Report of the PSAB Workgroup on the Implementation of ... Report of...stakeholders, generally...

Report of the PSAB Workgroup on the

Implementation of Public Sector Accounting

Handbook Recommendations for School Board

Financial Reporting

November 2003

INTRODUCTION......................................................................................................................... 3

COMPOSITION OF WORKGROUP ........................................................................................ 6

SUMMARY OF RECOMMENDATIONS................................................................................. 7

THE NEED FOR CHANGE........................................................................................................ 9 INFORMATION FOR DECISION MAKING AND ACCOUNTABILITY ..................................................... 9

COMPLIANCE WITH AUDIT ASSURANCE STANDARDS................................................................... 9

CONSISTENCY WITH MUNICIPAL FINANCIAL REPORTING STANDARDS ........................................ 10

CONSISTENCY WITH PROVINCIAL FINANCIAL REPORTING STANDARDS....................................... 11

TIMELINE FOR IMPLEMENTATION ................................................................................. 12

MANAGING THE CHANGE ................................................................................................... 13

MAJOR ISSUES RELATING TO IMPLEMENTATION..................................................... 14 CONSOLIDATION (SECTION 1300 – REPORTING ENTITY) ........................................................... 14

BALANCED BUDGET (SECTION 1800 – GENERAL STANDARDS OF PRESENTATION) .................... 17

BUDGET TO ACTUAL (SECTION 1700 – OBJECTIVES OF FINANCIAL STATEMENTS) .................... 19

RESERVES (SECTION 3100 – RESTRICTED ASSETS AND REVENUES) .......................................... 20

CONVERTING SCHOOL BOARD FINANCIAL STATEMENTS TO A PSAB BASIS... 22

APPENDIX A – SUMMARY OF GAP ANALYSIS ............................................................... 34

APPENDIX B - TERMS OF REFERENCE ........................................................................... 39

APPENDIX C – ALTERNATIVE FINANCIAL REPORTING STANDARDS .................. 41

APPENDIX D – GAP ANALYSIS OF PUBLIC SECTOR ACCOUNTING RECOMMENDATIONS AND SCHOOL BOARD PRACTICE........................................... 43

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Introduction

Under the Education Act, the Minister may prescribe a school board’s accounting principles and

reporting format.1 In practice, the principles and format have been detailed in a document

entitled “Instructions re: the 20xx-xx Financial Statements of District School Boards” issued

annually ‘by authority of the Ministry of Education’. This document informs boards as to what

statements, schedules, appendices and other data forms are required for reporting to the Ministry

of Education (EDU) as well as instructions for school board external auditors. It contains

specific directions to boards regarding the financial statements and forms that are to be made

available to the public and other stakeholders.

For over twenty-five years, these financial statements have been described as being ‘in

accordance with generally accepted accounting principles (GAAP) except as noted…’ The

effect of the GAAP exceptions has been a growing divergence between the current reporting

practices of school boards and any recognized reporting standard. The divergence can lead to

reduced public confidence as well as complexity and misunderstanding of school board financial

reports by decision makers, such as taxpayers, trustees and lenders, and other stakeholders

including supporters, regulators, teachers and others.

Changes made September 3, 2003 to the Canadian Institute of Chartered Accountants (CICA)

Assurance Handbook mean that school board external auditors will no longer give a ‘clean’

(unqualified) opinion on a board’s summary financial statements as general purpose financial

statements in the format in which they are currently presented. For the fiscal year 2002-03,

auditors will be expressing an opinion under Section 5600 of the Assurance Handbook “auditor’s

report on financial statements prepared using a basis of accounting other than generally accepted

accounting principles”. The auditors report will indicate that the statements are prepared for the

Ministry of Education; are not prepared using generally accepted accounting principles; and are

1 Education Act S. 252 (2) (a) - This section requires a board to publish the financial statements in the form the

Minister may prescribe.

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not intended to be and should not be used by anyone other than the specified user or for any

other purpose.

Ministry staff have been reviewing the issue of financial reporting standards for school boards

over the last year. Although this report deals with issues relating to the implementation of PSAB

for local governments, careful consideration had been given to the questions of which GAAP

reporting standard would be the most applicable for Ontario school boards and the accounting

practices and standards within other jurisdictions. Background information on these topics is

included in Appendix C.

One of the significant areas where financial information has not been available in school board

statements relates to the liabilities for employee future benefits. In the summer of 2002, the

ministry sought input from Council of Senior Business Officials (COSBO) on the

implementation of an actuarial study and costing of employee future benefits. In March 2003,

the ministry provided $360,000 in funding to school boards to assist boards in determining the

actuarial cost of their employee future benefits. Boards were directed to include this

information in their note disclosures for the 2002-03 financial statements.

In July 2003, the Ministry of Education formed the PSAB Workgroup to advise the ministry on

whether to implement the accounting and financial reporting recommendations of the CICA

Public Sector Accounting Handbook for local governments (PSAB) as the standard for school

board reporting in Ontario. The issues to be addressed by this workgroup also included:

Identification of reporting differences under PSAB and current reporting practice and an

assessment of the significance of those differences;

Assessment of the effect of those differences on the existing financial accountability

framework, including impact on legislative requirements, compliance with funding

envelopes and impact on existing accounting systems;

Identification of emerging guidelines and standards and assessment of their impact as

outlined above; and

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Development of proposals on whether the differences could be addressed from a policy

perspective and how they could be addressed.

This report is being submitted to Aryeh Gitterman, Assistant Deputy Minister and provides a

discussion of, and recommendations on, the issues related to the implementation of PSAB for

school board reporting in Ontario.

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Composition of WorkgroupWayne Burtnyk, (Co-Chair) Director, Transfer Payments and Financial Reporting Branch Ministry of Education

Michael Clarke (Co-Chair) Chief Financial Officer Ottawa-Carleton District School Board

Paul Babin Manager, Transfer Payments Unit Ministry of Education Tim Beauchamp Principal, CICA (PSAB) Special Advisor and Technical Lead Francois Bertrand Superintendent of Business CSD Catholique de l’Est Ontarien Robert Correll Partner, KPMG LLP Peter Derochie Associate Director of Education (Business & Finance) Simcoe Muskoka Catholic District School Board Don Higgins Executive Superintendent – Business Services Toronto District School Board

Ed Hodgins Superintendent of Business Durham District School Board Marion Jarrell Project Manager – Accountability Transfer Payments Unit Ministry of Education Rick Kennedy Director Audit Services Branch Ministry of Education Marie Li Manager, Financial Reporting Unit Ministry of Education Peter Lynch Manager of Finance Limestone District School Board Robert Siddall Provincial Controller Ministry of Finance Susan Soldan, Finance Officer, Transfer Payments Unit Ministry of Education

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Summary of Recommendations

1. That Public Sector Accounting Handbook recommendations for local governments (PSAB) be adopted as the financial reporting standard for Ontario school boards.

2. That the ministry establish an implementation date for full compliance with PSA Handbook recommendations for the 2003/04 fiscal year.

3. That a B Memorandum be issued to district school boards as soon as possible indicating that they will be required to produce financial statements on a PSAB basis for the 2003/04 fiscal year.

4. That the ministry recognize that the implementation of these recommendations will involve a significant commitment of time and other costs to the boards.

5. That a PSAB implementation team be established immediately with representatives from school boards, the ministries of education and finance, external audit firms, CICA, OASBO and COSBO.

6. That the implementation team prepare training materials to be used by school boards in making the transition to PSAB reporting.

7. That OASBO and COSBO be approached for assistance in coordinating and conducting the required training sessions to encourage the broadest possible representation from school board finance personnel.

8. That training materials include information and examples for school board staff and auditors relating to the concepts of “reporting entity” and “control”.

9. That the implementation team review the function and object expenditure categories required for consolidated reporting to ensure that the consolidation of school funds into DSB financial statements (when necessary) is as simple as possible.

10. That training materials include information for school board staff to use with the school communities regarding PSAB implementation and reporting of school funds.

11. That the ministry implement the accounting and reporting requirements of PSAB separately and distinctly from any changes to amounts school boards may be required to fund in their budgets.

12. That the ministry not make any changes from current practice in the amounts to be included as “revenues” and “expenditures” for the purposes of section 231 of the Education Act until at least the 2005/06 fiscal year.

13. That training materials include information and examples on how to restate board Estimates on a PSAB basis for the 2003/04 and 2004/05 fiscal years.

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14. That the Estimates forms be updated for the 2005/06 fiscal year to take into account PSAB presentation.

15. That training materials include information on “ reserves” and how they will be reported on PSAB financial statements.

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The Need for Change

Information for decision making and accountability

One of the major motivations to change is the need for better information for decision-making

and accountability. Complete financial information is needed for stewardship, decision-making,

and accountability. Taxpayers and the province need clear and complete information about all of

the assets, liabilities, revenues and expenditures of school boards in order to make reasonable

and informed decisions as to the amount and allocation of scarce resources (ie. Grants).

Similarly, school boards need clear financial information to budget for its programs and services

and when negotiating with its employee groups and reporting to the public. Banks, debenture

holders and other stakeholders require financial statements that they can rely on prepared in a

clear and consistent manner.

For over 25 years, the ministry has issued instructions to school boards on how to prepare the

annual financial statements and ministry forms. These instructions have provided guidance to

school boards on how to report and disclose certain items within the statements or notes.

However, the instructions do not necessarily cover all areas and include a number of significant

exceptions to generally accepted accounting principles as defined by the CICA. School board

accounting practices have not kept up with changes being instituted by the CICA.

Adopting PSAB for local governments will ensure that school board financial reporting needs

are met both now, and into the future. This would require boards to report their liabilities,

consolidate reporting entities that meet the criteria for consolidation and eventually to report

capital assets. The latter is currently under review by CICA and the timeline for the issue of an

accounting recommendation is not known. Financial statements prepared according to a

recognized accounting standard will enhance the comparability and consistency of information

across school boards and across sectors.

Compliance with Audit Assurance Standards

In September 2003, the Audit Assurance Board of the CICA amended Section 5100 of the Audit

Assurance Handbook such that school boards will not receive an unqualified audit opinion on

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general-purpose financial statements if they are prepared as currently prescribed by the ministry.

This change is effective for Audit reports dated after October 1, 2003 and therefore affects

school boards financial statements for 2002/03 onwards.

For 2002-03, school board financial statements will be prepared as prescribed by the ministry.

However, the audit report on these statements will clearly state that they:

have not been prepared in accordance with Canadian generally accepted accounting

principles

are solely for the information and use of the Trustees of the Board and the Minister of

Education, and

are not intended to be and should not be used by anyone other that the specified users or

for any other purpose.

Issuing these statements with limited use is a temporary measure at best. Many school boards

have banking or lending agreements with covenants requiring audited financial statements.

In order for school boards to issue audited financial statements to be used by the public and other

stakeholders, generally accepted accounting principles would have to be adopted. PSAB

accounting recommendations are GAAP and are suitable for school boards. Adoption of PSAB

standards would ensure that appropriate financial information is available to all stakeholders.

Consistency with municipal financial reporting standards

Financial reporting for Ontario school boards has historically paralleled that for Ontario

municipalities. There were a number of reasons for this. Both sectors have similar legislative

and regulatory requirements dealing with such things as balanced budgets, and historically have

had similar financial reporting rules, and both have locally elected representatives.

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A 1996 research study2 published by the CICA examined the financial reporting practices and

regulatory and accountability structures of Canadian school boards. The study also made an

initial assessment as to whether the CICA’s Public Sector Accounting Board recommendations

developed for local governments can be applied to school boards. The study found that school

boards are similar to local governments in both their accountability relationships and their

accounting and financial reporting practices. Among the examples cited were:

• Users of school board financial statements are substantially the same as the users of local government financial statements; in both cases they serve the interests of the public (ratepayers and residents, regulators, creditors and other stakeholders).

• School boards have a direct accountability relationship with their Ministries of Education much the same as that of municipalities with their Ministries of Municipal Affairs.

• School boards are required to balance their operating budgets. Provincial legislation or regulations also require local governments to balance their operating budgets.

A Provincial Auditor’s report (1995) stated that the Ministry of Municipal Affairs “should

prescribe the use of more updated accounting principles for financial reporting by municipalities

in Ontario”. With the implementation of PSAB reporting standards for all Ontario municipalities

for fiscal year 2000, school board reporting was no longer comparable to that of local municipal

governments.

Consistency with provincial financial reporting standards

The Province of Ontario currently follows the Public Sector Accounting Handbook for its

financial reporting. The Public Sector Accounting Board issued a revision to PS 1300 –

Government Reporting Entity which reads “The government reporting entity should comprise the

organizations that are controlled by the government”. The section further defines control as “the

power to govern the financial and operating policies of another organization”. The province is

considering whether school boards’ financial information will be required to be consolidated

2 Financial Reporting by Canadian School Boards, © CICA, Toronto, Canada, 1996.

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with that of the Province when the changes to this section come into effect for fiscal years

beginning on or after April 1, 2005. Should school boards adopt PSAB prior to 2005, the

Ministry of Education and school boards would be well prepared to accommodate information

requests if the province decides to consolidate school board financial information.

All of the foregoing factors underline the need for school boards to adopt PSAB for local

governments as the recognized accounting standard for Ontario School Boards.

Recommendation:

1. That Public Sector Accounting Handbook recommendations for local governments

(PSAB) be adopted as the financial reporting standard for Ontario school boards.

Timeline for Implementation

Given that school board financial statements in their current form include a number of exceptions

to GAAP, and that external auditors will not give an “unqualified” opinion on these statements as

general purpose financial statements, the workgroup feels a sense of urgency in implementing

PSAB for local governments as the financial reporting standard for school boards.

The change will be made easier by the fact that capital asset reporting is not yet required for local

governments. Boards will be able to implement changes in their financial statements as

prescribed by GAAP but deal with the issue of capital reporting at some point in the future when

PSAB recommendations in this area are developed.

Recommendations:

2. That the ministry establish an implementation date for full compliance with PSA

Handbook recommendations for the 2003/04 fiscal year.

3. That a B Memorandum be issued to district school boards as soon as possible indicating

that they will be required to produce financial statements on a PSAB basis for the

2003/04 fiscal year.

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Managing the Change

Implementation for 2003/04 represents a very aggressive schedule for change. Active

participation from all involved will be necessary in order to facilitate the change. This includes

ministry and school board staff, external auditors, CICA staff, and stakeholder associations such

as the Ontario Association of School Board Officials (OASBO) and COSBO.

Recommendation

4. That the ministry recognize that the implementation of these recommendations will

involve a significant commitment of time and other costs to the boards.

School boards must be prepared for the transition from current practice to PSAB reporting. The

PSA Handbook offers general principles and guidance for dealing with significant accounting

and reporting issues. However, the school boards will need training as to how to implement the

PSA Handbook standards.

A number of major issues related to implementation and training will need to be addressed, some

of which are identified in the following sections of this report.

Recommendation:

5. That a PSAB implementation team be established immediately with representatives from

school boards, the ministries of education and finance, external audit firms, CICA,

OASBO and COSBO.

A guideline for implementing PSAB in school boards should be developed to include general

implementation information, school board based examples and transition questions and answers.

(For example, the application of the Code of Accounts and suggested functional categories for

the summary financial statements.) This would assist school board staff to properly implement

PSAB while maintaining consistency in school board reporting across the province.

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Recommendation:

6. That the implementation team prepare training materials to be used by school boards in

making the transition to PSAB reporting.

With an aggressive implementation date, the provision of a focussed training and education

plan for school board financial staff and auditors will be essential. Courses and training

materials will have to be prepared and delivered. Active participation in this process on the

part of school finance professionals across the province will be a key ingredient in the

successful implementation.

Recommendation:

7. That OASBO and COSBO be approached for assistance in coordinating and conducting

the required training sessions with the broadest possible representation from school

board finance personnel.

Major Issues Relating to Implementation

The following sets out the major accounting issues relating to implementation and provides the

committee’s recommendation on how to deal with those issues. A complete review of the

differences between PSA Handbook recommendations and the current practice of financial

reporting in school boards appears in Appendix D to this report. The purpose of the following

section is to highlight the major differences between the two.

Consolidation (Section 1300 – Reporting entity)

School boards will have to consolidate into the financial statements the revenue, expenditures,

assets and liabilities of all organizations considered to be part of the “reporting entity”.

PSA Handbook Section 1300 provides that the “reporting entity should comprise the

organizations that are controlled by the government”. Determining what comprises the reporting

entity is a key factor as many other PSAB recommendations such as those relating to disclosure

and consolidation relate directly to this definition.

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There are large differences between boards in the way they operate and whether they have set up

separate agencies, foundations, cooperatives, etc. Few boards currently provide any information

on related or controlled entities within their current financial statements and have varying

methods of reporting for these organizations within the statements.

The organizations that are to be included in each board’s financial statements will have to be

determined by each individual board in consultation with their auditor. Financial information

from identified organizations not previously included in board financial statements will have to

be consolidated.

Recommendation:

8. That training materials include information and examples for school board staff and

auditors relating to the concepts of “reporting entity” and “control”.

Many schools and school councils raise funds in the community for activities that take place

within the school. If these funds are material, they will have to be consolidated in the summary

financial statements of the school board under PSAB.

Including school funds in the board’s financial statements may be a challenge for some boards

for two reasons: difficulty obtaining the information and possible resistance from school

communities.

Boards will have some difficulty obtaining the necessary information to present in the financial

statements, as many schools do not have robust financial accounting and reporting systems in

place. However, school boards are moving towards better reporting of school funds. The

OASBO Finance committee produced a document entitled “Guidelines for School Generated

Funds” in the fall of 2003 which is intended to assist school boards and schools with improving

their financial reporting of school funds.

Recognizing that reporting school funds will be an issue for boards, it is imperative that

suggested reporting requirements are as clear and simple as possible.

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Recommendation:

9. That the implementation team review the function and object expenditure categories

required for consolidated reporting to ensure that the consolidation of school funds into

DSB financial statements (when necessary) is as simple as possible.

The second issue that school boards may have to deal with is possible concerns from some

school communities to the idea that school funds have to be reported in the school board

summary financial statements. It is important to note that both funds generated by the school

and school council funds are the property of the board. School councils are required to prepare

an annual financial report on fundraising activities for the board3. The publication “School

Councils: A Guide for Members” states;

“School councils should be aware that, because the school board is a corporate entity and the school is not, any funds raised by the school council (and any assets purchased with those funds) belong, legally, to the board.”

However, reporting of school funds within school board financial statements does not need to

alter existing control and management of school-generated funds and activities.

Possible concerns from school communities can in large measure be minimized through an

effective communication process that boards will develop to inform local school communities

about the change in the board’s reporting requirements. It should be emphasized in such

communications that the reporting of funds in no way alters the school’s ability to use the funds

for the locally agreed upon initiatives for which the funds were raised.

Recommendations:

10. That training materials include information for school board staff to use with the school

communities regarding PSAB implementation and reporting of school funds.

3 Reg. 612/00 S.24(2)

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Balanced Budget (Section 1800 – General standards of presentation)

Section 231 of the Education Act states:

(1) Every board, before the beginning of each fiscal year and in time to comply with the date set under clause (11) (c), shall prepare and adopt estimates of its revenues and expenditures for the fiscal year, and the estimates,

(a) shall set out the estimated revenues and expenditures of the board, including debt charges payable by the board or on its behalf by the council of a municipality or an upper-tier municipality;

(b) shall provide for a projection of any surplus or deficit arising in the fiscal year immediately preceding the fiscal year, as calculated by the treasurer of the board;

(c) shall make due allowance for a surplus of any previous fiscal year that will be available during the current fiscal year, including a surplus projected under clause (b);

(d) shall provide for any deficit of any previous fiscal year, including a deficit projected under clause (b);

(e) shall provide for allocations to reserve funds as required by the regulations made under section 232;

(f) may provide for a reserve for working funds of a sum not in excess of 5 per cent of the expenditures of the board for the preceding fiscal year, but, where the sum accumulated in the reserve is equal to or more than 20 per cent of those expenditures, no further sum shall be provided; and

(g) subject to clause (d), shall not provide for any deficit. 1997, c. 31, s. 113 (1); 2002, c. 17, Sched. F, Table.

(2) In meeting the requirements of clause (1) (a), the board shall ensure that its estimated expenditures do not exceed its estimated revenues. 1997, c. 31, s. 113 (1).

These sections are the root of the current structure and format of a school board’s statements.

They require that the estimates are to include revenues and expenditures of the board including

debt charges payable, prior year surpluses or deficits and allocations to reserve funds. As a

result, a number of items are included as “expenditures” and certain long-term obligations, such

as employee future benefits and accrued debt interest are excluded. The current statements are

structured in such a way that the legislative measure of surplus/deficit can be readily determined.

PSAB has recognized the value and need for a school board to report in compliance with

legislative requirements. Information about the current operating fund is required to be

disclosed. Statements and ministry forms can continue to provide information relating to the

measure of surplus or deficit as defined in the existing legislation, yet allow school boards to

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record and report their actual total liabilities and improve the costing information contained in

the actual results.

While the requirement to balance a school board’s budget is a necessary control, it does not

necessarily follow that this restriction should form the basis of recording and reporting financial

information. Reporting on a funding basis can lead to financial statements that are incomplete,

because some obligations of the school boards are not accounted for and some transactions that

are not expenditures are reported as expenditures.

PSA Handbook recommendations require that all liabilities and the related annual expenses, such

as employee future benefits, be reported as part of the school board position and results.

Expenses must exclude such transactions as debt principal repayments and transfers to other

funds as these are financing and internal management transactions.

It is important to note that, just because a liability is reported in the financial statements, it does

not follow that the school board must fund the obligation in the same period. The full reporting

of liabilities under PSAB will provide better information for decision making by school boards.

Recording and reporting long-term debenture borrowings provides a useful example of why

school boards should report liabilities, even though the funding may not be required until

sometime in the future. The liability needs to be reported in order that administrators and

trustees consider the future effect that the liability will have on funds currently available and

amounts required from future revenues.

The extent to which the recording of the liabilities will impact on the board’s requirement to

have a balanced budget would depend on decisions to be made by the ministry.

Recommendation:

11. That the ministry implement the accounting and reporting requirements of PSAB

separately and distinctly from any changes to amounts school boards may be required to

fund in their budgets.

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12. That the ministry not make any changes from current practice in the amounts to be

included as “revenues” and “expenditures” for the purposes of section 231 of the

Education Act until at least the 2005/06 fiscal year.

Budget to Actual (Section 1700 – Objectives of financial statements)

The PSA Handbook requires a budget to actual comparison in the school board’s financial

statements. This comparison is to be provided using the original budget presented on the same

basis of accounting as the actual results.

Current financial statements reflect the Revenue Fund budget as prepared by the board, with a

final surplus or deficit figure easily identifiable based on the funding provided plus other

revenues minus the expenditures in the revenue fund.

PSA Handbook presentation of revenues and expenses in the Statement of Financial Activities

differs significantly from those currently reported in the Revenue Fund Statement of Operations.

Current statements and budgets include amounts for debt principal repayments and transfers to

other funds that will not be reported as expenses under PSAB. Similarly, treatment of revenues

also differs significantly as some grants may be reported as deferred revenues under PSAB

presentation.

Although most boards would undertake some form of capital budgeting and reserve fund

budgeting, the current ministry forms do not collect that information. As well, capital budgets

may be prepared on a project oriented basis rather than a calendar basis.

Implementation plans will have to ensure that forms are designed in such a way that stakeholders

can readily identify the “budgeted spending” of the board in relation to the funding provided

while still providing budget to actual comparisons on a PSAB basis.

Due to the timing of implementation of PSAB (2003/04 Financial Statements prepared in the fall

of 2004), boards have already submitted their Estimates for 2003/04 and will prepare the

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Estimates for 2004/05 under the current reporting framework and forms. These budgeted

amounts will have to be restated for presentation purposes on the summary financial statements.

An additional issue will be obtaining and presenting the budgets of any organizations that are to

be consolidated into the school board statements as they will have to be reflected in the budget to

actual comparisons if available.

Training and education for school board staff and trustees will be a key factor.

Recommendation:

13. That training materials include information and examples on how to restate board

Estimates on a PSAB basis for the 2003/04 and 2004/05 fiscal years.

14. That the Estimates forms be updated for the 2005/06 fiscal year to take into account

PSAB presentation.

Reserves (Section 3100 – Restricted Assets and Revenues)

The PSA Handbook section 3100 states:

“Externally restricted inflows should be recognized as revenue in a government’s financial statements in the period in which the resources are used for the purpose or purposes specified. An externally restricted inflow received before this criterion has been met should be reported as a liability until the resources are used for the purpose or purposes specified.”

Many of the current accountability and compliance mechanisms of the Student Focused Funding

regulations require boards to place unspent grant allocations into specific reserve funds. Under

PSAB, the unspent portion of these grants would be reported as deferred revenue (a liability until

the restriction is fulfilled).

This committee discussed whether the PSAB requirement to record externally restricted amounts

as “deferred revenues” is incompatible with regulatory requirements to set up amounts in

“reserves”. It is our opinion that the difference is not one of substance but one of terminology.

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No changes to the Education Act or regulations are required by the move to PSAB reporting for

school board summary financial statements.

Training materials will have to address the differences in types of reserve funds, the terminology,

and how different types of reserves are reported on a PSAB basis.

Recommendation:

15. That training materials include information on “reserves” and how they will be reported

on PSAB financial statements

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Converting School Board Financial Statements to a PSAB Basis

The following simplified example is based on a real school board’s financial statements. It

is intended to be an illustration of some of the changes that will be required to comply with

the PSA Handbook standards for local governments. It is not intended to be a

comprehensive treatment of all adjustments that would be required.

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CURRENT FORMAT

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Ministry of Education / Ministère de l'éducation Schedule 1 - Balance SheetAs At August 31(000's)

Assets 2002 2001

Current AssetsCash 0 0Investments at cost 0 0Accounts receivable

Municipalities 15,694 14,071Other 13,150 2,600

Prepaid expense 3,500 2,966Other current assets 0 0

Total Current Assets 32,344 19,637Capital outlay to be recovered in future years - permanently financed 38,771 42,467Capital outlay to be recovered in future years - not permanently financed 23,147 14,776Other Assets 0

TOTAL ASSETS 94,262 76,880

Liabilities

Current LiabilitiesBank and other short-term borrowing 40,855 16,799Accounts payable and accrued liabilities

Municipalities 0 0Other 11,827 17,675

Current portion of net long-term debt 0 0Other current liabilities 2,466 983

Total Current Liabilities 55,148 35,457Net long-term liabilities 38,771 42,467Reserve for working funds 2,594 464Equity in reserve funds 2,436 1,805Unexpended capital funds 0Accumulated Surplus (Deficit) (4,687) (3,313)

TOTAL LIABILITIES 94,262 76,880

Other Information for purposes of this example

1

2

3 Debt principal repayments $3,696 in 2002 and $2,630 in 2001 (Budget and Actual).

Accumulated Liability for employee future benefits was $45M in 2002 and $40M in 2001 and not expensed in current statements but would be under PSAB

Increase in reserve of $2,688 in 2002 was made up of an increase in Reserve for Working Funds of $2,128 and an increase in other externally restricted reserves of $560.

CURRENT FORMAT

Ministry of Education / Ministère de l'éducation Schedule 2 - Revenue Fund, Statement of OperationsFor the year ended August 31(000's)

Budget 2002 2001Expenditure

Classroom 233,232 239,340 222,891

Non-classroom 53,038 54,875 57,426

Administration 11,429 10,671 11,934

Pupil transportation 10,619 10,858 10,900

Pupil accomodation 56,682 53,349 60,487

Other non-operating expenditure 0 307 826(excluding transfers to reserves)

Total expenditure 365,000 369,400 364,464

Recovery of ExpenditureSchool boards - other 0 0 2

Government of Ontario - other 400 4,398 4,078

Government of Canada 0 699 915

Individuals - tuition fees 475 737 513

Other Revenue (excluding 800 2,859 1,300transfers from reserves)

Total recovery of expenditure 1,675 8,693 6,808

NET EXPENDITURE 363,325 360,707 357,656

Financing of Net ExpendituresLegislative grants 225,509 233,027 214,334

Local taxes 140,816 128,994 135,187

Decrease (increase) in reserves 0 -2,688 6,313

Previous year-end accumulated -3,000 -3,313 -1,491surplus (deficit)

To be applied to the following year

Accumulated deficit (surplus) 0 4,687 3,313at year-end

TOTAL FINANCING 363,325 360,707 357,656

Continuity of Revenue Fund BalancePrior year accumulated surplus (deficit) -3,000 -3,313 -1,491

In year surplus(deficit) 3,000 -1,374 -1,822

Accumulated surplus(deficit) at year-end 0 -4,687 -3,313

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CURRENT FORMAT

Ministry of Education / Ministère de l'éducation Schedule 3 - Capital Fund Statement of OperationsFor the year ended August 31(000's)

Budget** 2002 2001Capital Expenditure (Revenue Fund Capital Only)

New Pupil Places 827 1,967 941

School Renewal 6,824 5,119 10,781

Instructional computers 3,259 8,606 3,366

ISA Equipment 0 179 242

EDC Capital 0 0

Other capital expenditures 619 3,326 5,026

Total Capital Expenditure 11,529 19,197 20,356

Capital Financing:

Unexpended funds at beginning of year 0 0

(Balance at beginning of year Not Permanently Financed) 0 (14,776) (11,556)

Long-term liabilities issued and sold 0 0 0

Contributions from Government of Canada 0 0 0

Capital expenditure financed from the Revenue Fund 11,529 10,826 17,136

(Transfer of Surplus Capital Funds to the Revenue Fund) 0 0 0

Balance at end of year Not Permanently Financed 0 23,147 14,776

(Unexpended funds at end of year) 0 23,147 0

Total Capital Financing 11,529 19,197 20,356

**Current School Board Schedules do not show a budget for the Capital Fund. The numbers included here represent capital amounts budgeted in the Revenue Fund - Schedule 10 Column 07. They are included here for reference in the example conversion.

0

25

BALANCE SHEET 2002 2001 2002 2001 2002 2001

ASSETSCash/Short term Investments - - Accounts Rec. - Muni 15,694 14,071 15,694 14,071 Accounts Rec. - Other 13,150 2,600 13,150 2,600 Prepaid Expenses 3,500 2,966 (3,500) (2,966) - - Capital to be recovered - Permanently Financed 38,771 42,467 (38,771) (42,467) - - Capital to be recovered - Not Permanently Financed 23,147 14,776 (23,147) (14,776) - - TOTAL ASSETS 94,262 76,880 (65,418) (60,209) 28,844 16,671

LIABILITIESShort-term Borrowing 40,855 16,799 40,855 16,799 Accounts Payable - Other 11,828 17,674 11,828 17,674 Other 2,466 983 2,466 983 Net Long-term Liabilities 38,771 42,467 38,771 42,467 Deferred Revenue (Externally restricted reserves) 0 0 2,436 1,805 2,436 1,805 Reserve for Working Funds 2,593 465 (2,593) (465) 0 0Equity in Reserve Funds 2,436 1,805 (2,436) (1,805) 0 0Accumlated Surplus (Deficit) (4,687) (3,313) 4,687 3,313 0 0Employee Future Benefits 45,000 40,000 45,000 40,000TOTAL LIABILITIES 94,262 76,880 47,094 42,848 141,356 119,728

NET FINANCIAL ASSETS 0 0 (112,512) (103,057) (112,512) (103,057)

NON FINANCIAL ASSETS 0 0 3,500 2,966 3,500 2,966

TOTAL NET ASSETS 0 0 (109,012) (100,091) (109,012) (100,091)

FUND BALANCESReserve for Working Funds 2,593 465 2,593 465Accumlated Surplus (Deficit) (4,687) (3,313) (4,687) (3,313)Capital Fund Balance (23,147) (14,776) (23,147) (14,776)TOTAL FUND BALANCES (25,241) (17,624) (25,241) (17,624)

Amounts to be Recovered (Capital & Empl. Benefits) (83,771) (82,467) (83,771) (82,467)

NET FINANCIAL POSITION 0 0 (109,012) (100,091) (109,012) (100,091)

Change in Fund Balances (25,241) (17,624) (7,617)Change in Net Financial Assets (Liabilities) (109,012) (100,091) (9,455)

Other Information for purposes of this example

3 Debt principal repayments $3,696 in 2002 and $2,630 in 2001 (Budget and Actual).

1 Accumulated Liability for employee future benefits was $45M in 2002 and $40M in 2001 and not expensed in current statements but would be under PSAB

2 Increase in reserve of $2,688 in 2002 was made up of an increase in Reserve for Working Funds of $2,128 and an increase in other externally restricted reserves of $560.

Example Worksheet - with Adjustments

Current Format PSAB FormatAdjustments

26

Annual Results Aug. 31, 'XXBudget 2002 2001 Budget 2002 2001 Budget 2002 2001

OPERATING REVENUESSchool Boards - Other 0 2 0 0 2Ontario - Other 400 4,398 4,078 400 4,398 4,078Federal - Other 0 699 915 0 699 915Tuition Fees 475 737 513 475 737 513Other 800 2,859 1,300 0 800 2,859 1,300Legislative Grants 225,509 233,027 214,334 (560) 6,313 225,509 232,467 220,647Local Taxes 140,816 128,994 135,187 140,816 128,994 135,187Total Operating Revenues 368,000 370,714 356,329 0 (560) 6,313 368,000 370,154 362,642

OPERATING EXPENDITURESClassroom 233,232 239,340 222,891 (3,259) 5,000 229,973 244,340 222,891Non-classroom 53,038 54,875 57,426 53,038 54,875 57,426Administration 11,429 10,671 11,934 (619) 534 0 10,810 11,205 11,934Pupil Transportation 10,619 10,858 10,900 10,619 10,858 10,900Pupil Accomodation 56,682 53,349 60,487 (11,347) (14,522) (19,766) 45,335 38,827 40,721Other 0 307 826 0 307 826Total Operating Expenditures 365,000 369,400 364,464 (15,225) (8,988) (19,766) 349,775 360,412 344,698

NET OPERATING REVENUE (EXPENDITURE) 3,000 1,314 (8,135) 15,225 8,428 26,079 18,225 9,742 17,944Transfer from (to) Reserve 0 (2,688) 6,313 560 (6,313) 0 (2,128) 0Unfunded expense for Employee Benefits 5,000 0 5,000 0Increase (Decrease) in Non-Financial Assets 534 0 534 0Debt Principal Repayments (3,696) (3,696) (2,630) (3,696) (3,696) (2,630)Transfer to Capital 0 (11,529) (10,826) (17,136) (11,529) (10,826) (17,136)SURPLUS/(DEFICIT) - Change in Operating Fund Balance 3,000 (1,374) (1,822) 0 0 0 3,000 (1,374) (1,822)Opening Balance - Operating Fund (3,000) (3,313) (1,491) (3,313) (1,491)Closing Balance - Operating Fund 0 (4,687) (3,313) 0 0 0 3,000 (4,687) (3,313)

CAPITAL REVENUES 0 0 0 0 0CAPITAL EXPENDITURES 0 0New Pupil Places 1,967 941 827 827 1,967 941School Renewal 5,119 10,781 6,824 6,824 5,119 10,781Computers 8,606 3,366 3,259 3,259 8,606 3,366ISA Equipment 179 242 0 179 242EDC Capital 0 0 0Other 3,326 5,026 619 619 3,326 5,026Total Capital Expenditures 0 19,197 20,356 11,529 0 0 11,529 19,197 20,356

NET CAPITAL REVENUE (EXPENDITURE) 0 (19,197) (20,356) (11,529) 0 0 (11,529) (19,197) (20,356)Transfer from Operations 10,826 17,136 11,529 11,529 10,826 17,136Change in Capital Fund Balance 0 (8,371) (3,220) 0 0 0 0 (8,371) (3,220)Opening Balance - Capital Fund (14,776) (11,557) (14,776) (11,556)Closing Balance - Capital Fund (23,147) (14,777) (23,147) (14,776)

RESERVE REVENUESIncome from Investments 0 0 0 0 0RESERVE EXPENDITURES 0 0 0 0Net Revenue (Expenditure) 0 0 0 0 0 0 0 0 0Transfers from (to) Operations 2,688 0 (560) 2,128 0Change in Reserve Fund Balance 2,759 (560) 2,128 0Opening Balance - Reserve Fund 2,270 2,270 (1,805) (1,805) 465 465Closing Balance - Reserve Fund 5,029 2,270 (2,436) (1,805) 2,593 465

TOTAL FUND BALANCES (Operating, Capital & Reserve) (22,805) (15,820) (2,436) (1,805) 3,000 (25,241) (17,624)TOTAL CHANGE IN FUND BALANCES (Operating, Capital & Reserve) 3,000 (7,617)TOTAL NET REVENUES (Operating, Capital & Reserve) (9,455) (2,412)

Example Worksheet - with Adjustments

Current Format Adjustments PSAB Format

27

PSAB Format

2002 2001FINANCIAL ASSETSCash/short-term investments - -Accounts receivable – Municipal 15,694 14,071Accounts receivable – Other 13,150 2,600Other - -TOTAL FINANCIAL ASSETS 28,844 16,671

LIABILITIESShort-term borrowing 40,855 16,799Accounts payable – municipal - -Accounts payable – other 11,828 17,674Other 2,466 983Net long-term borrowings 38,771 42,467Deferred Revenue 2,436 1,805Employee Benefits 45,000 40,000TOTAL LIABILITIES 141,356 119,728

NET FINANCIAL ASSETS (LIABILITIES) (112,512) (103,057)

NON-FINANCIAL ASSETS 3,500 2,966

NET ASSETS (109,012) (100,091)

FINANCIAL POSITIONFund Balances (25,241) (17,624)Amounts to be recovered (83,771) (82,467)Equity in capital assets - -NET FINANCIAL POSITION (109,012) (100,091)

Example District School BoardStatement of Financial Position

As at August 31, 2002

2002 2001FINANCIAL ASSETSCash/short-term investments - -Accounts receivable – Municipal 15,694 14,071Accounts receivable – Other 13,150 2,600Other - -TOTAL FINANCIAL ASSETS 28,844 16,671

LIABILITIESShort-term borrowing 40,855 16,799Accounts payable – municipal - -Accounts payable – other 11,828 17,674Other 2,466 983Net long-term borrowings 38,771 42,467Deferred Revenue 2,436 1,805Employee Benefits 45,000 40,000TOTAL LIABILITIES 141,356 119,728

NET FINANCIAL ASSETS (LIABILITIES) (112,512) (103,057)

NON-FINANCIAL ASSETS 3,500 2,966

NET ASSETS (109,012) (100,091)

FINANCIAL POSITIONFund Balances (25,241) (17,624)Amounts to be recovered (83,771) (82,467)Equity in capital assets - -NET FINANCIAL POSITION (109,012) (100,091)

Example District School BoardStatement of Financial Position

As at August 31, 2002

28 28

PSAB Format

2002 2002 2001Budget Actual Actual

REVENUESSchool boards - other 2Gov't of Ontario - other 400 4,398 4,078Gov't of Canada 699 915Tuition Fees 475 737 513Other Revenues 800 2,859 1,300Legislative Grants 225,509 232,467 220,647Local Taxes 140,816 128,994 135,187TOTAL REVENUE 368,000 370,154 362,642

EXPENDITURESOperating

Classroom 229,973 244,340 222,891Non-classroom 53,038 54,875 57,426Administration 10,810 11,205 11,934Pupil transportation 10,619 10,858 10,900Pupil accommodation 45,335 38,827 40,721Other 307 826

CapitalNew pupil places 827 1,967 941School renewal 6,824 5,119 10,781Computers 3,259 8,606 3,366ISA equipment 179 242Other 619 3,326 5,026

TOTAL EXPENDITURES 361,304 379,609 365,054

CHANGE IN NET LIABILITIES 6,696 (9,455) (2,412)

Debt principal repayments (3,696) (3,696) (2,630)Unfunded employee benefits 5,000CHANGE IN AMOUNTS TO BE RECOVERED (3,696) 1,304 (2,630)

INCREASE (DECREASE) IN NON-FINANCIAL ASSETS 534 -

CHANGE IN FUND BALANCES 3,000 (7,617) (5,042)

Example District School BoardStatement of Financial Activities

year ended August 31, 2002

29

PSAB Format

2002 2001OPERATIONSNet revenue (expenditure) (9,455) (2,412)

Uses:Increase in accounts receivable - municipal (1,623) (1,500)Increase in accounts receivable – other (10,550) (400)Decrease in accounts payable – other (5,846) (6,200)

Sources:Increase in other liabilities 1,483 750Increase in deferred revenue 631Increase in employee future benefits 5,000 -

Cash used in operations (20,360) (9,762)

INVESTING - -

FINANCINGDebentures/leases repaid (3,696) (2,630)

Cash used in financing (3,696) (2,630)

CHANGE IN CASH AND CASH EQUIVALENTS (24,056) (19,605)

Opening Cash and Cash Equivalents (16,799) 2,806

Closing Cash and Cash Equivalents (40,855) (16,799)

Example District School BoardStatement of Changes in Financial Position


30

PSAB Format


REVENUESSchool boards - other - 2Gov't of Ontario - other 400 4,398 4,078Gov't of Canada - 699 915Tuition Fees 475 737 513Other Revenues 800 2,859 1,300Legislative Grants 225,509 232,467 220,647Local Taxes 140,816 128,994 135,187Income from Investments - - -TOTAL REVENUE 368,000 370,154 362,642

EXPENDITURESOperating

Classroom 229,973 244,340 222,891Non-classroom 53,038 54,875 57,426Administration 10,810 11,205 11,934Pupil transportation 10,619 10,858 10,900Pupil accommodation 45,335 38,827 40,721Other - 307 826


NET REVENUE (EXPENDITURE) 18,225 9,742 17,944

Debt principal repayments (3,696) (3,696) (2,630)Increase (Decrease) in Non-Financial Assets 534Unfunded employee benefits 5,000CHANGE IN AMOUNTS TO BE RECOVERED (3,696) 1,838 (2,630)

NET TRANSFERSTransfers to Capital (11,529) (10,826) (17,136)Transfer from (to) reserves (2,128)NET TRANSFERS (11,529) (12,954) (17,136)

CHANGE IN FUND BALANCES 3,000 (1,374) (1,822)

Opening Balance (3,000) (3,313) (1,491)

Closing Balance - (4,687) (3,313)

Example District School BoardSchedule of Operating Fundyear ended August 31, 2002

31

PSAB Format


REVENUES - - -

EXPENDITURESCapital

New pupil places 827 1,967 941School renewal 6824 5,119 10,781Computers 3259 8,606 3,366ISA equipment 0 179 242Other 619 3,326 5,026


NET REVENUE (EXPENDITURE) (11,529) (19,197) (20,356)

Debenture proceeds 0 0 0

NET TRANSFERSTransfers (to) from Operations 11,529 10,826 17,136Transfer from (to) reserves 0 0 0NET TRANSFERS 11,529 10,826 17,136

CHANGE IN FUND BALANCES 0 (8,371) (3,220)

Opening Balance - (14,776) (11,556)

Closing Balance - (23,147) (14,776)

Example District School BoardSchedule of Capital Fund


32

PSAB Format


REVENUES - 0 0

EXPENDITURES - 0 0

NET REVENUE (EXPENDITURE) 0 0

NET TRANSFERSTransfers from (to) Operations - 2,128 0Transfer from (to) Capital - 0 0NET TRANSFERS - 2,128 0

CHANGE IN FUND BALANCES - 2,128 0

Opening Balance - Reserve for working funds Reserves - working funds - 465 465

Closing Balance - Reserve for working funds Reserves - working funds - 2,593 465

Example District School BoardSchedule of Reserve Fund


33

Appendix A – Summary of Gap Analysis

Standard – PS 1300 Reporting Entity Current Practice Issue

1300.07 The government reporting entity should comprise the organizations that are controlled by the government. [APRIL 2005]

Current practice does not include consolidation of many organizations that would be considered as part of the “reporting entity” under PSAB.

Definition of the reporting entity within a school board will be a key factor as many PSAB recommendations relating to disclosure and consolidation related directly to this definition. School funds (including school council funds) would be part of the reporting entity. Other organizations to consider would include cooperatives, shared service arrangements, foundations and other organizations that may be created by school boards to carry on various activities related to the DSB, its schools or students.

1300.39 Government financial statements should disclose, in notes or schedules, a listing of the major organizations comprising the reporting entity, separately identifying those that are consolidated and those that are accounted for by the modified equity method. [SEPT. 1997]

Note disclosure is currently requested for related or controlled entities but little information is provided in school board statements.

Disclosure will have to be expanded.

34

Standard PS 1700 – Objectives of Financial Statements

Current Practice Issue

1700.38 Financial statements should be clearly identified and should include or be accompanied by an acknowledgment of the local government's responsibility for their preparation. [NOV. 1990]

The standard audit report states that the F/S are the responsibility of management however not all DSB’s currently acknowledge that responsibility in a management report.

New statements would need to include a management report.

1700.83 Financial statements should report a comparison of the actual results with the Budget. [NOV. 1990] 1700.89 Budget information should be presented on a basis consistent with that used for actual results. [NOV. 1990]

Budget information is currently presented for the Revenue Fund only.

Presentation of budget information will have to be expanded to include all funds and consolidated entities where possible. Budgets will be presented on a basis consistent with the new PSAB forms..

1700.93 Financial statements should disclose significant non-compliance with borrowing, investing, revenue or expenditure authorities. [NOV. 1990]

Boards currently report on expenditure compliance and deficit management plans. However, there is no reporting on other legislative requirements for borrowing or investing.

Financial Reporting Guideline and training materials should include information on this disclosure requirement. Materials should provide guidance on key legislative authorities and guidance with respect to significant” non-compliance

1700.126 Financial statements should report a local government's liabilities at the end of the accounting period, segregated by main classification. [NOV. 1990]

Liabilities for retirement benefits, post-employment benefits, compensated absences and termination benefits are not recorded in current financial statements.

In 2002-03, boards have been required to have actuarial studies performed and to report the information in the notes to the FS. The information will have to be reported in the statements under PSAB

35

Standard PS 1800 – General Standards of Financial Statement Presentation


1800.07 Financial statements should include, as a minimum, a statement of financial position, a statement of financial activities and a statement of changes in financial position. [APRIL 1993]

The current financial statement formats for school boards will have to be redesigned and a statements of changes in financial position added..

The names given to the statements are different from those that are presently being prepared Training materials should include introduction to the statements including an identification of similarities and differences from existing statements and instruction on preparation and interpretation..

1800.38 Revenues should be accounted for in the period in which the transactions or events occurred that gave rise to the revenues. [APRIL 1993] 1800.42 Expenditures should be accounted for in the period the goods and services are acquired and a liability is incurred, or transfers 4 are due. [APRIL 1993]

Student Focused Funding grants are reported as revenues in the year in which they are received even though they may not be spent as required in that year (ie. Spec Ed monies placed in a reserve). Under PSAB these grants would be deferred revenues and would be taken into revenue only when the school board discharges the obligations that led to the collection of funds.

Statements and ministry forms will have to be designed in such a way that the revenues and expenditures under PSAB are adjusted to determine the “revenues” and “expenditures” for purposes of Section 231 – Balanced Budget See also Section 3100 – Restricted Assets and Revenues

Standard – PS2120 Accounting Changes 2120.14 When there is a choice from among two or more appropriate principles or methods used in their application and a change is made, the new accounting policy should be applied retroactively, unless the necessary financial data are not reasonably determinable. [SEPT. 1997]

This section gives the entity a choice when applying PSAB for first time i.e., retro actively or prospectively. Specific sections will determine how to adopt - see retirement benefits 3250

The preferred method of accounting for changes to school board statements as a result of adoption of PSAB will be to apply them retroactively with restatement.

36

Standard PS 2500 – Basic Principles of Consolidation


2500.06 Government summary financial statements should consolidate governmental units 2 line-by-line on a uniform basis of accounting after eliminating inter-governmental unit transactions and balances. [MAY 1999]

School level funds not generally consolidated into the school boards financial statements. Probably varying treatments for reporting on expenses of cooperatives or other related enterprises.

If material, school and school council funds will have to be consolidated into the board’s summary financial statements. Other “government units” as determined by the Reporting entity will also have to be consolidated.

Standard PS 2510 – Addition Areas of Consolidation

2510.05 When a non-controlling interest exists in a governmental unit, the government reporting entity should include that governmental unit in its summary financial statements on a proportionate consolidation basis. The summary financial statements should disclose the existence and extent of a non-controlling interest in a governmental unit. [MAY 1999]

Some cooperatives, shared services arrangements or partnerships will have to be consolidated on a proportional basis.

Standard – PS3100 Restricted Assets and Revenues

3100.11 Externally restricted inflows should be recognized as revenue in a government's financial statements in the period in which the resources are used for the purpose or purposes specified. An externally restricted inflow received before this criterion has been met should be reported as a liability until the resources are used for the purpose or purposes specified. [JUNE 1997]

Legislation requires boards to set aside specific amounts that have not been spent (ie. Classroom or Special Education) into reserves. PSAB requires amounts to be reported as a liability - “deferred revenue”.

Under PSAB – externally restricted reserves will be reported as deferred revenues. Internally restricted reserves will be reported as fund balances. Differences between current practice and PSAB are ones of presentation and terminology only. Changes will not be required to the legislative compliance mechanisms.

37

Appendix B - Terms of Reference

PSAB WORKGROUP

TERMS OF REFERENCE Mandate The purpose of the PSAB policy workgroup is to:

• advise the ministry on the implementation of PSAB for local governments as the reporting standard for school boards in Ontario

• identify the policy issues associated with the adoption of PSAB • identify options for addressing these issues

Background

The financial reporting standard for school boards is set by the ministry and has been described in the Instructions as being “in accordance with generally accepted accounting standards except as noted…”. The exceptions are numerous and significant, primarily with respect to capital assets, employee future benefits and reserve funds. The effect of the GAAP exceptions under the current reporting practice has resulted in a growing divergence of school boards’ financial reporting from any recognized reporting standard. The divergence can lead to reduced public confidence as well as complexity and misunderstanding of school board financial reports by stakeholders including supporters, lenders, teachers and others. Recent and planned changes in CICA accounting standards means that school board external auditors are becoming increasingly uncomfortable in providing a clean (unqualified) opinion on a board’s statements as they are currently presented.

The ministry has undertaken a preliminary study of PSAB reporting by school boards – one of the recommendations of the study is to establish an implementation workgroup with representation from various groups (school boards, audit, Ministry of Finance, CICA, EDU).

The ministry reviewed the recommendations in the report and is proposing an approach that involves two phases:

Phase 1 - to identify and address policy issues and make recommendation to the ministry on PSAB implementation. The PSAB policy workgroup will be involved in this phase of the study.

Phase 2 – a PSAB implementation workgroup will be established based on the recommendation of the policy workgroup.

Timelines

This workgroup will undertake the study from July 2003 to December 2003 or earlier.

39

Deliverables

The workgroup will submit its final report to Arieh Gitterman, ADM, Ministry of Education by December 12, 2003.

The issues to be addressed include:

• Identification of reporting differences under PSAB and current reporting practice and assess the significance of those differences.

• Assess the effect of those differences on the existing financial accountability framework, including impact on legislative requirements, compliance on funding envelopes, impact on existing accounting systems.

• Identification of emerging guidelines and standards and assess their impact as outlined above.

• Develop proposals on whether the differences could be addressed from a policy perspective and how they could be addressed.

Meetings The workgroup will meet five times between July and December 2003. The meetings will be conducted in Toronto. Special meetings may be called as required by the co-chairs.

40

Appendix C – Alternative Financial Reporting Standards

Generally accepted accounting principles or GAAP are the rules and conventions defining

accepted accounting practices at a particular time. However, there are a number of alternative

financial reporting standards all considered GAAP that are applicable to different types of

organizations. These are the

CICA Accounting Handbook sections that apply to profit-oriented enterprises

(“commercial GAAP”)

CICA Accounting Handbook sections that apply to not-for-profit organizations (NFP

GAAP)

CICA Public Sector Accounting Handbook sections that apply to federal, provincial and

territorial governments (PSAB for senior governments), and

CICA Public Sector Accounting Handbook sections that apply to local governments

(PSAB for local governments).

There is no definitive agreement on what constitutes GAAP for school boards across Canada, so

there are a variety of practices in place. As school boards are not profit-oriented enterprises,

commercial GAAP would not be appropriate. The other alternative financial reporting standards

are outlined next.

Not-for-Profit (NFP)

This financial reporting standard was introduced in the CICA Handbook-Accounting (Section

4400) in 1996.

The NFP standard is recommended primarily for public institutions such as health care,

education, social and charitable organizations. These are entities that have no transferable

ownership interests and generally follow fund accounting. Usually there are certain restrictions

attached to use of some of the funds and NFP requires that capital assets be accounted for and

depreciated in a rational manner.

41

Ontario’s colleges, universities and hospitals adopted NFP accounting in 1997/98.

The Province of Alberta mandated NFP in 1997 for its publicly funded school districts, but is

reported to be considering a change to PSAB. The Province of British Columbia is

implementing NFP for 2004/05 but is also reported to be studying PSAB.

Public Sector Accounting (PSAB)

The PSAB Handbook states that for “purposes of applying PSAB's Recommendations, “public

sector” refers to federal, provincial, territorial and local governments, government organizations,

government partnerships, and school boards”.4 Some sections of the handbook specifically apply

to senior levels of government and some to local governments. The handbook also states that

PSAB’s Accounting Recommendations for local governments may be applied to school boards if

considered appropriate.

The major difference between the recommendations for senior governments and local

governments at the current time is the treatment of tangible capital assets. Under local

government reporting, capital assets such as land, buildings and equipment are expensed as

acquired and are not required to be capitalized. This is consistent with the current practice in

school boards. However, PSAB5 has a project proposal to address this issue in 2003-04.

A 1996, a research study6 published by the CICA examined the financial reporting practices and

regulatory and accountability structures of Canadian school boards. The report concluded that

the objectives, general principles and many of the PSAB recommendations developed for local

governments were generally appropriate for school boards.

4 CICA Public Sector Accounting Handbook – Introduction to public sector accounting recommendations, page 1.

5 PSA Bulletin, Issue 18, Project Schedule, CICA, page 3, March 2003

6 Financial Reporting by Canadian School Boards, CICA, Toronto, Canada, 1996.

42

Appendix D – Gap Analysis of Public Sector Accounting Recommendations and School Board Practice

43

Gap Analysis of Public Sector Accounting Recommendations and School Board Practice

44

Para. Recommendation School Board Practice Comments

PS 1000 - Financial Statement Concepts Not Applicable Federal, Provincial & Territorial Governments

PS 1100 - Financial Statement Objectives Not Applicable Federal, Provincial & Territorial Governments

PS 1200 - Financial Statement Presentation Not Applicable Federal, Provincial & Territorial Governments

PS 1300 – Financial Reporting Entity (updated Aug 03)

.07 The government reporting entity should comprise the organizations that are controlled by the government. [APRIL 2005]

Not current practice

Current policy does not require consolidation of many

organizations that would be considered as part of the

“reporting entity” under PSAB.

Definition of the reporting entity within a school board will

be a key factor as many PSAB recommendations relating

to disclosure and consolidation related directly to this

definition.

School funds (including school council funds) would be part

of the reporting entity.

Other organizations to consider would include

cooperatives, shared service arrangements, foundations

and other organizations that may be created by school


45


boards to carry on various activities related to the DSB, its

schools or students.

Training materials should include information on the

concept of control and provide some examples from school

boards.

.27 Government financial statements should consolidate the financial statements of organizations comprising the government reporting entity, except for government business enterprises 3. [JUNE 1996]

3. In those circumstances where a non-controlling interest exists in a government organization that is not a government business enterprise, the organization would be included in the government's summary financial statements on a proportionate consolidation basis in accordance with ADDITIONAL AREAS OF CONSOLIDATION, paragraphs PS 2510.05-.10.

.35 Government business enterprises should be accounted for by the modified equity method. [JUNE 1996]

No current policy. DSB’s will have to determine if they have any GBE’s.

Would not expect there to be very many if any at all.

.37 Government financial statements should account for portfolio investments by the cost method. [MARCH 1999]

No current policy.

.39 Government financial statements should disclose, in notes or schedules, a listing of the major organizations comprising the reporting entity, separately identifying those that are consolidated and those that are accounted for by the modified equity method. [SEPT. 1997]

Not current practice

Note disclosure is requested for related or controlled entities but little information is currently provided in most school board statements.

Financial Reporting Guideline and training materials should

include information on this disclosure requirement.


46


.40 Trusts administered by a government or government organization should be excluded from the government reporting entity. [JUNE 1996]

Current practice.

.44 Government financial statements should disclose, in a note or schedule, a description of trusts under administration by a government or government organization, and a summary of trust balances. [JUNE 1996]

Schedule 6 – Trust Funds is not part of the required

published package

Would need to include the schedule in the summary

Financial Statements.


47

PS 1700 – Objectives of Financial Statements

.30 Objective 1 Financial statements should communicate reliable information relevant to the needs of those for whom the statements are prepared, in a manner that maximizes its usefulness. As a minimum, this requires information that is clearly presented, understandable, timely and consistent. [NOV. 1990]

.38 Financial statements should be clearly identified and should include or be accompanied by an acknowledgment of the local government's responsibility for their preparation. [NOV. 1990]

Not a current requirement. The standard audit report states that the F/S are the

responsibility of management however not all DSB’s

currently acknowledge that responsibility in a management

report.

Would need to include a Management Report.

.40 Notes and schedules that are integral to the financial statements should be clearly identified. [NOV. 1990]

This is current practice.

.43 Financial statements should present any information required for the fair presentation of a local government's financial condition and results of operations. [NOV. 1990]

.46 Financial statements should be presented in such form and use such terminology and classification of items that significant information is readily understandable. [NOV. 1990]

Some of the terminology currently used may not be readily

understandable by some readers.

Review terminology when redesigning the required

statements.

.48 Financial statements should present a comparison of current period amounts with those of the prior period. [NOV. 1990]



48

.50 The bases for determining the reported amounts of assets and liabilities should be applied consistently and, where the bases are not self-evident, they should be disclosed. [NOV. 1990]


.52 Financial statements should be issued on a timely basis. [NOV. 1990]

This is current practice

.54 Where the financial statements are subject to an independent audit, the auditor's report should be appended to the statements. Unaudited financial statements should be clearly identified as such. [NOV. 1990]


.56 Financial statements should present the substance of transactions and events. [NOV. 1990]

.59 Notes and supporting schedules in financial statements should not be used as a substitute for proper accounting treatment. [NOV. 1990]

School boards currently use the notes to the financial

statements to disclose information where the statements

do not use “proper accounting treatments”

.63 Objective 2 Financial statements should provide an accounting of the full nature and extent of the financial affairs and resources for which the local government is responsible including those related to the activities of its agencies and enterprises. [NOV. 1990]

.71 The government reporting entity should comprise the organizations that are accountable for the administration of their financial affairs and resources either to a minister of the government or directly to the legislature, or local government council, and are owned or controlled by the government. [JUNE 1996]

No current policy. Refer to discussion under 1300 Reporting Entity.

.75 Trusts administered by a local government should be excluded from the local government reporting entity. [NOV. 1990]

This is current practice. Refer to Section 1300.44

.77 Financial statements should disclose, in a note or schedule, a description of trusts under administration by a local

Refer to Section 1300.44


49

government and a summary of trust balances. [NOV. 1990]

.80 Objective 3 Financial statements should demonstrate the accountability of a local government for the financial affairs and resources entrusted to it. (a) Financial statements should provide information useful

in evaluating the local government's performance in the management of financial affairs and resources.

(b Financial statements should provide information useful in assessing whether financial resources were administered by the local government in accordance with the limits established by the appropriate legislative and regulatory authorities. [NOV. 1990]

.83 Financial statements should report a comparison of the actual results with the Budget. [NOV. 1990]

Schedule 2 “Revenue Fund Statement of Operations” does

compare actual to budget.

No budgeting or comparison reporting in Capital Fund.

Estimates may include proposed activity in Reserve Funds

but there is no comparison reporting.

.89 Budget information should be presented on a basis consistent with that used for actual results. [NOV. 1990]

Currently budget information is reported on the same basis

within the Revenue Fund only.

Preparation and presentation of budget information will

need to be addressed in the implementation of PSAB.


provide:

• guidance on presentation of capital budgets

• guidance on presentation of consolidated budget

numbers


50

.93 Financial statements should disclose significant non-compliance with borrowing, investing, revenue or expenditure authorities. [NOV. 1990]

Currently report on expenditure compliance and deficit

management plans under Division D.

No reporting on other legislative requirements for

borrowing or investing.


include information on this disclosure requirement.

Materials should provide:

• guidance on key legislative authorities

• guidance with respect to significant” non-

compliance

.100 Objective 4 Financial statements of a local government should account for the sources, allocation and use of the financial resources in the period. (a) Financial statements should account for expenditures

by function and object, revenues by source and type and the extent to which revenues were sufficient to meet expenditures.

(b Financial statements should show how the local government financed its activities in the period and how it met its cash requirements. [NOV. 1990]

School boards do not provide a statement of cash flows.

.102 Financial statements should report expenditures of the accounting period by function. [NOV. 1990]

This is current practice Assumes our current expenditure classifications are a

suitable “functional” presentation.

.104 Financial statements should disclose expenditures of the accounting period by object. [NOV. 1990]

Not current practice in published statements Schedule 10 provides expenditure information for the

Revenue Fund by object.


51

.107 Financial statements should disclose the gross amounts of expenditures. [NOV. 1990]


.109 Financial statements should report revenues of the accounting period segregated by significant types of revenues. [NOV. 1990]


.111 Financial statements should disclose the gross amounts of revenues. [NOV. 1990]


.116 Objective 5 Financial statements should present information to display the state of a local government's finances. (a) Financial statements should present information to describe a local government's financial condition at the end of the accounting period. (b) Financial statements should provide information useful in evaluating the ability of a local government to finance its activities and to meet its liabilities and commitments. [NOV. 1990]

.119 Financial statements should report a local government's financial assets at the end of the accounting period, segregated by main classification. [NOV. 1990]

Reclassification and presentation issue in design of

statements.

.122 Financial statements should provide information about a local government's physical assets. [NOV. 1990]

Capital assets are described only to the extent of current

debt outstanding.

.126 Financial statements should report a local government's liabilities at the end of the accounting period, segregated by main classification. [NOV. 1990]

Not current practice. Liabilities for employee future benefits are described only

in the notes to the financial statements.

.129 Financial statements should disclose information to describe a local government's material financial commitments at the end of the accounting period. [NOV. 1990]

May not be current practice. Example: Capital commitments involved when building a

new school.

.133 Financial statements should disclose information to describe a local government's material contingencies at the end of



52

the accounting period. [NOV. 1990]

PS 1800 – General Standards of FS Presentation

.07 Financial statements should include, as a minimum, a statement of financial position, a statement of financial activities and a statement of changes in financial position. [APRIL 1993]

School boards do not prepare a statement of changes in

financial position (cash flow statement).

The names given to the statements are different from those

that are presently being prepared.

Training materials should include introduction to the

statements including an identification of similarities and

differences from existing statements and instruction on

preparation and interpretation..

.13 The statement of financial position should, as a minimum, report all of a local government's financial assets and liabilities at the end of the accounting period. [APRIL 1993]

.17 The statement of financial position should report a local government's financial assets at the end of the accounting period segregated by main classifications, such as: (a) cash and temporary investments; (b) receivables; (c) inventories for resale; and (d) investments. [APRIL 1993]


.18 Financial statements should disclose adequate information about the nature and terms of a local government's financial assets together with any valuation allowances. [JUNE 1997]

This is current practice, although boards would not

normally have valuation issues with financial assets.

.21 Valuation allowances should be used to reflect financial assets at their net recoverable or other appropriate value. [APRIL 1993]


.25 The statement of financial position should report a local government's liabilities at the end of the accounting period segregated by main classifications, such as: (a) temporary loans payable;

It is current practice to segregate liabilities by main

classification.


53

(b) accounts payable and accrued liabilities; (a) deferred revenue; (b) post-employment benefits; and (e) long-term obligations. [APRIL 1993]

.26 Financial statements should disclose adequate information about the nature and terms of a local government's liabilities. [APRIL 1993]

Not current practice. Employee Future Benefits are not disclosed in the

statements.

.33 The statement of financial activities should account for the difference between a local government's revenues and expenditures, adjusted for any changes in valuation allowances, in the accounting period. [APRIL 1993]

Not current practice. No consolidation of funds and certain liabilities are not

recorded.

.36 The statement of financial activities should account for the combined change in the balances of a local government's funds in the accounting period. [APRIL 1993]

Not current practice. Funds are reported on separately

.38 Revenues should be accounted for in the period in which the transactions or events occurred that gave rise to the revenues. [APRIL 1993]

Not current practice. Student Focused Funding grants are reported as revenues

in the year in which they are received even though they

may not be spent as required in that year (ie. Spec Ed

monies placed in a reserve).

Under PSAB these grants would be deferred revenues and

would be taken into revenue only when the school board

discharges the obligations that led to the collection of

funds.

.42 Expenditures should be accounted for in the period the goods and services are acquired and a liability is incurred, or transfers 4 are due. [APRIL 1993]

4. GOVERNMENT TRANSFERS, Section PS

Not current practice. Interest on long-term liabilities.

Expenditures for employee future benefits.

Vacation accruals.


54

3410, recommends how to account for and report government transfers in the financial statements of all levels of government. Transfers include entitlements, transfers under shared cost agreements and grants.

The word acquired means capital expenditures are

recognized as expenditures of the period and not

capitalized. This is current practice.

.47 The statement of financial activities should include changes in valuation allowances in the accounting period. [APRIL 1993]


.50 The statement of changes in financial position should report the changes in a local government's cash and cash equivalents during the accounting period. [APRIL 1993]

Currently no cash flow information is reported.

.51 The statement of changes in financial position should classify cash flows by operating, investing and financing activities. [APRIL 1993]


.52 The statement of changes in financial position should report significant non-cash items. [APRIL 1993]


.57 Financial statements should disclose a local government's current, capital and reserve fund balances at the end of the accounting period. [APRIL 1993]

Not current practice.

.63 Financial statements should disclose the changes in a local government's current, capital and reserve fund balances in the accounting period. [APRIL 1993]


PS 2100 – Disclosure of Accounting Policies

.03 A clear and concise description of all significant accounting policies of a reporting entity should be included as an integral part of its financial statements. [SEPT. 1983]

This is current practice. Notes will have to be updated as new policies are adopted

for Ontario School Boards.

.09 As a minimum, disclosure of information on accounting policies should identify and describe: (a) the reporting entity and, where applicable, the method of consolidation or combination; (b)the basis of accounting used in the financial statements;

No information on the reporting entity or consolidation/

combination

Required:

Note on reporting entity

Note regarding consolidation/combination


55

and (c) the specific accounting policies selected and applied to significant assets, liabilities, revenues and expenses or expenditures. [SEPT. 1983 *]

Includes note on basis of accounting

Includes note on specific accounting policies.

Review all notes based on changes instituted.

.11 All significant accounting policies of a reporting entity should be disclosed in one place. [SEPT. 1983]


PS 2120 – Accounting Changes

Change in an Accounting Policy

.14 When there is a choice from among two or more appropriate principles or methods used in their application and a change is made, the new accounting policy should be applied retroactively, unless the necessary financial data are not reasonably determinable. [SEPT. 1997]

This section gives the entity a choice when

applying PSAB for first time i.e., retro actively or

prospectively. Specific sections will determine how

to adopt see pensions 3250.

.17 When a change in an accounting policy is applied retroactively, the financial statements of all prior periods presented for comparative purposes should be restated to give effect to the new accounting policy, except in those circumstances when the effect of the new accounting policy is not reasonably determinable for individual prior periods. In such circumstances, an adjustment should be made to the opening balance of the accumulated surplus/deficit of the current period, or such earlier period as is appropriate, to reflect the cumulative effect of the change on prior periods. [SEPT. 1997]

Required:

Restatement of prior periods wherever possible.

.18 For each change in an accounting policy in the current period, the following information should be disclosed: (a) a description of the change; (b) the effect of the change on the financial statements of

the current period; and



56

(c) the reason for the change. [SEPT. 1997]

.19 When a change in an accounting policy has been applied retroactively and prior periods have been restated, the fact that the financial statements of prior periods that are presented have been restated and the effect of the change on those prior periods should be disclosed. [SEPT. 1997]

.20 When a change in an accounting policy has been applied retroactively but prior periods have not been restated, the fact that the financial statements of prior periods that are presented have not been restated should be disclosed. The cumulative adjustment to the opening balance of the accumulated surplus/deficit of the current period should also be disclosed. [SEPT. 1997]

.21 When a change in an accounting policy has not been applied retroactively, this fact should be disclosed. [SEPT. 1997]

.22 The disclosure of particulars, including dollar amounts, applies to each change in an accounting policy; it is not appropriate to net items when considering materiality. [SEPT. 1997]

.23 A change in an accounting policy that does not have a material effect in the current period but is likely to have a material effect in future periods should be disclosed. [SEPT. 1997]

Change in an Accounting Estimate

.28 The effect of a change in an accounting estimate should be accounted for in: (a) the period of change, if the change affects the financial results of that period only; or (b) the period of change and applicable future periods, if the change affects the financial results of both current and future periods. [SEPT. 1997]

This is current practice. Example would be Prior Period Grant Adjustment.


57

CORRECTION OF AN ERROR IN PRIOR PERIOD FINANCIAL STATEMENTS

.30 The amount of the correction of an error that impairs the fairness of financial statements of prior periods should be reported retroactively. Comparative information should be restated, unless it is impracticable to do so. [SEPT. 1997]

Note required when applicable

.34 When there has been a correction in the current period of an error in prior period financial statements, the following information should be disclosed: (a) a description of the error; (b) the effect of the correction of the error on the financial

statements of the current and prior periods; and (c) the fact that the financial statements of prior periods

that are presented have been restated. [SEPT. 1997]

.35 Financial statements of prior periods should be adjusted only for a change in an accounting policy or for a correction of an error in prior period financial statements, in accordance with this Section. [SEPT. 1997]

PS 2400 – Subsequent Events

.09 Financial statements should be adjusted when events occurring between the date of the financial statements and the date of their completion provide sufficient, additional evidence relating to conditions that existed at the date of the financial statements. [MARCH 1997]

No current policy

.13 Financial statements should not be adjusted for, but disclosure should be made of, those events occurring between the date of the financial statements and the date of their completion that do not relate to conditions that existed at the date of the financial statements but: (a) cause significant changes to assets or liabilities in the

subsequent period; or (b) will, or may, have a significant effect on the future


58

operations of the government. [MARCH 1997]

.15 Disclosure of a subsequent event that does not require adjustment of the financial statements should include: (a) a description of the nature of the event; and (b) an estimate of the financial effect, when practicable, or

a statement that such an estimate cannot be made. [MARCH 1997]

PS 2500 – Basic Principles of Consolidation Need to determine what organizations are out there that

may need to be consolidated under PSA Handbook

recommendations. See Section 1300.07 re: Reporting

Entity

.06 Government summary financial statements should consolidate governmental units 2 line-by-line on a uniform basis of accounting after eliminating inter-governmental unit transactions and balances. [MAY 1999]

2. Governments normally create governmental units, often through a restructuring of existing government resources, rather than acquire them. Accounting for acquired governmental units is dealt with in ADDITIONAL AREAS OF CONSOLIDATION, paragraphs PS 2510.11-.32.

School level funds not generally consolidated into the

school boards financial statements.

Probably varying treatments for reporting on expenses of

cooperatives or other related enterprises.

Trusts under Administration are not reported in board’s

financial statements and are not required to be reported

under PSA Handbook (see 1300.40)But they are required

to be disclosed in the notes.

Required:

Consolidation of school funds

Consolidation of “government units”. Need to

identify the various types of “government units” that

school boards might have? Refer to PS 1300 –

Government Reporting Entity.

Note disclosure relating to trusts under

administration (see 1300.44)

.15 Inter-governmental unit gains and losses arising on the sale or transfer of assets remaining within the government reporting entity should be eliminated. [MAY 1999]

.20 When, for purposes of consolidation, it is not possible to use governmental unit financial statements for a period that substantially coincides with that of the government's summary financial statements, this fact, and the period covered by the governmental unit financial statements used,


59

should be disclosed. [MAY 1999]

.21 When the fiscal periods of a government reporting entity and a governmental unit are not the same, events relating to or transactions of the governmental unit that have occurred during the intervening period and significantly affect the financial position or results of operations of the government reporting entity should be recorded in the government's summary financial statements. [MAY 1999]

PS 2510 – Additional Areas of Consolidation

.05 When a non-controlling interest exists in a governmental unit, the government reporting entity should include that governmental unit in its summary financial statements on a proportionate consolidation basis. The summary financial statements should disclose the existence and extent of a non-controlling interest in a governmental unit. [MAY 1999]

Shared Services Cooperatives are not generally discussed

in the note disclosures.

Accounting for the revenues and expenses probably differs

from board to board.

.09 When accumulated losses applicable to the non-controlling interest in a governmental unit exceed the non-controlling interest's share in the capital of the governmental unit, the excess and any further losses otherwise applicable to the non-controlling interest should be allocated only to the government's interest. Subsequent earnings should be allocated entirely to the government's interest until previously absorbed losses relating to the non-controlling interest are recovered. [MAY 1999]

.10 Government summary financial statements should disclose any accumulated losses accounted for in accordance with PS 2510.09. [MAY 1999]

.12 Government summary financial statements should consolidate acquired governmental units line-by-line on a uniform basis of accounting, after eliminating inter-governmental unit transactions and balances in accordance with BASIC PRINCIPLES OF CONSOLIDATION, paragraphs PS 2500.08-.18, and taking into account paragraph PS 2510.31. [MAY 1999]


60

.15 The purchase cost of a governmental unit to a government should be determined by the fair value of the consideration given. In those cases where the fair value of the consideration is not clearly evident, the government's share of the fair value of the net assets acquired should be used as the purchase cost to the government. [MAY 1999]

.17 The purchase cost and the amounts assigned to assets acquired and liabilities assumed should be determined as of the date of the acquisition. [MAY 1999]

.18 For the period in which a purchase of a governmental unit occurs, government summary financial statements should reflect the government's proportionate share of the results of the acquired governmental unit from the date of acquisition. [MAY 1999]

.22 The government's interest in identifiable assets acquired and liabilities assumed should be based on their fair values at the date of acquisition. When there is a difference between the purchase cost and the government's share of the fair value of the net assets of the acquired governmental unit: (a) any excess of the purchase cost over the government's

interest in identifiable assets acquired and liabilities assumed, based on their fair values, should be accounted for as a purchase premium in accordance with paragraph PS 2510.23.

(b) such that the government's interest in the identifiable assets acquired and liabilities assumed, based on their fair values, exceeds the purchase cost, the amounts assigned to identifiable non-monetary assets should be reduced to the extent that the excess is eliminated. [MAY 1999]

.23 When the purchase of a governmental unit gives rise to a purchase premium, it should be recognized as an expenditure or expense in the period of acquisition. [MAY 1999]


61

.25 Expenditures or expenses directly incurred in effecting an acquisition of a governmental unit accounted for as a purchase should be included as part of the cost of the purchase. [MAY 1999]

.27 Balances at the date of acquisition between existing governmental units and a newly acquired governmental unit should be eliminated on consolidation. [MAY 1999]

.30 When the carrying value of the assets of an existing governmental unit includes gains and losses arising from transactions with the newly acquired governmental unit which took place prior to the date of acquisition, such gains and losses should not be eliminated unless the transactions were made in contemplation of acquisition. [MAY 1999]

.32 When a government acquires a governmental unit, the following should be disclosed: (a) the name and a brief description of the governmental

unit acquired and, when shares are acquired, the percentage of voting shares held;

(b) the date of acquisition and the period for which the results of the acquired governmental unit are included in the consolidated statement of results;

(c) net assets acquired: (i) total assets at the amount assigned thereto; (ii) total liabilities at the amount assigned thereto; and

(d) the amount and type of consideration given, at fair value and the resulting amount of any purchase premium that has been charged to expenditures or expenses in the period. [MAY 1999]

.34 When all or part of a government's investment in a governmental unit is sold, the gain or loss on sale should be based on the carrying value of the governmental unit's net assets in the consolidated statement of financial position at the date of sale. [M AY 1999]


62

.36 The gain or loss on the sale of all or part of an investment in a governmental unit should be included in the determination of consolidated results in the period of sale. [MAY 1999]

.45 When a governmental unit changes in status to a government business enterprise, the change cannot create revenue or otherwise improve the net financial position of the government reporting entity. [MAY 1999]

PS 2600 – Foreign Currency Translation School Boards do not generally have foreign currency

transactions

Not considered to be an issue

PS 3030 – Temporary Investments

.02 The statement of financial position should report a

government's temporary investments at the end of the

accounting period. [MARCH 1997]


.03 Financial statements should disclose adequate information

about the nature and terms of a government's temporary

investments together with any valuation allowances. Such

information would include the amounts outstanding and the

method of valuation. [MARCH 1997]

No note disclosure relating to temporary investments. Required:

Note Disclosure if material

.04 Where there are holdings of marketable securities, their

quoted market value as well as their carrying value should

be disclosed. [MARCH 1997]

N/A

.05 When the market value of temporary investments has

declined below the carrying value, they should be carried at

N/A


63

market value. [MARCH 1997]

PS 3040 – Portfolio Investments School Boards do not generally have portfolio investments Not considered to be an issue

PS 3050 – Loans Receivable School Boards do not generally have Loans Receivable Not considered to be an issue

3060 – Government Partnerships

.29 Government financial statements should recognize the government's interest in government partnerships, except for government business partnerships, using the proportionate consolidation method. [OCT. 1999]

Varying treatments for reporting on expenses and

revenues of organizations that might be considered to be

government partnerships.

Required:

Need to identify government partnerships that

school boards are involved in.

Proportional consolidation

.32 Government business partnerships should be accounted for by the modified equity method applied using the government's share of the government business partnership. [OCT. 1999]

.41 When a government invests assets in a government partnership and receives in exchange an interest in the government partnership, any loss 9 that occurs should be recognized at the time of the initial investment in the statement of results for the period. [OCT. 1999] 9. A loss occurs when the fair value of the asset invested is less than its net carrying amount in the government's financial statements.

.43 When a government invests assets in a government partnership and receives in exchange an interest in the government partnership, any gain 10 that occurs should be reported in the financial statements of the government as a deferred gain at the time of the initial investment only to the extent of the interests of the other non-related partners. [OCT. 1999]

10. A gain occurs when the fair value of the asset


64

invested is greater than its net carrying amount in the government's financial statements.

.45 When a government partnership other than a government business partnership is dissolved, any deferred gain related to the assets invested by the government should be recognized as revenue. [OCT. 1999]

.47 For government business partnerships, any deferred gain related to the assets invested by the government should be amortized to net operating results in a rational and systematic manner over the life of the invested assets. If the invested assets are non-depreciable, the deferred gain should be amortized to net operating results on a basis appropriate to the expected revenue or service to be obtained from their use by the government business partnership. When the invested assets are disposed of by the government business partnership to an independent third party, any unamortized portion of the deferred gain should be recognized as revenue. [OCT. 1999]

.49 When tangible capital assets are invested in a government partnership other than a government business partnership, the government should report those assets as follows: (a) the other non-related partners' share of assets invested

by the government would be treated as disposals by the government; and

(b) the government's share of assets invested by the other non-related partners would be treated as purchases by the government in accordance with the relevant Recommendations in FINANCIAL STATEMENT PRESENTATION — FEDERAL, PROVINCIAL & TERRITORIAL GOVERNMENTS, Section PS 1200, GENERAL STANDARDS OF FINANCIAL STATEMENT PRESENTATION — LOCAL GOVERNMENTS, Section PS 1800, and TANGIBLE


65

CAPITAL ASSETS, Section PS 3150. [OCT. 1999 *] * Editorial change — January 2003.

.55 Government financial statements should disclose, in notes or schedules: (a) A description of the nature and purpose of government

partnerships. (b) A listing of government partnerships, including the

government's share, separately identifying those that are accounted for using the proportionate consolidation method and those that are accounted for by the modified equity method.

(c) Condensed supplementary financial information relative to government partnerships. Such financial information should be provided separately for those government partnerships accounted for using proportionate consolidation and those accounted for using modified equity, on: (i) the financial position and results of operations,

including: • total assets and liabilities segregated by main

classification; • net assets or liabilities; • total revenues and expenditures or expenses;

and • net operating results for the period.

(ii) the nature and amount of any adjustments to the net assets or the net operating results, as shown in the financial statements of the government partnerships, to arrive at the amount included in the government's statement of financial position or statement of results.

(iii) transactions and balances with organizations included in the government reporting entity. [OCT. 1999]


No information available in school board notes regarding

government partnerships.

Current note disclosures requested by the ministry include

a note on controlled and related entities. Little information

is actually provided.


66

.56 The government should disclose its share of any contingencies and commitments of government partnerships and those contingencies that exist when the government is contingently liable for the liabilities of other parties to those government partnerships. [OCT. 1999]

.57 Deferred gains arising from the government's investment of assets in the government partnership should be reported with liabilities in the government's statement of financial position. [OCT. 1999]

PS 3070 – Investments in Government Business Enterprises

School boards will need to determine if they have any

investments in GBE’s

.14 When the carrying value of the assets of the government reporting entity or the acquired government business enterprise include gains and losses arising from inter-organizational transactions which took place prior to the date of acquisition, such gains and losses should not be eliminated unless the transactions were made in contemplation of acquisition. [APRIL 2000]

.15 Expenditures or expenses directly incurred in effecting an acquisition of a government business enterprise should be included as part of the cost of the purchase. [APRIL 2000]

.17 A purchase premium arising on the acquisition of a government business enterprise should be deferred and amortized to the government's income from an investment in a government business enterprise. The amortization period should be the lesser of the life of the purchase premium and twenty years. The method of amortization should be: (a the straight line method; or (b) another systematic method when it can be

demonstrated to be more appropriate in the circumstances than the straight line method. [APRIL 2000]


67

.19 Fair value increments related to depreciable assets should be amortized to the government's income from an investment in a government business enterprise over the estimated useful lives of the related assets. [APRIL 2000]

.22 When there has been a permanent impairment in value of the unamortized balance of a purchase price discrepancy, it should be written down. The write-down should be charged against the government's income from an investment in a government business enterprise. [APRIL 2000]

.23 A write-down of a government's investment in a government business enterprise to reflect a loss in value should not be reversed. [APRIL 2000]

.34 The transfer or sale of a tangible capital asset from a governmental unit to a government business enterprise should not improve the net results of the period or otherwise improve the net financial position of the government reporting entity. [APRIL 2000]

.40 When all or part of a government's investment in a government business enterprise is sold, for the purposes of calculating a gain or loss on the sale of an investment, the cost of the portion of the total investment sold should be calculated on the basis of the carrying value of the investment at the date of sale. [APRIL 2000]

.41 The gain or loss on the sale of all or part of a government's investment in a government business enterprise should be included in the determination of consolidated annual results in the period of sale. [APRIL 2000]

.46 When, for purposes of preparing government summary financial statements, it is not possible to use financial statements of a government business enterprise for a period which substantially coincides with that of the government's summary financial statements, this fact, and the period covered by the financial statements of the government business enterprise that are used, should be disclosed. [APRIL 2000]


68

.47 When the fiscal periods of the government reporting entity and a government business enterprise are not the same, events relating to, or transactions of, the government business enterprise that have occurred during the intervening period and significantly affect the consolidated financial position or results of operations of the government reporting entity should be recorded in government summary financial statements. [APRIL 2000]

.53 In the period that a government organization no longer meets the definition of a government business enterprise, the effect of conforming its accounting policies to those of the government reporting entity for the purposes of consolidation should be included in the determination of consolidated annual results. [APRIL 2000]

.56 When the circumstances affecting a government organization change such that it no longer meets the definition of a government business enterprise, the resulting change in accounting treatment, the underlying reasons for the change, and the financial effect of the change should be disclosed. [APRIL 2000]

.57 A government's investment in government business enterprises should be reported separately on the consolidated statement of financial position. [APRIL 2000]

.58 Income from investments in government business enterprises should be reported separately on the consolidated statement of results. [APRIL 2000]

.60 Government summary financial statements should disclose, in notes or schedules, condensed supplementary financial information relative to government business enterprises. Such financial information should be provided on: (a) the financial position and results of operations

including: (i) total assets and liabilities segregated by main

classification;


69

(ii) net assets or liabilities; (iii) total revenues and expenses; and (iv) net income or loss for the period.

(b) the nature and amount of any adjustments of the net assets or the net income, as shown in the government business enterprises' financial statements, to arrive at the amount included in the government's consolidated statement of financial position and the consolidated statement of results.

(c) transactions and balances with other organizations included in the government reporting entity.

(d) financial commitments and contingencies. (e) the nature and terms of any government guarantees

relating to outstanding debt issued by the government business enterprise.

(f) the government's percentage ownership of any government business enterprise that the government does not wholly own. [APRIL 2000]

.69 When a government acquires a government business enterprise, the following should be disclosed: (a) the name and a brief description of the government

business enterprise acquired and, when shares are acquired, the percentage of voting shares held;

(b) the date of acquisition and the period for which the results of the acquired government business enterprise are included in the consolidated statement of results;

(c) net assets acquired: (i) total assets at the government business

enterprise's original carrying amount and at the amount assigned thereto, and

(ii) total liabilities at the government business enterprise's original carrying amount and at the amount assigned thereto;

(d) the amount and type of consideration given, at fair value and the resulting amount of any purchase


70

premium, together with the period of amortization; and (e) a description of the nature of the purchase premium,

how the useful life of the purchase premium was determined and the method of amortization. [APRIL 2000]

.70 When there has been a permanent impairment in value of the unamortized portion of a purchase price discrepancy, the amount of the purchase price discrepancy that has been charged to the government's income from an investment in a government business enterprise should be disclosed. The facts and circumstances leading to the impairment should also be disclosed. [APRIL 2000]

PS 3100 Restricted Assets and Revenues

.11 Externally restricted inflows should be recognized as revenue in a government's financial statements in the period in which the resources are used for the purpose or purposes specified. An externally restricted inflow received before this criterion has been met should be reported as a liability until the resources are used for the purpose or purposes specified. [JUNE 1997]

Not current practice. Because of the way we flow grants through the Revenue

Fund and then transfer to Reserves – Externally restricted

inflows are shown as current revenue.

Many of the current “reserves” will be recorded in the

summary financial statements as deferred revenues.

.18 Government financial statements should disclose in notes or schedules: (a) a general description of the nature and source of any

external restrictions; (b) the amounts of externally restricted inflows by major

source; (c) the amount of, and changes in, the deferred revenue

balance attributable to each major category of external restrictions; and

(d) any externally restricted assets that are segregated, including an explanation of the relationship of those assets to the related liability. [JUNE 1997]

Not current practice. Currently DSB’s do not include notes regarding required

transfers to reserves.

Currently have a reserve fund continuity schedule that

provides some information on the changes in the reserve

fund balances.


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.24 Government financial statements should disclose, in notes or schedules, condensed supplementary financial information relative to internally restricted entities. The financial information should be provided for internally restricted entities or groups of similar entities, and for all internally restricted entities as a whole. The information provided should report the financial position and results of operations, including: (a) total assets and liabilities segregated by main

classification; (b) net assets or liabilities; (c) total revenues and expenditures / expenses; and (d) net operating results for the period. In addition, a general description of the nature of the internal restriction should be provided. [JUNE 1997]

Not current practice. An example of an internally restricted entity might be a

foundation.


include information regarding the requirement for

appropriate note or schedule disclosure with examples.

.30 When a government chooses to provide information about designated assets, it should do so in the notes, not on the statement of financial position. Such disclosure should include a description of the assets and their intended use. [JUNE 1997]

Reserve fund assets are shown on Sch 7.

PS 3150 – Tangible Capital Assets The Recommendations are intended to apply to the

federal, provincial and territorial governments.

NOT APPLICABLE TO LOCAL GOVERNMENTS

PS 3230 – Long Term Debt

.02 The statement of financial position should report a government's long-term debt at the end of the accounting period. [MARCH 1997]

This is current practice. Current practice of school boards is in keeping with this

section of the Handbook.

In some cases, additional detail may be required in note

disclosure over what is currently being reported.

.03 When a government has externally restricted sinking funds 2 set aside to retire its long-term debt, the following information should be provided:

This is current practice and is included in current

statements and notes.


72

(a) the gross amount of the long-term debt to be retired by the sinking funds; and

(b) the amount of sinking fund assets available to retire the debt. [MARCH 1997]

2 External restrictions are defined in RESTRICTED ASSETS AND REVENUES, paragraph PS 3100.04(a).

.06 When debt is issued by a government and some or all of the proceeds are subsequently loaned to a government business enterprise, except in the circumstances in paragraph PS 3230.10, the government should: (a) recognize the entire amount borrowed from sources

external to the reporting entity as a liability and the related receivable from the government business enterprise as a financial asset in the consolidated statement of financial position; and

(b) recognize the interest on the entire amount of debt borrowed as an expenditure or expense and the related interest earned from the government business enterprise as a revenue, in the consolidated statement of results. [APRIL 2000]

Do not believe this is an issue for school boards.

.10 When there is sufficient evidence that debt has been issued by a government specifically on behalf of a government business enterprise: (a) the debt issued on behalf of the government business

enterprise and the related receivable from the government business enterprise should be presented on a net basis in the consolidated statement of financial position; and

(b) the interest expenditure or expense on the debt issued on behalf of the government business enterprise and the related interest revenue from the government business enterprise should be presented on a net basis in the consolidated statement of results. [APRIL 2000]

.12 Sufficient evidence that debt has been specifically issued by a government on behalf of a government business


73

enterprise comprises: (a) details in the terms of the debt prospectus, borrowing

by-laws, or other terms of the original debt issuance documentation, which require a specified amount of the proceeds of the debt issue to be passed directly from the government to the government business enterprise;

(b) the intention of the government and the government business enterprise that the government will realize the receivable from the government business enterprise and settle the external debt simultaneously, which is contractually supported by the details of the loan amount, interest rate, and timing and nature of repayment outlined in the terms of the agreement between the government and the government business enterprise; and

(c) the financial ability of the government business enterprise to fulfill the requirements in (b) as demonstrated by a realistic and specific business plan 3 projecting the future results of operations of the government business enterprise. [APRIL 2000]

3 GOVERNMENT REPORTING ENTITY, paragraph PS 1300.31, states that one of the factors in assessing if a government business enterprise meets the financial sustainability criterion inherent in the definition of a government business enterprise is whether the organization has in place "realistic and specific plans that show how it expects to be able to maintain its operations and meet its liabilities in the future."

.13 When, in a period subsequent to the debt issue, the conditions in paragraph PS 3230.12(b) and/or (c) are no longer met, the government should report the remaining financial arrangement with the government business enterprise in accordance with paragraph PS 3230.06. [APRIL 2000]

.15 Financial statements should disclose information to highlight the composition of a government's long-term debt


74

as follows: (a) the gross amount outstanding; (b) the amounts issued specifically on behalf of

government business enterprises and reported in accordance with paragraph PS 3230.10;

(c) the net amount reported on the consolidated statement of financial position;

(d) the gross interest paid or payable for the period relating to the debt described in (a);

(e the interest revenue for the period received or receivable from government business enterprises on debt issued specifically by the government on behalf of government business enterprises and reported in accordance with paragraph PS 3230.10; and

(f) the net amount of interest expenditure or expense reported on the consolidated statement of results. [APRIL 2000]

.17 Financial statements should disclose adequate information about the nature and terms of a government's long-term debt, as described in paragraph PS 3230.15(a), including: (a) interest rates; (b) the existence of sinking fund and redemption

provisions; (c) an appropriate description of repayment dates and

amounts and the nature of the repayment; and (d) any amounts payable on demand. [APRIL 2000]

.18 Financial statements should disclose the aggregate amount of payments estimated to be required in each of the next five years and thereafter to meet sinking fund or retirement provisions for the debt disclosed in accordance with paragraph PS 3230.15(a), as well as the amounts to be recovered in each of those years and thereafter from government business enterprises in relation to the debt disclosed in accordance with paragraph PS 3230.15(b). [APRIL 2000]


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.22 When a government holds its own securities at the end of the accounting period, the following should be disclosed: (a) the gross amount of the long-term debt classes to

which the securities relate; and (b) the amount of the government's own securities

purchased but not cancelled. [MARCH 1997]

.24 If any of the liabilities are secured, they should be stated separately and the fact that they are secured should be indicated. Where assets of a government are pledged as security against liabilities, the nature and, where practicable, the carrying value of such assets should be disclosed. [MARCH 1997]

.25 The details of any defaults of the government in principal, interest, sinking fund or redemption provisions with respect to any outstanding obligation should be disclosed. [MARCH 1997]

PS 3250 – Retirement Benefits Not current practice

In 2002-03, boards will start reporting liability and

accounting expense information in a note to the financial

statements.

Major change that will result in two issues:

• Accumulated “deficit” when the liability is placed on

the statement of financial position.

• What amount is to be utilized in calculating the

current year surplus/deficit in accordance with the

regulations. There are significant differences

between the accounting expense as calculated by

this section and PS 3255 and the current expense

that boards are charging to expenditures.

.016 The statement of financial position should report the retirement benefit liability and the statement of revenues and expenditures or the statement of operations should report the expenditures / expenses for retirement benefits on the basis of the value of the benefits attributed to employee


76

service to the accounting date. [SEPT. 2001]

.025 An accrued benefit method should be used to attribute the cost of retirement benefits to the periods of employee service. [SEPT. 2001]

.029 The projected benefit method prorated on services should be used to attribute the cost of retirement benefits to the periods of employee service. [SEPT. 2001]

.037 For a defined benefit plan, plan assets should be valued at market-related values. [SEPT. 2001]

.042 Actuarial assumptions should be based on the government's best estimates of expected long-term experience and short-term forecasts. [SEPT. 2001]

.045 Actuarial assumptions should be internally consistent. [SEPT. 2001]

.050 An accrued benefit asset should be presented on a government's statement of financial position net of any valuation allowance. When a defined benefit plan gives rise to an accrued benefit asset, a government should recognize a valuation allowance for any excess of the adjusted benefit asset over the expected future benefit. A change in valuation allowance should be recognized in operations for the period in which the change occurs. [SEPT. 2001]

.062 Except in the circumstances in paragraph PS 3250.068, PS 3250.071 and PS 3250.078, actuarial gains and losses should be amortized to the liability or asset and the related expenditure / expense in a systematic and rational manner over the expected average remaining service life of the related employee group. [SEPT. 2001]

.066 The cost of plan amendments related to prior period employee services should be accounted for in the period of the plan amendment. [SEPT. 2001]

.068 In the period of a plan amendment related to prior period employee services that results in an increase in the accrued


77

benefit obligation, if net unamortized actuarial gains exist, these should be recognized immediately, to a maximum of the prior period service cost, and offset against the prior period service cost in the statement of operations, with separate disclosure in the notes. [SEPT. 2001]

.071 In the period of a plan amendment related to prior period employee services that results in a decrease in the accrued benefit obligation, if net unamortized actuarial losses exist, these should be recognized immediately, to a maximum of the decrease in the accrued benefit obligation. The net amount would be recognized in the statement of operations, with separate disclosure in the notes. [SEPT. 2001]

.078 Gains and losses determined upon a plan settlement or curtailment should be accounted for in the period of the settlement or curtailment. [SEPT. 2001]

.081 When a government participates in a joint defined benefit plan, the government's risk is limited to its portion of the plan. The government should account for its portion of the plan in accordance with the Recommendations for defined benefit plans. [SEPT. 2001]

.084 Financial statements should disclose: (a) a general description of retirement benefit plans,

benefit formulae and funding policy, including a description of significant changes to retirement benefit plans during the period;

(b) the accrued benefit obligation at the end of the period, as determined by the actuarial valuation;

(c) the market value of plan assets at the beginning and the end of the period and, if different, the market-related value of plan assets at the beginning and the end of the period;

(d) the amount of retirement benefit liability or accrued benefit asset at the end of the period, indicating separately the amount of any valuation allowance determined in accordance with paragraph PS


78

3250.050. (e) unamortized actuarial gains and losses and the periods

of amortization; (f current period benefit cost; (g) cost of plan amendments incurred during the period; (h) net actuarial gains or losses recognized in the

determination of the cost of plan amendments in accordance with paragraphs PS 3250.068 and PS 3250.071;

(i) other gains and losses on accrued benefit obligations arising during the period;

(j) other gains and losses on plan assets arising during the period;

(k) gains and losses arising from plan settlements and curtailments incurred during the period;

(l) amortization of actuarial gains and losses reflected in the current year expenditure / expense;

(m) the amount recognized as a result of a temporary deviation from the plan, determined in accordance with paragraph PS 3250.073;

(n) the change in a valuation allowance determined in accordance with paragraph PS 3250.050;

(o) the amount of contributions by employees during the period;

(p) the components of the retirement benefits interest expenditure / expense for the period;

(q) the amount of contributions by the government during the period;

(r) the amount of benefits paid during the period; (s) the expected return and actual return on plan assets

during the period; (t) assumptions about long-term inflation rates, expected

rate of return on plan assets, assumed health care cost trends, rate of compensation increase (for pay-related


79

plans) and discount rate; and (u the date of the most recent actuarial valuation

performed for accounting purposes. [SEPT. 2001]

.087 A government should provide these disclosures separately for plans that provide pension benefits and plans that provide retirement benefits other than pensions. [SEPT. 2001]

.088 A government that has aggregated disclosures for its defined benefit pension plans, or for its other defined benefit retirement plans, should provide the disclosures separately for the aggregate of plans with accrued benefit obligations in excess of plan assets. [SEPT. 2001]

.093 For joint defined benefit plans, in addition to the disclosures required in paragraphs PS 3250.084 government financial statements should disclose: (a) the significant accounting policies for joint plans; (b) a description of the unique nature and terms of any

joint plans; (c) the government's share of the risks and benefits under

the plans; and (d) the total financial status of any joint plans. [SEPT.

2001]

.097 For defined contribution plans: (a) the liability for retirement benefits should be the

difference between the amount a government was required to contribute and the amount that was contributed to the accounting date including accumulated interest on any outstanding amounts payable to the fund at the accounting date;

(b the retirement benefit liability should be accounted for in the statement of financial position;

(c the expenditure / expense for retirement benefits should be the amount of required contributions provided for employees' services rendered in the


80

accounting period. Interest accrued during the period on any outstanding amounts payable to the fund should be accounted for as a retirement benefit interest expenditure / expense; and

(d the retirement benefit expenditure / expense and the retirement benefit interest expenditure / expense should be accounted for in the statement of revenues and expenditures / expenses or the statement of operations. [SEPT. 2001]

.099 For a defined contribution plan, the cost of current and expected future years' contributions related to a past service plan amendment should be accounted for in the period of the plan amendment. [SEPT. 2001]

.100 For defined contribution plans, financial statements should disclose: (a) a general description of benefit plans, contribution

formulae and funding policy; (b) the expenditure / expense recognized for the period;

and (c) a description of significant changes to benefit plans

during the period. [SEPT. 2001]

.108 When a government sponsors a defined benefit multiemployer retirement plan, the government should follow the Recommendations for defined benefit plans in accounting for its obligation for the plan. [SEPT. 2001]

.110 When benefits are provided to employees through a multiemployer retirement benefit plan, each entity participating in the plan, other than the sponsoring government, should follow the Recommendations for defined contribution plans. [SEPT. 2001]

.111 The government should disclose any available information about any surplus or deficit in a multiemployer plan, the basis used to determine the surplus or deficit and the implications, if any, for the government. [SEPT. 2001]


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.114 When benefits are provided to employees through a defined benefit multiple-employer retirement plan, each entity in the plan should follow the Recommendations for defined benefit plans.

.117 The Recommendations of this Section should be accounted for as a change in accounting policy applied retroactively. [SEPT. 2001]

PS 3255 – Post Retirement Benefits, Compensated Absences and Termination Benefits.

Not current practice Under PSAB would be applicable to DSB financial

statements for fiscal year 2004/05 at the latest.

.16 A government should recognize a liability and an expense / expenditure for post-employment benefits and compensated absences that vest or accumulate in the period in which employees render services to the government in return for the benefits. The Recommendations of RETIREMENT BENEFITS, Section PS 3250, should be followed in accounting for such benefits. [JAN. 2004 *]

.22 A government should recognize a liability and an expense / expenditure for post-employment benefits and compensated absences that do not vest or accumulate when the event that obligates the government occurs. [JAN. 2004 *]

.24 For a separately measured plan providing post-employment benefits or compensated absences that do not vest or accumulate, a government should recognize any actuarial gain or loss: (a) immediately, in the period in which it arises; or (b) over a period linked to the type of benefit. [JAN. 2004 *]

.28 A government should recognize termination benefits as a liability and expense / expenditure when it is demonstrably committed to either: (a) terminate the employment of an employee or group of

employees; or (b) provide termination benefits as a result of an offer to

encourage voluntary termination. [JAN. 2004 *]


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.37 The Recommendations of this Section should be applied for fiscal years beginning on or after January 1, 2004. Earlier adoption is encouraged. [JAN. 2004]

.40 The Recommendations of this Section should be accounted for as a change in accounting policy applied retroactively. [JAN. 2004 *]

PS 3270 – Solid Waste Landfill Closure and Post-Closure Liability

Not Applicable

S 3310 – Loan Guarantees Do not believe this will be an issue for school boards

.05 Government loan guarantees should be accounted for and reported as contingent liabilities in the government's summary financial statements. [JUNE 1995]

.08 A provision for losses on loan guarantees should be established when it is determined that a loss is likely, and should be accounted for as a liability and an expenditure. [JUNE 1995]

.10 The provision for losses on loan guarantees should take into account the principal amount outstanding, accrued and unpaid interest if it is guaranteed, and amounts recoverable from the borrower and from the sale of assets pledged as security. [JUNE 1995]

.14 The provision for losses on loan guarantees should be determined using the best estimates available in light of past events, current conditions, and taking into account all circumstances known at the date of preparation of the financial statements. [JUNE 1995]

.18 The provision for losses on loan guarantees should be reviewed on an ongoing basis. Any changes in the provision for losses on loan guarantees should be charged or credited to current year's expenditures. [JUNE 1995]

.20 The provision for loss on a loan guarantee should be removed from the government's statement of financial position when the guaranteed loan has been discharged or


83

the term of the loan guarantee has expired. [JUNE 1995]

.24 The amount of a guaranteed loan that is expected to be repaid from future government assistance should be accounted for as a liability and an expenditure in the period when a direct relationship can be established between the repayment of the loan and the government's funding to the borrower. [JUNE 1995]

.29 Government financial statements should disclose information to describe the accounting policies selected and applied to loan guarantees, including: (a) the basis for initial recognition and measurement of the

provision for losses on loan guarantees; and (b) the policy with respect to changes in the amount of the

provision. [JUNE 1995]

.31 Government financial statements should disclose in notes or schedules the nature and terms of significant classes of loan guarantees. Information that should be disclosed includes: (a) the authorized limit; (b) the principal amount outstanding; (c) the amount of provision for losses; and (d) general terms and conditions. [JUNE 1995]

PS 3410 – Government Transfers

.07 Government transfers should be recognized in a government's financial statements as expenditures or revenues in the period that the events giving rise to the transfer occurred, as long as: (a) the transfer is authorized; (a) eligibility criteria, if any, have been met by the recipient;

and (a) a reasonable estimate of the amount can be made. The basis for determining the amount recognized for any particular transfer should be applied consistently from year

School boards do not make significant Government

Transfers that would come under this section.


84

to year. Judgment will be required to account for transfers in a manner that best reflects the substance of the underlying events rather than the form or funding pattern. [NOV. 1990]

.11 Adjustments to estimated amounts of government transfers made or received that are known before the financial statements are completed should be recognized as expenditures or revenues in those financial statements. [NOV. 1990]

Current practice for revenues received.

.19 Liabilities should be recognized by the transferring government for estimated unpaid entitlements due at the end of the accounting period to those individuals who had met eligibility criteria. [NOV. 1990]



.23 Liabilities should be recognized by the transferring government for the estimated unpaid portions, at the end of the accounting period, of the entitlements due to other governments or institutions in accordance with the governing legislation or regulation. [NOV. 1990]

.24 Receivables should be recognized by the recipient government for the estimated portions of entitlements due but not yet received, at the end of the accounting period, in accordance with the governing legislation or regulation. [NOV. 1990]


.25 If, at the end of the accounting period, the transferring government has overpaid any entitlements owed to other governments or institutions, the amounts overpaid should be recognized as receivables by the transferring government and as liabilities by the recipient government. [NOV. 1990]


.32 Liabilities should be recognized by the transferring government at the end of the accounting period for the estimated, unpaid portion of incurred eligible expenditures owed to recipients pursuant to a shared cost agreement. [NOV. 1990]


.33 Receivables should be recognized by the recipient government at the end of the accounting period for the estimated, unpaid portion of eligible expenditures incurred



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during the period that the transferring government has agreed to share pursuant to a shared cost agreement. [NOV. 1990]

.38 Liabilities should be recognized by the transferring government for any unpaid, authorized grants at the end of the accounting period for which the recipients have met eligibility criteria, if any, prior to the end of that period. [NOV. 1990]



.39 Receivables should be recognized by the recipient government for those grants authorized by the transferring government prior to the end of the accounting period but not yet received, if the recipient government has met eligibility criteria, if any, prior to the end of that period. [NOV. 1990]


.46 Government transfers that are paid before expenditure recognition criteria have been met should be recorded in the transferring government's financial statements as financial assets until those criteria have been met. [NOV. 1990]

Not always current practice. See previous discussion of deferred revenues and reserve

funds.

.48 Government transfers received before revenue recognition criteria have been met should be recorded in the recipient government's financial statements as a liability until those criteria have been met. [NOV. 1990]

.52 The transferring government should not record contingent recoveries as financial assets in its financial statements. However, when it is likely that the recipient will not meet the conditions related to a particular transfer, the existence of the contingent recovery should be disclosed in the notes to the financial statements. [NOV. 1990]

.56 Financial statements should disclose: (a) a clear and concise description of accounting policies

regarding government transfers (see DISCLOSURE OF ACCOUNTING POLICIES, Section PS 2100); and

(b) major kinds of transfers made or received. [NOV. 1990]

PS 3800 – Government Assistance (Application of CICA Handbook Section 3800)

Not applicable to school boards.


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