Accrual in Canada

CICA Research Report
Principal Author: Terry Christie

May 2009
Notice to Reader
The Knowledge Development Group of the Canadian Institute of Chartered Accountants (CICA) commissioned
this Research Report as part of its continuing research program. The views and conclusions expressed in this
publication are those of the principal author. They have not been adopted, endorsed, approved, disapproved or
otherwise acted upon by a Board, Committee, the governing body or membership of the CICA or any provincial
Institute/Ordre.
The CICA research report

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments
is available on the Internet (www.cica.ca).
Library and Archives Canada Cataloguing in Publication

Christie, Terry, 1947
Accrual budgeting by Canadian federal, provincial and
territorial governments / principal author, Terry Christie.
Includes bibliographical references.
ISBN 978-1-55385-437-1

1. Accrual basis accounting--Canada. 2. Finance,
Public--Canada--Accounting. 3. Budget--Canada.
I. Canadian Institute of Chartered Accountants II. Title.
HJ9921.C465 2009
657.83500971
Copyright 2009
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, Canada
M5V 3H2
Printed in Canada
Disponible en franais
C2009-904418-8
Accrual Budgeting
by Canadian Federal, Provincial and Territorial Governments
Principal Author: Terry Christie
OTHER RESEARCH REPORTS AND RESEARCH STUDIES

*
*
*
*
*

*
*
*
*
*
*
*
*
*
*
*

*
*

*

*

*

*
*

Limited Audit Engagements and the Expression of Negative Assurance (1980)

Extent of Audit Testing (1980)
Accounting for Pension Costs and Liabilities (1980)
Analytical Review (1983)
Accounting for Portfolio Investments (1984)
Financial Statements for Pension Plan Participants (1984)
Pension Plan Auditing (1984)
Financial Reporting by Credit Unions (1984)
Materiality: the Concept and its Application to Auditing (1985)
Local Government Financial Reporting (1985)
Accounting and Financial Reporting by Agricultural Producers (1986)
Accounting and Reporting by Venture Capital Organizations (1987)
Professional Judgment in Financial Reporting (1988)
Incorporating the Time Value of Money within Financial Accounting (1988)
Accounting and Financial Reporting by Junior Mining Companies (1988)
Accounting and Reporting Physical Assets by Governments (1989)
The Financial Statement Presentation of Corporate Financing Activities (1989)
Approaches to Dealing with Risk and Uncertainty (1990)
Reporting the Effects of Changing Prices: A Review of the Experience with Section 4510 (1990)
The Going Concern Assumption: Accounting and Auditing Implications (1991)
Interim Financial Reporting: A Continuous Process (1991)
Information to be Included in the Annual Report to Shareholders (1991)
Value-for-Money Audit Evidence (1991)
Environmental Auditing and the Role of the Accounting Profession (1992)
Financial Reporting for Segments (1992)
Environmental Costs and Liabilities: Accounting and Financial Reporting Issues (1993)
Using Ratios and Graphics in Financial Reporting (1993)
Professional Judgment and the Auditor (1995)
Accounting and Reporting for Enterprises in the Development Stage (1996)
Financial Reporting by Canadian School Boards (1996)
Indicators of Government Financial Condition (1997)
Financial Reporting by Investment Funds (1997)
Full Cost Accounting from an Environmental Perspective (1997)
Costing Government Services for Improved Performance Measurement and Accountability (1999)
Continuous Auditing (1999)
Financial Reporting by Small Business Enterprises (1999)
The Impact of Technology on Financial and Business Reporting (1999)
Use of Specialists in Assurance Engagements (2000)
Assessing Risks & Controls of Investment Funds (2000)
Audit Enquiry: Seeking More Reliable Evidence from Audit Enquiry (2000)
Financial Reporting by Rate-Regulated Enterprises (2002)
Accounting for Infrastructure in the Public Sector (2002)
Electronic Audit Evidence (2003)
Stakeholder Relationships, Social Capital & Business Value (2003)
Accounting Bases Used in Canadian Government Budgeting (2004)
Electronic Filing and Reporting: Emerging Technologies and Their Implications (2005)
Secure IT Infrastructure for E-commerce (2005)
Interactive DataBuilding XBRL Into Accounting Information Systems (2007)
Corporate Reporting to Stakeholders (2008)
Using Graphics in Corporate Reporting (2008)
*Research Study
FOREWORD
In 2004, the Canadian Institute of Chartered Accountants (CICA) published the Research Report Accounting
Bases Used in Canadian Government Budgeting. That
report surveyed the accounting standards Canadas
senior governments then used in budgets and appropriations documents and compared them to those adopted
for summary financial statements. The publication
prompted many government budgeting officials to ask
for further research on accrual budgeting issues. In
response, the CICA commissioned a series of discussion
papers, leading up to this overall CICA research report,
Accrual Budgeting by Canadian Federal, Provincial and
Territorial Governments.
The objective of this Research Report is to address
current issues Canadian federal, provincial, and
territorial governments need to deal with when
preparing appropriations documents (appropriations/
estimates) and accrual-based budget documents,
including the reconciliation of budgets to financial
statements to prepare the budget to actual
comparisons required by the CICA Public Sector
Accounting Handbook.
The CICA expresses its appreciation to Terry Christie,

the principal author of this Research Report. A special
thank you is extended to all respondents to the 2008
workshop survey questionnaire on the current status
and future outlook of accrual budgeting by governments
across Canada. The advice provided by members of the
Government Accrual Budgeting Advisory Group, who
are listed on the next page, is also appreciated, as is the
CICA staff support by J. Paul-mile Roy, CA, who
directed the project and assisted in drafting the report.
The views expressed in this report are those of the principal author. They are intended to stimulate thought,
discussion and debate. Feedback and comments are
welcome and should be addressed to J. Paul-mile
Roy, CA (research.studies@cica.ca).
Toronto, May 2009
CICA Research Studies
GOVERNMENT ACCRUAL BUDGETING

ADVISORY GROUP
Bill Hogg, CA (Chair)
Consultant, Halifax
(retired, formerly Deputy Minister of Finance, Province of Nova Scotia)
Bruce Bennett, CA
Ontario Treasury Board Office, Toronto
Terry Christie
Consultant, Fredericton
(retired, formerly Department of Finance, Province of New Brunswick)
Diana Eisenhauer, FCGA
Nova Scotia Treasury and Policy Board, Halifax
Doug Lynkowski, CA
Alberta Treasury Board Ministry, Edmonton
Kim MacPherson, CA
New Brunswick Office of the Comptroller, Fredericton
Martin Rodrigue, CA
Ministre des Finances (Quebec), Quebec City
Ken Wheat
Treasury Board of Canada, Secretariat, Ottawa
Debra Woodgate
Manitoba Civil Service Commission, Winnipeg
(formerly Treasury Board Secretariat)
CICA STAFF
J. Paul-mile Roy, CA
Principal, Research Studies Department
Knowledge Development Group
TABLE OF CONTENTS
Page
Chapter 1
INTRODUCTION..................................................................................................................................................... 3
BACKGROUND....................................................................................................................................................................................
ADDRESSING ACCRUAL BUDGETING ISSUES....................................................................................................................
PURPOSE AND APPROACH TO THIS RESEARCH REPORT..........................................................................................
3
4
5
Chapter 2
ABOUT ACCRUAL BUDGETING........................................................................................................................ 9
INTRODUCTION..................................................................................................................................................................................
BASES OF ACCOUNTING FOR SENIOR GOVERNMENTS..............................................................................................
IMPACT OF INTERNATIONAL STANDARDS..........................................................................................................................
IMPACT OF THE PRIVATE SECTOR...........................................................................................................................................
EVENTS LEADING TO THE ADOPTION OF ACCRUALS.................................................................................................
ACCOUNTING STANDARDS ........................................................................................................................................................
BUDGETING DOCUMENTS............................................................................................................................................................
CONCLUSION.......................................................................................................................................................................................
9
9
10
11
12
13
14
16
Chapter 3
ACCOUNTABILITY FOR FINANCIAL MANAGEMENT................................................................................. 19
INTRODUCTION..................................................................................................................................................................................
LEGISLATIVE ACCOUNTABILITY FOUNDATIONS.............................................................................................................
SUMMARY BUDGETS, ESTIMATES, AND APPROPRIATIONS .....................................................................................
GOVERNMENT BUDGETING ENTITY........................................................................................................................................
Method of Accounting.............................................................................................................................................................................
Impact of Full-Accrual Accounting..................................................................................................................................................
Transition to International Financial Reporting Standards (IFRS)..................................................................................
LEGISLATORS AND THE PUBLIC...............................................................................................................................................
ACCRUALS AND THE BOTTOM LINE.......................................................................................................................................
CONCLUSION.......................................................................................................................................................................................
19
19
22
23
23
24
24
25
26
28
Chapter 4
BUDGET TRANSPARENCY................................................................................................................................. 29
INTRODUCTION.................................................................................................................................................................................. 29
LEGISLATION AND POLICIES ..................................................................................................................................................... 29
CONCLUSION....................................................................................................................................................................................... 31
Page
Chapter 5
ACCRUAL-BASED DECISION MAKING........................................................................................................... 33
INTRODUCTION..................................................................................................................................................................................
FUNDAMENTALS OF BUDGET DECISION MAKING..........................................................................................................
CAPITAL BUDGET DECISIONS....................................................................................................................................................
OTHER DECISIONS AFFECTED BY ACCRUALS..................................................................................................................
PROGRAM MANAGEMENT............................................................................................................................................................
CONCLUSION.......................................................................................................................................................................................
33
33
34
35
36
37
Chapter 6
ACCRUAL BUDGETING ISSUES........................................................................................................................ 39
INTRODUCTION..................................................................................................................................................................................
PERFORMANCE AND BUDGETING ACCOUNTABILITY..................................................................................................
SERVICE DELIVERY OPTIONS.....................................................................................................................................................
INTERNATIONAL PRACTICES......................................................................................................................................................
FUTURE RESEARCH NEEDS.........................................................................................................................................................
CONCLUSION.......................................................................................................................................................................................
39
39
40
41
42
43
Chapter 7
FUTURE CHALLENGES FOR ACCRUAL BUDGETING................................................................................ 45
INTRODUCTION..................................................................................................................................................................................
ACCRUAL BUDGETING CHALLENGES....................................................................................................................................
Legislative Authority.................................................................................................................................................................................
Budgeting Entity.........................................................................................................................................................................................
Capital Assets...............................................................................................................................................................................................
Communications.........................................................................................................................................................................................
Innovative Decision Making..................................................................................................................................................................
CONCLUSION.......................................................................................................................................................................................
45
45
45
46
47
47
49
50
Appendix A
OBJECTIVE AND TERMS OF REFERENCE.................................................................................................... 51
Appendix B
GOVERNMENT BUDGETING WORKSHOP QUESTIONNAIRE................................................................. 53
Appendix C
GOVERNMENT BUDGETING WORKSHOPSURVEY RESULTS............................................................. 59
Appendix D
LISTING OF LEGISLATION.................................................................................................................................. 69
GLOSSARY............................................................................................................................................................... 71
SELECTED BIBLIOGRAPHY............................................................................................................................... 75
EXECUTIVE OVERVIEW
Budgeting is considered to be the most important
process in government financial management as
it ensures that policies are translated into concrete
programs by allocating resources to meet the goals
and aspirations of the public. It is a political process
resulting in documents such as summary budgets,
estimates and appropriations. These documents permit
budgeting decisions to be communicated effectively,
hold the government accountable for those decisions
and form the foundation for legislative approval and
administrative control.
Government financial management systems have, over
the years, been influenced by the economy, the evolution
of such systems in the private sector and international
developments. Within this context, there has been
nothing more far reaching, nor had greater impact, than
the adoption of accrual-based accounting and the introduction of accountability and transparency obligations.
In fact, the adoption of full-accrual accounting as the
standard for financial reporting was the impetus for
the introduction of accruals into budgeting practices.
An accounting gap has, however, appeared between
what is actually reported in financial statements and
what was in the original budgets. The issues associated
with this gap now require urgent attention from senior
governments and standard setters.
In recent years, governments introduced statutory obligations and policies intended to hold them accountable
and ensure transparency for financial decisions flowing
from the budgeting process. To meet those goals,
governments amended financial administration acts or
introduced new legislation on topics such as balanced
budgets, fiscal accountability and transparency and

debt management/reduction. Senior governments have
little in common, however, when it comes to approaches
to and content of such commitments, with most laws,
regulations and policies aimed at meeting the needs of a
particular jurisdiction.
Over the past decade, governments have made good
progress toward balancing budgets, reducing debt and
implementing solid foundations for ensuring accountability and transparency. The results have shown a steady
improvement in financial health and overall optimism
centered on the continuation of meeting the needs of the
public while maintaining a fiscal philosophy of living
within our means.
Unfortunately, heading into the next several years,
a great deal of this optimism has been tempered by
recent economic events and the resulting challenges of
meeting statutory commitments to balanced budgets
and to manage/reduce debt. Time will show that the
true test of these obligations is not their effectiveness
during periods of economic growth but, rather, how
effective they are during economic downturns.
The new challenges have put the future role of accrual
budgeting into question. Some jurisdictions will
continue to view accruals as an accounting exercise,
a requirement to be followed for the preparation of
financial statements. Accruals will, however, have little
impact on their decision making or budgeting practices.
Other jurisdictions will use accruals as a budget planning tool to provide increased information, options and
opportunities to address fiscal issues. Which jurisdictions will be better positioned to meet the challenges of
future years is a matter for history to determine.
Chapter 1
INTRODUCTION
BACKGROUND
Budget documents connect government policies with
the resources necessary to achieve accountability
and transparency objectives. Therefore, the budget
can be considered the main source for ensuring that
governments wisely spend money raised through
taxation and meet the goals intended through their
expenditures. No other legislative document has such
authority, which is why legislators, the press and the
public pay so much attention to government budgets.
The government budgeting community recognizes the
importance of having congruence in their budgeting
and reporting documents and are working toward the
adoption of similar accounting policies or reconciliation features that tie the two together. For a number
of years, budgeting officials have had an opportunity
to reflect on the accounting bases used for financial
reporting purposes. They have expressed their opinions
on changes to accounting standards and have made
an effort to keep up to date on changing accounting
practices both within Canada and internationally.
In 2003, the Canadian Institute of Chartered Accountants (CICA) acknowledged the need for research in
accounting for budgeting purposes. More specifically,
the CICA wanted to analyze the impact of a new financial reporting model scheduled for implementation on
or before April 2005. Central to this new model was
the transformation of government reporting based on
modified accrual accounting to a full-accrual approach.
For most jurisdictions, this meant the full recognition of
non-financial assets (capital) and the adoption of capitalization principles for financial reporting purposes.
Of additional significance under the new reporting
model was the requirement to compare actual and
budgeted results. For such comparisons, the planned

results were to be presented for the same scope of activities and on a basis consistent with those used for actual
results (see CICA Public Sector Accounting Handbook,
Section PS 1200, for more detail).
This requirement is the driving force for most of the
accrual budgeting issues that have developed over the
past several years, such as those related to the government budgeting entity and government transfers. It
gives credence to the belief that reporting rules do not
always lend themselves to accountability and transparency within budgetary documents.
With this in mind, the CICA, through the Public Sector
Accounting Board (PSAB), commissioned the Research
Report Accounting Bases Used in Canadian Government
Budgeting, which was published in December 2004.
This report presents a comprehensive review of senior
government budgeting practices, providing information
on the accounting relationships between budgeting and
financial reporting documents.
It also outlines the scope of pertinent legislation in
place at the time and identifies then-current budgeting
initiatives. Essentially, the report provided an overview
of the current status of accounting practices followed
by Canadas 14 federal, provincial and territorial jurisdictions, with particular emphasis on the features that
influence the adoption of full-accrual accounting.
To provide input for that report, all 14 jurisdictions were
surveyed, and their budgeting officials interviewed, to
ensure the accuracy and relevance of the information
collected. Of importance, a number of accrual-based
budgeting issues surfaced, with officials suggesting the
need for additional research beyond the scope of the
3
report. Members of the Study Group overseeing the

research and preparation of the report shared that view,
and proposed a two-year comprehensive review of major
accrual issues facing the budgeting community.
ADDRESSING ACCRUAL
BUDGETING ISSUES
In November 2005, the CICA commissioned a formal
research project to address accrual issues in Canadian
government budgeting and approved a draft proposal
with accompanying terms of reference (see AppendixA).
A Government Accrual Budgeting Advisory Group,
comprising current and former senior budgeting officials
from across Canada, was established to provide guidance
during the various stages of the project.
For purposes of the research project, the budgeting
community was canvassed to ensure that all key issues
would be addressed, including:
symmetry between budgeting documents and
financial statements;
accounting for tangible capital assets;
government budgeting entity and consolidation;
the legislative accountability framework;
government transfers;
environmental liabilities;
public/private partnerships;
First Nations settlements.
It was acknowledged that it would be impossible to
have the project address all of these priorities and it
was decided that certain topics would be analyzed
in Discussion Papers prior to the preparation of the
Research Report.
In June 2006, the CICA published two Discussion
Papers: Links between the Budget and the Estimates and
Accounting for Tangible Capital Assets. In December
2007, two more Discussion Papers were published:
Defining and Accounting for the Government Budgeting
4
Entity and Legislative Accountability Framework for

Preparing Government Budgets and Estimates.
The CICA considered preparing a fifth Discussion Paper
on government transfers, but opted not to go ahead
because the pertinent accounting standards were about
to change. It also chose not to review the impact of environmental liabilities on accrual budgeting because those
accounting standards, too, were about to be revised.
The four Discussion Papers provide a detailed analysis
of the top priorities identified and examine the various
approaches adopted across Canada for introducing
accruals into budgeting practices. The major observations found in each discussion paper can be summarized as follows:
1. Links between the Budget and the Estimates
yy The summary budget and the estimates serve
different purposes.
yy Accruals have created a new way of thinking for
most governments when they prepare their budget
documents.
yy The adoption of accrual budgeting practices has
resulted in various formats for the presentation of
summary budgets and estimates.
yy The government budgeting entity and the basis of
consolidation play a major role in the presentation
of budgets.
yy Documents prepared by the government allow
readers to make appropriate links between the
summary budget and the estimates.
2. Accounting for Tangible Capital Assets (TCA)
yy Senior governments have adopted TCA policies
and practices that meet their own particular
needs, making it very difficult to compare results
among different jurisdictions.
yy Accrual information has had minor impact on
capital decision making.
Introduction
yy
Public understanding of budgeting has been

affected by the adoption of full-accrual accounting.
3. Defining and Accounting for the Government

Budgeting Entity
yy Accountability is a major consideration when
defining a governments budgeting entity.
yy Jurisdictions meet their own individual needs
when determining which organizations and
enterprises will be included in the summary
budget and estimates.
yy Several jurisdictions have found that their most
pressing concern is deciding which accounting
method to use for organizations and enterprises
that will be included in the government budgeting entity.
4. Legislative Accountability Framework for
Preparing Government Budgets and Estimates
yy All senior governments have legislative frameworks to govern the preparation of budgets and
estimates. Most frameworks have been developed
to meet the specific needs of individual jurisdictions.
yy Statutory obligations have not played a significant
role in the adoption of accruals. Most jurisdictions
rely on policy and practice for guidance.
yy Accountability and transparency commitments
have become a major feature of the budget development and communication processes.
The above-noted observations are supported by the individual survey results presented in the Discussion Papers.
Those papers are referenced in this Research Report
but the actual data is not repeated. To gain an overall
appreciation for the subject matter and supporting
documentation, readers should review those discussion
papers together with applicable sections of this Report.
PURPOSE AND APPROACH

TO THIS RESEARCH REPORT
This Research Report aims to address current issues
faced by Canadian federal, provincial and territorial governments when they prepare appropriations
documents (appropriations/estimates) and accrualbased budget documents, including how budgets
are reconciled to financial statements to provide the
budget-to-actual comparisons required by the CICA
Public Sector Accounting Handbook.
Although this purpose appears to be technical in nature
(comparing budgeting documents and their level of
symmetry with financial statements), the scope of the
review was broadened to also examine the rationale
adopted for the presentation of budget material and to
address the needs associated with increased government
accountability and transparency.
With this objective in mind, it was determined that the
Report would concentrate on highlighting the observations found in the Discussion Papers, provide a status
report on the adoption of budgetary accountability
and transparency practices, comment on current and
emerging accrual budgeting issues and provide options
for addressing future budgeting issues of interest to
senior governments.
The Research Report is divided into the following
chapters:
Chapter 2About Accrual Budgeting provides a
basic definition and a brief description of events leading
up to the introduction of accrual-based budgeting
practices. It reviews the rationale for the adoption of
practices that are distinctly different from those in the
private sector and comments on accounting standards
that have an impact on the development of budgeting
documents. Of importance, it sets out the benefits
and drawbacks of accrual budgeting and provides a

transition to the remaining chapters of the Report.
Chapter3Accountability for Financial Management reviews the meaning of accountability, moves to
a legislative framework that obligates this responsibility and comments on the impact it has on budgeting
documents. In addition, it examines accountability
regarding the government budgeting entity and looks
at the overall needs of both legislators and the public.
Finally, the chapter reviews the impact accrual budgeting has had on government bottom lines and comments
on the relationship between annual results and debt.
Chapter 4Budget Transparency looks at what
constitutes budget transparency and then describes
several statutory obligations on transparency. It
concludes with a discussion of major issues that have
evolved and comments on future direction.
Chapter 5Accrual-Based Decision Making
examines the impact of accruals on decision making,
particularly for capital assets, which is considered one of
the most important aspects in determining the success
of accrual budgeting. It also reviews the implications
of accruals for program management and considers the
future of accruals in decision-making processes.
Chapter 6Accrual Budgeting Issues considers
the adoption of accrual budgeting practices and
examines various emerging issues that require further
research. It goes on to review two non-traditional
budgeting issues, namely performance measurement/
performance reporting and service delivery options,
such as public/private partnerships. Because international experience plays a role in determining the future
direction in Canada, the accounting practices adopted
by other countries, especially Australia and New
Zealand, are discussed.
Chapter 7Future Challenges for Accrual Budgeting summarizes the various elements necessary to look
at the future of accrual budgeting and comments on
certain themes that will require attention over the next
several years.
The research for this Report started with a comprehensive examination of the literature, including historical
information on the introduction of accrual-based budgeting in selected jurisdictions, studies conducted by
independent and government-appointed sources and
educational material published by the CICA, senior governments and international organizations. A listing of
this literature is provided in the Selected Bibliography.
a wealth of information and opinions was

collected during workshops held in Moncton,
New Brunswick, Edmonton, Alberta, and
Toronto, Ontario in September and October
2008. Representatives of the budgeting and
reporting communities from most of Canadas
jurisdictions attended, and the significant
aspects of accrual-based budgeting and
accountability were discussed at length.
A national survey of senior governments across Canada
was conducted and replies were received from all 14 jurisdictions. Many of the observations found in this Report
flow from this survey and the other surveys undertaken
to support the observations in the four Discussion Papers
(the national survey questionnaire and survey results are
set out in Appendix B and Appendix C).
In addition, all the legislation that establishes statutory
obligations and/or policies governing accounting and
budgeting practices was reviewed, with a special emphasis on examining accountability and transparency provisions. Appendix D provides a listing of this legislation.
Introduction
Finally, a wealth of information and opinions was

collected during workshops held in Moncton, New
Brunswick, Edmonton, Alberta, and Toronto, Ontario
in September and October 2008. Representatives of
the budgeting and reporting communities from most
of Canadas jurisdictions attended, and the significant
aspects of accrual-based budgeting and accountability
were discussed at length.
Although the Glossary defines the terms used in this
Report, the 14 jurisdictions have not agreed on a
common usage of those terms. For example, consider
the use of the word legislature, which the federal government interprets to include parliament. That is not
the case for provincial governments. Similarly, the term
department may be interpreted to include ministries
and other agencies/government organizations normally
included within the consolidated revenue fund of most
jurisdictions.
This document is a Research Report. The overall

intention is to provide an educational tool for
officials who are responsible for fiscal and budgeting
activities within senior governments. In addition,
elected officials and the media may benefit from the
discussions contained in this Report.
Recognizing the various levels of accounting competency
within the budgeting community and government in
general, this Report tries to limit technical accounting
terminology and, instead, discusses issues on the basis
of current budgeting terminology and practices.
Chapter 2
ABOUT ACCRUAL BUDGETING

INTRODUCTION
Budgeting is considered to be the most important
process in government financial management
because it translates policies into concrete programs.
It is a political process, with budgeting documents
providing the venues for effectively communicating
a governments intentions, holding the government
accountable and forming the foundation for legislative
approval and administrative control.
Over the years, government financial management
systems have been influenced by the economy, the
evolution of management systems in the private sector
and international developments. The most far reaching
development, however, has been the introduction of
accrual accounting, especially as it relates to the preparation of budgeting documents.
Clearly, the adoption of accrual accounting is not the
result of a single standard-setting decision taken or a
strategic direction chosen by a few jurisdictions. On
the contrary, it has been generally acknowledged over
a number of years that an accrual-based approach to
recognizing and expensing liabilities as the associated
obligations arose was a more suitable method than the
historical cash accounting system that prevailed at the
time. This became particularly apparent for certain
areas such as retirement benefits and capital asset financial administration.
This appreciation of accruals was, however, generally
restricted to the reporting and auditing aspects of
government financial management. It had not found
similar acceptance in the budgeting community which
saw the theoretical benefits of adopting accruals but felt
it would be difficult to recommend changes to decisionmaking processes and budget documents without first
fully understanding the impact. The evaluation of that

impact is a major part of this Report.
At the same time that governments were dealing with
the potential adoption of accruals, they were also feeling
the pressure to become more accountable and transparent in their financial management practices. Over a
number of years, governments had introduced statutory
obligations and policy commitments that reflected this
desire for a more open and accountable government.
This Report will review the role accruals play in meeting
such commitments.
Canada is not the only nation dealing

with issues resulting from the introduction of
accrual accounting. Internationally, there has
been a wide range of experience, with several
countries still struggling to maintain effective
cash-based systems.
Finally, Canada is not the only nation dealing with issues
resulting from the introduction of accrual accounting.
Internationally, there has been a wide range of experience, with several countries still struggling to maintain
effective cash-based systems while others have successfully introduced accruals and are considered leaders in
the evolution of accrual-based decision making and
control. A review of these experiences has a role to play
in the examination of the overall use and impact of
accruals and will form part of this Report.
BASES OF ACCOUNTING
FOR SENIOR GOVERNMENTS
Every financial management process establishes an
accounting structure to provide a consistent approach
to the recording of transactions and events. Essentially,
most jurisdictions opt for one of two bases: cash or
9
accrual. Variations of these two bases may be referred to

as either modified cash or modified accrual.
transfers, service of the debt, etc. Such transactions can

greatly influence the results of any fiscal year.
The cash basis of accounting is defined as a method

of recording transactions by reflecting revenues and
expenditures in the accounts in the period in which the
related cash receipts or disbursements occur.1 With this
method, recognition occurs only when the cash (or its
equivalent) is received or paid.
Modified accrual is recognized as the basis of accounting when accrual accounting is followed with certain
exceptions. An example of modified accrual would be
the method of accounting where all costs are recorded
on an accrual basis with the exception of certain capital
assets. Prior to the introduction of full-accrual accounting, most senior governments tended to follow modified
accrual accounting practices.
Budgeting on a cash basis would trigger a similar

accounting event. That is, an amount would be recognized in the budget only if cash (or its equivalent) is
expected to be received or disbursed during the budget
year (normally the fiscal year).
Modified cash is a slight variation of cash accounting.
For example, most jurisdictions following cash accounting practices permit the recording of transactions within
a fiscal year for events where cash is expected within
a specified period of time (normally of short duration)
following the end of that year.
It is important to note that senior governments are

sovereign in terms of accounting standards, policies
and practices. In theory, this means each jurisdiction
is governed by its own legislation and/or policies established to guide them through all aspects of financial
management. In practice, however, governments in
Canada have historically followed accounting principles
consistent with domestic generally accepted accounting
principles (GAAP), including the adoption of fullaccrual accounting for preparing financial statements.
The accrual basis of accounting is defined as: a method

of recording transactions by which revenues and
expenses are reflected in the accounts of the period
in which they are considered to have been earned and
incurred, whether or not all transactions have been
finally settled by the receipt or payment of cash or its
equivalent.2
Since April 2005, full-accrual accounting has been the

standard established by the CICA Public Sector Accounting Handbook (PS Handbook) for senior governments
and will become a similar standard for local governments in 2009. Essentially, these standards are regarded
as public sector GAAP. In this regard, terminology such
as PS Handbook and GAAP are interchangeable.
Under this method of accounting, the obligation

establishes the recognition rather than the actual flow
of cash. This recognition becomes important when
accounting for financial transactions related to capital
stock, employee benefits (especially pensions, early
retirement and other service related benefits), revenue
IMPACT OF INTERNATIONAL
STANDARDS
It is worth noting that international sources play a role
in the development of accounting standards in Canada,
and it will be interesting to see the impact of these
standards on the public sector over the next several
years. Publicly accountable enterprises (PAEs) will be
required to file financial statements in accordance with
International Financial Reporting Standards (IFRS)
1 Financial Reporting by Governments (Toronto: CICA, 1980), pp. 4-7).

2 Financial Reporting by Governments (Toronto: CICA, 1980), pp. 4-7).
10
About Accrual Budgeting
beginning on or before January 1, 2011.3 Since PSAB

has deemed government business type organizations
(GBTOs) and government business enterprises (GBEs)
to be PAEs, they, too, will follow IFRS. It should be
noted that PSAB gave notice (December 4, 2008) that
this requirement will be reconsidered.
Although it is not contemplated that the majority of
government organizations will be adopting IFRS in the
near future, the International Public Sector Accounting
Standards Board (IPSASB) recently concluded that:
Governments that already apply full accrual accounting standards and apply accounting standards that
are broadly consistent with IPSAS requirements [are]:
Australia, Canada, New Zealand, United Kingdom and
United States of America.4
IMPACT OF THE PRIVATE SECTOR

Without a doubt, private sector accounting practices
have played a major role in governments moving toward
adopting accrual-based accounting. Having been an
accepted standard in the private sector for a number of
years, the spillover effect into the public sector was
inevitable.
Literature suggests that this was mainly encouraged
by legislators and officials who had concluded that
the commercial model could be modified to meet the
needs of government, essentially creating a universal
accounting standard across all sectors. This quest for
uniformity, albeit a long-term goal, is perhaps one of the
most contentious issues facing accounting in the public
sector today, and will require a significant amount of
attention over the next few years.
3 For information and resources on Canadas transition to IFRS,

including the comparison of IFRS to Canadian GAAP, visit the
CICA IFRS Transition Website and also refer to the online news at
Migrating to IFRS.
4 Survey and research conducted by IPSASB in September 2008.
A number of published articles provide commentary

on the benefits and drawbacks of governments moving
toward a commercial model. Essentially, two points of
view have arisen: one prefers a sector-neutral model
(Australian system) while the other wants to see two
separate and distinct modelsone for the private sector
and the other for government.
Without a doubt, private sector accounting

practices have played a major role in
governments moving toward adopting accrualbased accounting. Having been an accepted
standard in the private sector for a number
of years, the spillover effect into the public
sector was inevitable.
Proponents of the first model argue that the basic features and nature of accounting practices are the same
irrespective of whether they occur in the profit or notfor-profit sectors. Definitions such as those for an asset,
liability, revenue and expenses are interchangeable from
one sector to another and the accounting fundamentals
are the same. Although there may be different reporting requirements, certain reports can be provided as
an add-on to meet specific obligations of a particular
sector. Supporters of this position would suggest that
one universal (across sector and jurisdictions) accounting standard is a strategic objective worth pursuing and
eventually adopting.
On the other hand, others insist that governments differ
from the private sector and should be treated differently
for accounting purposes. Although the differences have
been enunciated on a number of occasions, the US Governmental Accounting Standards Board (GASB) study
Why Governmental Accounting and Financial Reporting
IsAnd Should BeDifferent says it best.5
5
Why Governmental Accounting and Financial Reporting IsAnd Should

BeDifferent (Washington: Governmental Accounting Standards
Board, 2007).
11
In summary, the study concludes:

yy The primary purpose of for-profit business is to create
wealth and provide a return for its shareholders. Governments, on the other hand, strive to contribute to
the wellbeing of the public in general through public
policy and the delivery of services.
yy
The major source of revenue for business comes from

the free exchange of goods between willing parties.
Governments acquire a majority of their revenue from
the imposition of taxes.
yy
The primary method of accountability for governments is the budget, whereas business considers a
budget more as an internal analytical tool for improving profitability.
yy
Governments, by their nature, have a propensity for

longevity whereas the existence of for-profit businesses
is subject to the desires of their shareholders and the
market in general.
It is important to recognize that governments

have accepted accruals as a fundamental
accounting practice for a number of years.
All of these differences place a higher degree of accountability on governments, which is the fundamental
reason why this side argues for separate and distinct
accounting standards. As the GASB study clearly stated
in its conclusion:
Governments are fundamentally different from
business enterprises. As a result, separate accounting
and financial reporting standards for government
are essential to meet the specific needs of the users
of governmental financial reports. The standards
for governments need to reflect the unique
environment of government, including different
12
organizational purposes and special legal powers,

and to effectively address public accountability
issues inherently related to the unique government
environment.
Current Canadian practice reflects a number of accounting similarities between the public and private sectors.
It is generally accepted, however, that governments need
distinct and separate accounting standards.
EVENTS LEADING TO THE

ADOPTION OF ACCRUALS
These above viewpoints may account for the length of
time and the difficulties encountered in the adoption
of full-accrual financial reporting standards for senior
governments. In retrospect, the concern over continuing the modified accrual basis as opposed to adopting
full-accrual accounting was centered on issues related
to the recognition of non-financial assets and the
impact on annual financial results. A summary of
several major events over the past several decades may
provide a better understanding of the eventual adoption of full-accrual accounting.
It is important to recognize that governments have
accepted accruals as a fundamental accounting practice
for a number of years. Year-end expenditures such as
employee benefits, service of the debt and other expenses
had moved from cash to an accrual basis following
extensive review and without significant difficulty or
concern expressed by senior governments.
In the 1990s, however, there was an international movement toward the adoption of full-accrual accounting.
In Canada, specifically, the release of a proposed new
reporting model in 1997 provided the foundation for
the final adoption of a commercial model for the treatment of tangible capital assets. A number of jurisdictions had received public reports and recommendations
from their legislators supporting the changes, although
some issues still needed to be addressed before general

approval could be obtained.
Most of these issues centered on the need to introduce
capitalization practices and reporting requirements.
The arguments in favour of the changes rested on the
belief that:
yy Under the old model, capital decision making was
based on the overall bottom line. In situations where
a balanced budget was required, capital projects
would be approved only to the extent that they did
not have a negative impact on this obligation. Many
jurisdictions found that ignoring infrastructure was
the easiest way to address a budget shortfall, resulting
in the deterioration of capital stock over the years.
yy
Because capital projects were expensed in the year of

acquisition, government decision-making processes
often failed to compare alternative delivery systems,
such as privatization, public/private partnerships,
contracting out or introducing user fees.
yy
The adoption of full-accrual accounting would demonstrate a clear government stewardship responsibility for all capital assets.
Although several jurisdictions argued against these rationales, Canadas senior governments agreed that change
was required and that the reporting model adopted in
2003 (full-accrual accounting) was acceptable.
The adoption of accrual-based budgeting took many
forms across Canada. Some governments chose the
big bang approach, implementing full accruals
in all of their financial management practices
concurrently and addressing emerging issues on
a system-wide basis. Others adopted accruals on a
step-by-step basis, making the required changes over
a number of years and addressing issues on either a
reporting or budgeting basis.
ACCOUNTING STANDARDS
The new reporting model adopted in 2003 had one
overlying objective, as clearly stated in the CICAs
20 Questions about Government Financial Reporting:
PSABs goal is better information for decisionmaking and accountability. The new requirement
to use full accrual accounting, and the approval of
the new model that provides a comprehensive set
of indicators that describe a governments financial
position and results, are significant improvements
in government financial reporting.6
These comprehensive indicators are presented in the
four government financial reporting statements: Statement of Financial Position, Statement of Operations
(Annual Results), Statement of Change in Net Debt
and Statement of Cash Flow. Each statement has a
specific objective in terms of describing the status of
government finances and, for the most part, the overall
impact of their observations is more important than any
one conclusion.
The Statement of Financial Position is substantially the
balance sheet of each jurisdiction, showing the current
status of financial assets and liabilities leading to a net
debt position. The net debt is adjusted for the impact
of non-financial assets and results in a bottom-line
position expressed in terms of accumulated surplus/
deficit. This bottom line provides a strong indication of
the governments ability to provide future services.
The Statement of Operations provides, on a fiscal year
basis, the impact of all expenses and revenues that
occurred during a period, expressed in terms of either a
surplus or deficit position, and how this position affects
the overall accumulated surplus/deficit position indicated in the Statement of Financial Position. For most
6 20 Questions about Government Financial Reporting (Toronto: CICA,
2004), p. 20.
13
jurisdictions, public attention is centered on the annual

surplus or deficit since this provides an indication of the
governments ability to meet its balanced budget commitments or obligations found in legislation.
The remaining two statementsChange in Net Debt
and Cash Flowprovide additional measures important for examining the impact of the annual results,
especially capital expenditures.
The Statement of Change in Net Debt provides an overview of the difference between spending and the revenue
received during the year and how this will affect the
overall debt position. Generally, during periods of strong
economic growth and balanced budgets, an increase in
net debt reflects expenditures made to acquire tangible
capital assets.
The Statement of Cash Flow provides an indication of
the amount of expenditures that can be supported by
revenue received during the fiscal year, the net impact
of financing transactions and the overall cash position
at year end compared to the beginning. This statement
provides important information on the capital expenditures made in a given fiscal year.
These statements will give readers an appreciation of a
particular governments overall financial health. The
difficulty arises, however, when a reader arrives at this
financial health by looking at only one statement without
reviewing the impact of the others. For example, it is
possible to have a series of years producing an annual
surplus, resulting in an overall decrease to the accumulated deficit while, at the same time, seeing significant
increases in net debt. In such a situation, is it fair to
conclude that the decrease in the accumulated deficit
indicates a healthy financial situation without looking
at the impact increased debt may have on future generations and decisions?
14
Most observers and PSAB have concluded that no one

statement can be read in isolation and that the true measurement of financial health has to take into account
the overall impact of all of the indicators. In fact, to rely
on only one is a disservice to the public. As shown later
in this Report, however, this has not restrained some
jurisdictions from relying on one measurement (surplus/
deficit) as the principal means for communicating fiscal
performance and financial health.
BUDGETING DOCUMENTS
The adoption of full-accrual accounting for
financial reporting has been the impetus for the
introduction of accruals into budgeting practices.
Although Canadas senior governments produce
similar budgeting documents, they follow a variety
of accrual-based accounting policies when preparing
those documents, making inter-jurisdictional
comparability a difficult task.
Although each government places particular importance on one or more of the different budget documents,
the public realizes that the budget overall is a reflection
of all of its parts. For clarity, a budget can be defined
as documents that portray public policy, present a
governments forecast of its expenses/expenditures and
revenues, and disclose financing requirements for operating and capital spending for a fiscal period. (See the
Glossary at the end of this Report.)
Government budgets comprise three major documents:
the summary budget, the estimates and appropriations.
In most jurisdictions, the summary budget provides
an overview of the governments fiscal policy and can
include additional papers detailing spending, revenue
and taxation highlights. The summary budget includes
the financial impact of the government budgeting entity
and may provide forecasts for additional years. The main
budget speech delivered in the legislature normally

provides an overview of the summary budget.
The estimates are a set of expenditure plans (sometimes
including revenue) that provide details on selected
information found in the summary budget. They are
considered the legislatures working documents and
provide source material for the breakdown of forecasts
for the individual organizations the budget covers.
In several jurisdictions, the summary budget and the
estimates may be contained in a single presentation
while, in others, separate comprehensive documents are
prepared that can be linked through common financial
tables and explanatory notes.
The appropriations, a set of legal documents normally
referred to as money bills, set out the maximum
authorized expenditures approved by the legislature.
Normally, there are two types of appropriations: the
first are authorized expenditures that require approval
under the money bill for the fiscal year; the second
are statutory appropriations for expenditures that have
been, or will be, authorized under another act.
Although the above provides a representative overview
of each document, each jurisdiction may have features
that differ from these examples. For specific reference
to an individual jurisdiction, see the explanatory notes
attached to its estimates and/or summary budget.
Budget documents are the main source of information
connecting government policies with the resources necessary to achieve objectives. The budget can, therefore,
be considered the main source of accountability for
ensuring that governments wisely spend money raised
through taxation and meet the goals intended through
their expenditures. No other legislative document has
this amount of authority, which is why legislators, the
press and the public pay so much attention to government budgets.
The numbers contained in all budget documents are

forecasts, although appropriation legislation makes it
clear that the budget amounts represent the maximum
amount available for expenditure. As forecasts, the
numbers are subject to change at any point in the fiscal
period. They may decrease, resulting in adjustments in
the overall budget. If expenses or expenditures increase,
governments are normally required to seek additional
approval from the legislature through mechanisms
such as supplementary estimates. The original estimates
approved by the legislature may, therefore, be subject
to adjustments and it is important to track these
adjustments to ensure transparency and accountability
throughout the fiscal year.
Jurisdictions tend to subdivide their estimates into
two main categories: operating and capital accounts.
Operating accounts normally refer to the resources
that will be consumed during the fiscal period to meet
the day-to-day provision of services and goods. Major
expenditures include: salaries and employee benefits,
contracted services, office equipment and rentals, maintenance costs, grants and contributions, etc. Most
spending on non-capital related matters is considered
operational spending.
The definition of a capital account is somewhat more
complex. Prior to the introduction of the new reporting
model and full-accrual accounting, the capital account
showed what was expected to be spent on capital investments during a fiscal period. With the advent of fullaccrual accounting, the capital budget may continue to
do that and be approved on the basis of the investments
(cash) projected.
When translated into accrual-based accounting for the
summary budget, however, capital is expressed as an
expense related to the portion of investments (past and
present) that will be consumed during a fiscal year. In
other words, instead of expensing the cost of capital in
15
the year of acquisition, capital costs are now amortized

over the useful life of the asset involved.
Although accrual accounting has been adopted for
capital budgeting purposes, cash remains an important
basis for legislative decision making and communication
purposes. As explained in more detail in this Report,
all elected officials can more readily identify with the
implications of decisions made on a cash basis, and the
public is mainly interested in the dollars spent and the
taxation consequences that may result.
Finally, the term fiscal period denotes the timeframe
used to capture expenses/expenditures and revenue and
provides the basis for comparison over time. All senior
governments define a fiscal year as commencing on
April 1 of each year and concluding on March 31. For
planning purposes, most jurisdictionsas a result of a
statutory obligation or a policy decisionprovide fiscal
forecasts for more than one year, and these forecasts
have to be updated on a regular basis.
CONCLUSION
Many articles have expounded on the benefits of
accrual accounting. They speak in terms of improved
information bases, better comparative data, improved
accountability and transparency, and the overall
improvement to management practices. Essentially,
if all of the benefits had to be stated in one sentence,
the following would likely encompass the essentials:
Accrual accounting provides tremendous scope
for organizations to manage their finances more
effectively.7 If accrual accounting has the potential
to provide tremendous scope, the implications for
budgeting practices must be far reaching.
As stated in the 2002 OECD paper Accrual Accounting
and BudgetingKey Issues and Recent Developments
7 Fdration Des Experts Comptables Europens, Accrual Accounting
for More Effective Public Policy, Alert (February 2006).
16
and summarized in the CICA Discussion Paper Links

between the Budget and the Estimates, Supporters cited
various benefits as a rationale for implementing it
(accrual-based budgeting).
Accrual accounting provides tremendous scope

for organizations to manage their finances
more effectively.
Accrual accounting:
yy Provides government decision makers with improved
information and understanding of the cost of activities while allowing for rigorous budget monitoring.
For example: accrual budgeting helps decision makers
to better grasp the long-term effects of current policies
on public finances.
yy Helps to better plan capital asset requirements.
yy Acts as a catalyst for large-scale administrative reform.
yy Ensures comparability with other public accounts
prepared on an accrual basis.
The same OECD paper and the Discussion Paper
observe, however, that:
Detractors argue that accrual budgeting introduces
unnecessary complexity into the budgeting process.
Indeed, accrual budgeting necessarily calls for
professional judgment, particularly through the
use of estimates, which can include allowances
for doubtful accounts, the revaluation of assets,
whether or not to capitalize a capital expenditure
and choosing amortization methods. Furthermore,
the implementation of accrual budgeting entails
considerable costs to train staff and upgrade the
systems and processescosts that detractors view
as outweighing the benefitswhile cash budgeting
normally calls for a single type of estimate, that is,
a forecast of receipts or disbursements.
To a degree, these perceived drawbacks are compelling

reasons for jurisdictions to carefully examine their rationales for introducing accrual accounting and develop
workable budgeting practices that meet the needs of
elected officials and the public.
This Research Report examines issues that have evolved
over several years, with special emphasis on the role
accruals have played in accounting and budgeting
practices:
yy Does accrual-based budgeting lead to more government accountability?
yy Does accrual-based budgeting increase transparency
of decisions and financial information?
yy Does accrual-based budgeting offer a better mechanism for making decisions?
Does accrual-based budgeting improve management

practices?
yy Does accrual-based budgeting meet the needs of
legislators and the public?
yy
Finally, it is very clear that each jurisdiction is at a

certain point in its accrual-based budgeting journey.
Some governments have introduced comprehensive
legislation and adopted broad, accrual-based budgeting
practices and accountability requirements. Others have
introduced selective changes only. What they all have in
common is the recognition that accrual-based budgeting must meet their own particular needs.
17
Chapter 3
ACCOUNTABILITY
FOR FINANCIAL MANAGEMENT
INTRODUCTION
Accountability is one of the most overused and least
understood terms in government today. Most speeches
and articles are peppered with this word. It appears
to be used to justify any action that may eventually
be subject to evaluation and is intended to reassure
readers and the public in general that decisions are not
made in isolation. Governments have done their due
diligence and someone, whether it is an organization
and/or government as a whole, will be required to
justify the results at some point in the future.
What is accountability? For financial management
purposes, it can be defined as follows: A broad concept
that requires an entity to answer to elected officials and
the public they represent to justify the raising of public
resources and to explain the purpose for which they are
used.8
Accountability, as defined above, should be part of
every budget framework. Canadas senior governments
need to come to a consensus on how to judge commitment to accountability obligations. In practice, there
appears to be no overriding common interpretation and
most governments have developed their own means
for meeting these requirements. In some jurisdictions,
accountability is associated with financial reporting
functions. In others, it includes budget decision making.
Performance objectives may also be included.
Developing an understanding of how governments
have approached budget accountability and the role
full-accrual accounting has played requires a review of
8 PSAB Statement of Recommended Practice 2, Public Performance
Reporting (Toronto: CICA, 2006).
significant legislation, budget documents, the government budgeting entity, the needs of legislators and the
public, and the overall impact on the bottom line. The
following discussion reviews each of these subjects and
provides a summary of their impact on accountability.
LEGISLATIVE ACCOUNTABILITY
FOUNDATIONS
All senior governments have enacted legislation that
establishes the foundation for financial management,
commonly referred to as the Financial Administration
Act (FAA) it is called the Provincial Finance Act in
Nova Scotia. With regard to accountability, the FAA
provides the essential statutory obligations affecting the
budget process, expenditure management and documentation required for approval by the legislature. For
a comprehensive description of financial administration
acts, refer to the 2004 CICA Research Report Accounting Bases Used in Canadian Government Budgeting and
the 2007 CICA Discussion Paper Legislative Accountability Framework for Preparing Government Budgets
and Estimates.
The 2008 cross-Canada workshops made it

clear that there continues to be debate on the
subject of accounting policy in legislation.
Most of Canadas FAAs have not been modified to
reflect current financial reporting standards and practices. Although three jurisdictions have included direct
reference to accounting standards in the legislation and
several others have made minor modifications to definitions, a majority of senior government jurisdictions do
not address accounting policy in their legislation.
19
The 2008 cross-Canada workshops made it clear that

there continues to be debate on the subject of accounting policy in legislation. Some officials believe that
accounting policy should not be subject to statutory
obligations but, rather, should be well defined through
financial policies and accompanying explanatory notes.
They feel that accounting differences arising in financial
management documents can be explained and reconciliations provided for continuity. Other officials have
concluded that accounting policy defined in legislation
ensures continuity and the use of common terminology in financial management documents. As well, it
provides a foundation for better comparative data from
year to year and among jurisdictions.
Regarding accounting policy for preparing budgets,
there is no consensus in terms of adopting standards
that are applicable to all jurisdictions. The results of the
workshop survey (see Appendix C, responses to Question 3) support the following conclusions.
Financial accountability is an important function
practiced by all Canadian senior governments. Fundamental to this accountability is the transparency and
communication of budget decisions through documents
supported by legislation and policy commitments. As
part of this budget accountability and transparency
commitment:
yy 43% of the respondents (6 of 14 jurisdictions) thought
that standard accounting practices should be adopted
which are applicable to all jurisdictions;
yy
43% (6 of 14 jurisdictions) thought that accounting

practices should be adopted which meet the needs of
each individual jurisdiction;
yy
14% (2 of 14 jurisdictions) expressed no concern over

accounting practices, provided reconciliation can be
made between budgeted numbers and results contained in the financial statements.
20
This matter was discussed at length at the workshops.

Officials who have worked under a regime that included
either legislation and/or policies that specifically required
budget and other financial management documents to
be consistent with GAAP supported the use of standard
accounting practices for all jurisdictions. Although
several survey respondents (as well as a number of the
workshop participants) generally agreed with the adoption of standard accounting practices, they also thought
that these practices would need to be adjusted to reflect
the jurisdictional realities for different accountability
structures and legislation.
On the other hand, there were some survey respondents
and workshop participants who adamantly believe that
senior governments should establish budget accounting practices that meet the particular needs of their
jurisdiction. Since the various jurisdictions have little
in common when it comes to the administration
of programs or relationships between organizations
included in the budgeting entity, they believe the need
for budgeting standards applicable to all jurisdictions is
neither practical nor warranted.
Although it appears that officials do not agree on
establishing budget accounting standards applicable
to all jurisdictions, they do accept that full-accrual
accounting for budgeting purposes should be applied
consistently within each jurisdiction with recognized
reporting standards.
In response to the workshop survey (see Appendix C,
responses to Question 2):
yy 64% of the respondents (9 of 14 jurisdictions) thought
that, for the purposes of budget preparation, including
the summary budget, estimates and appropriations,
full-accrual accounting should be applied consistently
with the CICA Public Sector Accounting Handbook;
yy
29% (4 of 14 jurisdictions) thought this consistency

should not be compulsory, but should be consid-
Accountability for Financial Management
ered when providing budget information for decision

making;
yy
7% (1 of 14 jurisdictions) thought accrual accounting for budget preparation purposes should be subject
solely to legislation authorizing its use.
It is clear that most officials see a need for consistency

between accrual accounting practices adopted by their
jurisdiction for the preparation of budgeting documents and the accounting standards used for reporting
financial results. It is recognized, however, that each
jurisdiction has legislative and accountability nuances
that would make it impracticable to follow common
budget accounting practices at this time.
In addition to legislation, such as financial administration acts, senior governments have introduced budget
accountability obligations in recent years, either
through amendments to these acts or through passage of
specific legislation designed for this purpose. Although
each jurisdiction has given these legislative initiatives
specific names to meet policy objectives, they can be
categorized into one of the following categories: balanced budget, fiscal accountability, fiscal stabilization
and debt reduction (or management). The Discussion
Paper Legislative Accountability Framework for Preparing
Government Budgets and Estimates reviews these categories, especially balanced budget, fiscal accountability
and debt reduction, examining the major differences
among jurisdictions more fully and identifying issues
for future discussion.
The most pressing issue revealed in this Discussion
Paper centres on the lack of common definitions among
jurisdictions and the difficulty encountered when comparing accountability obligations. An example would be
the definition adopted by a number of jurisdictions to
determine a balanced budget.
For GAAP purposes, the term balanced budget is

neither used nor defined. In fact, it is not considered an
accounting term for either the budget or the financial
statements. The results are presented as a surplus or
deficit position, and governments use the term balanced budget to interpret the results when total expenses
for the year are equal to or less than total revenue.
The definition becomes cloudy in cases where the
calculation of a balanced budget is modified through
legislation to exclude categories of expenses or revenue.
Examples of these modifications can include: the
costs of natural disasters or war, changes in transfer
entitlements, and certain accounting adjustments. The
rationale for these exclusions appears to be based on the
difficulty in accurately budgeting for events resulting
from a force majeure or an external decision outside the
control of the government.
there is a need for greater clarification

when governments create their own definitions
for matters that either directly or indirectly
affect the application of accounting standards.
As the Discussion Paper indicates, five of the seven
jurisdictions with balanced budget legislation do not
calculate a balanced budget in accordance with GAAP.
This creates a level of confusion and, in some cases, a
lack of confidence in the numbers provided, especially
when a balanced budget is touted but cannot be verified against the audited financial statements. For some
observers, the term balanced budget is considered to
be a political statement rather than a position founded
on accounting tenets.
A number of the workshop participants argued that it
is reasonable to define a balanced budget using criteria
determined by legislation. In summary, the rationale is
as follows:
21
yy
No accounting standard has been modified since the

definition of a balanced budget is not considered an
accounting policy under GAAP;
to those presented in the estimates and appropriations. It

found that most jurisdictions either provide direct links
between documents or prepare reconciliations.
yy
Provided governments can explain the differences

between the audited financial statements and the
results achieved under balanced budget legislation,
confusion should be limited and confidence in the
numbers retained;
yy
Normally, the difference in the numbers is not material.
The workshop participants reviewed the underlying

purpose for each document and discussed the impact
on accountability. There was general agreement that the
summary budget was the principal document governments use to indicate the funding they need to meet
policy objectives, and it provides the starting point from
which a government can be held accountable for its
overall financial performance for the fiscal year and into
the future.
Nevertheless, there is a need for greater clarification when

governments create their own definitions for matters
that either directly or indirectly affect the application
of accounting standards. By creating their own definition of a balanced budget, governments have, in fact,
modified accounting standards for defining a surplus
or deficit and the calculation of an accumulated
surplus or deficit position. There is a possibility that
the public receives two different financial performance
numbersone based on legislation and the other on
accepted accounting principlesrequiring an explanation for the derivation of these numbers.
SUMMARY BUDGETS, ESTIMATES,

AND APPROPRIATIONS
The Discussion Paper Links between the Budget and the
Estimates examined the fundamental relationship among
major documents prepared as part of the overall financial
reporting cycle and provided a review of Canadas jurisdictional accounting policy differences. In summary,
senior governments have not adopted common accounting standards for preparing budget documents, although
most follow the accounting standards that apply to the
preparation of the summary financial statements. In
addition, the Discussion Paper reviewed the impact of
the budgeting entity and the basis of consolidation when
tracking numbers provided in the summary budget back
22
The role of the estimates as an accountability document

was discussed in great detail. On the one hand, some
participants saw a need to ensure consistency between
the summary budget and the estimates (including
appropriation bills). They observed that the estimates
provide more details on the budget and establish the
linkage between the numbers contained in the summary
budget with those requiring statutory authority through
the appropriation process.
In their view, difficulties in presenting costs on a cash
versus accrual basis requires explanation and this can
best be shown through the estimates and accompanying explanatory notes. In their view, the estimates are
a primary source for accountability, especially when
comparisons are required with the financial statements.
Other participants did not agree that the role of the estimates is to serve as an accountability document linked
to the summary budget. The principal role, they suggested, is to support the appropriation process that deals
exclusively with those parts of the budget that require
direct approval by the legislature.
Because the estimates must detail the information necessary to make informed decisions on items provided in
the appropriation bills, it was not necessary to ensure

consistency with the summary budget. In fact, several
participants insisted that the inclusion of financial
matters in the estimates that do not require approval
through appropriation bills tends to lead to accounting
policy explanations that often produce confusion and
create unwarranted accountability issues.
GOVERNMENT BUDGETING ENTITY

The term government budgeting entity is relatively
new and has only recently been used to describe the
organizations that are part of the government structure
included for the purpose of preparing the summary
budget and, in some cases, the estimates.
In many jurisdictions, the government reporting entity
forms the foundation for establishing the budgeting
entity. Since budgeting is not governed by the PS Handbook, however, several senior governments have taken
their own approach to selecting accounting practices for
preparing the budget documents.
The 2007 CICA Discussion Paper Defining and
Accounting for the Government Budgeting Entity provides a comprehensive review of the different ways of
including organizations within budget documents and
the different methods of accounting for them. The following discussion reviews three important issues that
merit further attention: the method of accounting, the
impact of full-accrual accounting and the transition to
international financial reporting standards for certain
organizations.
Method of Accounting
The method of accounting for organizations within
budget documents has been a contentious issue for
many years. For government jurisdictions that use the
new reporting model for budget presentations, the following table depicts the current situation:
Organization
Method of Accounting
General Revenue Fund (GRF)

(Departments)
Consolidation
Government Business Type

Organizations (GBTO)
Consolidation
Government Business
Enterprises (GBE)
Modified Equity
Other Government
Organizations
Consolidation
Elementary/Secondary Schools
Consolidation
Colleges
Consolidation
Universities (only three

jurisdictions include
universities in the budgeting
entity)
Consolidation
Hospitals
Consolidation
There appears to be little concern over the use of

consolidation for GRF departments and government
organizations, and modified equity for GBEs. Several
jurisdictions do, however, have reservations about using
line-by-line consolidation for schools, colleges and hospitals. The issue is not about grants that governments
provide to fund the organizations operations but on the
source of, and related expenditure of, funds outside the
direct control of government.
although line-by-line consolidation is

considered an arduous process and the benefits
are questionable for schools, colleges and
hospitals, most jurisdictions have, or are in the
process of adopting, consolidation in budget
documents.
Most jurisdictions have legislation guiding the operation of schools and hospitals. That legislation normally
gives those organizations the autonomy to raise and
spend funds outside of the direct grants provided by the
government. Those organizations guard this autonomy
very closely and governments tend to have very little
control in these areas.
23
In this regard, a number of jurisdictions are of the

opinion that line-by-line consolidation is not an appropriate method for including these organizations within
a government budgeting (or reporting) entity, and
consider either an equity approach or the transactional
method more suitable for demonstrating government
accountability.
It is important to note that, although line-by-line
consolidation is considered an arduous process and the
benefits are questionable for schools, colleges and hospitals, most jurisdictions have, or are in the process of
adopting, consolidation in budget documents. Several
jurisdictions have placed a high priority on having the
standards re-visited by PSAB. Ultimately, this may
provide an opportunity to exclude schools, colleges and
hospitals from line-by-line consolidation for reporting
purposes.
Impact of Full-Accrual Accounting

The impact of accrual accounting on the government
budgeting entity is evident in instances where line-byline consolidation has been implemented. To provide
consistency, accounting policies need to be compatible
for organizations included under the consolidation
method. Where there has been such consistency, the
preparation of the budget and the estimates has not been
difficult nor required extensive changes to presentations.
Where there is no such consistency, the need for transitional periods and reconciliations has been evident.
Full-accrual accounting for capital makes this very clear.
Jurisdictions with a history of direct involvement in the
planning and implementation of major capital projects
for all organizations, accomplished the transition to
full-accrual accounting on a government-wide basis
either through the introduction of a common accounting policy or the ability to reconcile differences among
organizations fairly easily. The implementation of lineby-line consolidation is achievable in these instances.
24
Jurisdictions not directly involved in the planning and

implementation of capital projects in all parts of the
government entity face greater resistance to changes
necessary for a government-wide approach to fullaccrual accounting. As stated earlier, many organizations, especially educational and health care facilities,
have a significant amount of autonomy (in some cases
protected by statute) and guard it very closely. They
have adopted capital accounting policies that meet their
individual needs, and consistency with other organizations is not a priority.
The summary budget and estimates documents in these
cases require either a reconciliation of the different
capital accounting policies used, or the numbers are
simply presented on the basis of the policy in effect for
each organization. The benefit of consolidation on a
line-by-line basis is questionable for these jurisdictions,
providing further credibility to the argument that
consolidation may not be the best means for ensuring
budgeting (or reporting) accountability for a number
of organizations included in the budgeting entity or
reporting entity.
A number of jurisdictions have, however, been able to
consolidate these organizations on a line-by-line basis,
and do not appear concerned with the issues raised
above.
Transition to International Financial

Reporting Standards (IFRS)
The final government budgeting entity issue relates to
the accounting standards used by government business
enterprises (GBEs) and government business-type organizations (GBTOs). As PSAB has deemed them to be
publicly accountable enterprises (PAEs), they will have
to conform to IFRS by 2011. At present, these organizations are examining the changes necessary to make the
transition to the new standards. Since both GBEs and
GBTOs are considered part of the government reporting
entity, however, the impact of the new standards on the

overall government budget, especially the projected
bottom line, is uncertain and requires attention.
This may be especially evident with the inclusion of
government rate-regulated utilities that will be required
to move to IFRS. Reviews conducted to date show that
the adoption of IFRS will have a significant impact on
the bottom line of these utilities. It is difficult, however,
to determine the actual impact, mainly because of the
lack of historical data and the lack of experience most
jurisdictions have in the application of IFRS. As stated
earlier, PSAB decided in December 2008 to re-evaluate
the decision to require GBEs and GBTOs to conform
to IFRS by 2011.9 It is expected that stakeholders will
provide additional insights on this issue and, it is hoped
that a decision will be made expeditiously.
LEGISLATORS AND THE PUBLIC

Does accrual-based budgeting meet the needs of legislators and the public? To answer this question requires
budgeting officials to explain the benefits and impacts
of accounting changes clearly, precisely and on a nonaccounting basis. It is no longer acceptable to present
accounting policies based on the premise that it is solely
an accounting standard that must be followed without
providing explanations that bridge the technical nature
of the change with accountability structures that are far
more easily understood.
In this regard, elected officials require budget
documents to fill several basic needs. They must:
be easy to understand;
assist in the effective use of legislative time;
link policy objectives with resource requirements;
and
provide accountability structures to judge results.
9 Refer to the PSAB Invitation to Comment, Financial Reporting by

Government Organizations (February 2009).
The introduction of full-accrual budgeting has not had

a major impact on the first two objectives to date. The
participants at the workshops believe it is still too early
to pass judgment on whether or not the summary budget
or the estimates are more easily understood today than
in the past. For some participants, the introduction of a
new accrual accounting method, especially as it relates
to tangible capital assets, has added more complexity to
these documents.
there is a general belief that accountability

structures within budgeting documents have
the potential to be more effective with the use
of full-accrual accounting.
For other participants, the provision of explanatory
notes and educational sessions can increase the understanding by legislators. In addition, most participants
are of the opinion that accrual-based budgeting has not
had an impact on the effective use of time in legislatures and doubt that this would ever be a factor over
the long term.
When it comes to linking policy objectives with resource
requirements, a majority of participants believe that
the introduction of accrual-based budgeting has given
legislators a greater appreciation for the long-term costs
associated with capital. They believe that, as legislators
become accustomed to using accrual-based information, more informed decision making (especially related
to capital) will result.
Finally, there is a general belief that accountability
structures within budgeting documents have the
potential to be more effective with the use of fullaccrual accounting, especially in areas such as the
status of capital infrastructure and the impact on debt
and balanced budget obligations. Every jurisdiction is
working toward this objective.
25
Overall, budgeting officials recognize that there is a

need to provide better explanations to legislators on
accounting practices in general. When asked in the
workshop survey if legislators generally understand
accrual information, officials did not believe that this
was the case. And, to assist in addressing this concern,
71% of the survey respondents (10 of 14 jurisdictions)
believe that it would be beneficial to have budget release
information sessions with legislators that provide
educational material on the accounting practices that
influence the budget (see Appendix C, responses to
Question 6).
Generally, the public has accountability needs similar
to those expressed by elected officials:
The public wants to understand the information
contained in the budget.
The public wants information that ties objectives to
accomplishments.
It wants information that links resources required
to planned outputs and outcomes.
It wants assurances that the publics money will be
spent effectively and efficiently.
These can be considered fairly broad requirements and,
for the most part, budgeting documents have not been
designed to meet these needs. In fact, the public tends
to evaluate budgetary material according to how it is
interpreted by the media.
Most senior government jurisdictions use ministerial
statements, budget information documents and media
briefing material as the primary sources for educating
the public on the content of budgets and the explanations for major changes in accounting policy. The actual
forecasts, tables and statements found in the budget and
estimates have never been considered public friendly
and reflect, for the most part, legislative requirements
necessary to guide both elected and government officials
in carrying out their responsibilities.
26
ACCRUALS AND THE BOTTOM LINE

The determination of a governments bottom line or its
overall financial health has been the most significant
change introduced by the new reporting model. Whereas
a change in the level of debt, as expressed through a
surplus or deficit position, was fairly easy to understand
under the former model, the reporting requirements
established to measure financial health are now much
more difficult to comprehend.
Under the current reporting model, the direct relationship between the annual results and the overall financial
position is mainly influenced by the method of recording capital investments and costs. Regarding the annual
impact of capital, the surplus/deficit position reflects
only the amortized portion of an investments overall
cost, whereas debt (net debt) reflects the full expenditure on the capital investment. Since there is no direct
relationship between the annual results and the level of
debt, as under the former reporting model, governments
are expected to provide a number of indicators in their
financial statements to demonstrate accountability.
The five measurements of financial health under the
new reporting model are:
yy the net debt position;
yy the accumulated surplus/deficit position;
yy the annual surplus/deficit;
yy the change in net debt; and
yy cash flows.
Although these measurements are required for financial
reporting, there is no obligation for governments to
include forecasted results in their budgeting documents. A number of jurisdictions do, however, provide
budgeted forecasts as part of their accountability and
transparency commitments.
PSABs 20 Questions about Government Financial Reporting examines each of these reporting requirements and
is an excellent source for describing the relationships

among these indicators. Although governments have
incorporated these measurements into their financial
statements, and provide an analysis of the results, they
appear to rely more on the surplus/deficit position to
indicate the state of their financial health to the public.
infrastructure needs and still have the capability to

meet balanced budget objectives. Although, in many
instances, major capital investments will increase debt,
this is overshadowed by the benefits derived from the
investments and the ability to reach a surplus (or a
manageable deficit) for the fiscal year.
In this regard, the workshop survey asked participants

to give their opinion on the following (see Appendix C,
Measurements of financial health have been
significantly modified over the last several years. The
former reliance on equating a surplus/deficit position
with either an increase/decrease to net debt (in some
cases, accumulated deficit) has been replaced with
more emphasis on the projected annual results.
Essentially, surplus/deficit is now the primary focus
and debt is secondary.
In several government jurisdictions, the level of debt is

still a major topic in legislatures, and some governments
have adopted debt reduction or debt/GDP ratio obligations in addition to balanced budget requirements to
provide accountability within the budget process. These
two approaches to debt were the subject of the following question in the workshop survey (see Appendix C,
For some jurisdictions the goal of reducing net
debt or accumulated deficit has been modified with
more emphasis placed on managing the level of
debt through attachments with economic growth
indicatorsGross Domestic Product (GDP). This
de-emphasis on reducing net debt/accumulated
deficit has opened opportunities to make significant
advancements in meeting the needs for new or
renewed capital infrastructure; however, the peril
of such an objective is the affordability of future
services and/or reduced long-term budget flexibility.
The survey revealed that:

yy 93% of the respondents (13 of 14 jurisdictions)
agreed or generally agreed with these observations.10
yy 7% (1 of 14 jurisdictions) totally disagreed with
the observations.
This issue and the responses to the survey produced
a lot of discussion at the workshops. It was suggested
that the change in focus is the direct result of governments implementing balanced budget legislation or
policy obligations. Governments appear to be more
preoccupied with meeting these objectives because the
media and the public use the surplus/deficit position to
evaluate financial management success.
In addition, it was suggested that the new reporting
model allows government to tackle major capital
10 Although 93% of the respondents agreed or generally agreed with these
observations, a significant number of officials (including those at the
workshops) believe that debt is still considered an important measurement of financial health for both the legislators and the public.
The survey revealed that:

yy 79% of the respondents (11 of 14 jurisdictions)
generally agreed or somewhat agreed with this
observation.
yy 21% (3 of 14 jurisdictions) totally disagreed with
the observation.
These observations were discussed at the workshops.
It was generally agreed that debt was a significant
problem that required government attention. For a
number of participants, attaching debt to the health of
the economy (GDP) is the most appropriate means for
governments to control indebtedness. If the economy
27
is growing, governments can support a higher level of

debt. If the economy is contracting, the level of debt
requires attention to ensure the affordability of future
services. To make sure this objective is followed, governments have instituted policy or statutory commitments requiring that the ratio of debt to GDP is either
maintained or reduced.
It is evident that all senior governments

take financial accountability responsibilities
very seriously in their financial management
processes, including budgeting practices.
Other participants, however, believe that governments
should focus on the reduction of debt as a major objective. During periods of prosperity, governments have
the ability to significantly reduce the level of debt, and
should do so. These participants realize, of course, that
governments may not be able to reduce debt during economic downturns or may, in fact, have to increase their
debt to address the economic problems. Nevertheless,
the stated objective continues to focus on reducing debt
over the long term as a means to ensure the sustainability of future services.
28
CONCLUSION
It is evident that all senior governments take financial
accountability responsibilities very seriously in their
financial management processes, including budgeting
practices. They have established statutory obligations
to govern the preparation of budgeting documents and
most jurisdictions have, in fact, enacted obligations to
meet financial objectives such as balanced budgets and
the management or reduction of debt. They also recognize the need to include in budgeting documents all
entities that they control and ensure that information
is presented in a format that both legislators and the
public can understand.
Governments also realize that, before they implement
changes for reporting and budgeting purposes, they
must first thoroughly analyze all of the issues involved
and look for satisfactory solutions to any problems
raised. Accounting issues cannot be solved solely on
the basis of achieving the objectives of the reporting
community; they must also consider the accountability
obligations of governments and provide useful information for evaluation and decision-making purposes.
Chapter 4
BUDGET TRANSPARENCY
INTRODUCTION
As stated in Chapter 3, accountability is one of
the most overused words in government today.
Transparency may rival that usage and certainly
has a number of interpretations depending on where
and when it is used. What is budget transparency?
According to the OECD, it is The full disclosure
of all relevant fiscal information in a timely and
systematic manner.11
Providing information when required is fundamental

to defining in a timely manner. Although legislative
obligations may require the budget to be prepared
and presented to the legislature on an annual basis, it
is apparent that full transparency requires a broader
approach. In this regard, multi-year fiscal forecasts,
budget updates during the fiscal year and special
reports are now considered methods for ensuring the
timely provision of budgetary information.
Although full disclosure is a nebulous concept, it is

used to ensure that all matters under the control of a
government are contained in budgetary documents.
This becomes especially important when reviewing
the government budgeting entity, which is assumed to
include all government-controlled organizations.
Finally, providing information in a systematic manner

is an obligation that ensures information can be readily
compared from one period of time to another. The
method of presentation in budgetary documents must
provide a basis for comparison between documents,
as well as provide linkages with budget updates and
financial statements. Therefore, it is important that
accounting policies used to prepare the budget are
complementary to those for financial statements, either
through the application of consistent terminology or
some form of reconciliation.
It does not imply that full disclosure must occur in

each budget document but, rather, full disclosure lies in
reviewing them in their totality. That is, the summary
budget may present material that covers everything
on a comprehensive but summarized basis while other
documents, such as the estimates, may present details
on a selected portion of the budget overall.
The term relevant modifies full by permitting a
level of discretion on what is considered important in
terms of presentation to ensure a level of understanding
and appreciation of the matters covered by a budget.
Governments struggle to ensure that documents
support this concern for relevancy, and this may be the
central rationale for some jurisdictions insisting that
budget documents reflect their own needs rather than
striving for comparability with other jurisdictions.
LEGISLATION AND POLICIES

Canadas senior governments have introduced commitments for most aspects of budget transparency, with
each jurisdiction determining which obligations will
be subject to legislation and which will be governed by
policy. The following discussion provides an overview
of major commitments within the context of the overall
issues surrounding transparency, making comments
on the impact of full-accrual accounting:
yy budget consultations;
yy multi-year fiscal forecasts and appropriations;
yy in-year financial reports (forecasts);
yy independent evaluation of budgetary information.
11 Best Practices for Budget Transparency (Paris: Organisation for Economic

Cooperation and Development OECD, 2001).
29
Budget consultations with interest groups and the public

occur on a regular basis across Canada. Where legislated obligations exist, governments normally establish
a timetable for meeting them as well as a means for
evaluating the results (for example, see Part 1, Sections
2 and 3 of the Budget Transparency and Accountability
Act in British Columbia).
The most significant budget transparency development over the past decade has been the introduction
of statutory obligations to provide in-year financial
reports (forecasts). These reports give governments the
opportunity to update the public on the status of the
budget and the overall financial position at certain
points in the fiscal year.
Jurisdictions without such legislative commitments

conduct consultations on an ad hoc basis and implement
processes to meet their own particular needs. In both
cases, consultations offer the government an opportunity
to receive informal evaluation of their progress to date,
solicit recommendations on the direction ahead and
review funding options and fiscal objectives (balanced
budgets, etc.). The benefits of full-accrual accounting
can become evident during these consultative processes,
especially in the areas most visible, such as the planning
and rollout of capital infrastructure projects and their
impact on the fiscal plan.
They also permit governments to address issues that

may have arisen, providing a forum for explaining the
actions taken and the expected results. Although the
adoption of full-accrual accounting may have raised the
complexity of providing reliable information for these
reports, it gives the readers of these documents better
information for evaluating the progress government is
making in achieving its stated goals.
The independent evaluation of budgeting

information is the most recent transparency
obligation introduced in several jurisdictions.
Multi-year fiscal forecasts offer an opportunity for governments to provide details on the financial implications
of policy objectives established as part of their mandate.
Most governments have established forecasts as part of
their overall budgeting documentation, although several
jurisdictions have decided to reflect multi-year objectives in special documents outside the budget process
or through departmental reports. In terms of multi-year
appropriations, there appears to be no major movement
toward approving expenditure plans on more than a
fiscal year basis, although most jurisdictions nominally
approve expenditure plans (especially capital) that will
require funding over a number of years.
30
The independent evaluation of budgeting information

is the most recent transparency obligation introduced
in several jurisdictions. Independent evaluators are
asked to comment on the economic indicators used in
the annual and multi-year forecasts that will, in some
instances, be restricted to the revenue estimates while,
in others, the expenditure forecasts may also be subject
to review. The passage of the new Federal Accountability
Act (December 2006) provides an example of this new
approach to transparency and accountability and will,
in time, reveal the extent to which independent evaluation has progressed.
More information on these transparency initiatives is
provided in the Discussion Papers, including examples
of legislative obligations and policies adopted. In addition, a review of literature published by governments and
organizations across Canada provides further details on
several new initiatives, including the establishment of
the Federal Budget Officer under the Federal Accountability Act and the pre-election financial reports of the
Budget Transparency
Government of Ontario, which are reviewed by the

provinces Auditor General.12
CONCLUSION
Overall, Canadas senior governments have concluded
that budget transparency is an important factor in
ensuring financial management accountability. Some
jurisdictions have introduced legislation designed to
establish comprehensive obligations that ensure information is presented on a timely basis and, in some cases,
is subject to independent evaluation. Other jurisdictions
have not found it necessary to enact statutory requirements to ensure transparency.
governments must strive to make all budget

documents more user friendly for the public.
Changing economic and social conditions can have an
impact on the budget at any point in the fiscal period. It
is important that governments keep the public informed
through updates and provide the rationale for any
actions taken to address issues as they arise. In addition,
it is important for governments to provide financial
information that forecasts the costs of meeting strategic
objectives and to release regular progress reports on
achievements, including the potential impact on their
overall financial health.
It is not correct, however, to conclude that statutory

obligations are essential to ensure budget transparency.
Each jurisdiction has to judge the level of information
necessary to meet its obligations, and it is not crucial
to strive for standardization or consistency across
jurisdictions. Legislation may spell out fundamental
requirements that remain constant from one mandate to
another, but most governments have developed proven
communication processes over the years that can also
ensure that information is presented correctly and in a
meaningful way.
Finally, governments must strive to make all budget
documents more user friendly for the public. Although
estimates and appropriations are essentially designed for
the legislature and the passage of supply bills, governments have a responsibility to provide easily understood
explanatory notes on the more technical accounting
sections of budgeting documents, providing an opportunity for the public to fully participate in all aspects of
the budget process.
12 For more information, see the Government of Ontarios 2007 PreElection Report on Ontarios Finances, released on April 23, 2007, and the
Auditor Generals review signed on June 8, 2007.
31
Chapter 5
ACCRUAL-BASED DECISION MAKING

INTRODUCTION
Although full-accrual accounting has resulted in
a better appreciation of capital asset and liability
obligations, the same cannot be said when accruals
are used as part of the decision-making process. In
this chapter, the benefits and drawbacks of using
accrual-based decision making are examined, along
with its future role.
FUNDAMENTALS OF
BUDGET DECISION MAKING
Most budget decision-making processes can be defined
as either bottom-up or top-down.
Bottom-up approaches commence with issues that
normally reflect the current delivery of services. Proposals originate within a department or organization, are
vetted through a number of internal government decision points and are finally incorporated into an overall
budget proposal for government review.
Top-down approaches originate from election platforms,
consultative processes and public announcements, such
as throne speeches, and concentrate on issues considered
important for addressing a governments mandate. They
are usually prioritized by the government, costed by
departments and a final proposal becomes part of the
overall budget.
The final budget is a composite of decisions flowing
from both of these approaches and is finalized by
Cabinet for presentation to the legislature. The overall
decision-making process requires the examination of
options and the setting of priorities to determine the
funding necessary to meet a governments objectives
while respecting the overall fiscal responsibility, such as
balanced budget obligations.
Full-accrual accounting benefits the decision-making

process by providing information on the total costs of
producing outcomes, rather than solely reflecting the
immediate cash requirement for the fiscal year. Accruals provide the foundation for long-term forecasting,
assist in timing the introduction of new initiatives and
validate actions that may be required to meet fiscal
objectives, such as changes to taxation and fee policy,
levels of service and human resource requirements.
In theory, therefore, accrual-based budget decision
making should offer an opportunity to utilize better
costing information, provide improved comparative
information to evaluate options and offer more opportunities for governments to meet their mandate objectives
on a multi-year basis.
Most participants in the budget decision-making
process are not, however, very familiar with the use and
benefits of accrual-based budgeting. The cross-Canada
workshops survey results indicated that, although most
of the respondents believed that the public and even
many government officials dont really understand
accounting practices, they also thought that budget
officials in central agencies and departmental financial
officials did understand accrual information. Most
departmental managers, legislators and the press, on the
other hand, are not thought to be familiar with accruals
(see Appendix C, responses to Question 5).
These results illustrate the general belief that accounting
policies and practices are the fundamental responsibility of financial officials, especially those with an
accounting background. The other participants in the
budget process rely heavily on accounting advice from
these officials, and this has been especially true for
accrual-based budget decision making. The onus is on
33
these officials to ensure that decision makers, especially

legislators, have a basic understanding of accruals and
appreciate the benefits derived from their use.
CAPITAL BUDGET DECISIONS

No other budget area has been more affected by accruals
than capital budget decision making. The introduction
of capitalization principles offers good opportunities for
examining options for improving the overall state of
capital infrastructure (such as major highway networks
and military assets) and determining what impact these
decisions will have on a governments immediate and
long-term financial position.
Currently, two major capital budget processes use a
mixture of cash and accrual accounting in their decisionmaking process, with the importance of accruals being
the distinguishing feature.
Most participants at the cross-Canada

workshops believe that cash will continue to
be an important aspect of the capital decisionmaking process for the foreseeable future.
The first decision-making process relies heavily on
investment decisions to determine the composition
of the capital budget. All budget information is presented on a cash or modified cash basis and projects
are evaluated against each other to establish priorities.
In most instances, a separate capital budget consisting
of investment proposals is presented to the legislature
for approval. In several jurisdictions, the legislature
may approve the capital budget at a time (Fall Session)
prior to the finalization of the summary budget (Spring
Session). Under this scenario, translating cash (or modified cash) to an accrual basis becomes an accounting
exercise for the purpose of the summary budget and,
normally, the impact of capital on the overall financial
position is evaluated as a separate process.
34
The second decision-making process may also rely on

investment decisions. Capital decisions are not, however,
made in isolation. They form part of the overall evaluation of service delivery options. In this case, a capital
budget is not considered a distinct and separate budget
for approval but is incorporated on a cash and/or accrual
basis for the estimates and on an accrual basis for the
summary budget. Accruals become an important evaluation tool and provide a linkage between an anticipated
level of service and the mixture of capital and operational inputs necessary to meet objectives. In addition,
the government can better determine the impact on
the bottom line for each delivery option, including the
future impact on the multi-year fiscal plan.
Most participants at the cross-Canada workshops believe
that cash will continue to be an important aspect of
the capital decision-making process for the foreseeable
future. Government officials, legislators and the press
are more comfortable dealing with these issues on a cash
basis and, overall, the communication of capital continues to be expressed on this basis. It is also important for
decision makers to understand the impact of capital on
debt, which is more easily explained in terms of cash
and does not require extensive knowledge of accounting
terminology and practices.
A majority of the participants do, however, see the
potential of accrual-based information in capital decision
making. Those working in jurisdictions with a history
of providing accrual-based information generally agreed
that the decision-making process has improved and
offers more opportunities to fully understand the implications of decisions on the overall financial position.
Participants from jurisdictions that have only recently
introduced capitalization practices, on the other hand,
believe that decision making on an accrual basis will
continue to be of secondary importance to cash for the
immediate future, and that it will be a number of years
Accrual-Based Decision Making
before decision makers feel comfortable with adopting

new practices.
OTHER DECISIONS
AFFECTED BY ACCRUALS
It is generally acknowledged that capital is the major
budget component affected by accrual accounting. It
is also recognized that matters such as retirement and
other employee benefits, provisions for losses, service
of the debt and revenue have been similarly affected by
accruals (see Appendix C, responses to Question 4).
Historically, these items have been subject to accrualbased accounting principles for a number of years.
Most governments have relied heavily on accounting
officials to provide the appropriate information and
advice on the amounts that should be included in the
budget. Since many of the calculations are technical in
nature, decision makers are more interested in the net
results rather than the inputs. The following discussion
reflects on some of these subjects. There is a significant
amount of information available in the CICA Discussion Papers and other sources.
How do accrual-based accounting principles affect
pension expense budgeting, especially in jurisdictions
that have a significant amount of defined benefit plan
liability? In general, defined benefit plans are subject to
legislation and are founded on providing a guaranteed
level of pension benefits calculated on the basis of salary
level(s) and the number of years of contribution to the
plan. The funding is provided through payments from
contributors and the government and includes market
returns from investments.
Accrual accounting provides a better presentation of
projected pension expenses, especially the liability
impact resulting from increased or decreased pension
investment returns. Since these liabilities are projections of pension payments over a long period of time,
the expense is considered a non-cash requirement for

inclusion in the budget. In periods of high investment
returns, pension expenses tend to affect the expected
annual results in a positive manner. The opposite is true
in periods of low or negative investment returns. The
net result of accrual-based pension budgeting may be
a false sense of increased or decreased financial health
that could result in jurisdictions increasing or decreasing expenses (cash based) for other services provided in
the budget.
Accounting standards require that pension expenses
be recorded on an accrual basis. For budget purposes,
it is important that the impact of pension expense be
explained on a non-technical basis to decision makers
to ensure that there is no overreaction to projected
changes in liability. Pension expense is based on longterm funding requirements. Likewise, budgeting for
pensions must be viewed over the long term, rather than
just under current conditions.
Over the past decade, governments have gone through
various programs of offering early retirement to employees as part of their plans to meet fiscal objectives. The
important factor for decision makers is the long-term
financial impact of these programs and the projected offsetting savings. It is essential that a full costing model be
prepared to ensure that the net result of these programs
meets the objectives. The use of accruals provides better
information for making these types of decisions.
In addition to early retirement programs, several jurisdictions are participating in benefits programs (especially
health related) for persons who have either retired early
or at the normal time. Again, since the costs of these
benefits are calculated on an accrual basis, the liability
and long-term funding obligations must form part of
the decision-making process to ensure appropriate
costing of the programs.
35
To understand the financial implications of all of

these benefit programs requires a cadre of financial
officials and actuaries who have extensive knowledge of
accounting standards and practices and have the ability
to explain to decision makers the impact of decisions
in a non-technical manner. There is a need for more
educational tools in the whole area of costing employee
benefit programs, especially in budgeting and accounting practices.
PROGRAM MANAGEMENT
Generally, most government managers do not consider
accruals and other accounting policies to be particularly
important, especially in terms of the day-to-day responsibility to deliver services. Although managers are asked
to provide financial information that will be included
for budget decision-making purposes, they normally
rely on financial officials either within their department
or from central agencies to identify the proper accounting treatment.
With the introduction of full-accrual accounting for
capital assets, government officials have come to understand that accruals, especially amortization expenses,
may have a significant impact in the overall daily
management of programs. Across Canada, governments
seem to be using two approaches to the administration of
amortization expense. These can be categorized as either
a direct department responsibility or a government-wide
responsibility.
In jurisdictions where amortization expense is the
responsibility of each department, a failure to place
sufficient importance on accruals can have a negative
36
impact on the overall department budget. For example,

if an asset is neglected and/or becomes unusable, it may
be necessary to increase its rate of amortization, which
can result in the diversion of funding from another
departmental responsibility.
In such instances, it is important that information on
asset condition be kept up to date and that amortization
expenses be treated the same way as other operational
costs requiring regular evaluation. Managers faced with
these issues are more inclined to take an interest in the
impacts of accrual-based information on the budgeting
exercise. They recognize that a failure on their part
to have a budget allocation that provides an accurate
level of amortization can lead to pressure on the overall
department budget.
Jurisdictions that have decided to centralize amortization expense in a government-wide account will see a
tendency for program managers to view amortization as
a matter outside of their responsibility. Since changes to
the amortization charge do not affect the departmental
budget, the importance of keeping accrual-based information up to date and accurate is less of a priority than
other expenses under their control.
Under a government-wide program, central agencies play
a leadership role in developing budgeting information
and in the administration of amortization policy. They
view this centralization as a better means of ensuring
that accounting policies are applied consistently across
government and allow a degree of flexibility in managing the overall amortization expenses.
Accrual-Based Decision Making
CONCLUSION
There is mixed opinion on the value of accrual-based
decision making by senior governments. In some jurisdictions, the government sees accruals as an opportunity to provide enhanced costing information, thereby
improving the overall quality of decisions that will have
an impact on budgets over a number of years. In other
jurisdictions, the government sees the need to continue
making decisions on a modified accrual basis, whereby
accruals account for most decisions with the exception
of capital, which continues to rely on modified cash for
decision making and communication purposes.
On a historical basis, it is difficult to come to the

conclusion that accruals have resulted in better
decision making, especially in terms of capital
budgeting matters. As governments become more
familiar with the benefits derived from accrual-based
accounting, there will be some comfort in applying
costing models and evaluating options as part of their
budget process, ultimately leading to better informed
decisions. A general movement to accrual budgeting
for capital decision-making purposes will, however,
likely not be realized for years to come.
37
Chapter 6
ACCRUAL BUDGETING ISSUES

INTRODUCTION
Like other financial management responsibilities,
budgeting faces ever increasing demands for more
financial and non-financial information. Nontraditional budgeting sources, international practices
and public pressure on governments to introduce
new accountability and transparency practices have
all contributed to these new demands.
This chapter examines the major emerging issues and
identifies future research that can benefit the budgeting
community. Although accrual budgeting practices are
not the main emphasis in this section, they will have an
impact on future accounting and policy direction.
PERFORMANCE AND BUDGETING

ACCOUNTABILITY
Performance measurement and performance reporting
have become central issues in government accountability. Some senior governments have established statutory
obligations and developed processes for ensuring that
policy objectives can be measured and performance
reports provided on achievements. Others have established measurement policies, providing performance
updates in department/agency annual reports. Overall,
there is a positive movement by governments to connect
the things they say they will do with what they actually
have accomplished.
To assist governments in meeting the objectives of
performance reporting, PSAB published the Statement of Recommended Practice for Public Performance
Reporting (SORP-2) and the accompanying Guide
to Preparing Public Performance Reports. The overall
emphasis is as follows:
PSAB expects that performance reports using

the guidance in the SORP will result in a more
accountable, rigorous and disciplined public sector
management, and that reporting will move beyond
inputs and outputs to outcomes. The most significant benefit will be that the users of the government
reports will be able to assess the impact of government activities.13
Governments now have the tools for conducting a selfassessment of achievements and producing accompanying documentation that demonstrates accountability.
Measuring Up reports prepared by the Government
of Alberta and the Federal Governments Canadas
Performance are examples of accountability documents
designed to help taxpayers judge achievements.
What is the relationship between financial accountability and performance accountability? Whereas
performance evaluation follows a path from establishing goals to achievement reviews, financial evaluation
moves from the budget to audited financial statements.
The actual link between financial accountability and
performance accountability is not clear. Most jurisdictions operate two processes, running parallel to each
other, seldom intersecting, nor capable of answering the
central concern of the public: Is my money being spent
wisely on the services I need?
Several jurisdictions have requirements to link resources
with results achieved. This may include disclosing the
direct costs needed to reach a level of achievement,
efficiency efforts and multi-year funding requirements
to meet specific goals. The difficulty lies in the reliability of the financial information required to determine
13 Refer to Judy Ferguson, FCA, Deputy Provincial Auditor of Saskatchewan and Karim Pradhan, CA, Audit Principal, Alberta OAG, Member
Advisory (April 2007).
39
the achievements. For example, it may be easy for a

government to disclose the amount of money it spent
on health services and also have a stated objective to
increase life expectancy over a set number of years. The
government will be able to measure the rate of achieving the objective, but it would be difficult to place an
accurate price tag on this goal or the cost of achieving
the annual results.
Summary budgets are the main communication tool
used to inform taxpayers about expected achievements
and funding required to achieve objectives. The budget
and related communication notes are not normally
technical in nature and provide brief, precise explanations of the major features, objectives and costs associated with meeting a fiscal plan.
On the other hand, the estimates are technical, provide
tables and expenditure plans that are difficult for
most non-accountants to understand, and are often
voluminous. It is understandable that the content of
budget plans and explanatory notes receive considerable press coverage and public scrutiny, whereas other
working documents, such as the estimates, receive less
attention.
It may be useful, in the future, to design budget documents that directly connect performance goals and
objectives with fiscal plans, giving both the public
and legislators information they can track on a regular
basis. Just as multi-year forecasts provide guidance on a
governments long-term fiscal objectives, performance
measurement documents provide useful information
about the proposed impact of policy decisions. Coupling
the two processes on a government mandate basis (over
four to five years) would provide a clearer and more
visible means for judging the success of that governments commitment to meet objectives and maintain
its overall financial health. In addition, the introduction of evaluation processes, such as that contained in
40
the Public Performance Reporting SORP, would provide

more meaningful information that could readily be
linked to the discussion and analysis sections of the
financial statements.
SERVICE DELIVERY OPTIONS

The delivery of government services is one of the top
priorities for ensuring that the needs of the public are
addressed in the most effective and efficient manner.
Over the past three decades, most jurisdictions have
introduced options for providing service delivery,
notably privatization and public/private partnerships
(P3) initiatives. These delivery models have resulted
in governments undertaking major projects, such as
highway/bridge construction and maintenance, and
building or upgrading facilities for the provision of
education, health, justice and correction services.
The evaluation of service delivery options is an important function not only for recommending the best
delivery mechanism, but also for providing meaningful
costing/budgeting information in the decision-making
process. Accrual accounting practices play an important
role in ensuring that proposals are evaluated against
each other and for determining whether an option has
a cost-effective advantage over traditional in-house
delivery practices.
Senior governments that are heavily involved in alternative service delivery practices have spent considerable
effort developing protocols, policies, best practices and
evaluation methodologies. Since the private sector
already has options for evaluating different ways of
delivering services, private sector accounting policies
for developing delivery proposals should be reconciled
with those of the public sector. The adoption of fullaccrual accounting in the public sector has provided
the link for comparing costs over a period of years and
is fundamental for analyzing the most cost-effective
proposal.
Accrual Budgeting Issues
INTERNATIONAL PRACTICES
As stated earlier, accrual budgeting has not been
universally accepted by most developed nations.
Similar to the Canadian experience, some countries
have introduced accrual accounting for reporting
purposes but few have adopted accrual accounting for
all budgeting documents including the estimates and
appropriations.14
Australia and New Zealand have, however, used
accrual-based budgeting practices for several years. An
overview of their experiences provides useful information and future guidance to public sector organizations
in other countries.
Australia introduced accrual budgeting in the late
1990s while New Zealand implemented it as part of
the Public Finance Act of 1989. The current literature
suggests that the experience of both countries was
similar to that of Canadas senior governments during
the first few years after accrual accounting was introduced. The budgeting changes were only part of an
overall package of government reform and it is difficult
to determine if the successes and issues stemmed from
the accounting changes specifically or the implementation of reforms generally.
priority areas and away from low priority areas; and

to seek greater value for money.15
This direction has remained fairly constant over the
years, although areas such as the accounting treatment
of capital and government enterprises have been updated
at regular intervals.
Budgeting in New Zealand during this period was not
immune from the impact of government reform. The
focus by legislative decision makers moved from a fairly
comprehensive evaluation of all inputs on a program
basis to one where attention was placed on output
classes and their impact on outcomes. The inputs
necessary to reach these outputs became a departmental
responsibility and required the evaluation of options
and other efficiency/cost-cutting efforts to meet government objectives. Accruals became an essential feature in
the department decision-making process, especially for
evaluating options and determining the long-term cost
implication of decisions. This had a spillover effect on
the management of assets, whereby managers realized
the importance of accrual information to the overall
future of programs and delivery systems.
this fiscal situation would not be managed through

increases in tax revenue. It therefore focused on
expenditure in a three-pronged strategy: to reduce
government spending; to channel resources to high
Australia adopted accrual-based financial reporting in

1984. The first accrual-based budget was released in
1999. The countrys governments experienced several
growing pains during the initial years (identified in the
2006 CICA Discussion Paper Accounting for Tangible
Capital Assets. Nevertheless, accruals are now fundamental to the output-based budget decision-making process.
Similar to New Zealand, legislators are more interested
in the overall costs of meeting objectives and leave the
input costs decisions associated with service delivery to
each government department or agency.
14 For a review of the current situation, refer to Organisation for Economic

Co-operation and Development (OECD) 9th Annual OECD Public
Sector Accruals Symposium, March 2-3, 2009.
15 Ken Warren and Cheryl Barnes, The Impact of GAAP on Fiscal Decision Making: A Review of Twelve Years Experience with Accrual and
Output-based Budgets in New Zealand, OECD Journal on Budgeting,
3, 4 (2003).
The worsening fiscal situation of the late 1980s and the

negative projections for the early 1990s prompted New
Zealands financial reform. The new government elected
in 1990 decided:
41
In 2002, Australia adopted sector-neutral accounting

standards that reflect, for the most part, IFRS. Sectorneutral denotes the use of the same (or similar) standards in the public, not-for-profit and private sectors,
thereby providing a common approach to accounting
treatment and policy evaluation. There has been some
debate recently over the benefits of recognizing different
objectives and reporting needs for the public and notfor-profit sectors, which now questions the foundation
of sector-neutral accounting. Although there is no
immediate movement to change the current approach, it
will be interesting to follow this discussion in the future,
especially given Canadas current movement to requiring
certain public sector organizations to follow IFRS.
FUTURE RESEARCH NEEDS

The government budgeting workshop discussions and
survey results indicate that most budgeting officials
want to see further research and sharing of information
if they are to meet their responsibility of providing
informed advice to the government. This is especially
relevant for changing economic outlooks and increased
attention to financial accountability requirements.
Most budgeting officials do not consider accrual accounting issues to be high on the priority list of future research
activities, except perhaps with regard to the impact it
may have on current contentious issues, such as intergovernment transfers, unresolved government budgeting
entity concerns and environmental liabilities.
The survey asked budgeting officials to comment
on emerging budgeting issues (other than accrual
related) that they believed require further research and
review (see Appendix C, responses to Question 9 and
Question 10). Survey respondents had some common
requestsfurther review of budget accounting
practices, looking at the impact of IFRS, accounting
for government transfers and accounting for financial
instruments. Other research requests included:
42
multi-year and in-year fiscal forecasting;

yy use of fair market value measurements in government;
yy a review of control criteria for the government
reporting entity.
yy
It is clear that budgeting officials see an overall need

for more interaction among budgeting officials across
Canada. Suggestions such as maintaining an up-to-date
directory of budgeting officials, the provision of copies
and summaries of national and international budgeting reviews and more independent research on current
and emerging issues were discussed (see Appendix C,
responses to Question 11). To achieve any of this, the
officials suggested establishing a support mechanism to
oversee these activities and to maintain continuity from
year to year.
Most budgeting officials do not consider accrual

accounting issues to be high on the priority list
of future research activities, except perhaps with
regard to the impact it may have on current
contentious issues, such as inter-government
transfers, unresolved government budgeting
entity concerns and environmental liabilities.
Finally, discussions by workshop participants made it
clear that budgeting practices have been affected by
changes in accounting standards on government financial reporting. The most controversial budgeting issues
emerged during the discussion of those standards, and
the ensuing frustration centres on the lack of perceived
acknowledgement of budget and fiscal policy concerns
identified during these discussions.
Although budgeting practices are not subject to
accounting standards, the budgeting community has
an opportunity to comment on proposed changes in
accounting standards. Providing useful comments on
Accrual Budgeting Issues
such changes requires a focus on budgeting practices

and fiscal issues, and making an effort to establish a
forum to address concerns prior to the implementation
of new or revised standards.
In July 2007, Canadas senior government Deputy
Ministers of Finance set up a Joint Working Group
(JWG) with the CICAs Public Sector Accounting
Board (PSAB) to review common interests and prepare
papers on key issues. In January 2009, several papers
were issued by the JWG. These papers represent the
culmination of a year-long collaboration among Deputy
Ministers from senior Canadian governments and PSAB
representatives.
In accordance with the terms of reference of the JWG,
the papers cover the following issues:
yy the Conceptual Framework and its alignment with
sound public policy, fiscal accountability, and transparency in financial reporting;
yy PSABs governance structure and standard-setting
processes; and
yy proposed changes in accounting standards in specific
areas including government transfers and financial
instruments.
The papers were compiled by sub-teams comprising
staff from both PSAB and representative governments
and reflect the feedback and comments received from
officials representing all senior Canadian governments.
The specific recommendations in the papers are strongly
supported by all the provincial Deputy Ministers on
the JWG. Due to the urgent timing considerations,

the Deputy Ministers requested immediate action by
PSAB with respect to its existing guidance related to
government business enterprises (GBEs), government
business-type organizations (GBTOs) and consolidation
of schools, universities, colleges and hospitals (SUCH
sector organizations) in order to allow full consideration
of the recommendations in these areas. The Deputy
Ministers on the JWG further urged PSAB to introduce
new mechanisms to respond to urgent emerging issues
in a more timely manner, given todays rapidly changing
economic and financial environment.
CONCLUSION
As we move into the next decade, budget-related
accounting practices will continue to be dominated
by accountability and transparency obligations. It is
anticipated that current issues, such as the evolution
of the government budgeting entity, the adoption
of full-accrual accounting for decision-making
purposes and accounting for government transfers
will be resolved, perhaps replaced by budgeting
issues centred on providing increased accountability
for program performance results and overall financial
stability and health.
Senior government budgeting officials have a key role
to play in the development of appropriate responses to
accountability and transparency issues. They need to
keep up to date on emerging issues and budget accounting policies and practices to ensure that they can offer
appropriate advice on the options available for government consideration.
43
Chapter 7
FUTURE CHALLENGES
FOR ACCRUAL BUDGETING
INTRODUCTION
Canadas senior governments have witnessed periods
of significant growth in the economy during the past
several decades. That growth provided opportunities for
increasing employment and reducing taxes, as well as
improving services to the public.
From a financial management perspective, governments
have made steady progress toward balancing their
budgets, reducing debt and implementing solid foundations for meeting their accountability and transparency
commitments. This led to a steady improvement in
financial health and overall optimism in continuing to
meet the needs of the public while maintaining a fiscal
philosophy of living within our means.
Over the next few years, however, a great deal of this
optimism will be dampened by recent financial events.
With a contraction of the economy, major layoffs are
occurring on a regular basis and governments are refocusing their fiscal objectives to meet current economic
realities. The immediate future will be marked by the
introduction of measures intended to reverse this downturn and revitalize the economy.
Under this scenario, financial management practices
have a key role to play. The public and other interested
parties want governments to develop new ways of ensuring that public money destined to stimulate the economy
and create employment is available as expeditiously as
possible, while continuing to provide safeguards that
maintain accountability. Additionally, governments
need to provide assurance that major stimulus programs
will not lead to structural deficits that will impair the
affordability of future services to the public and transfer
indebtedness to future generations.
Whether the context is economic growth or economic

downturn, there are many challenges to accrual
budgeting and accountability. An overview of the
major challenges is provided in this chapter, including
those related to:
legislative authority;
budgeting entity;
capital assets;
communications; and
innovative decision making.
ACCRUAL BUDGETING CHALLENGES
Legislative Authority
Financial administration acts are the foundation of
legislative obligations and will continue to prescribe
the basic content of financial management documents
ranging from the budget to performance reports. Governments will, however, need to review these obligations
and compare them to the current financial management
policies and practices in each jurisdiction.
As part of their review, governments should ensure
that accounting policies are not compromised or in
conflict with statutory definitions and obligations. This
is especially important where accruals are used for both
budgeting and financial reporting purposes but governing legislation solely reflects cash (or modified cash)
as the basis of accounting. Providing clarity through
legislative amendments would reduce confusion over the
role accrual accounting plays in financial management
practices.
Perhaps, the greatest challenge in the immediate future
will be ensuring the effectiveness of statutory commitments to balance budgets and to manage or reduce
45
debt. It is widely believed that the true test of financial

management legislation is not its effectiveness during
periods of economic growth but, rather, how effective
it is during economic downturns. Are these commitments achievable? As an alternative, do governments
need to revise these obligations or at least suspend
them for a while?
Governments have two choices. Should they decide to
meet existing legislative requirements, they can budget
for the downturn by introducing recovery programs
offset by reduced expenditures in other areas and,
perhaps, increased taxation. The problem is that most
governments not only find it difficult to reduce expenditures on services the public traditionally expects but
are also reluctant to increase taxes.
The whole concept of financial accountability

legislation will be tested over the next few
years. Governments will need to examine their
commitments within the context of the current
situation as well as the long-term objectives
they want to achieve.
The second option is to recognize that it may not be
possible to achieve balanced budgets and to manage
or reduce debt during the recovery period. Under this
option, governments can prepare a multi-year fiscal
forecast projecting deficits and increases in debt to meet
the economic challenges. They can also amend legislative
commitments for an interim period to reflect recovery
objectives. Alternatively, they can issue a statement to
the legislature that the objectives expressed in legislation
will not be achieved during the forecasted period.
It is likely that the second option will be the path most
governments will choose to follow despite certain drawbacks, especially with regard to the long-term validity
of the statutory commitments. If balanced budgets and
46
debt management or reduction can be achieved only

during periods of stable economic growth, the value
of making such commitments is questionable. It may
be more appropriate for governments to view balanced
budgets and debt reduction as strategic objectives, rather
than obligations defined through legislation.
The whole concept of financial accountability legislation will be tested over the next few years. Governments
will need to examine their commitments within the
context of the current situation as well as the long-term
objectives they want to achieve. Accountability remains
crucial and legislation continues to be the principal
format for demonstrating accountability commitments.
On the other hand, legislation should be able to withstand the test of time.
Budgeting Entity
Accounting standards set out in the CICA Public Sector
Accounting Handbook apply only to financial statements, not to budgeting documents. Since there is a
requirement to present budget to actual comparisons,
accounting standards can have an impact on budgeting
documents, including information on the government
budgeting entity. Two issues are unresolved:
yy Which methods of accounting are appropriate for
including government organizations in either the
reporting entity or the budgeting entity?
yy
Which accounting standards are appropriate for the

budgeting process?
As previously stated, the Public Sector Accounting

Board (PSAB) is currently reviewing the requirement
that government business enterprises (GBEs) and government business-type organizations (GBTOs) adopt
IFRS by 2011. This creates an opportunity to address
the concerns various governments have expressed,
leading to a satisfactory solution following due process.
Future Challenges for Accrual Budgeting
Second, the inclusion of organizations such as colleges,

schools and hospitals using the line-by-line consolidation
method remains an issue for some senior governments.
The Deputy Ministers of Finance/PSAB Joint Working
Group (JWG) has offered some recommendations that
may provide a basis for addressing this concern. In addition, PSAB has recently extended the implementation
deadline to allow an opportunity for further review.
appropriate planning and evaluation before construction can commence.
Without limiting the need for an acceptable solution to

these issues, it must be recognized that several jurisdictions accepted the accounting standard on consolidation
when it was issued and made the appropriate adjustments
to both their financial reporting and budgeting documents. If the objective is to achieve consistency within a
government and also across jurisdictions, then allowing
too much flexibility to accommodate the concerns of
selected jurisdictions runs counter to this objective.
Accordingly, new or amended accounting standards
must be based on a comprehensive due process which
ensures that no government jurisdiction is left in a disadvantaged position because standard setters have had
to revisit certain issues.
One drawback of accrual accounting for capital is the

perception that the financial impact of these capital
projects is understated. Because amortization becomes
the basis for expensing the costs, the charges for capital
projects will not be recognized until an asset is actually
in use. As part of their accountability and transparency
obligations, governments need to provide multi-year
information on the impact these capital projects will
have on amortization expenses, as well as on any costs
(such as interest) charged to debt. This information
should be comprehensive, easily understood and be part
of capital impact statements provided to the public on
a regular basis.
Capital Assets
As previously discussed, accrual accounting plays an
important role in budgeting for capital acquisitions over
a multi-year period. This role may be tested over the
next few years, especially during the economic recovery
period, but it has the potential to lead to significant
changes to future budgeting and financial reporting
practices.
The usefulness of capitalization as a planning tool will
soon become evident, especially in government jurisdictions whose economic stimulus packages contain
major infrastructure components. Although governments are prepared to introduce a number of shovel
ready projects to create employment opportunities
over a short period of time, other initiatives will require
Governments that take a multi-year approach to capital

projects and review alternative funding opportunities,
such as public-private partnerships, will benefit from
accrual budgeting. It should ensure that public money is
allocated in the most effective and efficient manner.
In addition, the impact on debt becomes a crucial factor

in describing the financial health of each government
jurisdiction. As stated earlier, the interpretation of
debt is not consistent from one senior government to
another, sometimes being described as accumulated
deficit and other times as gross debt. The definition
of net debt is the most reasonable for indicating levels
of liability and tracking the debt growth rate. It may
be beneficial for all jurisdictions to use net debt as the
foundation for discussions on financial health and the
impact on future generations.
Communications
Both nationally and internationally, accounting standards are constantly changing. Accordingly, there is a
need for more cooperation, sharing of information and
development of technology. This applies not only across
47
government jurisdictions, but also among senior governments and other levels of government, accounting
standard setters, the media and the public in general.
In fact, the sharing of information is a major form of
communication among senior governments.
Both nationally and internationally,

accounting standards are constantly changing.
Accordingly, there is a need for more
cooperation, sharing of information and
development of technology.
Most financial management issues are not confined to

a small number of jurisdictions. On the contrary, they
are matters that normally have an impact on all senior
governments. Jurisdictions faced with implementing
new or amended accounting standards on a regular
basis have a need for more dialogue among themselves
to determine the most effective means for making the
necessary changes in their reporting documents. Of
added importance, especially to the budgeting community, such dialogue offers a way to assess the impact
these changes will have on budgeting documents, as
well as accountability and transparency obligations.
To ensure positive future relationships between senior

governments and accounting standard setters are
established and maintained, the standard setters must
consider the implications of accounting standards
on government budgeting practices. The current gap
between the numbers in a governments budget and
what is ultimately reported in the financial statements
must not be allowed to widen. Accomplishing this goal
requires a concentrated effort by the standard setters
and every senior government jurisdiction in Canada.
Canadas community of senior government financial

comptrollers has made a great deal of progress in sharing
information. It has established a secretariat that provides
information on national and international accounting
developments to all the comptrollers and assists this
community in developing common approaches to issues
that arise. A similar secretariat would benefit the budgeting community by ensuring that budgeting officials
receive, in a timely manner, non-technical and easily
understood analyses of the budgeting impact of proposed accounting changes and other pertinent issues.
Senior governments also need to share information
and experiences with local governments. This may
be particularly relevant with regard to public sector
accounting standards for valuing capital assets and
determining amortization rates, matters for which all
senior governments have had to develop appropriate
policies and practices. Such information would assist
local governments that have neither the resources nor
the knowledge needed to deal with these issues.
48
The standard setters must ensure the participation of

the budgeting community on every accounting taskforce so that policy and budgeting concerns receive full
attention before new or revised accounting standards
are introduced. On the other hand, without questioning
the sovereignty of each jurisdiction, senior government
officials must become more engaged in the discussion
of accounting standards. Furthermore, they must routinely respond to accounting exposure drafts and other
documents for comment to ensure that their viewpoints
are considered.
To facilitate better communication between senior
governments and the standard setters, it may be
beneficial to review the outcomes of recent meetings by
the Deputy Ministers of Finance/PSAB Joint Working
Group. This will assist both senior governments and
PSAB in dealing with pressing accounting issues. Also,
it may be appropriate for senior governments and PSAB
to develop a more permanent structure through which
accrual budgeting issues can regularly be discussed
and addressed in a mutually satisfactory way.
Future Challenges for Accrual Budgeting
The public relies on media reports to evaluate most economic information and fiscal conditions. Therefore, it
will be paramount for governments to provide comprehensive and easily understood information on the status
of multi-year budget plans. It is essential for governments
to discuss this information with media representatives
and the public on a regular basis. The budget information
they release must include not only program and project
details, such as employment, service improvement and
associated costs, but also the budgets impact (especially
of short and long-term deficit and debt forecasts) on a
governments overall financial health.
Finally, communications must also include references to
information technology (IT). Most information today
is generated through extensive IT systems that have the
ability to provide up-to-date information on many, many
topics. IT is the backbone of all financial management
processes. Without IT, it would be impossible to produce
most of todays budgeting and reporting documents.
Accrual accounting has increased the use of these IT
systems, especially when it comes to cataloging capital
assets and recording amortization charges. Some
consider the additional costs and resources required
to effectively introduce accrual accounting into these
systems to be a drawback. They do not see the benefits
outweighing the costs. With the general acceptance of
capital asset accounting as both a planning and reporting tool, however, governments have made an effort to
ensure that information systems remain relevant and
continue to provide the information needed for preparing the budget documents and for financial reporting.
Innovative Decision Making

If there is a silver-lining to the economic downturn, it is
the potential to develop innovative approaches to decision making that could have long-term application to
budgeting practices and processes. A review of the major
infrastructure programs suggests that governments are
interested in building into their budgeting activities

speedier, multi-year applications and more effective
accountability mechanisms.
In addition, the ability to effectively monitor and report
performance results has become an essential feature of
every recovery program. This will be the impetus for
governments to ensure that they can accurately measure
results on a regular basis and provide assurance that
taxpayers are receiving value for their money.
If there is a silver-lining to the economic

downturn, it is the potential to develop
innovative approaches to decision making that
could have long-term application to budgeting
practices and processes.
Accrual-based decision making offers an opportunity
for governments to evaluate capital plans on a multi-year
basis. It also provides a foundation for a more accurate
and speedier evaluation of service delivery options to
determine the appropriate and most effective means of
completing major capital projects.
To take full advantage of these benefits, governments
and elected officials must begin using accruals for capital
decision making and feel comfortable that they add to
the quality and effectiveness of the budgeting process. It
will be important for financial management officials to
provide leadership in the development of budgeting and
reporting documentation that reflects the benefits of
accrual-based decision making and provide appropriate
accountability structures.
Finally, from a performance accountability perspective,
the next few years will provide an increased opportunity to experiment with the addition of forecasted
performance results within budget documents. Initially,
coverage may be limited to matters such as projected
49
direct and indirect employment opportunities, the rate

of project completion and resulting service impacts. The
lessons learned during this time will provide a foundation for future accrual budgeting to be more transparent
and more responsive to the needs of the public.
CONCLUSION
Canadas senior governments are now concentrating
all their efforts on the development of initiatives aimed
at minimizing the impact of the economic downturn.
Budgeting is no longer a once-a-year headline in the
media. Instead, the budget is of ongoing interest, producing information on a regular basis used to hold the
governments accountable for their economic stimulus
efforts and the creation of employment opportunities.
50
The publics attention is focused on how governments

develop their recovery programs and on how they communicate the effectiveness of those programs.
To assist them through these difficult times, governments have developed the necessary budgeting and
accountability tools. They have the foundation of legislative and policy experience to ensure that the accrual
accounting aspects of financial administration assist
rather than impede them in reaching their objectives. It
is clear that accrual budgeting has a role to play in the
future plans of senior governments. They will recognize
the beneficial aspects of accruals and they will find
increased opportunities in these challenging times to be
better positioned for success in future years.
Appendix A
OBJECTIVE AND
TERMS OF REFERENCE
The objective of this research project is to address
the current issues Canadian federal, provincial and
territorial governments face when they prepare
appropriations documents (appropriations/estimates)
and accrual-based budget documents, including
how budgets are reconciled to financial statements to
provide the budget to actual comparisons required by
the CICA Public Sector Accounting Handbook.
For the Canadian federal, provincial and territorial
governments, the research project:
yy Summarizes the benefits and drawbacks of using
accrual-based accounting for preparing budgets and
appropriations documents.
yy Determines whether and, if so, how accrual information can be meaningfully factored into the budget
decision-making process.
yy Identifies and assesses the implications of moving to
an expense-based reporting model for the way governments operate, the impact on how they manage and
how the move might motivate them to act, as well as
the changes that might result in government accountability.
Summarizes current and planned initiatives with

respect to:
legislative provisions on accrual-based
accounting in budgets and appropriations;
the basis of accounting, the budgeting entity, the
basis of consolidation and the significant accounting
policies used in budgets and appropriations;
budget numbers presented in the
summary financial statements;
numbers from appropriations/estimates that are
presented in the summary financial statements.
Identifies
and analyzes alternative approaches to
yy
addressing emerging accrual accounting issues that
are likely to receive divergent treatment in government
budgets and appropriations documents.
yy
51
Appendix B
GOVERNMENT BUDGETING
WORKSHOP QUESTIONNAIRE
5]dS`\[S\b0cRUSbW\UE]`YaV]^?cSabW]\\OW`S
7<B@=2C1B7=<
BVO\Yg]cT]`Ô`bWQWÔbW\UW\bVSU]dS`\[S\bPcRUSbW\Ue]`YaV]^7baV]cZRbOYS\][]`SbVO\O\V]c`b]Q][^ZSbS
bVST]ZZ]eW\U_cSabW]\\OW`S
G]c`^`]TSaaW]\OZ]^W\W]\Wa`S_cSabSRT]`[]ab]TbVS_cSabW]\aO\Rg]ceWZZVOdSO\]^^]`bc\Wbgb]aVO`S`Sa^]\aSa
eWbV]bVS`]TTWQWOZaÔ`bWQWÔbW\UW\bVSe]`YaV]^7baV]cZRPS\]bSRbVObbVSWRS\bWbg]TW\RWdWRcOZ`Sa^]\aSa
WRS\bWTgW\UbVS\O[S]TbVSÔ`bWQWÔ\b]`Xc`WaRWQbW]\eWZZ\]bT]`[Ô`b]TO^cPZWaVSR`SaSO`QV`S^]`bc\ZSaaWbWa
Qc``S\bZgÔ`b]TbVS^cPZWQ`SQ]`R
53<3@/:7<4=@;/B7=<
>ZSOaS^`]dWRSbVST]ZZ]eW\UQ]\bOQbW\T]`[ObW]\
<O[S(MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
>]aWbW]\(MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
2SÔ`b[S\b( MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
8c`WaRWQbW]$MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
3[OWZ/RR`Saa( MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
>V]\S<c[PS`( MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
!AC@D3G?C3AB7=<A
4cZZOQQ`cOZOQQ]c\bW\UWabVSO^^`]dSRabO\RO`RT]`bVS`S^]`bW\U]TTW\O\QWOZ`SacZba
PgaS\W]Ù]dS`\[S\baW\1O\ORO4]`bVS^c`^]aSa]TPcRUSb^`SÔÒbW]\W\QZcRW\U
bVSAc[[O`g0cRUSb3abW[ObSaO\R/^^`]^`WObW]\aTcZZOQQ`cOZOQQ]c\bW\UaV]cZR(
ASZSQb]\S]TbVST]ZZ]eW\UbVObPSab`S^`SaS\bag]c`]^W\W]\
O0SO^^ZWSRQ]\aWabS\bZgeWbVbVS171/>cPZWQASQb]`/QQ]c\bW\U6O\RP]]YT]``S^]`bW\U`SacZba)
P0SacPXSQba]ZSZgb]ZSUWaZObW]\OcbV]`WhW\UWbacaS)
Q<]bPSQ][^cZa]`gPcbaV]cZRPSQ]\aWRS`SReVS\^`]dWRW\UPcRUSbW\T]`[ObW]\T]`RSQWaW]\[OYW\U)
R0SQ]\aWRS`SR]\Zgb]bVSSfbS\b`S_cW`SRb]^`]dWRS`SQ]\QWZWObW]\aPSbeSS\PcRUSbSR\c[PSàO\R`SacZbaQ]\bOW\SRW\bVS
TW\O\QWOZabObS[S\ba)
S<]bPSQ][^cZa]`gT]Ò\g`SOa]$
T=bVS`ÒbW]\OZS^ZSOaSa^SQWTg(
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
53
!4W\O\QWOZOQQ]c\bOPWZWbgWaO\W[^]`bO\bTc\QbW]\^ÒQbWQSRPgOZZ1O\ORWO\aS\W]`
U]dS`\[S\ba4c\RO[S\bOZb]bVWaOQQ]c\bOPWZWbgWabVSbÒ\aÔ`S\QgO\R
Q][[c\WQObW]\]TPcRUSbRSQWaW]\abV`]cUVR]Qc[S\baac^^]`bSRPgZSUWaZObW]\O\R
^]ZWQgQ][[Wb[S\ba/aÔ`b]TbVWaPcRUSbOQQ]c\bOPWZWbgO\RbÒ\aÔ`S\Qg
Q][[Wb[S\bbVS`SaV]cZRPS(
OabO\RO`ROQQ]c\bW\U^ÒQbWQSaOR]^bSRbVObO`SO^^ZWQOPZSb]OZZXc`WaRWQbW]\a)
POQQ]c\bW\U^ÒQbWQSaOR]^bSReVWQV[SSbbVS\SSRa]TSOQVW\RWdWRcOZXc`WaRWQbW]\)
Q\]Q]\QS`\]dSÒQQ]c\bW\U^ÒQbWQSa^`]dWRSR`SQ]\QWZWObW]\QO\PS[ORSPSbeSS\PcRUSbSR\c[PSàO\R`SacZba
Q]\bOW\SRW\bVSTW\O\QWOZabObS[S\ba)
R=bVS`ÒbW]\OZS^ZSOaSa^SQWTg(
"4]`PcRUSbRSQWaW]\[OYW\UOQQ`cOZW\T]`[ObW]\VOaPSS\W[^]`bO\beVS\SfO[W\W\U(
1VSQYSWbVS`GSa]`<]bVObPSab`S^`SaS\bag]c`]^W\W]\
O=^bW]\aT]àSQc`W\U
QO^WbOZW\TÒab`cQbc`S
O @S^ZOQS[S\b]T
QO^WbOZOaaSba
PBVSW[ÔQb]T^S\aW]\
PS\STWbRSQWaW]\a
Sf^S\aSa
QBVSQ]ab]TW[^`]dSR
S[^Z]gSSPS\STWba
RBVSW[ÔQbO\R
W[^ZS[S\bObW]\]T
`SdS\cSORXcab[S\ba]`
`SdS\cS^]ZWQgRSQWaW]\a
S:]O\aORdO\QSaO\R
^`]XSQbSRZ]aaSa
GSa
<]
T=bVS`RSQWaW]\a^ZSOaSa^SQWTg(
54
Government Budgeting Workshop Questionnaire
#7bWa`SQ]U\WhSRbVObOaWU\WTWQO\b\c[PS`]TOQQ]c\bW\U^ÒQbWQSaO`S\]b
Q][[]\Zgc\RSàb]]RPg[]ab]TbVS^cPZWQO\R[O\g]TTWQWOZaW\U]dS`\[S\ba
6]eSdS`T]`bVS[]abÔ`bOQQ`cOZW\T]`[ObW]\WaUS\SÒZZgc\RSàb]]RPg(
1VSQYSWbVS`GSa]`<]bVObPSab`S^`SaS\bag]c`]^W\W]\
GSa
<]
OPcRUSb]TTWQWOZaW\
QS\bÒZOUS\QWSa
PTW\O\QWOZ]TTWQWOZaW\
RSÔ`b[S\ba
Q[]abaS\W]`[O\OUSà
R[]abZSUWaZOb]à
SbVS>`Saa`S^]`bSà]T
PcRUSbSdS\ba
$B]S\ac`SW\Q`SOaSRbÒ\aÔ`S\QgeWbVW\bVSPcRUSbRSdSZ]^[S\b^`]QSaaWbe]cZR(
ASZSQb]\S]`[]`S]TbVST]ZZ]eW\UbVObPSab`S^`SaS\bag]c`]^W\W]\
O0SPS\STWQWOZb]VOdS[]`SSRcQObW]\OZ^`]UÒ[aT]Ù]dS`\[S\b]TTWQWOZaRSaWU\SRb]W\Q`SOaSOeO`S\Saa]TOQQ]c\bW\U
abO\RO`RaO\R^ÒQbWQSa)
P0SPS\STWQWOZb]VOdSPcRUSb`SZSOaSW\T]`[ObW]\aSaaW]\aeWbVZSUWaZOb]àbVOb^`]dWRSSRcQObW]\OZ[ObS`WOZ]\OQQ]c\bW\U
^ÒQbWQSabVObW\TZcS\QSbVSPcRUSb)
Q<]bPSSTTSQbWdSb]VOdSSRcQObW]\OZ^`]UÒ[aT]`[]ab]TTWQWOZaO\RZSUWaZOb]àaW\QS[]abO`SQ]\QS`\SReWbV^]ZWQgO\R
TW\O\QWOZWaacSaO\RZSOdSOQQ]c\bW\UQ]\QS`\ab]]bVSà)
R0SOb]bOZeOabS]TbW[SO\R`Sa]c`QSab]VOdSSRcQObW]\OZaSaaW]\a]\OQQ]c\bW\U^ÒQbWQSaPSQOcaS[]ab]TTWQWOZaO\R
ZSUWaZOb]àO`S\]bW\bS`SabSRW\bVWaacPXSQb)
S=bVSàcUUSabW]\a^ZSOaSa^SQWTg(
55
%;SOac`S[S\ba]TTW\O\QWOZVSOZbVVOdSPSS\aWU\WTWQO\bZg[]RWTWSR]dS`bVSZOab
aSdSÒZgSOàBVST]`[S``SZWO\QS]\S_cObW\UOac`^ZcaRSTWQWb^]aWbW]\eWbVSWbVS`
O\W\Q`SOaSRSQ`SOaSb]\SbRSPbW\a][SQOaSaOQQc[cZObSRRSTWQWbVOaPSS\
`S^ZOQSReWbV[]`SS[^VOaWa]\bVS^`]XSQbSRO\\cOZ`SacZba3aaS\bWOZZg
Ac`^Zca2STWQWbWa\]ebVS^`W[O`gT]QcaO\RRSPbWaaSQ]\RO`g
O5S\SÒZZgOU`SSeWbV
bVSOP]dS]PaS`dObW]\a)
PA][SeVObOU`SSeWbV
bVS]PaS`dObW]\aPcb
e]cZRW\QZcRSbVS
T]ZZ]eW\U(
QB]bOZZgRWaOU`SSeWbV
bVSOP]dS]PaS`dObW]\a
T]`bVST]ZZ]eW\U`SOa]\a(
&4]à][SXc`WaRWQbW]\abVSU]OZ]T`SRcQW\U\SbRSPb]ÒQQc[cZObSRRSTWQWbVOa
PSS\ []RWTWSReWbV[]`SS[^VOaWa^ZOQSR]\[O\OUW\UbVSZSdSZ]TRSPbbV`]cUV
ObbOQV[S\baeWbVSQ]\][WQU`]ebVW\RWQOb]à5`]aa2][SabWQ>`]RcQb52>BVWa

RSS[^VOaWa]\`SRcQW\U\SbRSPbOQQc[cZObSRRSTWQWbVOa]^S\SR]^^]`bc\WbWSab]
[OYSaWU\WTWQO\bORdO\QS[S\baW\[SSbW\UbVS\SSRaT]`\Se]``S\SeSRQO^WbOZ
W\TÒab`cQbc`S)V]eSdS`bVS^S`WZ]TacQVO\]PXSQbWdSWabVSOTT]`ROPWZWbg]TTcbc`S
aS`dWQSaO\R]``SRcQSRZ]\UbS`[PcRUSbTZSfWPWZWbg
O5S\SÒZZgOU`SSeWbV
bVSOP]dS]PaS`dObW]\a)
PA][SeVObOU`SSeWbV
bVS]PaS`dObW]\aPcb
e]cZRW\QZcRSbVS
T]ZZ]eW\U(
QB]bOZZgRWaOU`SSeWbV
bVSOP]dS]PaS`dObW]\a
T]`bVST]ZZ]eW\U`SOa]\a(
56
Government Budgeting Workshop Questionnaire
'7\bS`[a]TTcZZOQQ`cOZOQQ]c\bW\UT]`PcRUSbW\U^c`^]aSaWbe]cZRPSPS\STWQWOZ
b]VOdS[]`S`SaSO`QVQ]\RcQbSRW\bVST]ZZ]eW\UO`SOa(
ASZSQb]\S\c[PS`T]`SOQVQObSU]`geVS`S`S^`SaS\baOZ]e^`W]`Wbg
`S^`SaS\baOVWUV^`W]`Wbg

OZSUWaZObWdS^`]dWaW]\a
PbO\UWPZSQO^WbOZOaaSba
QS[^Z]gSSPS\STWb^ZO\a
SPcRUSbS\bWbgWaacSa
T`SdS\cSWaacSa
UbOfSf^S\RWbc`Sa
VS\dW`]\[S\bOZWaacSa
W4Wàb<ObW]\WaacSa
RW\bSÙ]dS`\[S\b
bÒ\aTSà
X=bVS`WaacSa^ZSOaSa^SQWTg
7\ORRWbW]\b]OQQ`cOZOQQ]c\bW\UWaacSabVS`SO`S]bVS`S[SÙW\UPcRUSbW\U
WaacSabVOb`S_cW`S`SaSO`QVO\R`SdWSeBVSbV`SS[]abQ`WbWQOZWaacSa`S_cW`W\U
ObbS\bW]\O`SOaT]ZZ]ea(
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
! MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM
57
/QQSaab]c^b]RObSW\T]`[ObW]\]\PcRUSbW\UWaacSaVOaPSS\O^`]PZS[T]`[]ab
U]dS`\[S\b]TTWQWOZa7\bVSÔab`SZWO\QS]\W\bSÙ]dS`\[S\bac`dSga]QQOaW]\OZ
Q]\TS`S\QSaQ][[c\WQObW]\eWbVW\RWdWRcOZXc`WaRWQbW]\aO\R\ObW]\OZW\bS`\ObW]\OZ
`STS`S\QS[ObS`WOZVOdSPSS\bVST]c\RObW]\T]`[]ab`SaSO`QVOQbWdWbg7\bVS
Tcbc`SWbe]cZRPSPS\STWQWOZb]VOdS(
ASZSQb]\S\c[PS`T]`SOQVQObSU]`geVS`S`S^`SaS\baOZ]e^`W]`Wbg
`S^`SaS\baOVWUV^`W]`Wbg

O`SUcZO`WhSRac`dSga]T
Qc``S\bPcRUSbZSUWaZObW]\
O\R^]ZWQg)
PQ]\TS`S\QSa]\
S[SÙW\UWaacSaORV]Q
POaWa
QOQ][^ZSbSO\RQc``S\b
RW`SQb]`g]TPcRUSbW\U
]TTWQWOZa
ROQObOZ]UcSO\R
ac[[O`g]T[OX]`
\ObW]\OZO\RW\bS`\ObW]\OZ
`SdWSea]TPcRUSbW\U
WaacSa
S[]`SW\RS^S\RS\b
`SaSO`QV]TQc``S\bO\R
S[SÙW\UWaacSa
T=bVSàcUUSabW]\a^ZSOaSa^SQWTg
58
Appendix C
GOVERNMENT BUDGETING
WORKSHOPSURVEY RESULTS
>ZSOaS^`]dWRSbVST]ZZ]eW\UQ]\bOQbW\T]`[ObW]\
@Sa^]\aS
@Sa^]\aS
>S`QS\b
1]c\b
<O[S(

"
>]aWbW]$

"
2SÔ`b[S\b(

"
8c`WaRWQbW]\(

"
3[OWZ/RR`Saa(

"
O\aeS`SR_cSabW]\
"
59
4cZZOQQ`cOZOQQ]c\bW\UWabVSO^^`]dSRabO\RO`RT]`bVS`S^]`bW\U]TTW\O\QWOZ`SacZbaPgaS\W]Ù]dS`\[S\baW\1O\ORO4]`
bVS^c`^]aSa]TPcRUSb^`SÔÒbW]\W\QZcRW\UbVSAc[[O`g0cRUSb3abW[ObSaO\R/^^`]^`WObW]\aTcZZOQQ`cOZOQQ]c\bW\U
aV]cZR(ASZSQb]\S]TbVST]ZZ]eW\UbVObPSab`S^`SaS\bag]c`]^W\W]\
@Sa^]\aS
>S`QS\b
@Sa^]\aS
1]c\b
$"!
'
%
&$
"

T=bVS`ÒbW]\OZS^ZSOaSa^SQWTg(
&
O\aeS`SR_cSabW]\
"
O0SO^^ZWSRQ]\aWabS\bZgeWbVbVS
171/>cPZWQASQb]`/QQ]c\bW\U
6O\RP]]YT]``S^]`bW\U`SacZba)
P0SacPXSQba]ZSZgb]ZSUWaZObW]\
OcbV]`WhW\UWbacaS)
Q<]bPSQ][^cZa]`gPcbaV]cZRPS
Q]\aWRS`SReVS\^`]dWRW\UPcRUSb
W\T]`[ObW]\T]`RSQWaW]\[OYW\U)
R0SQ]\aWRS`SR]\Zgb]bVSSfbS\b
`S_cW`SRb]^`]dWRS`SQ]\QWZWObW]\a
PSbeSS\PcRUSbSR\c[PSàO\R
`SacZbaQ]\bOW\SRW\bVSTW\O\QWOZ
abObS[S\ba)
S<]bPSQ][^cZa]`gT]Ò\g`SOa]$
60
Government Budgeting WorkshopSurvey Results
!4W\O\QWOZOQQ]c\bOPWZWbgWaO\W[^]`bO\bTc\QbW]\^ÒQbWQSRPgOZZ1O\ORWO\aS\W]Ù]dS`\[S\ba4c\RO[S\bOZb]bVWa
OQQ]c\bOPWZWbgWabVSbÒ\aÔ`S\QgO\RQ][[c\WQObW]\]TPcRUSbRSQWaW]\abV`]cUVR]Qc[S\baac^^]`bSRPgZSUWaZObW]\O\R
^]ZWQgQ][[Wb[S\ba/aÔ`b]TbVWaPcRUSbOQQ]c\bOPWZWbgO\RbÒ\aÔ`S\QgQ][[Wb[S\bbVS`SaV]cZRPS(ASZSQb]\S]TbVS
T]ZZ]eW\UbVObPSab`S^`SaS\bag]c`]^W\W]\
@Sa^]\aS
@Sa^]\aS
>S`QS\b
1]c\b
OabO\RO`ROQQ]c\bW\U^ÒQbWQSa
OR]^bSRbVObO`SO^^ZWQOPZSb]OZZ
" '
" '
Xc`WaRWQbW]\a)
POQQ]c\bW\U^ÒQbWQSaOR]^bSR
eVWQV[SSbbVS\SSRa]TSOQV
W\RWdWRcOZXc`WaRWQbW]\)
Q\]Q]\QS`\]dSÒQQ]c\bW\U
^ÒQbWQSa^`]dWRSR`SQ]\QWZWObW]\
QO\PS[ORSPSbeSS\PcRUSbSR
"!
\c[PSàO\R`SacZbaQ]\bOW\SRW\
bVSTW\O\QWOZabObS[S\ba)
R=bVS`ÒbW]\OZS^ZSOaSa^SQWTg(
O\aeS`SR_cSabW]\
"
61
"4]`PcRUSbRSQWaW]\ [OYW\UOQQ`cOZW\T]`[ObW]\VOaPSS\W[^]`bO\beVS\SfO[W\W\U( 1VSQYSWbVS`GSa]`<]bVObPSab

`S^`SaS\bag]c`]^W\W]\
GSa
O=^bW]\aT]àSQc`W\UQO^WbOZ
W\TÒab`cQbc`S
O @S^ZOQS[S\b]TQO^WbOZOaaSba
PBVSW[ÔQb]T^S\aW]\PS\STWb
RSQWaW]\aSf^S\aSa
QBVSQ]ab]TW[^`]dSRS[^Z]gSS
PS\STWba
<]
@Sa^]\aS
1]c\b
%&$
"!
"
%&$
"!
"
' '!
%
"
&#%
"!
"
RBVSW[ÔQbO\RW[^ZS[S\bObW]\]T
`SdS\cSORXcab[S\ba]``SdS\cS
%"
&$"
"
$"!'
!#%#
"
^]ZWQgRSQWaW]\a
S:]O\aORdO\QSaO\R^`]XSQbSR
Z]aaSa
62
T=bVS`RSQWaW]\a^ZSOaSa^SQWTg(
O\aeS`SR_cSabW]\
"
#7bWa`SQ]U\WhSRbVObOaWU\WTWQO\b\c[PS`]TOQQ]c\bW\U^ÒQbWQSaO`S\]bQ][[]\Zgc\RSàb]]RPg[]ab]TbVS^cPZWQO\R
[O\g]TTWQWOZaW\U]dS`\[S\ba6]eSdS`T]`bVS[]abÔ`bOQQ`cOZW\T]`[ObW]\WaUS\SÒZZgc\RSàb]]RPg( 1VSQYSWbVS`GSa
]`<]bVObPSab`S^`SaS\bag]c`]^W\W]\
<]
"

"
&#%
"!
"
Q[]abaS\W]`[O\OUSà
"!
&#%
"
R[]abZSUWaZOb]à

"
"

"
"
OPcRUSb]TTWQWOZaW\QS\bÒZ
OUS\QWSa
PTW\O\QWOZ]TTWQWOZaW\RSÔ`b[S\ba
SbVS>`Saa`S^]`bSà]TPcRUSb
SdS\ba
@Sa^]\aS
GSa
O\aeS`SR_cSabW]\
1]c\b
"
63
$B]S\ac`SW\Q`SOaSRbÒ\aÔ`S\QgeWbVW\bVSPcRUSbRSdSZ]^[S\b^`]QSaaWbe]cZR(ASZSQb]\S]`[]`S]TbVST]ZZ]eW\UbVOb
PSab`S^`SaS\bag]c`]^W\W]\
@Sa^]\aS
@Sa^]\aS
>S`QS\b
1]c\b
O0SPS\STWQWOZb]VOdS[]`S
SRcQObW]\OZ^`]UÒ[aT]`
U]dS`\[S\b]TTWQWOZaRSaWU\SRb]
%&$

%"

&$
"
W\Q`SOaSOeO`S\Saa]TOQQ]c\bW\U
abO\RO`RaO\R^ÒQbWQSa)
P0SPS\STWQWOZb]VOdSPcRUSb
`SZSOaSW\T]`[ObW]\aSaaW]\aeWbV
ZSUWaZOb]àbVOb^`]dWRSSRcQObW]\OZ
[ObS`WOZ]\OQQ]c\bW\U^ÒQbWQSa
bVObW\TZcS\QSbVSPcRUSb)
Q<]bPSSTTSQbWdSb]VOdS
SRcQObW]\OZ^`]UÒ[aT]`[]ab
]TTWQWOZaO\RZSUWaZOb]àaW\QS[]ab
O`SQ]\QS`\SReWbV^]ZWQgO\R
TW\O\QWOZWaacSaO\RZSOdS
OQQ]c\bW\UQ]\QS`\ab]]bVSà)
R0SOb]bOZeOabS]TbW[SO\R
`Sa]c`QSab]VOdSSRcQObW]\OZ
aSaaW]\a]\OQQ]c\bW\U^ÒQbWQSa
PSQOcaS[]ab]TTWQWOZaO\R
"!
ZSUWaZOb]àO`S\]bW\bS`SabSRW\bVWa
acPXSQb
64
S=bVSàcUUSabW]\a^ZSOaSa^SQWTg(
O\aeS`SR_cSabW]\
"
%;SOac`S[S\ba]TTW\O\QWOZVSOZbVVOdSPSS\aWU\WTWQO\bZg[]RWTWSR]dS`bVSZOabaSdSÒZgSOàBVST]`[S``SZWO\QS]\
S_cObW\UOac`^ZcaRSTWQWb^]aWbW]\eWbVSWbVSÒ\W\Q`SOaSRSQ`SOaSb]\SbRSPbW\a][SQOaSaOQQc[cZObSRRSTWQWbVOaPSS\
`S^ZOQSReWbV[]`SS[^VOaWa]\bVS^`]XSQbSRO\\cOZ`SacZba3aaS\bWOZZgAc`^Zca2STWQWbWa\]ebVS^`W[O`gT]QcaO\RRSPbWa
aSQ]\RO`gASZSQb]\S]TbVST]ZZ]eW\UbVObPSab`S^`SaS\bag]c`]^W\W]\
O5S\SÒZZgOU`SSeWbVbVSOP]dS
]PaS`dObW]\a)
@Sa^]\aS
@Sa^]\aS
>S`QS\b
1]c\b
&$
"
$"!
'
%
PA][SeVObOU`SSeWbVbVS
]PaS`dObW]\aPcbe]cZRW\QZcRSbVS
T]ZZ]eW\U(
QB]bOZZgRWaOU`SSeWbVbVSOP]dS
]PaS`dObW]\aT]`bVST]ZZ]eW\U
`SOa]\a(
O\aeS`SR_cSabW]\
"
&4]à][SXc`WaRWQbW]\abVSU]OZ]T`SRcQW\U\SbRSPb]ÒQQc[cZObSRRSTWQWbVOaPSS\[]RWTWSReWbV[]`SS[^VOaWa^ZOQSR]\
[O\OUW\UbVSZSdSZ]TRSPbbV`]cUVObbOQV[S\baeWbVSQ]\][WQU`]ebVW\RWQOb]à5`]aa2][SabWQ>`]RcQb52>BVWaRS
S[^VOaWa]\`SRcQW\U\SbRSPbOQQc[cZObSRRSTWQWbVOa]^S\SR]^^]`bc\WbWSab][OYSaWU\WTWQO\bORdO\QS[S\baW\[SSbW\UbVS
\SSRaT]`\Se]``S\SeSRQO^WbOZW\TÒab`cQbc`S)V]eSdS`bVS^S`WZ]TacQVO\]PXSQbWdSWabVSOTT]`ROPWZWbg]TTcbc`SaS`dWQSa
O\R]``SRcQSRZ]\U bS`[PcRUSbTZSfWPWZWbgASZSQb]\S]TbVST]ZZ]eW\UbVObPSab`S^`SaS\bag]c`]^W\W]\
O5S\SÒZZgOU`SSeWbVbVSOP]dS
]PaS`dObW]\a)
@Sa^]\aS
@Sa^]\aS
>S`QS\b
1]c\b
" '
!#%
"
PA][SeVObOU`SSeWbVbVS
]PaS`dObW]\aPcbe]cZRW\QZcRSbVS
T]ZZ]eW\U(
QB]bOZZgRWaOU`SSeWbVbVSOP]dS
]PaS`dObW]\aT]`bVST]ZZ]eW\U
`SOa]\a(
O\aeS`SR_cSabW]\
"
65
'7\bS`[a]TTcZZOQQ`cOZOQQ]c\bW\UT]`PcRUSbW\U^c`^]aSaWbe]cZRPSPS\STWQWOZb]VOdS[]`S`SaSO`QVQ]\RcQbSRW\bVS
T]ZZ]eW\UO`SOa(ASZSQb]\S\c[PS`T]`SOQVQObSU]`g eVS`S`S^`SaS\baOZ]e^`W]`Wbg `S^`SaS\baOVWUV^`W]`Wbg
@Sa^]\aS
1]c\b
OZSUWaZObWdS^`]dWaW]\a
$"!'
!#%#
"
PbO\UWPZSQO^WbOZOaaSba
%"
&$"
"
QS[^Z]gSSPS\STWb^ZO\a
%&$
"!
"
RW\bS` U]dS`\[S\bbÒ\aTSà
!#%#
$"!'
"
SPcRUSbS\bWbgWaacSa
!#%#
$"!'
"
T`SdS\cSWaacSa
&#%
"!
"
UbOfSf^S\RWbc`Sa
' '!
%
"
VS\dW`]\[S\bOZWaacSa
" '$
#%&
"
W4Wàb<ObW]\WaacSa
%&$
"!
"
X=bVS`WaacSa^ZSOaSa^SQWTg
O\aeS`SR_cSabW]\
"
7\ORRWbW]\b]OQQ`cOZOQQ]c\bW\UWaacSabVS`SO`S]bVS`S[SÙW\UPcRUSbW\UWaacSabVOb`S_cW`S`SaSO`QVO\R`SdWSeBVS
bV`SS[]abQ`WbWQOZWaacSa`S_cW`W\UObbS\bW]\O`SOaT]ZZ]ea(
66
@Sa^]\aS
@Sa^]\aS
>S`QS\b
1]c\b

'

&&'
&
!
$$%
O\aeS`SR_cSabW]\
'
/QQSaab]c^b]RObSW\T]`[ObW]\]\PcRUSbW\UWaacSaVOaPSS\O^`]PZS[T]`[]abU]dS`\[S\b]TTWQWOZa7\bVSÔab
`SZWO\QS]\W\bSÙ]dS`\[S\bac`dSga]QQOaW]\OZQ]\TS`S\QSaQ][[c\WQObW]\eWbVW\RWdWRcOZXc`WaRWQbW]\aO\R
\ObW]\OZW\bS`\ObW]\OZ`STS`S\QS[ObS`WOZVOdSPSS\bVST]c\RObW]\T]`[]ab`SaSO`QVOQbWdWbg7\bVSTcbc`SWbe]cZRPS
PS\STWQWOZb]VOdS(ASZSQb]\S\c[PS`T]`SOQVQObSU]`geVS`S`S^`SaS\baOZ]e^`W]`Wbg `S^`SaS\baOVWUV^`W]`Wbg
@Sa^]\aS
1]c\b
O`SUcZO`WhSRac`dSga]TQc``S\b
PcRUSbZSUWaZObW]\O\R^]ZWQg)
PQ]\TS`S\QSa]\S[SÙW\UWaacSa
ORV]QPOaWa
QOQ][^ZSbSO\RQc``S\bRW`SQb]`g]T
PcRUSbW\U]TTWQWOZa
#%&
" '$
"
#%
#%
"
"!
%&$
"
!#%#
$"!'
"
" '$
#%&
"
ROQObOZ]UcSO\Rac[[O`g]T
[OX]`\ObW]\OZO\RW\bS`\ObW]\OZ
`SdWSea]TPcRUSbW\UWaacSa
S[]`SW\RS^S\RS\b`SaSO`QV]T
Qc``S\bO\RS[SÙW\UWaacSa
T=bVSàcUUSabW]\a^ZSOaSa^SQWTg
"
O\aeS`SR_cSabW]\
"
67
Appendix D
LISTING OF LEGISLATION
ALBERTA
yy Financial Administration Act www.canlii.org/ab/laws/sta/f-12/
yy Fiscal Responsibility Act www.canlii.org/ab/laws/sta/f-15/
yy Government Accountability Act www.canlii.org/ab/laws/sta/g-7/
BRITISH COLUMBIA
yy Financial Administration Act www.qp.gov.bc.ca/statreg/stat/f/96138_01.htm
yy Balanced Budget and Ministerial Accountability Act www.qp.gov.bc.ca/statreg/stat/b/01028_01.htm
yy Budget Transparency and Accountability Act www.qp.gov.bc.ca/statreg/stat/b/00023_01.htm
MANITOBA
yy Financial Administration Act www.canlii.org/mb/laws/sta/f-55/
yy Balanced Budget, Debt Repayment and Taxpayer Accountability Act www.canlii.org/mb/laws/sta/b-5/
yy Fiscal Stabilization Fund Act www.canlii.org/mb/laws/sta/f-85/
NEW BRUNSWICK
yy Financial Administration Act www.canlii.org/nb/laws/sta/f-11/
yy Fiscal Responsibility and Balanced Budget Act www.canlii.org/nb/laws/sta/f-14.03/
yy Fiscal Stabilization Fund Act www.canlii.org/nb/laws/sta/f-14.05/
NEWFOUNDLAND AND LABRADOR
yy Financial Administration Act www.canlii.org/nl/laws/sta/f-8/index.html
yy Transparency and Accountability Act www.canlii.org/nl/laws/sta/t-8.1/index.html
NORTHWEST TERRITORIES
yy Financial Administration Act www.canlii.org/nt/laws/sta/f-4/
NOVA SCOTIA
yy Provincial Finance Act www.gov.ns.ca/legislature/legc/statutes/provfinc.htm
NUNAVUT
yy Financial Administration Act www.canlii.org/nu/laws/sta/f-4/
ONTARIO
yy Financial Administration Act www.canlii.org/en/on/laws/stat/rso-1990-c-f12/latest/rso-1990-c-f12.html
yy Fiscal Transparency and Accountability Act www.canlii.org/on/laws/sta/2004c.27/
yy Treasury Board Act www.canlii.org/on/laws/sta/1991c.14/
yy Ministry of Treasury and Economics Act www.canlii.org/on/laws/sta/m-37/
69
PRINCE EDWARD ISLAND

yy Financial Administration Act www.canlii.org/pe/laws/sta/f-9/
QUEBEC
yy Financial Administration Act www.canlii.org/qc/laws/sta/a-6.001/
yy Balanced Budget Act www.canlii.org/en/qc/laws/stat/rsq-c-e-12.00001/latest/rsq-c-e-12.00001.html
yy An Act To Establish A Budgetary Surplus Reserve Fund www.canlii.org/qc/laws/sta/r-25.1/
yy An Act To Provide For Balanced Budgets in the Public Health and Social Services Network www.canlii.org/
qc/laws/sta/e-12.0001/
yy An Act to Reduce The Debt and Establish the Generations Fund www.canlii.org/qc/laws/sta/r-2.2.0.1/
SASKATCHEWAN
yy Financial Administration Act www.canlii.org/sk/laws/sta/f-13.4/
yy The Growth and Financial Security Act www.canlii.org/en/sk/laws/stat/ss-2008-c-g-8.1/latest/ss-2008-c-g8.1.html
YUKON TERRITORY
yy Financial Administration Act www.canlii.org/yk/laws/sta/87/
yy Taxpayer Protection Act www.canlii.org/yk/laws/sta/214/index.html
GOVERNMENT OF CANADA
yy Financial Administration Act www.canlii.org/en/ca/laws/stat/rsc-1985-c-f-11/latest/rsc-1985-c-f-11.html
yy Federal Accountability Act www.canlii.org/en/ca/laws/stat/sc-2006-c-9/latest/sc-2006-c-9.html
70
GLOSSARY
The following definitions for terms used in this
Research Report are based on the Glossary in the
2004 CICA Research Report Accounting Bases Used in
Canadian Government Budgeting. References have been
included for definitions not originating from the above
document.
Accountability: a broad concept that requires an entity
to answer to elected officials and the public they represent
to justify the raising of public resources and to explain
the purposes for which they are used. It includes providing useful information for assessing an entitys performance. (CICA, Statement of Recommended Practice 2
(SORP-2) Public Performance Reporting, 2006)
Accrual basis of accounting (also known as accrualbased accounting and accrual accounting): a method
of recording transactions whereby revenues and expenses
are reflected in the accounts of the period in which
they are considered to have been earned and incurred,
whether or not all transactions have been finally settled
by the receipt or payment of cash or its equivalent.
Accumulated Surplus/Deficit: the residual that
remains when the governments total liabilities are
deducted from its total assets. (CICA, 20 Questions
about Government Financial Reporting, 2004)
Amortization or amortization expense: the writing
off, in a rational and systematic manner, over an appropriate number of accounting periods, of a balance in an
account. Depreciation accounting is a form of amortization applied to tangible fixed assets.
Annual appropriation: an appropriation authorized
for the current fiscal year that lapses at the end of the
year even if the expenditure has not been made.
Appropriation: legislative budgetary authority for the

expenditure of public funds for the purpose and in the
amount specified. The appropriation of funds does not
normally, by itself, constitute authorization to make the
actual expenditures.
Basis of accounting: the prescribed method of
accounting (such as cash or accrual) that specifies when
revenues, expenses/expenditures, assets and liabilities
should be recognized in the financial statements.
Budget or summary budget: documents that portray
public policy, present a governments forecast of its
expenses/expenditures and revenues, and disclose financing requirements for operating and capital spending
for a fiscal period. See budgetary documents.
Budgetary documents: all documents submitted to a
legislature to disclose a governments planned or forecast financial activities whether or not legislative action
is required to authorize them. They normally include
budget documents, estimates and budgets of separate
accounting entities, such as Crown corporations.
Budgeting: the inclusion of amounts in a budget.
Budget transparency: the full disclosure of all relevant
fiscal information in a timely and systematic manner.
(OECD, OECD Best Practices for Budget Transparency,
2001)
Cash basis of accounting (or cash-based accounting): a method of recording transactions by reflecting
revenues and expenditures in the accounts in the period
in which the related cash receipts or disbursements
occur.
71
Consolidated revenue fund: the primary fund through

which most duties and revenues are accounted for and
from which most expenditures are made.
Consolidation: a method of combining, on a line-byline basis, the assets, liabilities, revenues and expenses/
expenditures of a government entity with those of
its overall government. The accounting policies are
adjusted to conform to those of the government and any
inter-entity transactions are eliminated.
Debt: Gross Debt describes the total debt a government
owes to outsiders (i.e., issued debt), usually through
debentures or bonds. Net Debt is the difference between
the sum of all of a governments financial assets and the
sum of all of its liabilities. (CICA, 20 Questions about
Government Financial Reporting, 2004)
Disbursement:
Expenditures.
an
outlay
of
cash.
Also
Financial resources: include cash, claims to cash,

investments and any other resources of the government
that are not for consumption in the normal course of
operations and are expected to contribute to net cash
inflows (such as inventories for resale). A governments
financial assets comprise the financial resources of a
government.
Fiscal policy: a governments economic policy conducted via the governments budget, based on decisions
respecting public spending and taxation, intended to
steer economic activity by influencing such factors as
growth and employment.
see
Equity basis: a method of combining the net assets and

net income of an organization with those of the government after adjusting the accounting policies to conform
to those of the government.
Estimates: a governments expenditure proposals for the
next fiscal year presented to the legislature for its approval.
The comprehensive set of estimates initially presented
is referred to as the Main Estimates. In the course of
the year, additional or revised estimates, referred to as
Supplementary Estimates, may be presented.
Expenditures: the cost of goods and services a government acquires in a period. Expenditures include transfer
payments due where no value is received directly in
return.
Expenses: including losses, expenses are decreases
in economic resources, either by way of outflows or
72
reductions of assets or incurrences of liabilities, resulting

from the operations, transactions and events of an
accounting period. Expenses include transfer payments
due where no value is received directly in return.
Fiscal year: the financial period of one year, beginning

April 1 and ending March 31, that is used by the federal,
provincial and territorial governments.
Generally Accepted Accounting Principles (GAAP):
for governments, the standards set out in the CICA
Public Sector Accounting Handbook are the primary
source of GAAP. GAAP for governments have concentrated mainly on government summary financial
statements. (CICA, 20 Questions About the Government
Reporting Entity, 2007)
General revenue fund: See Consolidated revenue
fund.
Government budgeting entity: for the purposes
of preparing a governments Summary Budget and
Estimates documents, the phrase budgeting entity
describes which departments, funds, agencies, boards,
commissions, Crown corporations and not-for-profit
organizations assets, liabilities, revenues, expenses and
Glossary
cash flows are part of a government in accordance with

established government accountability and transparency structures. (CICA Discussion Paper Defining
and Accounting for the Government Budgeting Entity,
December 2007)
Government business enterprise: an organization that
has all of the following characteristics: (a) it is a separate
legal entity with the power to contract in its own name
and can sue and be sued; (b) it has been delegated the
financial and operational authority to carry on a business; (c) it sells goods and services to individuals and
organizations outside of the government reporting entity
as its principal activity; and (d) it can, in the normal
course of its operations, maintain its operations and
meet its liabilities from revenues received from sources
outside of the government reporting entity.
Government business-type organization: an organization that has all of the following characteristics: (1)
it is a separate legal entity with the power to contract
in its own name and can sue and be sued; (2) it has
been delegated the financial and operational authority
to carry on a business; (3) it sells goods and services to
individuals and organizations as its principal activity.
Unlike government business organizations, this type of
organization usually sells goods and services within the
government or gets significant government subsidies to
help carry on operations. (CICA, 20 Questions About the
Government Reporting Entity, 2007)
Government financial statements: the summary financial statements published by a government reporting
entity that report on its financial position and changes
in financial position. Financial statements include the
notes and schedules supporting the statements.
Government organization: an organization controlled
by a government.
Government partnership: a contractual arrangement

between a government reporting entity and a party or
parties outside of the government that has all of the following characteristics: (a) the partners cooperate toward
achieving significant clearly defined common goals; (b)
the partners make a financial investment in the government partnership; (c) the partners share control of
decisions related to the financial and operating policies
of the government partnership on an ongoing basis; and
(d) the partners share, on an equitable basis, the significant risks and benefits associated with the operations of
the government partnership.
Government reporting entity: comprises the organizations controlled by a government. Control is the power
to govern the financial and operating policies of another
organization, with expected benefits or the risk of loss to
the government from the other organizations activities.
Government transfers: transfers of money from
a government to an individual, an organization or
another government for which the government making
the transfer does not: (a) receive any goods or services
directly in return, as would occur in a purchase/sale
transaction; (b) expect to be repaid in the future, as
would be expected in a loan; or (c) expect a financial
return, as would be expected in an investment.
Lapsed funds: the balance of an appropriation authorized for a particular fiscal year that remains unspent at
the end of that year, subject to conditions regarding the
settlement of outstanding payables at year end.
Modified equity basis: a method of combining the
net assets and the net income of a government business enterprise with those of the government without
adjusting the accounting policies to conform to those of
the government.
Operating fund: see consolidated revenue fund.
73
Performance: what the entity did with its resources to

achieve its results and the assessment of those results
against what the entity intended to achieve. Performance is often described in terms of effort, capacity and
intent. (CICA, Statement of Recommended Practice 2
(SORP-2), Public Performance Reporting, 2006)
Performance measure: the metric used to directly or
indirectly measure a particular aspect of performance
and can include measures of input, output and outcome.
To be meaningful, performance measures must be
specific, measurable, achievable, results oriented and
time-focused. (CICA, Statement of Recommended
Practice 2 (SORP-2), Public Performance Reporting,
2006)
Public accounts: the document that contains a governments audited financial statements and such other
information as is presented to the legislature to provide
information and show compliance with legislative
authorities.
Public administration: all of the services under a
government and its agents that serve to ensure the
application of laws and the ongoing operation of the
public services.
Public sector: all public administrations and enterprises
of senior and local governments.
Risk: refers to factors that may affect inputs, outputs and
the achievement of outcomes either adversely or positively. Risk is often assessed in terms of the probability
74
of a negative event occurring or opportunities missed,

and the likely associated impact of that event. (CICA,
Statement of Recommended Practice 2 (SORP-2),
Public Performance Reporting, 2006)
Statutory appropriation: an appropriation authorized
by statute on a continuing basis without the need for
annual approval.
Summary financial statements: financial statements
that report on the financial position and results of operations of the government reporting entity through the
consolidation of all government organizations except
government business enterprises, which are included on
a modified equity basis.
Tangible capital assets: non-financial assets having
physical substance that: (a) are held for use in the
production or supply of goods and services; (b) have
useful economic lives extending beyond an accounting period; and (c) have been acquired to be used on a
continuing basis.
Transaction basis: a method of recording transactions
between a government and an organization that is not
included in the government budgeting entity. (CICA
Discussion Paper Defining and Accounting for the Government Budgeting Entity, December 2007)
SELECTED BIBLIOGRAPHY
The principal source of information for this Research
Report was the financial management and accountability legislation adopted by Canadas 14 senior
governments. These statutes are listed in Appendix D
and can be accessed through the hyperlinks provided.
In addition, the recent budget documents, estimates,
public accounts, auditor general reports and commentaries also examined for this Research Report are
available on each governments website. Other selected
reference materials include the following:
Canadian Institute of Chartered Accountants.
Accounting Bases Used in Canadian Government
Budgeting. Toronto, 2004.
Accounting for Tangible Capital Assets, 2006.
20 Questions about Government Financial Reporting,
2004.
20 Questions about the Government Reporting Entity,
2007.
Defining and Accounting for the Government
Budgeting Entity, 2007
Legislative Accountability Framework for Preparing
Government Budgets and Estimates, 2007
Links between the Budget and the Estimates, 2006.
Public Performance Reporting, A Guide to Preparing
Public Performance Reports, 2007.
Public Sector Accounting Handbook selected
Sections.
Statement of Recommended Practice (SORP-2),
Public Performance Reporting, 2006.
Challen, D.W. Review of the Policy of Sector-Neutral
Accounting Standard-Setting in Australia. Oral
presentation. CPA Australia Tasmania Conference
2006, November 2006.
Champoux, Mark. Accrual Accounting in New Zealand

and Australia: Issues and Solutions. Federal Budget
Policy Seminar, Briefing Paper No. 27. Boston:
Harvard Law School, April 2006.
Fdration des Experts Comptables Europens.
Accrual Accounting for More Effective Public Policy.
Brussels, February 2006.
Accrual Accounting in the Public Sector, January
2007.
The New Public Management A Perspective for
Finance Practitioners, December 2006.
Governmental Accounting Standards Board. Why Governmental Accounting and Financial Reporting Is And
Should Be Different. Washington, 2007.
Government of Canada. Treasury Board Secretariat.
Increased Use of Accrual Accounting in the Budget and
Expenditure Cycle. Ottawa: PricewaterhouseCoopers,
LLP, March 2006.
International Federation of Accountants.
International Public Sector Accounting Standard
(IPSAS24) Presentation of Budget Information in
Financial Statements. New York, December 2006.
Developments in Performance Measurement
Structures in Public Sector Entities. Information
Paper, November 2008.
International Monetary Fund.
Guidelines for Public Expenditure Management.
Washington, 1999.
Manual on Fiscal Transparency, Washington,
Revised 2007.
75
Performance Budgeting Is Accrual Accounting

Required? Working Paper. Prepared by Jack
Diamond. December 2002.
Organisation for Economic Co-operation and Development (OECD).

9th Annual OECD Public Sector Accruals
Symposium, 2009.
Accrual Accounting and Budgeting Key Issues and
Recent Developments, 2002.
Issues in Accrual Budgeting, 2004.
OECD Best Practices for Budget Transparency. Paris,
2001.
OECDs International Database of Budget Practices
and Procedures.
McCormack, Lee, Performance Budgeting in Canada
OECD Journal on Budgeting, Volume 7 No. 4
(2007), pp.49-66.
76
Province of Ontario, Office of the Comptroller, Fiscal

and Financial Policy Division. A Guide to Financial
Management Policies and Practices in Ontario. Toronto,
2004.
Schick, Allen, Performance Budgeting and Accrual
Budgeting: Decision Rules or Analytic Tools? OECD
Journal on Budgeting, Volume 7 No. 2 (2007), pp.
109-138.
Warren, Ken, and Cheryl Barnes. The Impact of
GAAP on Fiscal Decision Making: A Review of
Twelve Years Experience with Accrual and Outputbased Budgets in New Zealand. OECD Journal on
Budgeting, Volume 3 No. 4 (2003), pp. 7-40.
RESEARCHREPORT
discussion paper series
Links
between the
Budget and the Estimates

Principal Author
Martin Rodrigue, CA
June 2006
discussion paper series
RWaQcaaW]\Ô^SàS`WSa
Dening and Accounting for

the Government Budgeting Entity
VV} >i
1i`
#ANADIAN
'OVERNMENT
"UDGETING
Insights for a Changing World
LBBE.indd 1
:SUWaZObWdS
/QQ]c\bOPWZWbg4Ò[Se]`Y
T]`>`SÔ`W\U5]dS`\[S\b0cRUSba
O\R3abW[ObSa
ACCRUAL
BUDGETING
ISSUES
Principal Author
John St. Pierre, CGA
>`W\QWÔZ/cbV]`
BS``g1V`WabWS
December 2007
2SQS[PS` %
10/2/2006 11:07:31 AM
ACCRUAL BUDGETING ISSUES
01
02
03
04
FnL1
cgBHqCWyBTExLjk2AjkyAzEuNQxJU0JO
I0ZpbmVMaW5lIEJhci1Db2RlIFRlY2hu
b2xvZ2llcyBJbmMuDERhdmlkIEZyYXNl
IEJhcmNvZGUNMS01NTM4NS0zMzgtNYg=
04 0128
/11@C/:0C253B7<57AAC3A
Insights for a Changing World
171/@SaSO`QV@S^]`b
7\aWUVbaT]Ò1VO\UW\UE]`ZR
Accrual Budgeting by Canadian Federal,

Provincial and Territorial Governments
Accounting Bases Used in Canadian Government Budgeting was
published in December 2004. That research report provides a
comprehensive review of senior government budgeting practices
and the accounting relationships between budgeting and financial
reporting documents, with particular emphasis on the adoption of
accrual budgeting.
At the budgeting communitys request, four discussion papers were
prepared in 2006 and 2007 on key accrual budgeting issues:
Links between the Budget and the Estimates ;
Accounting for Tangible Capital Assets ;
Defining and Accounting for the Government Budgeting Entity ;
Legislative Accountability Framework for Preparing Government
Budgets and Estimates.
>`W\QWÔZ/cbV]`(BS``g1V`WabWS
;Og '
In 2009, the CICA published a final report on Accrual Budgeting by

Canadian Federal, Provincial and Territorial Governments. It reviews
budgetary accountability and transparency practices, highlights
current and emerging accrual budgeting issues and provides options
for addressing future budgeting matters.
ISBN-13: 978-1-55385-437-1
www.cica.ca
www.knotia.ca
9 781553 854371
01
02
03
04
FnL1
CEZpbmVMaW5lHUtSWFdIQlBDRC1UUDBB
OTYCOTIDMS41DElTQk4gQmFyY29kZQ0x
SzZCRlktTFpFUkoyMklXAEp4FrwFMTEu
LTU1Mzg1LTQzNy0zRA==
04 0116
The Canadian Institute of Chartered Accountants

277 Wellington Street West
Toronto, ON, Canada M5V 3H2
Tel: 416-977-0748
Toll-free: 1-800-268-3793
Fax: 416-204-3416
03670

Accrual in Canada

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accrual in Canada

Uploaded by

Copyright:

Available Formats

CICA Research Report

Principal Author: Terry Christie

The CICA research report

Library and Archives Canada Cataloguing in Publication

OTHER RESEARCH REPORTS AND RESEARCH STUDIES

Limited Audit Engagements and the Expression of Negative Assurance (1980)

The CICA expresses its appreciation to Terry Christie,

CICA Research Studies

GOVERNMENT ACCRUAL BUDGETING

budgets, fiscal accountability and transparency and

budgeted results. For such comparisons, the planned

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments

report. Members of the Study Group overseeing the

Entity and Legislative Accountability Framework for

Public understanding of budgeting has been

3. Defining and Accounting for the Government

PURPOSE AND APPROACH

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments

and drawbacks of accrual budgeting and provides a

a wealth of information and opinions was

Finally, a wealth of information and opinions was

This document is a Research Report. The overall

ABOUT ACCRUAL BUDGETING

fully understanding the impact. The evaluation of that

Canada is not the only nation dealing

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments

accrual. Variations of these two bases may be referred to

transfers, service of the debt, etc. Such transactions can

The cash basis of accounting is defined as a method

Budgeting on a cash basis would trigger a similar

It is important to note that senior governments are

The accrual basis of accounting is defined as: a method

Since April 2005, full-accrual accounting has been the

Under this method of accounting, the obligation

1 Financial Reporting by Governments (Toronto: CICA, 1980), pp. 4-7).

About Accrual Budgeting

beginning on or before January 1, 2011.3 Since PSAB

IMPACT OF THE PRIVATE SECTOR

3 For information and resources on Canadas transition to IFRS,

A number of published articles provide commentary

Without a doubt, private sector accounting

Why Governmental Accounting and Financial Reporting IsAnd Should

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments

In summary, the study concludes:

The major source of revenue for business comes from

Governments, by their nature, have a propensity for

It is important to recognize that governments

organizational purposes and special legal powers,

EVENTS LEADING TO THE

About Accrual Budgeting

some issues still needed to be addressed before general

Because capital projects were expensed in the year of

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments

jurisdictions, public attention is centered on the annual

Most observers and PSAB have concluded that no one

About Accrual Budgeting

budget speech delivered in the legislature normally

The numbers contained in all budget documents are

Accrual Budgeting by Canadian Federal, Provincial and Territorial Governments

the year of acquisition, capital costs are now amortized

and summarized in the CICA Discussion Paper Links

Accrual accounting provides tremendous scope

About Accrual Budgeting

To a degree, these perceived drawbacks are compelling