School Board Audit Committee Training

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• School Board Audit Committee Training
• Module 5
• Understanding the Basic Elements of School Board
  Financial Statements

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Session objectives
After completing this session you will
Understand the Audit Committees 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
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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 Boards 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 Reporting Overview

• Financial statements are a fundamental component
  of school boards financial reporting
• For financial statements to be credible, readers
  need to have confidence that the statements
  follow accepted and identifiable standards
  established by an arms 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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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

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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-organiz
  ations (PS 4200 PS 4270)
• Contains sections dealing with NPOs such as
• PS 4210 Contributions

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Changes in Accounting Frameworks relating to
Government Organizations
P S A B Type of Organization Accounting Framework First reporting period year beginning on or after
P S A B Government/School Board PSA Standards No change in framework N/A
P S A B Government Not-for-Profit Organization (GNFPO) Choice of Existing NPO standards (4400 series with minor modifications) PSA Standards as underlying framework, or PSA Standards (without NPO standards) January 1, 2012
P S A B Other Government Organization (OGO) PSA Standards or IFRSs based on assessment of users needs January 1, 2011
P S A B Government Business Enterprise IFRSs January 1, 2011 (certain entities may qualify for 1 year deferral)
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Financial Reporting Overview Why PSA?Unique
characteristics of a School Board
Unique Characteristic Reporting Implications
School Boards 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 Boards 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
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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)

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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

• 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.

General Purpose Financial Statements
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Anytown District School Board Statement of
Financial Position as at August 31, 2010
Prior year comparatives are required on Statement
of Financial Position
2010 2009
Financial Assets
Cash 500 400
Accounts Receivable 250 150
Inventory Held for Resale 30 50
Total financial assets 780 600

• Assets that can be used to discharge existing
  liabilities or finance future operations
• No distinction between current and long-term
  financial assets

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

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

Key indicator Difference between financial assets
and financial liabilities represents future
revenue required to pay for past transactions
Net Debt (170) (320)
Non-financial assets
Tangible capital assets 1,780 1,550
Prepaid expenses 10 9
Inventory of supplies 15 12
1,805 1,571
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

Accumulated Surplus 1,635 1,251
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Anytown District School Board Statement of
Operations Year ended August 31, 2010
Prior year comparatives are presented as well as
original approved budget (in PSA format)
Budget 2010 2009
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
Revenues recorded by significant type
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

• Expenses reported by function or major program
• Note disclosure required to report expenses by
  object (salaries, supplies)

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

• 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 Board Statement of Change
in Net Debt Year 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
Shows the TCA impact on the difference between
surplus for the period and change in net debt

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

Change in net debt 410 150 271
Net debt, beginning of year (320) (320) (591)
Net debt, end of year 90 170 320
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.
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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

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Case Study