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In the past, there was some differentiation in the public sector accounting standards applicable to each level of government, i.e. federal, provincial, territorial and local governments. As of January 2009, this distinction in accounting standards has been eliminated resulting in all levels of government reporting under the same public sector accounting standards.
What is the impact of this change?
There is a minimal impact on federal, provincial and territorial governments since there has been no significant change in standards applicable to them. However, local governments (such as First Nations and Municipalities) will experience a significant impact, particularly in relation to the adoption of PS 3150 Tangible Capital Assets.
Initially, local governments expensed capital asset additions as program expenditures and were not required to amortize them. With the adoption of PS 3150, which is applicable for accounting periods beginning on or after January 1, 2009, local governments are now required to capitalize asset additions and amortize them over their useful lives. Since this requirement was not applicable in the past, many local governments may not have the accounting records necessary to determine what capital assets they own, when they were acquired and for how much. Therefore, it may be very difficult to compile information on the entity’s complete stock of tangible capital assets and its related amortization.
What is the benefit of this change?
Evidence suggests that local governments are facing challenges in covering the costs of maintaining, renewing and replacing their old tangible capital assets, which are needed to sustain existing local government programs and provide future services. Complete and accurate tangible capital asset information may provide local governments and funding agencies with the information needed to assess the challenges local governments are facing and provide better information for decision-making purposes. Specifically, that information can be used to assess the government’s performance, make resource allocation decisions, provide accounting control over the assets individual managers are responsible for and facilitate asset maintenance and replacement. But most importantly, PS 3150 helps build credibility and confidence.
What can local governments do to prepare for this change?
It is recommended that local governments begin to prepare for this transition immediately! Local governments should start by preparing an implementation plan, which may help management effectively manage the implementation process from initiation to implementation and reporting. The Canadian Institute of Chartered Accountants has put together an implementation guide that may be useful in applying this standard.
For more information, please contact me or your local MNP advisor.
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