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Public Sector Accounting Standards Update (PSAS Update)
Dean Decaire, CPA, CAAlicia Croskery, CPA, CA
Prepared for MFOASeptember 2016
AGENDA
Overview of Standards
Accounting Standards Critical to Municipalities
Future Pronouncements
Questions
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Sectors
PSAS Update
Municipalities School Boards Colleges
Federal/Provincial governments Hospitals First Nations
Trusts and Others
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The Standards to Watch for
PSAS Update
o Liability for Contaminated Siteso Amendments to the Introductiono Related Party Disclosureso Inter-entity Transactionso Assetso Contingent Assetso Contractual Rightso Restructuringso Financial Instruments, Foreign Currency, FS Presentation and Portfolio
Investments
Municipalities
o PSAS Standards impacting our workforce?
o PSAS Standards impacting our infrastructure?
o PSAS Standards impacting the way we do business using other entities?
o PSAS Standards impacting the way we generate revenue?
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PSAS Standards impacting our workforce?
o PS 3250 Retirement and PS 3255 Post-employmento How we account for terminationso How we account for health and other benefits provided past retiremento How we account for pension planso How we account for paid leave absenceso How we account for WSIB obligations and expenseso Salaries and benefits are typically the largest Municipal expense each
year and ensuring we understand these standards is critical
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PSAS Standards impacting our infrastructure?
o PS 3150 Tangible Capital Assets, PS 3260 Contaminated Sites, PS 3270 Landfill Liabilities, PS 3390 Contractual Obligations
o How we account for our Tangible Capital Assets (i.e. capitalization policy, useful life estimates, etc..)
o How we identify and account for future cash flows on certain assets requiring remediation by law
o How we account for utilization of Landfills today planning for restoration tomorrow
o How we account for commitments and promises today for expenditures tomorrow, whether contractually binding or not.
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PSAS Standards impacting the way we do business using other entities?
o PSAB Introduction, PS 1300 Government Reporting entity, PS 2500, 2510 Consolidation, PS 3041 Investments, PS 3050 Loans, PS 3060 Partnerships, PS 3070 GBE’s and PS 3100 Restricted assets and revenues
o New standards PS 2200 Related party disclosures, PS 3420 Inter-entity transactions and PS 3430 Restructuring transactions
o In summary there are numerous PSAS standards that cover multiple entity situations that prevent moving assets or operations outside the reporting entity.
o Must always take into consideration legal documentation and “in substance” control situations
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PSAS Standards impacting the way we generate revenue?
o PS 3510 Tax Revenue, PS 3410 Government transfers, other??o Municipality’s traditional revenue sources of Property taxation and
Senior government grants are captured in the above noted standardso Tax revenue standard now requires deeper look into changes prior to
assessment noticeso Government grants may result in improper matching of revenues and
expenseso What about other types of revenues??? (user fees, investment income,
rental income, sales of property, sale of goods, penalties and fines)o To date currently following “best practice”/accrual approach – new is
standard expected.
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Liabilities for Contaminated Sites
PSAS Update
o Effective for years beginning on or after April 1, 2014o What is contamination? When is it an issue?o Is it your responsibility?o Is there likely to be a future cash outlay?o Can you quantify the liability?o Need to ensure there is a process in place for tracking at risk
properties that may fall under this standardo May require use of specialist to assist in this process and/or quantify
liabilities
Amendments to PSAS Introduction
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o Changes to definitions and terms used in the standards
o In particular firming up the definitions for different entities we find in the public sector
o Guidance added as to which GAAP framework different government entities should go to as primary source and then secondary sources when primary is silent on specific transactions or events
o Most of the impact is to government components and government partnerships
Related Party Disclosureso To be effective for year ends starting on or after April 1, 2017
o Will provide recommended disclosures for Municipalities where none previously existed
o Will provide definition of who or what “related parties” are
o This is a disclosure standard only and typically would only capture transactions with parties outside of the government reporting entity
o Only applicable when transactions take place at abnormal values OR transactions or events could have material impact on financial statements
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Inter-Entity Transactions
o Same effective date as Related party disclosures standard
o Impacts recognition and measurement on transactions between parties within the government reporting entity
o Generally will require “carrying amount” accounting unless certain criteria met
o Where “similar terms and conditions to those adopted if dealing at arms length” – will use exchange values
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Assets
o Effective for year ends beginning on or after April 1, 2017
o Additional guidance on definition of an asset
o Requires disclosure of major categories of assets not recognized in the financial statements (i.e. intangible assets)
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• PSAS Standards impacting the way we generate revenue?
• PSAS Standards impacting the way we generate revenue?
• PSAS Standards impacting the way we generate revenue?
Contingent Assets
o Effective for year ends beginning on or after April 1, 2017
o No previous mention of “contingent assets” in PSAS
o Now recommendation in this standard is to Disclose (not recognize) these assets in the financial statements when occurrence of a confirming future event is likely (greator than 50%)
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Contractual Rights
o Effective for year ends beginning on or after April 1, 2017
o This is the opposite of the “Contractual Obligation” standard
o Provides definition of what a contractual right is
o Requirement to disclosure nature of Contractual rights in the financial statements
o Usually will be limited to larger more unusual rights to revenue by dollar amount OR by length of time
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Restructuringso Effective for year ends beginning on or after April 1, 2018
o Previously no guidance existed – definitions now provided in this standard
o Will be applicable when there are amalgamations, annexations, transfers of programs from one gov’t to another, shared service arrangements entered into by local gov’ts of a region – these are typically “non-purchase” in nature
o Recommendation is “carrying value” accounting in such situations with some adjustments (typically expensed) and extensive disclosure requirements without restatement of prior years
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Financial Instruments
o Effective for year ends beginning on or after April 1, 2019
o These new standards are an entire subject matter on their own
o They will impact numerous PSAS standards and they have been delayed 3 times now
o Will impact measurement and recognition and presentation and disclosure of balances and transactions that are financial in nature
o Requirement to present a new statement called “Statement of Re-measurement Gains and Losses
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Statements of Principle and other Projectso Revenue – to provide definition and recommendations on non traditional
revenue sources for governments
o Retirement Obligations – will require establishment of obligations on purchase or construction of certain Tangible Capital Assets where retirement obligations exist
o Improvements to Not-for-Profit Standards – to improve standards to better meet needs of users (joint activity with AcSB)
o Government Transfers – to support inconsistencies on application over past couple of years (could be a significant change based on application in practice and responses)
o Employment Benefits – looking to combine 2 current standards and take into account changes in the marketplace on benefit plans (pension and non pension)
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PSAB Annual Reports and Future Direction
Stay on top of changes and make responses to enact change!
http://www.frascanada.ca/public-sector-accounting-board/members/psab/index.aspx
Public & NPO Sector Strategy Page 20
QUESTIONS
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