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Public sector

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.

IPSASB Exposure Draft – Social Benefits

Oct 31, 2017

On October 31, 2017, the International Public Sector Accounting Standards Board (IPSASB) issued Exposure Draft 63, "Social Benefits", which defines social benefits and proposes requirements for recognition, measurement and disclosure of social benefit schemes. Canadian stakeholders are encouraged to provide their comments to IPSASB by March 31, 2018.

These proposals aim to improve consistency, transparency, and reporting by public sector entities of social benefit schemes, which account for a large portion of government expenditure in most jurisdictions.

Review the press release and Exposure Draft on the IPSASB's website.

PSAB In Brief – Statement of Principles: Public Private Partnerships

Sep 28, 2017

On September 28, 2017, the Public Sector Accounting Board (PSAB) released the new In Brief resource that provides a plain and simple overview on technical topics. The inaugural In Brief gives an overview of the key principles developed in PSAB’s recently released Statement of Principles, Public Private Partnerships.

Review the publication on the PSAB's website.

IPSASB Consultation Paper – Accounting for Revenue and Non-exchange Expenses

Aug 31, 2017

In August 2017, the International Public Sector Accounting Standards Board (IPSASB) issued a Consultation Paper that discusses various recognition approaches, implementation and measurement issues for revenue and non-exchange expenses. Canadian stakeholders are encouraged to provide their comments to IPSASB by January 15, 2018.

Review the Consultation Paper on the IPSASB's website.

IPSASB publishes financial instruments ED based on IFRS 9

Aug 24, 2017

On August 24, 2017, the International Public Sector Accounting Standards Board (IPSASB) published an exposure draft (ED) to improve public sector reporting on financial instruments.

ED 62 Financial Instruments is based on IFRS 9, Financial Instruments and is intended to replace IPSAS 29 Financial Instruments: Recognition and Measurement, which is based on IAS 39. The new standard will introduce simplified classification and measurement requirements for financial assets, a forward looking impairment model, and a flexible hedge accounting model. Consistent with the relief provided in IFRS 9, the IPSASB proposes to allow an option for entities to continue to apply the IPSAS 29 hedging requirements.

The IPSASB applied its process for reviewing and modifying IASB documents to the requirements in IFRS 9 with the aim of keeping public sector requirements as closely as possible in line with IFRS while also including appropriate public sector specific modifications where necessary. Therefore, ED 62 includes public sector specific guidance on financial guarantees issued through non-exchange transactions and concessionary loans and examples illustrating how to apply the principles in ED 62 to transactions that are unique to the public sector.

In view of the significant changes proposed, the IPSASB intends to provide a three year implementation period for the new standard. Early adoption will be permitted.

Comments are requested by December 31, 2017.

Review the press release on the IPSASB's website. The IPSASB's consultation page offers access to the ED and comprehensive background material, including a comparison between the requirements in IFRS 9 and those in ED 62.

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