Download - PPT
Presentation byPresentation by
Wayne McDonald, CAWayne McDonald, CA
Financial Reporting Requirements February 2005
Financial Reporting Requirements February 2005
2kpmg
Auditor requirementsAuditor requirements
Summary of First Nation reporting requirementsSummary of First Nation reporting requirements
INACINAC
Health CanadaHealth Canada
First Nation PreparationFirst Nation Preparation
Topics Topics
3kpmg
Auditor Requirements Auditor Requirements
An audit must be conducted in accordance with GAASAn audit must be conducted in accordance with GAAS
PlannedPlanned
Performed to provide reasonable assurance that the financial Performed to provide reasonable assurance that the financial statements are free of material misstatementstatements are free of material misstatement
Includes examining on a test basis evidence to support the Includes examining on a test basis evidence to support the financial statement disclosuresfinancial statement disclosures
Assessment of accounting principles and estimates used in Assessment of accounting principles and estimates used in preparing the financial statementspreparing the financial statements
Evaluation of the overall financial statement presentationEvaluation of the overall financial statement presentation
4kpmg
Auditor Requirements Auditor Requirements
Financial statements must be prepared in Financial statements must be prepared in accordance with GAAPaccordance with GAAP
Generally GAAP refers to one the following Generally GAAP refers to one the following principlesprinciples
For profit accounting For profit accounting
Not-for-profit accounting Not-for-profit accounting
Public Sector Accounting (PSA)Public Sector Accounting (PSA)
5kpmg
Auditor Requirements Auditor Requirements
For financial statements prepared in accordance For financial statements prepared in accordance with GAAPwith GAAP
an opinion can be issued, either unqualified or an opinion can be issued, either unqualified or qualifiedqualified qualified if any of the following:qualified if any of the following:
Material departure from GAAP, but statements are still Material departure from GAAP, but statements are still deemed usefuldeemed usefulScope limitationScope limitation
deny an opinion if unable to gather sufficient deny an opinion if unable to gather sufficient evidence to form an opinionevidence to form an opinion
6kpmg
Auditor Requirements Auditor Requirements
Financial statements prepared on basis other than GAAP Financial statements prepared on basis other than GAAP permitted only when required bypermitted only when required by
legislation or regulationlegislation or regulation
written contractual agreementwritten contractual agreement
Audit report to include the following:Audit report to include the following:
indicate purpose of the financial statementsindicate purpose of the financial statements
financial statements are not prepared in accordance with financial statements are not prepared in accordance with GAAPGAAP
not intended for and should not be used by anyone other than not intended for and should not be used by anyone other than the specified usersthe specified users
7kpmg
Auditor Requirements Auditor Requirements
Audit report on financial informationAudit report on financial information
reference to the agreement or legislationreference to the agreement or legislation
disclose basis of accounting disclose basis of accounting
define nature of financial information auditeddefine nature of financial information audited
Audit report on control proceduresAudit report on control procedures
perform specified audit procedures perform specified audit procedures
procedures must be well definedprocedures must be well defined
issue an opinionissue an opinion
8kpmg
Auditor Requirements Auditor Requirements
SummarySummary
Audited financial statements Audited financial statements must adhere to GAAPmust adhere to GAAP
Non-GAAP financial statements Non-GAAP financial statements permitted only by legislation or agreementpermitted only by legislation or agreement
disclaimer issueddisclaimer issued
Audit report on financial informationAudit report on financial informationpursuant to agreementpursuant to agreement
Audit report on control procedures Audit report on control procedures perform specified audit proceduresperform specified audit procedures
9kpmg
First Nation Reporting Requirements First Nation Reporting Requirements
INACINAC
Financial statement basis of reportingFinancial statement basis of reporting
Non-financial statement disclosure Non-financial statement disclosure
10kpmg
First Nation Reporting RequirementsFirst Nation Reporting Requirements
INAC – Financial Statement StandardINAC – Financial Statement Standard
Use Generally Accepted Accounting Principles Use Generally Accepted Accounting Principles (GAAP)(GAAP)
First Nations to follow GAAP for local governments First Nations to follow GAAP for local governments as defined in the Public Sector Accounting as defined in the Public Sector Accounting Handbook (PSA)Handbook (PSA)
Tribal Councils and other organizations to follow Tribal Councils and other organizations to follow PSA or Not-For-ProfitPSA or Not-For-Profit
11kpmg
First Nation Reporting RequirementsFirst Nation Reporting Requirements
INACINAC
Non - financial statement disclosureNon - financial statement disclosurePrepare separate schedules for each program/service Prepare separate schedules for each program/service identified in the funding agreementidentified in the funding agreement
Separate schedules for Contributions, Separate schedules for Contributions, shall not shall not combine combine Contribution with Flexible Transfer PaymentsContribution with Flexible Transfer Payments
12kpmg
First Nation Reporting RequirementsFirst Nation Reporting Requirements
INACINAC
Non-financial statement disclosure (cont’d)Non-financial statement disclosure (cont’d)Account for revenue by sourceAccount for revenue by source
Disclose expenditures by objectDisclose expenditures by object
Present cumulative surpluses or deficitsPresent cumulative surpluses or deficits
Provide detail of opening and closing deferred revenueProvide detail of opening and closing deferred revenue
Separate reporting for Consolidated Revenue Fund Separate reporting for Consolidated Revenue Fund withdrawalswithdrawals
13kpmg
First Nation Reporting RequirementsFirst Nation Reporting Requirements
INACINAC
Non-financial statement disclosureNon-financial statement disclosureSchedule of salaries, honoraria, travel expenses and other Schedule of salaries, honoraria, travel expenses and other remuneration for elected officials and senior officialsremuneration for elected officials and senior officials
INAC funding reconciliationINAC funding reconciliation
Schedule of Federal Government Funding or BCR Schedule of Federal Government Funding or BCR permitting disclosure of financial statements to general permitting disclosure of financial statements to general publicpublic
14kpmg
Implications of INAC Reporting Implications of INAC Reporting
Public Sector AccountingPublic Sector Accounting
Recognized as GAAP Recognized as GAAP
Prescribed format for financial statement disclosurePrescribed format for financial statement disclosure
First Nation’s no longer have flexibility to “pick and First Nation’s no longer have flexibility to “pick and choose” accounting policychoose” accounting policy
15kpmg
Public Sector AccountingPublic Sector Accounting
Financial statements to includeFinancial statements to include
All organizations that are controlled by the First All organizations that are controlled by the First NationNation
Control is a question of factControl is a question of fact
Method of including the organization dependent Method of including the organization dependent upon its type of activityupon its type of activity
16kpmg
Public Sector AccountingPublic Sector Accounting
Method of inclusionMethod of inclusion
For-profit entities – modified equity methodFor-profit entities – modified equity methodNo consolidationNo consolidation
Do not eliminate balances between entitiesDo not eliminate balances between entities
For-profit type entities – full consolidationFor-profit type entities – full consolidation
Not-for-profit organizations – full consolidationNot-for-profit organizations – full consolidation
17kpmg
Public Sector AccountingPublic Sector Accounting
Financial ReportingFinancial Reporting
Financial statements to include statements of:Financial statements to include statements of:Financial positionFinancial position
Financial activitiesFinancial activities
Changes in financial positionChanges in financial position
18kpmg
Statement of Financial PositionStatement of Financial Position
To report To report financial financial assets and liabilitiesassets and liabilitiesCategories like restricted, current and long-term are not Categories like restricted, current and long-term are not usedused
Use financial and non-financialUse financial and non-financial
Financial assets include:Financial assets include:CashCash
ReceivablesReceivables
Inventory for resaleInventory for resale
InvestmentsInvestments
Public Sector AccountingPublic Sector Accounting
19kpmg
Statement of Financial PositionStatement of Financial PositionFinancial liabilities include:Financial liabilities include:
Temporary loans payableTemporary loans payable
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities
Deferred revenueDeferred revenue
Long-term debtLong-term debt
Public Sector AccountingPublic Sector Accounting
20kpmg
Statement of Financial PositionStatement of Financial PositionPhysical assetsPhysical assets
Standards provide flexibility to either record or notStandards provide flexibility to either record or not
CICA is studying this issue CICA is studying this issue
Public Sector AccountingPublic Sector Accounting
21kpmg
Statement of Financial ActivitiesStatement of Financial ActivitiesAccount for difference between revenues and expendituresAccount for difference between revenues and expenditures
Account for the combined change in fund balancesAccount for the combined change in fund balances
Revenues include:Revenues include:GrantsGrants
Government fundingGovernment funding
User feesUser fees
Items not included as revenue:Items not included as revenue:Transfers from other fundsTransfers from other funds
Debt proceedsDebt proceeds
Public Sector AccountingPublic Sector Accounting
22kpmg
Statement of Financial ActivitiesStatement of Financial ActivitiesExpenditures includeExpenditures include
Cost for goods and services used (regardless of payment)Cost for goods and services used (regardless of payment)
Salaries and wagesSalaries and wages
SuppliesSupplies
Interest on borrowingsInterest on borrowings
Items not included as expendituresItems not included as expendituresTransfers to other fundsTransfers to other funds
Debt repaymentsDebt repayments
Public Sector AccountingPublic Sector Accounting
23kpmg
Statement of Financial ActivitiesStatement of Financial ActivitiesExpenditures should be reported by functionExpenditures should be reported by function
HealthHealthSocial servicesSocial servicesGeneral governmentGeneral government
Financial statements should also disclose expenditures by Financial statements should also disclose expenditures by objectobject
Recommend note or schedule disclosureRecommend note or schedule disclosureWould include disclosure for:Would include disclosure for:» SalariesSalaries» Materials and suppliesMaterials and supplies
Public Sector AccountingPublic Sector Accounting
24kpmg
Statement of Changes in Financial PositionStatement of Changes in Financial PositionReport changes in cash and cash equivalentsReport changes in cash and cash equivalents
Classify cash flows as:Classify cash flows as:OperatingOperating
InvestingInvesting
FinancingFinancing
Public Sector AccountingPublic Sector Accounting
25kpmg
Fund ReportingFund ReportingFinancial statements should report fund balances for the Financial statements should report fund balances for the following:following:
Current fundCurrent fund
Capital fundCapital fund
Reserve fundReserve fund
Changes in fund balances should be reportedChanges in fund balances should be reported
Public Sector AccountingPublic Sector Accounting
26kpmg
Inconsistent with INAC required schedules of revenue and Inconsistent with INAC required schedules of revenue and expenditureexpenditure
Revenue disclosed by category not sourceRevenue disclosed by category not source
Expenditures disclosed by program not objectExpenditures disclosed by program not object
No disclosure of cumulative surpluses and deficits by programNo disclosure of cumulative surpluses and deficits by program
No disclosure of deferred revenue opening and closingNo disclosure of deferred revenue opening and closing
No deferred expenditure concept for timing differences on No deferred expenditure concept for timing differences on capital projects – included with fund balancecapital projects – included with fund balance
Impact of PSA to First NationsImpact of PSA to First Nations
27kpmg
Debt is no longer a source of revenue Debt is no longer a source of revenue
Likely expenditures will exceed revenues prior to Likely expenditures will exceed revenues prior to debt – may be interpreted as deficitdebt – may be interpreted as deficit
Debt financing of physical assets Debt financing of physical assets
Ensure asset is recorded to avoid reduction of Ensure asset is recorded to avoid reduction of overall Members’ Equityoverall Members’ Equity
Impact of PSA to First NationsImpact of PSA to First Nations
28kpmg
Financial terms are not consistent with funding Financial terms are not consistent with funding agreementsagreements
Agreements consider default if cumulative deficit Agreements consider default if cumulative deficit equals 8% or more of total annual revenueequals 8% or more of total annual revenue
Financial statements do not disclose cumulative surplus or Financial statements do not disclose cumulative surplus or deficitdeficit
INAC does not define which cumulative surplus or deficit INAC does not define which cumulative surplus or deficit used in calculationused in calculation
Subjective interpretation by INACSubjective interpretation by INAC
Impact of PSA to First NationsImpact of PSA to First Nations
29kpmg
Separate entities under Chief and Council’s control Separate entities under Chief and Council’s control will have to be included in First Nation resultswill have to be included in First Nation results
Defining control can become a significant issueDefining control can become a significant issue
Chief and Council may interpret control differently Chief and Council may interpret control differently than PSAthan PSA
INAC has interpreted control subjectively INAC has interpreted control subjectively
Impact of PSA to First NationsImpact of PSA to First Nations
30kpmg
Health Canada Reporting RequirementsHealth Canada Reporting Requirements
Health Canada – Health Canada – Transfer AgreementsTransfer Agreements (Feb /04) (Feb /04)
Separate audited financial statements including Separate audited financial statements including balance sheet and revenue and expenditurebalance sheet and revenue and expenditure
Program revenue and expenditure activity by objectProgram revenue and expenditure activity by object
Disclosure of Moveable Capital Asset Reserve Disclosure of Moveable Capital Asset Reserve activityactivity
Specify financial statement disclosure that is not Specify financial statement disclosure that is not GAAPGAAP
31kpmg
Health Canada Reporting RequirementsHealth Canada Reporting Requirements
Health Canada – Health Canada – Transfer AgreementsTransfer Agreements (Feb /04) (Feb /04)
Require auditor to attest that “all resources were Require auditor to attest that “all resources were used in accordance with the terms and conditions of used in accordance with the terms and conditions of the agreement”the agreement”
32kpmg
Health Canada Reporting RequirementsHealth Canada Reporting Requirements
Health Canada – Audit ImplicationsHealth Canada – Audit Implications
Non-GAAP financial statements require disclaimer Non-GAAP financial statements require disclaimer
Cannot attest that Cannot attest that all resources were used in all resources were used in accordance with terms of the agreementaccordance with terms of the agreement unless unless
100% examination100% examination
33kpmg
Health Canada Reporting RequirementsHealth Canada Reporting Requirements
Health Canada – Implications to First NationsHealth Canada – Implications to First Nations
Balance sheet can be difficult to extract if Health Balance sheet can be difficult to extract if Health operations are consolidated with other operations operations are consolidated with other operations
Auditor’s inability to comply with terms of agreement Auditor’s inability to comply with terms of agreement may cause Health Canada concernsmay cause Health Canada concerns
34kpmg
First Nation Reporting Requirements First Nation Reporting Requirements
Future items Future items
Expanded requirements with increased Expanded requirements with increased accountabilityaccountability
Audit opinion on internal controlAudit opinion on internal control
Audit opinion on effectiveness of proceduresAudit opinion on effectiveness of procedures
35kpmg
First Nations PreparationFirst Nations Preparation
Financial information Financial information mustmust support operation support operation management management
timely timely
accurate accurate
relevantrelevant
understandableunderstandable
36kpmg
First Nations PreparationFirst Nations Preparation
Reporting flexibility is necessary and should meet Reporting flexibility is necessary and should meet
Internal needsInternal needs
External needsExternal needsGeneral audit requirementsGeneral audit requirements
Specific project or program objectivesSpecific project or program objectives
37kpmg
First Nations PreparationFirst Nations Preparation
General ledger design is fundamental General ledger design is fundamental
Flexible and adaptableFlexible and adaptable
Chart of accounts to includeChart of accounts to includeDepartments, programs or projectsDepartments, programs or projects
Identify specific objects – wages, supplies, revenue Identify specific objects – wages, supplies, revenue sources etc.sources etc.
38kpmg
First Nations PreparationFirst Nations Preparation
Understand funding arrangements Understand funding arrangements
Review terms and conditionsReview terms and conditions
Review reporting requirementsReview reporting requirements
Examine reporting formatExamine reporting format
Inform external auditors of any particularsInform external auditors of any particulars
39kpmg
First Nations PreparationFirst Nations Preparation
Ensure the accounting system captures Ensure the accounting system captures
Chief and Council honorariaChief and Council honoraria
Salaries and benefits for senior managementSalaries and benefits for senior management
Capital assets acquired Capital assets acquired
Debt repayments Debt repayments
Revenue transfersRevenue transfers
40kpmg
First Nations PreparationFirst Nations Preparation
Lobby INAC for standardized reporting frameworkLobby INAC for standardized reporting framework
41kpmg
OUESTIONS?OUESTIONS?