Module 5 – Understanding the Basic Elements of School

Report
School Board Audit Committee Training
Module 5
Understanding the Basic Elements of
School Board Financial Statements
1
Session objectives
After completing this session you will:
Understand the Audit Committee’s duties related to the financial reporting process
Understand key features of PSA Handbook
Have an overview of School Board financial statements
Understand key indicators in School Board financial statements
2
Role and Accountabilities of a School Board
Duties related to the Financial Reporting Process [ON Regulation
361/10 9(1)]
•
To review the School Board’s financial statements
•
To review the results of the external audit
•
To recommend, to the Board of Trustees, the approval of the annual audited
financial statements
•
To review matters that the external auditor is required to communicate to
the Audit Committee under generally accepted auditing standards
•
To review with the external auditor material written communications
3
Financial Reporting Overview
•
Financial statements are a fundamental component of school board’s
financial reporting
•
For financial statements to be credible, readers need to have confidence
that the statements follow accepted and identifiable standards established
by an arm’s length standard setting body
•
If school boards follow independently set standards, readers can have
confidence that the financial statements are consistent and comparable
over time
4
Accounting Standards for School Boards
•
School Boards are required to follow Public Sector Accounting Standards
(PSA) established by the Public Sector Accounting Board (PSAB) for School
Boards
•
“PSAB” is the acronym for the Public Sector Accounting Board of the
Canadian Institute of Chartered Accountants (CICA). PSAB has the authority
to set accounting standards for the public sector. That authority means that
PSAB sets generally accepted accounting principles (GAAP) for the public
sector (e.g. school boards)
•
The Government may also direct school boards to follow certain policies
5
PSA Standards
•
•
Introductory Section
Concepts and Principles (PS 1000 – PS 1300)
– Contains sections dealing with:
PS 1000 Financial statement concepts
PS 1100 Financial statement objectives
PS 1150 Generally accepted accounting principles (primary sources of GAAP)
PS 1200 Financial statement presentation
PS 1300 Government Reporting Entity
•
Specific Items – Financial Reporting (PS 2100 – PS 2700)
– Sections dealing with financial statement items such as:
PS 2100 Disclosure of accounting policies
PS 2120 Accounting changes
PS 2130 Measurement uncertainty
PS 2400 Subsequent events
6
PSA Standards
•
Specific Items – Financial Statement Items (PS 3030 – PS 3510)
– Contains sections dealing with financial statement items such as:
PS 3030 Temporary investments
PS 3040 Portfolio investments
PS 3150 Tangible capital assets
PS 3410 Government transfers
•
Specific Items – Government Not-for-profit-organizations (PS 4200 – PS 4270)
– Contains sections dealing with NPO’s such as:
PS 4210 Contributions
7
Changes in Accounting Frameworks relating to Government
Organizations
Type of Organization
Accounting Framework
First reporting period –
year beginning on or
after:
Government/School Board
PSA Standards – No change in framework
N/A
Government Not-for-Profit Organization
(GNFPO)
Choice of:
i. Existing NPO standards (4400 series with
minor modifications) + PSA Standards as
underlying framework, or
ii. PSA Standards (without NPO standards)
January 1, 2012
Other Government Organization (OGO)
PSA Standards or IFRSs based on
assessment of users’ needs
January 1, 2011
Government Business Enterprise
IFRSs
January 1, 2011
(certain entities may
qualify for 1 year
deferral)
P
S
A
B
8
Financial Reporting Overview – Why PSA?
Unique characteristics of a School Board
Unique Characteristic
Reporting Implications
School Board’s goal is to provide services,
not make a profit
Net cost of services should be reported.
The net economic resources (accumulated
surplus/deficit) available to use in providing
future services should be reported
Tangible assets are different in nature from
those held by a business (i.e. they represent
service capability, rather than future cash
inflows)
Financial assets and non-financial assets
should be reported separately on the
Statement of Financial Position
Capital spending may not focus on
maximizing financial return but on achieving
public objectives
Capital spending and its effect on net debt
must be highlighted in the financial
statements
School Board’s budget is part of
accountability cycle
Actual-to- budget comparisons should be
provided in financial statements. Original
budget needs to be disclosed on Statement of
Financial Operations and the Statement of
Changes in Net Debt
9
Financial Reporting Overview
•
•
At the end of the fiscal year (August 31) school boards prepare two
significant reports
– Financial Statement Forms as required by the Education Financial
Information System (EFIS)
– General Purpose summary financial statements
Accounting principles in both should be consistent (i.e. PSA)
10
Financial Reporting Overview
•
EFIS contains significantly more detail than summary
financial statements, including grant calculations and
supplementary information important for funding
decisions
•
The general purpose summary financial statements are
required to be prepared in accordance with PSA
standards and are required to be audited
Required statements are as follows:
– Statement of Financial Position
– Statement of Operations
– Statement of Change in Net Debt
– Statement of Cash Flows
Notes to financial statements are also required.
EFIS
General
Purpose
Financial
Statements
•
•
11
Anytown District School Board
Statement of Financial Position
as at August 31, 2010
2010
2009
Cash
500
400
Accounts Receivable
250
150
30
50
780
600
Prior year comparatives are required on
Statement of Financial Position
Financial Assets
Inventory Held for Resale
Total financial assets
•
•
Assets that can be used to discharge
existing liabilities or finance future
operations
No distinction between current and longterm financial assets
Liabilities
Accounts payable and accrued liabilities
200
190
50
30
Employee future benefits payable
400
390
Net long-term debt
300
310
950
920
Due to Province of Ontario
Net Debt
(170)
(320)
1,780
1,550
Prepaid expenses
10
9
Inventory of supplies
15
12
1,805
1,571
1,635
1,251
•
•
All liabilities are reported
No distinction between current and longterm liabilities
Key indicator
Difference between financial assets and
financial liabilities represents future revenue
required to pay for past transactions
Non-financial assets
Tangible capital assets
Accumulated Surplus
Assets available for provision of services
typically not used for discharging existing
liabilities or financing future operations
Key indicator
• Represents school boards net economic
resources
• Amount by which all assets exceed all
liabilities
12
Anytown District School Board
Statement of Operations
Year ended August 31, 2010
Budget
2010
2009
Prior year comparatives are presented as
well as original approved budget (in PSA
format)
Revenues
Local taxation
1,000
1,100
1,000
Provincial grants
1,000
900
800
Federal grants
50
50
50
Other fees
30
20
15
School fundraising
10
10
9
2,090
2,080
1,874
1,400
1,450
1,350
Administration
120
130
100
Transportation
100
107
90
10
9
7
1,630
1,696
1,547
Revenues recorded by significant type
Expenses
Instruction
School funded activities
Annual surplus
460
384
327
Accumulated surplus, beginning of year
1,251
1251
924
Accumulated Surplus, end of year
1,711
1,635
1,251
• Expenses reported by function or major
program
• Note disclosure required to report
expenses by object (salaries, supplies)
Key indicator
• Shows whether revenues of period were
sufficient to cover expenses of the period
• Reports accumulated surplus at the
beginning and end of the period
13
Anytown District School Board
Statement of Change in Net Debt
Year ended August 31, 2010
Budget
Annual surplus
2010
2009
460
384
327
(100)
(300)
(90)
50
70
45
410
154
282
Acquisition of inventory of supplies
-
(15)
(12)
Prepaid expenses incurred
-
(10)
(9)
Consumption of inventory of supplies
-
12
6
Use of prepaid expenses
-
9
4
Acquisition of tangible capital assets
Amortization of tangible capital assets
Change in net debt
Net debt, beginning of year
Net debt, end of year
410
150
271
(320)
(320)
(591)
90
170
320
Prior year comparatives are presented as
well as original approved budget (in PSA
format)
Shows the TCA impact on the difference
between surplus for the period and change
in net debt
Shows other non-financial assets impact on
the difference between surplus for year and
change in net debt
Shows whether revenues of the period were
sufficient to cover spending of the period.
This represents the change in future
revenue requirements
This represents the change in future revenue requirements.
14
Financial Reporting Overview
•
Statement of
Cash Flows
Reports how the organization financed its activities
during the period and met its cash requirements by
reporting changes in cash and cash equivalents
15
Case Study
16

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