Document ID: chunk:federal_register_of_legislation:F2022C00554:body:0:p98
Version: federal_register_of_legislation:F2022C00554
Segment Type: other
Provision Reference: 
Character Range: 297079–300165

issues and The AASB's Not-for-Profit Entity Standard-Setting Framework

     BC9               In discussions with the Treasury/Finance departments and/or Audit Offices in four jurisdictions, it was noted that some agencies in two States and some local councils in one State are experiencing the issues described in paragraph BC8. Representatives of these jurisdictions also commented that there would likely be a significant number of service concession assets with an indefinite useful life, such as earthworks. They also suggested that the GORTO liability calculated under paragraph C4(c) would be significantly smaller compared to the asset in some arrangements, particularly those in the early stages. Moreover, they believe the full retrospective method (the only alternative method) could not be applied as some agencies might not be able to obtain sufficient historical data to perform the full retrospective calculations.

     BC10            The Board considered there is merit in changing the modified retrospective GORTO liability calculation method set out in paragraph C4(c). Even if entities could choose to apply the full retrospective model – if the necessary historical information was available – the Board was of the view that it would not be appropriate to completely remove the modified retrospective method at this stage of implementation of the Standard, as such an approach would require entities to apply the full retrospective method.

     BC11            The Board also considered that changing the modified retrospective method is justified under The AASB's Not-for-Profit Entity Standard-Setting Framework paragraph 28(a)[1], as the existing modified retrospective GORTO liability calculation would appear to result in reported performance or financial position not reflecting economic reality, particularly when the service concession asset has an indefinite useful life.

Options for addressing the issues

     BC12            The Board considered four possible options for resolving the issues:

         * Option 1 – change the modified retrospective GORTO liability calculation method so that the liability is initially measured based on the current replacement cost of the service concession asset received at the date of initial application adjusted to reflect the remaining concession period relative to the total period of the arrangement, rather than relative to the remaining economic life of the service concession asset. Since this approach does not consider the economic life of the asset, this option would address the two issues noted in paragraph BC8;

         * Option 2 – amend AASB 1059 to introduce a proxy for the 'remaining economic life' of the asset, for example 99 years, to use in the existing modified retrospective GORTO liability calculation for assets with an indefinite economic life. The Board considered that determining a proxy would be difficult and could result in a rule-of-thumb that might not be a faithful representation of the substance of an arrangement. Moreover, this option would not address the issue that