defining and accounting for the government …kisi.deu.edu.tr/yesim.kustepeli/accounting.pdfaccrual...

AccruAl Budgeting issues

discussion paper series

defining and Accounting for the government Budgeting entity

Principal Author John st. Pierre, cgA

december 2007

Insights for a Changing World

discussion paper series

defining and Accounting for the government Budgeting entity

discussion papers in this series: Accrual Budgeting issues

Accounting for Tangible Capital Assets (June 2006)Links between the Budget and the Estimates (June 2006)Legislative Accountability Framework for Preparing Government Budgets and Estimates (December 2007)Defining and Accounting for the Government Budgeting Entity (December 2007)

the cicA discussion Papers in this series are available in PdF format at www.cica.ca

Library and Archives Canada Cataloguing in Publication

St. Pierre, John Defining and accounting for the government budgeting entity / principal author, John St. Pierre. (Accrual budgeting issues) “Insights for a Changing World”.

ISBN 978-1-55385-338-1

1. Finance, Public--Canada--Accounting. 2. Finance, Public--Canada--Provinces--Accounting. 3. Budget--Canada. 4. Budget--Canada--Provinces. I. Canadian Institute of Chartered Accountants II. Title. III. Series.

HJ9921.S33 2008 657’.83500971 C2008-901094-9

Copyright ©2008 The Canadian Institute of Chartered Accountants 277 Wellington Street West Toronto, Ontario Canada M5V 3H2 Disponible en français : www.icca.ca

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Preface

In 2004, the Canadian Institute of Chartered Accountants (CICA) published Accounting Bases Used in Canadian Government Budgeting. That Research Report surveyed the accounting standards Canada’s senior governments then used in budgets and appropriations documents and compared them to those adopted for summary financial statements. This publication prompted many government budgeting officials to ask for further research on accrual budgeting issues. In response, the CICA has commissioned a series of discussion papers, leading up to an overall CICA research report, Addressing Accrual Issues in Canadian Government Budgeting.

The CICA expresses its appreciation to the principal author of this discussion paper, John St. Pierre, CGA, as well as Terry Christie, Kim MacPherson, CA, and Mike Ferguson, CA, for providing information and preliminary evaluation of the material in this paper. A special thank you is extended to all respondents to the survey questionnaire on current practices and future outlook of the government budgeting entity across Canada. The advice and comments provided by members of the Government Budgeting Advisory Group, who are listed on the next page, are also appreciated, as is the work of J. Paul-Émile Roy, CA, who directed the project and assisted in drafting the paper.

The views expressed in this paper are those of the principal author and have not been formally endorsed by the CICA or the Government Budgeting Advisory Group.

Comments on this discussion paper are welcome and should be addressed to J. Paul-Émile Roy, CA, Principal, Research Studies, CICA ([email protected])

TorontoDecember 2007 CICA Research Studies

gOVernMent Budgeting AdVisOrY grOuP

Bill Hogg, CA (Chair)Consultant, Dartmouth

Bruce Bennett, CAOntario Treasury Board Office, Toronto

Terry ChristieConsultant, Fredericton

Diana Eisenhauer, FCGANova Scotia Treasury and Policy Board, Halifax

Doug Lynkowski, CAAlberta Treasury Board Ministry, Edmonton

Kim MacPherson, CANew Brunswick Office of the Comptroller, Fredericton

Martin Rodrigue, CAMinistère des Finances (Québec), Québec

Ken WheatTreasury Board of Canada Secretariat, Ottawa

Debra WoodgateManitoba Civil Service Commission, Winnipeg

CICA Staff

J. Paul-Émile Roy, CA Principal, Research Studies Department Knowledge Development Group

David L. Pollard, CA Vice President Knowledge Development Group

table of contents

Executive Overview ............................................................................................................. 1

Chapter 1 — Introduction ..................................................................................................3Purpose of this Paper ................................................................................................3About the Budgeting Entity ...................................................................................3Research Methodology ............................................................................................4

Chapter 2 — Accountability and Transparency ....................................................5Introduction ...................................................................................................................5Government Accountability Structures ............................................................5

Summary budget ............................................................................................8Estimates ............................................................................................................9Presentation of the summary budget and estimates ................... 10Summary financial statements ............................................................... 10

Transparency in Government Budgets and Estimates ..............................11Summary and Observations .................................................................................13

Chapter 3 — Defining the Government Budgeting Entity ...............................15Introduction ..................................................................................................................15Budgeting Entity for the Summary Budget ...................................................17

Current practice .............................................................................................17Planned changes ........................................................................................... 18Views of senior budgeting officials ...................................................... 18

Budgeting Entity for the Estimates .................................................................. 18Current practice ............................................................................................ 18Planned changes ........................................................................................... 19Views of senior budgeting officials ...................................................... 19

Summary and Observations .................................................................................21

Chapter 4 — Accounting for the Government Budgeting Entity ................23Introduction .................................................................................................................23Accounting for the Budgeting Entity in the Summary Budget .......... 26

Current practice ........................................................................................... 26Planned changes ...........................................................................................27Views of senior budgeting officials ......................................................27

Accounting for the Budgeting Entity in the Estimates ........................... 28Current practice ........................................................................................... 28Planned changes .......................................................................................... 29Views of senior budgeting officials ..................................................... 29

Summary and Observations ...............................................................................30

Chapter 5 — Facing the Challenges ...........................................................................31Introduction ..................................................................................................................31Developments in Canada .......................................................................................31Developments on the International Scene ................................................... 33

International Public Sector Accounting Standards ...................... 33IMF Manual on Fiscal Transparency .................................................... 34OECD Best Practices for Budget Transparency ............................ 34OECD Budget Practices and Procedures Database .....................35

Summary and Observations ................................................................................35

Appendix A — Budget Documents on Government Websites ....................37

Appendix B — Summary Budget and Estimates: Government of Canada ............................................................................................... 39

Appendix C — Government Budgeting Reconciliation Statements........... 41

Appendix D — OECD Budget Practices and Procedures Survey 2007 .....................................................................................................................49

Glossary ..................................................................................................................................51

Selected Bibliography .....................................................................................................55

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executive Overview

Implementing full accrual accounting has not only changed government summary financial statements in a major way but also the government budgeting entity on which the Summary Budget and Estimates are based. Various processes, including the way information is gathered and presented, have also been affected. Much has been accomplished. Getting there has demanded a lot of time and resources from all senior governments in Canada.

It is important to understand that the Summary Budget and Estimates have different purposes. Each provides information the legislature, parliament and the public in general use to hold governments accountable for their decision making during the budget process and for allocating the resources under their stewardship.

There are no easy answers to enhancing accountability and transparency when it comes to defining the appropriate government budgeting entity and, especially, the accounting method for combining the organizations within a government as a whole. No single approach will fit the particular circumstances of every jurisdiction. Some basic questions need to be answered, however, before changing how a budgeting entity is defined and accounted for to ensure greater transparency and increased accountability:

Is a government responsible and, therefore, accountable for a particular organization? y

Does existing legislation hold the government accountable for the organization’s yoverall results and is it also responsible for how the organization’s dollars are earned and spent?Is the additional information generated by the use of accrual-based accounting yunderstandable and relevant to the government’s decision-making process? Will that information be useful to the legislature and the public in holding the ygovernment accountable?

Canada’s senior government budgeting community was surveyed to determine their views on what might constitute relevant information for enhancing a government budgeting entity’s accountability and transparency. The survey results showed that:

There is strong support for using clear criteria and accountability structures yestablished by legislation as the key determinants in establishing a government budgeting entity.There is a high level of consensus among jurisdictions on what organizations should ybe included in a budgeting entity when preparing a Summary Budget, and most feel that the current budgeting entity in their particular jurisdiction is the right one.There is divided opinion on what organizations should be included in a budgeting yentity when preparing the Estimates. Some believe that they should be the same as those included in the Summary Budget. Others think the Estimates should support the appropriations process by focusing primarily on the general revenue fund. Most are of the opinion that the current budgeting entity used in preparing the Estimates in their particular jurisdiction is the right one.

Defining and Accounting for the Government Budgeting Entity

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In some jurisdictions, the accounting method used to include certain organizations in a budgeting entity is a key issue because they believe budgeting on a consolidated (line-by-line) basis does not reflect the existing government accountability structures established by legislation. Although some respondents said it produces relevant information useful in decision making, the majority were of the opinion that the consolidation method requires information that is time consuming, costly to obtain and does little to enhance accountability and transparency.

In deciding on future directions, it may be helpful to look at why senior governments in Canada are implementing accrual-based accounting. The CICA Research Study Accounting Bases Used in Canadian Government Budgeting compared accrual budgeting and accounting systems in Australia, New Zealand, Sweden, the United Kingdom and the United States. It found that the objectives of accrual-based accounting were to:

improve financial management; y

improve efficiency, transparency, quality of information and priority setting; y

make more information available at less cost; y

improve the budgeting and accounting cycle; y

improve financial reporting in the broader context of better public management; y

improve parliament’s, taxpayers’ and government insight into costing government ypolicy;ensure proper accountability. y

Most of these objectives depend on generating useful information at a reasonable cost. If information is relevant, governments will use it in their decision-making processes, and those decisions will ultimately be reflected in their Summary Budget and Estimates documents. If the resulting information is not relevant, it will not achieve the stated objectives. It follows that, before any future changes are considered to the definition of the government budgeting entity, or to the method of accounting for organizations that form part of that entity, the circumstances must be evaluated against those objectives. If the resulting information improves decision making and enhances accountability and transparency, it may be worth the cost.

This discussion paper was prepared primarily for the benefit of senior government officials who provide advice on the preparation of Budget and Estimates documents. The paper may also serve the interests of others who play a role in the overall financial management process, particularly in defining and accounting for the government budgeting entity.

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chapter 1

introduction

Purpose of this PaperThe CICA Public Sector Accounting Board (PSAB) issued an accounting standard in 2003 recommending that a reporting entity comprise all the organizations it controls. It also recommends that government financial statements should consolidate those organizations, except for government business enterprises, which should be included on a modified equity basis. Due to the concerns raised, transition rules were implemented to allow governments to use the modified equity method until April 2008; then they were to fully consolidate.

In 2004, the CICA published Accounting Bases Used in Canadian Government Budgeting, which provided a state of the union overview of the accounting bases and policies Canadian federal, provincial and territorial governments used to prepare their Budgets and Estimates (appropriations) compared to those used for their summary financial statements. In response to the senior government budgeting community’s request for further research, a series of discussion papers is being prepared on issues surrounding the adoption of full accrual accounting in Summary Budgets and Estimates.

An initial discussion paper dealing with Links between the Budget and the Estimates was issued in 2006. The research for that paper revealed that Budgets and Estimates are based on different definitions of the reporting entity. Similarly, the bases of consolidation vary considerably. This led to a follow-up survey in which a number of Canada’s senior governments identified the reporting entity as a key issue that needed to be addressed. Concerns were raised about which organizations to include and, in particular, the methods used to include them in the Summary Budget and the Estimates. As well, some jurisdictions had serious concerns over the impact the changes would have on the accountability relationship between governments and certain organizations.

The purpose of this discussion paper is to assess the impact of full accrual accounting on the preparation of the Summary Budget and Estimates, with a focus on the government budgeting entity.

About the Budgeting entityIn this paper, the phrase “budgeting entity” encompasses departments, funds, agencies, boards, commissions, Crown corporations and not-for-profit organizations that are considered to be part of a government in accordance with established government accountability and transparency structures.

There is a fairly strong consensus within Canada’s senior government budgeting community on what organizations to include in a budgeting entity for purposes of preparing the Summary Budget. There is no such consensus on what to include in the


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budgeting entity for preparing the Estimates. The most serious concerns, however, are not with what is included, but with the method of including organizations in a government budgeting entity. Current public sector accounting standards recommend that government financial statements should consolidate (on a line-by-line basis) all organizations comprising a government reporting entity except for government business enterprises, which should be included on a modified equity basis.

Although these accounting standards apply to summary financial statements only, Canada’s senior governments also tend to use them for preparing Summary Budgets and Estimates. This is partly to avoid confusion about which organizations a government includes in its Summary Budget, Estimates and summary financial statements. It is also due, in part, because accounting standards call for a comparison of the original Budget to the final results presented in the summary financial statements.

research MethodologyThis discussion paper was prepared to stimulate discussion and debate in the senior government budgeting community. Its specific objectives are to:

provide a current status report on the impact of accounting for the government 1. budgeting entities on the preparation of senior government Budgets and Estimates;review new developments and future directions that could be useful for 2. incorporating accrual accounting into a government budgeting entity’s Budgets and Estimates;review Canadian and international literature on accrual accounting for government 3. budgeting entities.

The paper addresses major issues and challenges such as:the role of accountability and transparency, because the Budget and Estimates are ycrucial documents for holding governments responsible (see Chapter 2);what organizations to include in a budgeting entity when preparing the Summary yBudget and Estimates (see Chapter 3);how to include those organizations in a budgeting entity (see Chapter 4). y

During 2007, senior government budgeting officials across Canada completed a comprehensive survey questionnaire that addressed three primary areas — current practice, future plans and their views on a variety of issues. The survey was followed by discussions with officials in various jurisdictions. Survey results are presented throughout this paper. In addition, the published Budget and Estimates documents available on government websites were reviewed, along with the literature from Canadian and international sources (see Chapter 5).

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chapter 2

Accountability and transparency

“Fiscal transparency, reflecting a system of well organized windows on public policy making and policy implementation, is not an end in itself, but is a means of contributing to effective and comprehensive accountability that aims at securing full answerability from governments and their officials”1

introductionThere is a great deal of speculation and discussion leading up to a government’s budget release. Business, social and economic policy groups, the media and the public in general — everyone wants to have their say. Governments will often hold a series of consultations before finalizing a Budget, soliciting opinions from stakeholder groups on what they want to see in the upcoming Budget. These consultations are normally open to the public and get extensive media coverage.

Often, this process results in the identification of key issues and specific recommendations that the government must consider including in, or excluding from, its Budget. The results of the government’s planning process are then incorporated into the Budget, reflecting social and economic policy priorities and fiscal realities. Revenue and expenditures are discussed and any major spending or revenue changes are announced, as well as any tax system or rate amendments.

A government’s Summary Budget and Estimates are crucial elements in the accountability process and constitute the cornerstone for measuring its performance. They are the culmination of each year’s annual planning and budget process and are the benchmark used to measure a government’s management of its financial resources. Government holds individual ministers and their departments responsible for managing their resources as specified in the Budget and Estimates and, in turn, the government itself is held accountable to the public through the legislature and its committees.

government Accountability structures The ability to control an organization usually suggests that a strong accountability relationship exists between a government and that organization and, often, these relationships are defined through legislation. 20 Questions about the Government Reporting Entity provides a number of criteria to help assess whether or not control exists. The following series of questions asked for the views of the budgeting community on whether it would be useful to establish criteria for evaluating whether a strong accountability

1 A. Premchand, Fiscal Transparency and Accountability – Idea and Reality. Prepared for the workshop on Financial Management and Accountability (Rome, November 28-30, 2001).


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relationship exists and whether an organization should, in fact, be part of a government budgeting entity.

First, the budgeting officials were asked whether it was important to have a clear set of criteria for determining which government activities to include in the Summary Budget and Estimates. Exhibit 2.1 shows that, of the 11 respondents, all felt that having a clear set of criteria was important in deciding what to include in a budgeting entity. Five of those felt it was essential.

Exhibit 2.1

in your view, how important is it to have a clear set of criteria for determining which government activities to include in the summary Budget and estimates?

answer optionsresponse

Percentresponse

count

Essential 45% 5

Very important 18% 2

Important but each jurisdiction’s unique circumstances must be considered 36% 4

May be useful as a source of reference 0% 0

Not important and of little value 0% 0

The results show strong support for a clear set of criteria to assist in defining a budgeting entity. It is also interesting to note that four of the respondents felt that, while a clear set of criteria is important, each jurisdiction’s unique circumstances must also be considered. Other comments offered were:

Having clear criteria was essential for ensuring inter-jurisdictional comparability. y

While clear criteria were considered essential, that set of criteria could be different for ythe Budget and Estimates, as they are used for different purposes.Because the Estimates cover only the general revenue fund, as required by legislation, yincluding other organizations would be for information purposes only. It would not be information associated with the passage of a supply bill, for example. That could, in fact, detract legislators from achieving the purpose of the Estimates.

Next, the budgeting community was asked which government accountability structures should be the primary criteria for determining the government activities to include in the Summary Budget and Estimates. Exhibit 2.2 shows that, although 80% of the respondents agreed that having unilateral authority to take over the assets and assume the responsibilities of an organization was the most important criterion, all of the criteria were thought to be important in deciding which activities to include in a budgeting entity.

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Accountability and Transparency

Exhibit 2.2

in your view, which of the following government accountability structures should be primary criteria for determining which government activities to include in the summary Budget and estimates (select all that apply)?


Percentresponse

count

Having unilateral authority to appoint and remove members of the governing board of an organization 60% 6

Having control of the assets and responsibility for losses of an organization 70% 7

Having a majority of the voting shares and authority over the financial and operating policies of an organization 50% 5

Having unilateral authority to take over the assets and assume the responsibilities of an organization 80% 8

One respondent said, however, that none of the criteria ensured true accountability. Two others said that these criteria apply only to the Summary Budget and that the Estimates’ main purpose is to support the appropriations act as stipulated in legislation. Another commented that legislation dictated the budget reporting requirements for government and its other entities.

The budgeting community was then asked which government accountability structures should be the secondary criteria for determining what government activities to include in the Summary Budget and Estimates. Exhibit 2.3 shows that, although there was fairly strong support for a number of these criteria, approval of an organization’s business plan and budget elicited the most agreement. This criterion, they believed, indicates a strong accountability relationship between a government and a particular organization.

One respondent thought these criteria were not relevant as budget reporting requirements were covered by legislation. Another commented that they apply only to the Summary Budget and that the Estimates are covered by legislation and the requirement for an appropriation.


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Exhibit 2.3

in your view, which of the following government accountability structures should be the secondary criteria for determining which government activities to include in the summary Budget and estimates (select all that apply)


Percent response count

Having significant control over the appointment or removal of a majority of members of the governing body 50% 5

Having authority to appoint or remove the CEO or other key personnel of an organization 50% 5

Having authority to establish or amend the mission or mandate of an organization 30% 3

Approving the business plan and budget of an organization 80% 8

Establishing borrowing limits and exercising control over investments of an organization 60% 6

Restricting revenue sources of an organization 30% 3

Establishing and amending financial and human resource policies of an organization 20% 2

Finally, the budgeting community was asked: “In your view, how important is the role of legislation in establishing the accountability structures between the government and the particular organization for determining which government activities to include in the Summary Budget and Estimates?”

Nearly everyone agreed that legislation was very important in establishing accountability. A number of respondents said that each jurisdiction’s own unique circumstances must also be considered. When asked if there were other criteria to consider for determining which government activities to include in the Summary Budget and Estimates, none were offered. This reinforces the responses to the previous three questions in that the primary and secondary criteria, together with the accountability relationships established by legislation, are the key determinants in defining a government budgeting entity.

Summary BudgetAs stated in the 2004 CICA Research Report Accounting Bases Used in Canadian Government Budgeting, “the purpose of the budget is to present the government’s fiscal plan based on goals and priorities. The purpose of the estimates is to support an appropriations act or supply act that grants authority to spend public funds. The estimates may be viewed as a subset of the budget providing support for the fiscal plan.”2

The Summary Budget and accompanying information present key economic data, forecast the state of the economy and discuss a government’s financial situation and

2 Accounting Bases Used in Canadian Government Budgeting (Toronto: Canadian Institute of Chartered Accountants, 2004).

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its fiscal forecast for the budget year and beyond. These are bread and butter issues of interest to all Canadians and, as a result, the Budget is the primary document the public uses to hold governments accountable. The importance of the Budget as an accountability mechanism is evidenced by the fact that the budget debate ends with a vote of confidence in the government. If the Budget is defeated, the government resigns and an election is called.

EstimatesAlthough the Estimates document is an integral part of the overall Budget in most jurisdictions, it also has a distinctly different purpose from that of the Summary Budget. The Summary Budget is a government’s financial plan and, while it may list total funding allocated to departments or ministries, it does not provide many details. On the other hand, the Estimates document is a department/ministry document and details their spending plans. Individual ministers use it when their spending plans are discussed and debated by the provincial legislatures, as does the federal parliament during the annual debate of its estimates.

The Estimates document allows the legislature to hold the government accountable for its plans to spend public funds on programs and services that are priorities. Governments, and specifically individual departments, cannot spend public money unless those expenditures are detailed in the Estimates and voted through the appropriations act or authorized by law through other legislation. The purpose of the Estimates is much more than just a breakdown of the Summary Budget containing details of departmental spending.

The following, taken from legislation in the Northwest Territories, is typical of the requirements of financial administration acts in most jurisdictions.

Section 27. No person shall incur an expenditure without the authority of an enactment.Section 28. (1) The Minister of Finance, under the direction of the Board, shall prepare

the Estimates for each fiscal year.Section 29. The Minister of Finance shall submit to the Legislative Assembly, in

accordance with section 25 of the Northwest Territories Act (Canada) an appropriation bill for each fiscal year based on the votes and items of expenditure set out in the Estimates.

Section 30. (1) No person shall incur an expenditure unless it is pursuant to an appropriation and in accordance with the activity set out in the Estimates on which the appropriation is based.3

An appropriations act authorizes each government to spend public funds on programs and services not specifically authorized by other legislation and for which it is directly accountable. Without this annual legislative authority, a government would not be able to legally spend taxpayer’s dollars. Interest cost on the public debt is an example of a payment which, in most jurisdictions, is authorized by law through a provincial loans act or similar legislation.

3 Northwest Territories – Financial Administration Act.


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Presentation of the Summary Budget and EstimatesThe Summary Budget presents financial information on the complete entity for which a government is accountable. It is the big picture and, as such, this information gets incorporated into a number of budgetary documents. Because the Budget is a government’s premier policy document and a critical element in the accountability cycle, a great deal of time and effort is put into communicating it to various interest groups. Appendix A contains information on specific publications certain jurisdictions release as part of their Budget. Appendix B contains information on the Government of Canada’s Summary Budget and Estimates.

All jurisdictions produce an Estimates document to support the appropriations process. A number of jurisdictions also incorporate their Summary Budget into the Estimates document, normally as a stand-alone section. Exhibit 2.4, based on a review of budgetary documents for 2007/2008 on Canadian government websites, provides a guide to finding the primary source of Summary Budget information for each jurisdiction.

Exhibit 2.4

British Columbia Estimates – Fiscal Year Ending March 31, 2008

Alberta Budget 2007 – Fiscal Plan

Saskatchewan Provincial Budget – Summary Financial Budget Details

Manitoba Budget 2007 – The Summary Budget

Ontario Budget 2007: Papers

Quebec 2007/2008 Budget Plan

New Brunswick 2007-2008 Main Estimates

Nova Scotia Estimates for Fiscal Year 2007-2008

Prince Edward Island Estimates 2007-2008

Newfoundland Budget 2007

Nunavut Main Estimates 2007-2008

Northwest Territories 2008-2008 Main Estimates

Yukon Operation and Maintenance Estimates 2007-2008

Canada The Budget Plan 2007

Summary financial statementsThe summary financial statements report on a government reporting entity’s financial position and the change in financial position for a particular fiscal year.4 They contain a comparison to the original approved Budget and compare actual spending with amounts approved by the legislature through the appropriations process and amounts authorized by specific statutes. The summary financial statements are accompanied by an audit

4 Accounting Bases Used in Canadian Government Budgeting, op. cit., p. 9.

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opinion from the Auditor General that the statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) and present a realistic picture of the government’s financial position and change in financial position for the year. The legislature, including the Public Accounts Committee, the financial community, credit rating agencies and the public in general comprise the main audience for those statements. The summary financial statements complete the accountability cycle for a particular fiscal year.

transparency in government Budgets and estimatesBecause of the importance of the Summary Budget and Estimates as accountability mechanisms, the following questions need to remain in the forefront of any discussion about transparency:

Does a particular government budgeting entity support the existing accountability 1) framework used in holding a government accountable?Does it make sense for a government to use the same budgeting entity for preparing 2) both the Summary Budget and the Estimates?

The Budget is a key tool in holding a government accountable. A major objective for the budgeting community in deciding on the appropriate budgeting entity, and method of including organizations in that entity, revolves around issues of transparency. How can transparency in the Summary Budget and Estimates be maximized and provide the right information to hold the government accountable?

The CICA Public Sector Handbook, in PS Section 1000, outlines the qualitative characteristics of what constitutes useful information. The reason for including certain organizations in a budgeting entity, and the method used to include those organizations, is to produce information that is not only useful in the decision-making process, but is also helpful to the legislature and the public in holding the government accountable. The characteristic that is most important is the relevance of information. Being timely, accurate and comparable are all characteristics of useful information but, if it isn’t relevant, it is not of much use. On the contrary, including irrelevant information in the Budget or Estimates can have just the opposite effect and waste the valuable time of legislators.

Legislation may delegate to organizations such as schools, universities, colleges and hospitals (referred to as broader public sector organizations in some jurisdictions) the responsibility for raising certain revenue and the authority to provide services. These organizations often have their own elected boards, which are empowered through legislation to raise revenues to provide certain services to the public.

A typical example of this type of arrangement would see a government providing a grant to an organization and the local board raising additional funds on its own and using those dollars to augment services. Mixing those details into the Estimates or Summary Budget can reduce transparency and cause confusion when the legislature reviews budgets during the debate of the Estimates. The local board might also perceive it as the government making decisions about financing over which it does not have any authority.


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In some cases, a particular government may be responsible for an organization’s net expenditure, which it covers through an operating grant and which it would, in turn, normally include in its Budget and Estimates. As long as the organization balances its bottom line, it is not accountable to the government for how it spends the money it raises independently.

Nevertheless, if the organization does not balance its budget nor meet some other criteria specified in legislation, the government may have the authority to take control. Because such events would be rare, it is important to assess how budgeting on a consolidated (line-by-line) basis for these organizations would affect transparency and how it would aid in holding the government accountable.

The Ontario Education Act, an example of the type of legislation referred to above, empowers local school boards to manage their own financial affairs. The Act states that Boards can prepare and adopt estimates of revenues and expenditures for the fiscal year but, in doing so, they must ensure that their estimated expenditures do not exceed estimated revenues. The Act also states that the Minister may investigate a Board’s financial affairs if the financial statements for the fiscal year, or the auditor’s report on those statements, indicate that the Board had a deficit for the year. The investigation could recommend corrective action, which could include, in severe cases, transferring control over the Board’s administration to the government through the responsible ministry.5

Because of accountability relationships established through legislation, governments must consider the potential disconnect between the ability to control and being held accountable on a line-by-line basis for the budgets of some of these broader public sector organizations. This was further reinforced by the International Public Sector Accounting Standards Board in Section 27 of IPSAS 24, which states that: “In some cases, the detailed financial information included in approved budgets may need to be aggregated for presentation in financial statements in accordance with the requirements of this standard. Such aggregation may be necessary to avoid information overload and to reflect relevant levels of legislative or other authoritative body oversight.”6

The budgeting community needs to deal with issues of accountability and transparency when deciding what the budgeting entity is and how to include organizations in preparing the Summary Budget and Estimates. It is essential to assess how accountability in a particular jurisdiction is exercised, so that the information generated supports the decision-making process and can be used to hold the government accountable for its decisions.

If the legislature is to perform its due diligence and carry out its responsibilities, it requires the right information. Presenting information on responsibilities delegated through legislation to other organizations can have the opposite affect of that intended. It can lead to confusion and wasted time, which would be better spent dealing with

5 Service Ontario e-laws, Education Act R.S.O. 1990, Chapter E.2.

6 Presentation of Budget Information in Financial Statements, IPSAS 24 (New York: International Public Sector Accounting Standards Board, December 2006).

1313


appropriate issues. The ideal situation would be one where the information in the financial statements, the Summary Budget and Estimates is prepared on the same basis without any need for reconciliations or explanations. To increase transparency, the information contained in the Summary Budget and Estimates needs to support the accountability framework in a particular jurisdiction.

summary and ObservationsExhibit 2.5 presents several key observations made in this chapter. The Budget is a government’s most important policy document because it allows the legislature or parliament to hold the government accountable for its decisions. The Budget highlights the government’s social and economic policy priorities and details its fiscal plan, including any taxation changes or new revenue sources.

Exhibit 2.5

Key Observations

The Budget is a government’s most important policy document.

The Budget establishes the benchmark for measuring a government’s performance.

Accountability relationships are normally established by legislation.

Clear criteria are important for determining accountability.

The Budget should include all relevant information on responsibilities for which a government is accountable.

The Budget also establishes the benchmark for measuring a government’s performance in managing the resources with which it has been entrusted. In this regard, the budgeting community strongly supports the need for clear criteria for determining what is included in the budgeting entity and agrees that legislation is very important in determining accountability.

Maximizing transparency of the information presented in a budget is crucial to good accountability. Increasing transparency depends on the use of relevant information that supports accountability relationships, normally established by legislation. Therefore, its Budget should include all relevant information on the responsibilities for which a government is accountable, but should not include details of responsibilities that have been delegated through legislation to another organization or level of government.

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chapter 3

defining the government Budgeting entity

“The Budget is a government’s key policy document. It should be comprehensive, encompassing all government revenue and expenditure, so that the necessary tradeoffs between different policy options can be assessed.”7

introductionAlthough the ability to control is the key criterion for deciding what organizations should be included in a government budgeting entity, accountability is the major element in defining that entity. This is indicative of the Budget’s overall importance in the accountability cycle. In Canada and internationally, the Budget is viewed as a government’s most important policy document and a key tool for holding governments accountable. More so than any other government publication, the Budget is subject to extensive media coverage. In addition, the importance of the Budget as an accountability measure has been recognized by the International Public Sector Accounting Board, which has introduced standards calling for all comparisons of Budget and actual amounts in the financial statements to be prepared on a basis consistent with the Budget.

What governments include in the budgeting entity for preparing their Summary Budget and Estimates documents is a key issue. Because each document has a distinct purpose, it may be prepared using a different budgeting entity. The Summary Budget lays out a government’s overall financial situation and its fiscal forecast for the budget year and beyond. Normally, the budgeting entity used to prepare the Summary Budget would include all organizations a government is responsible and, ultimately, accountable for to the public.

The Estimates, which detail departmental/ministry spending plans, focus on providing support for an appropriations act and supply bill. The budgeting entity used to prepare the Estimates may have a narrower scope than that used to prepare the Summary Budget. Some jurisdictions also include in their Estimates supplementary information, such as Summary Budget information, in addition to the departmental/ministry spending plans required to support an appropriation act and supply bill.

The CICA Public Sector Accounting Board (PSAB) recently issued 20 Questions about the Government Reporting Entity, which responds to a number of frequently asked questions on this topic. It states that “A government’s reporting entity comprises all organizations

7 OECD Best Practices for Budget Transparency (Paris, May 2001), p. 4.


1616

controlled by the government.”8 It goes on to explain that, no matter what the legal form of the relationship between a government and an organization is, if the government controls the organization, it should be included in the government reporting entity.

There are three main elements in defining control:the power to govern, whether exercised or not; y

the ability to govern an organization’s financial and operating policies; y

the government must expect to receive any benefits, and be responsible for any risk, yresulting from the organization’s activities.

“The summary budget and estimates (and appropriations) of Canadian governments are not, however, prepared under such a policy framework, nor are they based on CICA recommendations.”9 A government’s budgeting entity, therefore, should include all the organizations for which a government is accountable.

PS Section 1100 states. “If a government’s budget or appropriations are prepared on a different basis or for a different scope than its financial statements, the government needs to provide a link with the financial statements so that the legislature understands how the government’s results for the period compare to the results it planned and the amounts the legislature authorized to accomplish those plans. In either circumstance, or when neither the budgeted scope nor basis is consistent with that used for reporting actual results, the financial statements will need to provide a reconciliation of the planned information included in the financial statements with that originally budgeted.”10

The adoption of accrual accounting by all senior governments in Canada has triggered considerable change to the budgeting entity used to prepare the Summary Budget and Estimates. It has, therefore, become all the more important to explain what a budgeting entity includes and the method used to account for those organizations.

The budgeting officials were asked whether their government budgeting entity and the method used to account for the various organizations in their 2007-2008 Summary Budget and Estimates were explained or reconciled. Exhibit 3.1 shows that most jurisdictions provided explanations and reconciliations in either the Summary Budget or Estimates, or both, to enhance the transparency of these important documents. Appendix C provides examples of reconciliation statements disclosed by jurisdictions as part of their 2007-2008 Budget documents.

8 20 Questions about the Government Reporting Entity (Toronto: CICA, 2007), p. 7.

9 Links between the Budget and Estimates (Toronto: CICA, June 2006).

10 CICA Public Sector Accounting Handbook, PS Section 1100, paragraph .66.

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Defining the Government Budgeting Entity

Exhibit 3.1

Please indicate whether the government budgeting entity and the method used to include the various organizations in the 2007-2008 summary Budget and estimates are:

answer optionsBudgeting

entityMethod of

Accountingresponse

count

Explained in the Summary Budget 5 5 10

Reconciled in the Summary Budget 6 3 9

Explained in the Estimates 6 6 12

Reconciled in the Estimates 5 1 6

No explanation or reconciliation provided 3 2 5

Budgeting entity for the summary Budget

Current PracticeThe budgeting entity used to prepare the Summary Budget has expanded significantly over the last three years. Organizations such as schools, hospitals and colleges are now included in the Summary Budget of most jurisdictions by either the equity method or consolidation. Exhibit 3.2 shows the number of jurisdictions that currently include these various types of organizations in their Summary Budgets.

Exhibit 3.2

number of Jurisdictions

General revenue fund (departments/ministries) 14

Government organizations 11

Government business enterprises 11

Elementary/secondary education (schools) 8

Post-secondary education (colleges) 8

Post-secondary education (universities) 3

Health sector (hospitals) 9

Government partnerships 3

Government business partnerships 1

Other 1

Clearly, there is a high level of consensus among senior governments on what organizations are to be included in the budgeting entity for preparing Summary Budgets. Most jurisdictions include government organizations, government business enterprises, schools, colleges and hospitals in their Summary Budget. The main exception is universities.


18

Planned ChangesWhen asked whether they planned any changes to the government budgeting entity for the 2008-2009 Summary Budget, respondents said they expected to make minimal changes to include only a few additional organizations. This indicates a mature system that has changed a lot over the last few years.

Views of Senior Budgeting OfficialsThe budgeting community was asked which organizations should be included in, or excluded from, the government budgeting entity for purposes of preparing the Summary Budget. Exhibit 3.3 shows that there is a fairly strong consensus that the Summary Budget should include most organizations (12 of the 14 jurisdictions responded to this question). The one exception is universities, where seven of 10 said they should be excluded.

Exhibit 3.3

should the following be included in or excluded from the government budgeting entity for the summary Budget?

summary Budget

answer options included excludedresponse

count

General revenue fund (departments/ministries) 12 0 12

Government organizations 11 1 12

Government business enterprises 10 2 12

Elementary/secondary education (schools) 7 3 10

Post-secondary education (colleges) 8 2 10

Post-secondary education (universities) 3 7 10

Health sector (hospitals) 9 1 10

Government partnerships 6 2 8

Government business partnerships 3 4 7

Other 2 1 3

Budgeting entity for the estimates

Current PracticeOther than the general revenue fund, there are substantial differences between the budgeting entity used to prepare the Summary Budget and that used to prepare the Estimates. All governments include the general revenue fund in both their Summary Budget and Estimates but that is where the similarity ends. Exhibit 3.4 shows how many jurisdictions currently include the various types of organizations in the Estimates. Most jurisdictions include government organizations, government business enterprises, schools,

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colleges and hospitals in their Summary Budget, but approximately 50% include them in the Estimates.

Exhibit 3.4

number of Jurisdictions

General revenue fund (departments/ministries) 14

Government organizations 6

Government business enterprises 5

Elementary/secondary education (schools) 4

Post-secondary education (colleges) 5

Post-secondary education (universities) 1

Health sector (hospitals) 4

Government partnerships 1

Government business partnerships 1

While the Estimates constitute a subset of the Summary Budget, it is also a distinct document whose main purpose is to support an appropriations act. Because of accountability and transparency reasons, in a number of jurisdictions, the Estimates document is much more focused than the Summary Budget and excludes information that is not relevant to the Estimates debate. Most information in the Estimates relates to a government’s core programs, which are normally delivered by line departments and for which the government is directly accountable. Undoubtedly, these jurisdictions believe that including a lot of information on programs delegated through legislation to other organizations would detract from the debate of the Estimates and lead to confusion.

Planned ChangesWhen asked to indicate whether they planned to make changes to their government budgeting entity for the 2008-2009 Estimates, all respondents said no changes were anticipated.

Views of Senior Budgeting OfficialsThe budgeting community was asked which organizations should be included in, or excluded from, the government budgeting entity for purposes of preparing the Estimates. Exhibit 3.5 shows that, other than the general revenue fund, there is a fairly even split among jurisdictions about which organizations to include or exclude (12 jurisdictions responded to this question). This shows the importance of each jurisdiction’s particular circumstances for deciding on an appropriate budgeting entity, especially for purposes of preparing the Estimates. Clearly, some jurisdictions view the Estimates as a subset of the Summary Budget as well as a document supporting an appropriations act, while others believe the main purpose of the Estimates is to support the appropriations act.


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Exhibit 3.5

should the following be included in or excluded from the government budgeting entity for the estimates?

estimates

answer options included excludedresponse

count

General revenue fund (departments/ministries) 12 0 12

Government organizations 6 6 12

Government business enterprises 6 6 12

Elementary/secondary education (schools) 5 5 10

Post-secondary education (colleges) 4 6 10

Post-secondary education (universities) 3 7 10

Health sector (hospitals) 5 5 10

Government partnerships 2 6 8

Government business partnerships 2 5 7

Other 1 2 3

Finally, senior government budgeting officials were asked for their views about using the same government budgeting entity for preparing the Summary Budget and Estimates. Respondents were able to select more than one answer, which a number did. The overall results of this question are presented in Exhibit 3.6. It clearly shows the difference of opinion over the value of using the same budgeting entity for the Summary Budget and Estimates. Fourteen responses were positive, compared to seven negative. The Estimates serve different purposes depending on the particular jurisdiction. With the Estimates, no one solution appears to satisfy the reporting requirements for all senior governments.

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Exhibit 3.6

in your view, using the same government budgeting entity for preparing the sum-mary Budget and estimates (select all that apply):


Percentresponse

count

Aids understandability 45% 5

Enhances accountability and transparency 55% 6

Provides relevant information for decision making 27% 3

Does not aid understanding 18% 2

Does not enhance accountability and transparency 18% 2

Does not provide relevant information for decision making 27% 3

The following comments were also offered in addition to the options above:Traditionally, the Estimates document has outlined the spending plans a government yneeds the legislative assembly to approve. The legislature has already approved legislation that allows other government organizations to collect revenues and spend that money without prior approval of the legislative assembly. Line-by-line consolidation would mix spending decisions that require approval with those that don’t and mix commercial exchange transactions with public policy decisions.The Estimates process is focused on government departments. The legislature must yreview and approve the Estimates on an appropriation-by-appropriation basis. While the Budget provides additional context for the Estimates, in that departmental spending is a large component, the content of the Estimates needs to remain focused on the operations of government.

The above comments favor an Estimates document that supports the appropriations process, which is the traditional way Estimates have been prepared. The saying “one shoe does not fit all” describes this situation perfectly.

summary and ObservationsAccountability is a major consideration in defining a government budgeting entity. Normally, the budgeting entity used to prepare the Summary Budget includes all organizations for which a government is accountable. The Estimates detail departmental/ministry spending plans and focus on providing support for an appropriations act. Often, the Estimates have a narrower scope than the Summary Budget.

Exhibit 3.7 presents several key observations made in this chapter. Standards issued by the CICA Public Sector Accounting Board establish generally accepted accounting principles (GAAP) for preparing summary financial statements. Although the Summary Budget and Estimates are not subject to GAAP, there has been a trend in recent years to use GAAP to define the budgeting entity used to prepare the Summary Budget and Estimates.


22

Exhibit 3.7

Key Observations

Although the Summary Budget and Estimates are not subject to GAAP, GAAP is normally used in defining the budgeting entity for preparing the Summary Budget and, to a lesser extent, for preparing the Estimates.

There is strong consensus on which organizations should be included in the budgeting entity for the Summary Budget. Most view the budgeting entity currently being used to prepare the Summary Budget in their particular jurisdiction as the right one.

There is a difference of opinion on the budgeting entity used to prepare the Estimates. Some suggest it should mirror the Summary Budget, while others suggest it should support the appropriations process and, therefore, be more limited in scope. Most view the budgeting entity currently being used to prepare the Estimates in their particular jurisdiction as the right one.

There is a consensus among senior government budgeting officials on which organizations should be included in the budgeting entity used to prepare the Summary Budget. Along with the general revenue fund, most jurisdictions include government organizations, government business enterprises, schools, colleges and hospitals. The one exception is universities, which the majority said should be excluded. Minimal changes are planned for the 2008-2009 fiscal year.

The Estimates document is a different matter. Other than the general revenue fund, only about 50% include organizations such as schools, colleges and hospitals. In several jurisdictions, the Estimates include very little information beyond that relevant to the appropriations process and the Estimates debate. There is a fairly even split on which organizations should be included in the budgeting entity for the Estimates. Some budgeting officials are of the opinion that it should mirror the Summary Budget. Others think it should reflect the appropriations process. No changes are being planned to the budgeting entity used to prepare the Estimates for 2008-2009.

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chapter 4

Accounting for the government Budgeting entity

“Fiscal information should be presented in a way that facilitates policy analyses and promotes accountability.”11

introductionCanada’s senior governments face a significant challenge in determining the appropriate method of accounting for organizations in the government budgeting entity. Some budgeting officials believe that line-by-line consolidation is not appropriate for all organizations and does not reflect accountability relationships which, in most cases, have been established by legislation. There is even greater debate about the Estimates. Some budgeting officials view the main purpose of this document as supporting an appropriations act. They note that the method for including certain activities in the Estimates should focus on the portion of funding that the legislature must vote on and for which a government is directly accountable.

Various methods may be used to account for a government budgeting entity when preparing the Summary Budget and Estimates:

Consolidation: A method of combining, on a line-by-line basis, the assets, liabilities, revenues and expenses/expenditures of a government entity with those of its overall government. The accounting policies are adjusted to conform to those of the government, and any inter-entity transactions are eliminated. For instance, all organizations being combined would follow the government’s practice for accounting for tangible capital assets. All transactions between the government and the organizations or between the organizations are eliminated. A typical example would be eliminating the government’s grant to a hospital corporation to cover its net operating expenses from both the government’s expenses and the hospital’s revenues. The total expenses of the hospital and the revenues it generates on its own through transactions other than with the government are then combined with the government’s. The results show the gross revenues and expenses of the combined organizations as if there were only one organization.

Equity basis: A method of combining an organization’s net assets and net income with those of its government after adjusting the accounting policies to conform to those of the government. Even though total revenue and total expenses resulting

11 Manual on Fiscal Transparency (Washington: International Monetary Fund, 2007), p. xi.


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from the combination are different than if the consolidation method were used, the government’s overall surplus or deficit is the same under either method. If, in the above example, the equity method was used to combine the hospital corporation with the government, the government’s grant would not be eliminated from either the government’s expenses or from hospital revenue. The hospital’s net income or net loss would then be combined with the government. The difference between the two methods is that the revenue the hospital generates and the spending it funds is not reflected in total revenue and expenses of the combined entity. The overall result (surplus or deficit) of the combined organization is the same.

Modified equity basis: A method of combining the net assets and the net income of a government business enterprise (GBE) with those of the government without adjusting the accounting policies to conform to those of the government. A GBE uses generally accepted accounting principles for business, as contained in the CICA Handbook. The combined budgeting entity reflects the net results of the GBE. Its gross revenues and expenses are not included.

Transaction basis: This approach presents the actual transaction between a government and one of its organizations. An example would be an operating grant a government gives to an organization to cover the net cost of its operations. Neither the organization’s gross revenues and expenses nor the net results are reflected in the government’s budgeting entity. The overall result is different than if either the consolidation or equity method were used.

Disclosure: This approach presents additional financial information about an organization that is not included in a government’s Summary Budget or Estimates. The additional information may supplement information on transactions with organizations included in the Summary Budget and Estimates, or it may explain differences between the Estimates and Summary Budget. Examples of disclosure are publishing in the Public Accounts salary listings and payments to vendors. While this disclosure of additional information in the Estimates and Summary Budget may be useful and informative, it is not part of the budgeting entity. In the previous example, where a government gave an operating grant to an organization to cover its net operating costs, the government might also show as supplementary information the estimated expenditures the organization will cover with revenue it raises itself from other sources. While the information is all there, the actual financial impact of this other revenue and spending is still not included in the overall Budget.

PS 1200, which deals with financial statement presentation, states (paragraph .010): “notes and supporting schedules in financial statements should not be used as a substitute for proper accounting treatment.”12 As with financial statements, disclosure does not satisfy the need to actually include financial information in the Summary Budget and Estimates.

12 CICA Public Sector Accounting Handbook, Section PS 1200, “Financial Statement Presentation – Federal, Provincial & Territorial Governments.”

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Accounting for the Government Budgeting Entity

Given that the modified equity basis is used only for government business enterprises and government business partnerships, it is important to consider consolidation (line-by-line) and the equity basis as legitimate options for deciding how to include organizations in the budgeting entity for either the Summary Budget or Estimates. It is also interesting to note that the bottom line impact of either is the same, so the choice depends mainly on the accountability relationship between an organization and its government: Is the government responsible only for the organization’s bottom line and how the dollars are spent or is it responsible for all the details of the organization’s spending and revenue?

As part of the survey, government budgeting officials were asked for their view on the impact of line-by-line consolidation, keeping in mind the extent that legislation establishes the accountability structures between a government and the organizations included in the government budgeting entity. This question addresses one of the most contentious issues currently facing the budgeting community — line-by-line consolidation for organizations other than the general revenue fund.

Exhibit 4.1 shows that the majority felt that the additional information generated did nothing to enhance accountability through increased transparency. They indicated that line-by-line consolidation of some organizations provided excessive information that was costly to produce and, in fact, may actually lessen transparency and inhibit accountability.

Exhibit 4.1

in your view, to the extent that legislation establishes the accountability structures between a government and the organizations included in the government budgeting entity, what is the impact of line-by-line consolidation in the summary Budget and estimates (select all that apply)?


Percentresponse

count

Enhances accountability and transparency 27% 3

Discloses information that is relevant and useful 36% 4

Has a positive impact on decision making 18% 2

Does not have any impact on the budget process 27% 3

Provides excessive detail not used for decision making 55% 6

Requires information that is time-consuming and costly to obtain 73% 8

Is not relevant, of little value and creates confusion 45% 5

Inhibits accountability and transparency 27% 3

Once again, the key issue is generating relevant information that supports decision making and is useful to the legislature and general public in holding a government


2626

accountable. Generating too much information, especially when it is not relevant, leads to confusion and can have the opposite impact of that intended.

Respondents also made the following specific comments:While the Summary Budget provides relevant information, the focus of the ylegislature continues to be on the operations of government departments and the revenues collected by government (for example, through taxes).Line-by-line consolidation has not improved accountability. Work is still required on ythe governance structures of various entities (for example, schools, hospitals and post secondary educational institutions).

Accounting for the Budgeting entity in the summary Budget

Current PracticeExhibit 4.2 shows that, for the Summary Budget, consolidation is the method used to include in the budgeting entity nearly all of the organizations other than government business enterprises and partnerships. Government business enterprises are included by the modified equity method.

Exhibit 4.2

Please indicate the method(s) used to include the various organizations in the government budgeting entity for the 2007-2008 summary Budget (select all that apply).

answer options

con-solid-ation equity

Modified equity

transac-tion

disclo-sure

response count

General revenue fund (departments/ministries) 14 0 0 0 0 14

Government organizations 9 2 0 0 1 12

Government business enterprises 0 0 11 0 0 11

Elementary/secondary education (schools) 5 1 0 2 0 8

Post-secondary education (colleges) 4 2 0 3 1 10

Post-secondary education (universities) 3 0 0 2 0 5

Health sector (hospitals) 5 2 0 2 0 9

Government partnerships 0 0 1 0 1 2

Government business partnerships 0 0 1 0 0 1

Other 0 1 0 0 0 1

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Planned ChangesWhen asked whether they planned to make any changes to the government budgeting entity for the 2008-2009 Summary Budget, respondents indicated there would be minimal changes. A few additional organizations will be included by consolidation.

Views of Senior Budgeting OfficialsThe budgeting officials were asked for their views on how organizations should be included in the Summary Budget. Exhibit 4.3 shows that a substantial majority of respondents agreed that consolidation should be the method of choice for including not only the general revenue fund but also most other organizations in the Summary Budget. There was also unanimous agreement that government business enterprises should be included by the modified equity method. The one exception is universities; only three of the seven respondents thought that they should be included by consolidation.

Exhibit 4.3

in your view, what method should be used to account for the various organizations in the government budgeting entity for the summary Budget (select all that apply)?

answer options

con-solid- ation equity

Modified equity

transac-tion

disclo-sure

response count










Other 0 1 0 0 0 1


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Accounting for the Budgeting entity in the estimates

Current PracticeThe survey asked officials to indicate the method(s) used to include the various organizations in their government budgeting entity for the 2007-2008 Estimates. Exhibit 4.4 shows that the majority of organizations, other than the general revenue fund, are included by the transaction method, although some are included by consolidation. The Estimates process is clearly linked to the need to support an appropriations act or supply bill and, as such, focuses on the funding that needs to be voted and the activities for which a government is directly accountable.

Exhibit 4.4

Please indicate the method(s) used to include the various organizations in the gov-ernment budgeting entity for the 2007-2008 estimates (select all that apply).

answer options

con- solid- ation equity

Modified equity

trans-action

disclo-sure

response count










Other 0 0 0 0 0 0

Most jurisdictions use an appropriations act to vote the net grants their government makes to schools, universities, colleges and hospitals. To include these organizations on a line-by-line basis by consolidation would not generate information the legislature could use in debating the Estimates and holding government accountable for its decision making during the Budget process.

Depending on a particular jurisdiction’s circumstances and its government’s accountability relationship with these other organizations, the additional information could cause confusion and result in a lack of focus on what is, in fact, important.

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To enhance transparency and promote accountability, the information presented in the Estimates should deal only with the revenues and expenses for which a government is directly accountable.

Planned ChangesWhen asked to indicate whether they planned to make any changes to the methods used to include organizations in the government budgeting entity for the 2008-2009 Estimates, respondents said no changes were anticipated.

Views of Senior Budgeting OfficialsThe budgeting officials were asked for their views on how organizations should be included in the Estimates. Exhibit 4.5 shows that all jurisdictions chose the consolidation method to include the general revenue fund (consolidated revenue fund). The general revenue fund is presented on a line-by-line basis because government is normally accountable for all of the details of its departments/ministries. With all other organizations, this is not the case. The transaction method includes only the government’s actual transactions with an organization. This is normally a grant covering the net operating expenditures and the amount voted in the appropriations act. Legislation has delegated authority for certain organizations to raise revenue, which may be used to supplement the cost of providing services and which legally does not have to be voted separately.

Exhibit 4.5

in your view, what method should be used to account for the various organizations in the government budgeting entity for the estimates (select all that apply)?

answer options

con- solid- ation equity

Modified equity

trans-action

disclo-sure

response count










Other 0 0 0 0 1 1


30

summary and ObservationsExhibit 4.6 presents several key observations made in this chapter. Consolidation and the equity method appear to be acceptable methods of including organizations (other than government business enterprises and business partnerships) in the budgeting entity for the Summary Budget. There are fundamental differences, however, in how jurisdictions include organizations in the Estimates.

Exhibit 4.6

Key Observations

Most jurisdictions use consolidation for the Summary Budget, but there are differences in how they include organizations in the Estimates.

The method of including organizations should reflect accountability relationships established by legislation.

Consolidating certain organizations in the Summary Budget, and in particular the Estimates, may not generate relevant information for decision making and may lessen accountability and transparency.

Clearly, the method of including some organizations in a government budgeting entity is a more significant issue than what organizations to include. Some jurisdictions argue that there is a potential disconnect between the ability to control an organization and budgeting for it on a consolidated basis. In other words, line-by-line consolidation of all organizations included in the budgeting entity may not reflect existing accountability relationships. Legislation may have delegated responsibility for the details of revenues and expenses to an organization, leaving the government responsible only for the organization’s net operating results.

The key issue is generating relevant information that supports decision making and is useful to the legislature and general public in holding the government accountable. Generating too much information, especially if it is not considered relevant, leads to confusion and lessens accountability and transparency.

31

chapter 5

Facing the challenges

“The budget is the single most important policy document of governments, where policy objectives are reconciled and implemented in concrete terms. Budget transparency is defined as full disclosure of all relevant fiscal information in a timely and systematic manner.”13

introductionAs discussed in Chapter 4, there has been a lot of change during the past few years but the debate continues over what organizations should be included in the government budgeting entity and the method for including them in the Summary Budget and Estimates. Both domestically and internationally, there are a number of initiatives currently underway that will likely have an impact on how Canada’s senior governments prepare their Summary Budgets and Estimates.

developments in canadaEnhancing accountability through the development of more transparent budgetary systems is a key issue for governments today, not only here in Canada but also globally. The implementation of full accrual accounting by all Canadian governments over the past five years has been just such an initiative. Some individual jurisdictions have also initiated a number of other new developments. Given that the Budget is governments’ key accountability document, blending policy with financial reality, some of these new accountability and transparency measures involve the Budget.

In British Columbia, the Budget Transparency and Accountability Act is a good example of detailing accountability arrangements in legislation. The provincial government has formally defined the reporting entity in its legislation to include:14

the government as reported through the consolidated revenue fund; y

government corporations other than those that are government corporations solely yby reason of being agents of the government under an Act;education and health organizations; y

all of the corporations or organizations that, under generally accepted accounting yprinciples, are considered to be controlled by a government organization;corporations and organizations that are included within the government reporting yentity by regulation.

Section 5 of the Budget Transparency and Accountability Act also formally describes what is to be in the Main Estimates.

13 OECD Best Practices for Budget Transparency (Paris, May 2001), p. 3.

14 British Columbia, Budget Transparency and Accountability Act, Definitions and Interpretation, “Government Reporting Entity.”


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One of the more interesting measures to be implemented recently is the 2007 Pre-Election Report on Ontario’s Finances, issued by the Ontario Ministry of Finance. The report is required under the Fiscal Transparency and Accountability Act, which became law in December 2004 and has the objective of ensuring greater transparency and accountability in the government’s fiscal planning and financial reporting. The legislation requires the Ministry of Finance to issue a pre-election report on Ontario’s finances before a provincial election and that the report be reviewed by the Auditor General. As stated in the report, “Its purpose is to give citizens in Ontario a clear understanding of the Province’s estimated future revenues and expenses, and other details of its fiscal planning, before the provincial election scheduled for October 10, 2007.”15

Section 10(2) of the Act states: “The pre-election report must include the following information, updated from the most recent fiscal plan:

The macroeconomic forecasts and assumptions that were used to prepare the 1. fiscal plan and a description of any significant differences from those forecasts and assumptions.An estimate of Ontario’s revenues and expenses, including estimates of the major 2. components of the revenues and expenses as set out in the plan.Details of the reserve described in subsection 5(4).3. Information about the ratio of provincial debt to Ontario’s gross domestic 4. product.”16

This process highlights the importance of the Budget as an accountability mechanism. It is similar to a process detailed in OECD Best Practices for Budget Transparency (discussed later in this chapter).

Currently, the Province of Ontario is consulting with the CICA Public Sector Accounting Board (PSAB) on how to include a number of Broader Public Sector (BPS) organizations in the reporting entity. As explained in the 2007 Ontario Budget: “The net expenses of these BPS organizations are now included in the Province’s financial statements on a bottom line accountability basis. The government is consulting with PSAB to ensure that this ‘one-line’ basis of reporting can be maintained in the future to support the improved transparency of these sectors for reporting their net expenses.”17 While Ontario’s discussion focuses on the financial statements, the issues of accountability are also relevant to the Summary Budget and Estimates because of their importance in the overall accountability process.

A recent development affecting publicly-held companies may have an impact on the preparation of government budgets over the next few years. Canada’s Accounting Standards Board has determined that, by January 1, 2011, the accounting standards

15 Province of Ontario, 2007 Pre-Election Report on Ontario’s Finances, p.1.

16 Province of Ontario, Fiscal Transparency and Accountability Act, 2004.

17 Ontario Budget 2007: Papers, Chapter II, Ontario’s Economic Outlook and Fiscal Plan, Section F, “Accountability, Transparency and Financial Management: Strengthening Financial Management in the Ontario Public Service.”

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Facing the Challenges

applicable to publicly-accountable enterprises will conform to International Financial Reporting Standards (IFRS).

In the spirit of adopting common standards, a July 2007 PSAB exposure draft proposes that government business enterprises and government business-type organizations use accounting standards applicable to publicly-accountable enterprises when preparing financial statements for their own purpose. That is, the accounting standards for these types of organizations will conform to international standards.

developments on the international scene

International Public Sector Accounting StandardsMuch of what is done in Canada is influenced by what happens internationally. To put Canada’s situation in perspective, this section of the discussion paper briefly discusses some recent international developments.

The objective of the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants is “to serve the public interest by developing high quality accounting standards for use by public sector entities around the world in the preparation of general purpose financial statements. This will enhance the quality and transparency of public sector financial reporting and strengthen public confidence in public sector financial management.”18

In December 2006, IPSASB issued a new international public sector accounting standard, IPSAS 24, “Presentation of Budget Information in Financial Statements.” This standard requires that a comparison of the budgeted amount and the actual amount be included in the financial statements of entities required to, or electing to, make publicly available their approved budget and for which they are, therefore, held publicly accountable.

The standard goes on to say, in Section 31: “All comparisons of budget and actual amounts shall be presented on a comparable basis to the budget.” Section 32 states “The comparison of budget and actual amounts will be presented on the same basis (accrual, cash or other basis), same classification and for the same entities and period as for the approved budget. This will ensure that the disclosure of information about compliance with the budget in the financial statements is on the same basis as the budget itself. In some cases, this may mean presenting a budget and actual comparison on a different basis of accounting, for a different group of activities, and with a different presentation or classification format than that adopted for the financial statements.”19

The standard was released on the premise that the budget is a key tool for financial management and control and is the central component providing for legislative oversight of government financial affairs. It applies whether or not the budget and financial statements are prepared and presented on the same basis. It will be interesting to see what

18 International Federation of Accountants, International Public Sector Accounting Standards Board, IPSAS24, “Presentation of Budget Information in Financial Statements” December 2006.

19 Ibid.


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impact this international standard, which takes effect for accounting periods beginning on or after January 1, 2009, will have on government financial reporting here in Canada.

The European Union and Australia have already adopted IFRS, and the US Financial Accounting Standards Board and the International Accounting Standards Board are also working on joint projects to address differences in their standards. Globally, there is a movement toward a common set of accounting standards for publicly-accountable companies.

IMF Manual on Fiscal TransparencyIn 1998, the International Monetary Fund (IMF) introduced a Code of Good Practices on Fiscal Transparency. The Code contains Section 2 on Open Budget Process, which presents clear procedures for budget execution, monitoring and reporting. It also discusses issues, such as including reconciliations with the approved budget in the audited final accounts, which are relevant to the discussion on the budgeting entity. The IMF then issued the Manual on Fiscal Transparency to expand on and explain the principles of the Code. The Manual discusses the objectives behind the pursuit of fiscal transparency, which it explains is a key ingredient of good governance. This Code and the supporting Manual have led to a number of initiatives on fiscal transparency. One of them, the OECD Best Practices for Budget Transparency, is discussed below.

This reference material is pertinent to discussions about the government budgeting entity, including the importance of accountability and transparency, and is reinforced in Section 3.2 of the Manual which states “Fiscal information should be presented in a way that facilitates policy analyses and promotes accountability.”20 Accountability, which depends on generating information that is relevant, is also the key issue in discussions about the budgeting entity.

OECD Best Practices for Budget TransparencyThis publication is a useful reference source for anyone dealing with issues of budget accountability, including those dealing specifically with the budgeting entity and how to include organizations in that entity. The document stresses that it is not meant to constitute a formal “standard” for budget transparency but, instead, is designed as a reference tool for member and non-member countries to use to increase budget transparency.

The document is in three parts:Part 1 lists the principal budget reports that governments should produce and their ygeneral content.Part 2 describes specific disclosures for those reports. y

Part 3 highlights practices for ensuring the quality and integrity of the reports. y

Part 1 describes a pre-budget reporting process similar to the one the Province of Ontario implemented in 2007. It also states a principle that is pertinent and may serve as food for thought when dealing with issues concerning the budgeting entity:

20 Manual on Fiscal Transparency (Washington: International Monetary Fund), 2007, p. xi.

3535

Facing the Challenges

“The budget is the government’s key policy document. It should be comprehensive, encompassing all government revenue and expenditure, so that the necessary trade-offs between policy options can be assessed.”21

OECD Budget Practices and Procedures DatabaseAs stated on the OECD’s web site “The purpose of the OECD Budget Practices and Procedures Database is to provide budget practitioners and academics the opportunity to compare and contrast national budgeting and financial management practices with a view to share experiences and best practices. It is a unique, comprehensive and free resource that covers the entire budget cycle: preparation, approval, execution, accounting and audit, and performance information.”22

Appendix D presents two tables from the accounting and audit section of the survey, which contain insightful information about the adoption of accrual accounting in the preparation of the budget and financial statements. Table 1 shows that, of the 30 countries surveyed, 15 prepare their budget on a cash basis whereas only six use the accrual basis. The remainder use a combination of both or mixed systems to prepare the budget. While a greater number (11) use the accrual system to prepare their financial statements, more than 60% use the cash basis or some combination of both.

Table 2 indicates that, in 19 of the 30 countries surveyed, standards for the budget are determined by the Finance Ministry or Central Budget Authority. Another five are determined by the same authority after receiving recommendations from an advisory board established by law. It is interesting to note that the Finance Ministry or Central Budget Authority also determines standards for financial statements in the majority of countries.

summary and ObservationsThe Budget is generally seen as the key tool that both the legislature and the general public can use to hold governments accountable. Enhancing budget transparency is a means of generating the appropriate information required for the accountability process and is the subject of much attention.

A number of initiatives currently underway will affect how Canada’s senior governments prepare their Summary Budget and Estimates. As Exhibit 5.1 shows, greater emphasis is being placed on holding governments accountable for their policy decisions and how they manage the scarce resources they have been entrusted with to deliver programs.

21 OECD Best Practices for Budget Transparency, op.cit., p.4.

22 Refer to the OECD website (http://www.oecd.org/document/61/0,2340,en_2649_201185_2494461_1_1_1_1,00.html).

http://www.oecd.org/document/61/0,2340,en_2649_201185_2494461_1_1_1_1,00.html



36

Exhibit 5.1

Key Observations

There is greater emphasis on senior government accountability.

Some Canadian legislation has enshrined budget transparency and accountability in law.Certain types of government organizations are adopting international accounting standards.

IMF has issued the useful Manual on Fiscal Transparency.

The OECD Best Practices for Budget Transparency and 2007 OECD Budget Practices and Procedures Database are useful reference works for those involved in the government budgeting process.

Some senior governments in Canada, including British Columbia and Ontario, have formally adopted legislation to enshrine Budget transparency and accountability into law. Ontario is currently in consultation with the CICA Public Sector Accounting Board on the method of accounting for certain organizations in the government’s reporting entity. Its senior officials believe that existing accountability relationships are better served by combining certain organizations using the equity method rather than the consolidation (line-by-line) method.

Both domestically and internationally, there is a trend for governments to adopt international accounting standards. The International Public Sector Accounting Standards Board is calling — in IPSAS 24 — for all comparisons of budget and actual amounts in the financial statements to be prepared on a basis consistent with the budget. And, to assist the global community in dealing with issues of accountability and transparency, the International Monetary Fund has issued its Manual of Fiscal Transparency to facilitate providing relevant information to support decision making. As well, the Organisation for Economic Co-operation and Development has issued a paper on Best Practices for Budget Transparency and published online its 2007 OECD Budget Practices and Procedures Database.

37

Appendix A

Budget documents on government Websites

This Appendix lists the various documents identified on government websites that comprise the government Budget and Estimates in British Columbia, Alberta, Manitoba and Ontario. As discussed in Chapter 2, the content of these documents varies considerably from one jurisdiction to another.

British columbia:

Budget and Fiscal Plan: As the main Budget document, it lays out the province’s three-year fiscal plan, including economic outlook, revenues, spending, tax measures and forecasting risks and assumptions.

Budget Speech: The Finance Minister’s address to the Legislative Assembly.

Government Strategic Plan: Sets out an overarching vision, goals and priority actions for the province for the next 10 years.

Ministry and Crown Agency Service Plans: Provides an overview of all ministries and Crown agencies, including how they intend to achieve their service goals and how they support the direction laid out in the Government Strategic Plan.

Estimates: Contains (1) a Summary Budget including statements of estimated financial position, operations, accumulated surplus and revenue by source; (2) detailed estimates of spending for special offices, ministries and other appropriations that must be debated and approved by the legislature; (3) supporting schedules.

Supplement to the Estimates: Provides information on proposed spending organized into major categories such as salaries, grants, capital, travel and operations.

Alberta

Budget Speech: The Finance Minister’s address to the Legislative Assembly.

Budget 2007 Fiscal Plan: Includes budget initiatives, a fiscal overview, surpluses and a fiscal framework. Also contains details of spending and revenue initiatives, an economic and revenue outlook and the Government’s Response to the Auditor General’s Report.

2007-08 Government Estimates: Includes General Revenue Fund and Lottery Fund.

Budget 2007 Business Plans: Includes the Government of Alberta Strategic Business Plan and Ministry Business Plans.

2007-08 Supplementary Supply Estimates: Requests the Legislative Assembly to appropriate spending authority from the General Revenue Fund and reflects the same budgeting methodology as the 2007-08 Government Estimates.


38

Manitoba

The 2007 Manitoba Budget Address

The Summary Budget

Budget Papers A The Economy B Supplementary Financial Information C Taxation Adjustments D The Manitoba Advantage E Reducing Poverty in Manitoba

2007 Estimates of Expenditure and Revenue Introduction including reconciliations Part A – Operating Expenditures Part B – Capital Investment Estimates of Revenue

Manitoba’s Action Strategy for Economic Growth

Financial Reports

Economic Statistics and Highlights

Ontario

Budget Speech

Ontario Budget 2007: Papers Chapter 1 – Budget Initiatives Chapter 2 – Economic Outlook and Fiscal Plan Chapter 3 – Tax system Chapter 4 – Borrowing and Debt Management Budget 2007 Backgrounders

Expenditure Estimates – Fiscal Year Ending March 31, 2008 Volume 1 – Ministries – Summary tables Volume 2 – Special Offices

Results-based Plan Briefing Books“Published annually by each Ministry, following the Ontario Budget and publication of the Estimates. The Plans highlight what each Ministry has done over the previous year, what is planned for the coming year, what targets have been set and how results will be measured. The Standing Committee on Estimates uses the Results-based Plan Briefing Books when they ask Ministries to defend their estimates.”23

23 Refer to Province of Ontario, Results-based Plan Briefing Books, (http://www.fin.gov.on.ca/english/budget/estimates/2007-08/volume1/), p. viii.

http://www.fin.gov.on.ca/english/budget/estimates/2007-08/volume1/

http://www.fin.gov.on.ca/english/budget/estimates/2007-08/volume1/

39

Appendix B

summary Budget and estimates: government of canada

Chapter 2 of this discussion paper reviews the presentation of government Budgets and Estimates. It is noteworthy that the Government of Canada adopted full accrual accounting for its Summary Budget in 2003 and prepared its summary financial statements for 2002-2003 on a full accrual basis. Unlike its provincial and territorial counterparts, the Government of Canada’s Estimates continue to be prepared on a cash basis.

As stated in the Estimates: “The purpose of these estimates is to present to Parliament information in support of budgetary and non-budgetary spending authorities that will be sought through Appropriation bills. These authorities are divided into two categories – Voted and Statutory. Voted authorities are those for which the government must seek Parliament’s approval annually through an appropriations act. Statutory authorities are those that Parliament has approved through other legislation that sets out both the purpose of the expenditure and the terms and conditions under which they may be made. Statutory information is included in the Estimates for information only.”24

There is also a difference in how the Government of Canada obtains authority to spend funds compared to some of its provincial counterparts. This is illustrated by Exhibit B1 which was prepared from information contained in the 2007-2008 Estimates of the respective jurisdictions.

Exhibit B.1

Voted ($ millions)

% of total

statutory ($ millions)

% of total

total ($ millions)

Canada 74,928.8 35.6 135,382.1 64.4 210,310.9

British Columbia 29,279.7 98.3 495.3 1.7 29,775.0

Manitoba 9,002.7 96.9 288.3 3.1 9,291.0

Alberta 30,075.7 97.8 675.0 2.2 30,750.7

Ontario 77,774.5 90.2 8,417.7 9.8 86,192.3

The Government of Canada has statutory authority to spend 64.4% of the expenditures detailed in the Main Estimates and is required to have 35.6% approved through the annual appropriation process. As can be seen from the above information, the provinces have a much smaller portion of their total spending authorized by statute.

24 Government of Canada, 2007-2008 Estimates, p. 1-34.


40

The Estimates, along with the Minister of Finance’s Budget, reflect the government’s annual budget planning and resource priorities. In combination with the subsequent reporting of financial results in the Public Accounts and of accomplishments achieved in Departmental Performance Reports, this material helps Parliament hold the government to account for the allocation and management of public funds.25

The Estimates contain the following information:

Part I – The Government Expense Plan provides an overview of federal spending and summarizes the key elements of the Main Estimates.

Part II – The Main Estimates directly support the Appropriations Act.

Part III – Reports on Plans and Priorities (RPPs) are individual expenditure plans for each department and agency (excluding Crown corporations). Departmental Performance Reports are individual department and agency accounts of results achieved against planned performance expectations as set out in the respective RPPs.

Supplementary Estimates – Normally tabled twice a year.

Budgetary expenditures contained in the Estimates, which is prepared on a cash basis, total $210.3 billion. The spending total in the 2007 Budget Plan, prepared on a full accrual basis, is $233.4 billion, a difference of $23.1 billion from the Estimates. A reconciliation statement explaining the differences is found on page 295 of the 2007 Budget Plan (the reconciliation is reproduced in Appendix C of this discussion paper).

The Treasury Board of Canada Secretariat commissioned PricewaterhouseCoopers LLP to undertake a study into the Increased Use of Accrual Accounting in the Budget and Expenditure Cycle (BEC) of the Government of Canada.26 The study noted that the Government of Canada has made significant movement in this direction with the implementation of full accrual accounting for the preparation of the government’s Budget, the summary financial statements in the Public Accounts and in-year financial reporting in the Fiscal Monitor. The appropriations process, however, remains on a cash basis. It was understood that changing to full accrual accounting would be a complex undertaking that might result in fundamental change throughout the organization.

The study provided the following:research on budgeting and appropriations in other jurisdictions, and methods of yimplementing the current accounting basis in each jurisdiction;key considerations relating to Canadian issues of accrual accounting in the BEC; y

several models to increase the use of accrual accounting in the BEC; y

the Government of Canada’s readiness and capability of implementing increased use yof accrual accounting in the BEC;a high-level implementation plan, including cost estimates; y

insight into key lessons learned from other jurisdictions; y

key next steps required to move forward. y

25 Government of Canada, 2007-2008 Estimates.

26 PricewaterhouseCoopers LLP, Increased Use of Accrual Accounting in the Budget and Expenditure Cycle (BEC) of the Government of Canada. Research Report (Ottawa: Treasury Board of Canada Secretariat, March 31, 2006), p.10.

41

Appendix c

government Budgeting reconciliation statements

This Appendix provides illustrative examples of government budgeting reconciliation statements (as discussed in Chapter 3 of this discussion paper) for Manitoba, Nova Scotia and the Government of Canada.


4242

Manitoba — Pages 5, 7, 8 of Manitoba Budget 2007 (http://www.gov.mb.ca/finance)

http://www.gov.mb.ca/finance

4343

Appendix C


4444

4545

Appendix C

nova scotia — Page 1.1 & 1.2 of 2007-2008 Estimates (http://www.gov.ns.ca/finance).

http://www.gov.ns.ca/finance


4646

4747

Appendix C

canada — Pages 295-296 of the Budget Plan 2007, Table 7.10 in the Fiscal Outlook section (http://www.fin.gc.ca).


4848

49

Appendix d

Oecd Budget Practices and Procedures survey 2007

This Appendix contains excerpts from the OECD Budget Practices and Procedures Survey 2007 (as reviewed in Chapter 5 of this discussion paper). The complete survey results are available on the OECD website (http://www.oecd.org/document/61/0,2340,en_2649_201185_2494461_1_1_1_1,000.html).




5050


5050

515151

glossary

Except as otherwise noted, the definitions for terms used in this discussion paper are based on the Glossary in the 2004 CICA Research Report Accounting Bases Used in Canadian Government Budgeting.

Accountability: a broad concept that requires an entity to answer to elected officials and the public they represent to justify the raising of public resources and to explain the purposes for which they are used. It includes providing useful information for assessing an entity’s performance. (CICA, PSAB Statement of Recommended Practice 2, Public Performance Reporting, 2006)

Accrual basis of accounting (also known as accrual-based accounting and accrual accounting): a method of recording transactions whereby revenues and expenses are reflected in the accounts of the period in which they are considered to have been earned and incurred, whether or not all transactions have been finally settled by the receipt or payment of cash or its equivalent.

Annual appropriation: an appropriation authorized for the current fiscal year that lapses at the end of the year even if the expenditure has not been made.

Appropriation: legislative budgetary authority for the expenditure of public funds for the purpose and in the amount specified. The appropriation of funds does not normally by itself constitute authorization to make the actual expenditures.

Basis of accounting: the prescribed method of accounting (such as cash or accrual) that specifies when revenues, expenses/expenditures, assets and liabilities should be recognized in the financial statements.

Budget or summary budget: documents that portray public policy, present a government’s forecast of its expenses/expenditures and revenues and disclose financing requirements for operating and capital spending for a fiscal period. See budgetary documents.

Budgetary documents: all documents submitted to a legislature to disclose a government’s planned or forecast financial activities whether or not legislative action is required to authorize them. They normally include budget documents, estimates and budgets of separate accounting entities, such as Crown corporations.

Budgeting: the inclusion of amounts in a budget.

Budget transparency: the full disclosure of all relevant fiscal information in a timely and systematic manner. (OECD, Best Practices for Budget Transparency, 2001)


5252

Cash basis of accounting (or cash-based accounting): a method of recording transactions by reflecting revenues and expenditures in the accounts in the period in which the related cash receipts or disbursements occur.

Consolidated revenue fund: the primary fund through which most duties and revenues are accounted for and from which most expenditures are made.

Consolidation: a method of combining, on a line-by-line basis, the assets, liabilities, revenues and expenses/expenditures of a government entity with those of its overall government. The accounting policies are adjusted to conform to those of the government and any inter-entity transactions are eliminated.

Debt: Gross debt describes the total debt a government owes to outsiders (i.e., issued debt), usually through debentures or bonds. Net debt is the difference between the sum of all of a government’s financial assets and the sum of all of its liabilities. (CICA, PSAB, 20 Questions about Government Financial Reporting, 2003)

Disbursement: an outlay of cash (also see Expenditure).

Equity basis: a method of combining the net assets and net income of an organization with those of the government after adjusting the accounting policies to conform to those of the government.

Estimates: a government’s expenditure proposals for the next fiscal year presented to the legislature for its approval. The comprehensive set of estimates initially presented is referred to as the “Main Estimates.” In the course of the year, additional or revised estimates, referred to as “Supplementary Estimates,” may be presented.

Expenditures: the cost of goods and services a government acquires in a period. Expenditures include transfer payments due where no value is received directly in return.

Expenses: including losses, expenses are decreases in economic resources, either by way of outflows or reductions of assets or incurrences of liabilities, resulting from the operations, transactions and events of an accounting period. Expenses include transfer payments due where no value is received directly in return.

Fiscal policy: a government’s economic policy conducted via the government’s budget, based on decisions respecting public spending and taxation, intended to steer economic activity by influencing such factors as growth and employment.

Fiscal year: the financial period of one year, beginning April 1 and ending on March 31, that is used by the federal, provincial and territorial governments.

Generally Accepted Accounting Principles (GAAP): for governments, the standards set out in the CICA Public Sector Accounting (PSA) Handbook are the primary source of GAAP. GAAP for governments have concentrated mainly on government summary financial statements. (CICA, PSAB, 20 Questions About the Government Reporting Entity, 2007)

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Glossary

General revenue fund: See Consolidated revenue fund.

Government budgeting entity: for the purposes of preparing a government’s Summary Budget and Estimates documents, the phrase “budgeting entity” describes which departments, funds, agencies, boards, commissions, Crown corporations and not-for-profit organizations assets, liabilities, revenues, expenses and cash flows are part of a government in accordance with established government accountability and transparency structures. (Adapted from CICA, PSAB, 20 Questions About the Government Reporting Entity, 2007)

Government business enterprise: an organization that has all of the following characteristics: (a) it is a separate legal entity with the power to contract in its own name and can sue and be sued; (b) it has been delegated the financial and operational authority to carry on a business; (c) it sells goods and services to individuals and organizations outside of the government reporting entity as its principal activity; and (d) it can, in the normal course of its operations, maintain its operations and meet its liabilities from revenues received from sources outside of the government reporting entity.

Government business-type organization: an organization that has all of the following characteristics: (1) it is a separate legal entity with the power to contract in its own name and can sue and be sued; (2) it has been delegated the financial and operational authority to carry on a business; (3) it sells goods and services to individuals and organizations as its principal activity. Unlike government business organizations, this type of organization usually sells goods and services within the government or gets significant government subsidies to help carry on operations. (CICA, PSAB, 20 Questions About the Government Reporting Entity, 2007)

Government business partnership: a government partnership that has all of the following characteristics: (a) it is a separate legal entity with the power to contract in its own name and can sue and be sued; (b) it has been delegated the financial and operational authority to carry on a business; (c) it sells goods and services to individuals and organizations other than the partners as its principal activity; and (d) it can, in the normal course of its operations, maintain its operations and meet its liabilities from revenues received from sources other than the partners. (CICA, PSAB, 20 Questions About the Government Reporting Entity, 2007)

Government financial statements: the summary financial statements published by a government reporting entity that report on its financial position and changes in financial position. Financial statements include the notes and schedules supporting the statements.

Government organization: an organization controlled by a government.

Government partnership: a contractual arrangement between a government reporting entity and a party or parties outside of the government that has all of the following characteristics: (a) the partners cooperate toward achieving significant clearly defined common goals; (b) the partners make a financial investment in the government partnership; (c) the partners share control of decisions related to the financial and


5454

operating policies of the government partnership on an ongoing basis; and (d) the partners share, on an equitable basis, the significant risks and benefits associated with the operations of the government partnership.

Government reporting entity: comprises the organizations controlled by a government. Control is the power to govern the financial and operating policies of another organization, with expected benefits or the risk of loss to the government from the other organization’s activities.

Government transfers: transfers of money from a government to an individual, an organization or another government for which the government making the transfer does not: (a) receive any goods or services directly in return, as would occur in a purchase/sale transaction; (b) expect to be repaid in the future, as would be expected in a loan; or (c) expect a financial return, as would be expected in an investment.

Modified equity basis: a method of combining the net assets and the net income of a government business enterprise with those of the government without adjusting the accounting policies to conform to those of the government.

Operating fund: see Consolidated revenue fund.

Public accounts: the document that contains a government’s audited financial statements and any other information presented to the legislature to provide information and show compliance with legislative authorities.

Public administration: all of the services under a government and its agents that serve to ensure the application of laws and the ongoing operation of the public services.

Public sector: all public administrations and enterprises of senior and local governments.

Statutory appropriation: an appropriation authorized by statute on a continuing basis without the need for annual approval.

Summary financial statements: financial statements that report on the financial position and results of operations of a government reporting entity through the consolidation of all government organizations except government business enterprises, which are included on a modified equity basis.

Transaction basis: a method of recording transactions between a government and an organization that is not included in the government budgeting entity. (Adapted from Province of New Brunswick, 2005-2006 Public Accounts)

55

selected Bibliography

For purposes of this discussion paper, the primary sources of reference were the fiscal year 2007-2008 Budgets and related documents for senior governments across Canada. Selected budget papers, media reports and commentaries were also examined. Public Accounts documents and reports of the Auditor General were reviewed for selected jurisdictions. All budget documents are available on the government website for each jurisdiction.

Other selected reference materials include the following:

Canadian Institute of Chartered Accountants. Accounting Bases Used in Canadian Government Budgeting. Toronto, 2004.

− Accounting for Tangible Capital Assets, 2006.− 20 Questions about Government Financial Reporting, 2003.− 20 Questions about the Government Reporting Entity, 2007.− Links between the Budget and the Estimates, 2006.− PSAB Exposure Draft – Amendment to Introduction July 2007.− Public Sector Accounting Handbook – selected Sections.

Governmental Accounting Standards Board (USA). Why Governmental Accounting and Financial Reporting Is-And Should Be-Different. Washington, 2007.

Government of Canada. Treasury Board Secretariat. Increased Use of Accrual Accounting in the Budget and Expenditure Cycle. Ottawa: PricewaterhouseCoopers, LLP, March 2006.

International Federation of Accountants. International Public Sector Accounting Standard (IPSAS24), Presentation of Budget Information in Financial Statements. New York, December 2006.

International Monetary Fund. Manual on Fiscal Transparency. Washington, Revised 2007.

Organisation for Economic Co-operation and Development (OECD). OECD Best Practices for Budget Transparency. Paris, 2001.

− 2007 OECD Budget Practices and Procedures Database(http://www.oecd.org/document/61/0,2340,en_2649_201185_2494461_1_1_1_1,000.html)

Premchand, A., Fiscal transparency and accountability, Idea and Reality – Paper prepared for the workshop on financial management and accountability. Rome, November 28-30, 2001.




5656

Canadian Government Websites

Alberta (http://www.finance.gov.ab.ca/)

British Columbia (http://www.bcbudget.gov.bc.ca)

Manitoba (http://www.gov.mb.ca/finance)

New Brunswick (http://www.gnb.ca/0160/budget/buddoc2008/index-e.asp)

Newfoundland and Labrador (http://www.budget.gov.nl.ca/budget2007)

Northwest Territories (http://www.fmbs.gov.nt.ca)

Nova Scotia (http://www.gov.ns.ca/finance/)

Nunavut (http://www.gov.nu.ca/finance/)

Ontario (http://www.ontariobudget.ca/)

Prince Edward Island (http://www.gov.pe.ca/budget)

Quebec (http://www.budget.finances.gouv.qc.ca)

Saskatchewan (http://www.gov.sk.ca/budget0708)

Yukon (http://www.finance.gov.yk.ca/general/publications.html)

Government of CanadaDepartment of Finance (http://www.fin.gc.ca/fin-eng.html)Treasury Board of Canada Secretariat (http://www.tbs-sct.gc.ca/tbs-sct/index-eng.asp)

http://www.gnb.ca/0160/budget/buddoc2008/index-e.asp

http://www.tbs-sct.gc.ca/tbs-sct/index-eng.asp

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