Why PSAB matters

Full and fair financial reporting is necessary to discharge a government’s accountability.

While it might seem obvious when we are reminded, it is easy to forget that our government gets its resources from the public — not from voluntary equity investors or the profitable sale of goods and services like companies do. Governments and their organizations are different as they do not exist to generate profit but to provide public goods and services.

As a result, full and fair financial reporting is necessary to discharge a government’s accountability. It enables us to assess the effect that debt, other liabilities and commitments would have on taxes, other revenue and essential programs. This also enables the public and legislature to make assessments about future revenue requirements and taxpayers’ ability to pay as well as ongoing program sustainability.

Full and fair financial reporting is accomplished through independently set accounting standards. In the absence of these standards, diversity and incomparability is inevitable. To meet the public interest, accounting information must report economic activity as faithfully to the truth as possible — without colouring the image it communicates. Biased, incomplete and confusing presentation can result in mistrust of the information reported.

However, credibility can be established when standards are created by a body that isn’t subject to direct influence by a particular person or group — and especially no direct influence from those having to apply standards for the purposes of discharging accountability.

Standards to the rescue

All governments in Canada have accepted the accounting standards issued by the Public Sector Accounting Board (PSAB).

Starting in the 1990s, improved accounting standards provided information to governments about the extent of their liabilities. And as evidenced today, this boded well for Canada as a whole; we are placed in a position of reasonable financial flexibility compared with others.

The public and our policy-makers have a vested interest in government financial affairs, the resources they hold and the liabilities and other commitments they enter into. There is a real need for financial information that helps determine a government’s management and use of resources — especially in terms of its use in compliance with established budgetary, legislative and other controls.

In Canada, according to think-tank Fraser Institute, tax freedom day in 2014 was June 9. Of course this date varies depending on the provincial and municipal jurisdictions. But after accounting for all taxes — income, property, sales and other taxes — the average Canadian family (with two or more people) will pay more than $43,000 in total taxes or 43.5% of its annual income.

There is no bigger investment you will make than what you pay in taxes and all deficits run by governments will ultimately be paid by the taxpayer. From this perspective, the public needs information to assist it in understanding the decisions and choices made by the government.

Setting the stage for discharging this accountability requires the government to provide financial and other information to make those choices and decisions apparent, which PSAB’s standards support. These standards are designed to serve the public’s interest as well as improve information for decision-making. And that is why PSAB matters.

Read more about PSAB at frascanada.ca/PSAB.