The New PSAB (2009) Financial Statements

1. The New PSAB (2009) Financial Statements

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

3. 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

4. The New PSAB (2009) Financial Statements General Ledger Impacts

5. GL ImpactsKey Message • PS3150 are FINANCIAL REPORTING requirements... NOT requirements on how you account for revenues, expenses etc. in your General Ledger • Key is that you will need to “roll-up” from your General Ledger to the F/S easily, so some changes are necessary • For the most part, you can continue to account for capital expenditures and related funding sources as you always have, by: • Adding in some new accounts for amortization, contributed revenue, gains/losses on TCA etc., and • Accounting for these items in a manner that supports the current LG Model (ie “Revenues” = “Expenses”)

6. GL Impacts GL Journal Entries Initial Entries • Initial TCA Set-Up • Initial Prepaids and Inventory Set-up On-Going Entries • TCA Additions • Built or Purchased • Contributed • Reserves or Surplus Funding (TCA or operating purposes) • TCA Amortization • TCA Write-downs • TCA Disposals • TCA Amortization Funding (optional) • TCA Funding – Debt Funding (and repayment)

7. Assume a single fund (no inter-fund transactions) GL Impacts GL Journal Entries - Fund Set-Up Options + Income Statement +

8. GL Impacts GL Journal Entries – Account Set-up • Cost Centres for each service area • Example: Fire Services Cost Centre • Fire Services – Operating • Revenues & Sources of Funds • Expenses & Uses of Funds • Fire Services – Capital • Revenues & Sources of Funds • Expenditures & Uses of Funds • General Admin/Municipal Cost Centre • Often includes: • Items that do not “fit into” the other Cost Centers

9. GL Impacts GL Journal Entries – F/S Roll-Up • G/L Accounts roll-up to the Financial Statements either “above the line” or “below the line” • “above the line” – means as a PS revenue and expense, above the surplus/deficit line on the Statement of Operations • “below the line” – means as an entry directly to accumulated surplus, below the surplus/deficit line on the Statement of Operations

10. GL Impacts GL Journal Entries Initial Entries -Initial TCA Set-Up (Equity TCA) • Initial value TCA HC = 12,000 • Re-stated values: • TCA HC =18,000 • Accumulated Amortization = 10,000 • Adjust TCA book value to new amount, offset to Equity Account

11. GL Impacts GL Journal Entries Initial Entries - Initial Prepaids and Inventory Set-up (Unrestricted) • Entry not applicable to LG that did not write inventory and prepaids off the books, assuming no change in ledger values • Adjust book value for prepaids and inventory, offset to Equity Account

12. GL Impacts GL Journal Entries • Steps to Develop J/E: 1. Identify the impact on Net Economic Resources of the transaction or Event (this is the impact on Accumulated Surplus) 2. Do the PS Model or Traditional LG Model entry *LG Model entry adjusts the PS Model entry to ensure that Revenues or Cash Inflows = Expenses or Cash Outflows in the General Ledger… so can do simple PS Model entry first and then make necessary adjustments 3. Ensure correct by “rolling it up” to the F/S to see if the impact on Accumulated Surplus is correct

13. GL Impacts GL Journal Entries On-Going Entries- TCA Additions – Built/Purchased (Equity TCA)

14. GL Impacts GL Journal Entries On-Going Entries- TCA Additions – Contributed (Equity TCA)

15. GL Impacts GL Journal Entries On-Going Entries– Reserve and/or Surplus Funding (end year) (end year) (end year) (end year)

16. GL Impacts GL Journal Entries On-Going Entries– Amortization (Equity TCA) (Equity TCA)

17. GL Impacts GL Journal Entries On-Going Entries- Write-downs Equity Account (Equity TCA) Transfer from Equity A/C (Equity TCA) Details: Asset HC=$90; Accum. Amort=$10; Current Value=$50 Notice write-down removes any accumulated amortization and adjusts the assets historical cost to the new written down value.

18. GL Impacts GL Journal Entries On-Going Entries- TCA Disposals Details: -$250 Sale Proceeds -$1000 Gross TCA Asset Value, $600 Accum. Amortization

19. GL Impacts GL Journal Entries On-Going Entries- TCA Disposals (Equity TCA) (Equity TCA) Details: -$250 Sale Proceeds -$1000 Gross TCA Asset Value, $600 Accum. Amortization

20. GL Impacts GL Journal Entries On-Going Entries- TCA Amortization Funding (optional) • If this was done, recommend, that the cash be transfered to a Reserve, the purpose of which is to fund TCA replacement

21. GL Impacts GL Journal Entries On-Going Entries– TCA Debt Funding (Equity TCA)

22. GL Impacts GL Journal Entries On-Going Entries – TCA Debt Repayment (Equity TCA)

23. GL Impacts GL New Accounts & Other Considerations New Accounts & G/L Changes • Steps: • Determine if will move to PS Model or continue with current LG Model • Develop J/E for Initial and On-going Entries for Model of choice, for your Local Government • Review J/E and identify new accounts required

24. GL Impacts GL New Accounts & Other Considerations New G/L Accounts • TCA Asset Accounts and Accumulated Amortization • TCA Contributed (R) & TCA Contributed Expenditure • Own Cost Center?Capital or Operating Fund? • Transfer from Equity in TCA (for offset non-cash items) • In Function Cost Center, General Admin Cost Center, or in own “Non-Cash Items” Cost Center? • Capital or Operating Fund? • Proceeds from TCA Sale • In General AdminCost Center or Function Cost Center? • Capital or Operating Fund?

25. GL ImpactsGL New Accounts & Other Considerations New G/L Accounts • TCA Non-Cash Accounts • Amortization expense • Gain and Loss on Sale TCA • Write-down TCA • In Function Cost Center, General Admin Cost Center, or in own “Non-Cash Items” Cost Center? Capital or Operating Fund? • TCA Operating Expenditures • TCA expenditures previously capitalized (below threshold, or now considered R&M due to single asset approach) • Capital or Operating Fund? • New G/L Accounts? One or two accounts?

26. GL Impacts GL New Accounts & Other Considerations Other Considerations • Change impacts on existing Management Reports and Information • Need for an Asset Subledger? • Need for Asset Management System? • Need for COMMUNICATED policy and procedures

27. The New PSAB (2009) Financial Statements General Ledger Conclusions

28. General Ledger ConclusionsEnd of Fund Accounting? ABSOLUTELY NOT! And the move to full accrual reporting has nothing to do with whether fund accounting would continue to be relevant or not… City of Winnipeg ’08 Financial Report (adopted New Format in 2006)

29. General Ledger ConclusionsEnd of the Capital Fund? • LG Model • No reason to change… so maintain • Option: Could put Capital Fund I/S as a Cost Center in the Operating Fund • PS Model • What would be left in terms of accounts… not much… • Thus, likely eliminate and create Capital Fund I/S as a Cost Center in the Operating Fund Maybe…

30. General Ledger ConclusionsMove to full accrual accounting? • Impacts of a Full Accrual G/L Model • Inter-fund Transactions – Maintain as are currently • Transfers from Fund A. Surplus – Accounted for via Equity • Debt transactions – No longer go through I/S, except interest expense or debt forgiveness • No Equity offsets for non-cash items such as TCA amortization, gain or loss on sale, or write-down • TCA Expenditures no longer go through I/S (to B/S) • Budget values and actuals in the G/L will not net to “0”

31. General Ledger ConclusionsMove to full accrual accounting? • Full Accrual G/L Model Considerations/Issues: • Legislative Needs - Need alternative means to demonstrate legislative Budget “balances” (ie “Revenues” = “Expenses”) and to explain the difference b/w the actual flows and that originally budgeted • TCA Expenditures - Need alternative means to obtain management information (expenditure details with budget comparisions, funding details, comparision year to year) • Budgeting – Need alternative means to build the annual budget and then to explain and manage the difference b/w the actual flows and that originally budgeted NOTE: This is likely NOT an exhaustive list as LGs have yet to implement Full Accrual Accounting…

32. The New PSAB (2009) Financial Statements Budgeting

33. Budgets – Accrual or Cash Basis? • Legislative Budget – Cash Based Requirement • Total Expenditures, Debt Repayments and Transfer to Reserves or Surplus MUST Equal Total Transfers from Reserves or Surplus, New Debt and Other Revenue Sources • All Cash INFLOWS = All Cash OUTFLOWS * • Are LG required to fund (tax for) liabilities that must be accrued and expensed (but not paid) in a particular period/year? What about amortization expense? *Note: Most LGs modify by including various expense accruals

34. Budgets – Accrual or Cash Basis? • Legislative Budget – Cash Based Requirement • Since Cash Based do not need to budget for amortization (or liability accruals* eg. severance, landfill post closure costs etc.) as NOT an expenditure (cash flow), but an expense and DON’T have to fund • Further, the Alberta Ministry has specifically stated that LG do not need to fund amortization and Regulation 235/2008 addresses this explicitly by stating that amortization expense is not considered to be an expenditure (except if for an electrical utility) * Regulation 235/2008 has added a limitation with respect to not funding liability accruals

35. Budgets – Accrual or Cash Basis? • PSAB Income Statement– Accrual Based Req. • PSAB defined Revenues and Expenses • PSAB Revenue • Do not include transfers from reserves • Do not include new debt revenue • PSAB Expenses • Do not include TCA expenditures • Do not include transfers to reserves • Do not include debt principle repayments • Include TCA amortization

36. Budgets – Accrual or Cash Basis? • Legislative Budget is Cash Based and thus, there is no legislative requirement/need to budget on a accrual basis. YOU DO NOT HAVE TO CHANGE YOUR BUDGET HOWEVER, • PSAB requires budget comparables in the Financial Statements • If budget basis (full-accrual) is different than F/S basis must provide a reconciliation b/w the budget and the F/S in the F/S (PS1100.66 & PS1200.122-.125) THUS, • You need to Budget on BOTH a cash basis and accrual basis

37. Budget – Sample RECOMMENDED FormatOPTION 1 • The Council approved Budget s/b as summarized as possible. Ideally provide no more details than required by legislation (example includes details for illustrative purposes only) • Do separate schedule for Reserves. Detail transfers “to” and “from” for each reserve • Prepaids and Inventory Adjustments - consider materiality, if the CHANGE in prepaids or inventory immaterial ignore (ie budget for expense not expenditure)

38. Budget – Sample “Old” Format + TCA OPTION 2 Inflows = Outflows • This option adds in the necessary PSA budget accounts as a footnote maintaining the traditional “cash flow” based budget. • This option is not recommended, but may be a “quick” solution for 2010. • Same comments made for Option 1 apply.

39. LG Accumulated Deficit Possible? Might look like…

40. LG Accumulated Deficit Possible? It depends… Might look like…

41. The New PSAB (2009) Financial Statements Optional “Legislative Compliance” Note Alberta Ministry Preference to NOT include as a F/S Note but to consider inclusion with Finance Officers Report supporting the F/S.

42. Budget to PSA Note – Optional Summarized Version

43. Budget to PSA Note – Optional Summarized Version with explanation

44. Budget to PSA Note – Optional Summarized Version

45. The New PSAB (2009) Financial Statements 2008 Restatement

46. 2008 RestatementRequirements • PSA requires implementation of PS3150 as a prior period adjustment accounted for retroactively, thus, you will make changes to the 2008 comparatives as though the change had taken place Jan/1/2008 • Unless you can “make the case” that doing this cannot reasonably be done, you must do it • Can possibly simplify, with “okay” from your auditor • Disposals – ignore for depreciable items

47. 2008 RestatementHow To • Steps • Prepare TCA, inventory and prepaid continuity schedules as accounted for in 2008 and with re-stated value • Re-draft the 2008 Statement of Financial Position and Statement of Operations in the new format (with old numbers) as a “Trial Balance” • Based on the continuity schedules identify the J/E required to change the “Trial Balance” to a full accrual model • Adjusting J/E may include: • Adjust TCA Equity Entries (Opening + fiscal 2008) (5) • Remove capital, prepaid and inventory expenditures and in amortization, prepaid and inventory expenses (6) & (3), (4) • Remove asset sale proceeds & add in gain or loss on sales (1) • Add in write-downs of assets • Add in contributed assets revenue (2)

48. 2008 Restatement

49. End of Presentation