PACC Committee Report

RESPONSES TO RECOMMENDATIONS OF THE SECOND REPORT

OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS

RECOMMENDATION 1  -- That the Government of Canada continue to follow the standards issued by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants as they evolve.

RESPONSE:  

The Government will continue to prepare its financial statements following its stated accounting policies that are based on standards issued by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants.  The Auditor General audits the statements for compliance and consistency with the government's policies as they are described in the financial statements and also ensuring that the information is presented fairly.

As stated by the Auditor General in the 1999-2000 Public Accounts, Canada remains a world leader in government-wide financial reporting.  

RECOMMENDATION 2 -- That the Government of Canada fully implement the Financial Information Strategy according to its scheduled 1 April 2001 deadline.

RESPONSE:

The Financial Information Strategy (FIS) has been a government priority since 1995.  The goal of bringing FIS systems on-line by April 1, 2001, has been met and the infrastructure required to support the FIS is now in place.  It has been a massive undertaking, changing the way government departments and agencies have kept their books for more than one hundred years.

The Government will continue efforts to take full advantage of the opportunities that FIS will provide.  To ensure that all managers across Government are able to use the information generated from FIS in their day-to-day decision-making, training and learning for managers will continue in 2001-2002.  At the same time, departments and agencies will further refine their accounting policies and complete remaining work on capital assets.

For consolidated government financial reporting, monthly financial statements will continue on a “modified” accrual basis until publication of the annual audited 2001-2002 financial statements on a “full” accrual basis.

RECOMMENDATION 3 -- That the Government of Canada ensure that all accountability documents containing financial information for Parliament are expressed on a full accrual basis, as soon as possible.

RECOMMENDATION 4 -- That the Treasury Board Secretariat complete its consultations with parliamentarians aimed at determining the best possible options to convert the appropriations (supply) process towards full accrual basis and report the results to the House of Commons by 31 March 2002.

RECOMMENDATION 5 -- That the Government of Canada move to an accrual-based system of appropriations (supply) by 1 April 2003.

RESPONSE:

The subject of accrual-based appropriations is very complex and requires careful review and consultation.  Until this is completed, it would be premature to commit to their adoption and specific deadlines.  We are learning from the experiences of other countries that caution us not to rush too quickly into this decision.

Internationally, there is no consensus as to whether accrual budgeting and accrual appropriations regimes must accompany an accrual accounting regime for financial reporting.  Although each country accepts the fundamental objectives of good budgeting and reporting practices, there is no common path for moving forward and, in fact; there are several very different approaches that are workable.

We appreciate that both New Zealand and Australia have implemented accrual appropriations.  As the Response to Recommendations 8 and 9 will indicate, we can learn from their efforts, but we cannot simply replicate them. They were made in the context of a larger change to a comprehensive management regime that is different from the Canadian model. 

The decisions taken respecting any contemplated changes to our budgeting and appropriation practices will have tremendous impact and consequences for government.  This strongly underlies the need for very careful, rigorous, and exhaustive study before taking any decisions in the area for the Government of Canada. 

Once a decision has been made on the form of the appropriations, the details must still determined and an implementation plan developed.  The time frame for all this depends on the nature of the changes to be made: potential amendments to legislation; nature of system enhancements; the production schedule for publishing the Estimates documents, etc.  It is extremely unlikely that such a significant project could be completed by 1 April 2003.

RECOMMENDATION 6 -- That, in conjunction with the implementation of the Financial Information Strategy, all departments and agencies undertake to prepare and make public financial statements in auditable form on at least an annual basis.

RECOMMENDATION 7 -- That the Treasury Board Secretariat explore the inclusion, in the annual departmental performance reports, of departmental financial statements in a manner that will facilitate the comparison of program outcomes and outputs with program costs.

RESPONSE:

The Government agrees with the recommendation that departments and agencies prepare annual departmental financial statements in an auditable form.  This has long been a requirement of the implementation of FIS and has been mentioned in numerous documents including the Government Response to the 5^th PAC Report on the Public Accounts of Canada 1998-1999.

The manner in which these statements can be best integrated within departmental annual reports is under review.   Our accounting standards, upon which these statements will be based, recommend that expenses be presented by program line thus facilitating a comparison of program costs to program outputs and outcomes.

RECOMMENDATION 8  -- That as it makes changes to financial reporting, the Government of Canada monitor Australia and New Zealand’s efforts closely, with a view to learning best practices and finding solutions to common problems.

RECOMMENDATION 9 -- That as the Government of Canada determines how best to move towards accrual-based appropriations, it review New Zealand’s experience, and consult officials in that country with regard to best practices.

RESPONSE:

Over the course of the implementation of FIS, the Government has consulted with and will continue to work with officials from a number of countries, including Australia and New Zealand, that have implemented accrual reporting and appropriations.   

On a wider range of financial issues, it should be noted that officials from Treasury Board Secretariat actively participate in numerous national and international forums.  For example, there is the annual federal-provincial-territorial comptrollers' conference as well as an annual colloquium on financial management for national governments. This colloquium is co-chaired by Canada and the United States and has grown to include a dozen countries. These meetings allow an exchange of views and best practices on financial management, accounting policies and other developments

RECOMMENDATION 10 -- That the Government of Canada continue to lend its full support to the efforts of the International Federation of Accountants to develop international guidelines and standards for financial reporting.

RECOMMENDATION 12 -- That once finalized, the Government of Canada publicly endorse the concept of international public sector financial reporting guidelines and standards to be issued by the Public Sector Committee of the International Federation of Accountants, and use its influence to promote their adoption and use.

RESPONSE:

The Government will continue to support the International Federation of Accountants (IFAC) by contributing to the development of international standards for financial reporting and creating awareness of such standards at various national and international forums.  IFAC is a non-political, non-governmental organization of professional accounting.  As such, the support the Government of Canada, or any government can give, is limited so the independence of IFAC can be maintained. The Government endorses the concept of international standards and endorses their use while still recognizing, as does IFAC, the right of governments and national standard setters to establish guidelines and accounting standards to regulate financial reporting by the public sector in their jurisdictions.

These national standards may be different from those established by IFAC.  National standard setters will establish standards for financial reporting that fit in with the larger management system of the country.  First and foremost, the management system will reflect the individual country's particular objectives.  The requirements of international standards can be implemented to the extent that they do not conflict with attaining these objectives and their supporting institutions. 

RECOMMENDATION 11 -- That the Government of Canada give serious consideration to being a contributing partner to the provision of funding to the Public Sector Committee of the International Federation of Accountants to be directed towards the translation of all key documents issued by the Standards Project.

RESPONSE:

IFAC will now translate accounting standards into several languages, including French.

RECOMMENDATION 13 -- That Canada use its influence as a member of the G8, and other appropriate international forums to which it belongs, to encourage fellow members to adopt transparent financial reporting practices.

RESPONSE:

The Government agrees to use its influence as a member of G7, G8, G20 and other international organizations to encourage fellow members to adopt transparent financial reporting practices.  The Minister of Finance has actively promoted the 12 key codes and standards noted by the Financial Stability Forum of the IMF as key for sound financial systems.

One of the best ways to influence others is to lead by example.  It is heartening to note that Canada is in an elite group in the transparency of its financial reporting and that Mr. Erik Peters, the representative of IFAC, gave Canada such a high mark in the application of accounting standards.

RECOMMENDATION 14 -- That the Government of Canada provide financial and technological assistance in building financial reporting capacity to developing nations as part of its foreign aid programs.

RESPONSE:

In company with other multilateral and bilateral donors, the Government of Canada has recognized for some years the importance of good governance to development: human rights, democratization and good governance comprise a priority area for the work of the Canadian International Development Agency (CIDA).  Programming under this priority represents the Agency’s second largest area of activity, reflecting the fact that the ability and competence of public sector institutions to plan and manage is key to any country's socio-economic transformation.

CIDA programming supports a wide range of activities that contribute to greater transparency and better accountability of governments, stronger parliaments to oversee governments and efforts to reduce corruption and its negative impacts.