1. 1 School Board Audit Committee Training Module 5 Understanding the Basic Elements of School Board Financial Statements

2. Session objectives After completing this session you will: Understand the Audit Committee’s duties related to the financial reporting process Have an overview of School Board financial statements Understand key features of PSA Handbook Understand key indicators in School Board financial statements 2

3. Role and Accountabilities of a School Board Duties related to the Financial Reporting Process [ON Regulation 361/10 9(1)] To review the School Board’s financial statements To review the results of the external audit To recommend, to the Board of Trustees, the approval of the annual audited financial statements To review matters that the external auditor is required to communicate to the Audit Committee under generally accepted auditing standards To review with the external auditor material written communications 3

4. Financial statements are a fundamental component of school board’s financial reporting For financial statements to be credible, readers need to have confidence that the statements follow accepted and identifiable standards established by an arm’s length standard setting body If school boards follow independently set standards, readers can have confidence that the financial statements are consistent and comparable over time 4 Financial Reporting Overview

5. School Boards are required to follow Public Sector Accounting Standards (PSA) established by the Public Sector Accounting Board (PSAB) for School Boards “PSAB” is the acronym for the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants (CICA). PSAB has the authority to set accounting standards for the public sector. That authority means that PSAB sets generally accepted accounting principles (GAAP) for the public sector (e.g. school boards) The Government may also direct school boards to follow certain policies 5 Accounting Standards for School Boards

6. PSA Standards Introductory Section Concepts and Principles (PS 1000 – PS 1300) –Contains sections dealing with: PS 1000 Financial statement concepts PS 1100 Financial statement objectives PS 1150 Generally accepted accounting principles (primary sources of GAAP) PS 1200 Financial statement presentation PS 1300 Government Reporting Entity Specific Items – Financial Reporting (PS 2100 – PS 2700) –Sections dealing with financial statement items such as: PS 2100 Disclosure of accounting policies PS 2120 Accounting changes PS 2130 Measurement uncertainty PS 2400 Subsequent events 6

7. PSA Standards Specific Items – Financial Statement Items (PS 3030 – PS 3510) –Contains sections dealing with financial statement items such as: PS 3030 Temporary investments PS 3040 Portfolio investments PS 3150 Tangible capital assets PS 3410 Government transfers Specific Items – Government Not-for-profit-organizations (PS 4200 – PS 4270) –Contains sections dealing with NPO’s such as: PS 4210 Contributions 7

8. 8 PSABPSAB Type of OrganizationAccounting FrameworkFirst reporting period – year beginning on or after: Government/School BoardPSA Standards – No change in frameworkN/A Government Not-for-Profit Organization (GNFPO) Choice of: i.Existing NPO standards (4400 series with minor modifications) + PSA Standards as underlying framework, or ii.PSA Standards (without NPO standards) January 1, 2012 Other Government Organization (OGO)PSA Standards or IFRSs based on assessment of users’ needs January 1, 2011 Government Business EnterpriseIFRSsJanuary 1, 2011 (certain entities may qualify for 1 year deferral) Changes in Accounting Frameworks relating to Government Organizations

9. Financial Reporting Overview – Why PSA? Unique characteristics of a School Board 9 Unique CharacteristicReporting Implications School Board’s goal is to provide services, not make a profit Net cost of services should be reported. The net economic resources (accumulated surplus/deficit) available to use in providing future services should be reported Tangible assets are different in nature from those held by a business (i.e. they represent service capability, rather than future cash inflows) Financial assets and non-financial assets should be reported separately on the Statement of Financial Position Capital spending may not focus on maximizing financial return but on achieving public objectives Capital spending and its effect on net debt must be highlighted in the financial statements School Board’s budget is part of accountability cycle Actual-to- budget comparisons should be provided in financial statements. Original budget needs to be disclosed on Statement of Financial Operations and the Statement of Changes in Net Debt

10. At the end of the fiscal year (August 31) school boards prepare two significant reports –Financial Statement Forms as required by the Education Financial Information System (EFIS) –General Purpose summary financial statements Accounting principles in both should be consistent (i.e. PSA) 10 Financial Reporting Overview

11. The general purpose summary financial statements are required to be prepared in accordance with PSA standards and are required to be audited Required statements are as follows: –Statement of Financial Position –Statement of Operations –Statement of Change in Net Debt –Statement of Cash Flows Notes to financial statements are also required. 11 Financial Reporting Overview EFIS contains significantly more detail than summary financial statements, including grant calculations and supplementary information important for funding decisions EFIS General Purpose Financial Statements

12. 12 Anytown District School Board Statement of Financial Position as at August 31, 2010 20102009 Financial Assets Cash500400 Accounts Receivable250150 Inventory Held for Resale3050 Total financial assets780600 Liabilities Accounts payable and accrued liabilities200190 Due to Province of Ontario5030 Employee future benefits payable400390 Net long-term debt300310 950920 Non-financial assets Tangible capital assets1,7801,550 Prepaid expenses109 Inventory of supplies1512 1,8051,571 Net Debt(170)(320) Accumulated Surplus1,6351,251 Prior year comparatives are required on Statement of Financial Position Assets that can be used to discharge existing liabilities or finance future operations No distinction between current and long- term financial assets Key indicator Difference between financial assets and financial liabilities represents future revenue required to pay for past transactions Key indicator Represents school boards net economic resources Amount by which all assets exceed all liabilities All liabilities are reported No distinction between current and long- term liabilities Assets available for provision of services typically not used for discharging existing liabilities or financing future operations

13. 13 Anytown District School Board Statement of Operations Year ended August 31, 2010 Budget20102009 Prior year comparatives are presented as well as original approved budget (in PSA format) Revenues Local taxation1,0001,1001,000 Provincial grants1,000900800 Federal grants50 Other fees302015 School fundraising10 9 2,0902,0801,874 Expenses Instruction1,4001,4501,350 Administration120130100 Transportation10010790 School funded activities1097 1,6301,6961,547 Annual surplus460384327 Accumulated surplus, beginning of year1,2511251924 Accumulated Surplus, end of year1,7111,6351,251 Revenues recorded by significant type Expenses reported by function or major program Note disclosure required to report expenses by object (salaries, supplies) Key indicator Shows whether revenues of period were sufficient to cover expenses of the period Reports accumulated surplus at the beginning and end of the period

14. 14 Anytown District School Board Statement of Change in Net Debt Year ended August 31, 2010 Prior year comparatives are presented as well as original approved budget (in PSA format) Budget20102009 Annual surplus460384327 Acquisition of tangible capital assets(100)(300)(90) Amortization of tangible capital assets507045 410154282 Acquisition of inventory of supplies-(15)(12) Prepaid expenses incurred-(10)(9) Consumption of inventory of supplies-126 Use of prepaid expenses-94 Change in net debt410150271 Net debt, beginning of year(320) (591) Net debt, end of year90170320 This represents the change in future revenue requirements. Shows other non-financial assets impact on the difference between surplus for year and change in net debt Shows the TCA impact on the difference between surplus for the period and change in net debt Shows whether revenues of the period were sufficient to cover spending of the period. This represents the change in future revenue requirements

15. Financial Reporting Overview 15 Statement of Cash Flows Reports how the organization financed its activities during the period and met its cash requirements by reporting changes in cash and cash equivalents

16. Case Study 16