2013-05 Draft Strategic Plan

Draft Strategic Plan 2013 – 2016

Prepared by: Public Sector Accounting Board

Comments are requested by May 17, 2013

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Commenting on this Invitation to Comment

The Public Sector Accounting Board (PSAB) is issuing this Invitation to Comment to obtain

input from Canadian stakeholders on its draft Strategic Plan for the period 2013 – 2016.

Comments are most helpful if they clearly explain the issues raised and suggest a specific course

of action supported by specific reasoning.

Stakeholders are requested to address these comments to:

Tim Beauchamp, Director

Public Sector Accounting

Chartered Professional Accountants

277 Wellington Street West

Toronto, Ontario M5V 3H2

You may send comments by email (in Word format) to: [email protected].

TO BE CONSIDERED, COMMENTS MUST BE RECEIVED BY MAY 17, 2013.

mailto:[email protected]

Foreword

Recent international economic events have demonstrated the importance of independently set

standards for public sector entities. The Public Sector Accounting Board (PSAB) establishes

those standards for Canadian public sector entities. PSAB develops its standards after

considering internationally emerging issues such as those relating to the International Public

Sector Accounting Standards Board (IPSASB) and the directions being taken by other public

sector standards around the world and through an extensive due process.

The purpose of this document is to seek public input on PSAB’s strategies for the 2013 – 2016

planning period. PSAB has approved this document for public comment only. Before finalizing

the plan, the Board will consider comments received and amend the plan appropriately.

March 31, 2013 brings to an end PSAB’s 2010 – 2013 Strategic Plan. Over the course of those

three years, the Board has met, or is meeting, the major objectives under each strategy set out in

that plan:

(a) Three major standards were finalized — government transfers, financial instruments and

liability for contaminated sites. Work has begun on a number of others.

(b) Government not-for-profit organizations have been included in the CICA Public Sector

Accounting (PSA) Handbook.

(c) Transitional and implementation guidance was provided to other government organizations

and government not-for-profit organizations coming into the PSA Handbook.

(d) School boards are now using the PSA Handbook.

(e) Work on the conceptual framework is underway.

(f) PSAB continued to support and actively influenced the work of the IPSASB.

(g) Significant outreach activities were completed and a number of new communications

vehicles were introduced to improve transparency and enhance understanding.

(h) PSAB actively sought to directly involve the fiscal planning community through membership

on its task forces and directly seeking comments on documents.

(i) Operationally, PSAB followed due process and used its resources in accordance with its

annual work plans.

More recently, PSAB heard concerns from stakeholders regarding the length of time afforded to

comment on documents and implement new standards. PSAB listened and revised its comment

period, as well as ensuring that at least two budget cycles are provided before a new standard

becomes effective. It is apparent from various comments received that PSAB must be sensitive

to the implications of its work on stakeholders and provide appropriate mechanisms to do so.

Ultimately, the success of PSAB is reflected by the extent to which public sector entities adopt

its standards and other guidance. Being successful depends on:

(a) active participation in the standard-setting process by stakeholders;

(b) issuing high-quality standards and other guidance; and

(c) support from stakeholders (i.e., by following the standards and other guidance).

Mission

To serve the public interest1 by establishing independent, conceptually-based financial reporting

standards and other guidance through due process for public sector entities.

Who we are

The Public Sector Accounting Board (PSAB) comprises senior government executives and

experts in public sector financial reporting. Members include deputy ministers of finance,

controllers’ general, legislative auditors, prominent public accountants with public sector

experience, chief financial officers of local governments and government organizations, academe

and others.

Members are chosen for their knowledge, experience and judgment. Although the Chair is

remunerated, other members serve as individuals without remuneration. They voice their

personal convictions and views, independent of the policies of the government or organizations

with which they are associated.

Who we serve

Financial statements of governments and their organizations (public sector entities) serve the

interests of a variety of users: the public, legislators, councilors, debt holders, bond holders and

others. Users are interested in the state of a public entity’s finances, its financial viability in the

short and long term, its revenues and financing sources, the allocation and use of its resources

and the quality of its financial management. Financial statements and other reports provide

information needed by users to help them make assessments and judgments concerning a public

sector entity’s financial operations and management. Standards and other guidance upon which

financial statements and reports are based, are designed to meet the needs of those users.

Vision

The public has confidence in public sector financial reporting when public sector entities follow

our standards and guidance.

Desired outcomes

(a) The public sector produces comprehensive, high-quality comparable financial statements.

(b) The public sector produces comprehensive, high-quality comparable financial and non-

financial performance data.

1 Public interest is defined as those users who have, or should have, an interest in the financial affairs and resources

of a government.

(c) Stakeholders accept the CICA Public Sector Accounting (PSA) Handbook and other

guidance issued, as the primary source for public sector reporting guidance.

Values

In developing its standards and other guidance, PSAB is:

(a) committed to serving the public interest;

(b) mindful of the costs and benefits of its standards;

(c) operating in an open and transparent manner;

(d) focusing on relevant information to meet the needs of its users;

(e) respectful of, and encourages input from, its stakeholders;

(f) objective in its consideration of issues;

(g) respectful of the ability of its stakeholders to exercise professional judgment; and

(h) committed to timeliness in responding to stakeholders’ needs.

Our accountability

PSAB is accountable to the Accounting Standards Oversight Council (AcSOC).

AcSOC is an independent, volunteer body established by the Canadian Institute of Chartered

Accountants in 2000. It serves the public interest by overseeing and providing input on the

activities of the Accounting Standards Board (AcSB), which sets financial reporting standards

for profit-oriented enterprises, and not-for-profit organizations in the private sector, and PSAB,

which sets financial reporting standards for governments and their organizations. AcSOC’s

responsibilities include appointing AcSOC, AcSB and PSAB members and reporting to the

public on their oversight responsibilities. AcSOC is made up of representatives that include

regulators, investors and other users, preparers and auditors of financial reports. AcSOC brings a

broad perspective to complex issues facing standard setters in both the private and public sectors.

Developing the plan

PSAB began a review of its existing plan in early 2011. It reviewed the Canadian public sector

standard-setting environment, current issues that are, or may be, facing PSAB in the near term,

and developed strategies based on an assessment of those items.

There are a number of strategies that complete initiatives started in the previous plan and a

number of new strategies to address the communications needs of our stakeholders.

The Board felt that a three-year plan was appropriate because after the end of this proposed 2013

– 2016 plan, a comprehensive review of the financial reporting environment would be

undertaken. A number of significant new standards will have come into effect and government

not-for-profit organizations will have completed their transition into the PSA Handbook and

have some experience in adopting it given their situation. By developing a three-year plan, the

effects of those previous decisions will be better known.

Depending on comments received, the 2013 -2016 Strategic Plan is expected to be finalized in

June 2013.

TABLE OF CONTENTS

Summary of the 2013 – 2016 Strategic Plan .............................................................................................. 1-2

Standard setting in the public sector .......................................................................................................... 3-8

2013 – 2016 strategies ............................................................................................................................. 8-14

Risks facing PSAB ...................................................................................................................................... 15

Standards fatigue ......................................................................................................................................... 16

Conclusion .................................................................................................................................................. 16

Development of national public sector standards ........................................................................... Appendix

DRAFT STRATEGIC PLAN — 2013 – 2016 | 1

Summary of the 2013 – 2016 Strategic Plan

This Strategic Plan outlines the broad policy objectives that will guide the Public Sector

Accounting Board’s (PSAB) activities and outputs for the period 2013 – 2016. In summary, and

based on the objectives that PSAB wishes to meet over the strategic planning period, PSAB has

adopted six strategies.

2013 – 2016 objectives to be met

1. PSAB will have a conceptual framework that is widely accepted and used for the

development of standards.

2. PSAB will have an informed community of stakeholders who understand and accept the

due process for developing standards.

3. PSAB will have one financial reporting framework used by all entities who apply the

public sector handbook.

4. Stakeholders are engaged in the development of our standards.

5. The Canadian public sector is engaged in and influences standards development by the

International Public Sector Accounting Standards Board.

6. PSAB is aware of new developments in accounting and financial reporting.

Strategies to meet those objectives

1. Finalize the conceptual framework

The top priority for PSAB is its conceptual framework project. A conceptual framework is a set

of underlying principles upon which financial information is gathered and presented. It includes

the qualitative characteristics of information as well as setting the foundation for determining

financial position at the end of the accounting period and financial performance during the

accounting period. The major focus of this project is to determine what comprises the financial

performance of a public sector entity considering the related practical and implementation issues.

This strategy recognizes the need to complete the project during the planning period.

2. Improve consultation with and information for stakeholders

Consultation with stakeholders is fundamental to due process and for establishing high-quality

standards. In turn, PSAB must be aware of and sensitive to the implications of its work. This

strategy will set in motion efforts to improve participation in due process, knowledge of the

implications of proposals, and the understanding of the final standard. As well, a new

consultation mechanism, the “PSA Discussion Group” will be put in place. This strategy also

recognizes the need to develop a common understanding of various standards among preparers

and auditors.

2 | DRAFT STRATEGIC PLAN — 2013 – 2016

3. Complete the transition of government not-for-profit organizations

The general direction for government organizations using the not-for-profit standards was set in

the 2010 – 2013 Strategic Plan. Work is underway to deal with differences between the existing

public sector not-for-profit standards and the CICA Public Sector Accounting (PSA) Handbook.

This strategy reflects the need to complete the transition effort.

4. Issue standards and other guidance in accordance with due process procedures

PSAB has an approved due process document setting out policies and procedures for establishing

standards and other guidance. High-quality standards and guidance result, in part, from following

an open due process that provides opportunity for those affected to input into the development of

the standard and raise issues. This strategy requires that all standards and guidance must be

issued in accordance with due process procedures.

5. While not having a convergence strategy, PSAB will continue to maintain a Canadian

public sector standard-setting capability while contributing to and influencing the work

of the International Public Sector Accounting Standards Board (IPSASB)

PSAB will continue to set accounting and financial reporting standards and guidance for public

sector entities in Canada. The Board will continue to be funded by the Canadian Institute of

Chartered Accountants and seek volunteer resources to develop standards and other guidance.

This strategy recognizes that Canada will continue to set national public sector standards.

PSAB is keenly aware of the developments taking place internationally in respect to the public

sector and the development of standards by others. Canada has broad experience in setting

standards in the public sector and can bring that experience to bear on the development of

international public sector standards. This strategy also recognizes the need for Canada to

continue contributing to the development of international public sector standards.

6. Monitor developments in reporting both domestically and internationally

A number of changes in accounting (recognition and measurement) are taking place both here in

Canada and abroad, and in both the private and public sectors. This strategy ensures that the

Board is kept apprised of those changes and provided with sufficient information to make

decisions as to how it should react to those changes.


Standard setting in the public sector

1. Because of the publicity afforded to the sovereign debt crisis and overall global economic

downturn, public awareness of the quality of government financial reporting is at an all-

time high. Accountability, transparency and program sustainability are at the forefront of

many discussions. A renewed focus has been placed on a government’s ability to manage

their deficits and debt and the risks they have assumed.

Canadian economy

2. The health of the Canadian economy has a profound effect on all governments. While

relatively protected through the recent global crisis due to national regulatory frameworks

for the financial sector and governments’ own comparatively strong financial positions,

Canada nonetheless felt the effects of the global economic downturn. This downturn has

put pressure on the fiscal houses of many governments.

3. While growth in annual deficits is expected to slow over the near term, many governments

are facing increased debt, slower economic growth, significant swings in employment

rates, increased consumer borrowing and an aging population and infrastructure. To

address these issues, governments are turning to other means to deliver their services.

Activities such as downsizing the civil service, restructuring programs, downloading

programs to other levels of government and off-loading programs to the private sector will

likely create new transactions, and a number of austerity measures may be inevitable for

some.

4. These issues can affect the future direction and agenda-setting exercise of PSAB.

Characteristics of public sector entities

5. Public sector entities are different in purpose and operations from private sector enterprises.

Three main characteristics follow:

(a) Broad public accountability — Legislators and councils are democratically elected to

administer resources and provide services on behalf of the general public. The

legislators and councils provide governments with resources necessary to meet the

legislative programs and other objectives. Because governments are given the right to

tax as a primary source of revenue for the delivery of public goods and services, they

are accountable to the legislators and councils for their performance in accordance with

the legislative policy directions provided to them. In turn, because the legislators and

councils set those policies and directives, and are representatives of the public, the

elected officials are also publicly accountable.

(b) Multiple objectives — Businesses exist for the primary purpose of generating returns on

shareholder/owner investments. Public sector entities exist to provide public services

that enhance or maintain the wellbeing of the general public. For example, they exist to

establish our legal system, provide national defense, and social welfare and healthcare.


In addition, governments are responsible for redistributing wealth by allocating

resources among various jurisdictions. They are also responsible for establishing fiscal

and monetary policies affecting the economic environment.

(c) Fiscal frameworks — Legislators and councils establish operating and financial

frameworks that guide the operations and activities of their respective government.

These frameworks are generally set out in a budget that is made widely available to the

public and enacted with law. They act as a fundamental tool for financial management

and control. Budgets serve to assist legislators and councils with a basis for assessing

the performance of the government. However, the fiscal frameworks are different

among the various jurisdictions.

6. PSAB must be sensitive to and take into consideration these and other key characteristics

of public sector entities.

Compliance with the law, volatility and complex standards

7. In some jurisdictions, requirements to balance the budget and maintain or reduce overall

debt level targets have been affected through legislative requirements. The current

economic issues facing governments will inevitably strain elected and appointed officials to

meet these objectives. There is a risk that governments may enter into uneconomical

decisions because of a need not to exceed these established limits.

8. Unexpected events and changes in the valuation of assets and liabilities are typically out of

the scope of the approved budget. Accounting for actual transactions and events can result

in undesired volatility in annual results and create difficulties with actual to budget

comparisons. These unexpected events and changes can upset a government’s ability to

meet budgetary and debt targets, and make explaining the actual results more difficult.

Nevertheless, given the types of transactions that are being entered into by public sector

entities, there is increasing importance on the use of fair value measurements in the public

sector.

9. Governments are large, very complex entities with many different types of transactions.

Developing standards necessarily becomes more complex to reflect the inherent

complexities of governments. Given this complexity, PSAB needs to consider the

implementation issues that result from its standards, in particular, the timing.

10. The effort to prepare financial statements in accordance with independent accounting

standards, while at the same time respecting the law and dealing with volatility, needs to be

considered in the directional development of the standards and the overall acceptance of

them. This situation can create a dynamic tension within the overall environment within

which PSAB operates. A tension among the elected officials, appointed officials, auditors

of their financial statements and the standard setter, can be created as a result of the

differences between accrual-based financial information and the existing legislative

requirements, and a desire to avoid volatility in reported annual results.

11. PSAB must continually balance these issues with its independence.


Performance is more than just financial statements

12. Governments’ role is to provide public goods and services such as defense, health and

welfare services, education, and potable water to its citizens. A key factor in assessing the

performance of a government, in addition to whether a government balanced its budget or

generated a surplus or deficit, is how well it provided those services.

13. Furthermore, users need information to assess the long-term sustainability of a

government’s existing programs given demographic changes and fewer taxpayers. As a

result, it is important to continually assess government’s ability to generate revenue.

Assessing past trends in and future implications of economic forecasts, existing

government policies, demographics and the taxpayers’ ability to pay becomes paramount

for assessing long-term sustainability.

14. Information of this type cannot be provided by financial statements. Other vehicles for

providing this information are necessary. While governments do provide information about

these issues, there is a need to address them on a national basis. Establishing a framework

for preparing this type of information would improve comparability and consistency.

15. To that end, PSAB has approved a project proposal to develop a research report on long-

term fiscal sustainability further contributing to this area.

Stakeholder relations

16. PSAB has had good success setting standards and having them accepted. This is evidenced

by the extent to which the federal, provincial, territorial and local governments have

adopted them. The federal and provincial governments are sovereign and voluntarily

comply with PSAB’s standards. The territories operate under the influence of the federal

government and also comply. Local governments have been required by their respective

provinces through legislation or regulation to follow the standards issued by PSAB.

17. However, transaction and standards complexity, international trends and the economics of

our times are leading to challenges with the adoption of our standards. In addition, certain

standards can create challenges when they have a significant effect on debts and deficits.

As well, as personnel change, there is no collective “corporate” memory of the past, and

the successes achieved along the way are lost among the various stakeholders.

18. Improving communications with stakeholders, and providing additional information about

the standards and their effects, can assist in stakeholder awareness of the need for and

benefit of such standards.

19. This has a direct effect on PSAB’s efforts in terms of the nature and extent of its

communications activities.

Principle-based accrual standards

20. PSAB takes a principle-based approach to standard setting that sets out basic principles to

be applied in various circumstances. This is contrasted with a rules-based approach that

provides specific guidance on a number of different transactions and events.


21. The advantage of using a principle-based approach is that it creates discussions around the

issue at hand and should provide for a better result by having more people involved. It

encourages consultation and debate among the affected stakeholders. However, it can lead

to initial differences in interpretation and implementation. Without specific guidance,

coupled with the fact that personnel change regularly, there can be differing views as to

how to apply the principle. Differing views can add a degree of tension in the system as

preparers and auditors look to the standard setter for additional guidance, or even

application advice in their particular circumstances. A degree of tension can also exist

when governments seek out advice from private sector auditors on issues normally dealt

with by the auditors’ general.

22. Some users find that a cash-based or modified accrual-based system is somewhat easier to

understand than an accrual-based system. Accrual accounting is important as it accounts for

the economic effects of decisions being made on cash in the future in the period they occur

rather than when payment is made or received. It strives to attribute revenues to the period

it is earned rather than when cash is received as well as the costs of using resources to the

period of their use. Accrual accounting more faithfully represents the effects of decision

making and for demonstrating accountability.

23. Providing clear application guidance in the standard itself, and preparing various

documents to support the standards such as basis for conclusions documents and effects

analysis, can increase the level of understanding of and the need for accrual-based

standards.

24. PSAB must provide explanatory information as to the need for and benefits of accrual-

based standards and their effects in its documents for comment.

Technology

25. Increasingly, the use of the internet and its various tools provide lots of information for the

public to consume. This has given rise to demands for more timely information, such as

quarterly reporting, but it also means that there can be a risk of incorrect conclusions.

While the availability of information on the internet provides lots of resources (social

media, for example), the information is unfiltered and brings into question the integrity of

the data itself.

26. This can lead to many organized, or otherwise, groups monitoring government and auditor

performance and the standards they use. This can create biased commentary. From one

perspective, the public’s use of the internet can be a welcomed event, in that it raises

awareness of the issues at hand. Alternatively, it places pressure on the governments,

auditors and the standard setter to report in a way that promotes understanding by focusing

on the critical few factors that need to be understood.

27. PSAB will use its website as a primary source of information for external stakeholders

using techniques to assist web browsers in locating official documents.


Multiple financial reporting frameworks

28. When governments prepare financial statements for their entire “economic” entity, they are

prepared using the CICA Public Sector Accounting (PSA) Handbook. However, as a result

of legacy issues, there are a number of government organizations who use accounting

frameworks other than the PSA Handbook. This directly affects how an organization’s

financial position and annual results are determined. For example, an organization may

report using not-for-profit standards. When a government consolidates that entity, the

organization’s financial position and results can change. This is due to the fact that the PSA

Handbook differs from not-for-profit standards in a number of instances. This creates

consolidation issues, and is a challenge when measuring financial position and performance

of the individual organization consistently.

29. Inconsistent reporting of financial position and results promotes confusion and reduces the

usefulness of those financial statements. Users responsible for assessing the performance of

various government organizations, and those holding these organizations accountable, are

receiving different messages as to their overall financial performance. It also has a direct

effect on assessing budget-to-actual comparisons and compliance with the law.

30. PSAB’s efforts to consolidate the various sources of accounting principles in the public

sector can alleviate this issue to a large degree.

Maintaining independence

31. Comparatively, PSAB has made significant progress over its short life. Its success has

been based on the credibility of its process and the quality of its standards. This would not

have happened without the support of the stakeholders involved in the standard-setting

process, the volunteers that have contributed to PSAB’s work over the years, and the

support staff who provide the Board and task forces with the analytics necessary to support

sound decision making.

32. This has resulted in Canada being recognized as a world leader in public sector financial

reporting and in increased acceptance of the standards themselves.

33. Remaining independent is an important quality in our Board members. They are volunteers

who have their own career responsibilities. However, given the extent of our due process,

recognizing the soundness of and practicality in the development of our standards are

ongoing considerations.

34. Maintaining adherence to PSAB’s due process and involving those directly affected,

promotes high-quality, practical and useful standards.

International accounting standards

35. To facilitate the global flow of invested capital, there have been significant resources used

for creating a single set of high-quality accounting standards for the private sector.

Worldwide reporting on a consistent and comparable basis by public companies provides

better information to investors and other creditors for their decision making.


36. An argument can be made that governments around the world should do the same. While

they are not share-ownership-based, they do command a large portion of the bond market.

Investors in these instruments could benefit from governments using the same set of

accounting and financial reporting standards.

37. The International Public Sector Accounting Standards Board (IPSASB) is responsible for

setting accounting and other standards globally for the public sector, and it is gaining

acceptance. Australia has indicated a medium-term goal to adopt International Public

Sector Accounting Standards (IPSASs). New Zealand has recently decided to adopt

IPSASs for fiscal periods beginning on or after July 1, 2014. The European Union

countries may follow, as the European Commission issued a consultation paper on the

suitability of the IPSASs for European Union member states in mid-February 2012. The

sovereign debt crisis in Europe has heightened the importance of sound and transparent

financial reporting in the public sector and the need to consider adopting IPSASs.

38. Those responsible for public sector financial reporting globally continue to hold the

Canadian public sector financial reporting in high regard given the progress that has been

made.

39. To this end, PSAB will continue to maintain a presence in domestic standard setting but

continue to share its experiences and influence the development of public sector accounting

standards by IPSASB.

2013 – 2016 strategies

40. Outcomes represent what is desired to be different or improved in the future. Given limited

resources, strategies establish priorities and guide those things needed to be done to reach

those outcomes. PSAB has three desired outcomes that it wishes to attain over time:

(a) The public sector produces comprehensive, high-quality comparable financial

statements.

(b) The public sector produces comprehensive, high-quality comparable financial and non-

financial performance reports.

(c) Stakeholders accept the CICA Public Sector Accounting (PSA) Handbook and other

guidance issued as the primary source for public sector reporting guidance.

41. The Board’s role is to establish high-quality accounting standards and other guidance that

can be used in the preparation of these reports. High-quality standards and other guidance

result from:

(a) an independent standard-setting body;

(b) qualified staff whose time is devoted to the standard-setting process;

(c) having an adequate due process in place;


(d) standards that are unambiguous, well understood, meet the cost/benefit constraint and

founded on an internally consistent conceptual framework; and

(e) the standard setter being subject to independent oversight.

42. PSAB cannot require sovereign governments or their organizations to comply with its

standards. Local governments and their organizations comply by virtue of governing

provincial legislation. However, the provinces have the ability to change those

requirements, so acceptance is important.

43. Attaining the desired outcomes is outside of the direct control of, but can be influenced by,

PSAB. The resources available to PSAB are determined by budgetary constraints of the

Canadian Institute of Chartered Accountants, the ability of the volunteers to meet and

address issues, and its stakeholders’ capacity for change. PSAB can control the quality of

its standards and its communications activities to keep stakeholders informed and to

improve their understanding of the standards themselves.

44. This plan sets out the strategies to be untaken over the planning horizon to move toward

those outcomes given available resources.

Objective to be met

To have a conceptual framework that is widely accepted and used for the development of

standards.

Finalize the conceptual framework

45. This strategy is intended to address the characteristics of public sector entities, compliance

with the law, volatility, the practical implementation issues relating to standards, and the

issue that performance in the public sector is more than just financial statements.

46. Prior to PSAB finalizing its 2010-2013 Strategic Plan, the senior government finance

community expressed concern with the existing framework as it was creating differences

between existing fiscal frameworks and introducing volatility in annual results. The Board

noted that determining how to measure financial performance was at the root of the issues

being raised and approved a project proposal in December of that same year. By the spring

of 2011, a task force was recruited and work began.

47. Given the potential effects of revising the existing framework to promote a better

understanding of the need for a framework and to develop a framework that suits the

Canadian public sector, the task force was convinced of the need for consultation beyond

PSAB’s normal due process procedures. A plan was presented to and approved by PSAB

allowing a task force, for the first time, to issue documents publicly without PSAB’s prior

approval. The purpose of this approach is to gather information necessary to assist the task

force in developing a framework for PSAB’s consideration.

48. By the end of PSAB’s 2012 – 2013 fiscal year, two task force consultation papers will have

been issued and responses analyzed. The issues raised in the responses will form the basis


of a statement of principles to be approved by PSAB. Subsequently, responses on that

document will form the basis of a draft framework that will guide all future standard setting

by PSAB and be used by preparers and auditors to address any issues not specifically dealt

with in the PSA Handbook.

49. The framework will be developed based on the characteristics of public sector entities in

Canada. It will also attempt to bridge the differences that currently exist between the fiscal

frameworks of governments and determining financial performance using an accrual-based

measurement model. The project will also be dealing with how the effects of volatility that

arises from certain types of events can be best presented in financial statements.

50. This strategy recognizes the need to understand and establish the information that key

stakeholders need when making decisions. At the same time, it will consider how public

sector financial reports can add value to that decision making and promote accountability.

51. Because of the potential effects this project will have on existing standards and their future

development, it is imperative that PSAB concentrate on and complete its efforts on this

project.

Objective to be met

To have an informed community of stakeholders who understand and accept the due process for

developing standards.

Improve consultation with and information for stakeholders

52. This strategy is to address improving stakeholder relations, the difficulty with principle-

based accrual standards and the issues surfacing with technology.

53. Developing high-quality accounting standards depends on having an open due process to

identify issues and further the understanding of the standard-setting board. The nature and

abilities of the federal and provincial governments require that PSAB consistently seeks

their input in the development of those standards and other guidance. As an important

stakeholder, it is important that PSAB listens to and fosters relationships with those

governments.

54. PSAB needs to foster stakeholder input in its due process and encourage their participation

as task force and board members. PSAB needs such input as without participation in the

process, it becomes difficult to ensure that all stakeholder issues have been raised and

considered by the Board. To further provide stakeholders with an opportunity to be heard,

stakeholders will be encouraged to make use of the resources available through the new

Discussion Group established recently by PSAB. This Group provides a forum where

stakeholders can publicly raise issues and have them discussed by a volunteer panel of

experts.

55. A summary of matters considered by the Discussion Group will be issued following each

meeting. The Group’s Chair will explain the matters discussed and provide advice to


PSAB. PSAB will retain the prerogative to decide whether and how to respond to each

specific matter. It is not in the group’s mandate to issue interpretations or guidance. Within

a year of the group’s initial meeting, PSAB will review the group’s operations and assess

its value. In the meantime, PSAB will continue to inform AcSOC and seek its advice on

how better to inform and consult with stakeholders.

56. Recently, a number of government organizations have transitioned into the PSA Handbook.

Their awareness of PSAB and their understanding of the differences in the accounting

requirements from what they were used to is increasing. However, PSAB needs to keep a

close watch on implementation issues as well as build relationships with those

organizations. Further, PSAB needs to provide them with support as they continue to move

through the transition and come to use the enhanced information available to them by

following the PSA Handbook.

57. While PSAB will continue its normal outreach activities with the provincial accounting

associations, it will focus its efforts on ensuring that the ministries of finance and

government organizations are provided the support they need to develop and adopt

standards. It will encourage their increased participation in PSAB’s due process.

58. As set out in PSAB’s due process document, a number of documents are required to be

issued to support standards development. Issues papers and basis for conclusions

documents are two such documents. Issues papers and basis for conclusions documents set

out the rationale behind PSAB’s decisions and how it has dealt with the issues raised by

respondents. As a further improvement, PSAB will begin to include in its documents an

“effects analysis”. Finally, PSAB will provide implementation guidance, where

appropriate, to assist organizations in adopting new standards.

59. These documents will be written to assist those unfamiliar with accrual-based

measurements and explain why having such a standard in place is important.

60. These documents will also contribute to the information that is currently available on our

website.

Objective to be met

To have one financial reporting framework used by all entities who apply the public sector

Handbook.

Complete the transition of government not-for-profit organizations

61. This strategy will limit the number of multiple financial reporting frameworks currently in

use in the public sector. As it stands today, a government organization can use either the

International Financial Reporting Standards (IFRSs) in Part I of the CICA Handbook –

Accounting, the PSA Handbook, or the PSA Handbook with the not-for-profit standards

contained in the PSA Handbook.


62. Over the life of the last Strategic Plan, PSAB provided direction to government business

enterprises (similar in objectives to private sector enterprises) to follow Part I of the CICA

Handbook – Accounting. Other government organizations were given a choice between

Part I and the PSA Handbook. That left government not-for-profit organizations to be dealt

with. This strategy will complete the initiative to limit the multiple frameworks in use by

public sector entities.

63. The AcSB develops generally accepted accounting principles (GAAP) for private sector

not-for-profit organizations. PSAB establishes GAAP for government not-for-profit

organizations. Prior to 2012, PSAB directed these government organizations to follow the

not-for-profit standards in the CICA Handbook – Accounting or the “4400 series” of

standards which are now set out in Part III of that Handbook.

64. Commencing in 2012, private sector not-for-profit organizations are required to adopt

either IFRSs (Part I of the CICA Handbook – Accounting) or accounting standards for not-

for-profit organizations (Part III). Part III would be used in conjunction with accounting

standards for private enterprises (Part II or the reference standards). PSAB was of the view

that government organizations using Part III should be using the PSA Handbook as their

reference standards rather than Part II.

65. As an interim step, and to ease the transition of these organizations, PSAB introduced the

4400 series (renamed as the “PS 4200 series”) into the PSA Handbook with some minor

changes. Commencing in 2012, government not-for-profit organizations are required to

adopt the PSA Handbook, either with or without the standards specific to not-for-profit

organizations (i.e., Sections PS 4200 to PS 4270).

66. However, in the private sector, Part III is conceptually different from Part II, in some cases.

In the public sector, the PS 4200 series suffers from the same issue as it does not align with

the PSA Handbook concepts, in some cases. To resolve the issue, the AcSB and PSAB

established a Joint Not-for-Profit Task Force to improve the accounting standards for future

reporting by not-for-profit organizations in both the private and public sectors.

67. The objective is to ensure that the government not-for-profit accounting standards are

aligned with the related reference standards — or the PSA Handbook. Aligning these

standards will improve the ability of users to compare these organizations’ financial

position and results with other similar organizations in the public sector.

68. PSAB’s long-term intent is to have these organizations use the PSA Handbook without the

PS 4200 series. At that point in time, there would be no need to define a not-for-profit

organization or have a PS 4200 series of standards.

69. Once the transition has been completed, there will be two frameworks that a government

organization could apply: Part I of the CICA Handbook – Accounting for publicly

accountable enterprises; or the PSA Handbook. Part I would generally apply to those

government organizations that have similar objectives to private sector enterprises and the

balance of the government organizations would fall under one framework. This has the


advantage of having all similar types of organizations reporting on the same basis and

limiting the number of consolidation adjustments that would need to be made.

Objective to be met

Stakeholders are engaged in the development of our standards.

Issue standards and other guidance in accordance with due process procedures

70. This strategy will, in part, deal with the issues of maintaining the Board’s independence in

standard setting.

71. Due process is vital for gathering comments and concerns about proposals on new

standards. It is also important for maintaining PSAB’s independence. While acceptance is

important, and every effort is made to develop consensus around a particular issue, it

should not be the sole driver of the final standard.

72. Due process will ensure all interested stakeholders have been given an opportunity to input

into the development of the standard and that the issues that have been raised are addressed

after due consideration. Because not all stakeholders hold the same view, reaching

consensus on certain issues can be difficult. Nevertheless, PSAB must remain independent

from all of its stakeholders, including the preparers and auditors of public sector entity

financial statements.

73. Because due process includes issuing supporting documentation, these documents should

provide interested stakeholders with the reasons for and positions taken in a new standard.

74. In addition, PSAB will continue to report to AcSOC on compliance with due process

procedures. As the oversight body, AcSOC remains very interested in serving the public

interest. One way they monitor PSAB’s performance in this regard is for PSAB to

demonstrate to them compliance with due process.

75. This strategy ensures that PSAB follows the procedures set out in its publicly available due

process document.

Objective to be met

The Canadian public sector is engaged in and influences standards development by the

International Public Sector Accounting Standards Board.

While not having a convergence strategy, PSAB will continue to maintain a Canadian public

sector standard-setting capability while contributing to and influencing the work of the

International Public Sector Accounting Standards Board

76. This strategy reiterates that PSAB will remain the standard setter for the public sector in

Canada. It acknowledges the contribution that Canada can make by participating in and

influencing IPSASB.


77. In the past, a number of PSAB’s key stakeholders have indicated continuing support for

Canada to have a strong national standard-setting capability. For example, a working group

comprised in part by representatives of the various ministries of finance encouraged PSAB

to develop a “made in Canada” solution to the conceptual framework.

78. Others have indicated that the Canadian public sector should follow the AcSB’s lead and

adopt an internationally accepted set of public sector standards.

79. The Board remains convinced that it is necessary to maintain a Canadian standard-setting

capability and it will remain as the standard setter until future events would indicate

otherwise. However, the Board also remains convinced that it is important to influence the

development of international public sector accounting standards.

80. To that end, PSAB will continue to encourage Canadian governments to respond to

documents issued for comment by IPSASB, and PSAB will contribute to the development

of those standards by briefing the Canadian delegates, assisting in the development of the

standards and responding to their documents for comment.

81. The finalization of IPSASB’s conceptual framework will be a major milestone in public

sector financial reporting. PSAB needs to keep very close to this project and contribute to

its development by sharing its experience and knowledge with IPSASB.

Objective to be met

PSAB is aware of new developments in accounting and financial reporting.

Monitor developments in reporting both domestically and internationally

82. As PSAB will remain a Canadian presence in standard setting, keeping informed of

developments both domestically and internationally is an important strategy and function of its

standard setting. PSAB needs to be kept aware of these developments to determine whether it

should react to new and emerging issues and developments in accounting procedures.

83. PSAB staff regularly review the budgets, public accounts and audit reports of the federal

and provincial governments. A selected number of local governments are also included.

More recently, a number of government organizations have been added to the list. PSAB

will receive regular reports on these organizations from the perspective of compliance with

new standards, the effects of adopting new standards and for other issue identification.

84. This strategy will also ensure that PSAB receives regular reports on the work efforts of

standard setters such as the Accounting Standards Board in Canada, the International

Accounting Standards Board, IPSASB, and the Federal Accounting Standards Advisory

Board and the Governmental Accounting Standards Board (state and local governments) in

the United States.

85. PSAB must also keep a special watch on the developments of IPSASB’s conceptual

framework within the timeframe of PSAB’s 2013 – 2016 Strategic Plan. IPSASB has

issued documents on all phases of the conceptual framework and is expecting to publish the

final framework around 2015.


Risks facing PSAB

86. Some may not agree with the direction taken in the conceptual framework project.

87. Standard setting is not risk free. While PSAB follows an extensive due process, the

resulting standard may not be widely accepted by all stakeholders. For example:

(a) Some may not believe that the standard addresses their concerns.

(b) Some may not understand the standard.

(c) Others may understand the standard but not know how to deal with the effects of it.

88. PSAB publishes issues papers and basis for conclusion documents throughout the due

process and when finalizing a standard. The purpose of these documents is to set out the

rationale for why PSAB took the direction it did. In some cases, PSAB may take a different

approach than that set out by some responses. This may lead to a conclusion that PSAB did

not address their concerns.

89. In the past, these explanatory documents were issued by the staff. PSAB changed its

approach and these documents are now required to be approved by the Board. This will

help ensure that adequate explanations of the choices made by PSAB are provided.

90. Every effort is made to ensure that stakeholders are informed of the proposals and

understand the final standard. Face-to-face meetings are held as well as country-wide

presentations and webcasts. Based on the results of our recent stakeholder survey, PSAB

has committed to providing more webcasts increasing the opportunities for those who

cannot attend the various presentations offered. It is hoped that these webcasts will reach

out to more people and placing on the website will allow individuals ongoing access to

them.

91. Understanding the effects of a standard may not be known until the standard is

implemented. PSAB has done two things to help mitigate this issue: providing an effect

analysis which will be developed throughout the due process; and post-implementation

reviews to determine whether stakeholders are having issues related to the standards

implementation. In addition, PSAB’s Statements of Principles includes a section on why

the proposed standard is needed.

92. Developing a conceptual framework can be challenging as it will have broad and long-

lasting effects on standard setting. It will have a direct effect on determining the financial

position and financial performance of an entity. It is important for PSAB to ensure that all

stakeholders have opportunity to comment and express their views. Further, it is important

that stakeholders are kept informed and given opportunities to voice their concerns and

issues. PSAB’s communications will include reaching out to stakeholders throughout the

framework’s development and subsequently through web casts, face-to-face meetings and

presentations.


Standards fatigue

93. In the recent past, increased activity in the public sector resulted from changes made to

private sector standards that were in place prior to the AcSB setting standards for different

organizational types (i.e., what is now set out as pre-changeover standards in Part V of the

CICA Handbook – Accounting). As a result, a significant effort had to be undertaken by

government organizations to transition from Part V to either International Financial

Reporting Standards in Part I of that Handbook or the CICA Public Sector Accounting

(PSA) Handbook.

94. A good number of government organizations were affected by these changes and the

deadline for completing these changes was relatively tight. In addition, a number of new

public sector accounting standards had been issued requiring immediate attention. These

changes resulted in what some call “standards fatigue”.

95. The Board is concerned about and acknowledges the burden placed on various

governments and their organizations caused by the significant changes that have occurred.

PSAB also acknowledges that additional time is needed for stakeholders to provide

comments on proposed new standards. As a result, PSAB has changed its policy relating to

the length of comment periods.

96. PSAB will also make an increased effort to understand and be sensitive to the

implementation issues relating to new standards. To assist, PSAB will include an “effects

analysis” in its due process documents, allow respondents to provide comments in this

regard, and lengthen the effective date of new standards to ease some of the burden.

Conclusion

97. The past four years have been busy, with transition by many government organizations into

the CICA Public Sector Accounting (PSA) Handbook as well as some significant new

standards that have been put in place. During the period covered by this plan, the Board

will undertake a review of those government organizations other than the not-for-profit

government organizations. Many of them transitioned by January 1, 2011 or by January 1,

2012 and the information will be available to complete such a review during the 2013 –

2016 planning period.

98. Over the next three years, the Board anticipates:

(a) completing its Canadian conceptual framework;

(b) improving consultation with a view to increasing its awareness of implementation

issues;

(c) having one framework for entities that follow the PSA Handbook;

(d) increasing stakeholders’ participation in the development of final standards; and

(e) influencing the work of the International Public Sector Accounting Standards Board

and its conceptual framework.


Appendix —Development of national public sector standards

1. In Canada, public services such as defense, health, welfare, education, transportation,

electricity and water purification and distribution are provided by three levels of

government: the federal government, provincial/territorial governments, and local

governments. Each level of government delivers services through a wide variety of

organizational structures and types.

2. The federal and provincial governments receive their responsibilities and powers through

the Constitution Act. Territorial governments have no constitutional recognition but have

similar powers and responsibilities and operate under greater federal government influence.

Local governments are established by provincial governments and are responsible for those

powers and responsibilities delegated to them.

3. Regardless of the level of government, those responsibilities include the provision of public

services and the power to raise revenues to fund those services through taxation or other

charges or fees. Because of these public responsibilities and the ability to tax for them,

there is a need for governments and their organizations to publicly demonstrate their

accountability for the resources and financial affairs for which they are responsible.

4. A fundamental part of that accountability is issuing financial statements. All sovereign,

territorial and local governments issue financial statements commonly required by law.

Historically, the accounting standards used by the federal, provincial and territorial

governments were determined by the governments themselves. The accounting standards

used by local government accounting standards were typically determined by their

respective province or territory.

5. A number of government organizations, such as public utilities, who were also required to

issue financial statements, applied the accounting standards contained in the CICA

Handbook – Accounting. That Handbook was the only authoritative source of accounting

standards in Canada at the time and made comparisons with similar private sector

organizations easier. However, these standards were designed to address the issues of a

profit-oriented entity. Many government organizations exist to provide services rather than

to generate a profit.

6. While governments were demonstrating their accountability by issuing financial

statements, these statements were being prepared using the government’s own accounting

policies or, in the case of local governments, the provincially regulated standards.

7. As a result of these practices, financial statements among similar jurisdictions, and from

one level of government to another, were inconsistent and incomparable. Because

accounting standards were being established by individual governments, there was no

national approach to financial reporting, making comparisons among governments difficult

and, in some instances, making comparisons between two periods difficult even within the

same government.


8. In the summer of 1975, the Joint Steering Committee of the Canadian Institute of Chartered

Accountants (CICA) established a task force to study the issue and whether the Institute

might contribute to the development of public sector accounting and financial reporting

standards on a national basis.

9. In March 1976, the task force recommended, as a first step, the creation of a study group to,

among other things, catalogue existing practices in accounting and financial reporting of

the federal and provincial governments. On receipt of the task force report, the then

president of the CICA wrote to the responsible ministers of each government advising them

of the proposal and asking whether they believed such an initiative would be worthwhile.

All 11 governments (federal and provincial) favoured the idea and a study group was

formed. The findings of the Study Group were published in 1980 as a research study,

“Financial Reporting by Governments.”

10. Fundamental to the development of public sector standards was to identify the

characteristics of government operations. The role of government in providing services and

the ability to tax, for example, have a number of implications for understanding a

government’s financial position and results of operations. It was mainly that determination

which led PSAB to conclude that governments differ from profit-oriented enterprises and

the issues facing them were not necessarily dealt with in private sector standards. While

understanding annual results was just as useful as it is in the private sector, there was more

to assessing a government’s financial performance than just measuring profit or loss.

11. Armed with the findings of the study, and after consultation with the governments affected,

PSAB was formed in 1981.

Documents

2013-05 Draft Strategic Plan