Accounting Standards: Government Transfers & Presentation to fmi*igf Fredericton Chapter January 16, 2014

Transcription

1 Public Sector Accounting Standards: Government Transfers & Financial Instruments Presentation to fmi*igf Fredericton Chapter January 16, 2014

2 KPMG Who we are KPMG Canada employs 5,000 people in 34 offices across Canada In Atlantic Canada 5 offices (Halifax, Fredericton, Saint John, Moncton and St. John s) KPMG audits 40 percent of the public sector in Canada according to Report on Business ( RoB ) public 1000, RoB Private 350 and Financial Post 800 lists, 2012 Have only member on PSAB practicing in public accounting (Andrew Newman) 1

3 Agenda New Standards Government transfers What is the Impact Financial i Instruments t Overview of impact Future Direction Contaminated Sites Summary 2

4 Public Sector Accounting Standards New Standards and Application date Topic Effective Date years commencing on or after Tax Revenue April 1, 2012 Government Transfers April 1, 2012 Liability for Contaminated Sites April 1, 2014 Financial instruments* For entities who previously applied Foreign Currency Translation* Part V of CICA Handbook, Financial Statement Presentation* Accounting - April 1, 2012 Portfolio Investments* (*must (mustbe adopted together) For other entities April 1,

5 Government Transfers Government Transfers PS 3410 has changed effective for years commencing on or after April 1, 2012 Early adoption is encouraged The new standards may be applied retroactively or prospectively Transfers include monetary assets and tangible capital assets PS 3410 applies to transfers that are non-exchange transactions Transfers are recognized when they are authorized, a defined term, which differs for the transferor and the transferee 4

6 Government Transfers Key liability characteristics: Embody a duty or responsibility to others, leaving a government little or no discretion to avoid settlement of the obligation Entails settlement by future transfer or use of assets, provision of goods or services, or other form of economic settlement at a specified or determinable date, on occurrence of a specified event, or on demand The transactions or events obligating the government have already occurred Liabilities can be legal, constructive or equitable. 5

7 Government Transfers Authorized: Transferring Government: By financial statement date, transfer has received final approval by legislature or council and exercise of related authority has occurred or Transferor is demonstrably committed to the transfer and final approval of the related legislation, regulation or by-laws occurs in the period before the financial statement are completed Recipient Government: By financial statement date, transfer has received final approval by legislature or council and exercise of related authority has occurred 6

8 Government Transfers Eligibility Criteria that specify who qualifies to receive a transfer and/or the actions necessary to quality for the transfer - must be met to qualify for a transfer May include Characteristics of recipient Incurred eligible expenditures Specific actions of the recipient 7

9 Government Transfers Stipulations Terms imposed by a transferring government regarding the use of the transferred resources or terms that must be performed to keep a transfer Must be met after a transfer is provided Effect how the transfer is recognized in revenue 8

10 GNPO PSA Government Transfers (cont d) Constructive and Equitable Obligations Significant professional judgment required to determine if the entity has little or no discretion Must consider whether the entity has created a valid expectation among others and, as a result, has no realistic alternative but to settle its obligation. Preponderance of evidence: The entity acknowledges and indicates it will act upon its decision to accept responsibility for the obligation; and The entity has sufficiently communicated its decision to the affected parties. 9

11 Government Transfers Issue Transferor Approach Recognize expense when authorized and eligibility criteria, if any, have been met by the recipient Recipient Revenue in the period transfer is authorized and eligibility -Operating and Capital criteria, if any, have been met by the recipient, except when and to the extent that the transfer gives rise to a liability under PS 3200 Capital: Recognition in revenue when a liability is recognized Recognize in revenue when, and in proportion to how, the liability is settled Capital: Recognition in revenue when a liability is NOT recognized Recognize in revenue 10

12 Government Transfers Appendix A to section PS

13 Financial Instruments / Foreign Currency Translation / Financial Statement Presentation Financial Instruments / Foreign Currency Translation / Financial Statement Presentation Must be applied at the same time Financial Statement Presentation changes related to the statement of remeasurement gains and losses to be presented in a separate statement Effective Date Effective years commencing on or after April 1, 2012 for government organizations who previously applied Part V of the CICA Handbook Accounting, including the related Financial Instruments Section Effective for years commencing on or after April 1, 2015 for all other organizations including governments, subject to review by December 31, 2013 Early adoption is permitted 12

14 Financial Instruments Measurement/Recognition Principles New Section PS 3450 Financial Instruments Investments in equities that are traded in an active market are measured at fair value, with changes recognized in operations All other financial instruments are carried at cost or amortized cost Option to record any financial instrument at fair value Irrevocable election on initial recognition Any investments t where managing and reporting performance for a group of financial assets, financial liabilities, or both on a fair value basis 13

15 Financial Instruments Measurement/Recognition Principles derivatives Derivatives continue to be measured at fair value Hedge accounting is not permitted Contracts must be reviewed for embedded derivatives Option to value full contract t with embedded d derivative at fair value rather than separately account for the derivative features 14

16 Financial Instruments Transaction costs Capitalize transaction costs for instruments carried at cost or amortized cost Expense transaction costs for instruments carried at fair value Effective Interest method Interest t should be measured using the effective interest t method Timing of recognition Purchase and sale of investments should be recorded using the trade-date; not the settlement date 15

17 Financial Instruments Disclosure Disclose information that enables users of the financial statements to evaluate the significance of financial instruments Disclose carrying amounts, either on the statement of financial position or notes for: Financial assets / liabilities measured at amortized cost Financial assets / liabilities measured at fair value Investments in equities measured at cost less impairment 16

18 Financial Instruments Disclosure (cont d): Items of income include: Net gains or net losses recognized on financial instruments Total interest income Total interest t expense Risks and uncertainties: For each significant risk arising from financial instruments, disclose the exposures to risk, how they arise and any change in risk exposures from the previous period 17

19 Financial Instruments Financial Statement Presentation Statement of Remeasurement gains and losses Exchange gains/losses yet to be settled Fair value remeasurements on investments and derivatives Also applies to GNPOs who elect to apply

20 Financial Instruments Financial Statement Presentation Statement of Remeasurement gains and losses For the year ended March 31 ($ millions) 20X2 20X1 Accumulated remeasurement gains and losses at beginning of year Unrealized gains (losses) attributable to: $10 $ 5 Derivatives xx xx Portfolio investments xx xx Foreign exchange xx xx Amounts reclassified to the statement of operations: Derivatives xx xx Portfolio investments t xx xx Foreign exchange xx xx Net remeasurement gains and losses for the year Xx xx Accumulated remeasurement gains and losses at the end of the year $( 10) $ 10 19

21 Foreign Currency PS 2601 Current rate would be used Gains/losses yet to be settled (i.e. remeasurement gains and losses) presented in a separate statement 20

22 Conversion Challenges Financial Instruments Will require some system changes in order to track down gains and losses that will be required to be recycled in income. Set-up of internal controls for the process of determining the fair value. Hedge of a long-term position with a series of short-term derivatives. The total t of gains and losses accumulated for years will instantly tl be recognized in income on settlement. All the volatility saved during the life of the instruments will be recognized in one moment. Changes in derivatives will be recognized on the balance sheet without the corresponding changes be recognized on long-term debt. 21

23 Conversion Challenges Financial Instruments Sinking Funds Repurchase of Government issued debt in sinking fund. Will be an extinguishment and required to follow rules as though extinguished regardless of intent. Will impact annual results. 22

24 Exposure drafts and Application date Topic Effective Date years commencing on or after Related Party Transactions April 1, 2016 Amendments to the Introduction Undetermined 23

25 Contaminated Sites The purpose of PS 3260 is to establish standards on how to account for and report a liability associated with the remediation of contaminated sites Effective for fiscal periods beginning on or after April 1, Earlier adoption is encouraged This section: Defines which activities would be included in a liability for remediation; Establishes when to recognize and how to measure a liability for remediation; and Provides the related financial statement presentation and disclosure requirements 24

26 Contaminated Sites (continued) A liability normally results from the following: All or part of an operation inside government that is no longer in productive use All or part of an operation outside government that is no longer in productive use where the government has accepted responsibility for it Change to environmental standards relating to an asset which is not in productive use Unexpected event resulting in a contaminated site 25

27 Contaminated Sites (continued) A liability for remediation of contaminated sites should be recognized when, as at the financial reporting date: (a) (b) (c) (d) (e) an environmental standard exists; contamination exceeds the environmental standard; the government: (i) is directly responsible; or (ii) accepts responsibility; it is expected that future economic benefits will be given up; and a reasonable estimate of the amount can be made. An obligation for remediation of contaminated sites cannot be recognized as a liability unless all criteria above are satisfied 26

28 Questions?

29 Thank you Carey Blair, CA Partner, Audit T: (902)

30 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ) ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International