Reviewing PSAB s Approach to International Public Sector Accounting Standards

Transcription

1 CONSULTATION PAPER Reviewing PSAB s Approach to International Public Sector Accounting Standards May 2018 COMMENTS TO PSAB MUST BE RECEIVED BY September 28, 2018

2 Highlights The Public Sector Accounting Board (PSAB) was created to serve the public interest by establishing accounting standards for the public sector. PSAB s approach has been to maintain a Canadian standardsetting capability while contributing to and influencing the work of the International Public Sector Accounting Standards Board (IPSASB). To that end, PSAB: encouraged Canadian public sector entities to respond to IPSASB s documents for comment; and contributed to the development of those standards by assisting in the development of the International Public Sector Accounting Standards (IPSAS) by responding to IPSASB documents for comment and briefing the Canadian members of IPSASB. In its Strategic Plan, PSAB signalled its intent to develop and communicate options in relation to its approach to IPSAS. The purpose of this Consultation Paper is to: make stakeholders aware of the process PSAB will follow in evaluating the international strategy that best serves the public sector; introduce stakeholders to the decision-making criteria the Board expects to consider in evaluating the international strategy that best serves the public sector; illustrate the application of the criteria, in bullet two above, in four unique proposals the Board believes are viable international strategies available in the public sector context; raise stakeholder awareness of the criteria the Board will consider in its decision making process in determining an appropriate option for its future international strategy; and solicit stakeholder input on the decision-making criteria and international options proposed. The criteria PSAB has developed to date include: 1. Canadian influence over the standard-setting process; 2. high-quality of standards; 3. transition costs; 4. international alignment; 5. due process; and 6. use of standard-setting resources. PSAB has taken a neutral approach when developing this Consultation Paper and has not decided on any particular option for its international strategy. It will make this decision only after extensive stakeholder consultation. Comments Requested PSAB welcomes comments from individuals, governments and organizations on all aspects of the Consultation Paper. At this time, PSAB is not seeking feedback on which potential option stakeholders support but rather on the criteria to be used in making its decision. Please respond to the following questions: 1. Are there additional criteria the Board should include in its business cases when evaluating the options for an appropriate international strategy for Canada? 2. Should any criteria take precedence over others? 3. Are there other significant facts that should be taken into consideration? 2 Consultation Paper May 2018

3 4. Are there additional options for the Board to consider and for which it should develop a business case? 5. Are there any other matters that should be brought to the Board s attention for consideration? An online response form, linked to this document, has been provided to assist you in submitting your comments to PSAB. Alternatively, you may send comments via (in Word format), to: info@psabcanada.ca addressed to: Michael Puskaric, MBA, CPA, CMA Director, Public Sector Accounting Public Sector Accounting Board 277 Wellington Street West Toronto ON M5V 3H2 What Is Next? PSAB intends to issue a second consultation paper in the second quarter of This second paper will take into consideration all the feedback received on this first Consultation Paper and will seek further feedback. Consultation Paper May

4 Consultation Paper: Reviewing PSAB s Approach to International Public Sector Accounting Standards Table of Contents Background and Purpose...5 PSAB s Mandate and Current International Plan...6 The Decision-Making Criteria...9 The Potential Options Conclusion Option I: Status Quo Option II: Adapt IPSAS Principles When Developing Future PSA Standards Option III: Adapt IPSASs...22 Option IV: Adopt IPSASs...26 Appendix A: GAAP Analysis (Key Differences) Appendix B: Evaluation Criteria Consultation Paper May 2018

5 Background and Purpose 1. In developing its Strategic Plan, in light of the current environment and current expectations about the future of standard setting, PSAB agreed that the time was right to review its approach to International Public Sector Accounting Standards (IPSAS). By March 2020, the Board has committed to: (a) researching the differences between Canadian Public Sector Accounting (PSA) standards and IPSAS; (b) learning about experiences of other jurisdictions that have elected to follow, partially follow or not to follow IPSAS; (c) issuing a public consultation paper to get stakeholders opinions; 1 and (d) developing options related to IPSAS that would lead to the Board s future international strategy. 2. The purpose of this Consultation Paper is to introduce stakeholders to: (a) the decision-making criteria developed to determine the international strategy that best serves the public sector; (b) four international strategies alternatives, 2 including maintaining status quo, PSAB identified for the public sector; and (c) solicit stakeholder input concerning both the criteria the Board will apply in determining an appropriate option for its future international strategy and the options identified. The Board will use this input when selecting an approach that results in developing public sector standards that will best serve the public sector. 3. The Board seeks broad-based input from users, preparers and auditors of financial statements and all other interested members of the public. Comments will assist the Board in fully considering its options, consulting with the Accounting Standards Oversight Council (AcSOC) and ultimately making an informed decision on its future strategic direction. Process and timing for PSAB s planning process 4. PSAB intends to obtain input through response to this Consultation Paper and a series of direct consultations with interested parties from June to September Process to review PSAB s approach to IPSAS 5. PSAB has developed business cases for four potential options. Each business case is assessed in the context of the evaluation criteria outlined in paragraph 25. The Board considers the evaluation criteria as key to making an evidenced-based decision determining the international strategy that will best serve Canadian stakeholders in the public sector. 6. To select an approach to IPSAS that will best serve the public interest, PSAB has decided to involve stakeholders in evaluating the selection criteria that the Board will use to form its international strategy. To this end, stakeholders are asked to read each business case and to answer these questions: (a) Are there additional criteria the Board should include in its business cases when evaluating the options for an appropriate international strategy for Canada? (b) Should any criteria take precedence over others? 1 The Strategic Plan commits PSAB to issue one consultation paper. PSAB has elected to issue a second consultation paper that will incorporate comments received from this paper. 2 Each of the four potential options would require different resources and implementation timeframes. However, resources and timeframes for implementation are outside this Consultation Paper s scope. The Board will consider implementation after it selects an approach that results in developing public sector standards that will best serve the public sector. Consultation Paper May

6 (c) Are there other significant facts that should be taken into consideration? (d) Are there additional options for the Board to consider and for which it should develop a business case? (e) Are there any other matters that should be brought to the Board s attention for consideration? 7. At this time, PSAB is not seeking feedback on which option stakeholders support. Rather, it wants to use stakeholders comments to bolster factors to consider when selecting the most appropriate option for its future international strategy. 8. Responses received from stakeholders will be incorporated into revised business cases for stakeholders to consider as part of a second consultation paper. Timing to develop PSAB s future international strategy 9. PSAB intends to obtain input through responses to this Consultation Paper as well as through a series of direct consultations with interested parties from June to September A second consultation paper will be provided to stakeholders in the second quarter of International Project Timeline March June Sept Dec March June Sept Dec March Consultation Paper 1 issued Comment period Cross-country roundtables PSADG presentations Consultation Paper 2 Issued Comment period Consultation process completed 10. Based on responses to the second consultation paper, PSAB anticipates being in a position to consult with AcSOC and make a decision on its international strategy by March PSAB s Mandate and Current International Plan 11. A general description of PSAB, its mandate and its current strategic plan are available on its website. 12. PSAB s current international strategy to influence IPSAS was established within its Terms of Reference. The need for a Canadian standard setter 13. As some of the options present significant departures from PSAB s existing approach to IPSAS, the Board also reflects on its role going forward. 14. PSAB believes maintaining an independent Canadian public sector accounting standard setter is paramount. In the event the development of PSA standards moves closer to the principles of IPSAS, as we have seen in the private sector in Canada, a national standard setter s role becomes to: (a) assess whether an international standard has any unique impact given Canada s legislative, regulatory or cultural structure; 6 Consultation Paper May 2018

7 (b) work to influence the development of international standards by providing input to the international board as it develops new standards, to ensure that the perspective of Canadian stakeholders is heard; (c) consider issues that might need addressing urgently within the Canadian context but are not high on the international agenda; and (d) consider the impact of new standards on preparers of financial statements for all public sector entities in Canada. Why review the approach to international public sector standards now 15. In 2013, when PSAB adopted its current approach to IPSAS, the IPSASB had only been developing standards since While the IPSASB had developed a comprehensive set of standards based on IFRS Standards through a robust due process and was close to completing a conceptual framework, the IPSAS were not widely applied and so were viewed by the Board as an emerging accounting framework. 16. However, since PSAB last developed its international strategy, IPSASB has matured; most notably, it completed a conceptual framework. 17. With the availability of a high-quality, globally accepted framework, and with other jurisdictions comparable to Canada adopting or adapting IPSAS, PSAB determined it was an appropriate time to evaluate whether its time and resources spent developing guidance unique to the Canadian public sector were adding an acceptable level of value. As a result, this has motivated the Board to reevaluate whether it continues to be in the public interest to pursue its current approach to IPSAS. Who is the IPSASB and what are IPSASs 18. The IPSASB is composed of 18 members representing many nations around the world, with regional representation. Members serve three-year terms with potential for one renewal. Two Board seats are currently occupied by Canadian members. North America 3 members Europe 6 Members Asia 2 Members Latin America/ Caribbean 2 Members Africa/Middle East 3 Members Australiasia/Oceania 2 Members Diagram current as of April 24, 2018 Consultation Paper May

8 19. The IPSASB s aim is to strengthen public financial management and knowledge globally through IPSAS development and adoption of accrual-based public sector accounting standards for use by governments and other public sector entities around the world. IPSASB has established an infrastructure and processes to support its ambitious work program. IPSASB has 35 accrual-based standards and one cash-based standard in place, and currently is addressing new topics of interest internationally. 20. The IPSASB develops accrual-based IPSASs to address public sector financial reporting issues in two different ways: (a) By addressing public sector financial reporting issues: (i) that have not been comprehensively or appropriately dealt with in existing IFRS Standards issued by the International Accounting Standards Board (IASB); or (ii) for which there is no related IFRS Standard; and (b) By developing IPSASs that align with IFRS Standards by adapting them to the public sector context. 21. Additionally, the IPSASB supports aligning public sector accounting standards with statistical bases of financial reporting where appropriate. IPSASB believes that: (a) unnecessary differences between Government Financial Statistics (GFS) reporting guidelines and IPSASs should be avoided; and, (b) the reduction of unnecessary differences is an important factor in the review and development of IPSASs. The IPSASB recognizes GFS reporting guidelines and IPSASs have different objectives. The different objectives result in some fundamental differences on how, what and where information is reported. In considering scope to reduce differences, the IPSASB will remain true to the objectives of financial reporting. The IPSASB s due process 22. Similar to PSAB, the IPSASB develops IPSASs following a structured due process that is open to the public. The IPSASB meets in public and all agenda materials are posted on its website. The process gives stakeholders the opportunity to express their views to the IPSASB, ensuring that their views are considered. (a) Exposure drafts for all proposed IPSASs are developed usually with input from a task-based group or project advisory panel, and are available for download from its website. Exposure drafts are sometimes preceded by consultation papers that explore the subject in detail and provide the basis for further discussion and development. All exposure drafts have finite comment periods. (b) Comments received in response to an exposure draft are considered by IPSASB members, and are publicly available on its website. If the exposure draft is changed after analysis and discussion of the responses, the IPSASB considers re-exposing the document for further review and comment. (c) IPSASB members must approve exposure drafts, re-exposure drafts and IPSASs with a twothirds affirmative vote. 23. Further information on IPSASB s due process is available on its website. 24. Independent oversight of the IPSASB is provided by the Public Interest Committee (PIC) and the Consultative Advisory Group (CAG). 3 3 Two Canadians are in the CAG. 8 Consultation Paper May 2018

9 The PIC assures that the IPSASB s standardsetting activities are in the public interest by advising on: the IPSASB s terms of reference; the arrangements for nominating and appointing IPSAB members; and the procedures and processes for formulating the IPSASB s strategy and work plan; aand for developing IPSASs. The CAG advises on numerous areas, including: the IPSASB s strategy, work program and agenda, including project priorities; the IPSASB s projects, including views on key technical issues or matters that may impede IPSAS adoption or effective implementation; and other matters relevant to the IPSASB s standard-setting activities. The Decision-Making Criteria 25. In determining the international strategy that best serves the public sector, PSAB concluded the decision should be evidence-based. In order to evaluate this evidence, the Board has developed several criteria. Use of resources Influence Due process Quality International alignment Transition costs 26. In order to make a decision that best serves the public sector, PSAB is seeking feedback on the appropriateness of the criteria. See questions (a) and (b) in paragraph 6. Consultation Paper May

10 The Potential Options 27. PSAB has committed to developing multiple potential options on its international strategy in order for stakeholders to consider which option best serves the public sector. Each of these options applies the criteria identified in paragraph 25, illustrating the application of the Board s decision-making process to each case. 28. PSAB wants to include its stakeholders in the process, ensuring all views are considered. To date, the Board has identified four potential options. But it believes that the number of options could increase or decrease over the exploratory period, which ends in March The current options identified are: (a) status quo; (b) adapt IPSAS principles when developing future PSA standards; (c) adapt IPSASs; and (d) adopt IPSASs. I II III IV Status quo Adapt IPSAS principles Adapt IPSASs Adopt IPSASs 29. These options exist along a continuum: Option I represents a continuation of the current standardsetting process while Option IV places the responsibility of standard setting with the IPSASB. Conclusion 30. This Consultation Paper presents, in a neutral manner, the business case for each potential option and the criteria PSAB will use to evaluate the potential options. The Board expects stakeholders will provide more information and elaborate on these and other criteria and potential options in a useful way. 10 Consultation Paper May 2018

11 I II III IV Status quo Adapt IPSAS principles Adapt IPSASs Adopt IPSASs Option I: Status Quo Status quo is defined as continuing the existing standard-setting process. This option maintains PSAB s role in establishing PSA standards independently from other standard setters.

12 Overview PSAB has developed a comprehensive set of PSA standards. These standards and the process applied in their development take into consideration distinct aspects of the Canadian public sector and provide financial statement users with the tools necessary to evaluate the financial decisions made by their public sector representatives. Influence 13 Breadth 38 Canadian Content 18 Transition Costs 0 Canadian board members Public sector specific standards Public sector standards with guidance for the Canadian environment As public sector entities currently apply public sector accounting standards Criteria 1: Canadian influence over the standard-setting process PSAB consists of 13 members, representing a variety of stakeholder groups across Canada. As a result, Board members are well acquainted with the issues stakeholders face. Having a Canadian Board ensures standards from the Canadian perspective are developed. This level of influence is specific to national standard setters. Another benefit to independent standard setting at the national level is that the Canadian public sector maintains influence for both the standards developed and the standard-setting process. The IPSASB is currently: exposing its strategic plan; and operating under the oversight of the Public Interest Committee and supported by the International Federation of Accountants. 4 Canada s existing standard-setting process provides the Canadian public sector with the ability to choose which strategies they wish to participate in, and which they do not. Outreach A national standard setter with Canadian members ensures the Canadian perspective influences the standard-setting process. Canadian stakeholders views are also prioritized through direct PSAB outreach. While other standards boards can communicate with their stakeholders with written communication or digital media, because the Board develops standards specifically for the Canadian context, PSAB s staff can tailor communications to stakeholders needs. 4 The Monitoring Group issued a consultation paper in November 2017, identifying several concerns specific to audit and ethics standard setting. 12 Consultation Paper May 2018

13 Training Presentations Stakeholder meetings Articles Webinars ( ) ( ) ( ) ( ) By compiling comments received directly from stakeholders and engaging stakeholders directly, Canadian views take priority when developing standards. Criteria 2: High-quality standards The Canadian public sector applies standards, giving users a broad view of an entity s financial position and financial performance. The standards are rooted in a conceptual framework that outlines general recognition, measurement and presentation principles. These standards evolve continually through improvements in guidance that are identified on an ad hoc basis or through project priority surveys. The Canadian public sector currently has 38 made-in-canada standards that are considered high quality and in the public interest: five concepts and principles standards and another 33 specific-item standards. A further seven government not-for-profit-organization (NFPO) standards exist. Four statements of recommended practices and four guidelines round out the PSA guidance. With an additional four projects under development, the set of standards provide a comprehensive picture that addresses the financial reporting requirements of a Canadian public sector financial statement user. Standards 38 Public sector specific standards NFPO 7 NFPO Standards Under Development 4 Standards under development (Asset Retirement Obligation, Revenue, Public Private Partnerships, Pensions) Canadian solutions All Canadian PSA standards are distinctly Canadian. Each standard is developed through a Canadian lens and considers transactions from the Canadian public sector perspective. This ensures financial statement users receive information designed to help them to evaluate the decisions their representatives make. A Canadian-centric board and task forces, made up of a broad crossjurisdictional representation of Canadian members, apply their knowledge and experience of financial reporting in the Canadian public sector in developing these standards. Furthermore, the robust consultation process allows stakeholders to express their views on the proposed guidance, ensuring these responses are considered in standards development. Many PSA standards are specific to the Canadian financial reporting environment to address stakeholders concerns. Consultation Paper May

14 Consistency of PSAs with IPSAS 8 Standards (21%) 19 Standards (50%) Difference/No equivalent standard Significant difference 11 Standards (29%) Based on a GAAP analysis PSAB performed, 11 of the 38 standards included in the CPA Canada Public Sector Accounting Handbook are either different 5 from IPSAS to address the financial reporting requirements of Canadian public sector stakeholders or there is no equivalent IPSAS. Eight present significant differences. 6 These differences exist due to concerns stakeholders raised. This process results in high-quality standards for Canadian stakeholders. Departing from an independent Canadian standard-setting process may result in fewer Canadian-specific concerns being addressed. Criteria 3: Transition costs As the Canadian public sector currently applies PSAB-issued standards, there are no implementation costs associated with continuing to apply them. Preparer implementation costs are a factor because adopting another set of standards could lead to significant costs associated with transition. These financial costs are incurred because of the impact analysis performed for each new standard. This analysis results in additional work for the finance team and the auditors. Furthermore, applying the new standards requires the restatement of prior period balances and reconciliation between current and old GAAP, and may require changes in systems and business processes. There are no incremental financial costs associated with continuing to apply standards. Adoption challenges Fifty-two jurisdictions around the world currently apply IPSAS, either on a cash basis or on an accrual basis, or use them in developing their financial reporting frameworks. Jurisdictions transitioning from cash to accrual that have adopted IPSAS have faced greater transition costs than those already on an accrual basis of accounting. 5 See Appendix A. 6 See Appendix A. 14 Consultation Paper May 2018

15 Criteria 4: International alignment Although PSAB s standards are not based on IPSAS, some are consistent with them (see Appendix A). While applying Canadian guidance may reduce the comparability of financial results of Canadian public sector entities with their international counterparts, this may be of little consequence to public sector financial statements users. Federal financial statements users may benefit from international comparability, but the ability to compare the results of a province, municipality or government NFPO to an international counterpart likely has little impact on the user s decision making. The statements of these entities are used to hold public sector representatives accountable for their financial decisions. Criteria 5: Due process PSAB has a robust due process. The Board solicits views and suggestions through its consultations with a wide range of interested parties and a formal process of inviting public comment on project priorities, statements of principle and exposure drafts. It may also set up project task forces to promote discussions. AcSOC, an independent, volunteer body established in 2003 to oversee PSAB s activities, has the opportunity to ensure compliance and provide input at various points throughout the process. Criteria 6: Use of standard-setting resources PSAB identifies topics aimed at clarifying accounting and establishes principles to support this goal. These principles are developed by initially debating several alternatives in how a transaction should be accounted for. These alternatives are refined into core principles that are exposed for stakeholders to provide their views. This process ensures resources are not committed to following guidance set by international standardsetting bodies. The resources used to set standards in Canada are not bound to practices set around the world and can focus on developing guidance from first principles. This allows the necessary resources to be committed to developing standards fit for use in Canada. Consultation Paper May

16 I II III IV Status quo Adapt IPSAS principles Adapt IPSASs Adopt IPSASs Option II: Adapt IPSAS Principles When Developing Future PSA Standards This option involves PSAB continuing to develop standards for Canada. However, future standards would be based on existing IPSASs. The Board would establish a process detailing when departures from IPSASs are warranted.

17 Overview Modifying existing IPSASs for upcoming Canadian public sector projects could be an efficient way to deliver high-quality standards in a timely manner. PSAB could focus on issues distinct to Canada and modify the IPSASs as necessary to address issues specific to the public sector in Canada. As this option would affect future projects, 7 it would be a relatively inexpensive alternative and would continue to give Canadian stakeholders complete autonomy and control over their standard-setting process. Influence 13 Due Process IPSASB Additional Guidance 7 Efficiency Canadian board members PSAB Exposed to 2 due processes IPSASs for which there is currently no Canadian equivalent Standards can be developed faster Criteria 1: Canadian influence over the standard-setting process Developing future Canadian standards by adapting IPSASs principles allows Canadian standards to be based on high-quality, globally accepted standards, while maintaining independence when necessary. The Canadian public sector and financial statements users benefit because, while future standards will be based on IPSASs, PSAB is not bound to them. It will develop a process outlining when a departure from IPSASs is warranted, which may include considering whether applying the IPSAS principles would mean: the objectives of Canadian public sector reporting would not be adequately met; the qualitative characteristics of public sector financial reporting would not be met; or undue cost or effort to the Canadian public sector. Stakeholders continue to have the ability to influence standards addressing Canadian issues. Applying these factors would be based on feedback PSAB solicits from its stakeholder groups. A national standard-setting board, made up of 13 members working in a variety of jurisdictions across the Canadian public sector, encourages close ties between PSAB members and their stakeholders. This ensures Canadian issues are understood and prioritized. Ultimately, this option continues to give the Canadian public sector a significant level of influence in developing standards for Canada. 4 This strategy would be applied to future projects. It does not represent a wholesale re-evaluation of existing PSA standards. However, this strategy provides the opportunity to re-open existing guidance as PSAB deems necessary. Consultation Paper May

18 IPSASB Representation 2 Canadian IPSASB members (18 in total) PSAB Representation 13 Canadian Board members Authority PSAB Final approval resides with PSAB Criteria 2: High-quality standards Adapting IPSAS principles when developing future guidance requires the existing PSA standards remain in place. These PSA standards are based on a conceptual framework that outlines general recognition, measurement and presentation concepts, ensuring financial information prepared by applying these standards provides a comprehensive picture of the entity s financial position and financial performance. Future standards, which are adapted from IPSAS principles, similarly would be based on a conceptual framework developed based on the unique characteristics of the public sector. Adapting IPSAS principles for future guidance would be an efficient means of maintaining Canada s ability to develop high-quality public sector standards. Criteria 3: Transition costs The costs to the preparer community of implementing this option would be relatively consistent when compared to continuing to apply the current PSA standards. This option would not require adopting a new set of standards. Stakeholders would continue to apply existing PSA standards, with new standards being developed based on IPSASs. Due to the prospective nature of this option, some stakeholders may be unaware of the change in strategy. Criteria 4: International alignment IPSASB develops high-quality standards for use by public sector entities around the world. Of the G20 nations, seven apply IPSAS or a directly comparable framework. IPSASB and the Chartered Institute of Public Finance and Accountancy are currently conducting a global IPSAS-adoption survey. Preliminary results will be available in the second half of PSAB understands that the results will be finalized and provided in time for the Board s planned second round of consultation in The results should indicate the adoption rate as of 2018, together with the planned rate within the next five years. The results should also confirm the basis of accounting (i.e., accrual, cash or modified cash). Canada can pick IPSASs it wishes to modify and apply while observing the direction the rest of the world takes. At this time, Table 1 is correct. However, changes will be identified between May 2018 and the 2019 round of consultations, and other relevant comparative data will become available to better assess the IPSAS-adoption rate. 18 Consultation Paper May 2018

19 Table 1: Accounting Frameworks of G20 Nations Country Public Sector Accounting Framework Current Basis / Future Plans Canada National financial reporting standards See note 1 Accrual Development level comparable with Canada Australia Fully IFRS Standards compliant with public sector interpretation Accrual China National financial reporting standards See note 3 Cash transitioning to accrual France Germany National financial reporting standards informed by IPSAS Reporting determined by different authorities for different preparers Accrual Italy National financial reporting standards Cash Japan National financial reporting standards Accrual South Korea United Kingdom National financial reporting standards informed by IPSAS IFRS Standards based with public sector interpretation See note 2 Cash with some states on accrual Accrual Accrual United States National financial reporting standards Accrual Emerging Argentina National financial reporting standards See note 3 Cash transitioning to accrual Brazil National financial reporting standards See note 4 Cash transitioning to accrual India National financial reporting standards Cash Indonesia National financial reporting standards informed by IPSAS Accrual Mexico National financial reporting standards Accrual and cash Russia National financial reporting standards informed by IPSAS Accrual Saudi Arabia National financial reporting standards See note 4 Cash transitioning to accrual South Africa IPSAS adopted indirectly via national standards Modified cash transitioning to accrual Turkey IPSAS adopted indirectly via national standards Accrual Consultation Paper May

20 Note 1: See Appendix A for analysis of degree of IPSAS alignment in Canada. Note 2: U.K. public sector standards are more than 95% aligned with IPSAS. Note 3: Destination: national standards using accrual IPSAS as a reference point. Note 4: Destination: IPSASs adopted indirectly via national standards. Source: international-public-sector-financial-accountability-index IFAC, CIPFA, and the Zurich University of Applied Science developed the International Public Sector Financial Accountability Index The United Nations (U.N.) adopted IPSAS as the accounting framework for all its funds and agencies (e.g., the U.N. Educational, Scientific and Cultural Organization, the Office of the U.N. High Commissioner for Refugees). In addition, many other supranational organizations (e.g., the Organisation for Economic Co-operation and Development and the North Atlantic Treaty Organization) have also adopted IPSAS. With a rising number of jurisdictions moving to apply IPSAS, it is in Canada s best interest to observe their experiences with adopting these standards. Criteria 5: Due process The IPSASB follows a structured and public due process in the development of all IPSASs. This process gives stakeholders the opportunity to express their views to the IPSASB, and to ensure their views are considered in the standard-development process. The entire process is public, with IPSASB meetings and supporting documents available online. A real benefit exists when Canadian public sector standards are developed based on IPSASs. PSAB s existing due process is layered on top of the IPSASB s, ensuring the quality of the guidance. Standards developed based on IPSASs means that PSAB s due process is layered on top of IPSASB s. As an added benefit, many IPSASs are currently effective and applied in practice. Canadian stakeholders can observe the application of the guidance during the period in which they are commenting on the standard s development. Criteria 6: Use of standard-setting resources This option enables standards development in a more efficient and timely way. PSAB invests significant resources researching and developing accounting alternatives when developing guidance for a specific transaction. Developing future public sector standards based on IPSAS should reduce this time because research and development of alternatives are in effect delegated to IPSASB. For example, when developing IPSAS 41, Financial Instruments, the IPSASB modified the private sector standard. This is consistent with the process proposed in this option, another standard-setting body researched the topic, drastically reducing the IPSASB s time to develop the guidance. IPSASB s time to market of its financial instruments project compares favourably to PSAB s current project. Ultimately, public sector specific standards, with a Canadian perspective, continue to be developed just in a more efficient way. 20 Consultation Paper May 2018

21 PSAB Financial Instruments 7 years Time to develop PSAB s financial instruments standard (Project approval in 2004 PS 3450 issued in 2011) IPSASB Financial Instruments 2 years Time to develop IPSASB s financial instruments standard (Project approval in 2016 expected issue in 2018) Time to develop Financial Instruments Standard PSAB IPSASB 03/ / / / IPSAS principles are generally consistent with PSAB s conceptual framework. Although this does not absolve the Board from evaluating whether an IPSAS complies with its conceptual framework, the majority of the guidance will be consistent and the time-consuming process of developing standards from first principles is eliminated. 8 Ultimately, the Canadian public sector would continue to get public sector specific standards with a Canadian focus, as necessary. International influence As PSAB spends less time developing core principles for Canadian public sector standards, more time can be devoted to influencing the IPSAS development from a Canadian perspective. 9 This will result in a more efficient process whereby the Board responds to proposals rather than spending time developing them. 8 Based on experience at the AcSB, the decrease in time staff devoted to developing standards was limited. However, staff used this time in a much different way. Moving away from developing, drafting and finalizing guidance allowed them to allocate more time and effort to influencing international projects. 9 PSAB staff can influence IPSASs development by taking a more active role in IPSASB projects. They can achieve this by closely following projects and providing timely feedback to IPSASB staff. Consultation Paper May

22 I II III IV Status quo Adapt IPSAS principles Adapt IPSASs Adopt IPSASs Option III: Adapt IPSASs This option involves applying and endorsing IPSASs in Canada, except in circumstances where a departure is warranted. PSAB moves away from developing standards for Canada except when a Canadian issue is identified.

23 Overview Endorsing IPSAS means the Canadian public sector can embrace an internationally recognized set of standards while maintaining flexibility to depart when PSAB identifies Canadian issues. Then the Board can focus its efforts specifically on those issues, ensuring they are addressed in the IPSAS or in a PSAB amendment. This option is similar to the AcSB s policy to adopt IFRS Standards as they are issued and not to modify them. This option assumes a wholesale adoption of IPSASB s current suite of standards. Influence 13 Due Process IPSASB Additional Guidance 7 Resources Canadian board members PSAB Exposed to 2 due processes IPSASs for which there are currently no equivalent public sector accounting standard in Canada Focused specifically on Canadian issues Criteria 1: Canadian influence over the standard-setting process Adapting IPSASs, with the ability to depart when warranted, would continue to provide the Canadian public sector significant influence over the standard-setting process. This is because, while under this option PSAB would adapt existing and future IPSASs, it could depart and make Canadian amendments to an IPSAS or develop a Canadian standard as required. While departures would be expected to be rare, they would be warranted when factors the Board set are met. Factors may include considering: whether key uniquely Canadian issues would be addressed by applying the IPSAS; whether the IPSAS is too high level in order to address international variations (such as different systems of government) and is consistent with Canadian principles at a more detailed level are possible; Stakeholders apply a set of standards that are recognized internationally, while continuing to influence the development process. whether the IPSASB could not reach consensus on a particular approach that garnered consensus among Canadian stakeholders; and whether applying the IPSAS would require undue cost or effort to the Canadian public sector. PSAB would maintain its due process whereby it solicits feedback from stakeholders by formal (e.g., comment letters) or informal means (e.g., roundtables or presentations). A national standard-setting board made up of 13 members working in a variety of jurisdictions across the Canadian public sector would ensure Canadian issues are understood and prioritized. Ultimately, this option would allow the Canadian public sector to move to an internationally accepted set of standards while maintaining a significant level of influence in developing standards for Canada. Under this option, PSAB s role would be proactive rather than reactive. For example, it would provide greater support by way of recruiting Canadian members to the various IPSASB task forces. Consultation Paper May

24 Criteria 2: High-quality standards Adapting IPSASs would give the Canadian public sector access to standards specifically designed with the unique characteristics of public sector entities. The main objective of IPSASB s conceptual framework, which shares many concepts with PSAB s (see Summary Comparison), is to allow financial statements users to assess a public sector entity s financial position and financial performance. The IPSASB has developed and issued 35 accrual-basis standards and one cash-basis standard, three recommended-practice guidelines, and has an additional 10 projects under development. Application guidance and illustrative examples supplement many standards to help stakeholders apply the standards. Standards 36 Public sector specific standards (40 have been issued 4 have been withdrawn) Conceptual Framework 1 Public sector conceptual framework issued in October 2014 Under Development 10 Standards under development The IPSASB developed scalable and industry-neutral standards, ensuring guidance can be applied by different types of entities and all levels of government. This, along with a conceptual framework that is largely consistent with PSAB s proposed conceptual framework, and a comprehensive set of standards, ensures IPSASs provide a comprehensive picture of a public sector entity s finances that addresses the financial reporting requirements of a Canadian public sector financial statement user. Criteria 3: Transition costs While the initial costs of implementing the IPSASB s suite of standards may be significant, the resources available to the public sector in applying IPSAS on an ongoing basis would affect ongoing application costs. For example, several IPSASs include application guidance and illustrative examples to help users prepare and understand financial information. Because the standard setter interprets the IPSAS, the costs to engage external professionals to do so are reduced. Furthermore, several IPSASs converge with IFRS Standards, so a significant amount of private sector interpretation guidance exists, further supporting the IPSAS application. Criteria 4: International alignment Adaption of IPSASs would allow the Canadian public sector to move toward applying a set of recognized international public sector accounting standards. This would move Canada to the forefront of international public sector accounting, as many international jurisdictions have yet to embrace fully IPSASs as their public sector standards; the U.K. is the only G7 country applying IPSASs or a directly comparable framework. However, international adoption has begun. Fifty-two jurisdictions around the world currently apply IPSASs, either on a cash basis or on an accrual basis, or use them in developing their financial reporting frameworks. Discussions about developing European Public Sector Accounting Standards (EPSAS) to be applied by EU countries, with IPSAS increasingly likely to be a major influence, means application of a comparable accounting framework is on the horizon. Adapting IPSAS provides Canada with significant flexibility in aligning with IPSAS while addressing Canadian public sector issues. 24 Consultation Paper May 2018

25 Criteria 5: Due process IPSASB follows a structured and public due process when developing standards. This gives stakeholders the opportunity to express their views to IPSASB, ensuring views are considered when developing standards. The entire process is public, with IPSASB meetings and supporting documents available online. Adapting IPSAS means the Canadian public sector could benefit from IPSASB s due process while continuing to influence the standard-setting process when Canadian guidance is necessary. Furthermore, as PSAB would be required to review the adapted IPSASs before inclusion in PSA standards, its due process would be an additional layer on top of IPSASB s, thereby strengthening it. Criteria 6: Use of standard-setting resources PSAB has finite resources it can commit to developing PSA standards. Currently, these resources are allocated to developing principles in consideration of Canadian issues. Independent development of accounting principles is a resource-intensive process, requiring extensive research and consensus building to determine the most reasonable alternatives. Moving to an IPSAS-adaption model would allow PSAB to allocate resources to issues specific to Canadian stakeholders. This could occur in various ways: amending IPSASs to reflect specific issues; developing a standard for a specific issue; or providing input to IPSASB projects. Standards developed based on IPSASs means that PSAB s due process is layered on top of IPSASB s. Resources can be allocated to Canadian issues. This option would result in a more efficient process whereby PSAB responds to stakeholder concerns rather than spending time developing principles. This means the Canadian public sector could apply internationally recognized standards while continuing to benefit from guidance specific to the Canadian public sector. Consultation Paper May

26 I II III IV Status quo Adapt IPSAS principles Adapt IPSASs Adopt IPSASs Option IV: Adopt IPSASs This option involves PSAB adopting IPSASs as issued by the IPSASB.

27 Overview The IPSASB develops standards and guidance for use by public sector entities around the world. These standards, and the robust structures and processes applied in their development, take into consideration the public sector s distinct aspects and give financial statement users the confidence necessary to evaluate the financial decisions their public sector representatives make. Influence 2 Canadian IPSASB members (18 total members) Breadth 36 International public sector specific standards Canadian Content 19 Public sector standards consistent with Canadian guidance Criteria 1: Canadian influence over the standard-setting process Canadians currently hold two of the 18 seats on the IPSASB. This gives Canada, and its stakeholders, a voice in IPSAS development. Although two seats do not guarantee a Canadian position will be applied in the final guidance, it does ensure the Canadian view will be presented and discussed while building international consensus. Furthermore, IPSASB s due process encourages constituents to respond to documents out for comment. This gives Canadian stakeholders a formal avenue for their views on developing standards. By necessity, PSAB will be become more active in compiling stakeholders comments. This will entail more presentations on upcoming standards to help stakeholders better respond to requests for comment. Additionally, with IPSASB s offices in Toronto, Canadian stakeholders can have PSAB bring their views forward directly to IPSASB staff during the development of new accounting literature. Criteria 2: High-quality standards With two Canadian IPSASB members, whose offices are in Toronto, Canadian stakeholders have strong influence over the standard setting process. The accounting standards the IPSASB develops are specifically designed for public sector entities. In October 2014, the IPSASB issued the first global conceptual framework for public sector entities, which shares many concepts with PSAB (see Summary Comparison). Its main objective is to allow financial statements users to assess the public sector entity s financial position. As noted, the IPSASB has developed and issued 35 accrual standards, one cash-basis standard, and three recommended practice guidelines, and has an additional 10 projects under development. Application guidance and illustrative examples supplement many standards to help stakeholders apply the standards. Consultation Paper May

28 Standards 36 Public Sector Specific Standards (a total of 40 have been issued 4 have been withdrawn) Conceptual Framework 1 Public sector conceptual framework issued in October 2014 Under Development 10 Standards under development The IPSASB has developed scalable standards that can be applied across the public sector by different types of entities and all levels of government. This, along with a conceptual framework and a comprehensive set of standards, ensures IPSASs paint a comprehensive picture that address the financial reporting requirements of Canadian public sector financial statement users. Criteria 3: Transition costs While the initial costs to implement all of IPSASB s suite of standards may be significant, the resources available to the public sector in applying IPSAS on an ongoing basis would affect ongoing application costs. For example, most IPSASs include application guidance and illustrative examples to help users prepare and understand financial information. Because the standard setter interprets the IPSAS, the costs to engage external professionals to do so are reduced. Furthermore, as several IPSASs converge with IFRS Standards, a significant amount of private sector interpretation guidance exists, further supporting the IPSAS application. Criteria 4: International alignment While the IPSASB s mandate is to serve the public interest by developing high-quality standards for use by public sector entities around the world, only 52 jurisdictions apply IPSAS, either on a cash basis or on an accrual basis, directly or indirectly. IPSAS Directly 30 (cash- or accrual-based) IPSASs adopted directly IPSAS Indirectly 16 (cash- or accrual-based) IPSASs adopted indirectly via national standard setter IFRS Standards 6 National standards based on IFRS Standards Canada is already a leader in public sector financial reporting and has an opportunity to expand its influence internationally. Early adoption would mean Canada could influence the IPSASB on what projects to undertake and what principles to develop. As accrual accounting becomes more accepted within the international public sector, adopting an international set of standards will likely follow. 28 Consultation Paper May 2018