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School Board Audit Committee Training
Module 5
Understanding the Basic Elements of School Board Financial Statements
Session objectives
After completing this session you will:
Understand the Audit Committee’s duties related to the financial reporting process
Have an overview of School Board financial statements
Understand key features of PSA Handbook
Understand key indicators in School Board financial statements
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Role and Accountabilities of a School BoardDuties related to the Financial Reporting Process [ON Regulation 361/10 9(1)]
• To review the School Board’s financial statements
• To review the results of the external audit
• To recommend, to the Board of Trustees, the approval of the annual audited financial statements
• To review matters that the external auditor is required to communicate to the Audit Committee under generally accepted auditing standards
• To review with the external auditor material written communications
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• Financial statements are a fundamental component of school board’s financial reporting
• For financial statements to be credible, readers need to have confidence that the statements follow accepted and identifiable standards established by an arm’s length standard setting body
• If school boards follow independently set standards, readers can have confidence that the financial statements are consistent and comparable over time
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Financial Reporting Overview
• School Boards are required to follow Public Sector Accounting Standards (PSA) established by the Public Sector Accounting Board (PSAB) for School Boards
• “PSAB” is the acronym for the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants (CICA). PSAB has the authority to set accounting standards for the public sector. That authority means that PSAB sets generally accepted accounting principles (GAAP) for the public sector (e.g. school boards)
• The Government may also direct school boards to follow certain policies
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Accounting Standards for School Boards
PSA Standards
• Introductory Section• Concepts and Principles (PS 1000 – PS 1300)
– Contains sections dealing with:
PS 1000 Financial statement concepts
PS 1100 Financial statement objectives
PS 1150 Generally accepted accounting principles (primary sources of GAAP)
PS 1200 Financial statement presentation
PS 1300 Government Reporting Entity
• Specific Items – Financial Reporting (PS 2100 – PS 2700)– Sections dealing with financial statement items such as:
PS 2100 Disclosure of accounting policies
PS 2120 Accounting changes
PS 2130 Measurement uncertainty
PS 2400 Subsequent events
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PSA Standards
• Specific Items – Financial Statement Items (PS 3030 – PS 3510)
– Contains sections dealing with financial statement items such as:
PS 3030 Temporary investments
PS 3040 Portfolio investments
PS 3150 Tangible capital assets
PS 3410 Government transfers
• Specific Items – Government Not-for-profit-organizations (PS 4200 – PS 4270)
– Contains sections dealing with NPO’s such as:
PS 4210 Contributions
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P
S
A
B
Type of Organization Accounting Framework First reporting period – year beginning on or after:
Government/School Board PSA Standards – No change in framework N/A
Government Not-for-Profit Organization (GNFPO)
Choice of:i.Existing NPO standards (4400 series with minor modifications) + PSA Standards as underlying framework, or ii.PSA Standards (without NPO standards)
January 1, 2012
Other Government Organization (OGO) PSA Standards or IFRSs based on assessment of users’ needs
January 1, 2011
Government Business Enterprise IFRSs January 1, 2011 (certain entities may qualify for 1 year deferral)
Changes in Accounting Frameworks relating to Government Organizations
Financial Reporting Overview – Why PSA?Unique characteristics of a School Board
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Unique Characteristic Reporting Implications
School Board’s goal is to provide services, not make a profit
Net cost of services should be reported.The net economic resources (accumulated surplus/deficit) available to use in providing future services should be reported
Tangible assets are different in nature from those held by a business (i.e. they represent service capability, rather than future cash inflows)
Financial assets and non-financial assets should be reported separately on the Statement of Financial Position
Capital spending may not focus on maximizing financial return but on achieving public objectives
Capital spending and its effect on net debt must be highlighted in the financial statements
School Board’s budget is part of accountability cycle
Actual-to- budget comparisons should be provided in financial statements. Original budget needs to be disclosed on Statement of Financial Operations and the Statement of Changes in Net Debt
• At the end of the fiscal year (August 31) school boards prepare two significant reports
– Financial Statement Forms as required by the Education Financial Information System (EFIS)
– General Purpose summary financial statements
• Accounting principles in both should be consistent (i.e. PSA)
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Financial Reporting Overview
• The general purpose summary financial statements are required to be prepared in accordance with PSA standards and are required to be audited
• Required statements are as follows:
– Statement of Financial Position
– Statement of Operations
– Statement of Change in Net Debt
– Statement of Cash Flows
• Notes to financial statements are also required.
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Financial Reporting Overview
• EFIS contains significantly more detail than summary financial statements, including grant calculations and supplementary information important for funding decisions
EFIS
General Purpose Financial
Statements
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Anytown District School BoardStatement of Financial Positionas at August 31, 2010
2010 2009
Financial Assets
Cash 500 400
Accounts Receivable 250 150
Inventory Held for Resale 30 50
Total financial assets 780 600
Liabilities
Accounts payable and accrued liabilities 200 190
Due to Province of Ontario 50 30
Employee future benefits payable 400 390
Net long-term debt 300 310
950 920
Non-financial assets
Tangible capital assets 1,780 1,550
Prepaid expenses 10 9
Inventory of supplies 15 12
1,805 1,571
Net Debt (170) (320)
Accumulated Surplus 1,635 1,251
Prior year comparatives are required on Statement of Financial Position
• Assets that can be used to discharge existing liabilities or finance future operations
• No distinction between current and long-term financial assets
Key indicatorDifference between financial assets and financial liabilities represents future revenue required to pay for past transactions
Key indicator• Represents school boards net economic
resources• Amount by which all assets exceed all
liabilities
• All liabilities are reported• No distinction between current and long-
term liabilities
Assets available for provision of services typically not used for discharging existing liabilities or financing future operations
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Anytown District School BoardStatement of OperationsYear ended August 31, 2010
Budget 2010 2009
Prior year comparatives are presented as well as original approved budget (in PSA format)
Revenues
Local taxation 1,000 1,100 1,000
Provincial grants 1,000 900 800
Federal grants 50 50 50
Other fees 30 20 15
School fundraising 10 10 9
2,090 2,080 1,874
Expenses
Instruction 1,400 1,450 1,350
Administration 120 130 100
Transportation 100 107 90
School funded activities 10 9 7
1,630 1,696 1,547
Annual surplus 460 384 327
Accumulated surplus, beginning of year 1,251 1251 924
Accumulated Surplus, end of year 1,711 1,635 1,251
Revenues recorded by significant type
• Expenses reported by function or major program
• Note disclosure required to report expenses by object (salaries, supplies)
Key indicator• Shows whether revenues of period were
sufficient to cover expenses of the period • Reports accumulated surplus at the
beginning and end of the period
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Anytown District School BoardStatement of Change in Net DebtYear ended August 31, 2010
Prior year comparatives are presented as well as original approved budget (in PSA format)
Budget 2010 2009
Annual surplus 460 384 327
Acquisition of tangible capital assets (100) (300) (90)
Amortization of tangible capital assets 50 70 45
410 154 282
Acquisition of inventory of supplies - (15) (12)
Prepaid expenses incurred - (10) (9)
Consumption of inventory of supplies - 12 6
Use of prepaid expenses - 9 4
Change in net debt 410 150 271
Net debt, beginning of year (320) (320) (591)
Net debt, end of year 90 170 320
This represents the change in future revenue requirements.
Shows other non-financial assets impact on the difference between surplus for year and change in net debt
Shows the TCA impact on the difference between surplus for the period and change in net debt
Shows whether revenues of the period were sufficient to cover spending of the period. This represents the change in future revenue requirements
Financial Reporting Overview
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Statement of Cash Flows
• Reports how the organization financed its activities during the period and met its cash requirements by reporting changes in cash and cash equivalents
Case Study
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