013 Board Meeting
Pursuant to the Board’s August meeting advice, staff presented a (1) revised draft P3 definition along with an alternative definition for discussion and (2) revised presentation of the conclusive and suggestive characteristics to include language identifying the risk involved in each. In addition, a flowchart (i.e., waterfall or cascade approach) depicting how any forthcoming P3 guidance would relate to existing standards, including the exposed federal reporting entity standards, was provided as an attachment.
Preceding the Board’s discussion, several task force members joined with staff to discuss the project and answer member questions. Task force member comments include:
- The importance of protecting the best interests of the taxpayer
- P3s are a very good way of delivering public value that would otherwise not be achieved
- P3s must not be done in darkness and we need to foster accountability and sound accounting
- Ill-advised and inconsistent guidance is being provided from outside sources
- Materiality needs to be considered from a qualitative view because what might be immaterial from a quantitative view may not always be immaterial qualitatively
- No prudent private sector participant in a P3 would fail to take each of the nine recommended task force disclosures into consideration and as such, government agencies should be on equal footing by also considering and communicating these nine disclosures
After a robust discussion concerning what a federal P3 definition should accomplish relative to financial reporting, the Board decided that a broad P3 definition accompanied by risk-based characteristics should be pursued. Overall, members agreed to continue to work with the revised draft definition they worked on in August. However, the Board asked that the task force continue refining the proposed characteristics.
As a result of the discussion and decisions made, the Board will proceed with a definition that captures a wide universe of arrangements or transactions which will then be pared down.
If you are interested in joining the P3 Task Force or know of someone who might be interested in its work, please consider contacting Mr. Domenic N. Savini at 202-512-6841 or email him at email@example.com.
August 28-29, 2013 Board Meeting
Pursuant to the Board’s June meeting advice, Staff presented 3 major topics for discussion: (1) a Suggested Draft P3 Definition/Description, (2) revised and newly categorized Potential P3-Centric Reporting Characteristics, and (3) potential disclosures related to fiscal exposure (risk). This phase of the project is intended to identify P3s for which general disclosures regarding the arrangements and associated risk are needed.
Suggested Draft P3 definition/description developed by the P3 Task Force
Some members had a concern that many of the terms used were too vague to be used in any forthcoming guidance. For example, terms such as “traditional” and “risk-transfer” seemed to require greater explanation and suffered from being relative to conditions at a point in time. That is, what is “traditional” may change of time. Other members noted that concepts of unusual risks and ownership relationships might need to be worked into the definition whereas others wanted to pare down to definition to just reflect the P3s that would be within the scope of the potential standard. Staff reminded members that (1) the draft definition/description is intended to be universal in nature capturing all types of P3 activities and different classes of assets and, (2) the draft definition/description is intended to be malleable and changes can be made as we progress through the project.
Revised and newly categorized Potential P3-Centric Reporting Characteristics
The intention of the characteristics is to basically eliminate from reporting those P3 arrangements/transactions that pose no (1) financial asset/liability recognition or de-recognition concerns, and (2) other fiscal exposure/risk that could lead to a liability. For example, an arrangement or transaction would have to first meet the definition or description of a P3. Then, if the arrangement or transaction met (1) a singular conclusive risk characteristic or (2) using managerial judgment, one or some of the suggestive characteristics, disclosure would be required.
An overly simplistic graphical flow diagram of the Task Force’s initial reporting process follows:
If the P3 meets any one of the Conclusive Characteristics it is subject to disclosure (if material) and we stop here. If no, go to the Suggestive Characteristics. > If the P3 meets one or some of the Suggestive Characteristics we must apply managerial judgment before deciding whether the P3 is subject to disclosure (if material).” width=”536″ height=”256″>
Member feedback on the revised, newly categorized (conclusive and suggestive) characteristics was sought and staff was asked to write the characteristics as statements and not questions, and to add language identifying the risk involved.
Potential disclosures related to fiscal exposure (risk).
The Board discussed the overall objectives of the P3 disclosures including the relevance to reporting objectives, nature and magnitude of the risks and rewards, and the complexity of P3 relationships in general.
There was concern about the volume of disclosures this proposal could produce and questions as to whether the financial statements are the appropriate forum for all of this information. Generally, the Board seemed more concerned with the risks to which the government is exposed in contrast to what could be considered operational or performance oriented disclosures.
In conclusion, staff was asked to share this information with the Task Force and to continue making progress towards the next phase dealing with measurement and reporting.
If you are interested in joining the P3 Task Force or know of someone who might be interested in its work, please consider contacting the point of contact listed below.
June 19, 2013 Board Meeting
The Public-Private-Partnership (P3) project is in its early stages and the June Board meeting broadly focused on several issues affecting both scope and approach to the project.
Staff noted that for those P3s that are in essence long-term leases, the Board could address such arrangements/transactions through a technical bulletin when the leases project is substantially finalized. However, in those cases where long-term leases are part of a broader set of agreements, P3 risk could create fiscal exposure and such matters would be best addressed through an overarching standard that emphasizes substance over form.
As a result, staff recommended that the Board look at the risks and rewards of P3s (i.e., a P3s’ underlying business model) and first consider fiscal exposures before addressing what assets and liabilities may need to be reported.
Board members and staff then discussed 2 areas of concern (1) the relationship of the P3 project to the Risk Assumed project and (2) the financial component of P3s. In addressing these areas of concern, staff and members discussed the P3 touch-points among active projects by reviewing a chart entitled P3 Project in Relation to the Other Active FASAB Projects and the 17 Major P3 Accounting Practice Issues on pages 26 and 29 of the staff briefing paper, respectively.
The Board then reviewed the preliminary Potential P3-Centric Reporting Characteristics/Criteria shown on page 49 of the staff briefing paper. Each of these preliminary characteristics/criteria have been organized under very general P3 life-cycle stages and would be used by preparers to distinguish those P3s that should be considered for reporting through disclosures in connection with entity-specific materiality tolerances. The intention of the criteria is to eliminate from this reporting those P3 arrangements/transactions that pose no (1) financial asset/liability recognition or de-recognition concerns, or (2) other fiscal exposure/risk that could lead to a liability. Members agreed to await further development of the characteristics/criteria and asked staff to simplify their presentation so that the potential for increased fiscal exposure/risk can be more readily apparent.
Staff noted that the next steps of the project include finalizing the potential P3-centric reporting characteristics/criteria and further evaluation of the 17 major P3 accounting practice issues. The project was tentatively scheduled to issue guidance on additional disclosures about fiscal exposure/risks in fiscal year 2015 with final standards or technical bulletin(s) following in fiscal year 2017. Some members were concerned that recognition matters were not being addressed before guidance on additional disclosures about fiscal exposure/risks. Staff reassured members that recognition matters were intended to be worked concurrently with other aspects of the project.
During the meeting Mr. Allen stated that a significant value he sees arising from this project is in assisting and guiding preparers to the applicable accounting literature when reporting on P3 arrangements/transactions.
In conclusion, although the Board generally supported the direction of the project of identifying and disclosing P3 risks (fiscal exposure), it deferred specific decisions on other aspects of the project, including pursuing guidance to address the identified 17 major accounting practice issues, pursuing technical bulletins to address P3s that are in essence long-term leases, and determining whether the characteristics/criteria to identify reportable P3s are appropriate.
April 24-25, 2013 Board Meeting
The P3 Project was not discussed at the April Board meeting. In consultation with the P3 Task Force, Staff is continuing research and conducting agency and industry fact-finding meetings. If you are interested in serving on the P3 Task Force or would like to discuss any aspects of the project, please contact Mr. Savini.
February 27-28, 2013 Board Meeting
The inaugural meeting of the P3 Task Force was held on February 13th at the GAO Building, Washington, DC. The meeting was well attended with a good mix of federal agency, commercial sector, and citizen-centric points of view. Participants came from diverse disciplines such as accounting, auditing, facilities management, financial reporting, housing, information technology (IT), commercial and investment banking, procurement, and program management.
The majority of participants agreed that there is significant interest in P3’s across the diverse disciplines represented. It was noted that conditions such as current budget constraints and capacity (i.e., contingency) planning are driving some agencies to look at various types of P3 models to accomplish mission.
Interestingly, both federal and private participants agreed that there is a strong counter-pressure against the use of P3’s noting that this probably arises from the “off-balance sheet” or “off-budget spending” stigma associated with these arrangements.
A citizen viewpoint that was raised stated that absent empirical evidence supporting the notion that P3’s in fact work, a citizen’s concern is that the government is assuming more risk than it would otherwise and in light of the fact that many private companies are flush with cash, while agency budgets are tight, seems to suggest that this be an area of careful consideration.
Participants discussed the pros and cons of (1) developing a federal-wide P3 definition, (2) surveying agencies to ascertain nature and type of P3’s that exist to help with refining P3 project scope, and (3) P3 accounting asymmetry (opposite-view accounting). Participants also offered suggestions as to the types of issues that the federal accounting community might wish to consider as it moves forward with the project.
Our next meeting is scheduled for April 11th and if you would like to join the P3 Task Force or attend any of its meetings, please contact Dom at the contact information shown below. We always welcome additional members and their viewpoints.
December 19, 2012 Board Meeting
Due to scheduling changes the P3 session was moved to the last session of the day and significantly abbreviated. Mr. Allen began the meeting by asking members to take a few minutes each to not debate matters but rather limit comments to tentative feedback to staff’s proposal. Staff indicated that the most important question in TAB C was the one dealing with scope. Staff is proposing that if the Board wants to address public-private partnerships in the Federal space, we have to go broader than both GASB and the IPSASB standards; both of which limit coverage to Service Concession Arrangements (SCAs).
Although members did not object to expanding the project scope beyond service concession arrangements they noted that (1) the complexities involved may necessitate us to later re-focus to a more narrow scope, (2) we should look to establish uniform principles-based guidance to enhance comparability among agencies, (3) gaps in existing guidance should be highlighted, and (4) we should avoid duplicating guidance and standards-overload.
The Board briefly discussed the matter of whether to issue technical guidance as a form of educating preparers and users or a separate set of P3 standards. Much will depend upon whether there are significant gaps in our current guidance. Regardless of the form that the final deliverable may take, the Board was clear that forthcoming guidance must be consistently applied and grounded or covered by an overarching principle(s).
We are seeking volunteers at this time and if you or someone you know would like to join our task force, please notify the staff person identified below.
August 30, 2012 Board Meeting
Two major issues were addressed by the Board at this meeting; (1) whether to defer the
P3 project and (2) consider issuance of a Technical Bulletin in lieu of a Standard.
Deferring the P3 Project – Staff detailed initial concerns earlier in the year which led to
asking the Board whether the project should be deferred until additional progress was
made on the following two related projects:
- Federal Entity – Staff noted that in light of progress the P3 project is in a much
better position to proceed.
- Leases – due to the transactional complexity of many P3 arrangements that
currently exist, if operating leases are retained and in some manner changed, P3
reporting could be affected.
Staff noted continued concern with the uncertainty of the Leases project.
Members did not see a compelling reason to delay the project and were in general
agreement that staff should continue its efforts coordinating with both the Federal Entity
and Leases initiative.
Technical Bulletin – The Board reviewed staff’s recommendation to issue a Technical
Bulletin instead of a Statement. Staff noted that it would like to avoid duplication with
existing FASAB GAAP which is fairly robust in providing guidance to help preparers
account and report for P3’s. Staff indicated that a Technical Bulletin or “How to” guide
would be beneficial to preparers.
Members generally noted that P3’s are complex and would require significant study
before such a conclusion could be reached noting that staff might in fact find gaps in
existing guidance. As a result, the Board reserved judgment in this regard.
The next step will be revising a detailed project plan. Staff invites volunteers who would
like to either sit on a Task Force or serve as “go-to” subject matter experts.
April 26, 2012 Board Meeting
As part of FASAB’s technical agenda-setting process, this project was added to April’s agenda because federal agencies have increasingly turned to public-private partnerships to accomplish goals and are facing budget pressures that are likely to further increase the use of public-private partnerships.
Staff recommended deferring this effort until more progress has been made on the reporting entity and leases projects because many of the public-private partnership issues will be addressed through those standards now under consideration. Staff further noted that as a minimum, standards for public-private partnership should be consistent with standards developed in these related areas. To assist the Board in deciding whether to defer this project, members asked staff to provide illustrations highlighting some of the more important issues arising from the use public-private partnerships.