Public Sector Financial Statements



NCLGA Executive Recommendation: Endorse


WHEREAS the Public Sector Accounting Board is proposing changes to the financial statements that incorporates inter-period equity, an accounting framework which would address challenges faced by “non-government” public organizations but provides no useful value to local governments;

AND WHEREAS the proposed changes run contrary to providing clear and transparent government in a form that can be readily understood by the public we serve, would be confusing for users and elected municipal officials, and would result in an enormous administrative burden for local governments and First Nations communities:

THEREFORE BE IT RESOLVED that the NCLGA support the UBCM working with the Public Sector Accounting Board to ensure the framework for municipal financial reporting addresses the concerns of local governments and is meaningful to the public interest we represent.

Additional Information

UBCM Comments: The UBCM membership has not previously considered a resolution on the topic of financial statements that incorporate inter-period equity, although it has previously considered resolutions relating to proposed Public Sector Accounting Board (PSAB) accounting standards including:

  • 2012-B136 which called for a postponement of a PSAB standard relating to liability for contaminated sites, which was endorsed by the membership; and
  • 2005-B108 which sought exemption for local governments from PSAB accounting standards relating to local government accounting for tangible capital assets, which was not endorsed by the membership.

UBCM notes that the resolution appears to be referring to Consultation Paper 2 developed by PSAB’s Conceptual Framework Task Force, for which comments were requested by January 31, 2013. According to the Consultation Paper:

  • concerns were raised by the senior government finance community, about the existing conceptual framework, since “the application of standards based on concepts in the framework were seen to be creating volatility in, and affecting the understandability of, reported results and making it difficult to provide actual-to-budget comparisons.” ;
  • the consultation paper is the second document produced by the Task Force, and it has not been approved by PSAB; and
  • the input received from the two Task Force Consultation Papers will be considered in drafting a statement of principles for public comment, planned for the final quarter of 2013.

Background Information

The Public Sector Accounting Board is suggesting changes to the financial statement framework which would present the “financials” in the same format for each and every public body regardless of the type of business they conduct.

Financial statements are often difficult enough for people to understand, so it is important to include information in a format that is easily understood by the interested parties. When looking at the statements for a municipality, the reader should be able to understand the finances in relation to the function (business).

As an example, one change being considered is the “deferral of revenue”. If a municipality receives a grant for roadwork, PSAB is suggesting that even though we may do the work in the same year we receive the money, we will need to “book” it as though we are receiving the money over the lifetime of the road (ie, 50 years). This change would make it appear as though we are receiving funds each year for the next 50 years when in fact we are not. It would also falsely appear that we have money available to spend (ie. reserves). The financial statements are not the place for this “guess work” and could be seen as a manipulation tactic.

The deferral of revenue is only one of the many changes. This “one size fits all” reporting would require municipalities to change the format of their financial statements, track the revenue received over the life of the asset, create a multitude of reconciling reports, and create an enormous burden for the staff of small municipalities and First Nations communities. Furthermore, a schedule or other report would need to be created in order to explain to our audience what the true picture actually is.

It is our desire to be an open and transparent government. Providing confusing financial statements, which provide no useful information to the public we serve, is simply not an effective use of tax payer’s money. We suggest that PSAB let those who would benefit from these changes do so as a recommended practice and not make it mandatory for local governments.

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