Alert: Exposure Draft - Proposal to Modify the Canadian Public Sector GAAP Hierarchy

Alert: Exposure Draft - Proposal to Modify the Canadian Public Sector GAAP Hierarchy

On November 10, 2020 the Public Sector Accounting Board (“PSAB”) issued an Exposure Draft (“ED”) which proposes amendments to Section PS 1150, Generally Accepted Accounting Principles to clarify the GAAP hierarchy on matters not covered by primary sources of GAAP and provide assistance in applying primary sources of GAAP. 

PSAB is seeking feedback on the ED. The comment period will end on February 15, 2021.


a. PSAB’s 2020 Decision to Adapt IPSAS Principles When Developing Future Standards

Over the last decade, International Public Sector Accounting Standards (“IPSAS”) have matured and are considered a high-quality and comprehensive set of accounting standards. With other jurisdictions comparable to Canada adopting or adapting IPSAS, PSAB determined that the time was appropriate to review its current approach towards IPSAS.

PSAB considered four options for its international strategy, which were:

  • Status quo;
  • Adapt IPSAS principles;
  • Adopt IPSAS with exceptions; and
  • Adopt IPSAS.

The four options were evaluated, and stakeholder input was sought by way of feedback requested in two consultation papers:

  • Consultation Paper 1 – Reviewing PSAB’s Approach to International Public Sector Accounting Standards, which was issued in May 2018; and
  • Consultation Paper 2 - Reviewing PSAB’s Approach to International Public Sector Accounting Standards, which was issued in May 2019.

After careful review of all stakeholder input, at its May 5, 2020 meeting PSAB voted for Option (2), adapt IPSAS principles when developing future standards. A Basis for Conclusions document which sets out how the Board reached its decision was issued in September 2020.

b. What does PSAB’s Decision on Option (2) Adapt IPSAS Principles Mean?

Under this option, PSAB will maintain its role as the sole standard-setter authorized to set generally accepted accounting standards for all public sector entities in Canada. It will also continue to have complete autonomy in developing Public Sector Accounting Standards (“PSAS”). This means that

  • PSAB will continue to develop PSAS, but future standards would be based on the principles in IPSAS standards;
  • If a project is undertaken and an IPSAS already exists, the principles of that IPSAS will be used as a base for developing the corresponding Canadian PSAS; and

PSAB has established criteria for modifying and reviewing principles in IPSAS that will act as a framework and provide guidance on when departures from IPSAS principles are permitted.

PSAB determined the decision on the international strategy that best serves the public sector should be evidence based. PSAB settled on five decision-making criteria to facilitate the evaluation of evidence. These five criteria, in order of importance, are:

  • High-quality accounting standards
  • Due process
  • Canadian control and influence over the standard-setting process
  • Transition costs
  • International alignment

The implementation date of the decision to adapt IPSAS principles is April 1, 2021. All standards projects initiated on or after this date will use the principles of IPSAS in the development of the PSAS standard, if a similar IPSAS already exists. In cases where a similar IPSAS does not exist, PSAS standards would continue to be developed as they are today.

c. Why the Need for Modification to the GAAP Hierarchy?

Currently, Section PS 1150 requires public sector entities to review pronouncements issued by other bodies authorized to issue accounting standards on matters not covered by primary sources of GAAP or for assistance in applying a primary source of GAAP to specific circumstances. However, it does not set out the specific hierarchy of which standard setter to look to first for pronouncements.

The proposed amendments outlined in this ED clarify that beginning April 1, 2021, pronouncements issued by the International Public Sector Accounting Standards Board (“IPSASB”) are to be considered first before pronouncements by other bodies authorized to issue accounting standards.

Full details on this project can be found here.

This communication contains a general overview of the topic and is current as of November 10, 2020. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2020. All rights reserved.

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Michelle Balmer

Michelle Balmer CPA, CA

Vice President, Assurance

Michelle Balmer, CPA, CA, is a Senior Assurance Services Partner with MNP. With 14 years of experience in public practice, Michelle helps a broad range of public and privately held companies in a variety of industries. She also works on special projects, including costing studies, benchmarking and best-practice studies, operational analyses, litigation support and due diligence.

As a key member of MNP's Assurance team, Michelle has played an instrumental role in assurance policy development, implementing accounting and assurance standards firm-wide and educating assurance practitioners regarding methodologies and new pronouncements. She also provides technical advice and consultation on accounting and assurance issues, as well as on rules of professional conduct issues, to all MNP practitioners.

Michelle was certified a Chartered Accountant (CA) after obtaining a Bachelor of Commerce degree from the University of Alberta. She has been actively involved with the Institute of Chartered Accountants of Alberta, including the Chartered Accountants School of Business, in an instructional and marketing capacity. An avid volunteer, she has assisted numerous groups such as the Easter Seals of Alberta, Paralympic Sports Association and Junior Achievement of Northern Alberta.