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Martha Jones Denning:
Hello, everyone, and thank you for attending our webinar on PSAB’s new reporting model, which is set out in Financial Statement Presentation, Section PS My name is Martha Jones Denning, one of two Associate Directors with PSAB. With me is Antonella Risi, PSAB’s other Associate Director. Antonella and I will spend the next one and a half hours with you on this very important topic.
Before we start, I’d like to mention some features of our webinar. First, we’re pleased to offer simultaneous translation of the English presentation to French. This is a function within Zoom that allows you to select the language you would like to listen in. At the bottom of your screen, you’ll see a button called Interpretation. This will allow you to listen to the webinar in French.
Second, we’re also pleased to offer the language selection of the presentation. If you’d like to view the slides in French, please go to the View Options at the top of your screen and select French under Shared Screens. Lastly, we’re committed to providing closed captioning to promote the accessibility of our webinars. As a result, you have the option of turning on closed captioning today.
At the bottom of your screen, there’s a CC for closed captioning. That button is what you can use to put up subtitles or view a live transcript. For the French version, the closed captioning will appear automatically.
PSAB has a commitment to diversity and inclusion. In keeping with Indigenous Protocol and building respectful relationships between Indigenous and non-Indigenous peoples in Canada, it’s customary to acknowledge the Traditional Territories or Ancestral Lands of Indigenous peoples. We’re meeting virtually, so we’d like to acknowledge that the Indigenous peoples are the traditional stewards of the lands and waters where each of us attends the meeting this afternoon or morning, depending on where you’re attending from.
We the presenters are pleased to present today from the Treaty Lands and Territory of the Mississaugas of the Credit First Nation, which were also the traditional territory of the Huron-Wendat and Haudenosaunee peoples. As we present from Toronto today, we recognize that we are within the bounds of Treaty the Toronto Purchase Treaty, which applies to the lands on which PSAB is headquartered.
The Mississaugas of the Credit are a water people. Their history is centred around water, and they revere water as a spiritual being that must be accorded respect and dignity. Water is also vital to the survival of the Mississaugas of the Credit First Nation and all other forms of life.
We respect them as stewards of the lands and waters, and support their advocacy for a healthy environment for the people and wildlife that live within their Treaty Lands and Territory. Their stewardship and advice on how to preserve our waters are important for the future of humanity in this corner of the planet. PSAB’s strategic goals regarding sustainability, as well as engagement with Indigenous peoples, recognize their knowledge and experience in the natural environment and encourage us to seek and respect that knowledge and advice.
Personally, we have children who will go on to live in this territory, and we wish them to be part of the solution, including understanding the role Indigenous peoples have in preserving our environment and balancing humanity’s interaction with nature.
Now, there are a few important administrative matters you should be aware of. So, today’s webinar is being recorded in both English and French. So, if you have to drop off, or want to share it with colleagues not in attendance today, it will be available online soon via the same web page you used to register for today. The PowerPoint slides are also available on the webinar page in both languages.
If you experience technical issues … Oh, my apologies! Wow, that went really fast. There we go. Back. If you experience technological issues during the live stream, please use the Q&A button on the bottom of your screen to enter such issues, and someone will try to respond to you. The chat function is disabled. We will have time at the end of the session for questions. So, please submit your questions, using the Q&A function. I guess I already said that. My apologies. You miss one slide, and it throws you off.
Lastly, this webinar qualifies towards fulfilling your CPD requirements. You must attend the full webinar and successfully complete a post-webinar quiz to receive your CPD certificate. The link to the post-webinar quiz will be provided at the end of the webinar. If you successfully answer the quiz questions, a certificate of completion will be sent by email.
So, we’re going to start off by providing you with a quick overview of PSAB’s new Financial Statement Presentation standard, the main amendments, and the key effects. We’ll spend most of the presentation, answering three questions in relation to the key aspects of the reporting model: What are the main principles you should be aware of? What has changed from the reporting model that you have been using? And what are the effects of the changes?
The Conceptual Framework webinar in February talked about PSAB’s journey, or how PSAB got to its new Conceptual Framework and reporting model. So, we’re not going to talk about it here. But if you haven’t already, we do encourage you to watch the Conceptual Framework webinar. It’s now available on demand. A link to it is provided in the upcoming slides.
So, let’s start with a quick overview of PSAB’s new Financial Statement Presentation standard, the main amendments, and the key effects. In terms of structure, the Financial Statement Presentation standard found in Section PS is very similar to the one in Section PS the standard you’re currently using. Both have a section on general presentation principles, on how the financial statements meet the financial statement objectives, reporting on funds and reserves, transitional provisions, and appendices.
During our presentation, we’ll talk a bit about the general presentation principles, the effective date, and the transitional provisions, and the appendices. But we’re going to spend most of the time on the portion of the standard related to meeting the financial statement objectives, and talking about the financial statements themselves. The purpose of a Financial Statement Presentation standard is to prescribe the basis for presentation of financial information in financial statements, ensuring comparability both with the entity’s financial statements of previous periods and its approved budget, and with the financial statements of similar entities.
The standard sets out the overall requirements for the presentation of financial statements, guidance for their structure, and minimum requirements for their content. But if an entity wishes to present additional content, such as risks and uncertainties that are currently not required to be disclosed by standards in the PSA Handbook, it could do so. Some parameters for providing information supplemental to the requirements are set out in Chapter of the Conceptual Framework.
So, you’re probably wondering what has changed. This slide gives you a snapshot of the main amendments. These are some of the main amendments from the superseded reporting model in Section PS The main amendments to the requirements of Section PS include: The net debt indicator was relocated to its own statement. Financial and non-financial liability classifications were introduced. A new third component of net assets (or net liabilities) called accumulated other was introduced. The statement of financial position was restructured. The non-financial asset definition was amended. The net debt calculation was revised. The net debt indicator was renamed. The statement of change in net debt was removed. The statement of changes in net assets or net liabilities was added. Financing transactions have been isolated in the cash flow statement. And there are new budget requirements. We’ll provide a glimpse into each of these during the presentation.
What are the effects of these amendments to the reporting model? So, this slide provides a snapshot of some of the key effects of the new reporting model. It’s important to note that the new reporting model builds on the one in Section PS the one you’re currently using. Some respondents to the documents for comment were concerned that PSAB was creating an entirely new reporting model. This is not the case. You can build on the work you already accomplished in adopting Section PS It’s also important to note that a series of consequential amendments have been made throughout the PSA Handbook to make it consistent with the new reporting model standard. We’ll talk a bit more about these towards the end of the presentation.
The new reporting model will have an impact on PSAB’s International Strategy. And we’ll talk more about this towards the end of the presentation as well. Lastly, preparers may need to update their financial systems and processes to reflect the revised financial statement presentation. The most important effect of the new reporting model is improved understandable information that provides financial statement users with better information for accountability purposes.
Another important fact we want to highlight before getting into the details of PSAB’s new reporting model and the requirements of the new standard is the effective date and transitional provisions. The effective date of the new reporting model is for fiscal years beginning on or after April The presentation of prior year actual amounts would need to be restated to be in compliance with the new standard. Disclosure would be required in the notes or schedules to indicate that the entity adopted Section PS and that this adoption led to various changes in presentation for the current and prior year amounts. Lastly, since the financial statement objectives outlined in Chapter of the Conceptual Framework foreshadow what’s presented in the financial statements, it’s appropriate for Section PS to be implemented at the same time as the Conceptual Framework. In fact, this standard cannot be implemented before the Conceptual Framework. Because of the interrelationships between the Conceptual Framework and reporting model, both should be adopted and implemented at the same time.
Before we get into the details of the financial statements, we want to take a few minutes to talk about the general presentation principles portion of the new Financial Statement Presentation standard. The general presentation principles relate to the identification of financial statements, fair presentation, going concern, materiality, aggregation, comparisons (or comparative numbers), line items and subtotals. Now, most of these are carried over from Section PS But there are three new parts. The most notable amendment relates to the new going concern guidance. The Board felt it was important to add this text, based on the feedback that PSAB should broaden the discussion of going concern in the Conceptual Framework to include further guidance. After consideration, PSAB concluded that, similar to other standard setters, the additional guidance requested is best suited for the Financial Statement Presentation standard rather than the Framework.
Let’s spend a minute or two on the going concern discussion. The going concern material in the reporting model standard focuses on determining whether the going concern presumption is appropriate. Consideration is given to the type of public sector entity and the type of decision or other event that may lead an entity to cease operations. Evaluating the going concern presumption in the public sector is different than in the private sector. In particular, governments are long-term institutions. Under normal circumstances, they and the related components that function as core government are expected to operate in perpetuity. So, governments are presumed to be going concerns. And this presumption can only be rebutted by persuasive evidence to the contrary.
Going concern considerations for government organizations are closely linked to their controlling governments. Key factors in the going concern evaluation in the public sector are the government’s ability to tax and its capacity to issue debt or otherwise raise resources. There’s no mention of the implications of the pandemic on evaluating the going concern presumption. It’s too time specific. But all items affecting the financial performance of a public-sector entity would be considered in determining whether the going concern presumption remains appropriate.
The going concern guidance in Section PS builds on the longevity and going concern concepts in Chapters and of the Conceptual Framework. These should be considered together in evaluating going concern. A few respondents encouraged PSAB to distinguish between restructuring transactions and those where entities cease to operate in their entirety for reasons unrelated to restructuring transactions. As a result of this feedback, the Board added guidance, clarifying that if an entity will cease to operate because it will enter into a restructuring transaction, as defined in Restructuring Transactions, Section PS then that standard would apply. Section PS provides guidance on the required disclosure in the reporting period prior to the restructuring. But if, because of going concern issues, an entity will cease to operate, and this is unrelated to a restructuring transaction, as defined in Section PS then the going concern guidance in Section PS would apply. Auditing standards would also need to be considered in relation to going concern.
Now let’s turn our attention to the largest aspect of the Financial Statement Presentation standard—meeting the financial statement objectives. The financial statement objectives are identified and described in Chapter of the Conceptual Framework. These objectives, as I said earlier, foreshadow what will be reported in financial statements. Chapter identifies the six financial statement objectives. These include the scope of financial statements, reporting financial position, reporting changes in financial position, reporting actual-to-budget comparison, disclosing non-compliance with financial authorities, and disclosing risks and uncertainties.
These objectives provide a high-level overview of what should be reported in financial statements. How they are reflected in financial statements is included in Financial Statement Presentation, Section PS Specifically, Objectives –are further explained in Section PS How the first objective related to the scope of financial statements is detailed in Section PS Government Reporting Entity. In the Conceptual Framework webinar, we discussed the last two objectives, disclosing non-compliance with financial authorities and disclosing risks and uncertainties. As a result, this session will focus on the three middle objectives: reporting financial position, reporting changes in financial position, and reporting actual-to-budget comparisons. These three objectives specifically relate to the reporting model.
The Financial Statement Presentation standard has a direct link to the Conceptual Framework— specifically, Chapter ; Chapter as I already mentioned; Chapter ; and Chapter Chapter of the Conceptual Framework outlines the role and limitations of financial statements. Chapter as noted, foreshadows what would be presented in financial statements. Chapter provides guidance on the qualitative characteristics of financial statement information. And Chapter establishes general presentation concepts. We encourage you to watch the Conceptual Framework webinar if you have not. It should be available on demand, and the link is on the slide.
A complete set of financial statements should include a statement of financial position, a statement of net financial assets or net financial liabilities, a statement of operations, a statement of changes in net assets or net liabilities, a statement of cash flow, and the accompanying notes and schedules. All statements are equal. Individual financial statements reflect different aspects of the same transactions or other events affecting an entity. Although each statement presents different information, none is likely to serve only a single purpose or to provide all of the information that is useful for a particular kind of assessment or decision. All statements and the related notes and schedules, would be looked at together when evaluating an entity’s financial position and periodic financial performance for cohesiveness of the picture that they present. All indicators in the financial statements provide critical information for evaluating the entity’s financial position and results of operations.
Let’s start by looking at meeting Objective Reporting financial position. This objective is accomplished through the statement of financial position and the statement of net financial assets or net financial liabilities. So let’s first look at the statement of financial position and the amendments made to it. On this statement, PSAB made a series of amendments. The net debt indicator was relocated to its own statement. But there remains an option to also present this indicator at the bottom of the statement of financial position. Financial and non-financial liabilities were introduced and identified. The statement of financial position was restructured.
A new third component of net assets, called accumulated other, was introduced. The non-financial asset definition was amended to be less focused on physical assets and more inclusive of assets not yet the subject of a standard, such as intangibles. And we will discuss each amendment.
PSAB decided to relocate the net financial assets or net financial liabilities indicator, which is currently known as the net debt indicator, to its own statement. Why? Well, first, the relocation of the indicator to its own statement is intended to display the indicator more prominently than if it were to continue being reported as a subtotal within the statement of financial position. Second, the separate statement allows an entity, if it wishes, to present the reasons for the change in the indicator in the accounting period, which can increase the understandability of the indicator.
For example, some interested and affected parties have noted to PSAB that unrealized remeasurements create volatility in the indicator. In this statement, entities can highlight and explain the extent to which volatility in the indicator arises from unrealized remeasurements, if that information is considered useful and can be made understandable to users.
So, in effect, the new statement better allows an entity to explain the indicator in the context of its own finances, and for our government in the context of the economics of its particular jurisdiction. Having the indicator in its own statement removes its calculation from the statement of financial position and so results in a statement of financial position that is more understandable and familiar to users that read private sector financial statements.
The new statement also created the opportunity to revise the calculation of the net financial assets or net financial liabilities indicator. So, it retained its original meaning. So, relocating the indicator to its own statement allowed PSAB to reflect on the calculation and how the indicator could be returned to its original meaning.
So, to ensure the indicator retained its original meaning of future financial resource requirements, PSAB decided to distinguish between financial and non-financial liabilities on the statement of financial position. Why would this amendment help? Users told PSAB that certain liabilities were being included in the calculation of the indicator that distorted its meaning— future financial resource requirements. To remove these liabilities, the Board introduced two classifications of liabilities. This allowed non-financial liabilities to be excluded from the calculation, returning the indicator to its original meaning.
These needed to be removed, as they don’t represent future financial resource requirements. Only those liabilities representing a financial resource requirement—that is, those that will be settled using financial assets— should be included in the calculation. Otherwise, the indicator and any metrics calculated using it are misleading.
So, let’s look at those two categories more closely. A financial liability is a liability that is expected to be settled using financial assets. Most liabilities of a public sector entity will be financial liabilities. Liabilities that meet the definition of a financial liability may include the items listed on the slide, depending on your organization.
A non-financial liability, in contrast, is a liability that does not meet the definition of a financial liability. A non-financial liability does not represent a financial resource requirement. At the financial statement date, a non-financial liability is not expected due to its existing terms and conditions to be settled with an outflow of existing or future financial assets. No future expenditure or disbursement is required to settle a non-financial liability.
The two primary examples of non-financial liabilities are listed on the slide: P arrangements arising from a user-pay model, which is defined in Section PS Public Private Partnerships; and certain capital transfers received in which the related asset has already been received, constructed, or purchased, and there remains an obligation that meets the definition of liability to use that asset to provide services over future periods.
But there are certain liabilities that are harder to classify. And these relate to unearned revenue that arises from the various standards noted on the slide. A critical distinguishing criterion for classifying a liability as financial is whether settling the liability will involve an expenditure—that is an outflow or disbursement of financial assets. A critical distinguishing criterion for classifying a liability as non-financial assets or as a non-financial liability is the expectation that it will be settled through () the obligated entity itself, using one of its non-financial assets or unrecognized economic resources to settle the liability; or () the obligated entity, allowing an external party to use or access one of its non-financial assets or unrecognized economic resources; or () the obligated entity being required to transfer a non-financial asset or unrecognized economic resource in settlement of the liability.
Just to note that unrecognized economic resources arise from PSAB’s pragmatic recognition exclusions, which were discussed in the Conceptual Framework webinar. And, as I noted previously, that webinar is available on demand.
In relation to these hard-to-classify liabilities, the Board developed a series of guidance materials set out in multiple appendices to the new reporting model standard. The materials set out detailed application guidance, decision trees, and illustrative examples. This new guidance was drafted to answer specific comments, questions, and requests for clarification received in the Exposure Draft stage of the project.
A few respondents noted that consequential amendments should be made to the illustrative examples in Revenue, Section PS to indicate whether any liabilities arising in those scenarios are financial or non-financial liabilities. But the purpose of Section PS examples was to illustrate the requirements of Section PS and the scenarios don’t provide sufficient information for classifying the liability. Instead, in developing the illustrative examples for new Section PS the Board built on some of those scenarios from PS Now let’s look at the restructured statement of financial position. The relocation of the net financial assets or net financial liabilities indicator led PSAB to revise the structure for the statement of financial position, which was originally designed to facilitate the calculation of the net debt indicator on the face of the statement. This allows the statement of financial position to be more familiar and understandable to users who are used to reading private sector financial statements.
So, total assets less total liabilities equals the net asset or net liability measure of financial position. The other main amendment made to the statement of financial position is the introduction of accumulated other, a new component of net assets or net liabilities. The reporting model being used right now in Section PS includes two components of net assets or net liabilities: accumulated operating surplus or deficit, and accumulated remeasurement gains and losses. So, this reporting model, new reporting model, builds on that reporting model and superseded Section PS The new third component will allow PSAB to respond to users’ needs as they arise and transparently reflect the economic substance of unique transactions and events, leading to improved accountability information presented in financial statements.
The third component makes the reporting model sustainable and sets the stage for establishing standards for years to come, as it’s not restricted to just unrealized remeasurements being recognized outside of surplus or deficit in the period they arise. This gives the Board the ability to deal with emerging issues. PSAB evaluated various criteria that could be used to ensure the consistent use of this new component. But it was determined that the criteria were very subjective.
Instead of criteria, PSAB concluded that in determining that a revenue or expense should be recognized outside of surplus or deficit when it arises, PSAB would need to demonstrate in the Basis for Conclusions of an individual new or amended standard why such recognition provides better information for accountability purposes. This would be a standards-level decision— so, in a particular project for a particular financial statement item. Before such ultimate publication as a standard or amended standard, the Board’s reasoning for using accumulated other would be exposed for comment as part of an Exposure Draft so interested and affected parties can weigh in.
The accumulated other component would be used only in rare circumstances. Only PSAB would be able to designate a revenue or expense to be recognized in this component and, for that matter, in the accumulated remeasurement gains and losses component. The hope is that these parameters would reduce the risk that the components would be overused or misused. And any potential use would be subject to public exposure and thus evaluation and debate of the merits of recognizing a revenue or expense in accumulated other.
So, the new component is being referred to as accumulated other because it’s unknown at this time what PSAB will include in it. As standards are developed, and if items are identified for inclusion in this component, the name of the component can be revisited. Renaming the component or introducing new components would be done through a consequential amendment to the Financial Statement Presentation standard, Section PS If PSAB concludes that transactions recognized in this new component share certain characteristics, it can subdivide the accumulated other component to establish an additional component to better describe that aspect of financial position to users.
A new component might be appropriate, for example, if PSAB were in the future to require non-purchased natural capital or endowments to be recognized in financial statements. For these items, revenue or liability recognition of the credit side of the transaction may not be appropriate. The new component allows for consideration of a third option. And perhaps a stewardship component would be subdivided from accumulated other to reflect such items in financial statements in the future.
Just to note, the accumulated other component is consistent with the concepts in the Conceptual Framework. A few respondents asked PSAB to remove the example of an endowment transaction from the illustrative financial statements. An endowment transaction was used as an example to demonstrate how the accumulated other component would work.
In developing the illustrative financial statements, PSAB tried to think of other examples. However, this was the most reasonable example because a standard does exist in the PSA Handbook right now—that is, Contributions, Section PS allows endowment contributions to be recognized as direct increases in net assets. Now, this section does not apply to all public sector entities, only certain government not-for-profit organizations. But it is a section in the existing Handbook, allowing the illustration to reflect an existing allowed accounting treatment.
The only new aspect in the illustration is indicating a specific component of net assets in which such direct recognition might occur. So, to summarize, the Board has retained the endowment example, as it’s helpful to understand the component. But the wording accompanying the example makes it clear the illustrations are not presupposing what would be required by a new endowment standard in the future. Such a conclusion can be reached only after following the due process and conducting the appropriate research. And as items are identified to be included in this component, PSAB may decide to update the illustration.
This new component is laying the groundwork for the future. It’s a bit like installing plumbing without any fixtures in anticipation of future renovation. Now let’s look at the last amendment related to the statement of financial position, a revised non-financial asset definition. As you can see from the slide, the new definition is that a non-financial asset is an asset that does not meet the definition of a financial asset.
PSAB developed a new definition because it recognized that there were certain categories of assets that did not easily fit into the existing categories. The existing non-financial assets definition was developed when the primary non-financial assets considered in the model were tangible capital assets. And as you can see, the wording of the existing definition reflects that emphasis.
To allow the reporting model to be long-lasting and inclusive, it was important to improve the definition to allow for possible recognition of assets not yet on PSAB’s radar or not yet the subject of a standard such as intangibles. PSAB needed to ensure the non-financial asset definition was sufficiently broad to include economic resources not yet dealt with in standards. So right now, there are no effects as a result of broadening the definition. But in the future, there may be new assets included in this category.
In terms of classifying an asset as financial or non-financial assets, some examples of assets that meet the definition of a non-financial asset include tangible capital assets; inventories held for use; prepaid expenses; purchased intangibles; and assets that would otherwise be classified as financial, but which cannot be used to discharge existing financial liabilities or can’t be used for spending on future operations because of external restrictions preventing access to the assets; and, of course, any other asset not available for sale. An example of an asset that would otherwise be classified as financial, but which cannot be used to discharge existing financial liabilities and can’t be used for spending on future operations because of external restrictions preventing access to the asset, is an endowment that is externally restricted in perpetuity.
The implication of this decision is that endowments that are externally restricted in perpetuity are often invested. So how would the Financial Instrument standard, Section PS apply if they’re classified as non-financial assets? To answer this question, PSAB made consequential amendments to Section PS to refer to those assets and liabilities that are financial instruments as financial instrument assets and financial instrument liabilities. A financial instrument asset could then be presented as a financial asset or a non-financial asset, depending on whether the asset can be accessed and used— that is, whether the financial asset definition is met.
When determining if assets could be accessed and used, consideration is given to whether external restrictions have been placed on the assets, and the type of external restrictions. Some external restrictions result in a financial asset classification. Other external restrictions, such as restrictions preventing access to the asset, will result in a non-financial asset classification. In contrast, PSAB concluded that financial instrument liabilities would always be classified as financial liabilities. The nature of financial instrument liabilities is that they’re always expected to be settled using financial assets, thereby meeting the financial liability definition.
A decision tree was included in Appendix C of Section PS to help determine how to classify financial instrument assets. The decision tree, as on the slide, asks the key question: Can the financial instrument asset be accessed to discharge existing financial liabilities or for spending on future operations? The answer will determine the classification and [inaudible: presentation of the financial instrument asset as a] financial or non-financial asset. Most financial instrument assets are presented as financial assets. But certain financial instruments are presented as non-financial assets if those assets are subject to particular external restrictions.
In summary, there were a lot of amendments to the statement of financial position: The net debt indicator was relocated to its own statement. Financial and non-financial liabilities were introduced. The statement of financial position was restructured. A new third component of net assets called accumulated other was introduced. The non-financial asset definition was broadened. And now I’d like to pass it over to Antonella to complete the presentation.
Antonella Risi:
Thank you, Martha. Let’s now turn our attention to the statement of net financial assets or net financial liabilities. The slide shows a snapshot of what the statement would look like. It presents more prominently the net financial assets or net financial liabilities indicator, which is currently known as net debt. The revised calculation of the indicator is financial assets minus financial liabilities. The clarification of the nature of the liabilities to be included in the calculation, which Martha talked about a few slides ago, allows the indicator to measure what it was meant to measure— future financial resource requirements or financial assets available to provide future services. If an entity feels that accountability is better served when the change in the indicator from the previous period is explained, an entity can present the reasons why the indicator is changed in the accounting period at the bottom of the statement. And presenting this information, the entity will need to ensure that it is understandable for the user. We also want to mention two additional points. First, the Exposure Draft proposed that an explanation of the meaning of the indicator be included on the statement. Many respondents disagreed with this proposal for various reasons.
After reflecting on the comments, PSAB decided to remove the requirement to include an explanation of the indicator. Second, when it came to the net debt indicator, we received a lot of mixed feedback. Some respondents believed the indicator is an important indicator, while others feel it is not and have gone as far as to indicate that this particular statement is not needed. PSAB believes that the net financial liabilities indicator, formerly known as net debt, is an important indicator because among other things, it provides information about future resources required to settle past commitments and obligations. The extent of an entity’s net financial liabilities and its financial ability to service liabilities are important factors in assessing its financial sustainability. The new financial statement presentation standard is to be applied retroactively with restatements of prior periods as Martha indicated at the beginning of the webinar. Now, depending on whether a public sector entity has non-financial liabilities, the previous periods of net financial assets or net financial liabilities balance may need to be recalculated. For example, there are a few jurisdictions that recognize deferred capital contributions as liabilities.
These deferred capital contributions may currently be included in the net debt calculation, but may in fact be non-financial liabilities. In these jurisdictions, an adjustment to the net financial assets or net financial liabilities indicator would be required. This adjustment would refine the calculation of the indicator, as it would remove items that should not be included, as they do not represent future financial resource requirements. That adjustment may be material. In many other jurisdictions, deferred capital contributions are not recognized. In these jurisdictions, the adjustment to the indicator is expected to be minimal.
There are a number of benefits to the revised calculation. For today’s webinar, we wanted to focus on the benefit related to renaming the indicator. Many interested and affected parties told us that the indicator could be confused with other terms, and it does not resonate well with its meaning. Various interested and affected parties suggested the term “net financial liabilities” in previous discussions, such as during a public sector accounting discussion group meeting. However, it was not appropriate at that time because no financial liabilities category existed. Now that it does, PSAB decided to replace the term with net financial liabilities.
PSAB did consider other terms, such as “unfunded past spending” and “future spending burden,” and concluded that “net financial liabilities” is most appropriate. Because the calculation is being revised, its own statement is being introduced, and the term “net debt” may not be consistently understood, PSAB determined that this was the right time to rename the indicator. However, because the term “net debt” is used by some governments in comparison to GDP, and this ratio is used widely in evaluating the finances of many governments, or as a fiscal anchor, PSAB acknowledges that replacing the term may cause some initial confusion. And as a result, education as to the new terminology and perhaps the change in the calculation will be required.
A few slides ago, we mentioned that an entity can present a change in the indicator on the statement of net financial assets or net financial liabilities. This is because the requirement to include in the financial statement package a statement of change in net debt or net financial assets no longer exists, for various reasons. Some interested and affected parties voiced concern that the statement is not understandable and so does not provide useful accountability information. Attempts were made to amend the statement. However, they did not provide any one presentation that was more understandable.
Although most respondents agreed with removing the statement, some disagreed for various reasons. As a result of the feedback, PSAB concluded that the presentation of the change in net financial assets or net financial liabilities would be optional. If an entity believes it provides necessary accountability information and so chooses to present the change in the indicator, it would do so on the statement of net financial assets or net financial liabilities. This approach was supported by many Exposure Draft respondents.
Any information presented about the change in net financial assets or net financial liabilities would need to be understandable and useful for accountability purposes. The location of this optional presentation ensures that all the information on the net financial assets or net financial liabilities indicator is provided in one statement. If an entity chooses to report the change in net financial assets or net financial liabilities, it should present the following on its statement of net financial assets or net financial liabilities: the net financial assets or net financial liabilities at both the beginning and end of the accounting period for the current and prior periods, the extent to which the net financial assets or net financial liabilities changed due to net remeasurement gains and losses in the accounting period, the acquisition of tangible capital assets in the accounting period, and any other significant items or significant expenditures that explain the change in net financial assets or net financial liabilities in the period.
Budget amounts must also be included for certain aspects. And any amendments that have been made to the statement of change in net debt in Section PS as a result of the financial instruments limited scope amendments have been flowed through to the new reporting model standard. And as a reminder, this would only be presented if an entity chooses to provide the optional reporting of the change in the indicator.
If an entity chooses not to provide the optional reporting of the change in the indicator, then only one additional piece of information needs to be presented for accountability purposes. The standard requires that if an entity chooses not to report the change in net financial assets or net financial liabilities, it should disclose in the notes or schedules a comparison of the total actual capital expenditures incurred in the period with those originally budgeted.
Now, before we end our discussion on the net financial assets or net financial liabilities indicator, we would like to mention one last amendment made to it. PSAB concluded that entities that wish to show the indicator on the statement of financial position can do so, but only at the bottom of the statement of financial position with the note cross-referencing to the calculation and the new statement. We want to know that this is a secondary site for presenting the indicator.
If an entity chooses to present the indicator on the statement of financial position, the indicator would be presented on two statements, as the requirement for a statement of net financial assets or net financial liabilities would still be in force. In arriving at its decision, PSAB considered the characteristics of financial information of understandability and comparability, and what is in the public interest. Of all the options considered, this option was the most understandable, and it was the one that allows the most comparability for the statement of financial position and the statement of net financial assets or net financial liabilities while responding to the feedback received. This optionality does not reduce comparability because the new statement is retained and those entities that choose to also present the indicator on the statement of financial position would do so in the same place, at the bottom of the statement.
This is the farthest piece that could go in retaining a “benchmark” reporting model. So, in summary, there are a few amendments that were made to the net debt indicator. First, it was renamed to net financial liabilities. The opposite side of the indicator continues to be named net financial assets. The indicator is now presented in its own statement, the statement of net financial assets or net financial liabilities. If an entity wishes to also present the indicator on the statement of financial position, it can do so at the bottom of that statement. The calculation has been revised to be financial assets minus financial liabilities. And the requirement to show the change in the indicator has been removed. However, if an entity wishes to show this information, it can do so on the statement of net financial assets or net financial liabilities.
Let’s now turn our attention to Objective Reporting changes in financial position. There are three statements that show this information: the statement of operations; a new statement, the statement of changes in net assets or net liabilities; and the statement of cash flow. Today’s presentation does not include the statement of operations. That’s because no significant changes have been made to that statement. And today, we want to focus on only the main amendments to the reporting model. And so we will go straight to the new statemen— the statement of changes in net assets or net liabilities.
This statement presents a reconciliation between the opening and closing balances of each component of net assets or net liabilities. All revenues and expenses arising in a period are captured in the statement of changes in net assets or net liabilities. The statement’s purpose is to be transparent with respect to those revenues and expenses recognized in surplus or deficit of the period, and those recognized directly in a component of net assets or net liabilities. Most revenue and expense will be recognized in surplus or deficit. And only PSAB can designate a revenue or expense to be recognized in accumulated other or accumulated remeasurements when it provides better information for accountability purposes. PSAB will need to explain and justify its decision and the basis for conclusions.
The statement also captures changes in issued share capital, if applicable. The statement provides a snapshot of the nature of the net assets or net liabilities components. PSAB considered a columnar format to show the reconciliation. However, it was more visually complex. Also, it was difficult to compare two periods, as they did not appear side by side. PSAB considered including a budget column on the statement of changes in net assets or net liabilities— specifically, in relation to the accumulated other component. PSAB decided against it because it is unknown at this time what will be recognized in the accumulated other category, and whether budget amounts would be available or appropriate. This decision, however, does not preclude a future Board from incorporating budget requirements.
In the future, when it develops a standard that recognizes a revenue expense in accumulated other component, PSAB would be able to determine whether a budget amount should be presented. Finally, it is important to note that components of net assets or net liabilities are different from funds or reserves. Funds and reserves are designations of accumulated surplus or deficit to reflect a policy purpose, to assist with fiscal management, or to demonstrate compliance with legislation. Entities wishing to provide a breakdown of accumulated surplus or deficit into categories— for example, restricted funds, reserves, or invested in capital assets— to show a different aspect of accountability of the entity can do so in the notes. This is consistent with the current practice indicated in Public Sector Guideline.
The components PSAB created are those that are necessary for the mechanics and functioning of the reporting model to allow the various statements in the model to link to one another. A reference can be made on the face of the statement of financial position or the statement of changes in net assets to the detailed breakdown of accumulated surplus or deficit, or where the components of net assets or net liabilities are explained. There is sometimes a misconception as to what an accumulated surplus is—specifically, in the local government environment. Many local governments noted that surpluses may be generated by funding received in relation to capital projects. This funding is recognized in revenue, but the capital acquisition is recognized as a tangible capital asset. And as a result, it is not expense. This creates a misconception that a public sector entity, such as a municipality, has a surplus of excess funds when it does not.
Local governments have also noted that a deficit may be generated because amortization expense is recognized, and there is no matching revenue stream. This creates a misconception that a municipality may have poor financial planning, when this is not necessarily the case. Fully understanding an entity surplus or deficit and the true story behind it is very important in being able to evaluate the entity. If an entity does not have any transactions or other events, a standard requires to be directly recognized in the accumulated remeasurement gains and losses or the accumulated other components.
The reconciliation between the opening accumulated surplus or deficit and closing accumulated surplus or deficit can be done either on the statement of changes in net assets or net liabilities, or on the statement of operations. If an entity chooses to do the reconciliation on the statement of operations, a statement of changes in net assets or net liabilities would not be required. The accumulated remeasurement gains and losses component presents similar information about remeasurements to that required in the statement of remeasurement gains and losses in Section PS When developing standards, PSAB may require that revenues and expenses arising from remeasurements, in addition to those related to financial instruments and foreign currency, be recognized in the accumulated remeasurement gains and losses component.
Also, an entity may retain a statement or schedule a remeasurement gains and losses to show the details related to this component if such detail is deemed excessive for an understandable statement of changes in net assets or net liabilities. However, a supporting statement or schedule of remeasurement gains and losses is not mandatory.
The issued share capital component would only be presented by those entities that have issued share capital. It is important to show this component separately for transparency and because it is different in substance from other components. For example, changes in the component do not represent revenue or expense.
Issued share capital is aligned with the Conceptual Framework, as Chapter of the Conceptual Framework notes that certain transactions are recognized outside of surplus or deficit. In determining whether transaction is issued share capital, an entity would consider if the transaction is more similar to a government transfer or loan. If so, it would be accounted for in accordance with the relevant standard. Each transaction would be carefully reviewed to determine its economic substance.
Now, let’s look at the statement of cash flow. The main amendment to this statement is the presentation change—that is the isolation of financing activities. This new presentation shows whether all of an entity’s other activities combined resulted in the need for cash to be raised through financing activities. This presentation highlights one aspect of the entity’s financial sustainability. And reporting on financial sustainability is an important dimension of accountability reporting many respondents to Consultation Papers and recognized.
Respondents outlined several areas where they felt more guidance was needed related to specific transactions and their presentation on this statement. PSAB concluded the most appropriate path forward in ensuring more complete guidance would be to add a statement of cash flow project to PSAB’s potential project list and to discuss the statement at a public sector accounting discussion group meeting, which occurred in November And you can access the meeting report on the Public Sector Accounting Discussion group website.
The statement of cash flow can be presented using either the direct or indirect method for cash flows from operations. Both of these methods have been illustrated in the financial statement presentation standard.
Let’s now look at the budget requirements. Before we do, it is important to note that PSAB does not set standards for the budget. Budgets are policy documents; therefore, budget requirements in the Handbook relate solely to the budget amounts presented for comparison purposes with actual amounts in the financial statements. The budget amounts should be presented using the same basis of accounting, following the same accounting principles for the same scope of activities, and using the same classifications as the financial statements.
And when the basis of accounting, accounting principles scope, or classification using the budget is different from that used for financial statements, the approved budget amounts would need to be restated. And the restated amounts would be identified and reported as such on the face of the statements displaying the budget information. Reconciling items will be specific to each individual entity, and determining them is left to professional judgment. Reconciling items that are scope adjustments could include the approved budgets of any components or controlled entities not included in the reporting entity’s approved consolidated budget.
When the scope of the reporting entity changes during the accounting period, the original approved budget would be presented. Many of the budget requirements on this slide are not new. So let’s go to the next slide, which highlights the new budget requirements.
When budget information is not prepared or approved, or when the budget for a material controlled entity is not prepared or approved, an acknowledgment stating this fact should be presented on the statement in which budget information is displayed. This acknowledgment should also explain why the actual-to-budget comparison cannot be done. The budget is an important aspect of the accountability cycle. As a result, it is important to indicate when the budget is not prepared or approved, and why.
Note disclosure alone is insufficient. Indication on the face of the statements is required but may be supplemented with further disclosure.
PSAB is also allowing the use of an amended budget in limited and specific circumstances. For governments, Section PS permits the use of an amended budget only when there is an election and the new government approves a new budget. For government organizations, an amended budget may be presented when the majority of the governing body of a government organization has been newly elected or appointed and a new budget is approved by it. PSAB is recognizing that when there’s a change in governance and that new governing body has approved a new budget, that new budget could be used for financial statement comparison purposes.
The focus is on the governance, as the governance provides strategic direction in the form of new policy objectives to the public sector entity, which may result in a budget that is different from that approved by the previous governing body. And the governance of a public sector entity is determined by its primary users, for which the financial statements are prepared.
So, that is the new reporting model. PSAB believes that the reporting model is the way forward because it is responsive and responsible. It is rooted in the notion of accountability and what is in the public interest. It considers all public sector entities, and it considers all the extensive feedback PSAB received to all the documents for comment. This project has been PSAB’s most significant initiative to date and involved unprecedented consultation with many interested and affected parties. We thank all of those that have engaged with PSAB and provided feedback. More specifically, it is the way forward for various reasons.
The revised net financial assets or net financial liabilities calculation returns the indicator to its original meaning. The introduction of the accumulated other component will allow PSAB to respond to emerging issues. The restructured statement of financial position allows it to be better understood.
Now, before we end the formal part of our webinar, we want to highlight two important effects of the reporting model. The first one is related to a series of consequential amendments that were made to the Public Sector Accounting Handbook. And the second is related to PSAB’s International Strategy.
So, let’s look at the impact of the new reporting model on the Public Sector Accounting Handbook. The work on the reporting model created the need for a series of consequential amendments to the Handbook. Essentially, these consequential amendments are being made to ensure consistency throughout the Handbook.
First, Section PS has been withdrawn and replaced with Section PS As a result, references to Sections throughout the Handbook have either been replaced with Section PS removed, or replaced with another section. Second, Section PS has been amended to include a new requirement to identify major changes to the reporting entity in the accounting period.
Some respondents encouraged PSAB to include the requirement to present the changes in scope that occurred during the accounting period. And PSAB agreed with this suggestion, as often users wonder what has changed between periods, and often the only way to figure this out is by comparing the government reporting entity note of the two periods.
As a result, PSAB made a consequential amendment to Section PS to require the disclosure of changes to the reporting entity. This requirement builds on the disclosures already required by that standard and responds to the feedback received. Thirdly, various standards throughout the Public Sector Accounting Handbook have been amended to acknowledge the three components of net assets or net liabilities, to change references to net debt or change in net debt, change references to the statement of remeasurement gains and losses to the remeasurement gains and losses component, and classify liabilities as financial and non-financial.
A new paragraph highlighting changes and transitional provision has been added to any standard that has been amended as a result of the new reporting model standard. The effective date has been added to any principle that has changed, and other miscellaneous amendments were made. The original version of anything that has been amended is in the archived pronouncements portion of the Handbook.
Most consequential amendments will change practice and are related to the presentation of financial statements. The consequential amendments will be effective at the same time as the financial statement presentation standard. And some respondents have asked that a PDF version of Section PS and the Financial Instruments standard, Section PS be included in the main body of the Public Sector Accounting Handbook for easy reference to these standards until Section PS is effective. This has now been provided and is now included in the Public Sector Accounting Handbook.
Now let’s look at the effect on PSAB’s International Strategy, because the International Strategy will affect future standard setting by PSAB. PSAB’s “Criteria for modifying and reviewing IPSAS Principles,” which is part of its International Strategy, states that PSAB will amend an IPSAS principle in developing a Canadian standard if it is contrary to its Conceptual Framework.
And PSAB’s Conceptual Framework foreshadows and sets the foundation for the new reporting model. So the differences in the reporting models of PSAB and IPSASB may affect PSAB’s future standard setting. So, this begs the question: When could an IPSAS principle be contrary to PSAB’s Conceptual Framework and reporting model? To be able to answer this question, we have put together a comparison of various concepts and principles within PSAB and IPSASB Conceptual Frameworks and reporting models. The link to the reporting model comparison resource is on the slide.
The Conceptual Framework comparison can be found in the Conceptual Framework webinar slides, which is expected to be available on demand soon. This slide provides a high-level comparison with IPSASB reporting model. There are a few minor differences in relation to all the statements. We will not discuss them all, as the differences are presentation-only and, for the most part, do not affect the accounting for transactions.
We did want to talk about one difference on this slide and one on the next slide. Let’s look at the difference related to the statement of net financial assets or net financial liabilities. The IPSASB does not require reporting the net financial assets or net financial liabilities indicator. PSAB is of the view, and many interested and affected parties strongly agreed, that the indicator is important in Canada. So, when PSAB sets future standards for specific assets or liabilities by using the principles in an IPSAS, PSAB may need to provide additional guidance as to the impact on the indicator.
The other main difference we would like to highlight is with respect to the financial asset and financial liability definitions. The definitions of these terms are broader than those in IPSASs. The financial assets and financial liabilities definitions in IPSASs, and other standard setters, are linked to financial instruments. The Public Sector Accounting Handbook defined the financial asset long before other standard setters.
PSAB’s definition of financial asset was designed for use in calculating the net debt indicator. And the initial government reporting model in Canada was entirely based on this indicator. So, it necessarily included items that are not included in the financial assets defined by other standard setters.
For example, investments in government, business enterprises, and inventories for resale are financial assets in the Canadian public sector model because of the expectation that these assets will provide resources to finance future operations or discharge liabilities. To help ease the confusion created by having two definitions for a term, PSAB made consequential amendments to refer to financial instrument assets and financial instrument liabilities. The definitions of these terms are similar in substance to the financial asset and financial liability definition used by the IPSASB and other standard setters.
So, in setting future standards based on an IPSAS, PSAB will need to clarify whether reference to a financial asset and/or a financial liability in an IPSAS should be amended to reference financial instrument assets and/or financial instrument liabilities. So, there’s a lot that we have presented and a lot to take in. So, we wanted to summarize our presentation for you. PSAB’s new financial statement presentation standard found in Section PS is structured in a similar way to that of Section PS However, there are a few different requirements in the new model in Section PS because of various amendments made.
And to summarize, the amendments include the relocation of the net debt indicator to its own statement; the introduction of financial and non-financial liabilities and accumulated other; the restructured statement of financial position to no longer calculate net debt and instead report all assets and all liabilities together; the revised non-financial asset definition; the revised net debt calculation to better reflect its original meaning of future financial resource requirements; the new name of the net debt indicator to align with the new categories of liabilities; the removal of the statement of change in net debt, but as an option, the information currently reported can be included on the bottom of the new statement of net financial assets or net financial liabilities; the new statement of changes in net assets/liabilities to explain the changes in all components of net assets and net liabilities in the year; the isolation of financing transactions in the cash flow statement; and the new budget requirements.
A summary of some of the key effects of the reporting model are noted on the slide. It is important to note that the new reporting model builds on the one in Section PS Some respondents to the documents for comment were concerned that PSAB was creating a brand-new reporting model. This is not the case. A series of consequential amendments have been made throughout the Public Sector Accounting Handbook to make it consistent with the new reporting model standard.
The new reporting model will have an impact on PSAB’s International Strategy, and preparers may need to update their financial systems and processes to reflect the revised financial statement presentation. For example, the financial system would now need to classify … would now need two classifications for liabilities: financial and non-financial. The most important effect of the new reporting model is improved understandable information that provides financial statement users with better information for accountability purposes.
To help interested and affected parties understand the new reporting model and see themselves in the reporting model standard, five sets of illustrative financial statements have been developed. The illustrative financial statements are similar in that they generally show the same accounting for the same transactions and show similar presentations. However, they are also different in that they highlight the unique classifications and terminology for each type of public sector entity.
Now, there are five key facts that we want you to take away from our webinar: First, the effective date of the reporting model is April Second, an entity will need to revise its financial statement package based on the new presentation requirements. Third, one of the most challenging amendments to implement, if an entity has a lot of unearned revenue, may be the introduction of financial and non-financial liabilities. A lot of guidance has been provided in Section PS to help users navigate this amendment. Fourth, prior year amounts will need to be restated to be in compliance with the new presentation requirements. And fifth, we encourage you to watch the Conceptual Framework webinar, which will provide information on PSAB’s Conceptual Framework, which includes concepts for financial statement presentation.
Time will be needed to become familiar with the Financial Statement Presentation standard’s Section PS However, how much time is needed to implement the standard will depend on a few factors, such as: How many unearned revenues does an entity have? Time is required to classify liabilities and to adjust prior year numbers. Consideration will also need to be given as to how easily can the entity’s financial software system be updated for the financial statement requirements. Preparers may need to update their financial systems and processes to reflect the revised financial statement presentation. This is important because such changes may take time and require investment.
So, starting to prepare for such system changes should begin early. And time is needed to educate interested and effective parties, such as legislators, counsel, board of directors, media, on the new look of the financial statements, including the new name for net debt. Also, consideration would need to be given for implementing the presentation concepts found in the Conceptual Framework. Now, before we end this portion of this webinar, we did want to provide a link to helpful resources.
The slide provides you a link to the project page. The project page has been updated. It includes links to various other web pages that either outline the history of the project or provide resources related to the reporting model. And two resources have already been posted. And they’re noted on the right-hand side of the slide. We encourage you to take a look at these resources. They can be found on the resources link on the project web page. We have now arrived at the final part of our webinar.
Before we get to the Q&A, for all of you listening in to the webinar, you’ll see up on the screen a link to the post-webinar quiz. By attending this webinar for at least hours and successfully completing the quiz, you will receive your CPD certificate, which may help toward fulfilling your CPD requirements for the year. Deven, I believe, has put or will put the QR code and the link to the quiz in the chat as we go to the next slide.
Which is we will now open the floor for questions. So, Martha, I will now turn it over to you if you would like to be the host on asking the questions that have come in.
Martha Jones Denning:
Okay. So, we have The first question is: What tips and recommendations can you give a project manager trying to implement these changes from a system, process, and technology standpoint within their province? Do you want to try?
Antonella Risi:
I think so. I guess the very first tip I would give is take the time to learn about the new reporting model and those things that will affect, as you noted in your question, the system and the process. So that would be my very first tip to just take the time right now to understand the reporting model you will have seen from our webinar. It’s a long webinar, a lot of information. The standard itself is a lot of … long standard. So, time will need to be taken to understand the system … sorry … to understand the standard, to understand what system changes and processes are needed. So, I would say that’s my number one tip.
Martha Jones Denning:
Yes. And I would agree with that. I think time is the most important thing. The presentation changes are not complex, but they will require system changes for how you accumulate your information to get to your consolidated financial statements. So, starting sooner rather than later is the right thing to do. The other part, Antonella mentioned it briefly, was that the presentation concepts in Chapter of the Conceptual Framework do require you to have a look at your disclosures and see whether they—in the notes and schedules— to see whether they meet those presentation concepts, whether they link to each other properly. Do they provide a cohesive picture? Do they increase the accountability value of the financial statements? So, there will be some time needed for that aspect as well. The next question, unfortunately, is in French. My apologies. I don’t know, Deven, whether you can help us out, or whether our interpreters are able to tell us what the question means in English.
Antonella Risi:
I can try. And Deven or the interpreters can correct me. I believe the question is: Should we include the budget in the statement of financial position? I think that’s the question.
Martha Jones Denning:
Okay. If that is the case, then the requirements in Section PS do not require that you budget for the statement of financial position. But it is the kind of supplementary information that you can consider providing if you believe it as to the accountability value of your financial statement package. In Chapter might be paragraph there are some criteria to use in evaluating when supplementary information can be included in the financial statement package. So, I would recommend looking at that if that’s something that you’re considering. But it’s not a requirement in Section PS
The next question is related to endowments. It says endowments are usually invested included in portfolio investments. Do you mean the portfolio investment relating to endowments needs to be reported under non-financial assets? I think it will depend on what restrictions are on the use of the endowment funds and/or the income related to those investments. If it is so restricted that … If the assets are restricted such that they cannot be used to settle liabilities or for spending on future operations, then yes, those investments that are in portfolio investments would be classified as non-financial assets. If the restrictions restrict the use of the assets but don’t prevent the use of the assets, then you’ll need to evaluate the substance of them in determining whether you’re allowed to use them to settle liabilities or to spend on future operations.
So, that’s really what it comes down to. The classification is … of a liability is going to be an … or an asset … is going to be based on—for assets— how they’re allowed to be used. What access do you have to the assets? What access do you have to the income? So, and for liabilities, it comes down to whether they can be settled using financial assets or not. At the financial statement date, given the existing terms and conditions of a liability, how is it allowed to be settled? Subsequent changes to how it’s allowed to be settled don’t affect the reporting at the financial statement date. You look at what the terms and conditions are at the financial statement date. And I think that would apply to on the asset side as well. What are the restrictions allowing you to do with those investment endowment assets?
The recording for the Conceptual Framework, I missed it. Where can I find the recording? Maybe Antonella or … I see Deven might be typing an answer. I think it’s still being processed, and it’s not quite ready for access yet. Is that correct, Antonella?
Antonella Risi:
Yes, that is correct. We’ve been working on getting it on the website, but it’s not there yet. My understanding is that as soon as it is available, it will be posted on the newsletter, the FRAS Canada newsletter.
Martha Jones Denning:
So, you’ll be getting a heads-up when it’s available to watch on demand. It sounds like this is a follow-up question relating to the portfolio investments relating to endowments. How won’t the portfolio investments relating to endowments meet the definition of financial assets, since the investment return will be spent on future operations and not for consumption in the normal course of operations? So, it’s the assets themselves, not the income. Though obviously if the income were restricted as well, there might be a … issues for you in terms of how you use the income. But in terms of the assets themselves, it’s not related to how the income can be used. It’s whether you can access the assets themselves for settling liabilities or spending on future operations. So, not the income from the investments, but the actual access to the assets themselves.
There is a question on budgets. It was noted that a budget amount on the statement of changes in net assets is not included at this time because it’s unknown what will be included in accumulated other. Does this mean that there’s an expectation that a budget amount is expected for accumulated remeasurement gains or losses? No. No, it is not. It is not currently in the existing statement of remeasurement gains and losses, and it would not be required for the accumulated remeasurement gains and losses. So, there are three components on the statement of changes in net assets or net liabilities: accumulated surplus or deficit, accumulated remeasurement gains and losses, and accumulated other. There is no budget column on that statement. The only budget reporting that is required for comparison purposes are in the statement of operations. And if on the statement of net …, excuse me, net financial assets or net financial liabilities, you are explaining the change in that indicator, then budget amounts would be presented along with the change in that indicator on the bottom of that statement.
Antonella Risi:
If I can just … if I can just add to that. So, on this statement, the budget for the change that relates to remeasurements is not required. Remeasurement gains and losses.
Martha Jones Denning:
Yes, it’s not required. Now we have a couple of related questions, related to budgets. And one asks about supplementary budget or supplementary estimates in Ontario. And the one following it notes that understanding PSAB does not provide requirements on how to budget but only how budget is presented in financial statements.
What challenges with respect to integrating the reporting model changes into the budget is PSAB aware of? I think it depends on your starting point. So, if you currently prepare a budget on a basis consistent with the Public Sector Accounting Handbook, then the same changes that you’re making for the reporting model in the financial statements would be made for the budget … the budget comparison numbers that you include in those financial statements.
But it’s really only going to … So, there aren’t a lot of changes to the statement of operations, which is where your main budget numbers are presented. And only if you choose to present the change in net financial assets or net financial liabilities on that statement of net financial assets or net financial liabilities, would you have budget numbers on that statement.
So, in terms of the comparatives, I think probably most of the budget comparative changes are going to relate to the consequential amendments to two other standards. And I don’t think— and, Antonella, you can weigh in here— but I don’t think that the new reporting model requirements should have a major impact on your budget comparatives unless there’s been a change in government or change in the governing body for an entity in the year, and that entity has issued a new budget, and it’s been approved. Otherwise, I don’t think there are going to be major implications for the budget comparatives. Would you like to weigh in as well, Antonella?
Antonella Risi:
No?
Martha Jones Denning:
No. There’s nothing to add. Okay. A follow-up endowment question: If the encroachment on the endowment principle is allowed by legislation, should we report the portfolio investment under financial or non-financial assets? So, I think what you’re saying is if legislation allows you to access the endowment principle, would that endowment asset, that investment, be a financial or non-financial asset? And I think the answer would be if you’re allowed to access the asset and use it to settle liabilities or spend on future operations, then it would be a financial asset. You’re always going to go back to the definition of how that asset is allowed to be used or whether its use and access is restricted.
Where are the sample financial statements? They are in appendices to Section PS I think, starting with Appendix F. Am I correct, Antonella? I think they … but they are in appendices to Section PS They’ve already been issued. So, you should be able to find them in the PSA Handbook.
The next question was in English. Thank you. Sorry. How did these changes apply to GNFPOs that apply the PS series? Do you want to start, Antonella?
Antonella Risi:
Sure. So, right now, if you are GNFPO that applies the Public Sector, the PS series, you would not apply this standard. You would apply the standard, the financial statement presentation, in the PS series. The one amendment, though, that does apply to you is the fact— and which isn’t a change— is the fact that the statement of remeasurement gains and losses is a required statement. My understanding is that it’s a required statement right now to be able to be in compliance with the Financial Instrument standard. So, the short answer is right now, these changes do not apply to an entity that is a GNFPO that applies PS … that applies the PS series. However, in the future, because PSAB has a government not-for-profit strategy project, in the future, PSAB may consider these changes or this standard as part of that particular project. So, more on that to come soon.
Martha Jones Denning:
And I think I’ll just … I’d like to answer this last question. I think it’s important to clarify this. So why was the statement of remeasurement gains and losses taken away? And how do we reconcile this with PS requirements to be more IFRS-like with our financial instruments and track unrealized remeasurement separately from realized gains and losses?
So, the requirement for a separate statement has been taken away. However, all of the information currently required for the statement of remeasurement of gains and losses would be provided in explaining the changes in opening remeasurement gains and losses and closing remeasurement gains and losses on the new statement of changes in net assets or net liabilities.
If for some reason, that detail for a particular entity is really too detailed, and it’s kind of overpowering the statement, then you can provide summary information on the statement of changes in net assets or net liabilities for the remeasurement gains and losses component and supplement it with an additional statement or a schedule to the financial statements that provides exactly the same detail that’s in the existing statement of emerging gains and losses.
So, the information is not being lost. It’s either going to be on the statement of changes in net assets or net liabilities, or a summary will be there, and more detail will be provided in a supplementary statement or schedule. So, we’re not losing any information that’s currently required.
I do think we’re at time. So, I apologize if we didn’t get to your question. Antonella and I are available to answer questions. So should you have questions that you want to answer that we didn’t get to, you can contact us. Unfortunately, I don’t have the slide up. Just give me a moment.
Antonella Risi:
You will have our contact information if you go to the link on the webinar web page. Our contact information is there as well as the slides with the contact information.
Martha Jones Denning:
Yes, I’m sorry! I’m having technical difficulties getting the slides back up. So, my apologies! But the information is on the website on the project page as Antonella said. So, our apologies for my technical issues.
Antonella Risi:
No worries, Martha. It’s normal to have technical difficulties, I found, doing these things. I don’t want to keep our attendees because it is On behalf of Martha, I, Deven, just wanted to thank the interpreters, Deven, for helping out with this webinar. And most of all, thank you to all of you who have attended today. We appreciate your time and your interest in our work. And we hope you have a great rest of the day.