Financial Reporting Standards, MODULE 7 Financial Reporting Standards, Tools and Practices Lecturer: Peter Moreira, MBA, CGA

GOVERNMENT FINANCIAL REPORTING Main Estimates and budget of Minister of Finance reflect annual budget planning and resource allocation priorities of government various documents and reports are prepared as part of federal planning and reporting cycle reports on plans and priorities, departmental performance reports, the F/S (public accounts) Treasury Board Accounting Policy and Principles (Standard 1.1) states that federal government departments will follow generally accepted accounting principles as defined in PSAH items not covered in PSAH the Handbook Accounting is authoritative reference manual

PS 1000 1100 and 1201 requires government F/S include statement of financial position statement of operations Statement of remeasurement gains and losses statement of change in net debt statement of cash flow There is also: notes and schedules to F/S

Government Canada Planning/Reporting Cycle

ACCRUAL ACCOUNTING PS 1000 PS 1200 PS 3150 adopted accrual accounting as requirement for senior governments PS 1200 assets and liabilities must be recognized in the statement of financial position tangible capital assets must be amortized PS 3150 all levels of government report tangible capital assets on an accrual basis effective 2009

Disaster Financial Assistance Manitoba Notes F/S 2008/09 Disaster Financial Assistance The Government pays for flood and other disaster-related expenses and subsequently recovers a certain amount of the expenses based on cost-shared agreements with the Federal Government. The amounts recoverable are uncertain at the date the summary financial statements were issued. A recovery provision of $39 million (2008 - $65 million) has been set up based on past claims recovery experience.

GOVERNMENT REPORTING ENTITY PS 1300 defines Government Reporting Entity (GRE) and identifies which organizations should be included in government F/S and how should be accounted for GRE is organizations that government controls control is defined (PSAB) as power to govern financial/operating policies of an organization with expected benefits or risk of loss to government from activities desire to provide an accounting of full nature and extent of financial affairs and resources of government

Government Reporting Entity - Province of Manitoba Consolidated Fund - Operating and Special Accounts Crown and Not-for-profit Organizations Government Business Enterprises (GBEs) Consolidated Fund (Core Government) includes activities of government departments/agencies and Special Accounts not attached to sector or department (Fiscal Stabilization, Debt Retirement)

Crown and Not-for-profit Organizations includes crown corporations (Manitoba Housing and Renewal Corporation) and SUCH sector - school districts, universities, colleges and health authorities GBEs (PS 1300) defined as self-sufficient organization carrying on a business in marketplace and not merely delivering government services e.g. Manitoba Hydro, MPI separate legal entity with power to contract in its own name and that can sue and be sued been delegated financial and operational authority to carry on business sells goods and services to individuals and organizations outside of government reporting entity as its principal activity can maintain its operations and meet its liabilities from revenues received from sources outside GRE

Government Reporting Entity - Government of Canada (includes all departments, agencies, corporations, organizations and funds which are controlled by the government) Consolidated Fund - Operating and Special Accounts Crown and Not-for-profit Organizations (CBC, VIA Rail, Canada Foundation for Sustainable Development Technology) Government Business Enterprises (Canadian Wheat Board, Vancouver Fraser Port Authority)

Governmental Units include Government Not for Profit Organizations Govt Depts Funds Agencies Service Organizations Boards Excludes GBE’s

PS 2700 includes standards on how to define and disclose segments in government consolidated F/S goal is to provide disaggregated information that is relevant for accountability and decision-making PS 1300 segment defined as distinguishable activity or group of activities for which it is appropriate to separately report financial information to achieve these objectives

e.g. Sector Province of Manitoba F/S 2009/10 Education Manitoba Advanced Education and Literacy Manitoba Education, Citizenship and Youth Assiniboine Community College Brandon University Collège universitaire de Saint-Boniface Council on Post-Secondary Education Red River College University College of The North University of Manitoba University of Winnipeg Manitoba Text Book Bureau Public School Divisions Public Schools Finance Board

ACCOUNTING GOVERNMENT REPORTING ENTITY Basis of accounting F/S of Canada prepared using the government accounting policies which are based on Canadian generally accepted accounting principles for the public sector financial activities of federal GRE are consolidated in F/S except for crown corporations and other GBEs which are not dependent on the government for financing their activities maintain their accounts in accordance with accounting principles generally accepted for business enterprises derive majority of their revenue from sources outside the GRE and are reported in the consolidated F/S using the modified equity method of accounting original investment of the government in GBEs is initially recorded at cost and adjusted annually to include net earnings/losses and other net equity changes of these enterprises without adjusting their accounting policies to a basis consistent with that of the GRE

RESTRICTED ASSETS AND REVENUES PS 3100 separates restricted assets and revenues into three categories External restrictions revenues to be used for specified expenditures or classes of expenditures note disclosure e.g. federal transfers - Canada Health Transfer (CHT) Internally restricted entities creation of separate legal internal entities for particular purposes where restrictions prohibit use of entity’s assets or revenues to finance other government operations and imply an accountability relationship with taxpayers information on financial position and results of operations of internally restricted entities included in F/S e.g. Manitoba Floodway Authority $700M

Designated assets designated assets are formally identified by governments for specific purposes through legislation, by-law or resolution e.g. municipal infrastructure note disclosure e.g. Canada-Manitoba Agreement on the Transfer of Federal Gas Tax Revenues under the 2005-2015 New Deal for Cities and Communities - $168 million over the first 5 years

LEGISLATIVE CONTROLS FOR FINANCIAL REPORTING legislative controls are designed to provide accountability from those who execute decisions (government) to those who authorize decisions (parliament) and to public PS 1100 F/S should provide information useful in evaluating financial results of government management of its resources, obligations and financial affairs in accounting period

2009/10 tabled in House of Commons by President of TB on October 28/10 Public Accounts of Canada is report of government prepared annually (March 31) by Receiver General as required by FAA 2009/10 tabled in House of Commons by President of TB on October 28/10 information Public Accounts Volume 1 of Public Accounts intended to fulfill function identified in PS 1100 originates from two sources of data summarized financial transactions presented in the accounts of Canada maintained by the Receiver General detailed records maintained by departments and agencies each department and agency is responsible for reconciling its accounts to the control accounts of the Receiver General

Public Accounts of Canada (3 Volumes) Volume I (Summary Report and Financial Statements) F/S of Canada on which Auditor General has expressed an opinion and provided observations Volume II (Details of Expenses and Revenues) financial operations of government, segregated by ministry and is designed to reflect as closely as possible the form and content of Part II of Main Estimates Volume III (Additional Information and Analyses) supplementary information and analyses such as professional and special services, acquisition of land/buildings/works and transfer payments

should be reconciliation of actual budget to reclassified budget budget (budget appropriations and statutory spending) to actual amounts required for Statement of Operations Statement of Change in Net Debt should be reconciliation of actual budget to reclassified budget reclassified budget is main estimates and statutory spending appropriations adjusted for supplementary estimates and special warrants

exceeding authority limits Notes to F/S should disclose instances where departmental spending exceeded its parliamentary approved spending (PS 1100) provide information useful in "assessing whether resources were administered by government in accordance with limits established by appropriate legislative authorities” no particular format is prescribed exceeding authority limits if appropriations are exceeded the excess is to be charged against supplementary estimates for the same year or from Main Estimates for the following year (FAA)

Public Accounts of Manitoba (4 Volumes) prepared annually by statutory requirement in accordance FAA and reflect financial position of government and operating results for fiscal year Volume 1 (published as part of Government Annual Report) Economic Report Financial Statement Discussion and Analysis audited Summary Financial Statements of government focusing on entire reporting entity other audited Financial Reports (3 Statements - calculation of balance under BBL, fiscal stabilization account, debt retirement account)

Volume 2 audited Schedule of Public Sector Compensation Payments of $50,000 or more paid through Government Departments and Special Operating Agencies details of unaudited Consolidated Fund and Special Operating Agencies payments in excess of $5,000 to corporations, firms, individuals, other governments and government agencies Volume 3 details of Core Government Financial Information, Borrowings and Guarantees and Revenue/Expense Volume 4 audited financial statements of funds, organizations, agencies and enterprises included in GRE but is not considered part of the Public Accounts

Module Summary Identify the required financial statements for governments. (Level 1) Review the application of accrual accounting in the public sector and some of the challenges it raises. (Level 1) Identify the government reporting entity, including the organizations it includes; the main and other indicators of government control over an organization; and the purpose and segment disclosure requirements of Section PS 2700 — segment disclosures. (Level 1) Review how controlled organizations should be accounted for in government financial statements and the rationale for the accounting treatment for government business enterprises (GBEs). (Level 1) State and illustrate the accounting and disclosure requirements for restricted assets and revenues. (Level 1) Identify the reporting requirements for the comparison of actual and budgeted results. (Level 1)