3 Course Logistics Sessions are recorded When available, for how long, how to access… “Best” Webinar Experience Headphones and location will not be disturbed Full Screen mode Problems during the session Questions/Comments During the Sessions Questions are encouraged and welcome anytime! Dealing with background noise If you need to mute your line for any reason just press *6 on your phone to mute it. To unmute your line press *7. If I have to mute the lines and you have a question, hit the “Raise Hand” button (won’t see this in full-screen)
4 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
5 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
6 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
7 The New PSAB (2009) Financial Statements PSA GAAP (PS1150)
8 If the Public Sector Financial Statement Concepts and Principles (PS1000 to PS1300) were part of a house, what part would they be? PSA GAAP (PS1150)
12 The New PSAB (2009) Financial Statements Financial Statement Concepts PS1000
13 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)
14 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
16 Financial Statement Concepts – PS1000 The Framework in Two Words It’s all about Economic Resources Baby!!!
17 Financial Statement Concepts – PS1000 F/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)
18 Financial Statement Concepts – PS1000 F/S Elements - Assets Why are employee education (training and education fees) and health care costs (benefit premiums) not treated as assets?
20 Financial Statement Concepts – PS1000 F/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?
21 Financial Statement Concepts – PS1000 F/S Elements - Liabilities Is the annual Audit Fee accrual a Liability under the PS Model?
22 Financial Statement Concepts – PS1000 F/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
23 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
24 Expenses Cost of goods and services consumed in the accounting period Expenditures Cost of goods and services acquired in the period Financial Statement Concepts – PS1000 Expenses vs. Expenditures
25 Statement of Financial Position Recognition Intangible may meet definition of an asset, but since no appropriate basis of measurement… if paid for, are expensed.
26 The New PSAB (2009) Financial Statements Financial Statements Summary of Changes & Requirements & Key Messages
29 Statement of Financial Position Key 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)
30 Statement of Financial Position Key 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
31 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”) Statement of Financial Position Net Debt or Net Financial Assets
32 Statement of Financial Position Accumulated Surplus Key Message Accumulated Surplus IS nothing more than the sum of its parts. The Best Introduction... “Accumulated Surplus as Represented by…”
33 Statement of Financial Position Accumulated Surplus – PSA View of 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
34 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…
35 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 Statement of Financial Position Accumulated Surplus – LG View of
36 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) Consider Qualitative Characteristics! Statement of Financial Position Accumulated Surplus – LG View of
38 Statement of Operations Alberta Ministry (‘09 Sampleford Statements)
39 Statement of Operations Key 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
40 Statement of Operations Key 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
42 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
43 Statement of Cash Flows Key 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
44 Statement of Change in Net Financial Assets or Net Debt
45 Statement of Change in Net Debt / FA Key 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
46 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
47 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 Statement of Change in Net FA/Net Debt How to – “Mechanical” Approach
48 St. of Financial Position (part of) Non-Financial Assets Changes Statement of Change in Net FA/Net Debt How to – “Mechanical” Approach
49 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? Statement of Change in Net FA/Net Debt Other
50 The New PSAB (2009) Financial Statements TCA Disclosure Requirements in Notes and Schedules
55 New Disclosure Requirements TCA Details Note
56 New Disclosure Requirements TCA Budget - Different Scope or Basis Note
57 New Disclosure Requirements TCA Budget - Different Basis Note LG Budget is NOT Full Accrual = Different Basis of Accounting PS GAAP Budget Comparables in F/S Should be the actual budget values as adopted/approved by Council, being the budget that was adopted prior to setting the annual tax rates The budget comparables in the statements are NOT restated Notes to F/S If the impact of excluding the TCA/Full Accrual impacts is material, should explain the different basis and the impacts Identify the impact on key 2009 actual numbers in the statements, being those in the Statement of Operations (Revenue, Expenses, Surplus/Deficit) and the Statement of Net Financial Assets/Debt Non-GAAP Approach for 2009 only?
58 New Disclosure Requirements TCA Budget - Different Basis Note - 2009 Note: would also do a table for the Statement of Net Debt/FA
59 New Disclosure Requirements TCA Budget - Different Basis Note - 2009 Non-GAAP Approach Acceptable for 2009 only? Note: Would also do a table for the Statement of Net Debt/FA Alberta Ministry Preference for 2009