1 the new psab (2009) financial statements. 2 session 2

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The New PSAB (2009) Financial Statements

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SESSION 2

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Agenda – Session 2

General Ledger Impacts TCA J/E’s – Full Accrual (PS) and LG Traditional Model G/L New Accounts & Other Considerations G/L Conclusions

Is it the end of Fund Accounting? Is it the end of the Capital Fund? Will LG move to a Full Accrual (PS) (only) G/L Model?

New Budget Model & Optional “Legislative Compliance Note”

2008 Restatement

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General Ledger Impacts

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GL ImpactsKey Message

PS3150 are FINANCIAL REPORTING requirements... NOT requirements on how you account for revenues, expenses etc. in your General Ledger

Key is that you will need to “roll-up” from your General Ledger to the F/S easily, so some changes are necessary

For the most part, you can continue to account for capital expenditures and related funding sources as you always have, by:

Adding in some new accounts for amortization, contributed revenue, gains/losses on TCA etc., and

Accounting for these items in a manner that supports the current LG Model (ie “Revenues” = “Expenses”)

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GL Impacts GL Journal Entries

Initial Entries Initial TCA Set-Up Initial Prepaids and Inventory Set-up

On-Going Entries TCA Additions

Built or Purchased Contributed

Reserves or Surplus Funding (TCA or operating purposes) TCA Amortization TCA Write-downs TCA Disposals TCA Amortization Funding (optional) TCA Funding – Debt Funding (and repayment)

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GL Impacts GL Journal Entries - Fund Set-Up Options

DR CR

Income StatementGF Capital Fund

DR CR

Income StatementGF Operating Fund

DR CR

Balance SheetGF Capital Fund

DR CR

Balance SheetGF Operating Fund

DR CR


DR CR


DR CR


DR CR


DR CR

Balance SheetGF Capital Fund

+

+Income Statement

Assume a single fund (no inter-fund transactions)

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Cost Centres for each service area Example: Fire Services Cost Centre

Fire Services – Operating Revenues & Sources of Funds Expenses & Uses of Funds

Fire Services – Capital Revenues & Sources of Funds Expenditures & Uses of Funds

General Admin/Municipal Cost Centre Often includes:

Items that do not “fit into” the other Cost Centers

GL Impacts GL Journal Entries – Account Set-up

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G/L Accounts roll-up to the Financial Statements either “above the line” or “below the line”

“above the line” – means as a PS revenue and expense, above the surplus/deficit line on the Statement of Operations

“below the line” – means as an entry directly to accumulated surplus, below the surplus/deficit line on the Statement of Operations

General Operating

Fund

General Capital Fund

Water Operating

Fund

Water Capital Fund

Reserve Fund

Consolidated Total

Statement of Operations Revenues "Above the Line" Entries ExpensesSurplus/Deficit A1 A2 A3 A4 A5 Cross Total

"Below the Line" Entries Transfers b/w funds Non-PSA "Revenues" Non-PSA "Expenses" Entries to Equity Accounts

B1 B2 B3 B4 B5 Cross Total

Change in Accumulated Surplus (A1+B1) Cross Total

Opening Surplus C1 C2 C3 C4 C5 Cross Total

Closing Surplus (A1+B1+C1) Cross Total

GL Impacts GL Journal Entries – F/S Roll-Up

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Initial Entries -Initial TCA Set-Up

Initial value TCA HC = 12,000 Re-stated values:

TCA HC =18,000 Accumulated Amortization = 10,000

Adjust TCA book value to new amount, offset to Equity Account

LG or PS Model - Initial TCA Set-up DR CRTCA Asset A 6,000TCA Accumulated Amortization A 10,000Equity Account Eq 4,000


(Equity TCA)

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Initial Entries - Initial Prepaids and Inventory Set-up

Entry not applicable to LG that did not write inventory and prepaids off the books, assuming no change in ledger values

Adjust book value for prepaids and inventory, offset to Equity Account

LG or PS Model - Prepaids and Invent. Set-up DR CRInventory A 125Prepaids A 60Equity Account Eq 185


(Unrestricted)

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Steps to Develop J/E:

1. Identify the impact on Net Economic Resources of the transaction or Event (this is the impact on Accumulated Surplus)

2. Do the PS Model or Traditional LG Model entry*LG Model entry adjusts the PS Model entry to ensure that Revenues or Cash Inflows = Expenses or Cash Outflows in the General Ledger… so can do simple PS Model entry first and then make necessary adjustments

3. Ensure correct by “rolling it up” to the F/S to see if the impact on Accumulated Surplus is correct


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On-Going Entries - TCA Additions – Built/Purchased

LG Model -TCA Capitalization - (end of year) DR CRTCA Asset A 1,900Equity Account Eq 1,900

PS Model-TCA Addition - Purch./Built (in year) DR CRTCA Asset A 1,900Cash A 1,900

LG Model-TCA Addition-Purch./Built (in year) DR CRTCA Expenditure E 1,900Cash A 1,900


(Equity TCA)

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On-Going Entries - TCA Additions – Contributed

PS Model - TCA Addi. - Contributed (end year) DR CRTCA Asset A 100Developer Contributions R 100

LG Model -TCA Capitalization - (end of year) DR CRTCA Asset A 100Equity Account Eq 100

LG Model - TCA Addit. - Contributed (end year) DR CRTCA Expenditure E 100Developer Contributions R 100


(Equity TCA)

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On-Going Entries– Reserve and/or Surplus Funding


PS Model - Use of Surplus FundsNo Entry

PS Model - Use of Reserve FundsEquity (Restricted) Eq 200Equity (Unrestricted) Eq 200

LG Model - Use of Surplus FundsEquity (Unrestricted) Eq 100Transfer from Equity (Unrestricted) R 100

LG Model - Use of Reserve FundsEquity (Restricted) Eq 200Transfer from Equity (Restricted) R 200

(end year)

(end year)

(end year)

(end year)

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On-Going Entries– Amortization

PS Model - TCA Amortization (end year) DR CRAmortization Expense E 500Accumulated Amortization A 500

LG Model - TCA Amortization (end year) DR CRAmortization Expense E 500Transfer from Equity Account R 500

Accumulated Amortization A 500Equity Account Eq 500


(Equity TCA)

(Equity TCA)

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On-Going Entries - Write-downs

Details: Asset HC=$90; Accum. Amort=$10; Current Value=$50 Notice write-down removes any accumulated amortization and

adjusts the assets historical cost to the new written down value.


LG Model - TCA Write-down (end of year)Investment in TCA Eq 30TCA Asset A 40TCA Accumulated Amortization A 10

Write-down TCA E 30Transfer from Invest. in Non-Fin. Assets R 30

PS Model - TCA Write-down (end of year)Write-down of TCA E 30TCA Asset A 40TCA Accumulated Amortization A 10

Equity Account (Equity TCA)

Transfer from Equity A/C (Equity TCA)

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On-Going Entries - TCA Disposals

PS Model - TCA Disposal (end year) DR CRSuspense Account - TCA Sale Proceeds A 250Loss on TCA Disposal E 150TCA Accumulated Amortization A 600TCA Asset A 1,000

PS Model - TCA Disposal (during year) DR CRCash A 250Suspense Account - TCA Sale Proceeds A 250

Details:-$250 Sale Proceeds-$1000 Gross TCA Asset Value, $600 Accum. Amortization


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On-Going Entries - TCA Disposals

LG Model - TCA Disposal (end year) DR CRTCA Accumulated Amortization A 600TCA Asset A 1,000Equity Account Eq 400

Loss on TCA Disposal E 150Transfer from Equity Account R 150

LG Model - TCA Disposal (during year) DR CRCash A 250TCA Sale Proceeds R 250

Details:-$250 Sale Proceeds-$1000 Gross TCA Asset Value, $600 Accum. Amortization


(Equity TCA)

(Equity TCA)

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On-Going Entries - TCA Amortization Funding (optional)

LG or PS Model - Fund Amort. (during year) DR CRCash A 500Tax Revenue R 500

If this was done, recommend, that the cash be transfered to a Reserve, the purpose of which is to fund TCA replacement


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On-Going Entries– TCA Debt FundingPS Model - TCA Debt Rec'd (in year) DR CRCash A 500Debt L 500

LG Model - TCA Debt Rec'd (in year) DR CRCash A 500Debt Proceeds R 500

LG Model - TCA Debt (end year) DR CREquity Eq 500 Debt L 500


(Equity TCA)

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On-Going Entries – TCA Debt Repayment

PS Model -Debt Payment (during year) DR CRDebt L 300Debt Interest Expense E 20Cash A 320

LG Model - Debt Payment (during year) DR CRDebt Principle Repayment E 300Debt Interest Expense E 20Cash A 320

LG Model - TCA Debt Payment (end year) DR CREquity Eq 300Debt L 300


(Equity TCA)

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New Accounts & G/L Changes

Steps:

Determine if will move to PS Model or continue with current LG Model

Develop J/E for Initial and On-going Entries for Model of choice, for your Local Government

Review J/E and identify new accounts required

GL Impacts GL New Accounts & Other Considerations

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New G/L Accounts

TCA Asset Accounts and Accumulated Amortization

TCA Contributed (R) & TCA Contributed Expenditure Own Cost Center? Capital or Operating Fund?

Transfer from Equity in TCA (for offset non-cash items) In Function Cost Center, General Admin Cost Center, or in own

“Non-Cash Items” Cost Center? Capital or Operating Fund?

Proceeds from TCA Sale In General Admin Cost Center or Function Cost Center? Capital or Operating Fund?


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New G/L Accounts

TCA Non-Cash Accounts Amortization expense Gain and Loss on Sale TCA Write-down TCA

In Function Cost Center, General Admin Cost Center, or in own “Non-Cash Items” Cost Center? Capital or Operating Fund?

TCA Operating Expenditures TCA expenditures previously capitalized (below threshold, or

now considered R&M due to single asset approach)

Capital or Operating Fund? New G/L Accounts? One or two accounts?


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Other Considerations

Change impacts on existing Management Reports and Information

Need for an Asset Subledger?

Need for Asset Management System?

Need for COMMUNICATED policy and procedures


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General Ledger Conclusions

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Funds and reserves established by a government take a variety of forms, and are used to reflect a government's intentions to undertake certain future activities or to demonstrate compliance with legislation. For example, a government may establish a stabilization fund to facilitate long-term planning. (PSG-2para 2)

General Ledger ConclusionsEnd of Fund Accounting? ABSOLUTELY NOT! And the move to full accrual reporting

has nothing to do with whether fund accounting would continue to be relevant or not…

City of Winnipeg ’08 Financial Report(adopted New Format in 2006)

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General Ledger ConclusionsEnd of the Capital Fund?

LG Model No reason to change… so maintain Option: Could put Capital Fund I/S as a Cost Center in the Operating Fund

PS Model What would be left in terms of accounts… not much… Thus, likely eliminate and create Capital Fund I/S as a Cost Center in the Operating

Fund

Maybe…

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Impacts of a Full Accrual G/L Model

Inter-fund Transactions – Maintain as are currently

Transfers from Fund A. Surplus – Accounted for via Equity

Debt transactions – No longer go through I/S, except interest expense or debt forgiveness

No Equity offsets for non-cash items such as TCA amortization, gain or loss on sale, or write-down

TCA Expenditures no longer go through I/S (to B/S)

Budget values and actuals in the G/L will not net to “0”

General Ledger ConclusionsMove to full accrual accounting?

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Full Accrual G/L Model Considerations/Issues:

Legislative Needs - Need alternative means to demonstrate legislative Budget “balances” (ie “Revenues” = “Expenses”) and to explain the difference b/w the actual flows and that originally budgeted

TCA Expenditures - Need alternative means to obtain management information (expenditure details with budget comparisions, funding details, comparision year to year)

Budgeting – Need alternative means to build the annual budget and then to explain and manage the difference b/w the actual flows and that originally budgeted

NOTE: This is likely NOT an exhaustive list as LGs have yet to implement Full Accrual Accounting…

General Ledger ConclusionsMove to full accrual accounting?

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Budgeting

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Budgets – Accrual or Cash Basis? Legislative Budget – Cash Based Requirement

Total Expenditures, Debt Repayments and Transfer to Reserves or Surplus MUST Equal Total Transfers from Reserves or Surplus, New Debt and Other Revenue Sources

All Cash INFLOWS = All Cash OUTFLOWS *

Are LG required to fund (tax for) liabilities that must be accrued and expensed (but not paid) in a particular period/year? What about amortization expense?

*Note: Most LGs modify by including various expense accruals

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Budgets – Accrual or Cash Basis? Legislative Budget – Cash Based Requirement

Since Cash Based do not need to budget for amortization (or liability accruals* eg. severance, landfill post closure costs etc.) as NOT an expenditure (cash flow), but an expense and DON’T have to fund

Further, the Alberta Ministry has specifically stated that LG do not need to fund amortization and Regulation 235/2008 addresses this explicitly by stating that amortization expense is not considered to be an expenditure (except if for an electrical utility)

* Regulation 235/2008 has added a limitation with respect to not funding liability accruals

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Budgets – Accrual or Cash Basis? PSAB Income Statement – Accrual Based Req.

PSAB defined Revenues and Expenses

PSAB Revenue Do not include transfers from reserves Do not include new debt revenue

PSAB Expenses Do not include TCA expenditures Do not include transfers to reserves Do not include debt principle repayments Include TCA amortization

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Legislative Budget is Cash Based and thus, there is no legislative requirement/need to budget on a accrual basis. YOU DO NOT HAVE TO CHANGE YOUR BUDGET

HOWEVER, PSAB requires budget comparables in the Financial

Statements If budget basis (full-accrual) is different than F/S basis must

provide a reconciliation b/w the budget and the F/S in the F/S (PS1100.66 & PS1200.122-.125)

THUS, You need to Budget on BOTH a cash basis and accrual basis

Budgets – Accrual or Cash Basis?

37Budget – Sample RECOMMENDED FormatOPTION 1

The Council approved Budget s/b as summarized as possible. Ideally provide no more details than required by legislation (example includes details for illustrative purposes only)

Do separate schedule for Reserves. Detail transfers “to” and “from” for each reserve

Prepaids and Inventory Adjustments - consider materiality, if the CHANGE in prepaids or inventory immaterial ignore (ie budget for expense not expenditure)

2009 BudgetRevenuesTax revenue -6,355 Developer Contributions -700 Grants -200 Other revenues -900 Gain on sale TCA 0

-8,155 ExpensesOperating expenses 6,085Prepaid expenses 40Inventory expenses 75Amortization expense 500Write-down of TCA 0Loss on disposal of TCA 0

6,700Surplus -1,455 Adj. for non-cash items: -Amortization expense -500 -Inventory expense -75 -prepaid expense -40 -write down of TCA 0 -loss on disposal of TCA 0 -gain on sale TCA 0 -TCA expenditures (contributed) 300Adj. for cash items, not PSA revenues or expenses: -TCA expenditures 2,000 -Inventory expenditure 25 -Prepaid expenditure 70 -Proceeds from sale of TCA 0 -Debt principle repayment 300 -Debt proceeds -500 -Transfers to/(from) Reserves -125 -Transfer (to/(from) Operating Surplus 0Financial Plan Balance 0

-Transfers to/from Restricted Surplus -Transfers to/from Unrestricted Surplus

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Budget – Sample “Old” Format + TCA OPTION 2

Inflows = Outflows

This option adds in the necessary PSA budget accounts as a footnote maintaining the traditional “cash flow” based budget.

This option is not recommended, but may be a “quick” solution for 2010.

Same comments made for Option 1 apply.

2009 BudgetRevenuesTax revenue -6,355 Developer Contributions -700 Grants -200 Other revenues -900 Proceeds from sale of TCA 0Debt proceeds -500 Transfers from reserves -600 Transfer from operating surplus 0Total -9,255

ExpensesOperating expenses 6,085TCA expenditures 2,000TCA expenditures (contributed) 300Inventory expenditure 25Prepaid expenditure 70Debt principle repayment 300Transfers to reserves 475Transfer to operating surplus 0Total 9,255

Footnote 1:Gain on sale of TCA 0Prepaid expenses 40Inventory expenses 75Amortization expense 500

Transfers from Restricted SurplusTransfers from Unrestricted Surplus

Transfers to Restricted SurplusTransfers to Unrestricted Surplus

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LG Accumulated Deficit Possible?

Might look like…

Accumulated SurplusUnrestricted 500 100Restricted -400Equity in TCA Debt 4200 700

NBV TCA -3500800 800

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LG Accumulated Deficit Possible?

Might look like…

It depends…

Municipal Finance Clarification Regulation (AR No. 235/2008)

Accumulated surplus

4(1) For the 2009 and subsequent calendar years, the accumulated surplus net of equity in tangible capital assets as shown on a municipality’s audited annual financial statements must not be less than zero.

Accumulated SurplusUnrestricted 500 100Restricted -400Equity in TCA Debt 4200 700

NBV TCA -3500800 800

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Optional “Legislative Compliance” Note

Alberta Ministry Preference to NOT include as a F/S Note

but to consider inclusion with Finance Officers Report

supporting the F/S.

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Budget to PSA Note – Optional Summarized Version

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Budget to PSA Note – Optional Summarized Version with explanation

2009 Budget 2009 Actual 2008 ActualSurplus - Statement of Operations -1,455 -995 -1,575 Adjustment for non-cash items: -Amortization expense -500 -500 -450 -write down of TCA 0 -30 0 -loss on disposal of TCA 0 -150 0 -TCA expenditures (contributed) 300 100 400 -other -20 -20 -20 Adjustment for cash items, not recognized asrevenues or expenses in the Statement of Operations: -TCA expenditures 2,000 1,900 1,500 -Proceeds from sale of TCA 0 -250 0 -Debt principle repayment 300 300 300 -Debt proceeds -500 -500 0 -Transfers from Reserves -600 -600 -600 -Transfers to Reserves 475 725 460 -Transfer to/(from) Operating Surplus 0 20 -15 Financial Plan Balance 0 0 0

Note X Compliance with Legislative Financial Plan Requirements

The legislative requirements for the Financial Plan are that cash inflows for the period must equal cash outflows.

Cash inflows and outflows include such items as: debt proceeds, transfers to and from reserves and surplus, debt principle repayment and asset sale proceeds. These items are not recognized as revenues and expenses in the Statement of Operations as they do no meet the public sector accounting standard requirements.

The legislation does not require (but does not preclude) the funding of non-cash items such as amortization or liability accruals to provide for future cash requirements, thus, there is no legislative requirement to include these items in the Financial Plan. However, these items are recognized as expenses in the Statement of Operations. Thus, the financial items included in the legislative Financial Plan and the Public Sector Accounting Statement of Operations are different. The purpose of this note is to explain the difference between these two requirements and demonstrate how the legislative requirement for a balanced budget, or Financial Plan net balance of “0”, has been met.

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Budget to PSA Note – Optional Summarized Version

2009 Budget 2009 Actual 2008 ActualSurplus - Statement of Operations -1,455 -995 -1,575 Adjustment for non-cash items: -Amortization expense -500 -500 -450 -write down of TCA 0 -30 0 -loss on disposal of TCA 0 -150 0 -TCA expenditures (contributed) 300 100 400 -other -20 -20 -20 Adjustment for cash items, not recognized asrevenues or expenses in the Statement of Operations: -TCA expenditures 2,000 1,900 1,500 -Proceeds from sale of TCA 0 -250 0 -Debt principle repayment 300 300 300 -Debt proceeds -500 -500 0 -Transfers from Reserves -600 -600 -600 -Transfers to Reserves 475 725 460 -Transfer to/(from) Operating Surplus 0 20 -15 Financial Plan Balance 0 0 0

-Transfers from Restricted Surplus -Transfers to Restricted Surplus -Transfers to/from Unrestricted Surplus

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2008 Restatement

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2008 RestatementRequirements

PSA requires implementation of PS3150 as a prior period adjustment accounted for retroactively, thus, you will make changes to the 2008 comparatives as though the change had taken place Jan/1/2008

Unless you can “make the case” that doing this cannot reasonably be done, you must do it

Can possibly simplify, with “okay” from your auditor Disposals – ignore for depreciable items

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2008 RestatementHow To Steps

Prepare TCA, inventory and prepaid continuity schedules as accounted for in 2008 and with re-stated value

Re-draft the 2008 Statement of Financial Position and Statement of Operations in the new format (with old numbers) as a “Trial Balance”

Based on the continuity schedules identify the J/E required to change the “Trial Balance” to a full accrual model

Adjusting J/E may include: Adjust TCA Equity Entries (Opening + fiscal 2008) (5) Remove capital, prepaid and inventory expenditures and in amortization, prepaid and inventory expenses (6) & (3), (4) Remove asset sale proceeds & add in gain or loss on sales (1) Add in write-downs of assets Add in contributed assets revenue (2)

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2008 Restatement

Statement of Financial Position 2008 Before Restatement

(1) TCA Sale

(2) TCA Contr.

(3) TCA Additions

(4) TCA Amorti.

(5) TCA Equity (6) P & I

2008 Restated

Financial AssetsCash and cash equivalents 3,240 3,240Investments 3,000 3,000Receivables 700 700

6,940 6,940LiabilitiesPayables -400 -400 Deferred Revenue -1,000 -1,000 Long term debt -1,800 -1,800

-3,200 -3,200

Net Financial Assets 3,740 3,740

Non-Financial AssetsProperty and equipment 12,000 -200 400 1,000 -600 3,000 15,600Inventory 125 125Prepaids 60 60

12,185 15,785 To "Close" Books

Accumulated Surplus -15,925 -3,000 -20 -18,945 -580

Statement of Operations2008 Before Restatement

(1) TCA Sale

(2) TCA Contr.

(3) TCA Additions

(4) TCA Amorti.

(5) TCA Equity (6) P & I

2008 Restated

RevenueTax revenue -6,275 -6,275 Proceeds from Sale of Assets -700 700 0Developer Contributions -300 -400 -700 Gain on Sale TCA 0 -500 -500 Grants -300 -300 Other revenues -900 -900

-8,475 -8,675 ExpendituresOperating expenses 6,035 500 6,535Prepaid expenditures 70 -70 0Inventory expenditures 25 -25 0Capital expenditures 1,500 -1,500 0Prepaid expenses 0 40 40Inventory expenses 0 75 75Amortization expense 0 600 600Write-down of TCA 0 0Loss on disposal of TCA 0 0

7,630 7,250

Surplus -845 -1,425 -580

Total 0 0 0 0 0 0

Accumulated Surplus, beginning -18,100 Accumulated Surplus, closing -19,525

"J/E" to adjust F/S to full accrual basis (see explanatory note below)

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End of Presentation

1 the new psab (2009) financial statements. 2 session 2

Documents

gl model

traditional lg model

surplus funding tca

simple ps model entry

current lg model

tca book value

inventory setup entry

accrual ps