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Public Sector Reporting 

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Profession > Standards

Public Sector Reporting

Changes introduced to government reporting standards require full accrual accounting by January 2009.


Repercussions from the financial failures of six years ago still ripple through the business community. One need only review recent media coverage of Conrad Black’s alleged misdeeds, or the charges levied by the SEC against four former employees of Nortel to realize that corporate responsibility is still a key issue in the battle to restore investor confidence.

As such, changes were recently introduced to government reporting standards. Amendments approved in March 2007 by the Public Sector Accounting Board (PSAB) will require local governments to provide a more comprehensive picture of their financial position and results as full accrual accounting comes into effect January 1, 2009. Though governments may apply the new rules sooner, as of 2009, all levels of government will adhere to a common standard. This change is significant – full accrual accounting standards will require local governments to account for the stock of capital assets such as roads, bridges, sewage treatment facilities, and buildings, and their representation in financial statements.

Traditionally, local government financial statements have focused on a single number – the annual surplus or deficit. According to PSAB, the new reporting model moves the focus to a more comprehensive set of indicators that will be more meaningful to the public. For example, the new model provides a review of the capital assets held by a local government, as well as its net debt, cost of operations, and sources and uses of its cash resources in addition to annual results.

Likewise, information about non-financial assets will now have to be reported in a government’s financial statements, permitting increased awareness of the use of these assets. A further benefit of full accrual accounting is that it allows access to information in the form of key indicators such as net debt, accumulated surplus/deficit, annual surplus/deficit, and cash flow. More critically, these ratios, all useful for assessing financial position and results, are analogous to those in the for-profit sector so the process of analyzing government financial statements will be much the same as public company financial statements.

Guidelines for Reporting Performance

While a considerable body of literature exists within the for-profit sector on the switch from a cash-based system to a full accrual-based accounting system, this transition has taken place in the absence of comparable tools in the public sector. Given the ramifications of the move to the full accrual accounting model, PSAB released a non-authoritative Public Performance Reporting Assessment Guide to provide a framework for assessing a public sector entity’s public performance report. It uses PSAB’s Statement of Recommended Practice SORP-2, Public Performance Reporting, as a foundation.

The Guide suggests that preparers, auditors, or others responsible for reviewing performance reports evaluate the report’s features and identify missing information that could influence a user’s perception of the report’s credibility and usefulness. The Guide poses 13 key questions to be addressed:

  1. Is the report easily accessible and identifiable as the entity’s Annual Performance Report?
  2. Does the report provide information that appears reliable and valid?
  3. Is the entity’s performance information relevant?
  4. Does the entity provide fair information in its performance report?
  5. Is the entity’s performance information comparable and consistent?
  6. Is the report understandable?
  7. Does the report focus on the few critical aspects of performance?
  8. Does the report describe the entity’s strategic direction?
  9. Does the entity explain actual results for the reporting period and compare them with planned results, explaining any significant variances?
  10. Does the report provide comparative information about trends, benchmarks, baseline data, or the performance of other similar organizations?
  11. Does the report describe lessons learned and key factors influencing performance and results?
  12. Did the entity link its financial and non-financial performance information?
  13. Was the basis for reporting disclosed?

Improving the quality of public performance reporting is an evolutionary process that builds on research, experimentation, practical experience, and consensus. Having a good understanding of users’ perspectives will contribute to the usefulness of these reports. There is no one best way to publish performance reports, and neither SORP-2 nor the Guide can be used in that fashion. Notwithstanding, preparing a performance report is easier to do when an entity operates in accordance with a results-based plan. However, as a first step it is critical that governments accept that it is necessary to measure, monitor, and assess performance, and report publicly on what was accomplished. Combined with the move to full accrual accounting, the use of the Guide will go a long way toward meeting the increased responsibility governments face in being the stewards of public resources.

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