The gatekeeper

By Jim Keates
Illustration: Blair Kelly

Why government organizations should become familiar with the introduction to the PSA Handbook

All government organizations fall within the scope of the CICA Public Sector Accounting (PSA) Handbook, standards that are set by the Public Sector Accounting Board (PSAB). Recent amendments to the Introduction to Public Sector Accounting Standards may have changed the source of generally accepted accounting principles (GAAP) government organizations are now required to follow.

Understanding the introduction is important because many government organizations follow existing commercial GAAP in the CICA Handbook — Accounting (now Part V of the Handbook). They may be unaware that they are with-in the scope of the PSA Handbook and how the recent changes to its introduction may affect them.

While commercial GAAP is the appropriate basis of accounting for some government organizations, all such organizations should take time to review the direction and requirements in the introduction. While it is only a few pages in length, the introduction contains an abundance of valuable information for government organizations.

Acting as the gatekeeper to the PSA Handbook, the introduction indicates what types of government organizations are required to follow the PSA Handbook. It also provides direction as to the source of GAAP to be used by those organizations where the PSA Handbook is not appropriate.

The introduction makes these distinctions by requiring government organizations be categorized as either government business enterprises (GBE) (e.g., Hydro-Québec), government not-for-profit organizations (GNFPO) (e.g., Ontario Arts Council) or other government organizations (OGO) (e.g., CBC). Government organizations cover a variety of operations and putting these organizations in categories allows those that are similar to use the most appropriate basis of GAAP.

Definitions are provided in the introduction for GBEs and GNFPOs, but OGOs are not defined. The term is used as a catch all for remaining government organizations that do not meet the GBE and GNFPO definitions.

GBEs are directed to follow the standards that apply to publicly accountable enterprises in the CICA Handbook — Accounting (this will become international financial reporting standards for the fiscal period beginning on or after January 1, 2011).

GNFPOs are directed to follow standards for not-for-profit organizations in the CICA Handbook — Accounting. The basis of accounting for GNFPOs is however currently under review. PSAB has issued an exposure draft entitled Financial Reporting by Government Not-for-Profit Organizations, which proposes, subject to comments received, to incorporate into the PSA Handbook Sections 4400 to 4470 from the CICA Handbook — Accounting. The exposure draft also proposes to direct GNFPOs to the standards for not-for-profit organizations in the PSA Hand-book commencing for fiscal periods beginning on or after January 1, 2012. These changes, subject to approval, would be reflected in the introduction along with transitional information regarding for example the method of accounting for the transition to the PSA Handbook. Stay tuned for more on the outcome of this review.

OGOs generally follow the PSA Handbook given thenature of their operations but may determine the standards that apply to publicly accountable enterprises in the CICA Handbook — Accounting are more appropriate for them, considering the needs of users of its general purpose financial statements. Factors OGOs should consider when determining their most appropriate basis of GAAP are provided with-in the introduction. These factors include whether the OGO:

has issued or will be issuing debt or equity instruments that are or will be outstanding and traded in a public market;
holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses;
has commercial-type operations and substantially derives its revenue from these activities; and
receives limited government assistance on an ongoing basis.

While most OGOs are expected to follow the PSA Handbook, a yes to any of these factors may suggest the standards that ap-ply to publicly accountable enterprises in the CICA Handbook — Accounting should be considered. The factors in the introduction are not a complete listing nor a set of definitive indicators. They are meant to be the type of factors an OGO should consider in its assessment of what financial reporting standards it should follow.

Guidance is also provided within the introduction for OGOs adopting the PSA Handbook for the first time. For example, the transition to the PSA Handbook should be accounted for by retroactive application with restatement of prior periods. PSAB is in the process of developing guidance on the first-time adoption of the PSA Handbook. Government organizations will be able to choose to adopt some aspects of certain standards in the PSA Handbook either prospectively or retroactively and be required to adopt certain other aspects only prospectively. Stay tuned for more on the outcome of this project.

After reading the introduction, all government organizations should consider the following questions on a regular basis:

What type of government organization are we? Are we a GBE, GNFPO or OGO? Have we reviewed the definitions and do we continue to meet the same definition?
What basis of GAAP is our type of government organization directed to follow?
If we are an OGO, have we reviewed and updated our assessment of the most appropriate basis of GAAP?
If we are not following the PSA Handbook, are there any additional requirements being imposed on us by PSAB?

While not all government organizations will be required to follow the PSA Handbook, all should be aware of the direction and requirements in the introduction and ensure they are applying the most appropriate basis of GAAP for their organization. The introduction is not a static document but is evolving and should be monitored on a regular basis. To learn more about government organizations in the public sector, please visit www.psab-ccsp.ca.

Jim Keates is a principal with PSAB

Technical editor: Ron Salole, vice-president, Standards, CICA