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The New PSAB (2009) Financial Statements

The New PSAB (2009) Financial Statements. The New PSAB (2009) Financial Statements. SESSION 1. Agenda – Session 1. PSA GAAP (PS1150) PSA Financial Statement Concepts (PS1000) Qualitative characteristics Define Accrual Accounting Review the PSA “Framework” and apply it

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The New PSAB (2009) Financial Statements

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  1. The New PSAB (2009) Financial Statements

  2. The New PSAB (2009) Financial Statements SESSION 1

  3. Agenda – Session 1 • PSA GAAP (PS1150) • PSA Financial Statement Concepts (PS1000) • Qualitative characteristics • Define Accrual Accounting • Review the PSA “Framework” and apply it • PSA Financial Statement Presentation (PS1200) • Review of the 4 Statements and identify key components and message(s) • In-depth Review Statement of Net Financial Assets/Net Debt

  4. Agenda – Session 1 • TCA Disclosure Requirements in Notes and Schedules • TCA Continuity Schedule • TCA Significant Accounting Policy Notes • TCA Information Note • TCA Budget - Different Scope or Basis Note • Prior Period Adjustment Note

  5. Agenda – Session 2 • General Ledger Impacts • TCA J/E’s – Full Accrual (PS) and LG Traditional Model • G/L New Accounts & Other Considerations • G/L Conclusions • Is it the end of Fund Accounting? • Is it the end of the Capital Fund? • Will LG move to a Full Accrual (PS) (only) G/L Model? • New Budget Model & Optional “Legislative Compliance Note” • 2008 Restatement

  6. The New PSAB (2009) Financial Statements PSA GAAP (PS1150)

  7. PSA GAAP (PS1150) • If the Public Sector Financial Statement Concepts and Principles (PS1000 to PS1300) were part of a house, what part would they be?

  8. PSA GAAP (PS1150)

  9. PSA GAAP (PS1150) PSA “Framework”

  10. PSA GAAP (PS1150)

  11. The New PSAB (2009) Financial Statements Financial Statement Concepts PS1000

  12. Financial Statement Concepts – PS1000 • Statements designed to meet the common information needs of external users • The financial position as measured in the financial statements is only one factor in determining the financial condition of a government. • Unique characteristics of government are a primary consideration in setting the government reporting model (PS1000, Appendix A)

  13. Financial Statement Concepts – PS1000 • Qualitative Characteristics • Relevant – predictive value, feedback and accountability value, timely • Reliable – representational faithfulness, completeness, neutrality, conservatism, verifiability • Comparability – consistency in presentation and accounting policies and methods • Understandability and clear presentation

  14. Financial Statement Concepts – PS1000 Accrual Accounting

  15. Financial Statement Concepts – PS1000The Framework in Two Words It’s all about Economic Resources Baby!!!

  16. Financial Statement Concepts – PS1000F/S Elements • Elements are the basic categories of items in the F/S • Two types: • Those that describe the economic resources, obligations and accumulated surplus at a point in time • Those that describe the changes in the economic resources over a period of time • Four Elements: • Assets (financial and non financial) • Liabilities • Revenues • Expenses • Revenue and Expenses (and therefore operating results for an accounting period), result ONLY from changes in assets and liabilities (economic resources)

  17. Financial Statement Concepts – PS1000F/S Elements - Assets • Why are employee education (training and education fees) and health care costs (benefit premiums) not treated as assets?

  18. Financial Statement Concepts – PS1000F/S Elements - Financial Assets

  19. Financial Statement Concepts – PS1000F/S Elements – Non-Financial Assets • For-Profit Organizations F/S do not break their assets into Financial and Non-Financial. Why does the PSA model require this to be done for Gov’t? Why is this distinction not relevant for For-Profit Organizations?

  20. Financial Statement Concepts – PS1000F/S Elements - Liabilities • Is the annual Audit Fee accrual a Liability under the PS Model?

  21. Financial Statement Concepts – PS1000F/S Elements - Revenues • Explain why the following are PSA Revenues: Taxation Revenues, Debt Forgiveness, Gain on Sale of TCA • Explain why the following are NOT PSA Revenues: Debt Proceeds, Transfers from Reserve Funds

  22. Financial Statement Concepts – PS1000 F/S Elements - Expenses • Explain Why the following are PSA Expenses: TCA Amortization, Inventory consumed, Debt interest repayment • Explain Why the following are NOT PSA Expenses: Debt Principle Repayment • Explain the difference b/w Expenses and Expenditures

  23. Financial Statement Concepts – PS1000 Expenses vs. Expenditures • Expenses • Cost of goods and services consumed in the accounting period • Expenditures • Cost of goods and services acquired in the period

  24. Statement of Financial PositionRecognition Intangible may meet definition of an asset, but since no appropriate basis of measurement… if paid for, are expensed.

  25. The New PSAB (2009) Financial Statements Financial Statements Summary of Changes & Requirements & Key Messages

  26. Statement of Financial Position

  27. Statement of Financial Position

  28. Statement of Financial PositionKey Information -The other three Statements explain changes in key figure (a),(b) and (d) -Required continuity schedule for TCA explains change in vast majority of (c)

  29. Statement of Financial PositionKey Statement & Disclosure Requirements • Financial Assets, Non-Financial Assets and Liabilities – segregate by main classification and disclose nature and terms • Non-Financial Assets – specifically disclose nature of as “assets that are normally employed to provide future services” • TCA continuity schedule • Disclose that all intangibles and items inherited by right of Crown, not recognized in F/S • Assets Held for Sale – must meet stringent PS1200.051 test to go from FA to NFA

  30. Statement of Financial PositionNet Debt or Net Financial Assets • Net Debt or Net Financial Assets • Financial Assets less Liabilities • Bears directly on a Govt’s future revenue requirements and on its ability to finance its activities • Net Debt • A measure of the future revenues required to pay for past transactions and events • Think of as a “lien” against service potential • Net Financial Assets • A measure of the net financial assets on hand that can be used to finance future operations • Think of as “prepaid service potential” • Highlights the financial affordability of future Gov’t service provision (ie net debt means future $ have to go towards debt repayment instead of service provision… less “room”)

  31. Key Message Accumulated Surplus IS nothing more than the sum of its parts. The Best Introduction... “Accumulated Surplus as Represented by…” Statement of Financial Position Accumulated Surplus

  32. The “old” PS Framework sections used to refer to a break-down of Accumulated Surplus (Operating Fund, Capital Fund, Reserve Fund) The “new” PS Framework does not discuss this topic at all, other than in PSG-4 PSAB views Accumulated Surplus as a SINGLE number Thee (Accumulated) “Operating Surplus”… the sum of all operating surpluses and deficits since the LG came into existance The “residual” value in net assets The sum of Financial Assets/Net Debt and Non-Financial Assets Statement of Financial PositionAccumulated Surplus – PSA View of

  33. Statement of Financial Position Accumulated Surplus – LG View of • Typical break-downs • By Fund/Function ex. General, Water, Sewer etc. • By “Nature” • BC - Operating Fund, Capital Fund, (Statutory) Reserve Fund, Equity in TCA (NBV TCA-related debt) • Alberta – Unrestricted, Restricted (all “reserves”), Equity in TCA (NBV TCA-related debt) • Combinations of above Fund + Nature • Reality…currently, LG break-out in a variety of different ways…

  34. Statement of Financial Position Accumulated Surplus – LG View of Ministry Recommended • Comments: • Restricted • Is any funds that are designated or restricted in use • Unrestricted • The balance Equity in TCA = 9,070TCA-2000debt Restricted=4,125Cash/Investments Unrestricted=Remainder

  35. Statement of Financial Position Accumulated Surplus – LG View of Consider Qualitative Characteristics! • Additional Disclosures in Notes or Schedules to F/S? • In Notes to F/S • Comparison of opening & closing balances • Additional b/down by Fund • Verbal explanation • In a Schedule to F/S (ie continuity schedule) • Only where makes sense to do so (likely just for Restricted)

  36. Statement of Operations Expenses

  37. Statement of Operations Alberta Ministry(‘09 Sampleford Statements)

  38. Statement of OperationsKey Information Key information • Measures extent to which revenues of the period where sufficient to offset the costs of goods and services consumed (expenses) in the period • Exception to strict application of term “consumed” – intangibles + transfer payments made were no value rec’d in return (capital or cash grants/transfer) • Shows types of revenues • Shows expense components (functions) • Explains the change in net economic resources in the period, being the change in Accumulated Surplus

  39. Statement of OperationsKey Statement & Disclosure Requirements • Revenues • segregate by significant types on Statement • Expenses • segregate by function on Statement • disclose by object (notes/schedule) • Disclose Gross revenues and expenses • TCA disposals – Net or Gross Accounting option • Optional Alberta Ministry presentation for contributed assets

  40. Statement ofCash Flows

  41. Statement of Cash Flow Key information • Explains what happened on a cash flow basis • Identifies cash flows from operations, capital, investing and financing activities • Shows Debt transactions • Identifies TCA donated/contributed and purchased/built separately

  42. Statement of Cash FlowsKey Statement & Disclosure Requirements • Cash equivalents – short term, liquid investments with maturities typically less than 3 months • Breakout: Operating, Capital, Financing & Investing Activities • Non-cash item adjustments – always in Operating Activities • Do not net cash flows, exceptions: • Cash flows to/from external parties when the cash flow reflects activities of external party • Cash flows of receipts and payments when turnover rapid, maturities short & amounts large • Use Direct or Indirect Method • Direct Method encouraged • If use Indirect Method and significant difference b/w interest revenue and expense recognized and actual receipts and payments, must disclose fact and reasons

  43. Statement of Change in Net Financial Assets or Net Debt

  44. Statement of Change in Net Debt / FAKey Information Key information • Measures extent to which revenues of the period where sufficient to offset the costs of goods and services acquired/incurred (expenditures) in the period • Explains the change in Net Debt/Financial Assets • Explains why could have a surplus, but still have an increase in net debt • Shows capital expenditures of the period

  45. Statement of Change in Net Debt / FA Key Statement & Disclosure Requirements • Must start Statement with Operating Surplus/Deficit • Must clearly report amount of TCA expenditures (purchased/built/donated/contributed) • Optional presentation to break-out donated and contributed values • Desirable to group explanatory items (ie for TCA and for Other items) on Statement

  46. Statement of Change in Net FA/Net DebtHow to – “Mechanical” Approach • Approach in the same manner as doing the Statement of Cash Flows… • Steps: • Identify all accounts on the B/S that are NOT included in the Net Debt/Net Financial Asset calculation • Non – Financial Assets – TCA, prepaids, inventory • Accumulated Surplus • Calculate the change in these accounts, current over prior year • For Non-Financial Assets, break-out the components of the change (do a continuity schedule) • Start the reconciliation with the Change in Accumulated Surplus [Surplus = increase; Deficit = decrease] • For each change in the Non-Financial assets identified in the continuity schedules, identify related recording J/E and impact on Net FA/Net Debt and add to reconciliation accordingly

  47. Statement of Change in Net FA/Net DebtHow to – “Mechanical” Approach St. of Financial Position (part of) Non-Financial Assets Changes

  48. Statement of Change in Net FA/Net DebtOther • What about Contributed Revenue? In this example, there was $100 of Contributed Revenue – Where is it? • This is potentially a Statement of the Change in Net Debt. Why are there no entries regarding debt on this Statement?

  49. The New PSAB (2009) Financial Statements TCA Disclosure Requirements in Notes and Schedules

  50. TCA Disclosure Requirements

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