Working in the public interest: Increasing accountability in public sector financial statements

Financial statements can be used as a tool for holding public sector entities accountable for the use of taxpayer and ratepayer dollars. Because of this, financial statements need to provide information meaningful for accountability purposes.

The Public Sector Accounting Board (PSAB) serves the public interest by establishing financial reporting standards for the public sector in Canada. PSAB’s project to revise the public sector conceptual framework and reporting model proposes amendments to financial statement information that would make it more meaningful by increasing its accountability value.

Improving the reporting model

Financial statement information is meaningful when presented in an understandable and transparent manner. In its Statement of Principles, A Revised Reporting Model for the Canadian Public Sector, PSAB proposes changes that promote greater understandability and transparency to increase the accountability value of information in the financial statements to the public.

Creating greater understandability

With the public interest in mind, PSAB proposes the following changes to the financial statements:

  • Relocate the net debt indicator to its own statement from the statement of financial position, so it can be better explained to the public. It’s an important indicator that has some stakeholders confused.
  • Restructure the statement of financial position to have a more familiar look to the public. Some stakeholders told PSAB that it’s difficult to understand the current structure of the statement because it focuses on calculating net debt.
  • Remove the statement of change in net debt as a required statement, as it’s a reconciliation that’s not well understood.

Creating greater transparency

The actual-to-budget comparison in the financial statements is a critical aspect in holding public sector entities to account. If a public sector entity uses inconsistent accounting in preparing its budget and its audited financial statements, the public and their elected or appointed representatives cannot tell how the actual financial results compare to that planned. This lack of transparency reduces the accountability value of the financial statements.

Through its budget proposals, PSAB hopes that entities will achieve greater transparency in their actual-to-budget comparisons. The budget proposals include:

  • A requirement that the budget amounts on the financial statements be presented using the same basis of accounting, following the same accounting principles, for the same scope of activities, and using the same classifications as the actual amounts.
  • A requirement to explain that the actual-to-budget comparison cannot be done when the scope of activities in the budget is not the same as the scope of activities in the financial statement results (i.e., if not all controlled entities are included in the budget).

What do you think?

The journey towards improved information in financial statements is a collaborative effort that needs the contribution of all stakeholders.

PSAB wants to know if you agree with:

  • the revised financial statements
  • its budget proposals.

Let us know what you think by November 28, 2018, by responding to PSAB’s Statement of Principles, “A Revised Reporting Model for the Canadian Public Sector

To learn more about these and other proposals, register for the webinar “Explore PSAB’s Statement of Principles for a Revised Reporting Model” on October 17, 2018 (available on demand afterwards).

Contact

Antonella Risi, CPA, CA
Principal, Public Sector Accounting
Tel: (416) 204-3484
Email: arisi@psabcanada.ca

Martha Jones Denning, CPA, CA
Principal, Public Sector Accounting
Tel: (416) 204-3288
Email: mjonesdenning@psabcanada.ca