Public Sector Accounting Board
Decision Summary
June 14-15, 2010

First-time Adoption of the PSA Handbook

PSAB approved Section PS 2125, First-time Adoption by Government Organizations, as a final standard. PSAB reviewed responses to the 2010 Exposure Draft (ED), “First-time Adoption of Public Sector Accounting Standards by Government Organizations,” that proposed relief to government organizations in certain limited areas in transitioning from another source of generally accepted accounting principles (GAAP) to the CICA Public Sector Accounting (PSA) Handbook. The objective of the proposed standard was to make the adoption of the PSA Handbook both less time consuming and less costly for government organizations while still producing high-quality financial statements. 

Some respondents to the ED suggested additional exemptions and exceptions. However PSAB’s objective was to limit the provisions so as to preserve the comparability of these first-time financial statements prepared under the PSA Handbook. PSAB considered the input from constituents but in the end confirmed its commitment to the objective of the ED and no new exemptions or exceptions were added in finalizing the new standard. PSAB did approve moving the provision relating to tangible capital asset impairment from an exception to an exemption, allowing government organizations the option to reassess whether a prior write-down was necessary, and if so its amount based on the requirements of the PSA Handbook.

An issue raised by respondents was the result of allowing such relief on the consolidation of these organizations into government summary financial statements. The accounting policies for the government’s summary statements would follow the PSA Handbook without the one-time transitional exemptions and exceptions proposed for government organizations. As the accounting policies of government organizations other than government business enterprises are conformed to those of the government on consolidation, some respondents felt that offering any exemptions and exceptions was not necessary. After significant discussion PSAB re-affirmed its objective of providing relief to government organizations adopting the PSA Handbook for the first time. However, it recognized that providing this relief to government organizations would have an impact on the preparation of government summary financial statements and agreed to provide further clarity regarding that impact in the related Basis for Conclusions document.

Related Party Transactions (and Appropriations)

At its November 23-24, 2009 meeting, PSAB discussed the responses to the July 2009 Statement of Principles, “Entity Level Financial Statements,” and agreed with the proposal by the Task Force to reconstitute the project. Two of the topics in that project were related party transactions and appropriations. PSAB asked staff to prepare project proposals on these two topics for consideration at a future meeting.

A project proposal that would address both related party transactions and appropriations was considered by PSAB at its June 2010 meeting. Given the Board’s priority to resolve the issues in the government transfers and financial instruments projects as well as advancing its review of the conceptual framework, the Board elected not to approve the project for inclusion in PSAB’s technical agenda at this time given available staff resources. 

Financial Reporting by Government Not-for-Profit Organizations (GNFPOs)

At its January 28, 2010 conference call, PSAB approved an Exposure Draft (ED). The ED proposes to incorporate into the PSA Handbook, Sections 4400 to 4470 (the 4400 series) from the CICA Handbook – Accounting and to direct GNFPOs to apply the standards for not-for-profit organizations in the PSA Handbook. Responses on this ED are requested by July 15, 2010.

Incorporating the 4400 series into the PSA Handbook and directing GNFPOs to the PSA Handbook is the first step in a transitional strategy. The second step would be to review the appropriateness of the standards in the 4400 series (including those in relation to both the conceptual framework and other Sections in the PSA Handbook). 

Without presuming to predict the ED responses but with an objective of being ready to respond jointly on a timely basis with the Accounting Standards Board (AcSB), PSAB considered a project proposal at its June meeting to set the stage for this second step. The proposal provided an overview of the general approach being proposed for the phases of this project which include reviewing standards in the 4400 series either jointly with the AcSB or independently.

PSAB emphasized its desire to work jointly with the AcSB. PSAB also indicated its commitment to proactively communicate future plans to the government not-for-profit community and seek its input throughout the process.

Conceptual Framework

PSAB confirmed that this project will follow PSAB normal due process and procedures. PSAB welcomed an offer it received from the senior government community to provide significant input and support to this project. However, PSAB also recognized that seeking input from a variety of stakeholders and ensuring that the task force has access to the views of a number of stakeholders is critical. The Board discussed a number of options for the scope of the review and considered input on that scope from various PSAB constituent groups including senior government finance officials, legislative auditors and a sample of municipal finance officials.

The Board agreed that at a minimum the issues raised by the Conceptual Framework Subgroup of the Joint Working Group would be considered. It also indicated that developments in the International Public Sector Accounting Standards Board conceptual framework project should be considered as a useful source of information throughout the Canadian project. PSAB agreed that the implications of any changes would be considered for all levels of government as well as government organizations. The Board also acknowledged that addressing these issues may have implications for other standards in the PSA Handbook including financial statement presentation requirements and the scope of the reporting entity. As a result, PSAB asked staff to develop a phased approach to the review of the framework that prioritizes the issues to be considered and recognizes the possibility of implications for standards level topics. Staff was directed to prepare draft material for consultation with major stakeholder groups over the summer with the objective of bringing a project proposal to PSAB for approval in advance of PSAB’s September meeting.

Financial Instruments/Foreign Currency

PSAB confirmed that financial statement presentation changes are warranted to respond to comments received on the 2009 Exposure Drafts, “Financial Instruments” and “Foreign Currency.”

Following a review of responses to the 2009 Exposure Drafts at its March 2010 meeting, PSAB asked its Task Force to prepare alternatives to address respondent concerns. Those alternatives were presented and discussed at the June meeting. 

The Exposure Drafts propose that unrealized gains and losses required by fair value remeasurement and currency translation be distinguished in a separate component of the statement of operations. Concerns were raised that this approach could lead to conflicting assertions as to a government’s financial performance.

Responding to these concerns, PSAB is considering excluding remeasurement gains and losses from the statement of operations entirely. These amounts would be reported in a statement of remeasurement gains and losses. Together the statement of operations and the statement of remeasurement gains and losses would account for all changes in assets and liabilities. This approach is favoured over hedge accounting.

Draft amendments will be considered at PSAB’s September meeting and, if approved, issued for comment.

Financial Statements for Government Organizations (formerly Entity Level Financial Statements)

The 2009 Statement of Principles (SOP), “Entity Level Financial Statements,” addressed matters of importance for government organizations issuing general purpose financial statements using the PSA Handbook as the source of GAAP. In response to comments received on the SOP, PSAB agreed to reconstitute the project on a transaction-specific, rather than an entity-specific, basis. Two of the topics that emerged from the restructuring of the project were related party transactions and appropriations — see “Related Party Transactions (and Appropriations)” above. The remaining material was primarily concerned with financial statement presentation by government organizations applying the PSA Handbook.

PSAB discussed a proposed approach to issuing guidance to government organizations regarding financial statement presentation. PSAB confirmed that the existing financial statement presentation guidance in the PSA Handbook was appropriate for government organizations applying the PSA Handbook. It was noted that there may be a need to provide more specific guidance or more clarity in the application of existing standards to government organizations, but that a specific project to do so at this time was not a priority given other demands on existing PSAB resources.