Source: Financial Times

Off-balance sheet accounting has a long and often dishonourable history. Just think of Enron. Britain's Treasury now has a chance to fix one of the most inconsistent and problematic examples of its use, in the way the private finance initiative is accounted for, by using the introduction of International Financial Reporting Standards as a chance to bring all PFI projects on to the public balance sheet.

Britain, and many other countries including Canada, Japan and Australia, use PFI to pay for infrastructure. Instead of paying a contractor to build a school, the government will pay to lease it over 30 years, transferring some management and operating risk to the builder. The question is whether that 30-year lease commitment is a debt, in which case it should be on the balance sheet, or not.

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Posted by pichu at July 26, 2007 10:30 PM