113
Formulaire de réponse Document de consultation 1 : Caractéristiques des entités du secteur public Ce formulaire ne vise pas à restreindre votre réponse. Chaque boîte de texte acceptera l'intégralité de vos commentaires. Vous pouvez sauvegarder le formulaire et l'envoyer, pour examen, à d'autres personnes de votre organisation avant de le soumettre. Nom : André Matte Organisation : Bureau du vérificateur général de la Ville de Lévis Courriel : [email protected] POUR ÊTRE PRIS EN CONSIDÉRATION, LES COMMENTAIRES DEVRONT ÊTRE REÇUS D'ICI LE 15 OCTOBRE 2011 Préparé par le Groupe de travail sur le cadre conceptuel 1. La liste des caractéristiques essentielles des entités du secteur public est-elle exhaustive? Dans la négative, quelles caractéristiques sont absentes et comment devraient-elles être décrites? 1. A - Pérennité présumée de leur existence : les gouvernements sont des entités ayant une très faible probabilité de connaître une fin de vie, ce qui module l’importance de certaines informations financières par rapport au secteur privé. B - Importance de la prévoyance à long terme : les services fournis par les gouvernements sont à la base de l’existence de la société telle qu’on la connaît. La prévoyance à long terme quant au maintien des services comme la sécurité publique et l’application des lois, ou des équipements comme les infrastructures de production d’eau, de communication, de gestion des matières résiduelles, de transport ou encore de fourniture d’énergie revêt une importance cruciale. (Une des responsabilités mentionnées au point 3 du document de consultation, soit « exister et exercer leurs activités à perpétuité (pérennité) afin de répondre aux besoins du ressort territorial », touche cet aspect, mais à mon avis, il revêt une importance telle qu’il serait pertinent d’en faire une caractéristique.) 2. Chaque caractéristique essentielle est-elle décrite de façon appropriée? Veuillez expliquer les modifications qui devraient être apportées, le cas échéant. 2. Commentaire relatif à la caractéristique « Obligation de rendre des comptes » : Dans les normes de comptabilisation et de présentation, on doit porter une attention particulière à l’adéquation juste entre la place au jugement et l’imposition de règles précises, afin de minimiser le risque de subjectivité intéressée, risque élevé étant donné la nature politique de la gouvernance, tout en maintenant la latitude qu’implique la diversité des activités et des types d’organisation. 3. Considérées individuellement, les caractéristiques essentielles (y compris celles que vous avez ajoutées, le cas échéant) ont-elles des incidences sur la comptabilité ou la présentation des états financiers des entités du secteur public (ou ceux des gouvernements seulement ou des organismes publics seulement)? Veuillez décrire ces incidences. Soulèvent-elles des questions comptables particulières (par exemple existe-t-il un actif, un passif, des produits ou des charges; quand et comment un élément devrait-il être comptabilisé dans les résultats annuels; l'entité est-elle en situation de continuité de l'exploitation)? Des éléments, des indicateurs ou des comparaisons spécifiques devraient-ils être présentés dans les états financiers? Un état financier nouveau ou différent ou une présentation nouvelle ou différente des états financiers sont-ils requis? Veuillez être aussi précis que possible. 3. Selon moi, en rapport avec la caractéristique B proposée ci–haut « Importance de la prévoyance à long terme », on doit retrouver aux états financiers des données claires quant aux efforts consentis par les gouvernements à ces fins, pour que d’éventuels indicateurs puissent refléter la suffisance ou non de ces efforts. En effet, si l’entité n’a pas provisionné des sommes suffisantes pour assurer par exemple la pérennité des infrastructures, elle s’expose à un risque élevé de se retrouver en situation de manque de fonds face à des investissements à caractère obligatoire, étant donné que le renouvellement des infrastructures existantes ne représente pas vraiment un choix, contrairement à d’autres types d’investissements. En ce sens, cette pérennité représente une certaine forme d’engagement financier implicite. À ce sujet, l’ex-vérificatrice générale, madame Sheila Fraser, a identifié lors de son discours d’adieu le besoin de remplacer les infrastructures comme étant un des principaux défis financiers du Canada. Actuellement, les états financiers, du moins dans

2011-10 Characteristics of Public Sector Entities RESPONSES

Embed Size (px)

DESCRIPTION

government accounting standards

Citation preview

Page 1: 2011-10 Characteristics of Public Sector Entities RESPONSES

Formulaire de réponse Document de consultation 1 : Caractéristiques des entités du secteur public

Ce formulaire ne vise pas à restreindre votre réponse. Chaque boîte de texte acceptera l'intégralité de vos commentaires. Vous pouvez sauvegarder le formulaire et l'envoyer, pour examen, à d'autres personnes de votre organisation avant de le soumettre.

Nom : André Matte

Organisation : Bureau du vérificateur général de la Ville de Lévis

Courriel : [email protected]

POUR ÊTRE PRIS EN CONSIDÉRATION, LES COMMENTAIRES DEVRONT ÊTRE REÇUS D'ICI LE 15 OCTOBRE 2011 Préparé par le Groupe de travail sur le cadre conceptuel

1. La liste des caractéristiques essentielles des entités du secteur public est-elle exhaustive? Dans la négative, quelles caractéristiques sont absentes et comment devraient-elles être décrites?

1. A - Pérennité présumée de leur existence : les gouvernements sont des entités ayant une très faible probabilité de connaître une fin de vie, ce qui module l’importance de certaines informations financières par rapport au secteur privé. B - Importance de la prévoyance à long terme : les services fournis par les gouvernements sont à la base de l’existence de la société telle qu’on la connaît. La prévoyance à long terme quant au maintien des services comme la sécurité publique et l’application des lois, ou des équipements comme les infrastructures de production d’eau, de communication, de gestion des matières résiduelles, de transport ou encore de fourniture d’énergie revêt une importance cruciale. (Une des responsabilités mentionnées au point 3 du document de consultation, soit « exister et exercer leurs activités à perpétuité (pérennité) afin de répondre aux besoins du ressort territorial », touche cet aspect, mais à mon avis, il revêt une importance telle qu’il serait pertinent d’en faire une caractéristique.)

2. Chaque caractéristique essentielle est-elle décrite de façon appropriée? Veuillez expliquer les modifications qui devraient être apportées, le cas échéant.

2. Commentaire relatif à la caractéristique « Obligation de rendre des comptes » : Dans les normes de comptabilisation et de présentation, on doit porter une attention particulière à l’adéquation juste entre la place au jugement et l’imposition de règles précises, afin de minimiser le risque de subjectivité intéressée, risque élevé étant donné la nature politique de la gouvernance, tout en maintenant la latitude qu’implique la diversité des activités et des types d’organisation.

3. Considérées individuellement, les caractéristiques essentielles (y compris celles que vous avez ajoutées, le cas échéant) ont-elles des incidences sur la comptabilité ou la présentation des états financiers des entités du secteur public (ou ceux des gouvernements seulement ou des organismes publics seulement)? Veuillez décrire ces incidences. Soulèvent-elles des questions comptables particulières (par exemple existe-t-il un actif, un passif, des produits ou des charges; quand et comment un élément devrait-il être comptabilisé dans les résultats annuels; l'entité est-elle en situation de continuité de l'exploitation)? Des éléments, des indicateurs ou des comparaisons spécifiques devraient-ils être présentés dans les états financiers? Un état financier nouveau ou différent ou une présentation nouvelle ou différente des états financiers sont-ils requis? Veuillez être aussi précis que possible.

3. Selon moi, en rapport avec la caractéristique B proposée ci–haut « Importance de la prévoyance à long terme », on doit retrouver aux états financiers des données claires quant aux efforts consentis par les gouvernements à ces fins, pour que d’éventuels indicateurs puissent refléter la suffisance ou non de ces efforts. En effet, si l’entité n’a pas provisionné des sommes suffisantes pour assurer par exemple la pérennité des infrastructures, elle s’expose à un risque élevé de se retrouver en situation de manque de fonds face à des investissements à caractère obligatoire, étant donné que le renouvellement des infrastructures existantes ne représente pas vraiment un choix, contrairement à d’autres types d’investissements. En ce sens, cette pérennité représente une certaine forme d’engagement financier implicite. À ce sujet, l’ex-vérificatrice générale, madame Sheila Fraser, a identifié lors de son discours d’adieu le besoin de remplacer les infrastructures comme étant un des principaux défis financiers du Canada. Actuellement, les états financiers, du moins dans

Page 2: 2011-10 Characteristics of Public Sector Entities RESPONSES

le monde municipal, présentent généralement peu de distinction entre les investissements relatifs au développement de nouvelles infrastructures, qui soit dit en passant entraîneront à long terme de futurs besoins, et ceux touchant le renouvellement des infrastructures existantes.

4. Les caractéristiques pour lesquelles il n'y a pas d'incidence identifiable sur les plans de la comptabilité ou de la présentation devraient-elles tout de même faire partie du cadre conceptuel à titre d'information contextuelle sur les entités du secteur public?

4. Oui, car ils permettent de mieux cerner l'ensemble des enjeux en cause, et peuvent ainsi entraîner ultérieurement des points de vue n’ayant pas ressortis en début de processus, et qui pourraient avoir un impact sur la comptabilité.

COMMENTAIRES GÉNÉRAUX

Cliquez ici pour soumettre

Page 3: 2011-10 Characteristics of Public Sector Entities RESPONSES

Response Questionnaire Consultation Paper 1: Characteristics of Public Sector Entities

TO BE CONSIDERED, COMMENTS MUST BE RECEIVED BY OCTOBER 15, 2011 Prepared by: Conceptual Framework Task Force

This form is not intended to constrain your response. Each text box will accommodate your full comments. You are able to save and forward this form to others in your organization for review prior to submission.

Name: Don Epp

Organization: Treasury Board Staff, Ministry of Finance, Government of British Columbia

E-mail: [email protected]

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

Yes, except that #9 Non-exchange transactions could use some clarification as it applies to the broader government reporting entity. I believe financial significance is an important consideration that is overlooked in this proposed key characteristic. Presumably, the term "public sector entities" not only includes individual governments and government organizations, but also the government reporting entity (GRE). Financial significance has different implications for a small government organization than it does for the GRE. We have small government organizations whose revenue, derived solely from government grants, is in the low hundred thousand dollar range, and whose expenses are targeted at a single objective. These organizations are consolidated into the GRE based on the control criteria, however, this consolidation has no material impact on the GRE financial statements. The consolidation requirement imposes an additional administrative burden on the small organization that unnecessarily diverts resources from its objective. The nature of the grant and its amount are reported by the larger government ministry or agency that provided the grant, so no additional information is provided by the consolidation. IPSAS seems to have taken this anomaly into account. In its "Key Characteristics of the Public Sector with Potential Implications for Financial Reporting" exposure draft (April 2011), IPSASB qualifies this characteristic as follows: The Volume and Financial Significance of Non-Exchange Transactions. The concept of materiality needs to be added to the measures of control when defining the key characteristics of the broader GRE.

2. Is each key characteristic appropriately described? Please explain any changes that should be made.

Yes, except as follows: Multiple Objectives: While it can be inferred from the text, it is not explicitly stated that not all government organizations have multiple objectives. And it is not the multiplicity of objectives that characterizes a public sector entity (a private sector company can also have more than one objective), it is the nature of the objectives that distinguishes a public sector entity. so perhaps it is the title of this characteristic that should be changed. I would suggest: "Nature of objectives". Operating and Financial Frameworks set by Legislation: The wording here implies that this is a characteristic shared by all public sector entities. We have government organizations that have been set up under the Societies Act, or as a nominal single-share company under the Companies Act, whose operating and financial frameworks are set by policy. there is no legislation specific to these organizations. They are included in the GRE by virtue of control, and their purpose stems from the general responsibilities of the individual responsible ministers, but there is no requirement for enabling legislation. Also, legislation does not provide promises and rarely outlines policies. Rather legislation is enabling in nature; providing legal authority for the activities of government. So it does not outline policy, it gives the minister responsible the authority to establish policy. so the last sentence in this section is a bit misleading. All of the activities of government are established in legislation. Public accountability involves reviewing not only the policies and promises that are implemented under the authority of this legislation, but also the vehicle that is used to deliver on those policies and promises - i.e. the use of government organizations instead of direct program delivery by government. Government Structures: Same issue here. The last sentence should read ". . . within the frameworks established under the authority of legislation." Non-exchange transactions: See comments under section 1. Generally, there needs to be some language on materiality here.

Page 4: 2011-10 Characteristics of Public Sector Entities RESPONSES

3. For each key characteristic (including any that you have added), does it have reporting or accounting implications for the financial statements of public sector entities (or for the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; when/how should an item be recognized in annual results; is the entity a going concern)? Or should particular items or indicators or comparisons be reported in the financial statements? Or is a new/different financial statement or a new/ different financial statement format required? Please be as specific as you can.

Public Accountability: This has reporting and accounting implications for all three types of public sector entities: the GRE, governments and government organizations. The primary area of accountability lies in the income statement: What revenues were generated? What was the revenue used for (i.e. expenses)? Was a deficit incurred? What is your deficit in proportion to GDP? This has implications for the reporting of non-exchange transactions where governments receive funding from higher levels of government (i.e. transfers from the federal government to provincial governments). The timing of revenue recognitions needs to match the expenses when incurred. It is also important to focus on more detail behind the expenses reported. Broad categories of function are not sufficient; need a more stringent requirement for sub categories related to programs in terms that the general public can relate to. Balance sheet reporting is not as significant, except that the definition of what should be included in government debt is important. Key measures of government accountability include debt to GDP ratios, so it is important that the debt reported in the financial statements reflects the definitions used by external stakeholders. Nature of objectives: No financial reporting implications; performance measured in outcomes. Rights, powers and responsibilities: This has linkages to public accountability. Government has the power to tax you, therefore it should provide information about what revenues it derives from each taxation source. Government has responsibility for services; therefore it should provide information on the resources allocated to those services - once again in terms understandable to the general public who are the main recipients of those services. Lack of equity ownership: No financial reporting implications Operating and financial frameworks established under legislation: No financial reporting requirements. The importance of the budget: It is possible to remove the complexities of reconciling the budget to the financial statements by requiring the budget to be prepared on the same accounting basis as the financial statements. that is what we have done in BC, and it enables more transparency and accountability in financial reporting. Governance structure: No financial reporting implications. Nature of resources: Assets are held for service provision and not an ability to generate future cash flows. This impacts the recognition criteria, especially with respect to FMV. Similarly, debt is incurred and paid out at maturity, not traded. FMV of bond issues is not relevant to public sector entity accountability. Non-exchange transactions and their financial significance to the entity: There are two implications here. One is the matching of transactions received to delivery of services those transfers were intended to fund. The other is whether a transaction is material enough to require the consolidation of a public sector entity into a broader GRE reporting statement (see discussion under item 1).

4. For each of those characteristics that do not have identifiable accounting or reporting implications, should they still be included in the conceptual framework as contextual information about public sector entities?

Yes. They provide context about the nature of the public sector entities that can influence reporting and identify stakeholders.

GENERAL COMMENTS

The conceptual framework not only needs to reflect he key characteristics of public sector entities; it also needs to reflect the key characteristics of the public sector stakeholders, including their information requirements. the general public wants to know what revenues were generated, how they were generated, and where they were allocated. Bondholders want to know if government is generating enough revenue to meet interest payments. Governments are evaluated on their debt to GDP ratios, but the definition of debt used in creating those ratios is not the same as what is in the financial statements, which creates confusion as government reports two sets to debt numbers. Therefore, public sector entity reporting requirements are significantly different than the private sector, and private sector experiences should not colour public sector accounting policy.

Click here to submit

Page 5: 2011-10 Characteristics of Public Sector Entities RESPONSES

Government of Alberta _ Treasury Board and Enterprise

Office of the Controller 4th Floor, Oxbridge Place Telephone: 780-427-3076

9820 - 106 Street Fax: 780-422-2164

Edmonton, AB T5K 2J6

AR#4216

October 13, 2011

Mr. Tim Beauchamp, Director Public Sector Accounting Canadian Institute of Chartered Accountants 277 Wellington Street West Toronto ON M5V 3H2

Dear Mr. Beauchamp:

Re: Consultation Paper 1- Characteristics of Public Sector Entities

Thank you for the opportunity to comment on the consultation paper.

We would like to compliment the Board for embarking on the conceptual framework project. Issuing a consultation paper as part of the exposure process is a first for the Board. We feel the early feedback provided in response to the consultation paper is very helpful in deciding the course of future work and the contents of the proposed statement of principles on the framework.

We note that the task force is attempting to construct the framework independently without viewing it through a private-sector lens. In our view, this approach is very helpful and effective in providing an objective and unbiased picture of the financial reporting issues faced by governments and public sector entities. We also note that the task force has made a conscious effort to limit the scope of the consultation paper to the underlying concepts for preparation and presentation of general purpose financial statements of governments and government organizations. In our view, this provides a better focus on the relevant issues.

The task force has done a remarkable job in identifying most of the key characteristics of public sector entities. In our view, in order to provide the necessary perspective and direction to the future deliberations of the task force, the following two characteristics of governments should also be recognized:

Page 6: 2011-10 Characteristics of Public Sector Entities RESPONSES

Primary Users

The primary users of a government's financial statements are the public and their elected representatives. The public as owners of a government are entitled to know and understand the facts. As many people that rely on government financial statements may not be very sophisticated users, the financial statements must be above all understandable. The conceptual framework should therefore provide the foundation for financial statements that do not require an experienced financial expert to interpret. However, in our view, financial statements should not exclude information merely because it is difficult to understand or because some users choose not to use it, but that information should be made understandable.

Sovereignty of Governments

Governments have the power through law, regulation and taxation to exercise ultimate control over many aspects of the economy and society. Governments are only accountable to their citizens and no higher agency has the power to demand an accounting from the governments. This implies that they have the power to decide on the form of accountability to their citizens and hence on the form and content of their budget and financial reporting . Governments may decide at their own discretion to adopt public sector accounting standards to report on their accountability to the public. A conceptual framework should therefore ensure it lays the foundation for effective and clear financial reporting of sovereign government activities and not try to report using standards more applicable to the private sector.

We also noted that in most cases the significance and the impact, if any, of identified characteristics on financial reporting are not discussed.

Our other comments on the consultation paper follows. Where practical, we have tried to identify the financial reporting implications of the concepts discussed.

Definition of Government

In our view, it is essential to revisit the definition of government. The current PSA Handbook definition 1 : " ... the elected and appointed policy-makers and administrators who together perform the executive function and are the preparers of financial statements." does not support the notion of perpetuity of governments and also accountability of cabinet and the legislature to the public. We suggest the task force

IpS 1100.02

Page 7: 2011-10 Characteristics of Public Sector Entities RESPONSES

consider the definition of "government" proposed by the PSAB-Deputy Ministers of Finance Joint Working Group (JWG). The proposed definition of government by JWG is as follows:

"A socio-economic entity separate from the individuals elected to govern the jurisdiction and continuing to exist beyond the term of any particular elected administration. "

We agree with the JWG's view that this definition will encourage a focus on the long­term perspective of government and its going concern nature.

Public Accountability

We agree that the concept of accountability, as the cornerstone of all financial reporting in governments, should be given more prominence. The structure of governments, the nature of resources provided and the political process are the features of the environment that underscore the need for accountability. Accountability is the whole essence of financial reporting by governments to account for the revenues raised and the purposes for which they are used. In our view, accountability should form the primary basis of financial reporting objectives by governments. The main function of the task force is to reconcile general purpose financial statements and the myriad forms of accountability structures among various governments. The other challenge is to determine the limits and adequacy of disclosure. The costs and benefits of disclosure should be weighed against the public's right to know.

Demonstrating accountability involves reporting on legal constraints imposed by the legislature. Considering differences in the structure of governments, the nature of resource providers, and their political processes, the accountability reports of similarly designated governments may be different. Achieving comparability in financial reporting among various jurisdictions may be difficult. The task force has to demonstrate that the differences in financial reporting should be due to the differences in the underlying structures and transactions and not due to selection of different alternatives in accounting principles and practices. The task force's (or future standard setters') challenge is to help users make comparisons among governments; for examples cost of specific functions or components of revenue.

The consultation paper makes references to non-financial outcomes and performance measurement (page 8). We suggest such references be amended to avoid creating the perception that the task force is digressing from its main focus on financial reporting.

Multiple Objectives

It should perhaps be clarified that the role of financial reporting is not to measure and report on effectiveness and efficiency of providing public services and goods.

The task of financial reporting is how to report on accountability expectations of multiple stakeholders.

Page 8: 2011-10 Characteristics of Public Sector Entities RESPONSES

Rights, Powers and Responsibilities (Constitutional or Devolved)

It may be useful to explain the reasons why governments exist and operate in perpetuity, i.e. the ability to tax and the ongoing need for public services. The propensity for longevity may be cited as the basis for focusing on a longer term view of operations rather than on short term fluctuations in fair value of certain assets and liabilities.

Some sections of the PSA Handbook are partly based on this concept (e.g., contingent liabilities, contractual obligations, liability for contaminated sites).This concept should influence future revisions to PSA Handbook sections on financial instruments, retirement benefits and post employment benefits, compensated absences and termination benefits .

Lack of Equitv Ownership

The fact that government operations are not financed through equity ownership and its implications should be discussed. The financial statements of governments do not have to provide for the needs of equity markets and their focus on valuation of their ownership interests.

Lack of equity ownership interest is also another factor that may influence governments' accounting for pension liabilities and financial instruments. It appears that this concept has already been incorporated in defining reporting entity and the concept of control in governments as discussed in PS 1300. The notion of control in governments is not primarily based on equity ownership.

In evaluating the financial reporting implications of this concept, we should also consider the relevance of net-debt model in the context of financial statements of government organizations.

Operating and Financial Frameworks set by Legislation (i.e., Legal Requirements)

This concept is part of the broader accountability of governments. It should be stressed that reporting on legislative compliance is not always within the purview of general purpose financial statements. In many jurisdictions the volume of publications to comply with legislative requirements overshadows general purpose financial statements. In our view, the form and content of such reports cannot be part of GAAP.

The Importance of the Budget

We agree that demonstrating accountability for compliance with budget authority is a key objective of government financial statements. The fact that the scope and basis of the budget is decided by governments and the complexities of reconciliation between the budget and actual results should be stated. Compliance with budget could perhaps be combined with the accountability characteristic.

Page 9: 2011-10 Characteristics of Public Sector Entities RESPONSES

Govemance Structures

One of the probable likely outcomes of governments' governance structure is the relatively short-term mandate of elected representatives and the resulting short-term outlook on fiscal accountability. For example, the appearance of a balanced budget might not be indicative of true equilibrium in some cases. Therefore, to achieve accountability, financial reporting should assist users to assess the true result of operations and the financial position.

Nature of Resources

It should be clarified that some of these resources cannot be measured and recognized in the financial statements of governments.

A discussion about the assessment of impairment of tangible capital assets owned by government which should be based on service potential (or change of purpose) rather than future cash flows may have been useful.

Non-exchange Transactions

A discussion of the common characteristics of all government non-exchange transaction, i.e. the fact that stipulation and eligibility criteria are critical in their recognition and deferral would have provided context to the importance of such transactions to governments.

Notwithstanding our comments above, our responses to matters on which specific comment is requested are included in Appendix I.

Thank you again for the opportunity to comment.

Yours truly,

~~ Gisele Simard, CA Acting Controller

cc: Mr. Merwan Sa her, CA Auditor General of Alberta

Page 10: 2011-10 Characteristics of Public Sector Entities RESPONSES

APPENDIX I

Response to Specific Questions

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

No. As stated in our covering memo, consideration should be given as to whether the sovereignty of governments and the nature of the primary users of financial statements should be included as characteristics of governments.

The sovereignty characteristic may have significant implications on financial reporting . For example, sovereign governments may decide to have their own non­GAAP accounting policy for summary budgets and financial reporting.

Also the citizenry, as the primary users of government's financial statements, may not have the same degree of knowledge and sophistication as the shareholders of business enterprises. Therefore, understandability of financial statements is crucial if a government wants to answer to its citizens.

Although potentially rare, but nevertheless for the sake of completeness, a discussion of constructive liabilities of governments may be appropriate. Such constructive liabilities may arise out of exchange and non-exchange transactions when social , moral, or economic consequences leave a government little or no discretion to avoid sacrifice of resources. These types of liabilities are a distinguishing feature of governments.

2. Is each key characteristic appropriately described? Please explain any changes that should be made.

Yes, subject to our comments in the covering memo.

3. For each key characteristic (including anything that you have added), does it have reporting or accounting implications for the financial statements of public sector entities (or for the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; whenlhow should an item be recognized in annual results; is the entity a going concern)? Or should particular items or indicators or comparisons be reported in the financial statements? Or is a new/different financial statement or a new/different financial statement format required? Please be as specific as you can.

We have discussed the accounting and reporting implications under each characteristic. New accounting and reporting implications may arise as the expectations of stakeholders evolve in future.

Page 11: 2011-10 Characteristics of Public Sector Entities RESPONSES

4. For each of those characteristics that do not have identifiable accounting or reporting implications, should they still be included in the conceptual framework as contextual information about public sector entities?

In our view, the inclusion of all characteristics is helpful to provide a better understanding of the nature of governments. With the evolution of accounting concepts, it is difficult to identify the characteristics that do have any accounting or financial reporting implications - or even unintended consequences. However, as stated in our covering memo, the characteristics for which no accounting or reporting implications can currently be identified should be singled out.

Page 12: 2011-10 Characteristics of Public Sector Entities RESPONSES

Response Questionnaire Consultation Paper 1: Characteristics of Public Sector Entities

DATE: October 14, 2011 NAME: Brenda R. Breault, CMA, MBA Commissioner of Corporate Services and Treasurer ORGANIZATION: City of Mississauga EMAIL: [email protected] Good Morning: Thank you for the opportunity to provide input in the Conceptual Framework Consultation Paper #1- Characteristics of Public Sector Entities. Public Sector organizations were asked to provide input into the consultation paper, specifically the definitions and key characteristics of a public sector entity. The City of Mississauga was invited to send written comments and recommendations to the PSAB Task force. City Finance staff reviewed the consultation paper and have identified no further comments or recommendations regarding the consultation paper. The information and definitions presented with the consultation paper are reasonable, clear and relate to public sector entities. Specifically, we were asked to respond to the following 4 questions: 1. Is the list of Key characteristics of public sector entities complete? If not what is missing? Response: The City of Mississauga believes the list of key characteristics to be complete and have no further comments or concerns regarding this question. 2. Is each key characteristic appropriately described? Response: The City of Mississauga believes that each characteristic is appropriately described; however, we suggest that more information with regard to municipalities be reflected in the Government Structures area. 3. For each Key Characteristic, does it have reporting or accounting implications for the

financial statements of public sector entities? Please explain what the implications may be. Should particular items and indicators be reporting in the financial statements? Is a new/different financial statement format required?

Page 13: 2011-10 Characteristics of Public Sector Entities RESPONSES

Response: The City of Mississauga has not identified any reporting or accounting implications but recommend adding information in the Financial Statement Notes to provide more background information about the public sector entity to stakeholders. 4. For those characteristics that do not have identifiable accounting or reporting implications, should

they still be included in the conceptual framework as contextual information about public sector entities.

Response: The City of Mississauga believes all characteristics, regardless of accounting or reporting implications should be included in the conceptual framework as contextual information. This information is relevant for both public sector entities and stakeholders. Thank you, once again, for the opportunity to participate in your review. We look forward to future opportunities. If you have any further questions, please contact or email Mark Beauparlant, Manager of Corporate Financial Services ([email protected]) for assistance. Thank you, Brenda Brenda R. Breault, CMA, MBA Commissioner of Corporate Services & Treasurer City of Mississauga 300 City Centre Drive, 9th Floor Mississauga ON L5B 3C1 905-615-3200, ext. 5395 [email protected]

Page 14: 2011-10 Characteristics of Public Sector Entities RESPONSES

Response Questionnaire Consultation Paper 1: Characteristics of Public Sector Entities

TO BE CONSIDERED, COMMENTS MUST BE RECEIVED BY OCTOBER 15, 2011 Prepared by: Conceptual Framework Task Force

This form is not intended to constrain your response. Each text box will accommodate your full comments. You are able to save and forward this form to others in your organization for review prior to submission.

Name: Ron Williams, CA (Comptroller General of Finance)

Organization: Government of Newfoundland and Labrador

E-mail: [email protected]

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

As these characteristics are apart of the building blocks or principles through which the existing concepts underlying the Public Sector Accounting (PSA) Handbook will be evaluated, it is important to first establish appropriate terminology and rationale. As such, there is concern that the consultation paper has not included a clear definition of government. While it may be difficult for the definition of government to encompass all its unique characteristics; it should contain certain aspects to provide a clear understanding of its structure and its purpose. Currently, the PSA Handbook defines government as being the “elected and appointed policy-makers and administrators who together perform the executive function and are the preparers of financial statements”. This definition is not adequate to define a government. While a government does include elected and appointed policy-makers, it does not include all elected officials. The definition of senior governments should establish it as a socio-economic entity that is defined by legislation and derives it powers from constitutional structure of Canada. Such a definition would establish the structure of government as entities in themselves that are separate from the executive branch of government and would encourage a long-term perspective of government. The list of key characteristics provided do cover the unique aspects of government; however there is some concern that certain characteristics should be combined. The headings for the characteristics are brief in some instances, and do not allow a high level understanding of the implied characteristic. Some of the details provided in the nine characteristics are repetitive or require additional consideration to completely understand the rationale. Rather than breaking the characteristics into numerous components, the rationale would be more adequately presented by taking some components and grouping them under a better description that reflects the unique aspect of governments. More specifically, the characteristics of rights, powers and responsibilities, lack of equity ownership and governance structures should be combined to form the characteristic of the constitutional structure of Canada. This would allow a more complete understanding of how these components are unique to governments. In the details provided, it did not make sense to have a lack of equity ownership as a standalone characteristic. In a similar manner, the characteristics of operating and financial frameworks set by legislation, and the importance of the budget should be grouped with the characteristic of public accountability.

2. Is each key characteristic appropriately described? Please explain any changes that should be made.

Further to the suggested groupings noted above, there are some specific concerns in relation to rationale provided for certain characteristics. However, as a more general comment, there is concern in positioning the key characteristics as those of public sector entities rather than of senior governments. While this CP is entitled “Characteristics of Public Sector Entities”, the details of the Paper use the reference of government more heavily than public sector entity. As such, the terminology “government(s)” is a necessary distinction to be made at times in the context of the PSA Standards.

Page 15: 2011-10 Characteristics of Public Sector Entities RESPONSES

This concern was also expressed in relation to the Exposure Draft (ED) “Update of Terminology”, recently issued by the PSAB that proposes to update references of “reporting entity”, “government”, and “government reporting entity” with “public sector entity” in order to clarify the applicability of the PSA Handbook to government organizations. While it is recognized that these organizations are to apply the PSA Handbook, it is seen that the unique characteristics that should be included in the Conceptual Framework should apply to senior governments. To support this position, it is noted that the details provided under certain characteristics relating to public sector entities is not appropriate; rather it serves to potentially diminish the value of the rationale that makes this characteristic unique to governments. In relation to multiple objectives, it makes comment that most public sector entities are not to generate a profit and in the second paragraph it contradicts this statement by noting that public sector entities do not exist to generate a financial return. This is an example that the rationale would be better presented on the basis of senior governments. Further, the characteristic of natural resources does not apply to public sector entities from the perspective of resources inherited in right of the Crown. The substitution of public sector entities into this document is considered premature and presumptuous considering that such a change is still going through due process. In relation to the development of specific characteristics, the following are some points of concern. In relation to accountability, the comment that “Independently set accounting standards can contribute to transparency in public sector financial reporting by ensuring that the standards are set through a public and rigorous due process” should be revised to reflect its application to financial statements. Further, it should note that governments have other types of accountability structures throughout government that are non-financial in nature (e.g. reduction of wait times within the health sector). In relation to multiple objectives, the bullets identify three separate objectives of government (service provision, resource reallocation, and/or policy development), while the accompanying details note that resource allocation and policy development area subset of the primary objective of service provision. They should be given equal and separate consideration. Further, it is felt that the list of objectives is not complete as it does not mention other possible objectives like social order and public health and safety for example. It is preferred that the characteristic be described from a contextual approach rather than through the use of a list. In terms of rights, powers and responsibilities, it is noted that this characteristic is presented from the perspective of governments, which is considered appropriate. It also notes in the last paragraph that “governments may choose to exercise these powers or meet these responsibilities directly or indirectly through various government organizations or in some cases through the reallocation of resources outside of government”. This statement reflects how government organizations fit within these characteristics; as an extension of government. It is to be reflected that government has the power to determine how to best provide its objectives and responsibilities. In discussing the rights, powers and responsibilities of government, it is considered more appropriate to not use lists (top of page 10) as it implies that it details all such rights, powers and responsibilities of governments. Further, I would like to emphasize the point made that these rights, powers and responsibilities may vary by level of government. In relation to the budget, the details provided appear appropriate. However, it should be noted that the fiscal annual budget document needs to be given more consideration as it is a framework in which governments must operate and demonstrate compliance. Further, I would note that due to the breadth and uniqueness of these frameworks, it is not required that all components of such fiscal policy and accountability frameworks are to be consistent with the PSA Conceptual Framework. As indicated in question one, the characteristics of rights, powers and responsibilities, lack of equity ownership and governance structures should be grouped under the characteristic of the constitutional structure of Canada. In relation, the rationale or implications of the Constitutional Act should be included. This would establish the division of authority between the federal and provincial governments; detail the authority that establishes the responsibility for delivery of programs that are shared or held by separate levels of government; detail that legislation may require a government to have a service delivered by a lower level of government; and establish jurisdictional independence within the framework.

Page 16: 2011-10 Characteristics of Public Sector Entities RESPONSES

3. For each key characteristic (including any that you have added), does it have reporting or accounting implications for the financial statements of public sector entities (or for the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; when/how should an item be recognized in annual results; is the entity a going concern)? Or should particular items or indicators or comparisons be reported in the financial statements? Or is a new/different financial statement or a new/ different financial statement format required? Please be as specific as you can.

At this point in time, it is considered premature to provide comment on reporting or accounting implications. As this document is to form the building blocks or premise of unique characteristics that should be reflected within the Public Sector Conceptual Framework, such details should first be more formalized. Such a discussion would be more appropriate as a part of the details of the second paper that is to discuss concepts such as users and user needs, objectives of reporting in financial statements, qualitative characteristics, elements, recognition and measurement.

4. For each of those characteristics that do not have identifiable accounting or reporting implications, should they still be included in the conceptual framework as contextual information about public sector entities?

All characteristics that are unique to governments should be included in the conceptual framework as contextual information. As noted previously, it should be in reference to senior governments and not public sector entities. The unique characteristics of government provide a justification for a unique set of generally accepted accounting principles; as such all details are necessary and should be considered in the development of the conceptual framework and standard setting. In developing all other components of the framework, these unique characteristics should be given consideration.

GENERAL COMMENTS

The Public Sector Accounting Board (PSAB) Conceptual Framework Task Force is to be commended on focusing on a framework that is to apply to financial statements and not financial reporting in general. However, it should be noted that the stated reasons for the project provides a narrow view of the concerns that were expressed by the senior government finance community through the Joint Working Group (JWG). The JWG raised concerns beyond the definitions of revenue and expenses that were leading to volatility in reported results and making it difficult to provide budget-to-actual comparisons as indicated in this consultation paper. It is our position that in giving this project appropriate attention, other concerns that are important to senior governments should be considered. The areas of concern include: the inadequate development of the unique characteristics of Governments and its consideration in development of the conceptual framework, the definition of government, primary users and user needs, and the lack of a balanced perspective on the importance of the various summary financial statement components that needs to be reflected in developing standards.

Click here to submit

Page 17: 2011-10 Characteristics of Public Sector Entities RESPONSES

Response Questionnaire Consultation Paper 1: Characteristics of Public Sector Entities

TO BE CONSIDERED, COMMENTS MUST BE RECEIVED BY OCTOBER 15, 2011 Prepared by: Conceptual Framework Task Force

This form is not intended to constrain your response. Each text box will accommodate your full comments. You are able to save and forward this form to others in your organization for review prior to submission.

Name: Kim MacPherson

Organization: Auditor General - Province of New Brunswick

E-mail: [email protected]

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

Yes

2. Is each key characteristic appropriately described? Please explain any changes that should be made.

With respect to key characteristic 1. Public accountability, I would suggest clarification in the first paragraph, specifically: a. It states governments are elected, then, within the same sentence implies requirement for accountability to “their elected representatives”. Is it intended that the accountability requirement is to themselves (or should it just be to the public)? b. With respect to government organizations: i. Not all governing bodies are elected – many are appointed ii. Not all are controlled (as per PSAB 1300). Not sure if it is intended to include government organizations not in the GRE. c. Given the complexity of trying to deal with both elected governments and government organizations (that follow PSAB) in the same context, maybe the conceptual framework should address the two separately? As I read through the other key characteristics – for the most part, it is in reference to elected governments only. However, under “governance structures” there is a clear, well described distinction between governments and government organizations.

3. For each key characteristic (including any that you have added), does it have reporting or accounting implications for the financial statements of public sector entities (or for the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; when/how should an item be recognized in annual results; is the entity a going concern)? Or should particular items or indicators or comparisons be reported in the financial statements? Or is a new/different financial statement or a new/ different financial statement format required? Please be as specific as you can.

Page 18: 2011-10 Characteristics of Public Sector Entities RESPONSES

4. For each of those characteristics that do not have identifiable accounting or reporting implications, should they still be included in the conceptual framework as contextual information about public sector entities?

GENERAL COMMENTS

· I would express my support for the process being used for the Conceptual Framework project. Given the significance of this initiative the consultation approach to “seek input on the building blocks” is very appropriate. Also, the webinar was very useful and hope PSAB continues to provide in the future. · Perhaps more of an issue for consultation paper 2, in my view, it is extremely important this conceptual framework project address the primary issue which sparked the need for the Joint Working Group – that is “volatility”. The issue remains particularly given recent PSAB revisions to government transfers, revenue recognition, financial instruments as well as definitions of assets and liabilities – most of which discourage deferrals. · I am hopeful that the work of the task force will address how best government financial statements can be used as a measure of a government’s performance. As we know, there are many uncontrollable factors, contained with financial statements, although important and appropriate to be included in the overall assessment, seem to confuse the public when they hope to use the f/s as the sole measure of a government’s performance. Is there a way the f/s can satisfy both of these two important objectives? (to present fairly, in all material respects, the financial results at a point in time but also present a fair performance evaluation of fiscal management of an elected government.) Fair performance assessments typically are based on factors within ones control. PSAB standards (like other standards) encompass many uncontrollable factors. Is it possible to isolate extraordinary uncontrollable factors when measuring performance? · I would much prefer PSAB come up with a solution (reflected in the conceptual framework using due process) rather than individual jurisdictions coming up with their own. This is not unlike how many senior government’s have come up with their own Balanced Budget legislation – all with different measures of assessing performance and determining a “balanced budget”.

Click here to submit

Page 19: 2011-10 Characteristics of Public Sector Entities RESPONSES

Deloitte & Touche LLP 2 Queen Street East Suite 1200 Toronto ON M5C 3G7 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca

October 15, 2011

Mr. Tim Beauchamp, Director Public Sector Accounting The Canadian Institute of Chartered Accountants 277 Wellington Street West Toronto, ON M5V 3H2 Dear Mr. Beauchamp,

Re: Conceptual Framework Task Force- Characteristics of Public Sector Entities Consultation Paper 1

We appreciate the opportunity to respond to the Conceptual Framework Task Force’s Characteristics of Public Sector Entities Consultation Paper 1.

We have reviewed the key characteristics of public sector entities and feel that they are appropriately described.

In considering the completeness of the list of key characteristics of public sector entities, we noted that the unique manner in which governments borrow, as compared to the private sector and the capacity to increase debt levels is an important characteristic of public sector entities, particularly governments. The nature and quality of financial information reported in public sector financial statements with respect to debt capacity and the means to repay borrowed amounts is an important aspect of government’s public accountability.

We would be pleased to discuss any questions or comments you many have with respect to this letter. To do so, please contact Paula Jesty (416-643-8787), Cindy Veinot (416-643-8752) or the undersigned.

Yours truly,

Thomas Kay

National Professional Practice Director

Deloitte & Touche LLP

Page 20: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 21: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 22: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 23: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 24: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 25: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 26: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 27: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 28: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 29: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 30: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 31: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 32: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 33: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 34: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 35: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 36: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 37: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 38: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 39: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 40: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 41: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 42: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 43: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 44: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 45: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 46: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 47: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 48: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 49: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 50: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 51: 2011-10 Characteristics of Public Sector Entities RESPONSES

October 14, 2011

Tim Beauchamp

Director, Public Sector Accounting

277 Wellington Street West

Toronto, Ontario M5V 3H2

Dear Mr. Beauchamp,

RE: Consultation Paper #1 – Characteristics of Public Sector Entities

Thank you for the opportunity to provide comments on the Characteristics of Public Sector

Entities Consultation Paper.

We would like to express our appreciation for the ability to offer our input at this early stage of

the Conceptual Framework Project. We definitely agree with the expressed intent to limit the

Conceptual Framework scope to financial statements only and encourage the Task Force to

maintain this strict focus.

The Consultation Paper deals with key characteristics of Public Sector Entities. Presumably, this

terminology is used to demonstrate that the Conceptual Framework applies to all entities

following Public Sector Accounting (PSA) Standards. However, we believe the Conceptual

Framework should emphasize the key characteristics of the government reporting entity (GRE)

over those of the individual organizations within the GRE. Ultimately, these stand-alone

organizations are instruments that the government has decided to use in fulfilling its broader

objectives. As such, the macro-level characteristics of the consolidated entity should be the

focus of the Conceptual Framework.

The Consultation Paper has identified a number of key characteristics of government. However,

Nova Scotia sees the critical characteristic being lost within the “Multiple Objectives”

description. We see the critical characteristic of government as being to serve and protect the

public interest. It is our opinion that more discussion is needed in this regard to provide clear

context as to what government’s fundamental purpose is and who it is intended to serve. Above

all else, governments exist to serve and protect the public interest. This is the overriding

characteristic of government; all others originate from this unique purpose.

PO Box 187

1723 Hollis Street

Halifax, NS B3J 2N3

(902) 424-7021

[email protected]

Department of Finance Government Accounting

Page 52: 2011-10 Characteristics of Public Sector Entities RESPONSES

Longevity is another key characteristic and should be added to the list. Governments have an

incomparable ability to generate and maintain liquidity. This has important financial reporting

implications as Canadian governments can be presumed to operate in perpetuity. This needs to

be highlighted as a stand-alone characteristic of government. While other international

jurisdictions may be on more tenuous financial footing than Canada, this should not impact

Canadian standard setting.

The nine characteristics listed by the task force certainly are common features of government’s

structure and operations. However, we feel that only two (public accountability and governance

structures) truly represent key characteristics. The other seven appear to be by-products of one of

the four central characteristics (serve / protect the public interest, public accountability,

longevity, and governance structures). As such, the list of core characteristics can be shortened

and many that are presently stand-alone traits can be rolled up under one of the four macro

characteristics.

Descriptions put forward in the consultation paper do not seem to contain any significant

inaccuracies. However, we feel certain statements are not particularly relevant in the context of a

Conceptual Framework for Financial Reporting. Comments with no discernible connection to

financial reporting, as explained in detail under question two, should be removed.

The key characteristics generate a myriad of reporting and accounting implications for the

financial statements. One of the most significant is the importance of a historic cost based

measurement model. Another major implication is the need for increased emphasis on the

income statement in light of the public’s cost recovery expectations.

1. Is the list of key characteristics of public sector entities complete? If not, what is missing

and how should it be described?

Before discussing the completeness of the list, we would like to suggest that the emphasis be

placed on key characteristics of the government reporting entity, not key characteristics of

public sector entities. The latter wording gives the impression that the Conceptual Framework

gives equal consideration to the reporting needs of government organizations. We disagree with

this approach as we believe the Conceptual Framework should emphasize the concept of a

Government Reporting Entity (GRE) and should not get into the issues faced at the micro level

because ultimately these organizations will be consolidated as part of the GRE. It should not be

lost that these entities exist only as vehicles for executing a government strategy and their

individual requirements are of limited relevance in the broader context of a government’s goals.

By maintaining the language of “public sector entities” we feel the conceptual framework could

be misinterpreted.

Of the nine characteristics put forward by the task force, we believe two truly represent key

characteristics of government; namely, public accountability and governance structures. We feel

two other key characteristics are missing. First of these is government’s purpose which is to

serve and protect the public interest. Second is government’s longevity and enhanced ability to

remain a going concern. While longevity is noted briefly in the consultation paper as a

Page 53: 2011-10 Characteristics of Public Sector Entities RESPONSES

responsibility of government, we feel it is a concept that extends far beyond this and should be

considered a characteristic in its own right. Altogether then, we believe there are four key

characteristics of government. Appendix I provides proposed wording that might be

incorporated into the descriptions of these four characteristics.

The remaining seven characteristics identified by the Task Force should not be stand alone

characteristics but should instead be rolled up under one of the four key characteristics described

above. Appendix II provides a diagram of the proposed structure, which is articulated in the

paragraphs below.

The purpose of government is to serve and protect the public interest. The public, through the

Constitution and laws, grants governments certain rights and powers in exchange for the

fulfillment of responsibilities that serve the public interest. In turn, the responsibilities conferred

upon government lead to a focus on multiple objectives such as service provision, resource

reallocation, and policy development. Operating and financial legislative frameworks are used

to document the manner in which the public interest will be served (i.e., these frameworks

outline how the rights and powers will be employed in discharging the responsibilities).

The nature of resources held by governments stem from the rights bestowed upon them (e.g.,

natural resources, Crown assets) and the responsibilities they must fulfill (e.g., service provision

is accomplished through roads, bridges, etc.). Similarly, non-exchange transactions stem from

both the rights of government (e.g., taxes, fines, etc.) and the responsibilities of government (e.g.,

resource reallocation).

As noted, the public grants government certain rights and powers so that it may pursue the public

interest. Therefore, the public is keenly interested in ascertaining whether the granted authority

is used to the proper benefit of the citizenry. This leads naturally to the need for public

accountability. One of the primary powers of government is the right to tax. In exchange for this

power, the public expects government to be accountable for the manner in which tax dollars are

spent. As a result, the budget is an important aspect of the public accountability cycle.

The ability to tax gives rise to another key characteristic of government, namely, longevity.

This power gives governments an unparalleled ability to generate revenue and gain access to

credit. To the extent the government maintains the confidence of the people, it continues to hold

this right and thus is widely expected to exist and operate in perpetuity.

A governance structure is needed in order to achieve the purpose of serving and protecting the

public interest. In Canada, this structure is provided by the elected representatives who are

accountable to the general public rather than to a select group of shareholders. There is no equity

ownership. Therefore, the financial focus is not to enhance the economic position of the entity

for benefit of owners, but to cover the cost of the services demanded by its constituents.

Page 54: 2011-10 Characteristics of Public Sector Entities RESPONSES

2. Is each key characteristic appropriately described? Please explain any changes that should

be made.

While we did not detect any significant inaccuracies in the descriptions put forward by the Task

Force, we do believe the descriptions sometimes go beyond what would be needed in a

Conceptual Framework for Financial Reporting. We recommend that the statements be filtered

into one of three categories – those with direct impact on financial reporting, those with indirect

impact on financial reporting, and those with no impact on financial reporting. Those with direct

impacts must be kept in the descriptions. Those with indirect impacts should be kept as

contextual information. Those with no financial reporting implications should be removed.

While we do not intend to categorize every statement, we offer the following examples from

page 8 of the Consultation Paper.

Direct Impact on Financial Reporting: “At a minimum, the information provided in financial

statements is essential for assessing whether a public sector entity has exercised adequate

financial stewardship over the resources provided to it and for assessing compliance with

various performance expectations.” This statement shows explicitly what financial statements

must do and therefore has a direct impact on financial reporting.

Indirect Impact on Financial Reporting: “Public accountability requires a public sector entity to

justify the raising and management of public resources and how the resources are used.” The

fact that government must justify the management of public resources leads to the need for

financial statements to provide feedback on government’s raising and spending of funds.

Therefore, this statement provides contextual information with an indirect impact on what

financial statements must accomplish.

No Impact on Financial Reporting: “Public accountability is further facilitated to the degree

that the task is clearly defined; the more vague and ambiguous the responsibilities, the more

problematic it becomes to hold individuals or entities to account for performance.” This

statement, while factually correct, has no clear link to financial reporting. It gives no guidance as

to what financial statements must do or convey.

3. For each key characteristic (including any that you have added), does it have reporting or

accounting implications for the financial statements of public sector entities (or for the

financial statements of governments alone, or for the financial statements of government

organizations alone)? Please explain what those implications would be. For example, are

specific accounting questions raised (i.e., does an asset, liability, revenue, or expense exist;

when / how should an item be recognized in annual results; is the entity a going concern)?

Or should particular items or indicators or comparisons be reported in the financial

statements? Or is a new / different financial statement or a new / different financial

statement format required? Please be as specific as you can.

As previously discussed, we believe there are four key characteristics of government. These will

be addressed, in turn, below.

Page 55: 2011-10 Characteristics of Public Sector Entities RESPONSES

Purpose is to Serve and Protect the Public Interest

We’ve noted that government’s purpose is to serve and protect the public interest. In this regard,

the public, through the Constitution and laws, grants government certain rights and powers in

exchange for the fulfillment of certain responsibilities.

Rights and powers create financial reporting implications. For example, the power to tax creates

non-exchange transactions that present unique revenue recognition and measurement issues. The

right to hold unique resources, such as Crown lands and heritage property, gives rise to special

asset recognition and measurement concerns.

Responsibilities also create financial reporting implications. For example, the responsibility to

deliver services impacts asset valuation (e.g., TCA impairment). The reallocation of resources

generates non-exchange transactions that, in turn, cause expense recognition and measurement

issues.

Citizens accept that areas of public interest (e.g., health, education, etc.) must be paid for from

past cash contributions, and if there is not a cash surplus carried forward, then current taxes, or

future taxes (in the form of present day borrowing) will be committed to the provision of these

items. Citizens do not expect to over-pay for these items and they do not expect (and would not

long allow) the elected body to accumulate excessive sums of money. Rather, they expect the

government to operate within a cost recovery model. Consequently governments are precluded

from pursuing profit. Since they do not exist for profit-making purposes, it is unlikely they

would jeopardize financial stability by trading speculatively in assets or liabilities in the hopes of

realizing gains on disposal. This implies that historic cost is a more relevant measurement model

than fair value. Further, the focus on cost recovery suggests that the income statement takes on

equal importance for government reporting and that users benefit from seeing a connection

between resources collected and costs incurred.

Governments use operating and financial legislative frameworks to document how the public

interest will be served. Consequently, governments are responsible for acting within the

parameters established by such frameworks. However, financial reporting implications exist

only to the extent that financial statements will be used to assess government compliance with

these frameworks.

Public Accountability

From a financial reporting perspective, public accountability is facilitated through performance

measures and indicators which demonstrate how a government has exercised its stewardship over

public money. Accounting standards for recognition and measurement allow performance

measures / indicators to be calculated while standards for presentation and disclosure allow the

measures to be highlighted for financial statement users. Standards need to emphasize those

performance indicators that are of most critical importance to the primary financial statement

users (i.e., the general public as represented by their elected officials).

Citizens demand public accountability in two primary areas. First, as public money is spent and

Page 56: 2011-10 Characteristics of Public Sector Entities RESPONSES

otherwise committed the citizens must be told how the public money was used. Thus, the

government budget, as compared to actual results, becomes a key mechanism for achieving

public accountability. Budget to actual comparisons provide crucial public accountability as

they demonstrate the degree to which government achieved its approved financial management

plans. The surplus / deficit thus becomes a key accountability measure which suggests that the

income statement takes on elevated importance in government financial reporting. Further, it

implies the need for a cost recovery approach to revenue and expense recognition. This method

allows for better resource allocation decisions to be made because it prevents perceived “excess

revenues” from being applied towards other initiatives. Further, deficits in future years (caused,

for example, by “unfunded” amortization expense) could potentially result in increased taxation,

which would be contrary to public interest. Public accountability requires a public sector entity

to justify the raising and management of public resources and how the resources are used. The

clearer the link between the raising and spending of resources, the more public accountability is

enhanced.

In addition to the sources and uses of funds, citizens are also concerned with the ongoing ability

to receive the public services that have been agreed on and the protection of other areas of public

interest. In this regard, the citizenry is interested in the affordability of today’s decisions over the

horizon of the respective decisions. As an example, consider the construction or acquisition of a

new hospital. The cost of the hospital today should be allocated over the life of the hospital, the

logic being that the commitment is in current dollars and the decision to construct was based on

the ability of the entity to use the associated services over the life of the building. Effectively it

is a commitment of future public money (i.e. tax revenue/citizen contributions) that will pay for

this element of health care. The eventual replacement cost is not relevant to the citizen – that is a

future decision to be made in the context of citizen expectations and citizen ability/willingness to

afford the cost when replacement or refurbishment is considered. Because of this, historic cost

should be the prescribed measurement model for governments.

Longevity

As mentioned, the ability to tax gives government an unparalleled ability to generate revenue

and, in turn, gain access to credit facilities. In return for ongoing tax revenues, governing officials

must ensure the sustainability of government activities. This forces a government to be risk

averse and to take part in highly effective risk mitigation strategies. Governments, especially in

Canada, avoid unnecessary risks. These factors make it highly unlikely that a government would

cease to be a going concern and thus forced to liquidate its assets. As such, current value is a less

relevant measurement base than historic cost.

Governance Structure

Canadian governments are elected bodies that are accountable to an entire population, not a

select group of shareholders. There is no equity ownership and “contributors” are concerned

with receiving services at a fair price, not maintaining and earning a return on their contributions.

Therefore, the government’s financial focus is not to enhance the economic position of the entity

for benefit of owners, but to economically cover the cost of the services demanded by its

constituents.

Page 57: 2011-10 Characteristics of Public Sector Entities RESPONSES

The implications are two-fold. First, we again perceive the importance of reporting under a cost

recovery model. The primary users benefit from seeing the link between revenues earned and

costs incurred as this allows them to easily assess whether tax dollars are being used in a manner

that best serves and protects the public interest. Second, we are reminded that users are not

concerned with earning a return and therefore governments are not in the business of generating a

profit. This reduces the likelihood that governments would jeopardize financial stability (needed

to maintain service provision) for short-term profit making (e.g., by speculatively trading

securities in the hopes of realizing gains). Again, this supports the use of a historic cost rather

than a fair value measurement model.

In addition to the above, governance structures set the parameters for defining the GRE and

affect the scope of government’s financial statements. Governance structures impact the

definition of control which, in turn, determines which sub-organizations under the government

umbrella must be included in the consolidated financial statements.

The Consultation Paper asks respondents to consider whether a new / different financial

statement or a new / different financial statement format is required. It also asks whether

particular items, indicators, or comparisons should be reported in the financial statements.

The primary objective of government financial statements is to provide accountability over the

management of public funds by reporting on government’s financial position, financial

performance, and the sources and uses of government funds. This is best accomplished through

the existing four statements namely, the Statement of Financial Position, the Statement of

Operations, the Statement of Changes in Net Debt, and the Statement of Cash Flows. The most

important indicators continue to be reflected in the government’s surplus / deficit, net debt, and

accumulated surplus / deficit. Budget to actual comparisons provide important information for

public accountability. It is these measures that speak to cost recovery, sources and uses of funds,

and the sustainability of government strategies for pursuing the public interest.

The Statement of Remeasurement Gains and Losses is only needed if fair value measurement is

introduced into government financial reporting. As demonstrated throughout this paper, we

believe the characteristics of government are such that historic cost is a more appropriate

measurement model. The introduction of this fifth statement is not in the best interest of

financial statement users as it will only obscure the key performance indicators noted above.

The inclusion of the new statement will add confusion and complexity to the net debt

reconciliation; while in appearance, there will be only one measure of surplus / deficit, in

substance, two surplus / deficit measures will still exist and will still impact the government’s net

debt position. Further the reporting of two accumulated surplus / deficit amounts will confuse

users and will leave them wondering which of the two represents the true accumulated surplus /

deficit. Given the above, we contest the appropriateness and necessity of the Statement of

Remeasurement Gains and Losses and suggest PSAB reconsider the new standards that have led

to its development.

As a final note, we would like to briefly mention the users of government financial statements.

Users will be discussed in the next consultation paper and we expect the general public and their

Page 58: 2011-10 Characteristics of Public Sector Entities RESPONSES

elected representatives to be defined as the primary user group. The nature of this group is a key

characteristic with important financial reporting implications because its members, on the whole,

are less financially sophisticated than users of other types of financial statements. Further, they

do not have access to intermediaries (such as investment analysts, etc.) who can interpret the

financial statements for them. As such, government financial statements must place an increased

emphasis on the qualitative characteristic of understandability. We cannot overstate the

significance of “public” interest and “public” money in the conceptual framework; it is the public

that are served by the elected bodies and it is a public trust that is bestowed on them when public

turns over their money to have their interests served.

4. For each of those characteristics that do not have identifiable accounting or reporting

implications, should they still be included in the conceptual framework as contextual

information about public sector entities?

As shown in our response to #3, we feel all four key characteristics have either direct or indirect

impacts on financial reporting. As such, they should all be included in the Conceptual

Framework.

This concludes our comments on the Characteristics of Public Sector Entities Consultation Paper.

We would be pleased to discuss any questions or comments you may have with respect to this letter.

To do so, please contact Jill Devanney ([email protected]), Rob Bourgeois ([email protected]),

or the undersigned.

Regards,

Suzanne Wile, CA

Executive Director, Government Accounting

Nova Scotia Department of Finance

Page 59: 2011-10 Characteristics of Public Sector Entities RESPONSES

APPENDIX I

UNIQUE CHARACTERISTIC 1

Government exists to serve and protect the public interest.

Why government exists

People have come to agree on common needs and priorities. Over time countries have been

formed and these countries can be accumulations of sub-national units. The people agreeing to

form the countries become citizens and it is the citizenry that becomes responsible for defining

what the needs and priorities of the country/ province are. This changes/ evolves over time but

the citizenry is always responsible for this. The citizenry initially establish how their needs and

priorities are to be managed and in Canada this takes the form of electing Government in the

form of Parliament, Provincial Legislatures, and Municipal Councils.

The common needs and priorities are often characterized as the “public interest” or “public

good.” Elected Government Officials exist to oversee the public interest.

What is government?

Government is the group of people who officially control a jurisdiction (i.e., country, province,

municipality, First Nations).

How does government serve and protect the public interest?

The public grants governments certain rights and powers in exchange for the fulfillment of

responsibilities that serve the public interest. Operating and financial legislative frameworks are

used to document the manner in which the public interest will be served (i.e., these frameworks

outline how the rights and powers will be employed in fulfilling the responsibilities).

The responsibilities conferred upon government lead to a focus on unique objectives such as

service provision, resource reallocation, and policy development. Governments make use of

certain rights in order to achieve these objectives. For example, a government has a right to

unique resources and must employ unique resources in order to accomplish its service delivery

objectives. Similarly, resource reallocation is fulfilled through a series of non-exchange

transactions whereby the government exercises it’s right to collect taxes and redistribute those

monies to areas which best serve the public interest.

Individuals acknowledge a benefit for having publicly funded services through the election

process. Elections articulate platforms and commitments of what elected officials see as the

current priorities of the citizens. Citizens elect officials with expectations as to what the public

interest is. In general terms the citizens expect their interests to be protected by the elected body

– health care, education, and other social services are to be provided, plus a system of

infrastructure should be put in place and maintained. The citizens accept that these areas of

public interest must be paid for from past cash contributions, and if there is not a cash surplus

carried forward then current taxes, or future taxes (in the form of present day borrowing) will be

committed to the provision of these items.

Page 60: 2011-10 Characteristics of Public Sector Entities RESPONSES

APPENDIX I (continued)

Citizens do not expect to over-pay for these items (rather they expect the government to operate

within a cost recovery model) and they do not expect the elected body to accumulate excessive

sums of money. All government activity is to work toward the protection and provision of the

public interest.

Cost recovery is the primary interest of citizens leading to…

UNIQUE CHARACTERISTIC 2

Stewardship over public money/ accountability to citizens (electorate)

Citizens do not hand over their tax dollars without expectations and the responsibility the elected

body takes when they charge and collect the public money cannot be understated. There is a

responsibility associated with the collection of public money that should be treated as almost

fiduciary. Where the public money comes from and how it is spent must be carefully presented

so the citizens are comfortable that they are receiving reasonable value for their contributions.

Tax revenue should be viewed as the citizens/ taxpayers “contributions” to the available services.

This stewardship function goes hand in hand with the accountability to the public. The public

must be aware of what the plan is for the use of public money and this leads to continued flow of

public money because the citizens accept the plan (through votes of the full elected body on

budgets and other confidence motions in a parliamentary system). As the public money is spent

and otherwise committed the citizens must be told how the public money was used. Thus, the

government budget, as compared to actual results, becomes a key mechanism for achieving

public accountability.

Citizens are concerned with the on-going ability to receive the public services that have been

agreed on and the protection of other areas of public interest. In this regard, the citizenry is

interested in the affordability of today’s decisions over the horizon of the respective decisions.

Example: The cost of a hospital today should be allocated over the life of the

hospital using the historic cost. The logic being the commitment is in current

dollars and the decision to construct was based on the ability of the entity to use

the associated services over the life of the building. Effectively it is a

commitment of future public money (i.e. tax revenue/citizen contributions) that

will pay for this element of health care. The eventual replacement cost is not

relevant to the citizen – that is a future decision to be made in the context of

citizen expectations and citizen ability/willingness to afford the cost when

replacement or refurbishment is considered.

Page 61: 2011-10 Characteristics of Public Sector Entities RESPONSES

APPENDIX I (continued)

UNIQUE CHARACTERISTIC 3

Government longevity (i.e. ability to raise money through taxes and borrowings)

Citizens assume responsibility for decisions and actions of the government. This

translates into a government’s ability to increase taxes (or otherwise charge fees for

certain services previously not “cost recovered”) or borrow on the credit of the citizenry.

To the extent the government maintains power (this is the parliament/ legislature/

council) it continues to represent the people and the people will honour the obligations.

Therefore, it is widely accepted that the probability of a government having to liquidate is

virtually nil.

UNIQUE CHARACTERISTIC 4

Structure of Government

A structure is needed in order to achieve the purpose of serving and protecting the public

interest. The legislature, comprised of elected officials, provides a governance structure

that is selected by the public. Legislatures are accountable to the general public rather

than to a select group of shareholders. There is no equity ownership.

The elected body is charged with the task of representing citizens’ interests. These

officials are entrusted with shaping how citizens receive public services and protecting

the public interest. The elected body receives public money and then allocates it among

the various areas of public interest.

Governments are able to structure their organizations in many ways – corporations, not-

for-profit organizations, for-profit enterprises – but this does not change the underlying

purpose of government. Everything government does is in pursuit of the public interest

and these organizations are simply vehicles through which this objective is best achieved.

Page 62: 2011-10 Characteristics of Public Sector Entities RESPONSES

APPENDIX II

PURPOSE IS TO SERVE AND PROTECT THE

PUBLIC INTEREST

• Granted rights, powers, responsibilities o Documented in legislative frameworks

o Multiple Objectives

o Nature of Resources

o Non-Exchange Transactions

GOVERNANCE

STRUCTURE

• Lack of equity

ownership

LONGEVITY PUBLIC

ACCOUNTABILITY

• Importance of

Budget

Page 63: 2011-10 Characteristics of Public Sector Entities RESPONSES

Wayne Morgan Office of the Auditor General of Alberta Edmonton, Alberta October 14, 2011 Conceptual Framework Task Force Consultation Paper 1 – Characteristics of Public Sector Entities Tim Beauchamp, Director Public Sector Accounting 277 Wellington Street West Toronto, Ontario

Our responses to the Consultation Paper are below:

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

The list is substantially complete, but some items could be combined or expanded:

The concepts in rights, powers, and responsibilities (characteristic 3) and governance structures (characteristic 7): Both public sector entities and private sector enterprises may be governed by elected representatives. The key difference is the source of authority and responsibility to govern, and the powers to discharge this responsibility. Governance for private sector enterprises derives from owners of the enterprise, and authority and power is limited to the resources of the enterprise. Governance for public sector entities ultimately derives from the Constitution, the public, through elected officials and their appointed representatives, and the powers assigned may extend beyond the entity to entities in the private sector through the ability to tax, license, regulate, penalize, etc. Characteristic 4 (lack of equity ownership) is essentially repeating this concept – that authority and responsibility does not derive from a limited set of owners, but from the public at large. The discussion of governance structures could be expanded to reflect the nature of governmental units (government departments, agencies, boards, commissions, etc.). The reporting implications for these units will depend on how the governing body for the unit is appointed as well as how authority and responsibility are delegated.

The multiple objectives (characteristic 2) could also include stewardship of public resources, an objective that would encompass characteristic 8 (nature of resources). The difference for the resources described in characteristic 8 is in the purpose (objective) of holding and maintaining the resources, not the nature of the resources. A

Page 64: 2011-10 Characteristics of Public Sector Entities RESPONSES

private sector enterprise entity may build a road to obtain toll revenue, or hold cultural property to derive admission or licensing fees – offering them to the public for the benefit of shareholders. The objective of a public sector entity would be to provide the road or access to cultural property for the benefit of the public.

The importance of the budget (characteristic 6) reflects the key responsibility to plan the use of resources and communicate these plans to the public, and related public accountability. Another key feature of the budget is consent, as public authority is sought (through approval by elected representatives or their appointees) for approval of the plan and authority to carry it out. This approval may also extend beyond financial budgets to business plans that describe results that are to be achieved and may also include performance measures to provide for accountability in achieving these results.

2. Is each key characteristic appropriately described? Please explain any changes that should be made.

In general we are satisfied with the characteristics and their descriptions. We note specific observations below; they primarily relate to the Multiple objectives characteristic:

Two statements are made about public sector entities not having a profit motive. The first appropriately qualifies the statement to refer to most, not all, public sector entities. A governmental unit might exist for the sole purpose of generating a return from invested endowment funds, to fund a resource reallocation program in another entity. Also, while perhaps not having profit as the primary objective, it is not sustainable for government to operate at a loss – the net debt model in particular suggests this as well as suggesting the importance that governments operate, in the long run perhaps, at what is called a surplus. To illustrate, the statement that “Maximizing the value generated by every dollar raised is an expectation of the public who have provided the resources” perhaps does not enough recognize an objective of maximizing “every dollar raised” which in a narrow sense could include activities such as completeness of tax revenue and more generally could include whether the government has raised all the revenue it could have. Therefore, perhaps the surplus motive is understated in the Consultation paper’s characteristics. We suggest the statement be made as “Most public sector entities do not exist solely to generate a financial return on investment, but rather to provide public services and goods as determined through the political process (legislation, government policy), which must be adequately funded. Objectives of public sector entities include:…”

The discussion of objectives makes normative statements about the role of government. For example, the words “in an effective and efficient manner” are used to describe the provision of services, while the word equitable is not. Also, the Consultation Paper notes that “public sector entities provide services that would generally not be provided

Page 65: 2011-10 Characteristics of Public Sector Entities RESPONSES

by the public sector at the quantity, quality and price considered appropriate by public policy,” which may imply a judgment on particular delivery mechanisms. One particular service delivery mechanism may result in the most effective outcomes, and be efficient, but may not achieve a superior quantity of services or equitable provision. Rather than set out particular normative positions in the Consultation Paper on how services are provided, which would vary based on government policy objectives, it may be better to focus on the nature of the objectives described. Public sector entities may provide public goods for which the private sector lacks an effective model to provide, as noted. Other services that might be provided by the public sector (education and health care) may be provided by the public sector with a resource reallocation objective – providing services to individuals based on their needs rather than their ability to pay. Alternatively, an objective of reporting may be to identify circumstances where services could be provided by the private sector more efficiently (or by the government more efficiently), if the objective of efficiency as noted earlier is important and expanded upon. The accounting standards implications in each case could then be identified.

Including stewardship of public resources among the multiple objectives would include the management of resources provided directly to the public (public infrastructure, art and cultural treasures), management of public lands and natural resources (regulating access, licensing resource extraction), and management of funds set aside for specific purposes (endowment funds).

In general, the Consultation Paper could elaborate upon the underlying perspective on government from which the characteristics are derived. There are different perspectives, such as views that government should only provide limited services (“public choice” approaches), or that government responses to multiple stakeholders (“pluralist” approaches), or only particular stakeholders (“political economy” approaches). While some characteristics seem to derive from a multiple-stakeholder perspective, being more specific in the underlying perspective being used, and explaining why other competing perspectives were not adopted, may be helpful in assessing the appropriateness of the characteristics, and standards derived from them.

3. For each key characteristic (including any that you have added), does it have reporting or accounting implications for the financial statements of public sector entities (or for the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; when/how should an item be recognized in annual results; is the entity a going concern)? Or should particular items or indicators or comparisons be reported in the financial statements? Or is a new/different

Page 66: 2011-10 Characteristics of Public Sector Entities RESPONSES

financial statement or a new/ different financial statement format required? Please be as specific as you can.

1. Public Accountability – while the nature of public accountability will be true for all public sector entities in general, the nature of the specific accountability at an entity level will depend on the nature of the authority and responsibility provided to the entity. The objective of the financial statements will depend on the nature of the entity’s accountability requirements. For example, governments have the authority to set tax rates, license fees etc, to fulfill their responsibilities. A net-debt model is appropriate for governments as it shows the degree to which governments are choosing to finance their activities through current or future revenues. However, government organizations may lack the ability to finance their operations directly, through raising revenues or borrowing funds. A net debt model will not be relevant if the entity’s accountability is for the use of resources allocated by others, with no direct ability to determine or influence its revenues. Furthermore, it is not obvious that the net debt model results in more accountability than other models, nor how the net debt model follows from the characteristics. For example, it may shift accountability too much onto financial assets and liabilities concerns when instead governments are concerned with service provision as the characteristics allude to (which would include services such as tangible assets i.e. roads, bridges). While general purpose financial statements are needed, some range of financial statement formats should be available to match public sector entities to relevant reporting objectives. The public accountability characteristic probably suggests a greater effort to recognize all assets for which the government is accountable for, such as assets in right of Crown. The specific nature of accountability may have specific reporting implications. For example, accountability may be evaluated with respect to present or future citizens in the case of appropriate pension assumptions or non-renewable resource revenues.

2. Multiple Objectives – the reporting implications will vary based on the objectives being reported against more than the nature of the entity reporting, as the financial statements and other accountability will be for the results of operations to achieve these objectives. Inclusion of “stewardship of public resources” will include the requirement to report on the fulfillment of stewardship responsibilities for a diverse range of resources:

i. Infrastructure or other tangible assets with limited useful lives(cost of infrastructure, but also condition/service potential)

ii. Heritage and cultural resources (not consumed; nature and continued existence/ownership)

iii. Public lands and resources (should revenues received be related to resource potential consumed?)

Page 67: 2011-10 Characteristics of Public Sector Entities RESPONSES

iv. Assets held to be managed for specific purposes, such as endowment funds (if requirement to maintain the principal balance is defined in legislation or externally imposed, are they net assets that are not available for use or liabilities that may never be discharged? Reporting issues include recognition/measurement of endowment assets, how to classify a related credit balance, and how to recognize endowment contributions.)

v. Assets held in trust (should government be accountable for their fiduciary responsibility to manage assets of children or others in the care of the state? How should these assets be measured and reported? )

This requires different standards depending on the nature of the assets and the objective of maintaining them.

3. Rights, powers and responsibilities – will affect all public sector entities, but may require different applications for government compared to government organizations, due to the varying extent of powers and responsibilities. Governments may hold both the power and the responsibility, while government organizations may only be delegated a portion of one or the other. This is already discussed under accountability (above).

4. Operating and financial frameworks set by legislation – legislated frameworks may impose restrictions on any public sector entity’s ability to approve expenses or commit to future actions, may prohibit certain actions, or require others. Some restrictions may limit recognition of transactions until certain external authorizations have occurred, while others may establish accountability requirements. A common accountability requirement for government, spending only within the limits of appropriations, derives from such legislation. The nature of frameworks for government organizations may lead to different accountability requirements.

5. Importance of the budget and plan – may impact all public sector entities. In addition to accountability for compliance with spending authorities, entities are accountable for actual results against budget (original budget, and revisions to respond to changing circumstances).

6. Non-exchange transactions – those required by legislation will have accounting implications different from voluntary transactions. The legislative and policy responsibilities of public sector entities may also give rise to constructive obligations to carry out future actions and incur future expenditures.

4. For each of those characteristics that do not have identifiable accounting or reporting implications, should they still be included in the conceptual framework as contextual information about public sector entities?

There is considerable overlap in the implications of public accountability, rights, powers and responsibilities, and operating and financial framework set by legislation. However, these are important characteristics for understanding the nature of public sector entities and should all be included in the conceptual framework. As noted in our response to question 3. above, each of

Page 68: 2011-10 Characteristics of Public Sector Entities RESPONSES

the characteristics has reporting implications, either directly or indirectly, and therefore should still be included.

GENERAL COMMENTS

We are pleased with the work to define the characteristics of public sector entities. While updating the conceptual framework, you may consider amending the introduction to the PSA Handbook for these characteristics to drive the applicability of standards. In this view, entities that have characteristics of public sector entities would use the PSA Handbook.

The conceptual framework should continue to differentiate between government and government organizations to the extent that different frameworks for governance, authority and responsibility may require differences in measurement standards and financial statement presentation.

Thank you for the opportunity for consultation.

Sincerely,

Wayne Morgan, PhD, CA, CISA

Office of the Auditor General of Alberta

Page 69: 2011-10 Characteristics of Public Sector Entities RESPONSES

Mr. Tim Beauchamp Director Public Sector Accounting The Canadian Institute of Chartered Accountants 277 Wellington Street West Toronto (Ontario) M5V 3H2 To be forwarded via email: [email protected] Dear Mr. Beauchamp: Thank you for the opportunity to comment on the Conceptual Framework Task Force (CFTF) Consultation Paper 1: Characteristics of Public Sector Entities. Please note that my comments reflect my personal opinion and not that of the head of a federal entity. The list of key characteristics of Public Sector Entities (PSE) is quite comprehensive. I would however expand on the multiple objectives in order to include sharing of objectives on horizontal issues. Parliamentarians and the public frequently inquire about expenditures incurred on such initiatives, particularly in the area of environment, health and crime prevention. Specific elements need to be included in respective PSE financial statements to address issues, which span multiple PSE to ensure accountabilities are clearly defined. Federal government pensions and employee benefit plans fall within the purview of central organizations in the federal government and are managed centrally. Although pension expenditures are reported in respective PSE financial statements, details of the pension plan are not fully disclosed in the notes to the financial statements of individual departments or agencies. This key characteristic should be identified and considered a different form of accountability. Lastly, a fundamental objective of financial statements is providing users with information regarding the financial position and performance of an organization. Budgeting is key to government entities and is indeed stated as a key characteristic in the document. Considering the basis for budgeting is not the same basis used for the presentation of financial statements, users of PSE financial statements who do not have reasonable knowledge of federal government accounting may not fully understand PSE results. While the comparison between budgets allocated with actual results is good in theory, one of the principles to be included in the framework should deal with necessary preconditions, since departmental financial statements do not present budget numbers. I support the project and its objective to review the concepts underlying financial performance, specifically the key characteristics of PSE, and appreciate having the opportunity to comment. Maria Barrados, PhD

Page 70: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 71: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 72: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 73: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 74: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 75: 2011-10 Characteristics of Public Sector Entities RESPONSES

Formulaire de réponse Document de consultation 1 : Caractéristiques des entités du secteur public

Ce formulaire ne vise pas à restreindre votre réponse. Chaque boîte de texte acceptera l'intégralité de vos commentaires. Vous pouvez sauvegarder le formulaire et l'envoyer, pour examen, à d'autres personnes de votre organisation avant de le soumettre.

Nom : André Miville, CA et Vicky Lizotte, CA

Organisation : Ministère des Finances / Contrôleur des finances (Québec)

Courriel : [email protected]

POUR ÊTRE PRIS EN CONSIDÉRATION, LES COMMENTAIRES DEVRONT ÊTRE REÇUS D'ICI LE 15 OCTOBRE 2011 Préparé par le Groupe de travail sur le cadre conceptuel

1. La liste des caractéristiques essentielles des entités du secteur public est-elle exhaustive? Dans la négative, quelles caractéristiques sont absentes et comment devraient-elles être décrites?

• La définition de ce qu’est un gouvernement et la notion de secteur public devraient être précisées dans le cadre conceptuel. Ces éléments auront une influence marquante sur l’élaboration des normes du secteur public et sur la description des caractéristiques des entités du secteur public. • Les caractéristiques suivantes devraient être ajoutées, à savoir : — La pérennité des gouvernements. En effet, cette caractéristique unique au secteur public permet notamment d’orienter davantage le cadre conceptuel en fonction des résultats sur un horizon pluriannuel. — La souveraineté des gouvernements. Par exemple, il est fondamental que les normalisateurs tendent vers un consensus auprès des gouvernements lors de l’émission d’une norme comptable.

2. Chaque caractéristique essentielle est-elle décrite de façon appropriée? Veuillez expliquer les modifications qui devraient être apportées, le cas échéant.

OBLIGATION DE RENDRE COMPTE AU PUBLIC • Sous l’angle comptable, nous sommes d’avis que l’obligation générale de reddition de comptes des gouvernements au public doit être distinguée de celle qu’ils font par le biais de leurs états financiers. Nous sommes d’avis que la portée du cadre conceptuel doit se limiter aux états financiers considérant l’expertise reconnue du CCSP en ce domaine et ses ressources limitées. DROITS, POUVOIRS ET RESPONSABILITÉS (CONSTITUTIONNELS OU DÉLÉGUÉS) • Il devrait être mentionné que les droits, pouvoirs et responsabilités des entités du secteur public entraînent des besoins différents du secteur privé au niveau de la reddition de comptes au public. • Le libellé qui introduit ce que les gouvernements sont tenus de faire en contrepartie de leurs droits, pouvoirs et responsabilités devrait être modifié. La formulation utilisée n’est pas affirmative et indique que les gouvernements peuvent déroger à leurs obligations. Ainsi, dans l’énoncé « En contrepartie, les gouvernements doivent (ou sont sensés devoir) : » le contenu de la parenthèse devrait être supprimé. ABSENCE DE PARTICIPATION DANS LES CAPITAUX PROPRES

Page 76: 2011-10 Characteristics of Public Sector Entities RESPONSES

• Certaines entités du secteur public ont comme objectif secondaire de ne pas être déficitaires ou même d’être rentables. En conséquence, le libellé du premier paragraphe (page 12) devrait plutôt se lire ainsi : La plupart des entités du secteur public n’ont pas pour but premier d’améliorer leur situation économique au profit de propriétaires. Ceci sera également cohérent avec ce qui est mentionné dans la partie du document portant sur les objectifs multiples. CADRE DE FONCTIONNEMENT ET CADRE FINANCIER ÉTABLIS PAR VOIE LÉGISLATIVE (EXIGENCES LÉGALES) • La reddition de comptes au regard des engagements et des politiques définis dans la législation dépasse le cadre de la présentation de l’information dans les états financiers et, par conséquent, devrait être exclue de la portée du cadre conceptuel. • Afin de circonscrire davantage la législation à laquelle est assujettie l’entité, on devrait ajouter dans la phrase suivante (page 12) les mots en caractères gras : Les entités du secteur public doivent respecter les lois et démontrer qu’elles les respectent, en ne se contentant pas de s’engager dans des activités légales, mais en se conformant aussi à leur cadre de fonctionnement et à leur cadre financier, dont les éléments sont définis dans la législation qui les régit ou en découle. L’IMPORTANCE DU BUDGET • Le document décrit bien cette caractéristique. STRUCTURES DE GOUVERNANCE • Le document décrit bien cette caractéristique. • Afin d’être plus précis, à la fin du dernier paragraphe de cette section (page 14) ajouter « les lois qui les régissent » à la place de « la loi ». NATURE DES RESSOURCES • Les ressources du patrimoine et culturelles figurent comme étant des ressources détenues à des fins de prestation de services. À notre avis, la détention et la préservation de ces ressources n’ont pas pour but de fournir des services à la population.

3. Considérées individuellement, les caractéristiques essentielles (y compris celles que vous avez ajoutées, le cas échéant) ont-elles des incidences sur la comptabilité ou la présentation des états financiers des entités du secteur public (ou ceux des gouvernements seulement ou des organismes publics seulement)? Veuillez décrire ces incidences. Soulèvent-elles des questions comptables particulières (par exemple existe-t-il un actif, un passif, des produits ou des charges; quand et comment un élément devrait-il être comptabilisé dans les résultats annuels; l'entité est-elle en situation de continuité de l'exploitation)? Des éléments, des indicateurs ou des comparaisons spécifiques devraient-ils être présentés dans les états financiers? Un état financier nouveau ou différent ou une présentation nouvelle ou différente des états financiers sont-ils requis? Veuillez être aussi précis que possible.

COMMENTAIRE GÉNÉRAL • Les gouvernements ont notamment pour objectif la prestation de biens et services et ils sont pérennes. En mettant l’accent sur des éléments qui ne sont pas réalisés et en affectant les résultats à court terme du gouvernement, des normes telles que les paiements de transfert et les instruments financiers créent de la volatilité. Ces normes sont en porte-à-faux par rapport à la pérennité des gouvernements et donnent une image déformée de sa capacité de donner des services à la population. • Il est nécessaire de considérer simultanément les objectifs de l’information présentée dans les états financiers, l’identité des principaux utilisateurs et leurs besoins pour bien cerner les impacts des caractéristiques des entités du secteur public sur la comptabilité ou la présentation des états financiers. En conséquence, à ce stade-ci du projet il est difficile de décrire exhaustivement les incidences des caractéristiques des entités du secteur public sur les états financiers. OBLIGATION DE RENDRE COMPTE AU PUBLIC

Page 77: 2011-10 Characteristics of Public Sector Entities RESPONSES

• Un énoncé clair dans le cadre conceptuel statuant que chacune des composantes des états financiers joue un rôle important pour répondre aux besoins d’information des utilisateurs des états financiers va permettre de s’assurer que l’élaboration des normes ne favorisera pas une perspective particulière. NATURE DES RESSOURCES • La constatation et la mesure des ressources intangibles et du patrimoine dans les états financiers qui pourraient répondre à la définition d’un actif et être mesurées aux fins de la constatation aux états financiers soulèvent des problématiques qui devront l’objet d’une analyse détaillée. L’obligation ou non de leur comptabilisation devra être en lien avec le cadre conceptuel ce qui n’est pas le cas actuellement.

4. Les caractéristiques pour lesquelles il n'y a pas d'incidence identifiable sur les plans de la comptabilité ou de la présentation devraient-elles tout de même faire partie du cadre conceptuel à titre d'information contextuelle sur les entités du secteur public?

• Oui, il s’agit d’informations pertinentes même si elles n’ont pas d’incidence directe sur la comptabilité ou la présentation de l’information financière. Ces caractéristiques aident à bien comprendre la nature des gouvernements, et conséquemment, permettront aux normalisateurs de bien répondre aux besoins des utilisateurs des états financiers.

COMMENTAIRES GÉNÉRAUX

Cliquez ici pour soumettre

Page 78: 2011-10 Characteristics of Public Sector Entities RESPONSES

Provincial Auditor Saskatchewan

1500 Chateau Tower1920 Broad StreetRegina, SaskatchewanS4P 3V2

Phone: (306) 787-6398Fax: (306) 787-6383

Web site: www.auditor.sk.caInternet e-mail: [email protected]

October 18, 2011

Mr. Tim Beauchamp, DirectorPublic Sector AccountingThe Canadian Institute of Chartered Accountants277 Wellington Street WestTORONTO, ON M5V 3H2

Dear Mr. Beauchamp:

Re:

Characteristics of Public Sector Entities - Consultation Paper 1 (August 2011)

Overall, we agree with the general content in the consultation paper. Following are ourresponses to the specific questions raised:

1. We agree that the list of key characteristics of public sector entities is complete.

2. The key characteristics are appropriately described with the exception of the items notedbelow:

• Characteristic #2 states that "Public sector entities do not exist to generate afinancial return on investment but rather to provide public services and goods..." Theword "Most" should be added to the front of this sentence as there are some publicsector entities which do exist to generate a return on investment.

• Characteristic #4 states that "Public sector entities do not act to enhance theeconomic position of the entity for the benefits of owners." The word "Most" shouldbe added to the front of this sentence as there are some public sector entities whichdo act to enhance the economic position of the entity for the benefit of the owners.

• Characteristic #5 states that "All of the activities of governments and theirorganizations ... are established in legislation." The word "All" should be replacedwith the word "Most" as not all activities are established in legislation.

• Characteristic #6 is "The Importance of the Budget", however, as noted within theconcepts described within this characteristic, public policies are critical to publicsector entities. Budgets are just one of many public policy documents that influencethe financial and operational activities of a public sector entity. Also, laws routinelygive public sector entities the authority to raise revenues and spend outside of thelegislative budgetary control. Public policy direction remains critical for these types ofpublic sector entities. We suggest that the title and supporting narrative should bebroadened to "The Importance of Public Policy."

• Characteristic #9 should include "government transfers" as an example of nonexchange transactions. Also the characteristic states that "transactions of manypublic sector entities are primarily non-exchange in nature and, thus, are more

.../2

Page 79: 2011-10 Characteristics of Public Sector Entities RESPONSES

Mr. Tim BeauchampOctober 18, 2011 Page 2

involuntary in nature than voluntary". We do not agree with this statement as thereare many non-exchange transactions that are voluntary (e.g. government transfers).Also, we are concerned that the statement may imply that public sector entities arenot accountable for these "involuntary" types of transactions. We suggest that theentire sentence be removed.

3. Comments on the reporting or accounting implications of the characteristics are outlinedbelow:

Characteristic Specific reporting Description of potential accounting /reportingor accounting implicationimp lication?

1. Public Yes Impacts the nature and extent of information reportedaccountability in the financial statements and notes. Also,

performance information other than financialstatements is needed.

2. Multiple Yes Impacts the measurement of items reported in theobjectives financial statements (i.e. carrying value as value may

be based on ability to provide public services notfinancial return). Impacts reporting as users areinterested in cost of services, availability of resourcesto provide future services, and ability to meetobligations (i.e. report net financial assets/net debt;annual surplus/deficit; accumulated surplus/deficit .

3. Rights, Yes Impacts the timing of when items are reported in thepowers and financial statements and the composition of theresponsibilities government reporting entity depending on how

government chooses to exercise its powers or meetits responsibilities (i.e. directly or through reallocationof resources outside of government).

4. Lack of equity Yes Impacts how the ownership of entities is shown in theownership financial statements as there is not control by equity

but by other mechanisms.5. Operating and Yes Impacts the financial reporting framework to be usedfinancial to prepare the financial statements.frameworks setby legislation6. The Yes Impacts reporting as budget information needs to beimportance of reported in the financial statements and notes. Thethe budget importance of the budget should not have any

accounting implications. If the budget is based ondifferent accounting concepts then those differencesshould be explained and reconciliations provided (toallow for comparability).

7. Governance Yes Impacts reporting as organizations need to explainstructures how they fit into the government structure in their

financial statements in order to have increasedcomparability and understandability of the financialinformation presented.

8. Nature of Yes Impacts what assets and liabilities are reported in theresources financial statements and the measurement of the

items re orted.

... /2

Page 80: 2011-10 Characteristics of Public Sector Entities RESPONSES

Mr. Tim BeauchampOctober 18, 2011 Page 3

Characteristic Specific reporting Description of potential accounting /reportingor accounting implicationim p lication?

9. Non- Yes Impacts the timing and measurement of itemsexchange reported in the financial statements. Also impacts thetransactions notes to the financial statements where an adequate

explanation of why the organization entered into orhas such transactions would be reported.

4. Those characteristics that do not have identifiable accounting or reporting implicationsshould not be included in the conceptual framework.

Yours truly,

Bonnie Lysyk, MBA, CAProvincial Auditor

WB/dd

Page 81: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 82: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 83: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 84: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 85: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 86: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 87: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 88: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 89: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 90: 2011-10 Characteristics of Public Sector Entities RESPONSES

Response to Task Force Consultation Paper – Concepts Underlying Financial Performance

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

The list as outlined in the consultation paper appears to be comprehensive.

2. Is each key characteristic appropriately described? Please explain any changes that should be

made.

Each characteristic appears to be appropriately described. Under Multiple Objectives it may be appropriate to include policy setting with policy development thereby giving the inference to not only developing policy but also approving and implementing it.

3. For each key characteristic (including any that you have added), does it have reporting or

accounting implications for the financial statements of public sector entities (or for the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; when/how should an item be recognized in annual results; is the entity a going concern)? Or should particular items or indicators or comparisons be reported in the financial statements? Or is a new/different financial statement or a new/different financial statement format required? Please be as specific as you can.

Public Accountability:

The variety of potential users of the Financial Statements could be a larger audience than would be typical of most private sector organizations. Whether users of public sector financial statements are equipped to properly understand and interpret the financial information being presented is uncertain.

Multiple Objectives: The challenge may be in determining how segregated reporting will need to be so as to clearly indicate the effectiveness of government’s stewardship over resources applied to specific programs.

Rights, Powers and Responsibilities Some potential accounting implications may arise as a result of the responsibility to bear “risks of significant breadth and scope,” for example recovery from a natural disaster. Once a reasonable estimate can be obtained, the liability should be recorded. Recognition issues could arise between levels of governments on cost shared initiatives depending on the respective government’s accounting policy.

Page 91: 2011-10 Characteristics of Public Sector Entities RESPONSES

Operating and Financial Frameworks Set by Legislation There could be potential consequences for financial reporting if conflicting legislation exists i.e. legislated budgeting requirements with respect to surplus/deficits or reserve funding. Governments should determine an appropriate approach that provides for PSAB reporting as well as government funding/reporting requirements.

4. For each of those characteristics that do not have identifiable accounting or reporting

implications, should they still be included in the conceptual framework as contextual information about public sector entities?

Yes. They are accurate descriptions of the attributes of public sector entities, and the environment to which they are subject. General observation Public sector accounting standards were developed with the good intention of providing much needed public accountability with full and fair disclosure. This includes reflecting whether government has been a good steward of the resources allocated for the reporting period. PSAB reporting requirements facilitate taking a long term perspective and adoption of multi-year planning. Consequently, watering down or removal of the key characteristics of public sector entities as outlined herein would be a step backwards from transparency and accountability in the public sector.

Page 92: 2011-10 Characteristics of Public Sector Entities RESPONSES

Ministry of Finance

Office of the Comptroller General

Mailing Address: PO Box 9413 Stn Prov Govt Victoria BC V8W 9V1 www.fin.gov.bc.ca/ocg

Location Address: 2nd Floor 617 Government Street Victoria BC

October 24, 2011 251292

[email protected] Tim Beauchamp Director Public Sector Accounting 277 Wellington Street West Toronto Ontario M5V 3H2 Dear Tim: Characteristics of Public Sector Entities, Consultation Paper 1 The Province of British Columbia (BC or the province) would like to express its appreciation to the Public Sector Accounting Board (PSAB) and the Conceptual Framework Taskforce (CFT) for issuing a Consultation Paper (CP) at this early stage of the review of PSAB’s conceptual framework. The province has taken a particular interest in this topic and continues to be focused on ensuring the conceptual framework properly reflects the role of financial statements within the accountability framework of the province and meets the needs of the people of BC, who are the primary users of our financial statements. Thank you for the opportunity to comment on this consultation paper. Joint Working Group Report The province is concerned with the references to the JWG Paper in the “Reasons for the project” component of the CP. The description in the CP states that the “final subgroup report was issued suggesting PSAB review its conceptual framework. The concern raised related to the definitions of revenue and expenses as they were leading to volatility in reported results and making it difficult to provide budget-to-actual comparisons.” The JWG Conceptual Framework Subgroup Report addressed a broad spectrum of issues and did not focus on volatility or the definitions of revenue and expenses. Providing budget-to-actual comparisons was not at issue, but rather the potential impact that accounting standards could have on public policy decisions under existing accountability frameworks and the information needs of the public.

“The Conceptual Framework Subgroup Report, which BC strongly endorses, found that the Conceptual Framework will be stronger by including the following:

A statement of the broad conceptually unique features of Canadian governments

applicable to all aspects of the standard setting process, in addition to the existing references to uniqueness for reporting purposes;

Page 93: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 2 -

…/3

A clear definition of government as a socio-economic entity separate from the individuals elected to govern the jurisdiction, which will identify the government as an entity that exists independently and indefinitely;

A definition of the Primary Users of the summary financial statements as the

public and the legislature acting on their behalf. Recognition that accounting standards must respond to the information needs of the Primary Users; and

A balanced perspective on the importance of the various summary financial

statement components required by the standards.”

More detailed comments such as an endorsement of the cost basis of accounting for assets and liabilities are included in the report’s further discussion of the above broad points. The report was reviewed and endorsed by all senior governments prior to it being submitted to AcSOC. Scope of Framework The province is pleased to note that the CP has focused the conceptual framework on financial statements and has not followed the example of the International Public Sector Accounting Board in widening the scope to include a broad range of or selection of the various other elements of the province’s accountability framework. The province believes there needs to be a clear distinction between government’s overall accountability to the public and accountability that can be provided through financial statements which is within PSAB’s domain. Senior governments now work within legislated accountability frameworks, accounting standard setters need to acknowledge that legislation has established the accountability obligations of governments to ensure the provision of useful information to the public. Also the people, who are the primary user of the provinces financial statements, have through their elected representatives approved legislation directing the government to follow generally accepted accounting principles for senior governments in Canada unless otherwise directed by Treasury Board. This is why government looks to PSAB for collaboration in establishing the best accounting practices. Relevance of the Private Sector The province is also pleased to see and strongly supports the absence of references to the private sector in the CP. All public sector standard setters need to justify their standards for Government accounting without reference to the private sector. The province applauds the CFT’s approach. Cost Basis of Measurement and Capital Maintenance Theory During a PSAB staff webinar describing the work of the CFT, a statement was made that PSAB has agreed to retain the cost basis of recording and reporting assets and liabilities. This is the position specifically supported by the JWG Report and endorsed by all senior jurisdictions in Canada. The province is pleased by this statement and is very supportive of the position taken by the CFT which states that as a basic characteristic government does not have a capital base. However, it was noted that PSAB staff’s statement refers to a mixed measurement model.

Page 94: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 3 -

…/4

The province believes that historical cost is the appropriate measurement model to achieve accountability for an entity which has no capital base and is strongly opposed to market based measurement models. Market value measurement and replacement cost measurement are designed to support various capital maintenance theories which do not apply to an entity like government. Definition of Government The province is concerned that the CP does not include a clear definition of government which should provide a clear distinction between the entity, cabinet and the elected representatives. The JWG Conceptual Framework Paper provided a precise definition of government that is being accounted for by GAAP as “a socio-economic entity separate from the individuals elected to govern the jurisdiction, which will identify the government as an entity that exists independently and indefinitely”. Under the heading Public Accountability the CP defines government as follows: “Governments are elected through a democratic process to have certain (Constitutional or devolved) rights, powers’ and responsibilities that require broad accountability to the public and their elected representatives.” The province disagrees with the description and endorses the JWG definition. Consideration of the International Public Sector Accounting Standards Board’s Conceptual Framework

The province understands that the CFT will review and consider the work of the International Public Sector Accounting Standards Board (IPSASB) as an informed reference point when drafting PSAB’s conceptual framework. The province does not agree with the approach being taken by IPSASB including their reliance on private sector concepts as a basis for the public sector conceptual framework and what appears to be a preference throughout their papers for the “Financial Capital Maintenance/Balance Sheet approach”. The province believes that the CFT should balance its review of the IPSASB conceptual framework papers giving equal weight to the concerns raised by the province and other stakeholders. Our responses to the questions raised in the Consultation Paper follow in the appendix. Thank you again for the opportunity to comment on the, Conceptual Framework Taskforce’s Consultation Paper 1 — Characteristics of Public Sector Entities. Should you have any comments or suggestions please contact me at 250-387-6692 or by email at [email protected] or Carl Fischer Executive Director, Financial Reporting and Advisory Branch, at 250-356-9272 or by email at [email protected] . Sincerely Stuart Newton Comptroller General Province of British Columbia

Page 95: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 4 -

…/5

cc. Peter Milburn, Deputy Minister Ministry of Finance Sabine Feulgen, Deputy Secretary to the Treasury Board Ministry of Finance Carl Fischer, Executive director

Financial Reporting and Advisory Branch Charles Coe Special Advisor, Accounting Policy Office of the Comptroller General

Page 96: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 5 -

…/6

Appendix A Responses to Questions raised in the Consultation Paper

1. Is the list of key characteristics of public sector entities complete? If not, what is missing and how should it be described?

The Conceptual Framework should include a definition of government which provides a clear distinction between the entity, cabinet and the elected representatives. In its response to IPSASB’s exposure draft “Key Characteristics of the Public Sector with Potential Implications for Financial Reporting” the province noted three basic characteristics of government which are not raised in the PSAB CP and which the province feels need to be included. These are:

Government is a not for profit organization,

Government holds all the collective assets/resources and liabilities/obligations of the nation/jurisdiction on behalf of all of the people of the nation/jurisdiction,

Government may acquire or own specific assets and incur specific liabilities for the purpose of achieving its policy goals.

Government is a not for profit organization The province believes that this is a clear description of the nature of government; profit is not a motivation behind government operations. Government as a not-for-profit organization has significant accounting implications for government and government organizations. It severs any ties to for-profit accounting theory and supports the view that the CFT has taken—of not basing their consultation paper on private sector theory. This characteristic supports the view that public sector accounting standard setters need to base government accounting standards on a logical framework that is argued from base principles that rely only on the nature of government. Government holds all the collective assets/resources and liabilities/obligations of the nation/jurisdiction on behalf of all of the people of the nation/jurisdiction Many of the provinces concerns with the exposure draft and consultation papers issued by IPSASB related to this topic. The IPSASB papers put forward for consideration proposals that would result in recording Crown land, forestry (already included by IPSAS 27), oil and gas and other minerals both discovered and undiscovered as assets. The papers also proposed considering all future natural disaster relief for an indefinite period of time as well as obligations for the military defence of the jurisdiction and the obligation to educate all youth, etc. on the balance sheet.

Page 97: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 6 -

…/7

The assets mentioned above represent significant recognition and measurement issues. A simplistic perspective of quantifying them and putting them on the balance sheet at market value which is adjusted each year with the “gain/loss” in value recorded in the operating statement is not tenable. Although it is clear that these assets are part of the Province of BC, inherited in the right of the Crown, the province has a policy of not developing these assets or bringing them to market itself. Exploration and development is done by the private sector. Therefore valuing these assets at their respective market value would not represent the proceeds the province will receive from them. Extrapolating a small marginal transaction in a commodities market by applying it to the vast resource base of the province would not, in our opinion, produce a meaningful value that would be appropriate to report in the financial statements. We question what would be the purpose or the benefit to the financial statement users, the pubic, of recognizing all potential liabilities from natural disasters or stating a value for an obligation to defend the nation or to educate all future youth. The province sees the government financial statements as an accountability document to the public regarding the management and stewardship of the public’s resources. One perspective of these assets might be that they are held on behalf of or in trust for the people and only when the government interacts with these assets should an accounting be made of that interaction. The province encourages the CFT to look at this group of assets and liabilities and to consider comments below regarding the definition of government in considering how these items should be covered by the conceptual framework. The province does not support recording these items on the balance sheet or recording changes in their respective market values in the operation statement. Government may acquire or own specific assets and incur specific liabilities for the purpose of achieving its policy goals The government will acquire assets, such as roads, hospitals and military equipment in response to policy goals established by the parliamentary majority in the legislature. Government will undertake programs of expenditures to provide goods and services to the public consistent with parliamentary authority given through the budget and appropriations legislation approval process. All expenditures that have future service potential such as port facilities or unconsumed hospital supplies will be placed on the balance sheet and allocated to the operating statement in a manner consistent with their use in the provision of goods and services. Liabilities for the assets and programs undertaken by government are recorded at any fiscal cut off period. All of these transactions are the result of specific policy decisions by government, in this context they are different than assets inherited in the name of the Crown.

2. Is each key characteristic appropriately described? Please explain any changes that should be made.

Definition of Government We often use the word government to mean two things, one being the members of the majority party in the legislature and secondly, as the separate legal entity that exists independently and indefinitely from the majority members in the legislature.

Page 98: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 7 -

…/8

If someone sues the government the suit is brought against the entity not the members of the legislature. The concept of continuity of liabilities of the government, which are based on the policy decisions of the elected majority, holds that the entity (the government) will honour those liabilities even if the party in the majority (Government) changes. The majority members come and go with each election but the entity and its assets and liabilities remain. As noted in the letter above, the JWG paper provided a precise definition of government as an “entity separate from the individuals elected to govern the jurisdiction, which will identify the government as an entity that exists independently and indefinitely”. The province strongly disagrees with the definition proposed in the CP of the government we are accounting for as the elected members of the majority party in the legislature. This definition may be at the heart of the discussion of the scope of coverage of the conceptual framework, including issues raised in Question 1 immediately above regarding the assets and liabilities that need to be accounted for. Accountability to the Public The province’s view is that the elected members of the legislature are accountable to the electorate through the electoral process. This accountability applies to all members and does not differentiate between members of the majority party or the opposition. The objective of financial statements is to provide accountability to the public for the stewardship and management of public resources. The CP refers to “Public accountability requires a public sector entity to justify the raising and management of public resources and how the resources are used.” which emphasizes the issue above. The Government (legislators) debate and approve a budget which is a policy document with costs of implementing the policies estimated as well as any revenue increases needed to balance the budget. The resulting legislation approving the budget and appropriations are authorizations for the government (legal entity) to spend accordingly. The government (legal entity) is not accountable for the policy debate that occurs in the legislature, it is accountable for implementing the budget which included collecting the taxes authorized by the legislature and implementing the programs designed to carry out the policies approved in the budget and to make the expenditures authorized by the appropriations legislation. This process is basic to understanding the focus placed on accountability for implementing the budget and comparability with the budget rather than valuing the government through valuing its assets and liabilities. The conceptual framework needs to be clear regarding at what level accountability occurs and at what level disclosure and transparency occurs. The province supports one set of accounting standards for all government organizations based on the needs of the consolidated entity, in order to support a “flow through” approach that in principle can facilitate the tracing of funds collected in taxes through to the end use of those funds either by ministries of government directly or by the ministry’s service delivery vehicles/government organizations. Public sector accounting standards need to be written for the “consolidated entity” and passed down to the subsidiary entities and not the converse of being written to address perceived issues in the subsidiary entity and driven up to impact the consolidated entity.

Page 99: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 8 -

…/9

The province is concerned with the use of the term “publically accountable” being applied to government. It is agreed that the government is accountable to the people/public but the term publically accountable has been used extensively in relation to the private sector for “public companies” which are accountable to a restricted group of people being their shareholders or creditors. A preferred reference would be to entities that are “accountable to the public”, all of the public. The province does not support including in the conceptual framework the statement that “Financial statements provide the basis upon which other levels or kinds of accountability can be developed.” The conceptual framework and PSAB should focus all its efforts on accounting standards for financial statement reporting. Multiple Objectives The province is concerned with the concept behind the statement “Maximizing the value generated by every dollar raised is an expectation of the public who have provided the resources.” as this raises a valuation concept. It is agreed that government seeks to implement the policies specified in budget and appropriation legislation in as cost effective a manner as possible but that is not seeking to maximize value. Our concern is that at some point in the future such a reference in the conceptual framework would be used to support a market value basis of measurement. Rights, Powers and Responsibilities (Constitutional or Devolved) A revenue focus is a private sector focus in which an entity seeks to maximize revenue. The Government does not consider that in return for the revenue it will achieve certain goals nor does it seek to maximize revenue. Government sets out policy goals that will be implemented in a non-exchange environment. The government prepares a budget which provides a cost estimate for implementing these policy goals. Every budget necessitates a decision about whether there is a need to raise additional revenue/taxes to cover the cost of policy goals or whether revenue/taxes can be lowered because certain policy goals have been achieved or are no longer pursued or because the government has found less costly means to achieve the policy goals. It is correct that once revenue streams have been established the opportunity exists to add new policy goals knowing they can be achieved without adding more taxes. However, conceptually the process is policy goal driven with revenue going through a separate process of tax policy in which decisions are made about how the cost of implementing the policy goals will be distributed across the economy/people. Lack of Equity Ownership Government is a not-for-profit organization without equity ownership. The principle goal of government financial statements is accountability to the public rather than valuation. The province believes that one of the fundamental objectives of financial statements that establish accountability is to clearly reflect the decisions and intentions of management and their impact on the operating statement and balance sheet. The conceptual framework needs to clearly identify the accountability objective of financial statements not the current value, liquidation or market value of the province.

Page 100: 2011-10 Characteristics of Public Sector Entities RESPONSES

- 9 -

Operating and Financial Frameworks Set by Legislation (I.E., Legal Requirements) The province supports the description of this characteristic but would prefer if the description extended to its logical conclusion which is that PSAB’s conceptual framework should be based on accountability principles (historical cost) and not valuation (market) principles. The Importance of the Budget This section understates the importance of the budget to senior governments. In all senior governments budgets are public documents, the estimates and appropriations are debated in open sessions of the legislature and voted on in public. No unit of government may exceed its appropriation by law. In BC, the summary budget is prepared on a PSAB basis and includes the same set of government organizations as are included in the government’s summary/consolidated financial statements. The province sees the financial statements as an accountability document. Governance Structures This characteristic is well described but may lead to an inappropriate conclusion, that government is accountable to the legislature. The Province agrees with the JWG Report which stated that government is accountable to the public and the legislature acting on their behalf. The primary accountability is to the people. Nature of Resources The Provinces has provided its view of government resources throughout our response. Non-Exchange Transactions The Province believes that the description of non-exchange transactions is understated.

Page 101: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 102: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 103: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 104: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 105: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 106: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 107: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 108: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 109: 2011-10 Characteristics of Public Sector Entities RESPONSES

Finance Comptroller’s Division Comptroller’s Office 715 – 401 York Avenue Winnipeg, Manitoba R3C 0P8 Phone: 945-4919 Fax: 948-3539 E-mail: [email protected] October 25th, 2011 Mr. Tim Beauchamp, Director Public Sector Accounting 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Mr. Beauchamp:

Re: Consultation Paper 1 – Characteristics of Public Sector Entities Thank you for providing the Province of Manitoba (the Province) the opportunity to comment on the Consultation Paper (CP) on the “Characteristics of Public Sector Entities”. We apologize for the delay in providing this response and hope that it may still be considered in the evaluation of comments. The CP is the first document issued for comment by the Conceptual Framework Task Force. The Province appreciates this opportunity and agrees that the development of a conceptual framework is a one of the most important projects to the Public Sector Accounting Board and its stakeholders. The Province is supportive of the overall general approach taken by PSAB and the Conceptual Framework Task Force. However the Province feels that the Joint Working Group of Deputy Ministers should have a greater input into the development of the conceptual framework and other pronouncements from PSAB. The Province is pleased that the proposed scope of the conceptual framework will continue to only focus on general purpose financial statements. The Province’s expectation is that the development of the conceptual framework will improve the understandability of financial statements and the information provided to the users. Of what significance is the development of accounting standards if financial statements can only be understood by accounting professionals? The Province understands that the issues of users and objectives of financial statements will be discussed in the next CP. At this time, the Province of Manitoba intends to continue to follow the recommendations of the PSAB, but will continually evaluate the standards development of PSAB over time, to ensure they continue to be useful for the users of the financial statements. As requested, the Province has responded to your specific questions in the CP. 1. Is the list of characteristics of public sector entities complete?

While it is not a characteristic, a definition of government and the purposes of the government should be included in the CP. The CP should also recognize the longevity and sovereignty of senior governments.

2. Is each characteristic appropriately described? Please explain any changes that should be made. The Province feels that the characteristics are properly described in the CP. The Province views accountability to the public as the overarching characteristic of the public sector. The budget is the key public document by which the accountability of the government is measured against. Public accountability is not only a characteristic of the public sector but is also an objective of financial reporting. Reporting on the stewardship and management of public resources is the primary objective of financial reporting. The development of accounting standards must consider the usefulness of the information to the public.

Page 110: 2011-10 Characteristics of Public Sector Entities RESPONSES

3. For each key characteristic (including any that the Province has added), does it have reporting or accounting implications for financial statements of public sector entities (or the financial statements of governments alone, or for the financial statements of government organizations alone)? Please explain what those implications would be. For example, are specific accounting questions raised (i.e., does an asset, liability, revenue or expense exist; when/how should an item be recognized in annual results; is the entity a going concern)? Or should particular items and indicators or comparisons be reported in the financial statements? Or is a new/different financial statement or a new/different financial statement format required? Please be as specific as you can. The Province believes that characteristic #4 – Lack of Equity Ownership should be included as a characteristic and has significant accounting implications. Its inclusion as a characteristic of the public sector would support the Province’s view that fair value measurement and wealth maintenance models are not appropriate for public sector financial statements. Its inclusion as a characteristic would lend support to a historical cost model. The Province has serious reservations about the inclusion of natural resources and intangibles in the description of Characteristic #8 – Nature of Resources. Natural resources, heritage and cultural resources and intangibles are not held by public sector entities for the provision of services to the public. The Province is concerned that their inclusion in the conceptual framework will lead to their recognition and valuation as assets in the financial statements.

4. For each of those characteristics that do not have identifiable accounting or reporting implications, should they still be included in the conceptual framework as contextual information about public sector entities? It is the Province’s view that the characteristics that have no identifiable accounting or reporting implications should still be included in the conceptual framework as contextual information about public sector entities. The characteristics of the public sector should be separated into two groups: one group for characteristics with significant accounting and reporting implications and a secondary group that only provides further information about the public sector.

We appreciate the opportunity to comment on this CP and documents on the conceptual framework. If you have any questions or concerns related to this comments please contact the undersigned. Yours truly, “Original Signed by’ Betty-Anne Pratt, CA Provincial Comptroller On Behalf of the Province of Manitoba

Page 111: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 112: 2011-10 Characteristics of Public Sector Entities RESPONSES
Page 113: 2011-10 Characteristics of Public Sector Entities RESPONSES