Capital Asset Management Framework: 13. Accounting
- 13.1 Introduction
- 13.2 Substance of the Agreements
- 13.3 Sources of Guidance on Accounting Treatment
- 13.4 Accounting Tools
The Capital Asset Management Framework encourages public agencies to find the best solutions to service delivery challenges by:
- considering the widest possible range of options, and
- choosing the one that best meets service delivery needs while providing value for money and protecting the public interest
Accounting impacts flow from this decision-making process. They are determined by examining the substance of the transaction(s) and any related contracts or agreements, and applying Generally Accepted Accounting Principles (GAAP). Capital related business decisions should be based on a project or program’s underlying economic case, not its potential accounting impacts.
Accounting treatment can only be determined on the basis of final procurement agreements, such as contracts. Proposals and preliminary negotiations do not provide enough information for these determinations.
For example, accounting treatment may be affected by specific provisions around the allocation of project risk, rewards and ownership. These can only be determined on the basis of a final agreement.
Agencies should follow Generally Accepted Accounting Principles (GAAP), and their own accounting policies when classifying capital-related expenditures for budgeting, accounting and financial statement reporting.
Each agency is responsible for interpreting GAAP for its own projects, led by its in-house accounting professionals in consultation with their auditors.
Accounting decisions should be able to withstand both audit scrutiny and public scrutiny. Sources of guidance available to accounting professionals are noted in Table 13.3 below.
|Source||Description and Location|
|GAAP||GAAP (as defined in the Canadian Institute of Chartered Accountants (CICA) Handbook) apply to all organizations in Canada. Canadian GAAP are divided into three sections: private sector, public sector and not-for-profit. Agencies should follow the GAAP appropriate to their sector, unless otherwise directed by legislation, regulations or policies. Any departures from GAAP should be properly disclosed.|
|International Accounting Standards||Where no Canadian guidance is available, agencies can look to international standards to assist them in determining the most appropriate accounting treatment.|
|Internal Policy & Procedures||Agencies should always look first to their internal accounting policies and procedures for guidance. Analysis must be forward thinking, identifying potential changes in long-term projects and their impact on accounting and reporting.|
|Provincial||The Province’s accounting policy and procedures is described in the Core Policy & Procedures Manual.|
Legislation also provides direction on accounting and reporting transactions. The main legislative framework for government accounting policy is contained in the Financial Administration Act and the Budget Transparency and Accountability Act
|Industry practice||Where applicable (e.g. in projects involving rate regulated agencies or real estate investment companies) industry-specific accounting practices should be considered.|
Agencies should follow the process outlined below in determining appropriate accounting treatments:
- Project leaders should first consult with their own accounting and finance departments, and their auditors
- Where relevant, agencies should consult with their sponsoring ministry
- Ministries should consult with the Office of the Auditor General and their Treasury Board Analyst
- After research is done at the agency/ministry level, accounting policy experts at the Office of the Comptroller General can provide further direction regarding transactions’ potential accounting impacts on the Province’s financial statements
Accounting advice is required in all capital project phases, from planning through to disposal or renewal. At a minimum, accounting professionals can provide advice on issues such as:
- appropriate costing
- potential impacts on capital and operating budgets (including debt service and amortization where applicable, capital rehabilitation, and incremental operating costs)
- pre-operating and start-up costs
- reporting and disclosure requirements including management information systems available
- timing, and
- valuation or write-off
To ensure consistency in their analyses, agencies should use standardized tools, templates and processes (where applicable) to analyze transactions and proposed structures.
The accounting analysis tools used by the Province are available through the Office of the Comptroller General intranet (government access only) The tools include a lease classification template, criteria for sale treatment, accounting treatment for some sample P3 structures, and accounting for tangible capital assets.