Inclusion of SUCH in Government's Budget and Reporting
The Public Sector Accounting Board (PSAB) of the Canadian
Institute of Chartered Accountants (CICA) establishes generally
accepted accounting principles (GAAP) for senior governments.
As a key component of the government's election commitments,
the Budget Transparency and Accountability Act requires
all financial documents produced by the province under that
legislation to fully comply with GAAP by 2004/05. Financial
documents produced by the province include the Estimates,
Budget and Three Year Fiscal Plan, Quarterly Reports
and Public Accounts. As well, the move to full GAAP
addresses the recommendations of the Office of the Auditor
Previous exceptions to GAAP on British Columbia's financial
- The definition of the government reporting entity (the
province did not include school districts, universities,
colleges and institutes, and health-care organizations (SUCH);
- The use of prepaid capital advances to provide capital
funding to the SUCH organizations.
Budget 2004 addresses both of these exceptions by expanding
the government reporting entity to fully include the SUCH
sector, which in turn, effectively removes prepaid capital
advances from the assets of government.
Generally Accepted Accounting Principles for Senior
GAAP guidance is subject to change. At this time there are
a number of PSAB initiatives that could result in future changes
to GAAP for senior governments.
One of these initiatives involves a review of the method
of accounting for SUCH organizations. Current guidance requires
any SUCH organizations that are included in the government
reporting entity to be consolidated on a line-by-line basis
(adding assets, liabilities, revenues and expenses to those
of government). PSAB is currently reviewing this guidance
to determine if modified equity accounting (adding an entity's
net income to the government's bottom line) might be more
In accordance with current guidance, the SUCH sector has
been consolidated on a line-by-line basis. However, the government
will continue to monitor the accounting practices of other
provinces and the recommendations of PSAB to ensure that the
most appropriate accounting treatment is applied.
Other initiatives currently underway include a review of
when government transfers, in particular revenues and expenses
associated with capital grants and multi-year funding arrangements,
should be recognized in a government's budget and financial
Comparison with other Provinces
Currently, British Columbia is the only province within Canada
to legislate adherence to GAAP in the preparation of its financial
Although all senior governments generally follow GAAP in
the preparation of their Public Accounts, the application
of GAAP across provinces is inconsistent. This is due to the
fact that GAAP guidelines are principle based rather than
rule based, and therefore, in many instances, professional
judgment is required to interpret and apply the guidelines.
As noted in Table 1, most other provincial governments
do not include the entire SUCH sector in their reporting entity.
Accounting Policy Advisory Committee
To assist the province in moving to full compliance with
GAAP, the province established an Accounting Policy Advisory
Committee. The Committee is comprised of professional accountants
independent of government, and its role is to advise Treasury
Board on the implementation of GAAP. The Committee's advice
has been sought in areas where the implementation of GAAP
requires significant professional judgment – such as
the determination of the government reporting entity.
Expanding the Government Reporting Entity
The decision to include the SUCH sector in the government
reporting entity was a complex undertaking. In making this
determination, the government followed the PSAB criteria for
determining inclusion, which is based on whether or not an
entity is controlled (or not controlled) by government.
The PSAB criteria clearly show that school districts, colleges
and institutes, and health care organizations are controlled
by government and should therefore be included in the government
Although the PSAB control indicators make a strong case for
the exclusion of universities, the Auditor General has indicated
that universities should be included in the government reporting
entity, as he believes that the government controls the financial
affairs and resources of the public universities in the province.
In recognition of the Auditor General's opinion, these organizations
have been included in the government reporting entity. However,
government will continue to monitor this issue and, in particular,
the treatment of universities by other provinces under the
new PSAB reporting entity criteria.
Financial Impact of the SUCH Sector
Expanding the government reporting entity to include SUCH
organizations requires full consolidation of the financial
results of those organizations into government's budget and
As noted in Chart 1 and Table 2, the inclusion
of the SUCH sector in recent years would have resulted in
a positive impact on government's bottom line and is forecast
to have a positive effect for the next three fiscal years.
The noticeable decline in 2003/04 relates to a $51 million
expense by the health authorities to address their share of
the current year portion of the $260 million unfunded
liability associated with the Healthcare Benefits Trust. It
is assumed that the health authorities will treat the remaining
liability as a prior year adjustment.
The assets, liabilities and debt of the SUCH sector are included
in government's statement of financial position.
Overall, the SUCH sector receives a significant amount of
its revenues from provincial sources in the form of operating
grants. Non-provincial revenue sources include contributions
from the federal and municipal governments as well as own-source
revenue, such as fees and licences.
Spending by the SUCH sector reflects the costs incurred to
deliver health and education programs on behalf of the province,
in keeping with statutory obligations as well as for other
In accordance with GAAP requirements, a number of adjustments
have been made to the forecast amounts provided by SUCH organizations
in arriving at the impact of including these organizations
in the government reporting entity. Adjustments typically
involve entries to adjust accounting policies of the organization
to a basis consistent with the accounting policies of the
government. Appendix Table A9 provides the net operating
impact of the SUCH sector both before and after adjustments.
The province also provides annual capital grant funding to
SUCH organizations towards the acquisition of capital infrastructure
and equipment. This funding is provided through a prepaid
capital advance. Upon consolidation, this advance is eliminated
and replaced by the capital assets of the SUCH organizations.
Capital assets for these organizations are funded through
both provincial and non-provincial sources.
Although the assets of the SUCH sector are reflected on government's
balance sheet, some of the assets owned by these organizations
have external restrictions on their use and therefore cannot
be used to meet government's general obligations. Examples
include endowment funds of post-secondary institutions, and
assets owned by denominational hospitals that are used in
the delivery of provincial health care services.
As noted in Table 2, the addition of SUCH sector debt
to government's balance sheet increases taxpayer-supported
debt. This debt is used primarily to finance the construction
of post-secondary institutions, hospitals and long-term care
facilities. Chart 2 illustrates the impact of the additional
debt on taxpayer-supported debt to GDP ratios.
In many cases, methods employed by SUCH organizations in
tracking employees are incompatible with how government monitors
its staffing levels. For this reason, SUCH employees are not
included in government's annual staff utilization (FTEs).
Implementation of SUCH – Budget Integration
and Confirmation Process
Identifying responsibilities and procedures for the developing
and reporting of financial plans by the SUCH organizations
required significant effort on the part of staff from the
various government ministries and the SUCH organizations.
Chart 3 outlines the budget integration and confirmation
process used to collect the information contained in this
year's budget documents.
Inclusion of the SUCH sector in government budget documents
will require closer coordination of government and SUCH organization
financial processes and timelines in order to facilitate a
streamlined process. The initial years of the new consolidated
budgeting and forecasting process inevitably presents some
challenges, however the process should improve as both government
and the SUCH organizations gain experience.
Successful conversion to GAAP would not have been possible
without the co-operation and support of staff in the school
districts, universities, colleges and institutes, health-care
organizations and participating ministries.