Skip Ribbon Commands
Skip to main content

The Financial Reporting Framework for Government Business Enterprises


Over the past several years, the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB) have been deliberating the appropriateness of financial reporting frameworks for all types of Canadian entities. The framework to be used by government business organizations has been an especially “hot” topic, as the current reporting frameworks will be replaced by International Financial Reporting Standards (IFRS) and private enterprise generally accepted accounting principles (GAAP).

In February 2009, PSAB issued an Invitation to Comment (ITC) Financial Reporting by Government Organizations to solicit comments from stakeholders on the breadth of application of IFRS by government business organizations. A major component of this ITC was to discuss whether government business enterprises (GBEs) (legal entities created by the government reporting entity to undertake commercial activities on its behalf) should adopt IFRS or apply the GAAP in the Public Sector Accounting (PSA) Handbook. In July 2009, PSAB issued an Exposure Draft (ED) Financial Reporting by Certain Government Organizations (Amendment to Introduction) in which PSAB proposes to require GBEs to adopt IFRS.

What will this mean for GBEs? GBEs will be required to implement IFRS for annual and interim financial statements relating to fiscal years beginning on or after January 1, 2011. Comparative figures will also be presented in accordance with IFRS. This effective date means that GBEs should start planning for transition immediately, to provide time to test new systems and deal with unexpected issues that may arise during the months before implementation. Financial reporting systems will need to run parallel financial information in 2010 in order to have comparative information in accordance with IFRS. In addition, GBEs will need to familiarize themselves with the new recognition, measurement and disclosure requirements in IFRS prior to making such changes to their systems and financial reporting.

What are the concerns of adopting IFRS for GBEs? The blanket application of IFRS to all GBEs may not be appropriate due to the diversity of such organizations and their respective stakeholders. Some GBEs are more similar to private enterprises than to publicly accountable enterprises with respect to size and scale of operations – for example, the First Nation gas station or convenience store, operated by Nation members, which earns commercial profit but has no need or desire to enter global markets, or attract investor capital.

Conversion to IFRS will be very costly for these smaller GBEs, as most won’t have the resources needed to implement the new standards by the effective date of January 1, 2011. These costs will outweigh any benefits because the main users of a GBE’s financial statements (i.e., an oversight body, such as a municipal or First Nations Council) don’t need IFRS compliant financial statements in order to make decisions. In cases where users other than the oversight body may need to access the financial statements of a GBE, those users are usually not interested in making investment type decisions – they are not using the financial statements to analyze financial results in the same way as anticipated by IFRS. Rather, they are more concerned with the appropriate use of resources and obtaining information for future planning and budgeting, etc., and only need the actions of the government or First Nation to be transparent.

Are there other financial reporting frameworks that would be more appropriate for smaller GBEs? The new private enterprise GAAP might be more appropriate for smaller GBEs as the costs to implement these standards aren’t expected to be significant. In addition, private enterprise GAAP will likely be adequate to meet the needs of smaller GBEs as users will be comfortable with these new standards since they are expected to be similar to those presently applied by GBEs under the CICA Handbook – Accounting.

For more information about Financial Reporting by GBEs, please feel to contact me, or your local MNP advisor.