Public sector digest

Transcription

1 Public sector digest INTELLIGEN CE FOR THE PUBLIC SECTOR. THE NEW PSAB TRANSFER STANDARDS: LESSONS FROM THE COLLEGE SECTOR ROB WILKES, BDO CANADA, & SHANNON BROOKS, CENTENNIAL COLLEGE Q w w w. p u b l i c s e c t o r d i g e s t. c o m 2012 PUBLIC SECTOR DIGEST

2 FINANCE THE NEW PSAB TRANSFER STANDARDS: LESSONS FROM THE COLLEGE SECTOR ROB WILKES, BDO CANADA LLP, & SHANNON BROOKS, CENTENNIAL COLLEGE A meeting of the College Ontario Finance Officers PSAB working group typically involves animated dialogue, exploring issues, a flow of questions, sharing points of view, offering suggestions, and deliberating solutions. With deadlines for the transition to Public Sector Accounting Board (PSAB) standards rapidly approaching for government not-for-profit organizations, these representatives of Ontario s 24 publicly funded colleges and the Ontario Ministry of Training, Colleges and Universities collaborated to form a working group that is proactively addressing issues related to the impending financial reporting deadline. FALL 2012 PUBLIC SECTOR DIGEST 37

3 Determining that no change in standards would be the best change, the team drafted a response to fight the proposed transfer of Ontario colleges to PSAB. By partnering together, Ontario s colleges established a strong, unified team to identify needs, address concerns, and develop best practices and resources to assist all stakeholders as they begin preparing their next set of financial statements under a new accounting framework. What this group learned along the way may offer insightful lessons for other public sector organizations transitioning to the new standards. I. UNIFIED APPROACH The Ontario college sector PSAB working group originated around the time the Accounting Standards Board and PSAB issued exposure drafts in 2009 outlining proposed changes to accounting standards for not-for-profit organizations. These drafts recommended that government NPOs follow the CICA Public Sector Accounting Handbook. Concerned about the implications for their sector, members of Colleges Ontario Finance Officers (COFO) held a brainstorming session to solicit opinions and develop a strategy. Determining that no change in standards would be the best change, the team drafted a response to fight the proposed transfer of Ontario colleges to PSAB. Later that year, they presented this position and its rationale to the Accounting Standards Oversight Council. The Council oversees and provides input into the activities of the Accounting Standards Board and PSAB. The COFO team argued that maintaining the status quo for the standards the college sector followed (those in the not-for-profit section) would be in the best interests of Ontario s colleges because they function primarily as not-for-profit organizations rather than government entities. Despite the working group s efforts, PSAB subsequently issued a decision that government NPOs would follow the CICA Public Sector Accounting Handbook, with or without the 4200 series. The 4200 series includes standards specific to not-for-profit organizations, which mirror the 4400 series that NPOs are currently using. These new rules for government NPOs are effective for years beginning on or after January 1, 2012, which corresponds to colleges March 31, 2013 year-end. As the only government not-for-profit group that made a presentation to the Council, the COFO working group was instrumental in bringing the distinctive not-for-profit perspective to the deliberations. This was likely the catalyst for PSAB relaxing its position and allowing government NPOs the option of using the 4200 series, which significantly eases the transition to the new standards. Former sections 4400 to 4470 (the 4400 series) of the CICA Handbook Accounting are incorporated into the Public Sector Accounting Handbook as sections PS 4200 to PS 4270 (the 4200 series). Since colleges are government not-for-profit entities, PSAB wanted them to follow the Public Sector Accounting Handbook; however, it allowed the public sector 4200 series of standards in order to minimize the changes required. Thus for their March 31, 2013 year end, the colleges may use either: the CICA Public Sector Accounting Handbook including the new 4200 series of standards; or the CICA Public Sector Accounting Handbook without the supplementary 4200 series of standards. When PSAB released its final decision in December 2010, the Colleges Ontario Finance Officers and its working group moved forward in earnest. It was time to shift perspectives: from arguing against a transition to determining how to ease the transition to the new standards. Membership in the working group expanded to include finance officers of six colleges as well as representatives of the Colleges Finance Unit of the Ontario Ministry of Training, Colleges and Universities. Ontario s colleges were now focused on solidarity, a united effort to tackle the key transitional issues. The next step was to confer with senior decision-makers at members respective institutions and secure their agreement to use PSAB standards with the 4200 series. This consensus provided a foundation for the group to encourage buy-in from all of Ontario s publicly funded colleges. While each institution has a choice, the group expects that all colleges will adopt PSAB with the 4200 series since these are most similar to current standards. Using these standards will minimize transitional issues and will ultimately deliver financial statement consistency and enhanced comparability for all. II. EARLY START Deciding the scope of its work was the group s next challenge, and several critical questions were raised: What should the deliverables be? Do we need to develop draft financial statements for every college? Or do we identify key issues and provide guidelines? Where do we stop? Who is going to be responsible for each aspect of the work? Fortunately, the varied perspectives, interests, and skills of the members of the COFO PSAB working group provided a diverse platform to identify issues relevant to different colleges and finance officers. The team quickly determined that it needed to focus first on those issues that affected all 24 colleges. As time allowed, they could address lower priority items but would also advise the finance officers of each college to seek professional advice from their accounting firms well in advance of the transition date. Therefore, the group s first task was to identify all of the key transitional differences and determine how these might impact college financial statements. Since there are significantly fewer accounting changes and differences in financial statement presentation using the Public Sector Accounting Handbook with the 4200 series, PSAB s compromise made this task easier. The noteworthy differences they identified included the following: simplified model for financial instrument classification and measurement differences in the discount rate used to determine postemployment benefits and compensated absences 38 PUBLIC SECTOR DIGEST FALL 2012

4 While each institution has a choice, the group expects that all colleges will adopt PSAB with the 4200 series since these are most similar to current standards. the requirement to recognize a liability for sick leave benefits that accumulate but do not vest for the colleges by developing comprehensive illustrative PSAB financial statements. the introduction of a new financial statement, the Statement of Remeasurement Gains/Losses, that includes unrealized gains/losses on financial instruments and foreign exchange a new category for capital transactions in the Statement of Cash Flows After determining which specific standards required further exploration, teams of two assumed responsibility for conducting research on each and preparing a briefing to share with the other members of the working group. The following are examples of some of the areas they investigated. QUANTIFYING NON-VESTING SICK LEAVE One of the most significant and complex issues the group addressed was quantifying non-vesting sick leave. This is a new PSAB requirement in addition to the current requirement to record a liability for vesting sick leave. The group determined this required an actuarial calculation for the sector. Conferring with the Administrative Services Coordinating Committee, the team managed to secure the assistance of the actuary who has assisted them with the calculation of employee future benefits liabilities in the past. To prepare preliminary calculations, the actuary contacted all 24 institutions to begin tracking relevant sick leave statistics for their employees. Gathering this data was not standard practice at all of these institutions. Since the working group had identified this issue early on, the colleges were able to set up processes to begin tracking the needed data in real time. If the working group had not anticipated the need for this actuarial calculation, many colleges may have been faced with the prospect of not having critical data to complete their transition. DISCOUNT RATE The discount rate used to quantify the liability for post-employment benefits has changed under the new accounting standards. Having representatives of the Ministry of Training, Colleges and Universities on the working group has been particularly helpful with this issue since they are helping to determine discount rates and cost of borrowing rates that meet PSAB requirements. FINANCIAL INSTRUMENTS The new accounting standards include a number of changes related to the measurement and disclosure of financial instruments and the team has assessed implications for the sector including the logistical impact on accounting staff relating to gathering the required information. FINANCIAL STATEMENTS DISCLOSURES Another important goal of the working group is to generate illustrative financial statements as a reference tool for all colleges. The new standards include some key disclosure changes, creating differences in financial statement presentation. The team is committed to highlighting these differences and achieving consistency They reviewed the statements (Statement of Financial Position, Statement of Operations, Statement of Change in Assets, Statement of Revenue Gains and Losses, Cash Flow Statement, Statement of Transitional Position) line by line, identifying similarities and differences between current and new documents and working through examples and calculations. Ultimately, these comprehensive illustrative financial statements will be accompanied by a series of memos with additional explanations around key issues. This will be a comprehensive resource for finance officers of all of the colleges, helping to guide them through the new statements for the first time. The team worked intensively on each issue, asking questions, testing solutions and developing consensus. Gathering stakeholder buy-in on a timely basis has allowed college finance officers to acquire a deeper understanding and to develop appropriate strategies for their respective institutions. III. SHARING AND COMMUNICATING Sustaining collaboration like the COFO PSAB working group requires continuous attention. Frequent meetings, conference calls, and communication over the past two years have enabled the group to maintain strength and momentum. Ongoing dialogue with stakeholders contributes to continued learning. The members of the team have also become adept with reassessing goals, direction, pace, and progress in order to sustain their commitment to collaborative action. Successes along the way helped to motivate them. This fall, the members of the working group will share the illustrative financial statements and what they ve learned over the past two years with all Colleges Ontario Finance Officers during PSAB-focused discussions at the upcoming Colleges Facilities Management, Finance and Purchasing Conference. The team s goal is to make the illustrative statements and briefings they ve produced available to all 24 colleges for their fall board meetings. The dialogue at the conference will be an opportunity for the entire college community to discuss how best to use the illustrative statements to transition their own institution. As well, since it is not possible for the working group to have anticipated every college s particular circumstances, this will also be an opportune occasion to address questions around specific needs. In fact, the focus of the COFO PSAB working group will likely increasingly evolve into communications. In order to keep the broader college community informed about its activities and findings, the group posts briefing notes and documentation on the COFO website. It also provides regular updates to the executive committee of COFO and direct reports to the Administrative Services Coordinating Committee of Colleges Ontario, which is responsible for coordinating issues related to the administration and support of college facilities and activities. This inclusive, cooperative approach to identifying and acting on FALL 2012 PUBLIC SECTOR DIGEST 39

5 Ontario College of Art & Design, Toronto PSAB transition issues has enabled the working group to achieve productive results while also enjoying the experience. The members of the group, unfamiliar with PSAB accounting standards just two years ago, are now well prepared to adapt financial statements for their own colleges. Having learned the value of partnering, they re also preparing to support their counterparts in other colleges as they begin preparing their financial statements under the new accounting framework. The team s comprehensive briefings and tools will likely be welcome resources as these transitions get underway. With 24 organizations involved, transitioning to PSAB is in fact a major change management project for the Ontario college sector, especially since the working group has no authority regarding the decisions of individual colleges. This is why relationship building is such an important factor in the group s achievements. Advice, decisions, and approvals must be secured from senior personnel of multiple organizations: each college; Colleges Ontario; the Ministry of Training, Colleges and Universities; an actuarial firm; and others. These relationships, carefully developed by the working group to build understanding and trust, are likely to grow closer in coming months as individual colleges grapple with the specifics of the transition and seek information and advice from one another. The experience of the Ontario college sector s PSAB working group demonstrates the benefits of starting early and working together 40 PUBLIC SECTOR DIGEST FALL 2012 with others in the sector in order to share concerns and to learn from one another. For the colleges, this proactive, collaborative approach has given them a broad and deep understanding of PSAB accounting standards and equipped them with best practices and resources to guide their own transition. For every public sector organization involved in the massive shift to new accounting standards, this could be the most valuable lesson. ROB WILKES (rwilkes@bdo.ca), CA, is a Partner in the Assurance and Accounting group of BDO Canada LLP ( and an advisor to the Colleges Ontario Finance Officers PSAB working group. Rob provides accounting support to businesses and public and private sector not-for-profits to help them meet regulatory and statutory requirements. SHANNON BROOKS (sbrooks@centennialcollege.ca) is Director, Financial Services, at Centennial College in Toronto and chair of the Colleges Ontario Finance Officers PSAB working group.