The Confederation of British Industry has demanded a series of revisions to the Accounting Standards Board’s draft private finance initiative (PFI) guidance.
Derek Collins, chairman of the CBI’s working group on PFI accounting, claimed the ASB lacked expertise in how PFI contracts operate, and needed to rethink its approach to testing whether service elements of contracts could be separated from asset components.
Collins said the ASB’s draft guidance failed to make the key point that PFI transactions are ‘contracts for services’.
He said: ‘There will be variations in PFI service delivery for reasons unconnected with the underlying assets. But the government does not pay for PFI services in a way that makes it sensible or practical to isolate such instances.’
He added: ‘PFI accounting rules need to fit within the wider accounting framework, so the ASB is the right body to issue guidance. But it has run into difficulty through lacking expertise in how PFI contracts operate, notably in how the PFI payment mechanism and risk allocation tie the operator to delivering the specified service.’
The CBI’s opposition comes a week after the English ICA and Scots ICA backed the ASB’s approach, which differed from Treasury guidance issued last autumn. Reports that PFI lawyers ‘reacted angrily’ to the news of the institutes backing the ASB were denied by Tim Steadman, a Clifford Chance PFI projects partner.
CIPFA broadly welcomed the ASB’s proposals, but said several important areas, including disclosure requirements, exercise of options and the treatment of PFI development costs had not been addressed.
The ASB is reviewing responses to the proposals. ‘There have been many responses for the board to consider and they are being analysed,’ said Kathryn Cearns, the ASB’s project director.
Clifford Chances’ Steadman admitted the strength of opposition might create a case for ‘clarifying the guidelines so that they apply more specifically to PFI transactions, but that is all.’
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