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Public sector

Webinar on the presentation of amalgamations in IPSAS 40

Mar 15, 2018

On March 15, 2018, the International Public Sector Accounting Standards Board (IPSASB) released a video intended to help users understand the requirements regarding amalgamations in IPSAS 40, "Public Sector Combinations", which IPSASB released in February 2017. The Standard applies from January 1, 2019 with earlier adoption encouraged.

IPSAS 40 uses the modified pooling of interests method of accounting for amalgamations. Because this approach does not require comparative figures to be restated, the presentation requirements may be different from other versions of the pooling of interests method that entities have used previously.

View the short video (11 minutes) on the IPSASB's website.

Employment Benefits Discount Rate: Any Case for a Current Rate?

Feb 05, 2018

On February 5, 2018, the Public Sector Accounting Board (PSAB) published an article about the debate on whether a current rate, an average rate or a projected rate would be appropriate for the discount rate used in determining benefit obligation.

Employees of U.S. nuclear power firm Westinghouse Electric Co. got a surprise recently. The Pension Benefit Guaranty Corp. (PBGC), a U.S. government agency that insures certain U.S. private employer pension plans, had estimated that the Westinghouse pension plan was under-funded by US$937 million.

The news came as a shock because the plan had been considered fully funded in its most recent report, filed with the U.S. Department of Labor in 2015. This shortfall is massive, given that the plan had US$926 million in assets. However, the shortfall did not arise from mismanagement, fraud or aggressive plan investment strategy. Instead, it was due to the different discount rates used by the company and the PBGC.

The Westinghouse example, however, demonstrated the implications of using an average rate versus a current market rate in estimating benefit obligation, and the implications of using different lengths of period for the average rate.

Review the full article in PSAB's website.

IPSASB proposes strategy and work plan for 2019-2023

Feb 02, 2018

On February 2, 2018, the International Public Sector Accounting Standards Board (IPSASB) proposed a new strategy and work plan for 2019 through 2023. Comments are requested by June 15, 2018.

The strategic objective of the IPSASB is stated as strengthening public financial management through increasing adoption of the International Public Sector Accounting Standards (IPSAS). The IPSASB intends to deliver this objective through developing IPSAS and other high-quality financial reporting guidance for the public sector and raising awareness of IPSAS and the benefits of accrual adoption.

To develop standards on critical areas in public sector accounting, the IPSASB proposes to take on three new major public sector specific projects:

  • accounting for natural resources,
  • discount rates, and
  • differential reporting.  

The IPSASB will also continue to strive to maintain convergence with International Financial Reporting Standards (IFRSs).

Review the proposed strategy and work plan and supporting material on the IPSASB's website.

IPSASB issues exposure draft proposing new requirements for lease accounting

Jan 31, 2018

On January 31, 2018, the International Public Sector Accounting Standards Board (IPSASB) published Exposure Draft 64 "Leases". The draft proposes new requirements for lease accounting covering both lessors and lessees to replace IPSAS 13 "Leases". Comments are requested by June 30, 2018.

The IPSASB proposes a single right-of-use model for lease accounting that will replace the risk and rewards incidental to ownership model in IPSAS 13.

For lessees, the ED proposes to adopt the right-of-use model in IFRS 16, Leases.

However, the ED proposes a departure from IFRS 16's requirements for lessor accounting. As converging with the requirements for lessors under IFRS 16 would “give rise to a number of public sector specific issues”, the IPSASB also proposes a right-of-use model for lessor accounting specifically designed for public sector financial reporting.

Proposals for new public sector specific guidance on concessionary leases for both lessors and lessees are also contained in the exposure draft.

Review the press release and exposure draft are available on the IPSASB's website.

Employment Benefits Discount Rate: Anything Wrong with Expected Return on Plan Assets?

Jan 04, 2018

On January 4, 2018, the Public Sector Accounting Board (PSAB) published an article about the debate on whether the expected return on plan assets, commonly used in the public sector in discounting obligations for funded benefit plans, is an appropriate discount rate for determining benefit obligation.

A recent stock contribution made by Boeing to its pension plan illustrates the debate over using the expected return on plan assets as the discount rate in determining employment benefit obligation.

The PSAB is considering the appropriate discount rate guidance that should be provided in its employment benefits standard. The expected return on plan assets is usually used in calculating the obligation of fully or partially funded benefit plans in the public sector.

Review the full article on the PSAB's website.

PSAB In Brief – Invitation to Comment, Employment Benefits: Discount Rate Guidance in Section PS 3250

Nov 30, 2017

On November 30, 2017, the Public Sector Accounting Board (PSAB) published this In Brief, which provides a plain and simple overview of the Invitation to Comment, Employment Benefits: Discount Rate Guidance in Section PS 3250. It also presents background information about PSAB’s Employment Benefits project.

Review the publication on the PSAB's website.

Invitation to Comment – Employment Benefits: Discount Rate Guidance in Section PS 3250

Nov 29, 2017

On November 29, 2017, the Public Sector Accounting Board (PSAB) issued an Invitation to Comment to seek stakeholder input before forming its preliminary views on the discount rate guidance provisions in the employment benefits standards. Stakeholders are encouraged to submit their responses by March 9, 2018.

The main features of this Invitation to Comment are as follows:

  • Section PS 3250 does not provide specific guidance on which discount rate should be used to estimate accrued benefit obligation.
  • In practice, the expected return on plan assets is usually used to determine the present value of the accrued benefit obligation of benefit plans that are fully or partially funded. The entity’s cost of borrowing is usually used to determine the present value of the accrued benefit obligation of benefit plans that are unfunded.
  • PSAB needs to consider if the discount rate guidance in Section PS 3250 is sufficient and whether the two discount rate bases commonly used in the public sector are appropriate and provide useful information for accountability purposes.
  • Benefit obligation is often incurred years before benefit payments are due. Reporting accrued benefit obligation at each reporting date requires applying a discount rate to the best estimate of future benefit payments to determine a single amount that represents its present value.
  • Understanding the role of discount rate in present value measurement including the time value of money concept may help evaluate alternative discount rate approaches and develop appropriate discount rate guidance.
  • Alternative discount rates may be based on the following, reflecting a current, an average or a projected rate:
    • expected return on plan assets;
    • expected return of an effective hedge portfolio;
    • market yields of high-quality debt instruments;
    • market yields of risk-free debt instruments;
    • the entity’s cost of borrowing; or
    • the effective settlement rate
  • Determining the appropriate discount rate for accounting purpose should be based on the financial reporting concepts set out in the conceptual framework, including:
    • the objectives of financial statements;
    • benefit versus cost constraint; and
    • the qualitative characteristics of useful financial information such as relevance, reliability, comparability and understandability. 

Review the Invitation to Comment in the PSAB's website.

New Project – PSAB to Review its International Strategy

Nov 10, 2017

On November 10, 2017, as part of its 2017-2020 Strategic Plan, the Public Sector Accounting Board (PSAB) approved a new project that may change the role the Board plays in setting standards in Canada.

Preliminarily, the Board has identified four options it could apply:

  • continue to apply Public Sector Accounting Standards as enacted;
  • develop future Public Sector Accounting Standards based on International Public Sector Accounting Standards;
  • apply International Public Sector Accounting Standards by exception; or
  • apply International Public Sector Accounting Standards as issued by the International Public Sector Accounting Standards Board.

The PSAB expects to release a Concultation Paper in the second quarter of 2018.

Review the new project on the PSAB's website.

Is there a right way to measure the time value of money?

Nov 09, 2017

On November 9, 2017, CPA Canada released an article on how the choice of discount rate could have significant effects on the benefit obligation reported.

Employment benefit obligations are often incurred years before benefit payments are due. Many would agree that the benefit obligation reported in the financial statements should reflect the present value of the estimated future benefit payments at the reporting date. However, there is widespread disagreement about which discount rate would best reflect the time value of money in determining the benefit obligation.

Read this article to learn about the debate on which discount rate would best reflect the time value of money in determining the benefit obligation.

IPSASB issues revised cash basis IPSAS

Nov 08, 2017

On November 8, 2017, the International Public Sector Accounting Standards Board (IPSASB) released "Financial Reporting under the Cash Basis of Accounting".

The IPSASB's current cash basis standard was published in January 2003. It establishes requirements for the preparation and presentation of a statement of cash receipts and payments and supporting accounting policy notes. It also includes encouraged disclosures that enhance the cash basis report.

In an exposure draft published in February 2016, the IPSASB proposed to revise certain requirements and to recast them as encouragements. The draft also proposed amendments to ensure that the existing requirements and encouragements of the standard are better aligned with the equivalent accrual IPSAS, unless there is a reason to deviate as a result of adopting the cash basis of accounting.

These proposals have now been finalized and the preparation of consolidated financial statements, the disclosure of information about external and other assistance, and the disclosure of information about payments made by third parties are now voluntary and not longer mandatory.

The new IPSAS takes effect on January 1, 2019, with earlier adoption encouraged.

Review the press release and the new IPSAS on the IPSASB's website.

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