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Public Sector Accounting Board - Frequently Asked Questions

General:

  1. What is PSAB?
  2. What are Accounting Standards?
  3. When do I have to be compliant with PSAB Accounting Standards?
  4. Where can I get more information on PSAB?

Tangible Capital Assets:

  1. Do we count small items such as picks, rakes, shovels?
  2. The TCA Valuation Manual has no reference to signage, i.e. stop signs, yield signs, speed signs, etc. Do we include this in our TCA Listing?
  3. What is not to be included in your TCA inventory?
  4. When do I record a TCA for a multi-year capital project?
  5. What adjustments would be recorded when an asset is still in use beyond its original useful life estimated for accounting purposes?
  6. Municipalities often replace a significant part of a major piece of equipment, such as replacing the motor on a grader. Would this be considered a betterment or repairs and maintenance?
  7. Can volunteer labour and donated materials be capitalized as part of the cost of constructing a TCA?
  8. Can I capitalize the interest on my capital loan?
  9. What is our auditor's role in terms of valuing TCA?
  10. What will be the impact on financial position and budgets due to the new TCA standards?

Budgets:

  1. Will our 2009 budgeting process change?

Financial Statement:

  1. What is required to be PSAB compliant for our 2008 financial statements?

Pension Plans:

  1. Does an unfunded pension liability have to be accrued under PSAB standards and if so please advise as to the recommended accounting treatment and disclosure?

General

1. What is PSAB?

PSAB stands for the Public Sector Accounting Board (PSAB). They are an independent body with the authority to set accounting standards for the public sector, which includes municipalities.

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2. What are Accounting Standards?

Accounting standards are standards set by PSAB for financial accounting and reporting. These standards specify how transactions and other events are to be recognized, measured, presented and disclosed in government/municipal financial statements. The objective of such standards is to meet the needs of users of financial statements by providing the information needed for accountability and decision making. Accounting standards are the primary source of generally accepted accounting principles (GAAP). The CICA Public Sector Accounting (PSA) Handbook opens new window contains accounting standards applicable to federal, provincial, territorial and local governments.

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3. When do I have to be compliant with PSAB Accounting Standards?

Local governments, which include municipalities and Inuit Community Governments, are to be compliant with PSAB Accounting Standards by March 31, 2009, per Local Government Gas Tax Agreements. This will be reported to the Department through local government Financial Statements which are due on June 30, 2009.

Requirements:

2008 Financial Statements; local governments are required to provide a note of its PSAB compliance efforts, particular regarding Tangible Capital Assets (TCA). See the Appendix distributed on January 19th regarding 2008 FINANCIAL STATEMENTS & 2009 BUDGET for a sample note disclosure.

2009 Financial Statements; local governments are required to complete the following, note all will not apply to each local government:

  • Establish Accounting Policies
  • Complete TCA Listing
  • Complete TCA Valuation
  • Identify all Controlled Entities and Government Partnerships
    • Assess whether or not control exists
    • Assess their compliance with PSAB GAAP and impact if not compliant
  • Identity all significant Controlled Entities and Government
  • Partnerships with your auditor's assistance
  • Identify Potential Environment Liabilities
  • Identify all Accruals and Other Liabilities, such as severance, pension, landfill closure costs, etc
  • Record Asset Additions and Disposals for 2008 & 2009
  • Calculate and Record Amortization for 2008 & 2009
  • Record Environment Liabilities, Accruals, etc
  • Consolidate Controlled Entities

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4. Where can I get more information on PSAB?

The best resource for keeping up-to-date on PSAB is the PSAB resource website (www.ma.gov.nl.ca/ma/for/psab/index.html). This website contains reference materials, all correspondence from the Department on PSAB, FAQs, as well as much more!

You can also get information on PSAB by calling our toll free number 1-877-729-4393 or by email PSAB@gov.nl.ca.

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Tangible Capital Assets

5. Do we count small items such as picks, rakes, shovels?

Yes.
They will be reported and put in the General TCA section under the asset class of Machinery and Equipment.

Group Assets:
Group assets are defined as those assets that have a unit value below the capitalization threshold but have a material value as a group. Normally these assets are recorded as a single asset with one combined value. Although recorded in the financial systems as a single asset, each unit may be recorded in the asset sub-ledger for monitoring and control of its use and maintenance.

Examples could include computers, furniture and fixtures, small moveable equipment, signage, etc.

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6. The TCA Valuation Manual has no reference to signage, i.e. stop signs, yield signs, speed signs, etc. Do we include this in our TCA Listing?

The TCA Valuation Manual was created to focus on larger dollar value TCA that municipalities would not normally have costing information for, such as infrastructure. Due to the low dollar value of signage and the amount within a municipality, it may not be included in your TCA Listing; however, it would depend on the municipality's capitalization threshold or whether it is significant enough to record as a group asset (see above question).

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7. What is not to be included in your TCA inventory?

The following capital assets are excluded:

  • Intangibles
  • Land and other assets acquired by right such as Crown lands
  • Works of art and historical treasures
  • Natural resources such as forests, water, and mineral resources

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8. When do I record a TCA for a multi-year capital project?

Major capital projects are constructed or developed over more than one calendar year. For accounting purposes, the costs to date are recorded each year as work-in-progress. Amortization of the asset would start in the year that the asset is placed into service.

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9. What adjustments would be recorded when an asset is still in use beyond its original useful life estimated for accounting purposes?

Assets may remain in service past their useful life that was estimated when the asset was acquired or constructed. For example, a vehicle may have an estimated life of five years but still be on the road after seven years. Generally the asset would remain on the books as fully amortized and the accumulated amortization would be recorded as well. If the recorded useful life is adjusted upwards for an asset, the remaining unamortized cost of the asset would be expensed over the new useful life.

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10. Municipalities often replace a significant part of a major piece of equipment, such as replacing the motor on a grader. Would this be considered a betterment or repairs and maintenance?

If the motor had to be replaced because it broke down or was damaged, then it would be considered repairs and maintenance. Replacing the motor is simply maintaining the existing service capacity of the grader. You can not use the grader if it does not have a properly functioning motor.

If the grader was at the end of its estimated useful life and replacing the motor would allow the municipality to continue to use the grader for another 10 years, then it would be considered a betterment. The municipality has increased the service capacity (i.e. extended the useful life) of the grader.

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11. Can volunteer labour and donated materials be capitalized as part of the cost of constructing a TCA?

The Public Sector Accounting Board (PSAB) is silent as to whether volunteer labour and donated materials can be capitalized as part of the cost of an asset. However, the Not for Profit section of the CICA Handbook states that volunteer labour and donated materials can be valued at their fair market value. It therefore appears to be acceptable to capitalize volunteer labour and donated materials as part of the cost of constructing a TCA.

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12. Can I capitalize the interest on my capital loan?

The total historical cost of a TCA can include interest costs directly attributable to the acquisition, construction or development activity. Only interest owed to external parties, such as banks or debenture holders, can be capitalized. Internal finance charges cannot be capitalized as part of the costs of an asset. They must be recorded as an expense of the period.

Capitalization of interest costs end when there is no construction or when the TCA is put into use. A TCA would be considered to be put into use when the asset is being used by the municipality to provide goods and services to the public, or the public has access to the asset such as a new bridge or road.

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13. What is our auditor's role in terms of valuing TCA?

While it will be each municipality's responsibility to develop the financial valuation of its TCA, these asset valuations will now become part of the municipality's financial records and, therefore, subject to external audit. External auditors are charged with the responsibility of verifying the accuracy of the financial statements of municipalities. During the transition to full financial reporting of TCA, the external auditors will play a large role in working with municipalities' accounting departments to ensure that the value of assets recorded are reasonable and acceptable.

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14. What will be the impact on financial position and budgets due to the new TCA standards?

The TCA standard allocates the cost of an asset over its estimated life but it does not provide a mechanism to fund replacement or rehabilitation. However, non-cash items will now be on the statement of operations (amortization expense), which could impact annual budgets and the application of balanced budget legislation.

The Canadian Institute of Chartered Accountants is also changing the financial statement format for local governments effective in 2009. Guidelines addressing the impacts and providing recommendations have yet to be finalized, but will be covered during Phase Three of the Department's action plan for PSAB implementation in 2009.

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Budgets:

15. Will our 2009 budgeting process change?

There will be NO change to this process for the 2009 budget.

In addition to the Budget Submission Form, a "PSAB/accrual" budget will also be required to accompany your 2009 financial statements, which are due June 30, 2010. In order to prepare this additional budget, the Department of Municipal Affairs will provide assistance on converting your original submitted budget to a "PSAB/accrual" budget as part of its Phase Three PSAB Implementation, which will begin in 2009.

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Financial Statement:

16. What is required to be PSAB compliant for our 2008 financial statements?

On August 4, 2008, the former Minister of Municipal Affairs, the Honourable Dave Denine, advised municipalities that in cases where they are unable to become PSAB compliant by March 31, 2009, "a note in the financial statement identifying the municipalities plan and where they are in the plan to become PSAB compliant will be acceptable." This refers more specifically to a municipality's TCA.

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Pension Plans:

17. Does an unfunded pension liability have to be accrued under PSAB standards and if so please advise as to the recommended accounting treatment and disclosure?

Answer Coming Soon

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To Find Out More

For information and assistance, contact the Municipal Affairs office nearest you.

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