February 2011
Sum m ary Com parison o f Canad ian
Public Sector Accounting Standards
With th e CI CA Han dboo k Part V
www.bcauditor.com
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II
T a ble of C o n te n ts
III
Background 1
Introduction 1
Limitations of this document 1
First-time adoption of PSAB
2
Financial statement presentation for not-for-profit organizations
3
1. The Framework
4
1.1 Objective
4
1.2 Users
4
1.3 GAAP hierarchy
4
1.4 Assets
4
1.5 Liabilities
5
1.6 Revenue
5
1.7 Expenses
5
2. Financial Statement Presentation
6
2.1 Statement of financial position
6
2.2 Statement of operations
6
2.3 Statement of change in net debt
7
2.4 Statement of cash flows
8
3. Statement Of Financial Position
9
3.1 Financial Assets
9
3.1.1 Definition
9
3.1.2 Cash and cash equivalents
9
3.1.3 Temporary investments
9
3.1.4 Revenues receivable
10
T a ble of C o n te n ts
IV
3.1.5 Inventories for resale
10
3.1.6 Loans receivable and other loans
11
3.1.7 Portfolio investments
12
3.1.8 Derivatives
13
3.2 Liabilities
14
3.2.1 Definition
14
3.2.2 Accounts payable and accrued liabilities
14
3.2.3 Deferred revenue, and restricted assets and revenue
15
3.2.4 Employee future benefits
16
3.2.5 Asset retirement obligations
17
3.2.6 Long-term debt, borrowings and loans from other entities
17
3.2.7 Contingent liabilities
19
3.2.8 Loan guarantees
19
3.2.9 Contractual obligations
19
3.3 Non-Financial Assets
19
3.3.1 Definition
19
3.3.2 Tangible capital assets and amortization
20
3.3.3 Leased tangible capital assets
20
3.3.4 Prepaid expense
21
3.3.5 Inventories held for consumption or use
21
4. Statement Of Operations
22
4.1 Revenues
22
4.2 Expenses
22
T a ble of C o n te n ts
V
5. Other Specific Topics
23
5.1 Consolidation principles
23
5.2 Goodwill and intangible assets
25
5.3 Accounting changes
25
5.4 Foreign exchange
26
5.5 Risk management and hedging
27
5.6 Segment disclosures
28
5.7 Related parties
29
5.8 Subsequent events
29
5.9 Economic dependence
29
5.10 Capital disclosures
29
5.11 Public private partnerships (P3s)
30
5.12 Measurement Uncertainty
30
6. PSAB Projects Impacting Future Accounting Standards
32
6.1 Government transfers
32
6.2 Financial instruments
33
6.3 Foreign currency translation
34
6.4 Related party transactions
35
6.5 Appropriations
35
6.6 Amalgamations and restructuring
35
6.7 Assets
36
6.8 Revenue from exchange transactions
36
6.9 Financial statements for government organizations
36
BACKGROUND
Introduction
This document was prepared by the Office of the Auditor General of British Columbia to assist Provincial
government organizations in British Columbia who are transitioning to Public Sector Accounting Standards
(PSAB) from the Canadian Institute of Chartered Accountants Handbook (CICA Handbook).
Government has directed that the transition occur according to the following timeline:
• Taxpayer-supported government organizations, except those designated as “education” or “health”
sector organizations, are to adopt PSAB in their fiscal year that begins in 2011.
• Taxpayer-supported government organizations designated as “education” or “health” sector
organizations are to adopt PSAB in their fiscal year that begins in 2012.
With the transition, comparative figures will have to be restated. See the section below regarding the firsttime adoption of PSAB.
This document would not be used by government business enterprises (GBEs) which, under the PSAB
framework (“Introduction to Public Sector Standards”), are directed to report under the standards applicable
to publicly accountable enterprises in the CICA Handbook. Therefore, GBEs will be applying International
Financial Reporting Standards (IFRS) along with all the other publicly accountable enterprises in Canada for
fiscal years beginning on or after January 1, 2011.
The introduction to the PSAB handbook also directs “other government organizations” (OGOs) to follow
either PSAB or the standards applicable to publicly accountable enterprises in the CICA Handbook (i.e., IFRS).
As well, PSAB now includes optional standards (PS 4200 series) for government not-for-profit organizations
(GNPOs) identical in most respects to the HB 4400 series of the pre-changeover CICA Handbook (see below).
However, in British Columbia, government has directed both OGOs and GNPOs to adopt PSAB, but without
the optional not-for-profit standards available in the PS 4200 series.
This document assumes that the PS 4200 series would not be applied; therefore, the detailed sections in this
document compare PSAB (excluding the PS 4200 series) with the CICA Handbook Part V (ie the CICA
Handbook as it was prior to the transition to IFRS, including the NPO standards in the HB 4400 series).
Limitations of this document
The government reporting entity of the Province of British Columbia comprises many different organizations,
which make a multitude of transactions. No one document can therefore be expected to address every type
of transaction or reporting situation that may arise. Applying accounting standards requires professional
judgement. This is particularly true for PSAB, which does not provide specific guidance in a number of areas
(noted in this document).
Every effort has been made to ensure the accuracy of the information presented here, but it may not be
comprehensive enough in all respects to meet the needs of every user. As well, accounting standards change
constantly, and so some information may have changed since this document’s publication. Furthermore, this
publication is not intended to cover all aspects of PSAB, or to be a substitute for reading the actual standards
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and interpretations when dealing with specific issues. Our Office accepts no responsibility for anyone acting
on the basis of this publication without seeking professional advice.
In British Columbia, provincial government organizations are expected to consult with the Office of the
Comptroller General before exercising any choice available to them under the reporting framework, and
before adopting policies and practices to implement applicable accounting standards.
First-time adoption of PSAB
(PS 2125)
First-time adoption will ensure that financial statements:
a) are transparent for users of the financial statements and comparable over all periods presented;
b) provide a suitable starting point for accounting in accordance with PSAB; and
c) can be generated at a cost that does not exceed the benefits to the users.
The adoption of PSAB is to be accounted for by retroactive application, with restatement of prior periods,
unless exemption is permitted.
The following exemptions to retroactive application are available:
a) retirement and post-employee benefits (PS 3250 and PS 3255)
o Discount rate – A first-time adopter may elect to delay application of these sections relative to
the discount rate used until the date of the next actuarial valuation or within three years of the
transition date to PSAB, whichever is sooner.
o Cumulative actuarial gains – A first-time adopter may elect to recognize all cumulative actuarial
gains and losses, as of the date of transition to PSAB, directly in accumulated surplus/deficit.
b) business combinations (PS 2510)
o A first-time adopter need not comply with the requirement for retroactive application for an
acquisition that was incurred prior to the date of transition to PSAB.
c) investment in government business enterprises (PS 3070)
o A first-time adopter need not comply with the requirement for retroactive application of the
modified equity method of accounting for an investment in a government business enterprise
that was incurred prior to the date of transition to PSAB.
d) government business partnerships (PS 3060)
o A first-time adopter need not comply with the requirement for retroactive application of the
modified equity method of accounting for a government business partnership entered into
prior to the date of transition to PSAB.
e) tangible capital asset impairment (PS 3150)
o A first-time adopter need not comply with the requirement for retroactive application for
write-downs of tangible capital assets that were incurred prior to the date of transition to
PSAB.
Retroactive application is prohibited for:
a) some aspects of hedge accounting relating to foreign currency translation; and
b) accounting estimates.
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Disclosure requirements:
a) changes to accumulated surplus/deficit as a result of first-time adoption of PSAB;
b) reconciliation of the most recently reported net income/loss to the entity’s annual surplus/deficit
under PSAB for the period;
c) explanation of material adjustments to the statement of cash flow (if such a statement is presented);
d) exemptions used (if any); and
e) an opening statement of financial position as at the date of transition (so, an entity that adopts PSAB
for its fiscal year ending March 31, 2012, will need to present an opening statement of financial
position as at April 1, 2010).
Financial statement presentation for not-for-profit organizations
(PS 4200, HB 4400)
Under the CICA HB 4400 series, not-for-profit organizations (NPOs) have the option of applying either the
deferral method or the restricted fund method of accounting and may present balances and results in
separate funds. As well, there are a number of other financial reporting requirements and options provided
for NPOs (e.g., unique rules for reporting controlled entities, and separate reporting of net assets based on
internal and external restrictions).
The financial reporting options provided in HB 4400 for NPOs are also available under PSAB (for those
organizations electing to apply PS 4200), but with the following differences:
a) the modified equity method will be available as an alternative method for reporting controlled forprofit organizations, rather than the equity method that was available under the HB 4400 series;
b) there are no requirements relating to other comprehensive income that is not reported as a
component of net income in the PSAB handbook: on consolidation, other comprehensive income is
reported as a component of the accumulated surplus/deficit; and
c) the guidance in the CICA HB 4400 series relating to asset retirement obligations and interim financial
statements has not been incorporated into the PS 4200 series.
However, as noted above, government has directed GNPOs to report under PSAB without incorporating the
PS 4200 series. Therefore, the detailed sections in this document do not consider the optional provisions in
PS 4200.
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1. THE FRAMEWORK
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
1.1 Objective
PS 1100
HB 1100
Nine objectives established under PSAB are specific to
public sector reporting.
Under the CICA Handbook, the overall reporting
principles are consistent to PSAB, but specific
objectives are not provided.
1.2 Users
PS 1000
Information needs to highlight measures that help users
Under the CICA Handbook, the overall principles are
assess whether the reporting entity’s financial position has consistent to PSAB, but the user groups are different.
improved or deteriorated, and needs to explain the
changes in financial position. The reporting entity’s
financial statements serve the interests of a variety of
users such as the public, legislators, councillors, investors,
analysts and other governments.
1.3 GAAP hierarchy 1
PS 1150
HB 1100
A reporting entity should apply every primary source of
GAAP that deals with the accounting and reporting in
financial statements of transactions including:
a) sections;
b) guidelines; and
c) appendices and illustrative material.
1.4 Assets
PS 1000
HB 1000
Assets have three essential characteristics:
a) they embody a future benefit that involves a capacity,
singly or in combination with other assets, to provide
future net cash flows, or to provide goods and
Under the CICA Handbook, the GAAP hierarchies are
conceptually similar to PSAB. However, PSAB is not as
comprehensive as the CICA Handbook and is silent in
a number of areas. As a result, there are often
specific areas, such as asset retirement obligations
(see section 3.2.5), that require professional
judgement and reference to other reporting
When primary sources of GAAP are not applicable or when frameworks.
additional guidance is needed, a reporting entity should
adopt accounting policies and disclosures that are
consistent with the primary sources of GAAP and the
application of the concepts described in section PS 1000.
Under the CICA Handbook, the essential
characteristics are similar to PSAB, except that profitoriented enterprises define future benefit in terms of
cash flows only.
1
GAAP hierarchy is an outline for determining the most appropriate sources for obtaining guidance on Canadian generally accepted accounting principles. For
example, in PSAB there is no specific standard for asset retirement obligations. Under the GAAP hierarchy, reporting entities would therefore look to other
sources for guidance. The sources may include international financial reporting standards (IFRS) or accounting standards for private enterprises (ASPE).
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1. THE FRAMEWORK
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
services;
b) the reporting entity can control access to the benefit;
and
c) the transaction or event giving rise to the reporting
entity’s control of the benefit has already occurred.
Similar to PSAB, under the CICA Handbook NPOs
define future benefits associated with assets in terms
of either cash flows or service potential.
1.5 Liabilities
PS 1000
PS 3200
HB 1000
Liabilities have three essential characteristics:
a) they embody a duty or responsibility to others,
leaving a reporting entity little or no discretion to
avoid settlement of the obligation;
b) the duty or responsibility to others entails settlement
by future transfer or use of assets, by provision of
goods or services or by other form of economic
settlement, at a specified or determinable date, on
occurrence of a specified event, or on demand; and
c) the transaction or event obligating the reporting
entity has already occurred.
1.6 Revenue
PS 1000
HB 1000
Revenues, other than gains, can arise from: taxation; the
Under the CICA Handbook, the essential
sale of goods; the rendering of services; the use by others characteristics are similar to PSAB.
of government economic resources yielding rent, interest,
royalties or dividends; or contributions received, such as
grants, donations and bequests.
1.7 Expenses
PS 1000
HB 1000
Expenses, including losses, are decreases in economic
resources (either by way of decreases in assets or
increases in liabilities) resulting from the operations,
transactions and events of the accounting period.
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
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2. FINANCIAL STATEMENT PRESENTATION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
2.1 Statement of financial
position
PS 1200
HB 1000
HB 1510
HB 1400
Five key figures describe the financial position:
a) financial assets;
b) liabilities;
c) net debt position (liabilities minus financial assets);
d) non-financial assets; and
e) accumulated surplus/deficit.
Under the CICA Handbook, accounts are classified
into current assets, current liabilities, tangible capital
assets, long-term liabilities and equity/net assets.
Current year statement of financial position should be
presented with prior year comparatives.
Under PSAB, there is no distinction between current
and non-current items. Assets are separated into
financial assets and non-financial assets. Presentation
highlights net debt position and accumulated
surplus/deficit (see also section 2.3).
PSAB does not specifically address the presentation
of share capital. However, accumulated
surplus/deficit is defined as the residual of assets less
liabilities, therefore encompassing equity interests.
Relevant details of capital/ownership structure
should be presented in the notes to the financial
statements.
2.2 Statement of operations
PS 1200
HB 1400
HB 1520
A reporting entity should report:
a) revenues by significant types;
b) expenses by function or major program;
c) surplus or deficit for the period (difference between
revenues and expenses); and
d) accumulated surplus/deficit at the beginning and end
of the period on either the statement of operations or
a separate statement.
Under the CICA Handbook, the statement of
operations reports the results of revenues, expenses,
gains and losses, discontinued operations, and
extraordinary items.
The following requirements under PSAB are different
from the CICA Handbook:
• expenses are required to be reported by function
or major program on the statement of
The statement of operations excludes other
operations; expenses by object/type are
comprehensive income. If a subsidiary business enterprise
disclosed in the notes to the financial statements;
reports other comprehensive income, the amount is
• other comprehensive income is included in the
recorded directly to accumulated surplus/deficit.
statement of change in net debt and not in the
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2. FINANCIAL STATEMENT PRESENTATION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
The current year statement of operations should be
presented with prior year and originally planned
(budgeted) comparatives.
Proposed Standards
PSAB is proposing the inclusion of a separate statement of
remeasurement gains and losses. This statement would
report unrealized gains and losses associated with foreign
exchange and changes in value for financial instruments
recorded at fair value. It would also include amounts
reclassified to the statement of operations when the asset
or liability is “derecognized” or settled, as well as other
comprehensive income. Refer to the summary of these
projects in sections 6.2 and 6.3.
2.3 Statement of change in
net debt
PS 1200
HB 1000
HB 1400
HB 1530
Differences with CICA Handbook
•
•
statement of operations;
there are no guidelines for discontinued
operations or extraordinary items; and
the statement of operations should present a
comparison of the results for the accounting
period with those originally planned (i.e.,
budgeted).
Net debt is the remainder of liabilities less financial assets. Under the CICA Handbook, a statement of change in
The accumulated surplus/deficit is the remainder of non- retained earnings (or net assets) is presented.
financial assets less net debt.
Under PSAB, the statement of change in net debt
differs from the statement of change in retained
The statement of change in net debt should report the
extent to which the expenditures of the accounting period earnings (or net assets) in that the former results not
only from the surplus/deficit for the period (and any
are met by the revenues recognized. It should report net
other changes to the accumulated surplus/deficit) but
debt at both the beginning and end of the accounting
also from the purchase, disposition and amortization
period.
of tangible capital assets (TCAs) and other nonThe statement of change in net debt should explain the
financial assets.
difference between the surplus/deficit for the period,
including:
• acquisition of tangible capital assets (TCAs);
• disposals of TCAs;
• amortization of TCAs;
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2. FINANCIAL STATEMENT PRESENTATION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
•
•
•
•
Differences with CICA Handbook
adjustments relating to write-downs of TCAs;
consumption of other non-financial assets;
expenditures to acquire other non-financial assets;
and
other comprehensive income arising in applying the
modified equity method when reporting on the
results of government business enterprises and
government business partnerships.
Prior year comparatives are presented as well as originally
planned (budgeted) comparatives on the statement of
change in net debt.
2.4 Statement of cash flows
PS 1200
HB 1400
HB 1540
The statement of cash flows should report how a reporting
entity generated and used cash and cash equivalents in
the accounting period, and what the change in cash and
cash equivalents was in the period. The statement of cash
flows should also report the cash and cash equivalents at
both the beginning and end of the accounting period.
Under the CICA Handbook, the statement of cash
flows is similar to PSAB, except that PSAB requires
cash flows related to capital activities to be shown as
a separate category from investing and financing
activities.
The CICA Handbook indicates no preference for use
The statement of cash flows should report cash flows
of the direct or indirect method, while PSAB
during the period, classified by operating, capital, investing encourages use of the direct method.
and financing activities.
Use of the direct method is encouraged.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
3.1 Financial assets
3.1.1 Definition
PS 1000
PS 1200
Financial assets are assets that could be used to discharge existing liabilities or finance future operations and are
not for consumption in the normal course of operations. They may include inventories or items for resale. The
indicator of net debt is determined by deducting the financial assets from liabilities.
The statement of financial position should report financial assets segregated by main classifications, such as:
a) cash and cash equivalents;
b) temporary investments;
c) revenues receivable;
d) inventories for resale and other assets held for sale that meet the requirements of section PS 1200.051;
e) loans to other governments;
f) other loans;
g) portfolio investments;
h) investments in government business enterprises; and
i) investments in government business partnerships.
3.1.2 Cash and cash
equivalents
PS 1200
HB 1540
HB 3000
3.1.3 Temporary
investments
PS 3030
HB 3855
Cash comprises cash on hand and demand deposits.
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
Cash equivalents are short-term highly liquid investments
that are readily convertible to known amounts of cash and
that are subject to an insignificant risk of change in value.
They are held for the purpose of meeting short-term cash
commitments rather than for investing or other purposes.
An investment would normally qualify as a cash equivalent
only when it has a short maturity (i.e., three months or
less).
Temporary investments are recorded at the lower of cost
and market value. Where there are holdings of marketable
securities, their quoted market value as well as their
carrying value should be disclosed.
Under the CICA Handbook, temporary investments
are categorized as held for trading, held to maturity
or available for sale. Financial instruments are held at
fair value or amortized cost depending on their
categorization. This guidance applies to both for-
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
The financial statements should disclose adequate
information about the nature and terms of a reporting
entity’s temporary investments, together with any
valuation allowances.
profit and not-for-profit organizations.
Proposed Standards
PSAB is proposing changes to the standards for the
recognition and measurement of financial instruments.
Refer to the summary of this project in section 6.2.
3.1.4 Revenues receivable
PS 1200
PS 3410
PS 3510
HB 3855
PSAB includes specific guidance on what triggers
recognition of revenues (and receivables) relating to
contributions and taxation. Under PSAB, financial assets
are primarily measured at historical cost.
New and Proposed Standards
PSAB will be issuing a new standard on government
transfers in March 2011, effective for fiscal years
beginning on or after April 1, 2012. PSAB is also proposing
changes to the standard for financial instruments. Refer to
the summary of these projects in sections 6.1 and 6.2.
Under PSAB, there are no asset designation
categories and temporary investments are recorded
at lower of cost and market value. A write-down is
recorded directly to the statement of operations.
The measurement of shorter term accounts
receivable should in most cases be similar under
either framework.
Under PSAB, potential differences could occur as
additional guidance is provided on what triggers
recognition of contributions and tax revenues.
However, this guidance is consistent with the asset
recognition principles in both frameworks.
Potential differences may also exist in that the CICA
Handbook provides the option for fair value
measurement and also requires use of the effective
interest rate method.
Although not currently required, the use of the
effective interest rate method is a requirement in the
proposed PSAB financial instrument standard. Refer
to the summary of this project in section 6.2.
3.1.5 Inventories for resale
PS 1000
As asset held for sale should be recognized as a financial
asset when all of the following criteria are met:
Under the CICA Handbook, inventories are assets held
for sale in the ordinary course of business, in the
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
PS 1200
a)
b)
c)
d)
e)
f)
process of production for such sales, or in the form of
materials or supplies to be consumed in the
production process of rendering of services.
the reporting entity is committed to selling the asset;
the asset is in a condition to be sold;
the asset is publicly seen to be for sale;
there is an active market for the asset;
there is a plan in place for selling the asset; and
it is reasonably anticipated that the asset will be sold
outside the reporting entity within one year of the
reporting date.
Inventories for sale which will not be sold within one year
of the financial statement date should be included in
inventories for consumption or use. Refer to section 3.3.5
for further details.
Under PSAB, there are two categories of inventories:
inventories for resale (financial asset) and inventories
for consumption or use (non-financial asset) (see
3.3.5). Their presentation in the statement of
financial position differs by category. This distinction
is not made in the CICA Handbook.
The PSAB Handbook does not have detailed guidance on
inventory costing methods when conversion processes
occur within the organization. In keeping with the PSAB
hierarchy of GAAP (PS 1150), organizations would likely
refer to other sources of GAAP for this detailed guidance,
such as Canadian Private Sector GAAP or IFRS.
3.1.6 Loans receivable and
other loans
PS 3050
HB 3855
Loans receivable should initially be reported at cost.
Valuation allowances should be used to reflect loans
receivable at the lower of cost and net recoverable value.
When the amount of a loss is known with sufficient
precision, the loan receivable should be reduced by the
amount of that loss.
Under the CICA Handbook, loans and receivables that
are not quoted in an active market, unless designated
as available for sale or held for trading with the
intention that they be sold in the near term, are
measured at amortized cost using the effective
interest method. Such loans or receivables are
initially measured at their fair value, which is
A reporting entity should disclose the nature and terms of calculated as the present value of future receipts
significant classes of loans receivable, as well as describe discounted using prevailing market rates for similar
the accounting policies applied to its loans receivable.
instruments.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
3.1.7 Portfolio investments
PS 3040
HB3051
HB 3855
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
Proposed Standards
PSAB is proposing changes to the standards for the
recognition and measurement of financial instruments.
Refer to the summary of this project in section 6.2.
Although not currently required, the use of the
effective interest rate method is a requirement in the
proposed PSAB financial instrument standard. Refer
to the summary of this project in section 6.2.
Under the CICA Handbook, when an investor is able
to exercise significant influence over an investee that
is not a subsidiary, a joint venture or a variable
interest entity, the investor should account for the
investment using the equity method. If an investor is
not able to exercise significant influence, the
investment should be accounted for in accordance
Portfolio investments are measured at cost. When there is with CICA Handbook 3855, “Financial Instruments –
recognition and measurement.”
a loss in value other than a temporary decline, the
investment should be written down to recognize the loss.
Under the CICA Handbook, when significant influence
The write-down should be included in the statement of
is not present, investments are categorized as either
operations and should not be reversed if there is a
held for trading, held to maturity or available for sale.
subsequent increase in value.
The financial instruments are measured at fair value
Any gains or losses from the sale of portfolio investments or at amortized cost depending on their
categorization. This guidance applies to both forshould be included in the statement of operations in the
profit and not-for-profit organizations.
period of the sale.
Portfolio investments are long-term investments in
organizations that are not controlled. Such investments
are normally shares or bonds and exclude temporary
investments and loans receivable. Some investments in
pooled or mutual funds may qualify as portfolio
investments if they are held for the long term.
Portfolio investments should be reported separately on
the statement of financial position. Any income from
portfolio investments should be reported on the
statement of operations.
Under PSAB, the concept of significant influence does
not exist. If an organization is not controlled, then it is
a portfolio investment. If it is controlled, then it is
consolidated as described in section 5.1.
Proposed Standards
PSAB is proposing changes to the standards for the
recognition and measurement of financial instruments.
Under the CICA Handbook, fair value should be
disclosed for financial instruments recorded at cost,
subject to certain exemptions. Under PSAB, when
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
Refer to the summary of this project in section 6.2.
portfolio investments include marketable securities,
then the quoted market value of such securities as
well as their carrying value should be disclosed.
Currently under PSAB, all portfolio investments are
recorded at cost. Impairments are only recorded if
other than a temporary decline in value. Under PSAB,
an impairment that has persisted for three or four
years is evidence of a decline that is not temporary.
There is no similar guideline in the CICA Handbook.
Impairments are not reversed for subsequent
changes in value.
The proposed changes to the standards for financial
instruments, if approved, would significantly change
the measurement of portfolio investments. Refer to
the summary of this project in section 6.2.
3.1.8 Derivatives
HB 3855
Derivatives are not usually recorded in the financial
statements, except that a derivative that gives rise to a
contingent liability may be recorded.
Proposed Standards
PSAB is proposing changes to the standards for the
recognition and measurement of financial instruments.
Refer to the summary of this project in section 6.2.
Under the CICA Handbook, derivatives and embedded
derivatives that are not closely related are classified
as “held for trading” and are recorded at fair value.
However, NPOs are given the option of not
recognizing certain types of embedded derivatives.
Currently under PSAB, derivatives and embedded
derivatives are not typically recognized in the
financial statements. However, a derivative giving rise
to a contingent liability may be recognized and
accounted for. Proposed changes to the standards for
financial instruments, if approved, would result in
derivatives being recorded at fair value. Refer to the
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
summary of this project in section 6.2.
3.2 Liabilities
3.2.1 Definition
PS 1000
PS 1200
Liabilities are present obligations a reporting entity has to others arising from past transactions or events, the
settlement of which is expected to result in the future sacrifice of economic benefits.
The statement of financial position should report liabilities segregated by main classifications, such as:
a) accounts payable and accrued liabilities;
b) liabilities for employee future benefits;
c) deferred revenue;
d) borrowings; and
e) loans from other reporting entities
3.2.2 Accounts payable and Liabilities have three essential characteristics:
accrued liabilities
a) they embody a duty or responsibility to others, leaving
PS1000
little or no discretion to avoid settlement of the
PS 1200
obligation;
PS 3200
b) the duty or responsibility to others entails settlement
HB 3855
by future transfer or use of assets, provision of goods
or services, or other form of economic settlement at a
specified or determinable date, on occurrence of a
specified event, or on demand; and
c) the transactions or events giving rise to the obligation
have already occurred.
Obligations are not liabilities unless they meet the three
characteristics of liabilities.
Under the CICA Handbook, the essential
characteristics are similar to PSAB. The measurement
of shorter term liabilities should be, in most cases,
the same under either framework. However,
potential differences could occur in that the CICA
Handbook provides the option for fair value
measurement and also requires use of the effective
interest rate method.
Although not currently required, the use of the
effective interest rate method is a requirement in the
proposed PSAB financial instrument standard. Refer
to the summary of this project in section 6.2.
PSAB provides additional guidance on discretion
(being unable to avoid settlement of the obligation)
for constructive and equitable obligations.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
3.2.3 Deferred revenue, and
restricted assets and
revenue
PS 1000
PS 1200
PS 3100
PSG-4
HB 1000
HB 3800
HB 4400
Exchange transactions
Revenues should be recognized in the period in which the
transactions or events that gave rise to the revenues
occurred. For exchange transactions, detailed guidance is
not provided in the PSAB Handbook beyond the general
recognition principles present in sections PS 1000 and PS
1200.
Exchange transactions
Under the CICA Handbook, the recognition principles
for revenues from exchange transactions are
consistent with the principles in PSAB. However, the
CICA Handbook provides much more detailed
guidance on how to apply those principles.
Non-exchange transactions
For non-exchange transactions, PSAB provides specific
guidance for revenues from government transfers and
taxes. In the case of government transfers, revenue should
be recorded when the transfer has been authorized and
any eligibility criteria have been met. Taxation revenue
should be recorded when the taxable event occurs,
provided that the tax has been authorized.
Externally restricted inflows should be recognized as
revenue in the period in which the resources are used for
the purposes specified. An externally restricted inflow
received before this criterion has been met should be
reported as a liability (i.e., deferred revenue) until the
resources are used for the purposes specified.
New and Proposed Standards
PSAB will be issuing, in March 2011, changes to the
standard relating to government transfers, allowing
deferral to occur only where the criteria for recognition of
a liability are met. The standard will be effective for fiscal
periods beginning on or after April 1, 2012. Refer to the
summary of this project in section 6.1.
Non-exchange transactions
For fiscal years beginning on or after April 1, 2012,
PSAB will allow for the deferral of contributions only
where the criteria for liability recognition are met
(see section 6.1). Prior to this date, PSAB provides for
the deferral of contributions with external restrictions
until they are used for the purpose specified. This is
similar to the deferral method of accounting used by
NPOs except that, with the withdrawal of section PS
3800 in June 2010, PSAB does not specifically provide
for the deferral of capital contributions beyond the
point when the asset is purchased (unless there are
conditions attached to the transfer, such that a
liability is present). NPO standards specifically provide
for the amortization of capital contributions over the
life of the related asset when the deferral method of
accounting is used.
For profit-oriented organizations, the CICA Handbook
currently provides for deferral accounting (including
the matching of capital contributions over the life of
the asset), but only for government assistance.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
PSAB has also begun a project related to revenue from
exchange transactions. Refer to the summary of this
project in section 6.8.
3.2.4 Employee future
benefits
PS 3250
PS 3255
HB 3461
Retirement benefits, post-employment benefits, and
compensated absences are accounted for as liabilities.
Defined benefit plans sponsored by the reporting entity
are subject to periodic actuarial valuations to attribute the
cost of the benefits to the periods of employee service and
to determine the liability and assets (if any) to be
reported. When a defined benefit multi-employer plan is
not sponsored by the reporting entity, the entity needs to
account for only contributions it has made. Similar rules
apply to defined contribution plans. Changes arising from
plan amendments are accounted for when the
amendments go into effect.
Under the CICA Handbook, the essential
characteristics are similar to PSAB, but there are
some important differences.
Under PSAB, a liability is recorded for sick-pay
benefits that accumulate but do not vest (PS3255.19).
Under the CICA Handbook, an entity is not required
to accrue a liability for non-vested sick-pay benefits.
Under the CICA Handbook, actuarial gains or losses
should be recognized using a systematic method.
They may be recognized immediately, but at a
minimum an entity should recognize amortization
over the remaining average service period of the
related employees for the portion of the gain or loss
exceeding the greater of 10% of the accrued benefit
obligation or the fair value of the plan assets. The
recognition policy adopted should be applied
consistently. Under PSAB, by contrast, actuarial gains
or losses are amortized into income in a systematic
and rational manner over the remaining average
service period of related employees; and there is no
threshold to meet before amortization begins.
Under PSAB, the discount rate used in actuarial
valuations should be based on the plan’s asset
earnings or on the average borrowing rate of the
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
reporting entity. Under the CICA Handbook, by
contrast, the discount rate is the market rate of
“high-quality” debt.
3.2.5 Asset retirement
obligations
PS 1000
HB 3110
EIC-159
PSAB has no specific standard addressing asset retirement Under the CICA Handbook, specific guidance is
obligations, but these obligations do meet the definition of provided with respect to asset retirement obligations.
a liability within the PSAB framework.
It addresses the recognition, measurement and
disclosure of liabilities for asset retirement
In keeping with the hierarchy of GAAP (PS 1150), PSAB
obligations.
users have generally looked to HB 3100 and EIC-159 for
guidance. However, with the adoption of IFRS in Canada,
users of PSAB will have to look to other sources for
guidance. This may be IFRS or the new Canadian private
sector standards.
The recent PSAB standard PS 3260, “Liability for
Contaminated Sites,” specifically excludes liabilities
associated with the retirement of long-lived tangible
capital assets that are in productive use.
3.2.6 Long-term debt,
borrowings and loans from
other entities
PS 3230
PSG 2
HB 3210
The statement of financial position shows the gross
amount of debt outstanding.
Disclosure requirements for debt and capital leases
are similar between PSAB and the CICA Handbook.
The notes to the financial statements provide additional
information about interest rates, repayment dates (and
the nature of repayment), and amounts due on demand.
The aggregate amount of payments to be made in each of
the next five years, and the total amount in subsequent
periods, should also be disclosed. The estimated amount
of Canadian dollar payments to meet foreign currency
debt retirement provisions should be disclosed separately.
Under PSAB, there is no distinction between current
and long-term liabilities. Therefore, the current
portion of long-term debt is not separately presented
as it is under the CICA Handbook.
Under the CICA Handbook, debt reacquired but not
cancelled is shown separately as a deduction from
the related liability. Under PSAB, debt reacquired is
only disclosed.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
Where sinking funds that have been externally restricted
are set aside for the retirement of debt, the statements
should disclose:
a) the gross amount of the long-term debt to be retired
by the sinking funds; and
b) the amount of sinking fund assets available to retire
the debt.
Under the CICA Handbook, there is an option of
recording debt at fair value. However, proposed
changes to the standards for financial instruments, if
approved, may also provide the option to record debt
at fair value under PSAB. Refer to the summary of this
project in section 6.2.
The interest expense should be disclosed, and should
include the amortization of long-term debt discounts or
premiums and issuance expenses.
Liabilities related to leased tangible capital assets should
be reported separately from other debt.
If any liabilities are secured, they should be stated
separately and the fact that they are secured should be
indicated. Any assets pledged as security, including their
carrying value, should also be disclosed.
Any defaults in principal, interest sinking fund or
redemption provisions should be disclosed.
Under the CICA Handbook, fair value should be
disclosed for financial instruments recorded at cost,
subject to certain exemptions. Under PSAB, the
disclosure of fair value information is not required
except for portfolio investments (where it can be
reliably determined).
Under the CICA Handbook, the use of the effective
interest method is required for accounting for
interest expense and also for amortizing debt issue
costs, premiums and discounts. However, proposed
changes to the standards for financial instruments, if
approved, would result in the effective interest rate
method being a requirement under PSAB as well.
Refer to the summary of this project in section 6.2.
If the reporting entity holds its own debt instruments, the
gross amount of that class of debt should be disclosed, as
well as the amount of the securities held by the entity but
not yet cancelled.
Proposed Standards
PSAB is proposing changes to the standards for the
recognition and measurement of financial instruments.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
Refer to the summary of this project in section 6.2.
3.2.7 Contingent liabilities
PS 3300
HB 3290
A contingent liability is recognized when it is likely a future Under the CICA Handbook, the essential
event will confirm that a liability has been incurred and the characteristics are similar to PSAB.
amount can be reasonably estimated. It is derecognized
when it is settled or otherwise extinguished, or when the
existence of a liability at the financial statement date is
unlikely.
3.2.8 Loan guarantees
PS 3310
HB 3290
HB 3855
AcG-14
Loan guarantees should be reported as contingent
liabilities in the financial statements. A provision for loss
on loan guarantees should be established when a loss is
likely, and should be accounted for as a liability and an
expense. Any changes to the provision for losses is charged
or credited to the statement of operations.
3.2.9 Contractual
obligations
PS 3200
PS 3390
HB 3280
Contractual obligations are defined as obligations a
Under the CICA Handbook, the essential
reporting entity has to others that will become liabilities in characteristics are similar to PSAB.
the future when the terms of the contracts or agreements
in question are met. Significant contractual obligations
should be disclosed.
Under the CICA Handbook, some guarantees are
treated as financial instruments and are fair valued
on inception and on a go-forward basis while other
financial guarantees are accounted for as contingent
liabilities.
3.3 Non-financial assets
3.3.1 Definition
PS 1000
PS 1200
Non-financial assets are acquired, constructed or developed assets that do not normally provide resources to
discharge existing liabilities, but instead:
a) are normally employed to deliver government services;
b) may be consumed in the normal course of operations; and
c) are not for sale in the normal course of operations.
The statement of financial position should report non-financial assets segregated by main classifications, such as:
a) tangible capital assets;
b) inventories held for consumption or use; and
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
c) prepaid expenses
Under PSAB and the not-for-profit standards (HB 4400 series), assets may be valued in terms of service potential.
3.3.2 Tangible capital assets
and amortization
PS 3150
HB 3061
HB 4400
Tangible capital assets are recorded at cost. When
conditions indicate that a tangible capital asset no longer
contributes to a government’s ability to provide goods and
services, or that the value of future economic benefits
associated with the tangible capital asset is less than its
net book value, the cost of the tangible capital asset
should be reduced to reflect the decline in the asset’s
value. Such write-downs are not reversed.
Under the CICA Handbook, the essential
characteristics are similar to PSAB except for the
measurement of impairment.
Under PSAB and for NPOs (CICA Handbook 4400
series), write-downs are based on a different
definition of future economic benefits, which reflects
service potential.
Under the CICA Handbook, other than for NPOs,
capital assets are written down when the
undiscounted future cash flows are less than the
book value. Similar to PSAB, write-downs are not
reversed.
Under the CICA Handbook, amortization is taken on
the greater of:
a) the cost of the asset less salvage value over the
life of the asset; and
b) the cost of the asset less residual value over the
useful life of the asset.
Under PSAB, amortization is calculated by taking the
cost of the asset, less any residual value, over its
useful life.
3.3.3 Leased tangible capital Leased tangible capital assets are dependent on whether
assets
the contract transfers the benefits and risks of ownership
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
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3. STATEMENT OF FINANCIAL POSITION
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
PG-2
PG-5
HB 3065
to the reporting entity. When a contract contains multiple
elements, the discount rate applicable to the financing
component is estimated based on what would apply to
comparable leases.
Under PSAB, certain additional factors are to be
analyzed in determining whether the benefits and
risks of ownership have been transferred to the
lessee. There are also differences with the accounting
for sale lease-back transactions.
3.3.4 Prepaid expense
PSAB requirements are comparable to those in the CICA
Handbook.
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
3.3.5 Inventories held for
consumption or use
PS 1200
HB 3031
Inventories held for consumption or use are defined as
tangible non-financial assets that will be used or
consumed by the reporting entity in the course of its
operations.
Under the CICA Handbook, inventories are assets held
for sale in the ordinary course of business, in the
process of production for such sales, or in the form of
materials or supplies to be consumed in the
production process of rendering of services.
The PSAB Handbook currently does not have detailed
guidance on inventory costing methods when conversion
processes occur within the organization. In keeping with
the PSAB hierarchy of GAAP (PS 1150), organizations
would likely refer to other sources of GAAP for this
detailed guidance, such as Canadian Private Sector GAAP
or IFRS.
Under PSAB, there are two categories of inventories:
inventories for resale (financial asset) (see section
3.1.5) and inventories for consumption or use (nonfinancial asset). Their presentation in the statement
of financial position differs by category. This
distinction is not made in the CICA Handbook.
Under PSAB and the not-for-profit standards (HB
4400 series), inventory may be valued in terms of
service potential. For organizations that follow the
CICA Handbook – other than NPOs – inventory is
valued at the lower of cost and net realizable value.
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4. STATEMENT OF OPERATIONS
Financial Statement Item
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
4.1 Revenues
PS 1200
HB 1520
HB 3400
Revenues should be recognized in the period in which the
transactions or events occurred that gave rise to the
revenues.
Under the CICA Handbook, financial statements must
present revenue from sales, income from
investments, finance income, income from operating
leases and income for government assistance.
Refer to section 3.2.3 for revenue recognition criteria for
exchange and non-exchange transactions.
A reporting entity reports revenues by significant types
such as revenues from taxes, non-tax sources and
transfers from other governments. Significant sources of
these revenues include user fees, investments, natural
resource revenues, transfers from other governments,
taxation, and other revenue. Refer to the sample model
financial statements accompanying this document for an
example of presentation and disclosure of revenues.
Refer to section 3.2.3 for key differences relating to
revenue recognition criteria for exchange and nonexchange transactions.
New and Proposed Standards
PSAB is introducing changes to the standards for the
recognition of revenues associated with government
transfers. See the summary of this project in section 6.1.
PSAB is proposing a standard on revenue from exchange
transactions. Refer to the summary of this project in
section 6.8.
4.2 Expenses
PS 1200
HB 1520
A reporting entity reports expenses by function or major
program and discloses them by object and in total in the
notes. Therefore, the individual account name of the
expense will be different depending on the entity. Refer to
the sample model financial statements accompanying this
document for an example of presentation and disclosure
of expenses.
Under the CICA Handbook, expenses are not required
to be reported by function or major program. Instead,
disclosure of some specific types of expense is
required.
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
5.1 Consolidation principles
PS 1300
PS 2500
PS 2510
PS 3060
PS 3070
HB 1582
HB 1601
HB 1602
HB 3055
NPO 4450
Organizations that are controlled by the reporting entity
should be consolidated. Partnerships and joint ventures
are accounted for using the proportionate consolidation
method.
CICA Handbook – For-profits organizations
Under the CICA Handbook, all organizations that are
controlled by the reporting entity should be fully
consolidated. The modified equity method of
accounting is not permitted for controlled
subsidiaries.
When a non-controlling interest exists in a subsidiary, the
reporting entity should include that subsidiary in its
financial statements on a proportionate consolidated
basis. The financial statements should disclose the
existence of the non-controlling interest.
Government business enterprises (GBEs) and government
business partnerships should be accounted for using the
modified equity method.
A GBE is an organization that has all of the following
characteristics:
a) it is a separate legal entity with the power to contract
in its own name and the ability to sue and be sued;
b) it has been delegated the financial and operational
authority to carry on a business;
c) it sells goods and services to individuals and
organizations outside of the government reporting
entity as its principal activity; and
d) it can, in the normal course of its operations, maintain
its operations and meet its liabilities from revenues
received from sources outside of the government
reporting entity.
A government business partnership is a government
partnership that has all of the characteristics of a GBE.
Under the CICA Handbook, controlled subsidiaries are
fully consolidated and non-controlling interests are
presented in the consolidated statement of financial
position within equity, separately from the equity of
the owners of the parent. Under PSAB, proportionate
consolidation effectively excludes the portion of the
entity a reporting entity does not control.
Under PSAB, an organization is either controlled or
not controlled. If it is not controlled, it is recorded as
a portfolio investment (see section 3.1.7). Under the
CICA Handbook, the concept of significant influence
exists and provides for an equity pick-up in
proportion to ownership interest.
Under the CICA Handbook, partnerships and joint
ventures are accounted for similarly to PSAB, using
the proportionate consolidation method of
accounting.
CICA Handbook – Not-for-profit organizations
The CICA Handbook includes provisions for
accounting for related organizations that are specific
only to NPOs.
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
Transactions and balances between government units are
eliminated on consolidation. Government units, as
defined, exclude GBEs. However, unrealized gains and
losses arising on transactions between government units
and GBEs are required to be eliminated.
When an NPO controls another NPO, it has the option
of either consolidating the subsidiary NPO or
providing detailed disclosures. If an NPO controls a
large number of individually immaterial NPOs, it may
be permitted to exclude these subsidiaries from both
consolidation and detailed disclosure.
If an entity becomes a GBE, accounting for the change
When an NPO controls a profit-oriented subsidiary, it
cannot create revenue or result in reporting tangible
capital assets that would improve the net financial position has the option of either consolidating the subsidiary
or accounting for the investment using the equity
of the reporting entity that consolidates it.
method. Under PSAB, such profit-oriented
subsidiaries may also meet the definition of a GBE
and would be accounted for using the modified
equity method. However, if a profit-oriented
subsidiary does not meet the definition of a GBE
under PSAB, it would be fully consolidated under the
PSAB framework.
When an NPO has significant influence or an
economic interest in another organization, only
disclosure is required. Under PSAB, an organization is
either controlled or not controlled. PSAB does not
provide for the concept of significant influence or
economic interest.
When an NPO has an interest in a joint venture, it has
the option to record its interest using either the
proportionate consolidation method or the equity
method.
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
5.2 Goodwill and intangible
assets
PS 1200
HB 3064
No intangibles – including those that have been
purchased, developed, constructed or inherited in right of
Crown – are recognized as assets in government financial
statements. This should be disclosed as part of the
accounting policies.
Under the CICA Handbook, intangibles – including
goodwill – are recognized as assets. Under PSAB
intangibles are not recorded as assets.
Under PSAB, computer software is included in the
definition of tangible capital assets.
Under the CICA Handbook, goodwill is the excess of
the cost of an acquired enterprise over the net
amounts assigned to assets acquired and liabilities
assumed, less any write-down for impairment.
Under the CICA Handbook, an intangible asset is an
identifiable non-monetary asset without physical
substance. It is measured initially at cost and
subsequently amortized over its useful life.
5.3 Accounting changes
PS 2120
HB 1506
Under PSAB, accounting changes are treated as follows:
a) Change in accounting policy – A change in accounting
policy should be applied retroactively, unless the
necessary financial data are not reasonably
determinable. Description of the change, its effect on
the financial statements and the reason for the
change should be disclosed.
First-time adoption of PSAB from another source of
GAAP usually must be applied retroactively with
restatement. Refer to the accounting treatment of
first-time adoption on page 2 of this document for
further details.
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
However, under PSAB, if an auditor raises an issue
and it is not corrected until a subsequent period, this
is not treated as a correction of an error (i.e., prior
period correction). Instead, it is accounted for in the
period in which the correction is made.
As well, under the CICA Handbook, new GAAP that
has been issued but is not yet effective (and
therefore not yet adopted) must be disclosed, as
must the impact that its eventual adoption will have.
There is no similar requirement in PSAB.
b) Correction of an error – Correction of an error is
reported retroactively. Comparative figures are
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
restated unless it is impractical to do so. Description of
the error, its effect on the financial statements and
restatement of prior periods should be disclosed.
c) Change in accounting estimate – A change in estimate
is recognized in the period of the change and
applicable future periods. Disclosure is usually not
necessary unless it is a change in an accounting
estimate that is rare or unusual, and that may affect
financial results of both current and future periods.
5.4 Foreign exchange
PS 2600
HB 1651
Foreign currency transactions are addressed in PSAB, but
detailed guidance on the consolidation of subsidiaries
denominated in foreign currencies is not provided.
At the transaction date, each asset, liability, revenue or
expense is translated into Canadian dollars at the rate in
effect on that date. At the financial statement date,
monetary assets and liabilities denominated in foreign
currencies should be adjusted to reflect the rate in effect
at that date.
Exchange gains or losses arising from changes in the rate
between the transaction date and the financial statement
date are recognized in the statement of operations as
follows:
a) the exchange gain or loss related to a short-term
monetary item should be recognized in the statement
of operations;
b) the exchange gain or loss related to a long-term
monetary item should be deferred and amortized over
The CICA Handbook provides detailed guidance on
the translation and consolidation of subsidiary
financial statements denominated in foreign
currencies.
The CICA Handbook has similar requirements with
PSAB to use the date in effect when the initial
transaction arises, and to adjust assets and liabilities
for the rate in effect at the financial statement date.
However, the CICA Handbook does not permit the
deferral and amortization of unrealized exchange
gains or losses on long-term monetary items.
Under the CICA Handbook, the amount of the
exchange gain or loss included in the statement of
operations should be separately disclosed. (Exchange
gains or losses on financial instruments that are held
for trading or available for sale do not have to be
separately disclosed from the overall fair value
change recorded.)
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
the life of the item;
c) the exchange gain or loss arising when an item is
settled should be recognized in full in the current
period; and
d) any remaining unamortized exchange gain or loss
when a long-term monetary item is settled should be
recognized in the statement of operations at the date
of settlement.
The unamortized exchange gain or loss should be
separately reported on the statement of financial position
as an addition to, or deduction from, the related monetary
item. The amount of exchange gains or losses recognized
in the statement of operations should be disclosed.
Proposed Standards
PSAB has issued an exposure draft on foreign currency
translation that will change how exchange gains and losses
are reported. Refer to the summary of this project in
section 6.3
5.5 Risk management and
hedging
PS 2600
HB 3861
HB 3862
HB 3863
HB 3865
With respect to risk management, the reporting entity
should disclose:
a) its policy for managing foreign currency risk, including
a description of hedging, how the entity evaluates the
effectiveness of hedging, and information about the
entity’s magnitude of hedging;
b) the amount of unhedged foreign currency items; and
c) a sensitivity analysis showing the impact of exchange
rate changes on unhedged items.
Under the CICA Handbook, hedge accounting is
permitted and the eligibility criteria and accounting
are similar. A difference is that under the CICA
Handbook, hedge accounting can also be applied to
fair value changes.
Under PSAB, hedge accounting is available or
required only for foreign exchange (as financial
instruments are currently recorded at cost under
PSAB).
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
Hedge accounting is currently available under PSAB. The
entity must formally document any hedging relationships
when it makes such a designation. As well, PSAB allows
synthetic instrument accounting, whereby groups of assets
or liabilities can be accounted for as though they were one
item.
Under the CICA Handbook, synthetic instrument
accounting is not permitted.
Proposed Standards
Proposed changes to the standards for financial
instruments and foreign currency translation, if approved,
would not permit hedge accounting or synthetic
instrument accounting. These proposed standards would
also require additional disclosures regarding risks. Refer to
the summaries of these projects in sections 6.2 and 6.3.
5.6 Segment disclosures
PS 2700
HB 1701
Under the CICA Handbook, the disclosure
requirements associated with financial instruments
(including risk disclosures) are more comprehensive,
particularly for those organizations that have to apply
HB 3862 and HB 3863.
A segment is a distinguishable activity or group of activities Under the CICA Handbook, segment reporting is
of a reporting entity for which it is appropriate to
required only for companies that are publicly
separately report financial information so as to help users accountable.
of the financial statements.
The CICA Handbook also identifies reportable
Segment reporting is required for governments, but only segments differently than PSAB does. The CICA
encouraged for government organizations when their
Handbook requires that a reportable operating
operations are diverse enough to warrant it.
segment meet quantitative thresholds based on
revenues, profit or loss, or assets. The standard
Different bases of segmentation include: by major
outlines where disclosure requirements for
functional classification of activities; by service line
reportable operating segments differ from the PSAB
segments; and by segments that reflect the different
disclosure requirements.
accountability and control relationship between the
government and various organizations in the reporting
In addition, an operating segment is defined as a
entity. The standard outlines the disclosures required with component of an enterprise that engages in business
respect to the reporting entity’s segments.
activities; from which it may earn revenue and incur
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
expenses; whose operating results are regularly
reviewed by the enterprise’s chief operating decisionmaker; and for which discrete financial information is
available.
5.7 Related parties
HB 3840
No specific standard for related parties is given in the PSAB The CICA Handbook provides specific guidance that
Handbook.
defines related parties and sets out disclosure
requirements. A related party transaction is generally
Proposed Standards
measured at the carrying amount, although a
PSAB is proposing to issue a new accounting standard for transaction with commercial substance is measured
the measurement and disclosure of related party
at the exchange amount.
transactions. Refer to the summary of this project in
section 6.4.
5.8 Subsequent events
PS 2400
HB 3820
There are two types of subsequent events:
a) conditions that existed at the financial statement
date; and
b) conditions subsequent to the financial statement
date.
Under the CICA Handbook, the essential
characteristics are similar to PSAB.
The extent to which, and the manner in which, the effect
of a subsequent event is reflected in the financial
statements will depend on its type.
5.9 Economic dependence
HB 3841
No specific standard for economic dependence is given in
the PSAB Handbook.
Under the CICA Handbook, when the ongoing
operations of a reporting enterprise depend on a
significant volume of business with another party, the
economic dependence on that party shall be
disclosed and explained.
5.10 Capital disclosures
HB 1535
No specific standard for capital disclosures is given in the
PSAB Handbook.
Under the CICA Handbook, disclosure of information
regarding an entity’s objectives, policies and
processes for managing capital is required.
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
5.11 Public private
partnerships (P3s)
PS 3060
PS 1300
HB 1590
HB 3055
IPSAS Exposure Draft 43,
February 2010
No specific standards for P3 accounting are given in the
PSAB handbook.
Differences with CICA Handbook
Similar to PSAB, no specific standards are given in the
CICA Handbook dealing with P3 accounting. A
reporting entity would refer to the principles of
Each P3 arrangement needs to be looked at separately to accounting in HB 1000 and standards relating to
determine what accounting treatment is appropriate for it. partnerships, tangible capital assets and assets under
Key factors – for example, control over the asset, risks and capital lease when: determining asset cost,
rewards associated with the asset, and the ultimate
operations and maintenance expense, assessing
ownership of the asset at the end of the P3 arrangement – financing costs, recognition of liabilities, asset
vary from one P3 to another.
amortization and revenues.
Relevant PSAB sections would include those relating to the The accounting treatment for P3s should be
determined on a case-by-case basis that reflects on
conceptual definition of an asset in section PS 1000, and
the unique terms and conditions of the contract.
the standards for government partnerships, tangible
capital assets, and assets under capital lease.
Other sources of GAAP may be used to determine the
accounting treatment for P3s. For example, IPSAS
Exposure Draft 43 highlights the recognition and
measurement of service concession assets, liabilities,
revenues and expenses.
Because of the complexity of this subject, it is necessary
for the reporting entity to look at the terms and conditions
of the contract agreement to determine how assets,
liability, expenses and revenues should be recognized.
5.12 Measurement
uncertainty
PS 2130
PS2120.28
HB 1508
Measurement uncertainty exists when there is a variance
between an estimated amount that has been recognized
or disclosed in the financial statements, and another
reasonably possible estimate for the same item.
Under the CICA Handbook, requirements are similar
with PSAB, though more disclosure is required under
the latter.
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5. OTHER SPECIFIC TOPICS
Topic
PSAB accounting standards (excluding PS 4200 series)
Differences with CICA Handbook
When it is reasonably possible that there might be a
material change in the course of the next fiscal year in an
estimated amount that has been recognized or disclosed in
the financial statements, information about the nature
and extent of the uncertainty must be disclosed in the
notes to the financial statements.
The disclosure should identify the item that is uncertain
and the amount at which it is recorded or disclosed, unless
such disclosure would have a significant adverse effect – in
which case the notes should specify the reason the
amount is not disclosed.
When there is a change in an amount estimated, the effect
of the change must be accounted for in the period in
which the change occurs. If such a change is rare or
unusual, disclosure of the nature and effect of the change
may be desirable.
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6.0 PSAB PROJECTS IMPACTING FUTURE ACCOUNTING STANDARDS
The projects listed below will impact future accounting standards. For information on current projects, visit the PSAB website:
http://www.psab-ccsp.ca/projects/index.aspx
Before adopting a new standard or making any choices available after adopting a new standard, consult the Office of the Comptroller General.
CURRENT PROJECTS
6.1 Government transfers
Handbook section approved December 2010; to be issued March 2011.
The objective of this project is to address and clarify government transfer recognition criteria for recipients and transferring governments.
The key concepts in the exposure draft:
Accounting – transferring entity
A transferring entity recognizes the expense when the transfer has been authorized and the eligibility criteria, if any, have been met.
Authorization means that the appropriate authority has been exercised and the enabling legislation is in force, or that the transferor is
demonstrably committed to the transfer before the financial statement date and the enabling legislation comes into force in the stub
period.
Accounting – recipient entity
The recipient entity recognizes revenue when the transferor has authorized the transfer and the recipient has met the eligibility criteria,
except when, and to the extent that, the transfer gives rise to an obligation that meets the definition of a liability for the recipient
government in accordance with section PS 3200, “Liabilities.”The determination of whether a liability exists would be influenced by
stipulations made by the transferor, or a combination of those stipulations and the actions and communications of the recipient.
Authorization means that the appropriate authority has been exercised by the transferor and the enabling legislation is in force.
Transition
The standard will apply to fiscal years beginning on or after April 1, 2012. Earlier adoption is encouraged.
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6.2 Financial instruments
Handbook section expected to be approved March 2011.
The objective of this project is to develop a public sector accounting standard that addresses the recognition, measurement, presentation and
disclosure of financial instruments, including embedded derivatives. Currently under PSAB, derivatives are not recognized and investments are
recorded at cost.
PSAB reviewed the responses of the September 2009 Exposure Draft and issued a supplementary exposure draft in November 2010 proposing
amendments to section PS 1200, “Financial Statement Presentation.” This exposure draft contains a presentation model that reports
remeasurement gains and losses in a new statement separate from the statement of operations.
The key concepts in the exposure drafts:
Accounting
• financial instruments are measured at fair value or cost or amortized cost;
• derivatives and portfolio investments in equity instruments that are quoted in active markets should be measured at fair value;
• hedge accounting and synthetic instrument accounting will not be permitted;
• when an entity manages and reports on the performance of a group of financial assets or liabilities on a fair value basis, it may
also account for those assets or liabilities on a fair value basis; and
• interest should be recorded using the effective interest rate method.
Presentation and disclosure
A new statement of remeasurement gains and losses is introduced and will report:
• unrealized gains and losses associated with financial instruments in the fair value category;
• unrealized foreign currency exchange gains and losses (see section 6.3);
• amounts reclassified to the statement of operations upon derecognition or settlement; and
• other comprehensive income when a reporting entity includes the result of government business enterprises and government
business partnerships in the reporting entity’s financial statements.
Realized gains and losses will be separately reported in the statement of operations. When a gain or loss is realized, previously
recognized remeasurement gains or losses are deducted from the remeasurement gain or loss for the year.
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Additional disclosures would be required to enable users to evaluate the nature and extent of risks arising from financial instruments
(including disclosure of credit risk, liquidity risk and market risks).
Transition
PSAB expects the final section on financial instruments to be approved by March 2011. It is expected that the section will apply to fiscal
years beginning on or after April 1, 2012. Early adoption is encouraged. Any adjustment to the carrying amount is recognized as an
adjustment to accumulated surplus/deficit at the beginning of the fiscal year in which this section is initially applied.
6.3 Foreign currency translation
Handbook section expected to be approved March 2011.
The objective of this project is to amend section PS 2600 taking into consideration the final recommendations of the Financial Instruments
project (section 6.2) and the conceptual framework to ensure consistent accounting standards.
PSAB reviewed the responses of the September 2009 Exposure Draft and issued a supplementary exposure draft in November 2010 proposing
amendments to section PS 1200, “Financial Statement Presentation.” This exposure draft contains a presentation model that reports
remeasurement gains and losses in a new statement separate from the statement of operations.
The key concepts in the exposure drafts:
Accounting
• the reporting entity’s functional currency is presumed to be the Canadian dollar;
• transactions made in a currency other than Canadian dollars are translated applying the exchange rate in effect on the date of
the transaction; and all monetary items and those non-monetary items included in the fair value category are translated at the
exchange rate at the balance sheet date;
• hedge accounting and synthetic instrument accounting will not be permitted; and
• exchange gains and losses on long-term monetary items will be recorded in the current period (deferral and amortization over
the life of the monetary item will no longer be permitted).
Presentation and disclosure
Unrealized foreign currency exchange gains and losses will be reported in the statement of remeasurement gains and losses (see section
6.2). Realized gains and losses will be separately reported in the statement of operations. When a gain or loss is realized, previously
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recognized remeasurement gains or losses are deducted from the remeasurement gain or loss for the year.
Transition
PSAB expects the final PSAB Handbook to be approved by March 2011. It is expected that the section will apply to fiscal years beginning
on or after April 1, 2012. Early adoption is encouraged. Any adjustment to the carrying amount is recognized as an adjustment to
accumulated surplus/deficit at the beginning of the fiscal year in which this section is initially applied.
6.4 Related party transactions
A statement of principles is expected in March 2011, with an exposure draft in September 2011 and the final handbook section in March 2012.
The objective of this project is to issue a new accounting standard that defines a related party in the context of government and government
organizations, describes the disclosures required, and addresses recognition and disclosure of appropriations.
6.5 Appropriations
A statement of principles is expected to be approved in March 2011, with an exposure draft in September 2011 and the final handbook section
in March 2012.
The purpose of this project is to develop an accounting standard that addresses recognition and disclosure of appropriations received or
receivable by an entity from its controlling government.
6.6 Amalgamations and restructuring
A statement of principles is expected in June 2011, with an exposure draft in March 2012 and the final handbook section in December 2012.
Accounting for amalgamation and restructuring activities is not specifically addressed in the PSAB Handbook in situations where an acquirer
cannot be identified. In practice in these situations, the continuity-of-interest method has been used in the public sector. The objective of this
project is to issue an accounting standard that addresses the recognition, measurement and disclosure requirements that are unique to
amalgamation and restructuring.
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6.7 Assets
A statement of principles is expected June 2011, with an exposure draft in March 2012 and the final handbook section in December 2012.
The objective of this project is to issue one or more accounting standards for assets, contingent assets and contractual rights that address:
• the definition of assets, contingent assets and contractual rights; and
• recognition, measurement and disclosure of assets, contingent assets and contractual rights.
6.8 Revenue from exchange transactions
A statement of principles may be issued in September, depending on the results of the International Accounting Standards Board (IASB) revenue
recognition project.
The objective of this project is to address the recognition and disclosure of revenue from exchange transactions. The IASB currently has a project
on revenue recognition. The purpose of this project is to monitor the development and assess the applicability of the IASB project to the public
sector.
PSAB will continue to monitor the development of the IASB’s revenue recognition project to consider whether this project should lead to
development of a standard in the PSAB Handbook.
6.9 Financial statements for government organizations
Project on hold
The objective of this project is to amend PSAB standards with terminology that includes public sector reporting entities, and to issue a guideline
to clarify appropriate financial statement presentation for government reporting entities.
Separate projects on related party transactions (6.4) and appropriations (6.5) have been started, arising from initial feedback on this project.
The project is currently on hold pending availability of staff resources.
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