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School Board Audit Committee Training

Module 5

Understanding the Basic Elements of School Board Financial Statements

Session objectives

After completing this session you will:

Understand the Audit Committee’s duties related to the financial reporting process

Have an overview of School Board financial statements

Understand key features of PSA Handbook

Understand key indicators in School Board financial statements

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Role and Accountabilities of a School BoardDuties 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

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• 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

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Financial Reporting Overview

• 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

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Accounting Standards for School Boards

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

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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

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P

S

A

B

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)

Changes in Accounting Frameworks relating to Government Organizations

Financial Reporting Overview – Why PSA?Unique characteristics of a School Board

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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

• 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)

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Financial Reporting Overview

• 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.

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Financial Reporting Overview

• EFIS contains significantly more detail than summary financial statements, including grant calculations and supplementary information important for funding decisions

EFIS

General Purpose Financial

Statements

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Anytown District School BoardStatement of Financial Positionas at August 31, 2010

2010 2009

Financial Assets

Cash 500 400

Accounts Receivable 250 150

Inventory Held for Resale 30 50

Total financial assets 780 600

Liabilities

Accounts payable and accrued liabilities 200 190

Due to Province of Ontario 50 30

Employee future benefits payable 400 390

Net long-term debt 300 310

950 920

Non-financial assets

Tangible capital assets 1,780 1,550

Prepaid expenses 10 9

Inventory of supplies 15 12

1,805 1,571

Net Debt (170) (320)

Accumulated Surplus 1,635 1,251

Prior year comparatives are required on Statement of Financial Position

• Assets that can be used to discharge existing liabilities or finance future operations

• No distinction between current and long-term financial assets

Key indicatorDifference between financial assets and financial liabilities represents future revenue required to pay for past transactions

Key indicator• Represents school boards net economic

resources• Amount by which all assets exceed all

liabilities

• All liabilities are reported• No distinction between current and long-

term liabilities

Assets available for provision of services typically not used for discharging existing liabilities or financing future operations

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Anytown District School BoardStatement of OperationsYear 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

Expenses

Instruction 1,400 1,450 1,350

Administration 120 130 100

Transportation 100 107 90

School funded activities 10 9 7

1,630 1,696 1,547

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

Revenues recorded by significant type

• 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

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Anytown District School BoardStatement of Change in Net DebtYear ended August 31, 2010

Prior year comparatives are presented as well as original approved budget (in PSA format)

Budget 2010 2009

Annual surplus 460 384 327

Acquisition of tangible capital assets (100) (300) (90)

Amortization of tangible capital assets 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

Change in net debt 410 150 271

Net debt, beginning of year (320) (320) (591)

Net debt, end of year 90 170 320

This represents the change in future revenue requirements.

Shows other non-financial assets impact on the difference between surplus for year and change in net debt

Shows the TCA impact on the difference between surplus for the period 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

Financial Reporting Overview

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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

Case Study

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