British Columbia Budget 2002 |
The Budget Transparency and Accountability Amendment Act, 2001 requires government to fully implement generally accepted accounting principles (GAAP) by April 1, 2004.
The Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants provides clarification and guidance with respect to the application of GAAP to senior governments in Canada. In practice, there are areas where PSAB recommendations are under review, or where application is varied among provincial governments.
British Columbia's financial statements and reports comply with PSAB/GAAP in all material ways with the following exceptions:
PSAB recommends that the government reporting entity include all organizations that are accountable for the administration of their financial affairs and resources either to a minister of the government or directly to the legislature and are owned or controlled by the government. An organization's governance structure is a significant factor in the determination of that organization's inclusion or exclusion.
Government's financial statements do not include school districts, universities and institutes, colleges (and other advanced education institutions), and health authorities (SUCH). The Auditor General has qualified his opinion on the government's audited Summary Financial Statements for a number of years arguing that, in his opinion, these entities meet the criteria for inclusion.
In the recent past, the government's bottom line would typically have improved slightly if these entities had been included. In 2000/01 the improvement would have been $98 million.
Inclusion of SUCH in the 2000/01 government entity would have also added some $5.3 billion worth of assets and $2.4 billion worth of liabilities to the government's financial statements.
PSAB recommends that governments write off amounts paid to organizations such as school districts and health authorities, to build or acquire capital assets such as schools, hospitals and diagnostic equipment, in the year in which they are paid.
The province records these payments as assets and amortizes them over the life of the underlying assets. The Auditor General supported adoption of this accounting treatment.
The 2000/01 Public Accounts includes approximately $6.9 billion in cumulative prepaid capital advances. In the same year the government paid some $750 million in capital advances and recorded approximately $360 million in related amortization expense.
Complying with PSAB would have resulted in the full write off of the advances and the reversal of the amortization expense — a net reduction in the bottom line of about $390 million.
Complying with PSAB would have also required the government to write off the cumulative amount of prepaid capital advances. If the SUCH sector was included in the reporting entity, most of the prepaid capital advances would be replaced by SUCH sector assets.
PSAB currently recommends that governments fully write off tangible capital assets such as buildings, equipment, and highways in the year in which they are acquired or built.
The government uses private sector accounting practices for tangible capital assets — the assets are recorded on the balance sheet and written off (amortized) over their useful life. The Auditor General supports this accounting treatment. The 2000/01 Public Accounts includes approximately $11 billion in cumulative tangible capital assets.
In 2000/01 the government acquired some $1.2 billion in tangible capital assets and recorded approximately $500 million in amortization expense. Complying with PSAB would have resulted in the full write off of the acquired assets and the reversal of the amortization expense — a net deterioration in the operating statement bottom line of about $700 million.
There are many significant policy and implementation issues that will have to be resolved as government moves toward fully adopting PSAB recommendations. One of the most challenging is the definition of the government reporting entity. PSAB has established a task force to review the current recommendations and, accordingly, changes may be made in the not too distant future.
PSAB is also reviewing its recommendations with respect to capitalization of tangible capital assets. Future changes may be forthcoming in this area as well.
The government has established an accounting policy advisory committee to provide advice to Treasury Board on the full implementation of PSAB/GAAP. At least two members of the committee must be from a recognized professional accounting body, but employees of the government reporting entity and members of the Legislative Assembly may not be on the committee.
In addition, the Office of the Comptroller General will be working with Treasury Board Staff, ministries, Crown corporations and other organizations such as school districts, health authorities, universities and colleges to develop strategies for implementing PSAB recommendations.
Since the government is required to fully adopt GAAP/PSAB recommendations by 2004/05, the three-year fiscal plan includes an estimate of the bottom line impact of incorporating the SUCH sector into the government reporting entity in 2004/05.
The impact of fully writing off capital assets in the year in which they are acquired/built has not been factored into the fiscal plan, since the PSAB recommendations are being reviewed and may be changed to agree with the province's policies.
Fully adopting PSAB recommendations represents a significant challenge in terms of gathering information for budgets, three-year fiscal plans, quarterly reports and the Public Accounts. It will also require public agencies included in the government entity to adapt their financial reporting procedures. While presenting significant challenges, this step will maintain British Columbia at the forefront of Canadian public sector accounting practices and disclosure.