exposure draft

PUBLIC SECTOR ACCOUNTING BOARD PROPOSED AMENDMENTS TO ACCOUNTING STANDARDS

Update of Terminology
July 2011

COMMENTS MUST BE RECEIVED BY SEPTEMBER 30, 2011

This Exposure Draft is issued by the Public Sector Accounting Board. The members of the Board are drawn from government, legislative auditors, public accounting, business and academe. All members serve as individuals and not as representatives of their governments, employers or organizations. Individuals, governments and organizations are invited to send written comments to the Board on the Exposure Draft proposals. Comments are requested from those who agree with the Exposure Draft as well as from those who do not. All comments received will be available on the website at www.psab-ccsp.ca shortly after the comment deadline, unless confidentiality is requested. The request for confidentiality must be stated explicitly within the response.
To be considered, comments must be received by September30, 2011, addressed to: Tim Beauchamp, Director Public Sector Accounting 277 Wellington Street West Toronto, Ontario M5V 3H2 A PDF response form has been posted with this document to assist you in submitting your comments. Alternatively, you may send comments by e-mail (in Word format), to: ed.psector@cica.ca Public Sector Accounting Standards, Guidelines and Recommended Practices need not be applied to immaterial items. Materiality is a matter of professional judgment in the particular circumstances. Materiality may be judged in relation to the reasonable prospect of its significance in the making of assessments and judgments by the users of financial statements. A material item would be expected to affect assessments of and judgments on government financial operations and management.

Highlights
The Public Sector Accounting Board (PSAB) proposes, subject to comments received on this Exposure Draft, to amend certain standards and guidelines in the CICA Public Sector Accounting (PSA) Handbook as well as the Introduction to Public Sector Accounting Standards to clarify their applicability to various public sector entities. Responses are requested by September 30, 2011. Background The PSA Handbook was originally developed to address the financial reporting needs of governments in Canada. The terminology used in many of the standards and guidelines still indicates that they are applicable to governments preparing their summary financial statements. Some government organizations now follow the PSA Handbook. A number of additional government organizations will be adopting the PSA Handbook for the first time in 2011 and 2012 due to recent amendments to the Introduction. As most standards and guidelines are equally applicable to government organizations, PSAB has agreed that clarification is needed regarding the applicability of the standards and guidelines to those government organizations that follow the PSA Handbook. Main features of Exposure Draft PSAB issues standards and guidance that serve the public interest by improving information for decision making and by strengthening accountability in the public sector. Included in the scope of PSABs mandate are governments and government organizations. Government organizations are defined as organizations controlled by government. In this Exposure Draft, PSAB proposes to define a public sector entity to include federal, provincial, territorial and local governments and government organizations. PSAB proposes to replace the current applicability terminology (such as governments, public sector reporting entity, entity or reporting entity) with the term public sector entity in certain standards and guidelines. As well, the following is proposed: The term government partnership would be removed from paragraph .03 of the Introduction. By definition, a government partnership is not controlled by government and the basis of generally accepted accounting principles (GAAP) to be used by a government partnership is not dictated by the PSA Handbook, but instead is determined by the partners. GOVERNMENT PARTNERSHIPS, Section PS 3060, addresses how to account for a government partnership in the financial statements of a government reporting entity, not how a government partnership is to account for transactions in their financial statements. School boards would be removed from paragraph .03 of the Introduction. Similar to a government organization, a school board is an organization controlled by government. Currently, footnote 1 to the Introduction is unclear for school boards as it indicates the standards may be applied if considered appropriate. By removing the school board references in paragraph .03 and footnote 1 of

UPDATE OF TERMINOLOGY

the Introduction, all organizations controlled by governments, including school boards, will be provided the same direction regarding their basis of GAAP. Comments requested PSAB welcomes comments from individuals, governments and organizations on all aspects of the Exposure Draft. When comments have been prepared as a result of a consultative process within an organization, it is helpful to identify the source of the comment in the response. This will promote understanding of how the proposals are affecting various aspects of an organization. Comments are most helpful if they relate to a specific paragraph or group of paragraphs, and, when expressing disagreement, they clearly explain the problem and indicate a suggestion, supported by specific reasoning for alternative wording. Supporting reasons for your comments are most valuable when they demonstrate how the Exposure Draft proposals, or your alternatives: produce more relevant information for accountability and decision-making by external users; improve the representation of the substance of the underlying transaction or event; contribute to improved measures and understanding of financial position and annual results; facilitate enhanced comparability; and provide sufficient information for external users to understand the financial statements. Please respond to the following questions: 1. Do you agree that the proposals clarify the applicability of standards and guidelines in the PSA Handbook to public sector entities? If not, what alternative approach would you advocate and why? 2. Are there any additional matters that you feel may be relevant to this topic that need to be considered? For your convenience, a PDF response form has been posted with this document that can be downloaded here. You can save the form both during and after completion for future reference. You are not restricted by the size of the interactive comment fields in the response form and there is also a general comments section. Alternatively, you may send written comments by e-mail in Word format to: ed.psector@cica.ca

ii EXPOSURE DRAFT JULY 2011

Update of Terminology
PROPOSAL It is proposed that, where appropriate, the existing terminology be replaced, as indicated below:
SECTIONS AND GUIDELINES AFFECTED

FORMER WORDING

REVISED WORDING (where appropriate)

government public sector reporting entity entity reporting entity

public sector entity

PS 1150, PS 1300, PS2100, PS 2120, PS2130, PS 2500, PS2510, PS 2601, PS2700, PS 3030, PS3040, PS 3060, PS3070, PS 3100, PS3150, PS 3200, PS3250, PS 3255, PS3260, PS 3270, PS3300, PS 3390, PS3450, PSG-2, PSG-4 and PSG-5

A number of other Sections that are not being updated as part of this Exposure Draft are applicable to government organizations but require further consideration before the terminology is updated. This includes: Sections PS 1000, PS 1100, PS 1201, PS2400, PS 3050, PS 3230, PS 3310 and PS 3410.

UPDATE OF TERMINOLOGY

OTHER AMENDMENTS The Introduction to Public Sector Accounting Standards would be amended as indicated below. Additional text is denoted by underlining and deleted text by strikethrough. Introduction to public sector accounting standards APPLICATION .03 For purposes of applying these standards, public sector refers to federal, provincial, territorial and local governments, and government organizations, government partnerships, and school boards. Each of these entities is a public sector entity. .05 These standards apply to all governments unless specifically limited in individual Sections.11

Although specifically applicable to governments, standards may be applied to school boards if considered appropriate. 1 All standards in the CICA Public Sector Accounting (PSA) Handbook are equally applicable to both governments and government organizations that adopt the standards issued by the Public Sector Accounting Board with the exception of: FIRST-TIME ADOPTION BY GOVERNMENT ORGANIZATIONS, Section PS 2125, which applies only to government organizations; SEGMENT DISCLOSURES, Section PS 2700, in which government organizations are encouraged to provide the segment disclosures when their operations are diverse enough to warrant such disclosures; and TAX REVENUE, Section PS3510, which applies only to governments. Only government not-for-profit organizations are permitted to follow Sections PS 4200 to PS 4270.
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2 EXPOSURE DRAFT JULY 2011