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© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International.

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Presentation on theme: "© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International."— Presentation transcript:

1 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 1 PS 3260 Liability for contaminated sites PS 3270 Solid waste landfill closure and post- closure liability Yukon Government Workshop in Whitehorse November 14, 2013

2 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 2 With You Today Peter Greenwood Partner KPMG Vancouver (604) KPMG’s Public Sector Accounting Advisory lead Technical Advice for Complex Accounting Issues Accounting Transaction Support Accounting Standard Changes (e.g. PSAB -Financial Instruments, Contaminated Sites, Government Transfers etc) Framework Transition Project management Structural Change Assistance (e.g. carve-outs or reorganizations) Financial Reporting Process Review Keystone Environmental Specialize in site contamination investigation, remediation and risk assessment Industrial wastewater and storm-water Assists clients in negotiations with local, provincial and federal regulators and approving agencies, Conducts public information meetings Provides expert and second opinion services Introductions Bill Donald M.Sc., P.Eng., President Keystone Environmental (604)

3 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 3 Agenda for the workshop today PS3260 Contaminated Sites TimeWhoDescription 8:30 am (15 mins) Michael Riseborough Introduction of presenters and participants 8:45 am (15 mins) Peter Greenwood & Bill Donald Introductions – People & Topic Why is the forthcoming contaminated sites standard causing stress among the audience? Allow participants to voice issues they have heard or would like the presenters to cover. Allows presenters to cover specific issues through the day 9:00 am (50 mins) PeterBasics of PS3260: Run through the fundamentals of the standard Scope - what is in and out of the standard Recognition – criteria to be applied for each site in order to recognize contamination Measurement – how to approach the liability estimate Disclosure – key requirements for information gathering 9:50 am Break (10 mins) 10:00 am (30 mins) PeterPractical steps to consider for your organization: How to raise the profile of the PS3260 project (e.g. to attract sufficient budget, how to deal with approach to Risk etc) Experience from KPMG clients looking at the project what does that look like from the municipality point of view? 10:30 am (90 mins) BillRegulatory Perspectives – Regulatory background and setting the environmental standards in Yukon. Role of the Environmental Engineering - What does it mean to bring in an environmental engineer to a project? 12:00 pm Lunch (60 mins)

4 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 4 Agenda for the workshop today PS3260 Contaminated Sites TimeWhoDescription 1:00 pm (30 mins) PeterContaminated Sites – Audit considerations 1:30 pm (15 mins) PeterPS3260 wrap up and questions 1:45 pm Break (10 mins) 1:55 pm 50 mins PeterReview the basics of the PS3270 Landfill standard itself – what are the key issues to understand regarding; Scope – critical to understand what is in and out of the standard and the definitions behind reporting for landfills Recognition – how to recognize the liability for closure and post-closure care Measurement – how to approach the liability estimate Disclosure – key requirements for information gathering 3:00Peter/BillWrap-up of issues. Circle back to topics raised in first session of the day. Issues of PS3260 and PS3270 – make sure we circle back to the first session of the day on audience topics of concern Logistics around the projects themselves Any next steps across the group (e.g. potential for share forum to be established among participants) Any other common topics that the group would appreciate feedback from presenters on Seek feedback from the group on the day 3:30 pm Close

5 Introduction to PS3260: 5

6 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 6 Introduction session Why is the forthcoming contaminated sites standard causing stress? Opportunity for participants Voice issues you have heard Raise issues you would like the presenters to cover Allows presenters to circle back on specific issues through the day

7 Understand the basics of PS 3260 Contaminated Sites standard 7

8 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 8 Basics of the standard – who is affected Wide reaching: Applies to all governments and government organizations who apply CICA Public Sector Accounting Handbook. Will impact governments, and also universities, school boards, and hospitals reporting under the PSA standards. PS3260 provides guidance on applying the existing definitions of a liability in the PSA Handbook. It does not redefine the definitions or principles specified in FINANCIAL STATEMENT CONCEPTS, Section PS 1000, and the general recognition and disclosure standards in LIABILITIES, Section PS 3200.

9 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 9 Basics of the standard - timeline Mar 31, 2014 Mar 31, 2015 Fiscal year periods PS3260 Comparative figures Opening Balance Sheet Year end 2015 may feel like a long time away but … it’s closer than you think! First public reporting under PS 3260 Mar 31, 2012 Mar 31, 2013 Go-live reporting Today Adoption date Periods beginning on or after April 1, 2014 Early adoption is encouraged

10 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 10 Scope of PS 3260 standard (PS ) Definition of contamination For the purposes of PS3260 and per PS ; Contamination is “the introduction into air, soil, water or sediment of a chemical, organic or radioactive material or live organism that exceeds an environmental standard.” A contaminated site is “a site at which substances occur in concentrations that exceed the maximum acceptable amounts under an environmental standard.” A contaminated site does not include “airborne contamination or contaminants in the earth's atmosphere unless such contaminants have been introduced into soil, water bodies or sediment.”

11 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 11 Scope defines contamination Contamination is therefore NOT Costs for betterments of capital assets, or post remediation fair value; asset retirement obligations; or liabilities for closure and post-closure care of a solid waste landfill site What about asbestos?  Out of scope of PS3260, re definition of site contamination, but  Falls under the scope of PS3200.  A liability would only occur if ‘the settlement of the past transaction or event is expected to result in the future sacrifice of economic benefits’. Therefore,  Asbestos becomes a liability under PS3200 when the trigger point requiring sacrifice of economic benefit happens.  If you have no responsibility to remediate a property that contains asbestos (i.e. you could simply leave the property as is with no plans for remediation), there is a $nil liability under PS3200.

12 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 12 Scope of PS 3260 standard Scope PS outlines that properties should be differentiated between productive sites and those sites ‘not in productive use’ – example is “abandoned gas station”, Change to environmental standard for sites no longer in productive use = in scope If site has part of operation not in productive use = in scope Contamination from ‘an unexpected event’ = in scope  Municipality needs to review periodically what this means. Active/Productive sites - PSAB confirmation that these are not in the scope of PS3260 Sites not in productive use;  Municipality needs to define what this means (e.g. are parks ‘productive’ or not?)  All or ‘part of an operation’ may no longer be in productive use

13 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 13 Scope of PS 3260 standard – flow chart

14 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 14 Basics of the standard – recognition (PS ) Recognition Criteria – all the following must apply; 1.An environmental standard exists 2.Contamination exceeds the environmental standards 3.The government is directly responsible or accepts responsibility 4. It is expected that future economic benefits will be given up 5.Reasonable estimate of the amount can be made

15 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 15 Direct By past government activities Activities on government-owned land and the responsible party lacks the means to remediate Legal obligations to remediate set by contracts and legislations Accepting responsibility Constructive obligations may create liabilities based on interpretation Internal and external policies and past practice may establish expectation Whether government has discretion to alter policies Have you created valid expectation to remediate sites? This may include; Government committed to remediation plan Identified location of contamination Communication to those affected by contamination Contamination reduction target and time frame identified Evidence that expectation can be relied on Basics of the standard – accepting responsibility (PS )

16 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 16 Basics of the standard – future economic benefit and uncertainties (PS ) Liability is created only if loss in future economic benefit is “expected”  “Expected”: Reasonably anticipated based on available evidence and logic No liability if loss in future economic benefit is not expected  May require disclosure as contingent liability under PS 3300 When there is uncertainty about whether or not government has responsibility  Treat as a contingent liability

17 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 17 Basics of the standard – measurement (PS ) Liability includes ‘best’ estimate (i.e. payment to settle or extinguish the liability): Estimation on information available at financial statement date Directly attributable costs (ie. payroll, benefits, legal etc.) Estimated costs of bringing site back to current minimum standards Integral cost involving post-remediation operations, maintenance and monitoring Assets acquired to be used completely for remediation purposes are expensed over the life of the liability, assets acquired to be used partially for this purpose are expensed for portions use

18 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 18 Basics of the standard – disclosure (PS ) What will my accounting policy look like? Should disclose: a.nature and source of the liability; b.basis for the estimate of the liability (include significant assumptions); c.when a net present value technique is used, the estimated total undiscounted expenditures and discount rate; d.the reasons for not recognizing a liability (e.g. why a reasonable estimate of the amount involved cannot be made or why it is not expected that economic benefits will be given up would be disclosed); and e.the estimated recoveries. No mention of process to collect information or transition disclosure but this likely will be included. Governments should “consider the usefulness of the information to readers in assessing the nature and extent of a government's liability for remediation of contaminated sites”. Additional disclosures encouraged to enhance the financial statement users' understanding of the estimate of the liability. It may be useful to group similar items together. The level of disclosure also considers the sensitivity of the information. Anticipated timing of future expenditures would also be disclosed. Uncertainties affecting the measurement of a liability

19 Practical steps for the PS3260 project

20 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 20 Top ten issues for your PS3260 Project Plan Key Issues 1.Understand the basics behind the standard – Read it! 2.Raise awareness 3.Project plan 4.Policy before action 5.Risk 6.Inventory of regulations 7.Define site analysis approach - inventory of all sites needed 8.Define measurement approach 9.Role of environmental engineer 10.Role of auditor

21 Action 2: Raise awareness throughout your organization

22 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 22 Action – 2 Raise awareness throughout your organization Mobilize organization for the requirements of the standard Alert senior management to the potential effect on reported financial results and business operations Engage all relevant functions in the business – Property, Operations, Procurement, Legal, Identify and involve the right people – core team, extended resources, project manager, steering group – and ensure they will be available Secure senior management’s support – essential early AwarenessDesignImplement PS 3260 ‘business as usual’ Assess

23 Action 3: Establish a formal project plan

24 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 24 Action – 3 Establish a formal project plan Assess impact and plan for standard implementation Identify inventory of all sites in the organization – not just those potentially contaminated Understand process of staged review from all sites to key risk sites Do a “gap analysis”– accounting policies, procedures Understand management approach to risk and risk framework Agree on timelines and determine priorities Evaluate reporting requirements Evaluate information and disclosure requirements & any demand on IT system Develop master conversion plan and resource requirements Conduct training needs assessment AwarenessDesignImplement PS 3260 ‘business as usual’ Assess

25 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 25 Project planning and governance Get this project ‘RIGHT FIRST TIME’ Dedicated project management is a critical success factor for your project Ensure the plan is realistic in terms of timescales and specific accountabilities for all tasks – allow for slippage Revisit the plan regularly …or else it will quickly become redundant Most significant challenge will be managing a virtual team over an extended time-period and maintaining the momentum of the project If you start doing work on contamination assessments without a clearly defined plan and approach – you run the risk of missing key aspects of what the project should cover

26 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 26 Plan in overview AssessDesignImplement Environmental assurance group Accounting advisory Valuation Risk and compliance Audit What are the environmental standards for BC Government sector? What are internal policies and guidelines? Has contamination occurred? Is Government responsible? Is there a constructive obligation? Is there a framework for managing risk? Inventory of potential sites Valuation assumptions for liability estimate Who is qualified to opine on contamination? Audit financial statements Audit reporting framework Audit contamination levels Assess post remediation, maintenance, monitoring estimates Assist with provision analysis and calculations

27 Action 4: ‘Policy before action’

28 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 28 Policy before action Get this project ‘RIGHT FIRST TIME’ Policies over critical issues for contamination; ‘Gold-standard’ or a minimalist approach to remediation? Accepting responsibility of others on your lands? Judgement of how ‘likely’ the provision is? Risk analysis management policy? Sustainability - how often is this updated? Costs of remediation – policy for assets acquired? Document policies down – the auditor needs them!

29 Action 5: Risk - Develop an approach

30 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 30 Approach to risk for PS 3260 Risk approach is key - Potentially the crux of the project. We will need to inventory (potentially) many sites. Framework needed to classify and account for risk - will drive remediation estimates. Framework of risk will benchmark each site.  How we do this, who does it, what are the parameters, how often do you update it, and how do you measure progress over time as you rectify each site? What contamination risk we have, what it’s going to take to fix it and when.  E.g. at a basic level risk categories include: cheap and now, cheap and in the future, expensive and now, expensive but put off to the future etc. Effective documentation for our audit also to consider.

31 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 31 Risk matrix – one approach Allows risks to be ranked using criteria (e.g. impact, probability of occurrence and control effectiveness). Risk assessment reflect assessment phase, combined with the contaminated site and industry experience and content. Typically, this takes the form of a ‘risk-grid’, an example of which is illustrated in Figure R3.3. Allows progress over time to be mapped and communicated easily

32 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 32 Risk review at a site level Each location has unique characteristics and circumstances There is much uncertainty forecasting future activities associated with site environmental management and cleanup Assumptions, based on analogous locations and/or engineering experience, are used to “fill-in-the-blanks” where evidence is not available in minimizing uncertainty at environmental sites. Cost projections based on site information with uncertainty and assumptions can have a broad range of results. It is important to have professional resources that can identify and prioritize uncertainty and develop appropriate assumptions that can help mitigate financial reporting risk. Periodic re-evaluation of uncertainty and assumptions is essential to financial reporting risk management

33 Action 6: Recognition – Inventory your Environmental standards

34 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 34 Recognition - Environmental standards Environmental standards: Legally binding and enforceable regulations come in different forms  statute,  by-law,  order,  permit,  contract or agreement In force now (not proposed) Quantitative legal standards – stipulates acceptable levels of contamination Qualitative legal standards – prohibition of environmental impacts, will be judgmental Internal government policies and external industry guidelines – voluntary compliance may create a liability

35 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 35 Recognition - Environmental standards Steps needed: Make an inventory of the rules you will be judged by. (e.g. Make certain you have the skill-set to know all the applicable rules Determine whether an environmental engineer be brought in to document the rules Determine applicable quantitative & qualitative restrictions to ensure compliance Determine which internal policies and guidelines would require a liability to be recorded Document this all!

36 Action 7: Define site analysis approach - Inventory your sites

37 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 37 Recognition - Environmental standards Steps needed: Make an inventory of all sites – not just those you know are contaminated Staged approach to site review Initial site assessments should act as a filter Use of environmental assessment checklists will be part (but not all) of this E.g. use of BC Provincial tier 1 review would be helpful;  “Recommended Guidance and Checklist for Tier 1 Ecological Risk Assessment of Contaminated Sites in British Columbia” Drive to site specific reviews Understand when to bring in specialists for site specific reviews Define the measurement approach – how do we turn issues into liabilities? Document this all!

38 Action 8: Recognition – measurement of contamination

39 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 39 Recognition - Contamination Contamination must exceed environmental standard to create a liability If uncertainty about existence of contamination, recognize liability based on probability of contamination being confirmed in the future. If probability is ‘likely’ then recognize if reasonably estimated Helpful hints per PS “Necessary to review all historical information including;  Nature of past activities  Location, hydrology and geology  Results from testing and field investigations  Experience at other sites  Significance of sites”

40 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 40 Recognition - Contamination Steps needed: Decide whether you have the skill-set to undertake to research and/or testing Determine whether an environmental engineer is brought in to either research or test or both Determine applicable quantitative & qualitative restrictions to ensure compliance Understand standards and develop strategies to ensure compliance Assess the uncertainty and probability of confirmation

41 Action 9: Develop a strategy for environmental specialists

42 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 42 Role of environmental specialist Strategic role of the environmental specialist must be acknowledged An Environmental Specialist is a key resource for; Regulatory issues Technical analysis and interpretation Cost projections Assumption development Identification of issues that should be included/excluded from the site environmental information Timing of external help – regular and often or in site-specific only issues? Benefits of professional opinions weigh against external help through a long-term project with associated costs

43 Action 10: Develop a strategy for your auditor

44 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 44 Auditor involvement Explicit acknowledgement on the part of the reporting entity for frequent auditor involvement. Audit involvement should be an integral part of the project governance process. Agree policy and documentation at an early stage. Agree milestones along the way for review. Clear specification is made of what is to be expected and when for all key deliverables, including timely Public Sector technical partner involvement.

45 Overview:

46 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 46 Top ten eleven issues for your PS3260 Project Plan Key Issues 1.Understand the basics behind the standard 2.Raise awareness 3.Project plan 4.Policy before action 5.Risk 6.Inventory of regulations 7.Define site analysis approach - inventory of all sites needed 8.Define measurement approach 9.Role of environmental engineer 10.Role of auditor 11. …..get started!

47 Questions?

48 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 48 Regulatory standards perspective & Role of the Environmental Professional PS3260 Contaminated Sites Workshop Thursday, November 14, 2013 Whitehorse, Yukon Territories

49 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 49 Outline Page 49 Regulatory Standards and Role of Environmental Engineer

50 Audit steps and audit trail for the project

51 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 51 Auditor involvement Explicit acknowledgement on the part of the reporting entity for frequent auditor involvement. Audit involvement should be an integral part of the project governance process. Agree policy and documentation at an early stage. Agree milestones along the way for review. Clear specification is made of what is to be expected and when for all key deliverables, including timely Public Sector technical partner involvement.

52 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 52 Auditing Challenges New standards will result in a number of accounting and auditing challenges, which can be broken down into 2 main parts: “getting ready for day one” and “creating a sustainable process”: A.For opening day (March 31, 2015 reporting), inventorying existing sites and potential for contamination 1.Approaches to determining whether in or out of scope (i.e. out of productive use) 2.How to obtain historical information on previous activities or use of properties 3.Determining corporate policy for standard of remediation – right level for policy? How is this documented? 4.Educating municipal staff to ensure that internal records can support the initial recording of journal entries B.For ongoing reporting (i.e. after 2015) 1.Maintaining and monitoring inventory of sights; new properties, changes to use or contamination levels. 2.Re-evaluating / updating policies for remediation 3.Monitoring “at-risk” sites and relevant environmental standards 4.Monitoring and updating status of sites (i.e. in/out of productive use) 5.Continuity schedules from one period to the next. What assumptions are moving?

53 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 53 Audit Requirements The Auditor has requirements for obtaining audit evidence with respect to the initial recording of the contaminated sites liability as well as subsequent measurement, additions and costs incurred Types of Audit Assertions Completeness Accuracy ■Estimates ■Recorded amounts ■Costs incurred Presentation Disclosures Types of Audit Evidence Inspection of records or documents – inventory of sites against TCA records/GIS Observation and enquiry Third-party assistance (environmental consultants) Recalculation Tests of expenditure records Comparisons across organizations and jurisdictions

54 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 54 Preparing for the audit  The implementation must be supportable and auditable (auditors need to be able to see where the numbers and disclosures come from)  Suggested documents necessary for the audit include: Site inventory with support for completeness (i.e. comparison to GIS; TCA registers; BCAA assessment rolls) Documentation of procedures used to ensure all sites were included and evaluated for potential contamination Basis for determining whether or not site is in productive use (policy, status) (e.g. Were interviews undertaken? Were questionnaires submitted and responses obtained?) Basis for determining existence of environmental standards applicable to site Basis for determining whether contamination exceeds standard (Consultant reports? Internal assessments?) A schedule of costs incurred, if any, against the recorded liability Basis for re-measurement at the next year-end

55 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 55 Preparing for the audit  When estimation methods are being used, need to obtain explanation of how estimates were developed and how it was ensured all future costs are captured.  Need to verify assumptions – requires documentation of;  the assumptions  factors considered in developing the assumptions  an evaluation of the reasonableness e.g. Standard of remediation or expected recoveries.  Meet with your auditor/client at various stages to discuss timeline, approach, valuation methods, policies, etc.

56 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 56 Estimation techniques Municipalities will be required to make use of many estimation techniques:  Cost estimates – external experts; internal experts  Inflation rates inherent in estimates of future costs  Discount rates to determine present value of future costs  No prescriptive guidance but PSAB generally requires assumptions to be internally consistent – i.e. rates used to discount future cash flows for liabilities Auditors will be required to verify these techniques

57 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 57 Audit considerations upon initial recording  Accuracy and completeness: What are the sources of data? What processes have been used to complete the site inventory? How did management assign sites to various categories or buckets – i.e. risk factors applicable to multiple properties What are the capitalization thresholds?  Estimates: What is policy for measurement? Not prescribed. What information is readily available? Is the information reliable? Alternative valuation methods -Independent consultants reports used? -Estimation methodology used? Need to document  Presentation & disclosures Are financial statement disclosures in accordance with GAAP?  Have you created valid expectation to remediate sites? This may include; Government committed to remediation plan Identified location of contamination Communication to those affected by contamination Contamination reduction target and time frame identified Evidence that expectation can be relied on

58 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 58 Issues that we have run into to date Integrity of spreadsheets Determination of “in productive use” Whose responsibility is it? Important for leased sites; transferred properties; tax sale properties Inflation rates for estimating future costs Discount rates for present value of future costs Rigour around locating documents relating to historical use of properties Validity of assumptions

59 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 59 Summary  Just as application of PS3260 requires municipalities to apply professional judgment (i.e. estimation techniques, assumptions); municipal auditor must also apply professional judgment (risk assessment, testing techniques, materiality, using work of experts)  For many questions and inputs, there may not be a “right answer” readily available (eg. “in productive use”)  Consult your auditor – early and often

60 Questions?

61 PS3270 Solid Waste landfill closure and post-closure liability

62 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 62 Landfill Operations – Scope PS In scope: Applies to all operating and closed landfill sites of governments and their organizations. Certain activities relating to a site or phase are required before it opens, during its operating life and when it stops accepting waste. Only the expenditures relating to those activities required when the site or phase stops accepting waste are included in the closure and post-closure care liability. Out of scope: Opening expenditures, such as those associated with locating a site or constructing a leachate collection system; End-use expenditures, such as those that transform the site into park land, as they would be attributable to that end-use and not to the landfill; and Unforeseen or catastrophic events, such as a major leachate collection system failure.

63 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 63 Landfill Operations – Scope PS Closure activities All activities related to closing a landfill site 1.final cover and vegetation; and 2.completing facilities for: drainage control features; leachate monitoring; water quality monitoring; and monitoring and recovery of gas. Post closure care All activities related to monitoring the site once it can no longer accept waste acquisition of any additional land for buffer zones; treatment and monitoring of leachate; monitoring ground water and surface water; gas monitoring and recovery; and ongoing maintenance of various control systems, drainage systems, and final cover. Definition of a landfill “Area of land or excavation that receives waste that may include household waste, commercial solid waste, non-hazardous sludge, and industrial solid waste” Government legislation and regulations set out a stringent environmental approval process for landfill sites.

64 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 64 Recognition and Measurement PS Liability definition under PS3200; Settlement of the past transaction or event is expected to result in the future sacrifice of economic benefits. Under environmental law, there is a liability for closure and post-closure care. The existence of the liability is known with certainty. It is not sufficient to disclose the closure and post-closure care liability as a contingency or a contractual obligation.

65 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 65 Recognition and Measurement PS How to recognize the liability? A liability for closure and post closure care is recognized as a site’s capacity is used – usage should be measured on a volumetric basis (e.g. cubic metres) Liability estimated when site starts to accept waste Recognize over the estimated operations of the site If site operates in a phased basis - liability associated with that phase would be fully recognized when the phase stops accepting waste Site capacity may be limited by a length of an agreement or a permit to operate as opposed to the physical capacity of a site

66 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 66 Recognition and Measurement Estimated total expenditure Cumulative capacity used Total estimated capacity Expenditures previously recognized Estimated total expenditures = discounted future cash flows associated with closure and post-closure activities Capacity used is based on a rational and systematic method Discount at Government long-term borrowing rate Only estimate costs using current technology

67 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 67 Disclosure Key Issues: Estimates of total expenditure fluctuates Nature of ‘Estimated total capacity’ fluctuates. Both; Time to closure Capacity to receive waste Definition of post-closure care versus end-use expenditures Recognition and Measurement

68 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 68 Disclosure What does my accounting policy look like? Nature and source of landfill closure and post-closure care requirements Basis of recognition and measurement Reported liability, estimated total expenditures, amount remaining to be recognized Remaining capacity of the site and estimated remaining landfill life How financial assurance requirements are being met (i.e. letters of credit) Amount of assets designated for settling liabilities Estimated length of time needed for post closure care Disclosure

69 © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 69 Sample Disclosure “Included in environmental liabilities is $25 million of estimated total landfill closure and post-closure care expenses. The landfill closure and post-closure care requirements are mandated by the Environment Act and include the final covering and landscaping of the landfill, as well as gas management, on-going monitoring, site inspections, and maintenance. The estimated liability is recognized as the landfill’s capacity is used. In order to estimate the liability, management must use its best estimates which are subject to management uncertainty given the length of time the estimates must project. Given this uncertainty, significant changes to the future expenses, capacity and liabilities may occur in the future. In this case, these estimates would be dealt with prospectively. The total expected liability related to closure and post closure care is expected to be $30 million. The land fill is at 85% capacity based on a volumetric basis and has an expected useful remaining life of 10 years. At which time the landfill will be closed and undergo perpetual post closure care maintenance. A reserve has been established to fund the closure and post-closure care costs and has a balance of $17 million.”

70 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.


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