ThinkTWENTY20

By Thaksa Sethukavalan, MFin, CPA, CA

Thaksa Sethukavalan, MFin, CPA, CA , is a Principal of CPA Canada’s Public Sector Accounting Board.

At its May 5, 2020 meeting, the Public Sector Accounting Board (PSAB) voted to approve Option 2: Adapt IPSAS principles when developing future standards as its international strategy. This decision has been years in the making and involved extensive consultation with Canadian stakeholders. 

Over the last decade, IPSAS have matured and are a high-quality and comprehensive set of accounting standards. With other jurisdictions comparable to Canada adopting or adapting International Public Sector Accounting Standards (IPSAS), the Board signaled its intent to review its approach towards IPSAS in its Strategic Plan.

PSAB considered four options for its international strategy. Two consultation papers were issued in Canada outlining the four options. After careful review of all stakeholder input, the Board concluded that the best way forward is Option 2: Adapt IPSAS principles when developing future standards.

Under this option, PSAB will continue to develop PSAS, but future standards will be based on the principles in IPSAS standards. This means that, if a project is undertaken and an IPSAS already exists, the principles of that IPSAS will be used as a base for developing the corresponding Canadian PSAS. When PSAB chooses to develop a standard where there is no equivalent IPSAS standard, the standard would be developed as they are today.

The Board has established “Criteria for Modifying and Reviewing Principles in IPSAS” that act as a framework and provide guidance on when departures from IPSAS principles are permitted. Examples of circumstances where modification would be allowed include IPSAS principles that are contrary to PSAB’s conceptual framework, or IPSAS principles that are not appropriate for application in Canada based on the Canadian public interest.

The Board has also made amendments to Generally Accepted Accounting Principles, Section PS 1150, to outline IPSAS as the first source to consult when no PSAS standard exists. PSAB is of the view that if a new transaction or event occurs and it is necessary to consult pronouncements issued by other bodies authorized to issue accounting standards, it is logical to consult IPSAS first as a future PSAS standard on the transaction would likely be based on those IPSAS principles.  Consequently, in the future, if PSAB determines that there is a need to develop a standard and adapts an IPSAS that already exists, transition related to this new standard will be easier for public sector organizations. This would be because they would likely have already considered using the IPSAS pronouncements because of this modification to the GAAP hierarchy.

Under this option, PSAB will maintain its role as the sole standard setter authorized to set generally accepted accounting standards for all public sector entities in Canada. It will also continue to have complete autonomy in developing PSAS and determining which standards are to be developed.

The effective date of the Board’s decision was May 5, 2020, to be implemented for all new projects beginning on or after April 1, 2021. PSAB has issued a Basis for Conclusions document on the International Strategy decision, as well as a Basis for Conclusions document on the decision to modify the GAAP Hierarchy outlined in Generally Accepted Accounting Principles, Section PS 1150.

The decision to modify PSAB’s International Strategy will have a positive and continued impact on Canada’s ability to be a leader in public sector standard setting moving forward. It will enable Canada to develop standards more efficiently, and better place Canada in influencing the development of IPSAS in the future.