Understanding Canadian Public Sector Financial Statements
From the Office of the Auditor General of British Columbia
Public sector organizations generally exist to provide services to the public rather than to generate profits.
Business enterprises focus on generating profits and wealth for shareholders. So how do these two sectors differ
in their preparation of financial statements?
P
ublic sector financial statements differ from those of business enterprises. Individuals
reviewing public sector financial statements for the first time often wonder how to interpret the unfamiliar presentation, and many ask: “Why are the organization’s assets
separated on the statement of financial position?”; “What is ‘net debt’?”; and “Why is the budget reported in the financial statements?” The answers to these questions rest with the fact that
public sector organizations differ fundamentally in terms of their objectives, and, therefore, in
terms of performance measurement. While a comprehensive description of public sector financial statements is beyond the scope of this article, the most unique features are discussed
below.
When the Public Sector Accounting Board (PSAB) sets accounting standards for the public
sector, it must factor in the sector’s unique characteristics1; these unique characteristics drive
many of the standards contained within the CPA Canada Public Sector Handbook. The principle characteristic unique to the public sector is that it generally exists to provide services to the
public rather than to generate profits; this has a number of financial reporting implications,
including the following:
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• Public sector entities provide services
and redistribute wealth – A significant
portion of a public sector entity’s
operations are funded by non-exchange
transactions, such as taxation revenues
and grants. In order for financial
statements to provide a full understanding
of the nature and extent of these
transactions for accountability purposes,
accounting standards that address the
recognition, measurement, presentation,
and disclosure of these transactions are
needed.
• Budgets are used to communicate
priorities – The financial statements
include the approved budget compared
with the actual results. This enables
readers to see how actual resource
allocation and revenue generation differed
from those originally planned.
• Tangible capital assets are held to
provide services – In the public sector,
tangible capital assets and other assets are
not used to generate cash flow. In the
financial statements, these assets are
presented as non-financial assets, separate
from the assets that generate cash flow or
that can be used to repay liabilities
(financial assets). The separation of
financial and non-financial assets in the
statement of financial position is the basis
for the presentation of “net debt,” a
performance measure unique to public
sector financial statements (described on
the facing page).
ection 1100 Financial statement objecS
1
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tives – Appendix A of the CPA Canada
Public Sector Handbook includes a full list
of unique characteristics and the resulting
financial reporting implications.
VA N C O U V E R
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32 CPABC in Focus • Sept/Oct 2014
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