The Governmental Accounting Standards Board has added a review of public-private partnerships to its so-called technical agenda, marking the first step toward establishing new accounting and reporting standards for state and local governments in the fast-growing area of P3s.

The accounting-standards setter said last week it is interested in setting standards for the accounting treatment related to a variety of P3 transactions, including the upfront payments that private consortiums make to state or local governments when leasing existing toll roads or when they agree to build and operate a tollway.

"There have been differences in how these transactions have been reported," said David Bean, GASB's director of research and technical activities. "This project is not only for past deals but for future deals as well, so that when someone enters into them, they'll have clear expectations for what the accounting is."

Generally speaking, GASB's board does not believe that the existing financial reporting of P3 transactions appropriately assesses "the bearing of risks and rewards related to the property" involved in such arrangements, according to a technical plan the board released last week. But the board is just beginning the process of crafting new P3 standards.

Bean said that GASB is hoping to make refinements to the project's scope in May and would then take several months - possibly until early next year - to prepare a draft of proposed standards. GASB would then publish a revised "exposure draft" of the standards, followed by a comment period next spring and a public hearing during the summer. A final standard would not be issued until Februrary 2010.

The technical plan lists several accounting and financial reporting issues tied to P3s that the board may address, including if states and localities should report the property associated with a P3 as a capital asset. If so, for P3s involving new construction, they want to examine at what point the property should be recognized and how the property, along with any related liabilities, should be measured in a government's financial statement.

GASB also wants to look at how a government should report inflows of resources generated through a P3, including inflows from up-front payments made by the private sector entity and inflows from revenue-sharing provisions in the P3.

In addition, the board may address how state and local governments should report guarantees to private entities as part of a P3, including guarantees of the private entity's debt and minimum-revenue guarantees.

Finally, GASB wants to address what impact a P3 would have on a government's financial reporting division as well as what information should be provided in the notes to state and localities' financial statements so that users of the statements "understand the economic substance" of a P3, the technical plan said.

The project comes after a March report by the International Public Sector Accounting Standards Board, on which GASB staff collaborated, that addresses some of the same issues, the technical plan noted.

It also comes after the executive board of the Government Finance Officers Association approved a recommended practices document on P3s in February that recommends, among other things, that finance officers ensure that the government's participation in a partnership does not bring excessive and unbalanced risk to the public, and suggests that the government prepare a comprehensive list of potential issues that may affect it.

Officials at the GFOA, which believes GASB has overstepped its bounds on other projects, said Friday that they are aware of the board's interest in P3s but are not in a position to comment on it until its scope is more defined.


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