Use of Appropriations

September 2012
exposure draft
This Exposure Draft is issued by the Public Sector
Accounting Board. The members of the Board are drawn
from government, legislative auditors, public accounting,
business and academe. All members serve as individuals and
not as representatives of their governments, employers or
organizations.
Individuals, governments and organizations are invited to
send written comments to the Board on the Exposure Draft
proposals. Comments are requested from those who agree
with the Exposure Draft as well as from those who do not.
All comments received will be available on the website at
www.psab-ccsp.ca shortly after the comment deadline, unless
confidentiality is requested. The request for confidentiality
must be stated explicitly within the response.
To be considered, comments must be received by November 28,
2012, addressed to:
Tim Beauchamp, Director
Public Sector Accounting
277 Wellington Street West
Toronto, Ontario M5V 3H2
A PDF response form has been posted with this document to
assist you in submitting your comments. Alternatively, you
may send comments by e-mail (in Word format), to:
ed.psector@cica.ca
Public Sector Accounting Standards, Guidelines and Recommended
Practices need not be applied to immaterial items. Materiality is a matter
of professional judgment in the particular circumstances. Materiality
may be judged in relation to the reasonable prospect of its significance
in the making of assessments and judgments by the users of financial
statements. A material item would be expected to affect assessments
of and judgments on government financial operations and management.
PUBLIC SECTOR ACCOUNTING BOARD
PROPOSED ACCOUNTING STANDARDS
COMMENTS MUST BE RECEIVED BY
NOVEMBER 28 2012
USE OF APPROPRATONS i
Highlights
The Public Sector Accounting Board (PSAB) proposes, subject to comments
received following exposure, to issue a new Section, USE OF APPROPRIATIONS. This
Section would apply to government organizations that, for purposes of their financial
reporting, adhere to the standards in the CICA Public Sector Accounting Handbook
and that directly access funding from the consolidated revenue fund or its equivalent
under the authority of appropriations. For local governments, the equivalent of an
appropriation is an approved annual budget.
The following documents accompany this Exposure Draft:
An issues analysis that summarizes PSABs considerations by providing
background information and discussing alternatives evaluated.
A plain language document that explains the proposals in non-technical
language.
Main features of the Exposure Draft
The main features of the Exposure Draft are as follows:
Public sector entities receiving actual transfers of resources would apply
GOVERNMENT TRANSFERS, Section 3410.
The use of appropriations would be recognized when an appropriation, supply
act or other legislation authorizes an entity to spend resources, and the reporting
entity has an eligible transaction or event under that authority.
The use of appropriations should be separately identified in financial statements.
The use of appropriations can be reported in either:
the statement of operations when determining the operating surplus or deficit
for the period; or
the reconciliation to the closing accumulated operating surplus or deficit.
Implications of the proposals
Providing an option may result in inconsistent reporting of similar transactions
depending on whether the reporting entity is within or outside the scope of this
Section. Entities within the scope of the proposed section may exclude the
effect of the use of appropriations from operations and report it directly in the
reconciliation of accumulated surplus or deficit. Government organizations who
apply GOVERNMENT TRANSFERS, Section PS 3410, would recognize the transfer in
the statement of operations.
Comments requested
PSAB welcomes comments from individuals, governments and organizations on all
aspects of the Exposure Draft.
When comments have been prepared as a result of a consultative process within an
organization, it is helpful to identify generically the source of the comment in the
response. This will promote understanding of how the proposals are affecting various
aspects of an organization.
Comments are most helpful if they relate to a specific principle, paragraph or group
of paragraphs and, when expressing disagreement, they clearly explain the problem
and indicate a suggestion, supported by specific reasoning, for alternative wording.
ii EXPOSURE DRAFT SEPTEMBER 2012
Supporting reasons for your comments are most valuable when they demonstrate
how the Exposure Draft proposals, or your alternatives:
produce more relevant information for accountability and decision-making by
external users;
improve the representation of the substance of the underlying transaction or event;
contribute to improved measures and understanding of financial position and
annual results;
facilitate enhanced comparability; and
provide sufficient information for external users to understand the financial
statements.
Please respond to the following question:
1. Do you agree with the reporting alternatives set out in paragraph .09?
For your convenience, a PDF response form has been posted with this document. You
can save the form both during and after completion for future reference. You are not
restricted by the size of the interactive comment fields in the response form and there
is also a general comments section.
Alternatively, you may send written comments by email in Word format to:
ed.psector@cica.ca
USE OF APPROPRATONS 1
USE OF APPROPRIATIONS
TABLE OF CONTENTS
PARAGRAPH
Purpose and scope ............................................................................ .01-.05
Recognition ......................................................................................... .06-.07
Presentation ........................................................................................ .08-.11
Disclosures ......................................................................................... .12-.15
Transitional provisions ...................................................................... .16
PURPOSE AND SCOPE
.01 This Section establishes standards on how to account for and report the use of
appropriations. For local governments, the equivalent of an appropriation is an
approved annual budget.
02. Appropriation is the term used to describe the funding provided to a public
sector entity by a legislature or council. Appropriations allow a legislature or
council to control finances and represent one aspect of how the legislature or
council holds public sector entities accountable. They are the legal authority for
a public sector entity to spend a designated amount for an approved purpose.
The authority can be for operating, capital, financing or investing transactions
or events. Once approved, appropriations become the governing conditions
under which a public sector entity can access funding.
03. An appropriation can be:
(a) an actual transfer of resources made directly to a public sector entity, such
as those provided to a separate corporation; or
(b) the authority to directly access funding from the consolidated revenue fund
or its equivalent by a public sector entity, such as government department.
04. This Section applies to those public sector entities that :
(a) directly access funding under the authority of appropriations; and
(b) prepare general purpose financial statements.
05. This Section does not apply to public sector entities that:
(a) receive actual transfers of resources, as they would apply GOVERNMENT
TRANSFERS, Section PS 3410; or
(b) adhere to the standards applicable to publicly accountable enterprises in
Part I of the CICA Handbook Accounting.
RECOGNITION
.06 The use of appropriations should be recognized in the financial statements
when:
(a) the enabling authority is in effect; and
(b) an eligible transaction has occurred.
.07 An entity recognizes the use of appropriations when it has been authorized by
an appropriation, supply act or other legislation, and the entity has entered into
eligible transactions or events set out in the governing conditions under the
enabling legislation. When the legislation or practice of the jurisdiction is such
2 EXPOSURE DRAFT SEPTEMBER 2012
that the authority under the appropriation lapses at the end of the fiscal period,
a receivable would not be recognized.
PRESENTATION
.08 The use of appropriations should be separately reported in the financial
statements.
.09 The use of appropriations would be reported in either:
(a) the statement of operations when determining the operating surplus or
deficit for the period; or
(b) the reconciliation to the closing accumulated operating surplus or deficit.
.10 Separately reporting the use of appropriations highlights the extent to which a
public sector entity is reliant on them to fund its activities. Any appropriations
payable or receivable would be separately reported on the statement of
financial position. In addition, the format of the cash flow statement may need
to be modified.
.11 This Section is not intended to indicate preferred formats or to prescribe
standardized presentation or note disclosure. Variations in format, ordering or
terminology may be necessary to best reflect differing circumstances.
DISCLOSURES
.12 Financial statements should disclose a reconciliation between the use of
appropriations and the amounts authorized.
.13 This disclosure is important accountability information that helps users assess
whether the resources and financial affairs of the entity were administered in
accordance with legislative authorities.
.14 Appropriations may be prepared on a different basis of accounting than
that adopted for financial statements. Accordingly, the results of operations
reported in financial statements may differ from the amounts authorized in
the enabling authority. To assist users identify differences between amounts
reported and amounts funded, notes or supplementary schedules could also
provide a reconciliation of amounts recognized in the financial statements to
actual amounts funded.
.15 It may be appropriate to disclose information about transactions that occurred
for which an appropriation was not recognized because the recognition criteria
were not met at the end of the fiscal period. For example, notes could include
information about expenditures for which an appropriation will be approved in
the subsequent period.
TRANSITIONAL PROVISIONS
.16 This Section applies to fiscal years beginning on or after April 1, 2015. Earlier
adoption is permitted.