Loading...
HomeMy WebLinkAboutAFC 2013-02-04 AgendaCorporation of the District of Maple Ridge Audit & Finance Committee February 4, 2013 8:00AM Blaney Room Chairperson:Councillor M. Morden Committee Members:Councillors:C.Bell; R. Masse; Mayor Daykin Staff:Chief Administrative Officer:J. Rule GM –Corporate & Financial Svc:P. Gill Manager of Accounting:C. Nolan Guest:External Auditor (BDO Canada LLP)B. Cox Recording Secretary:Amanda Gaunt AGENDA 1.Approval of agenda 2.Approval of minutes of July 16, 2012 3.Community Grants Draft policy 4.2012 Audit Update Overview of 2012 audit by external auditor ____________________________________________ Agenda submitted by:C. Nolan, CGA Manager of Accounting District of Maple Ridge Audit & Finance Committee Meeting Minutes July 16, 2012 The Minutes of the Audit and Finance Committee Meeting held in the Blaney Room of the Municipal Hall,11995 Haney Place, Maple Ridge, BC on Monday July 16, 2012 at 8:00 a.m. PRESENT Committee Members Municipal Staff Councillor Morden, Chair J. Rule, Chief Administrative Officer Mayor Daykin P. Gill, General Manager, Corporate & Financial Services Councillor Bell K. Swift, General Manager of Community Development, Councillor Masse Parks and Recreation Services C. Nolan, Manager of Accounting Guests K. Gormley, Manager of Business Systems Councillor Ashlie T. Thompson, Manager of Financial Planning Councillor Hogarth AGENDA The meeting was called to order at 8:05 a.m. 1.Approval of agenda The General Manager, Corporate and Financial Services requested that a discussion about the District’s bank account be added to the Agenda. MOVED by Councillor Bell and SECONDED by Mayor Daykin that the agenda be approved as amended. CARRIED 2.Approval of minutes of April 30, 2012 and May 22, 2012 MOVED by Councillor Masse and SECONDED by Councillor Bell that the minutes of April 30, 2012 and May 22, 2012 be approved. CARRIED 3.Number of Council members on the Audit & Finance Committee The Committee Members and guests discussed the membership of the Audit and Finance Committee. It was noted that all Council members are welcome to attend the meetings and participate in discussion. Decision items are to be referred to Council. 4.Financial Assistance to Community Groups The Manager of Business Systems provided an overview of the permissive tax exemption framework. The Manager of Accounting reviewed the community grants program and distributed information on grants that had been provided over the past ten years.Staff were directed to develop a policy framework to guide the future distribution of community grants. 5.Agricultural Land Conversion Reserve –From April 2, 2012 Workshop The Manager of Financial Planning reviewed the previous Council Resolution on this matter and asked about the process that should be used to develop a funding allocation framework. The Audit and Finance Committee asked staff to draft the framework and report back at a future workshop. 6.Bank Account The General Manager, Corporate and Financial Services advised the committee that a cheque issued by the District had been intercepted before reaching the intended payee.As a result of this fraudulent activity, the District had changed its bank account. The General Manager advised the committee that the misappropriated monies would be returned to the District by TD Canada Trust. 7.Future Items The committee noted items for future meetings including a detailed presentation on RCMP financial reporting. Adjournment –8:58 a.m. ____________________________________________ Councillor Morden, Chair Page 1 of 3 District of Maple Ridge TO:Councillor Morden and members MEETING DATE:February 4, 2013 of the Audit & Finance Committee FILE NO: FROM:Manager of Accounting MEETING:Audit & Finance Committee SUBJECT:Community Grants Policy EXECUTIVE SUMMARY: The practice of awarding grants to community groups has been in p lace for a number of years, allowing Council to support organizations that provide valuable services in the community.Over the past 10 years, the annual budget envelope for community grants has been increased from $23,600 to $61,800 to accommodate the ongoing support needed by some community groups.For the past several years staff has reviewed grant applications using a consistent set of principles and Council has had final approval of community grant allocations. In April 2012, Council directed staff to prepare a policy to guide the approval process for community grants. In preparing the policy staff incorporated the principles already in use, key concepts from Council’s Strategic Plan objective of achieving a safe and livable community ,and a key principle from our permissive tax exemption policies that limits support to services that are not the responsibility of senior levels of government. A policy that provides direction on the types of requests that Council will consider and how applications will be evaluated will contribute to an open and transparent process that supports Council’s commitment to a fair, friendly and helpful customer experience. RECOMMENDATION: That the attached Community Grants policy be endorsed by the Audit & Finance Committee and forwarded to an upcoming Committee of the Whole meeting. DISCUSSION: a)Background Context: The practice of awarding grants to community groups has been in place for a number of years and has allowed Council to support organizations that provide valuable services in the community. Council’s preference has been to provide support for one -time items. In response to the increasing struggle organizations have been experiencing in finding long- term sustainable funding Council has provided some groups with bridge funding to support them while they work toward achieving long-term stable funding.A few groups needed on going support and as there was no other source of municipal funding available, this envelope was increased to accommodate that level of support. For the past several years, staff has reviewed grant applications and submitted a report to Council with a recommended allocation of the annual community grant budget. Council has had final approval of allocated amounts. Staff has used the following principles in their Page 2 of 3 evaluation of community grant applications:the community group must be established in Maple Ridge, the services must provide a direct benefit to the citizens of Maple Ridge, the group is actively seeking sustainable long-term funding and is looking for bridge financing to continue services until it is secured. In some instances the receipt of a community grant allowed a community group to leverage additional funding from other levels of government, without which they would not have been able to continue their services. At the Council Meeting of April 10, 2012 staff was directed to prepare a policy to guide the approval process for community grants. In developing the attached policy staff incorporated the principles that were already in use and incorporated concepts from Council’s Strategic Plan, in particular from the Key Strategies identified for achieving a safe and livable community. Staff also incorporated one of the key principles from our permissive tax exemption policies that limits support to services that are not the responsibility of senior levels of government. b)Desired Outcome: Adopting a policy with direction on how to determine what types of requests for financial support will be considered and outlining how those requests will be evaluated will contribute to an open and transparent process for the distribution of community grants. c)Strategic Alignment: Council’s Strategic Plan identifies a safe and livable community as a specific focus area for the achievement of the community vision.Many local community groups provide services that support this objective and some of the evaluation criteria for the Community Grants policy have been drawn from the key strategies for achieving a safe and livable community. d)Citizen/Customer Implications: Council is committed to providing a customer experience that is fair, friendly and helpful. The Community Grants policy will support this commitment by providing community groups interested in applying for a community grant with information on the types of requests that Council will consider and how all applications will be evaluated. This information will make it easier for community groups to complete their applications and ensure that everyone is aware of the evaluation process. e)Business Plan/Financial Implications: The budget for Community Grants is set as part of the business planning process.In 2003 the annual budget was set at $23,600. This amount has been increased over the past 10 years to provide for the ongoing support needed by some community groups. In 2013 the budget is set at $61,800.The attached policy provides guidelines for evaluating and distributing that budget. There are no additional financial implications. f)Policy Implications: The attached policy provides Council with a tool to demonstrate that all allocations of the limited resources dedicated to providing community grants are evaluated against a consistent set of criteria. Page 3 of 3 g)Alternatives: Council could choose not to adopt a policy to guide the evaluation and distribution of community grants and continue with the process that has been in place for the past period of time. That approach is not recommended as established policy guidelines will make the process more open and transparent and contribute to an improved customer experience. CONCLUSIONS: The Community Grants budget provides a limited pool of resources for Council to assist community groups in the provision of valuable services that benefit the residents of Maple Ridge. Adopting a policy to guide the allocation of those resources will ensure that the allocation process is open and transparent and supports Council’s strategic objective for a safe and liveable community. “Original signed by Catherine Nolan” _______________________________________________ Prepared by:Catherine Nolan, CGA Manager of Accounting “Original signed by Paul Gill” _______________________________________________ Approved by:Paul Gill, CGA GM –Corporate & Financial Services “Original signed by Jim Rule” _______________________________________________ Approved by:Kelly Swift GM –Community Development, Parks & Recreation Services “Original signed by Jim Rule” _______________________________________________ Concurrence:J.L. (Jim) Rule Chief Administrative Officer Page 1 of 2 Policy POLICY MANUAL Title:Community Grants Policy No :5.04 Supersedes:New Authority:Legislative Operational Approval:Council CMT General Manager Effective Date: Review Date: Policy Statement: Council’s vision for a safe and livable community is supported by a network of organizations that contribute to the wellness and vitality of the community. Funding will be allocated to the Community Grants program as part of the District’s business planning process and grants awarded to organizations that provide valuable community services in support of Council’s objectives. Purpose: It is recognized that community organizations contribute significant value to the community.The purpose of this policy is to establish open and transparent guidelines for the evaluation and distribution of Community Grants, respecting the limited financial resources available for this purpose. Definitions: Community Grant Review Committee:refers to a committee of four staff members including representatives from Administration,Finance and Community Development,Parks and Recreation. The work of the committee is to evaluate grant requests against Council’s guidelines and provide Council with recommendations for allocating the annual community grant budget. Eligible Requests:The following requests, submitted on a completed application,would be eligible for funding from the Community Grant Program: requests to fund one-time items or events, or requests for bridge funding while an organization works to secure long-term stable funding, or requests that have merit in terms of community benefit, or requests that will allow a community group to leverage additional funding from other agencies,or organizations denied a permissive tax exemption will be eligible to apply for a community grant Evaluation Criteria:The following criteria will be used to evaluate grant requests: The organization is a registered not-for-profit or charitable community organization based in Maple Ridge that has been in operation for more than one year The purpose of the grant request is consistent with the District’s Vision Statement MAPLE RIDGE Briti sh Colum bia Deep Roots Greater Heights ~ ~ □ □ □ Page 2 of 2 Policy The proposed service, project or event supports one or more of the following Council Key Strategies for a safe and livable community -Strive for quality of life and independence by citizens. -Develop and implement preventative as well as reactionary plans to address the impacts of emerging issues on the local community and citizens -Encourage active and healthy living among citizens -Encourage a strong sense of community by providing citizens with opportunities to connect The citizens of Maple Ridge are the primary beneficiaries of the services provided by the organization The proposed service, project or event is not part of a service that is the responsibility of either the Provincial or Federal governments The proposed service, project or event will be sustainable past the support of the grant funding The organization has a proven track record of working collaboratively with other community partners Key Areas of Responsibility Action to Take 1.Review grant applications received 2.Prepare report to Council 3.Authorize distribution of Community Grants 4.Distribute grants 5.Report back Responsibility Review committee Review committee Council Finance Recipient Corporation of the District of Maple Ridge Audit Planning Communication Report to the Members of the Audit Committee Prior to audit of December 31, 2012 fiscal year I BDO Tel: 604 688 5421 Fax: 604 688 5132 vancouver@bdo.ca www.bdo.ca BDO Canada LLP 600 Cathedral Place 925 West Georgia Street Vancouver BC V6C 3L2 Canada BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. Direct Line: 604-443-4716 E-mail: bcox@bdo.ca January 18, 2013 Members of the Audit Committee The Corporation of the District of Maple Ridge 11995 Haney Place Maple Ridge, BC V2X 6A9 Dear Audit Committee Members: Re: Audit of the Financial Statements of the Corporation of the District of Maple Ridge (the “District”) for the year ended December 31, 2012 We have commenced our audit planning for the audit of 2012 fiscal year and take the opportunity of summarizing in this letter some of these plans along with other matters pertinent to the 2012 audit. We look forward to discussing any concerns that the Audit Committee may have to ensure that we understand what is important to you. This report is prepared for the purpose noted above and should not be distributed without our prior consent. We accept no responsibility to a third party who uses this communication. Anticipated Issues An important part of our audit planning process involves considering issues outside of the norm that could impact the financial statements or our audit. This part of the planning process never ends with much of our analysis being considered after we complete the interim audit fieldwork. We also look to discussions with the Audit Committee for other sources of information in this area. At this point no specific “big picture” items have hit our radar screen. We look forward to discussion at the upcoming meeting to get a sense of matters that we should be taking into consideration during the audit. Audit Approach We have been engaged to perform the audit of the financial statements of the District for the year ended December 31, 2012. We have adopted an audit approach that allows us to issue an audit opinion on the financial statements of the District in the most cost effective manner, while still obtaining the assurance necessary to support our audit opinion. Under the BDO Audit Approach, we use risk and assurance models to determine the evidence to collect and evaluate whether sufficient appropriate evidence was obtained to be able to draw reasonable conclusions to allow us to form an opinion. This approach focuses on obtaining sufficient appropriate audit evidence to reduce the risk of material misstatement in the financial statements to an appropriately low level. This means that we focus our audit effort in areas that we believe have a higher risk of being materially misstated and do less audit work in areas that are only low risk. I BDO The Corporation of the District of Maple Ridge January 18, 2013 Page 3 of 33 To assess risk accurately, we need to have a clear understanding of the District’s operations and the environment it operates in. Much of our understanding is obtained through discussions with management and staff. We would also appreciate any new information that you could provide to us about your operations, internal controls or anything else that you feel is important to the audit as it may corroborate what we have already learned from management and other sources, or it may be new information to us. We would also appreciate any insights that you could provide to us on what you perceive to be high risk to the District as that will make our audit more effective and efficient, which will benefit all concerned. The following sections provide more detail on our audit approach for the District for the current year. Audit Scope We anticipate the scope of our audit of the financial statements of the District and of those of its related organizations for the year ended December 31, 2012 to include the following:  An audit opinion on the financial statements of the District of Maple Ridge.  Audit reports on certain schedules of the LGDE reporting to the Ministry of Community, Sport & Cultural Development  A management letter report in regard to audit recommendations of significance. Overall Audit Strategy Changes in auditing standards now require auditors to document all significant manual and computer systems. Building on this, we plan to focus much of our review on transaction streams using “tests of controls” (compliance procedures) in combination with analytical review and testing. Balances will be tested using a combination of compliance procedures and substantive procedures (such as analysis of data and obtaining direct evidence as to the validity of the items). Higher Risk Financial Statement Areas Based on our knowledge of the District's operations, past experience with similar organizations, and knowledge gained from management and you, we have identified the following financial statements areas as having a potentially higher risk of material misstatement. The Corporation of the District of Maple Ridge January 18, 2013 Page 4 of 33 These risks arise mainly because of the complexity of the accounting rules, the extent of estimation and judgment involved in the valuation of these financial statement areas, and the existence of new accounting pronouncements that affect them. We have also provided a brief summary of how we plan to audit these higher risk areas: Higher Risk Financial Statement Areas Proposed Audit Procedures  Cash and investments  Confirmation of cash and investments  Review of reconciliations  Testing of investment transactions and investment rollovers  Employee Future Benefits  Review of actuarial calculations  Audit of significant assumptions  Review of usage reports  Accounts payable  Third party confirmation  Computer audit testing  Cut-off testing  Staff Salaries  Computer audit testing  Analytical review of staff and salary levels  Systems testing and tests of controls  Tangible Capital Assets and Accumulated Amortization  System testing and tests of 2012 additions  Reviewing formulas, calculations and useful life estimates Requests by Audit Committee In the course of your duties as the Audit Committee, you may be aware of additional areas of concern from an audit perspective that you would like us to address. We want you to know that we welcome discussion on any areas of audit concern that you may have. Materiality Materiality can be defined as follows: "A misstatement or the aggregate of all misstatements in financial statements is considered to be material if, in the light of surrounding circumstances, it is probable that the decision of a person who is relying on the financial statements, and who has a reasonable knowledge of business and economic activities (the user), would be changed or influenced by such misstatement or the aggregate of all misstatements. Misstatements in financial statements arise from departures from generally accepted accounting principles and include departures from fact, inappropriate determination of accounting estimates, and omissions of necessary information. Misstatements may arise from error or fraud, or from the consequences of an illegal act." The Corporation of the District of Maple Ridge January 18, 2013 Page 5 of 33 Materiality in an audit is used as a guide for planning the nature and extent of audit procedures and for assessing the sufficiency of audit evidence gathered. It is also used in evaluating the misstatements found and determining the appropriate audit opinion to express. “Performance materiality” is an audit term describing a level set by the auditor at less than materiality for the purpose of sampling to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. As you know, materiality in an audit is used as a guide for planning the nature and extent of audit procedures and for assessing the sufficiency of audit evidence gathered. It is also used in evaluating the misstatements found and determining the appropriate audit opinion to express. Since the determination of materiality is a matter of professional judgment, it is primarily dependent on our evaluation of the relative importance of accuracy in the financial statements to the various users of those statements. We have identified Council, the Ministry and management as the most important users of the District’s financial statements. Canadian generally accepted auditing standards require the use of both quantitative and qualitative factors in determining materiality. For the audit of the Corporation of the District of Maple Ridge for the year ended December 31, 2012, we have concluded that a materiality level of $1,900,000 based on approximately 1.5% of prior year’s revenues, and adjusted by qualitative factors is appropriate for the purposes of the audit. Performance materiality, will be set at 75% of materiality or about $1,425,000 (this is the level used for statistical testing). Trivial errors will be set at 1% of materiality or $19,000 (we will not suggest that differences below this level be adjusted) nor will we report on such differences. Audit Team In order to ensure effective communication between the Audit Committee and BDO Canada LLP, we briefly outline below the key members of our audit team and the role they will play:  Bill Cox, CA, Engagement Partner – overall engagement management  Dawn Wedman, CMA, Audit Senior Manager – fieldwork management  Limin Ruan, CA, Audit Senior – fieldwork supervision  Cyrus Guy, CA, IS Auditor – information systems auditor  Todd Rathie, CA Student, Audit Senior  Gary Mah, CA Student – Audit Staff  Otto Sun, CA Student – Audit Staff Importantly, there is continuity of certain members of the prior year, which helps to minimize disruption to your staff. The Corporation of the District of Maple Ridge January 18, 2013 Page 6 of 33 Reliance on an Expert In order for us to perform adequate audit procedures on employee future benefits, we will be relying on the work of, and the report prepared by, Mercer Canada. Canadian generally accepted auditing standards require us to communicate with the expert. We propose to discuss the following with Mercer Canada:  The objective and nature of the audit engagement and how we intend to use the expert's findings and report;  Our assessment of the significance and risk aspects of the engagement that will affect the expert's work;  The requirement to advise us if they have any relationship with the organization which could impair their judgment or objectivity in the conduct of their engagement;  The nature, timing and extent of the expert's work and our planned review of it, possibly including review of their working papers;  Confirmation that the assumptions used in their calculations are consistent with those used in the prior periods and with industry standards;  Their obligation to advise BDO Canada LLP of any matters up to the estimated audit report date that may affect their calculations and their report. We ask that the appropriate level of management review the data provided to Mercer Canada and that they also review the assumptions used and results reported by the expert for reasonableness. Timing of the Audit We have tentatively set the following schedule with management for the conduct of the audit: • Interim audit fieldwork • Completed December 3 – 6, 2012 without issue • Year-end audit fieldwork • March 4 – 15, 2013 • Review of draft financial statements by staff at Council workshop • TBD • Audit Committee post-completion meeting • TBD • Finalization of financial statements • Immediately subsequent to Council meeting Communication of Results At the completion of our audit, or earlier if considered necessary, we will communicate to you matters arising from the financial statement audit. Our communication will include the following:  Matters required to be communicated to Council under generally accepted auditing standards (“GAAS”) including possible fraudulent activities, possible illegal acts and significant weaknesses in internal control;  Matters that have a significant effect on the qualitative aspects of accounting principles used in the District’s financial reporting; The Corporation of the District of Maple Ridge January 18, 2013 Page 7 of 33  Matters previously agreed with you to be communicated to Mayor and Council;  Whether there are any unresolved issues or disagreements with management concerning the District’s internal controls, accounting policies, or disclosures in the financial statements;  Whether there were any material claims outstanding against the District in respect of which your lawyers have been retained on behalf of the District;  The extent and nature of small immaterial unadjusted differences encountered during the course of our audit;  Significant management judgments and estimates made in the course of preparing the financial statements; and  Other matters arising from the audit that, in our professional judgment, are important and relevant to the Audit Committee. At the completion of the audit we will also discuss matters that will be identified in our “management letter”. The prior year’s management letter is included in Appendix A. One of our audit procedures will be to follow-up on the status of these points in the current year. Independence At the core of the provision of external audit services is the concept of independence. We are communicating matters that, in our professional judgment, may reasonably be thought to bear on our independence for the forthcoming audit of the District. In determining which relationships to report, we have considered the applicable legislation and relevant rules of professional conduct and related interpretations prescribed by the Institute of Chartered Accountants of British Columbia covering such matters as the following:  holding of a financial interest, either directly or indirectly in a client;  holding a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of a client;  personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client;  economic dependence on a client; and  provision of services in addition to the external audit engagement. We have prepared the following comments to facilitate our discussion with you regarding independence matters. We are not aware of any relationships between The Corporation of the District of Maple Ridge and us that, in our professional judgment, may reasonably be thought to bear on our independence to date. We hereby confirm that we are independent with respect to the Corporation of the District of Maple Ridge within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia as the date of this letter. The Corporation of the District of Maple Ridge January 18, 2013 Page 8 of 33 Responsibilities of the Auditor It is important for the Audit Committee to understand the responsibilities that rest with the District and its management and those that belong to the auditor. The audit of the financial statements does not relieve management or those charged with governance of their responsibilities outlined below:  Management is responsible for the preparation of the financial statements, which includes responsibilities related to internal control, such as designing and maintaining accounting records, selecting and applying accounting policies, safeguarding assets and preventing and detecting error and fraud.  The auditor's responsibility is to express an opinion on the financial statements based on an audit thereof.  An audit is performed to obtain reasonable, but not absolute, assurance as to whether the financial statements are free of material misstatement and, owing to the inherent limitations of an audit, there is an unavoidable risk that some misstatements of the financial statements will not be detected (particularly intentional misstatements concealed through collusion), even though the audit is properly planned and performed. The audit includes: (i) obtaining an understanding of the entity and its environment including internal control in order to plan the audit and to assess the risk that the financial statements may contain misstatements that, individually or in the aggregate, are material to the financial statements taken as a whole; (ii) examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; (iii) assessing the accounting principles used and their application; and (iv) assessing the significant estimates made by management. When the auditor's risk assessment includes an expectation of the operating effectiveness of controls, sufficient appropriate audit evidence will be obtained through tests of controls to support the assessment, but the scope of the auditor's review of internal control will be insufficient to express an opinion as to the effectiveness or efficiency of the entity's controls. The auditor will express an opinion as to whether the financial statements present fairly in all material respects, in accordance with Canadian generally accepted accounting principles, the financial position, results of operations and cash flows of the entity. Management Representations During the course of an audit, management makes many representations to us. These representations may be verbal or written and therefore explicit, or they may be implied through the financial statements. Management may provide representations in response to specific queries from us, or may provide unsolicited representations. Such representations are part of the evidence gathered by us to be able to draw reasonable conclusions on which to base the audit opinion. These representations are documented by including in the audit working papers memoranda of discussions with management and written representations received from management. The Corporation of the District of Maple Ridge January 18, 2013 Page 9 of 33 Management's representations include, but are not limited to:  matters communicated in discussions with us, whether solicited or unsolicited;  matters communicated electronically to us;  schedules, analyses and reports prepared by the entity, and management's notations and comments thereon, whether or not in response to a request by us;  internal and external memoranda or correspondence;  minutes of meetings of the board of directors or similar bodies such as audit committees and compensation committees; and  a representation letter from management. Current Developments in the Profession There have been significant developments in the area of accounting and auditing this year. See Appendix B for details. Council’s Fraud Awareness Under Canadian Generally Accepted Auditing Standards auditors have a responsibility to consider the potential for fraud and fraud risks in all organizations that they audit. One of our audit procedures is to obtain written representation from management in respect to frauds or potential frauds. Direct communication with the Audit Committee is also necessary. To that end, would you please advise us if you are aware of any frauds or questionable activities that have occurred during the 2012 fiscal year or if you become aware of any frauds or questionable activities after today’s date. You may contact us by e-mail at (bcox@bdo.ca) or by regular mail. Additionally, if there are any areas of the District’s operations where a Council member feels that there is significant risk of fraud, please advise the writer directly by e-mail or regular mail. Conclusion We hope that this letter will provide you with an update on the current developments within the accounting profession, as well as clarify our independence, responsibility and audit approach. We look forward to discussing these issues with you. Please do not hesitate to contact us about any of the above items or other matters of concern to Council. Yours truly, Bill Cox, CA Partner through a corporation of BDO Canada LLP Chartered Accountants BC/ Appendix A – Prior Year’s Management Letter Direct Line: (604) 443-4716 E-mail: bcox@bdo.ca March 30, 2012 Mr. Paul Gill, General Manager Corporate and Financial Services The Corporation of the District of Maple Ridge 11995 Haney Place Maple Ridge, BC V2X 6A9 RE: Auditor’s Management Letter As your external auditors we are engaged to provide an audit opinion on your year-end financial statements. An external audit requires testing of transactions and balances and review of those internal control systems upon which we may place reliance. A positive opinion on the financial statements does not necessarily mean that your internal control systems are all operating effectively. This is because we review only those internal control systems where we feel that failure in those systems could result in a material error on the financial statements. With those systems that we do review, our focus is on the assertions necessary to meet our financial statement audit objectives. Our review of systems, transactions and balances as well as discussions with staff at various levels throughout the District gives us a unique insight into your operations. While conducting this work we make note of items that come to our attention where we feel that improvement could be made or alternatives could be considered. We are fortunate in that we work with a great number of clients and observe a wide variety of processes. We see firsthand any procedures that are emerging as best practices. As matters come to our attention we make note of these for subsequent follow-up. For minor matters we discuss directly with the staff involved. More important matters are brought forward in this letter (known as a “management letter”). It is always worth noting that we almost always come up with points for all clients. The existence of points does not mean that there are significant problems with your systems or staff. They are just recommendations to make good systems better. I BDO The Corporation of the District of Maple Ridge January 18, 2013 Page 11 of 33 Status of Prior Year Recommendations There were a few carry-forward points from the prior year’s management letter. We track these points to ensure that recommendations are followed up and implemented. Recommendation Status Future Infrastructure Funding We recommended that the District consider a more detailed analysis of future requirements which may include funding all, or part, of annual amortization charges. Consider alternative revenue sources for such items through comparison with the best of what other municipalities are doing. Management has decided not to make any changes in infrastructure funding for the year. Budget/5 year Financial Plan We recommend that the District review its capital budgeting to reflect only capital projects that are planned to be actually done during the year. Future projects should be tracked on a separate long-term funding plan and not mixed in with current year plans. Management has considered our recommendation but will continue to reflect projects in the capital budget as they are required to be approved in case they move forward. Liability for Contaminated Sites We recommended that you start early on this project and definitely do not leave until 2015. As early planning will help you identify the processes and resources that will be necessary to meet the requirements. Per discussion with management District staff will be evaluating this standard to develop a work plan that will satisfy its requirements in a cost effective and efficient way. Current Year’s Observations and Recommendations 1. Developer Contributed Assets Observation During our audit fieldwork we noted that developer contributed assets are calculated by using engineering GIS reports that detail which assets, asset types and substance of the assets have been developed during the year. This demonstrated to us how the GIS system has become an integral part of the financial reporting of tangible capital assets. This process is good practice for ensuring that all assets are recorded, The Corporation of the District of Maple Ridge January 18, 2013 Page 12 of 33 particularly in regards to contributed assets, however, this is only reliable if the engineering department ensures that all progress is documented in the GIS reports. Recommendation We recommend that the Engineering department ensure that the GIS systems are updated on a timely matter as the system has becoming an integral part of the financial reporting system of tangible capital assets and recorded revenues and expenses. Management Comments: Management agrees with the recommendation. Finance will meet with Engineering staff to review existing controls. 2. Lost and Found Items Observation During our audit work it was brought to our attention there was question with regard to the sufficiency of controls over the disposition of lost and found items. Currently, any such goods are turned over to Purchasing for disposal by sending them either for auction or recycling. Any goods received by purchasing are logged, and on disposal, are signed for by the recipient (either auction house or recycling depot staff). We note that while controls in this area appear adequate there are currently no guidelines in place to describe the preferred disposition method for the various types of goods Purchasing receives. Recommendation We recommend that the District consider developing guidelines to help determine the preferred disposition method for various categories and conditions of goods received. Management Comments: Management agrees with the recommendation. Stricter controls were introduced earlier this year and formal guidelines are currently being developed. The Corporation of the District of Maple Ridge January 18, 2013 Page 13 of 33 We received excellent cooperation from everyone at the District of Maple Ridge during the audit. We thank Catherine Nolan and all of the Finance Department staff for their assistance in making the audit process as efficient as possible. Please do not hesitate to contact us should you wish to further discuss any of the matters discussed in this letter. Yours truly, BDO CANADA LLP Chartered Accountants Bill Cox, CA On behalf of Bill Cox, Inc. Corporate Partner of BDO Canada LLP BC/ c.c. Audit Committee The Corporation of the District of Maple Ridge January 18, 2013 Page 14 of 33 Appendix B New Accounting and Auditing Requirements The following summarizes the status of new standards and the changes to existing standards as at the fall of 2012. There is also a review of the Exposure Drafts, Consultation Papers, Invitations to Comment, Issue Papers and Statements of Principles that provide information on the future direction of CICA Public Sector Accounting Handbook. HIGHLIGHTS OF NEW STANDARDS PS 3041, Portfolio investments and withdrawal of Sections PS 3040 and PS 3030 Temporary Investments New section PS 3041 amends and replaces PORTFOLIO INVESTMENTS, Section 3040. Most changes reflect amendments proposed in the Exposure Draft, “Amendments Resulting from PS 3450”. PS 3041 applies when an entity adopts PS 2601, FOREIGN CURRENCY TRANSLATION and PS 3450, FINANCIAL INSTRUMENTS. One of the major changes is a revised definition of portfolio investments, which includes temporary investments that are not cash equivalent, and the consequential withdrawal of PS3030. The implications of this change are simplified financial reporting and removal of a difference between the PSAB and the standards that apply to other Canadian entities. Other changes from PS 3040 primarily involve conforming with and making reference to PS 3050 to ensure consistent application and to eliminate redundancy. Changes include:  Removal of the scope exclusion for investments in pooled investment funds;  Replacing the definition for “cost method” with a definition for “amortized cost” and including the accounting requirements in the definition of “amortized cost” in the standards;  Conforming the definition of the effective interest method to Section PS 3450.  Deleting the definition for “dividends”;  Clarifying provisions that apply to the reporting of portfolio investments held by sinking funds;  Clarifying that when an item in the fair value category is written down, any net remeasurement gains and losses recognized in prior periods should be reversed and reported in the statement of remeasurement gains and losses;  Replacing references “carrying amount” and “carrying value” with “cost or amortized cost” in the provisions that address a loss in value of the portfolio investment;  Specifying the use of the effective interest rate method when amortizing an investment discount to revenue; and  Replacing the presentation and disclosure guidance with a reference to relevant provisions in Section 3450. The Corporation of the District of Maple Ridge January 18, 2013 Page 15 of 33 Other Amendments Other amendments to the PSA handbook are a result of changes proposed in the Exposure Draft, “Handbook Improvements” which affect the following:  Clarification of the interaction between PS 3450, Financial Instruments, and other amended sections;  Make reference to and conform to PS 3450; and  Reflect the scope of application of the new statement of remeasurement gains and losses introduced to PS 1201, FINANCIAL STATEMENT PRESENTATION. PS 2400, Subsequent events A paragraph is added to clarify the measuring of the date of completion of the financial statements, which represents the cut-off date for identifying and considering the effects of subsequent events. The new paragraph is consistent with recent changes to Canadian Assurance Standards. PS 2500, Basic Principles of Consolidation The amendments clarify the following:  Any operating gains and losses associated with inter-governmental unit sales or transfers of financial assets and financial liabilities in the fair value category that are held within the consolidated entity should be eliminated by reclassifying the gains and losses from the consolidated statement of operations to the consolidated statement of remeasurement gains and losses; and  Any such unrealized loss that is attributable to impairment should be reported in the consolidated statement of operations. PS 2510, Additional Areas of Consolidation Amendments are made in the provisions that address when a governmental unit becomes a government business enterprise to reflect that government business enterprises following the standards of publically accountable enterprises in the CICA Handbook or International Financial Reporting Standards may report other comprehensive income, which would also be accounted for by the modified equity method. PS 2700, Segment Disclosures Amendments are made in the provisions that apply to government business enterprises to replace references to “net surplus/deficit” with “income” to reflect the terminology used in the standards applicable to publicly accountable enterprises or International Financial Reporting Standards. PS 3050, Loans Receivable Amendments include:  Clarifying that the grant portion of a loan with significant concessionary terms and the costs of concessions in a loan restructuring should be reported in the statement of operations;  Specifying the use of the effective interest method when amortizing the loan discount to revenue and clarifying that this method should be applied in the period PS 3450 is adopted; and  Clarifying the reason for recognizing a loan receivable as a financial asset. The Corporation of the District of Maple Ridge January 18, 2013 Page 16 of 33 PS 3070, Investments in Government Business Enterprises Amendments made include deleting paragraph PS 3070.39 as the constructive retirement of a debt obligation that occurs when paragraphs PS 3070.35-.38 apply is consistent with BASIC PRINCIPLES OF CONSOLIDATION, paragraph PS 2500.06, which requires the elimination of inter-governmental unit transactions and balances and FINANCIAL INSTRUMENTS, paragraph PS 3450.042, which establishes when liabilities are derecognized. PS 3100, Restricted Assets and Revenues Amendments made include changes to the wording of paragraph PS 3100.06 is clarified as the nature of stipulations within sinking fund agreements can give rise to either internal or external restrictions. PS 3230, Long-Term Debt Amendments made to clarify that the disclosure requirements in this section applies to all debt securities, including those derecognized as required by PS 3450, FINANCIAL INSTRUMENTS. PS 3310, Loan Guarantees Amendments clarifies that any losses on loan guarantees are presented in the statement of operations. PS 3390, Contractual Obligations A new paragraph has been added in the scope of PS 3390 to clarify that derivatives are unlike contractual obligations, such as a purchase agreement, where a liability does not arise until the good or service is provided. Amendments made to the transitional provisions of PS 2601 and PS3450 for government organizations that have gains or losses on financial instruments in the available-for-sale category. The prospective treatment measurement provisions were clarified The amendments specify that certain amounts, previously reported in accumulated other comprehensive income (or in the case of a not-for-profit organization, in net assets), are included in opening accumulated remeasurement gains and losses at the date of transition. The Corporation of the District of Maple Ridge January 18, 2013 Page 17 of 33 Accounting Standards that apply only to Government Not-for-Profit Organizations 2012 denotes a significant year for government not-for-profit organizations as they will be joining other government organizations in adopting the public sector accounting standards. The following new Sections establish recognition, measurement and disclosure standards that are for use only by government not-for-profit organizations. • Financial statement presentation by not-for-profit organizations, Section PS 4200; • Contributions — revenue recognition, Section PS 4210; • Contributions receivable, Section PS 4220; • Capital assets held by not-for-profit organizations, Section PS 4230; • Collections held by not-for-profit organizations, Section PS 4240; • Reporting controlled and related entities by not-for-profit organizations, Section PS 4250; • Disclosure of related party transactions by not-for-profit organizations, Section PS 4260; and • Disclosure of allocated expenses by not-for-profit organizations, Section PS 4270. The main features of these Sections are as follows: • Financial statements for a government not-for-profit organization can be prepared on a restricted fund or deferral method; • A government not-for-profit organization should recognize contributions in accordance with the deferral or restricted fund method; • Controlled not-for-profit organizations of a government not-for-profit organization should be reported by way of disclosure or through consolidation. Controlled profit- oriented enterprises of a government not-for-profit organization should be reported using the modified equity method or through consolidation; • Information regarding collections of a government not-for-profit organization should be disclosed; and • A government not-for-profit organization should disclose information about its transactions with related parties. These Sections are effective only for government not-for-profit organizations that elect to follow the standards for not-for-profit organizations in the CICA Public Sector Accounting Handbook and are effective for fiscal periods beginning on or after January 1, 2012. Note, the Province of British Columbia has directed that the PS4200 sections noted above not be used by any entity that is part of the Government of BC reporting entity. The Corporation of the District of Maple Ridge January 18, 2013 Page 18 of 33 NEW PUBLIC SECTOR ACCOUNTING STANDARDS NOT YET EFFECTIVE PS 3260 – Liability for Contaminated Sites This new Section establishes recognition, measurement and disclosure standards for liabilities relating to contaminated sites of governments and those organizations applying the CICA Public Sector Accounting Handbook. This section applies to government assets no longer in productive use and non-government assets for which the government is responsible. It does not apply to tangible capital assets (however the PSAB GAAP hierarchy would require consideration of Asset Retirement Obligations in regard to tangible capital assets). The main features of the new Section are as follows:  A liability should be recognized when contamination exceeds an accepted environmental standard and the entity is directly responsible, or accepts responsibility for, the damage;  A liability should be measured at the entity's best estimate of the costs directly attributable to remediation of the contamination; and  Outstanding site assessments do not negate the requirement to assess whether a liability exists. This Section is effective for fiscal periods beginning on or after April 1, 2014. Earlier adoption is encouraged. For entities with a December year end this means that 2015 is the first year that the standard must be followed. Although that is seemingly a long time in the future, this standard is onerous and could require the collection of a great deal of information. An entity should begin to consider immediately how it will apply with this standard. Organizations are to apply PS 2120 if adoption of PS3260 results in a change in accounting policy. PS 3410 - Government transfers After a 7 year journey of exposure drafts and re-exposure drafts, this Section is finally revised and will replace existing Section PS 3410. The following changes have been made to the Section: • A transferring government recognizes an expense when the transfer is authorized and recipients have met the eligibility criteria, if any; • Authorization by the transferring government can occur either by the date of the financial statements or during the period between the date of the financial statements and the issuance of those statements provided that the exercise of that authority occurred at the financial statement date; • If a transferring government provides the financial or non-financial asset prior to the recipient meeting eligibility criteria, the transferring government cannot recognize a prepaid asset; • A recipient government recognizes the transfer as revenue when the transfer was authorized by the transferring government, unless a liability is created for the recipient; • For a recipient, the transferring government's authorization must be in place by the financial statement date; • A liability related to the transfer for the recipient may result from: The Corporation of the District of Maple Ridge January 18, 2013 Page 19 of 33 – receiving an asset prior to the recipient meeting eligibility criteria; – specific stipulations contained in the transfer agreement; and – stipulations that are unclear but the recipient creates a liability through its own actions and communications that are related to the terms of the transfer by the financial statement date; • A liability may also result from the recipient's own actions and communication that are unrelated to the terms of the transfer by the financial statement date. In this case, an asset and revenue and a liability and expense would be recognized; and • Revenue is recognized as the liability is settled. The Section applies to all governments and those government organizations using public sector accounting standards. The Section applies to fiscal years beginning on or after April 1, 2012 and may be applied retroactively or prospectively. Earlier adoption is encouraged. Note that for any organizations that are part of the Province of BC reporting entity the application of PS 3410 needs to be considered in respect of BC Regulation 198/2011 which requires: “A restricted contribution …for the purpose of acquiring or developing a depreciable tangible capital asset..is to be reported as follows: a) It is to be treated as a deferred contribution; b) The associated liability is to be reduced, and the associated revenue recognized, at the same rate that amortization is recognized in respect of the asset; c) The reduction of the liability and the recognition of the revenue are to be accounted for in the fiscal period during which the asset is used to provide services” Because this regulation is worded differently than PSAB 3410 there can be situations where the two are not in agreement. An organization subject to the Budget Transparency and Accountability Act has no choice but to follow the regulation. However, this may impact on the auditor’s ability to provide a “clean” fair-presentation opinion. Another area that could be impacted by the new PS 3410 is the recording of Gas Tax revenues. Most BC organizations that share in gas tax revenues with the Government of Canada currently defer recognition of such revenues until spent on qualifying projects. However the Gas Tax agreements contain a stipulation that the project funded be used for 10 years or else repayment is required on a sliding scale. It is likely that this stipulation could create a liability which would require a change in practice to instead recognize the revenue over the 10 year period. PS 3450 - Financial instruments This new Section establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. The main features of the new Section are: The Corporation of the District of Maple Ridge January 18, 2013 Page 20 of 33 • Items within the scope of the Section are assigned to one of two measurement categories: fair value, or cost or amortized cost; • Almost all derivatives, including embedded derivatives that are not closely related to the host contract, are measured at fair value; • Fair value measurement also applies to portfolio investments in equity instruments that are quoted in an active market; • Other financial assets and financial liabilities are generally measured at cost or amortized cost; • Until an item is derecognized, gains and losses arising due to fair value remeasurement are reported in the statement of remeasurement gains and losses; • Budget-to-actual comparisons are not required within the statement of remeasurement gains and losses; • When the reporting entity defines and implements a risk management or investment strategy to manage and evaluate the performance of a group of financial assets, financial liabilities or both on a fair value basis, the entity may elect to include these items in the fair value category; • New requirements clarify when financial liabilities are derecognized; • The offsetting of a financial liability and a financial asset is prohibited in absence of a legally enforceable right to set off the recognized amounts and an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously; and • New disclosure requirements of items reported on and the nature and extent of risks arising from financial instruments. The new requirements are to be applied at the same time as PS2601, FOREIGN CURRENCY TRANSLATION and PS1201, FINANCIAL STATEMENT PRESENTATION and for government organizations are effective for fiscal years beginning on or after April 1, 2012. In the case of governments, the new requirements are effective for fiscal years beginning on or after April 1, 2015. Earlier adoption is permitted. Standard to be adopted with prospective application except for an accounting policy related to embedded derivatives within contracts, which can be applied retroactively or prospectively. PS 2601 - Foreign currency translation This Section revises and replaces PS 2600, FOREIGN CURRENCY TRANSLATION. The following changes have been made to the Section: • The definition of currency risk is amended to conform to the definition in PS 3450 - FINANCIAL INSTRUMENTS; • The exception to the measurement of items on initial recognition that applies when synthetic instrument accounting is used is removed; • At each financial statement date subsequent to initial recognition, non-monetary items denominated in a foreign currency that are included in the fair value category in accordance with Section PS 3450 are adjusted to reflect the exchange rate at that date; • The deferral and amortization of foreign exchange gains and losses relating to long- term foreign currency denominated monetary items is discontinued; The Corporation of the District of Maple Ridge January 18, 2013 Page 21 of 33 • Until the period of settlement, exchange gains and losses are recognized in the statement of remeasurement gains and losses rather than the statement of operations; and • Hedge accounting and the presentation of items as synthetic instruments are removed. The new requirements are to be applied at the same time as PS3450, FINANCIAL INSTRUMENTS and PS1201, FINANCIAL STATEMENT PRESENTATION and for government organizations are effective for fiscal years beginning on or after April 1, 2012. In the case of governments, the new requirements are effective for fiscal years beginning on or after April 1, 2015. Earlier adoption is permitted. PS 1201 - Financial statement presentation This Section revises and replaces FINANCIAL STATEMENT PRESENTATION, Section PS 1200. The following changes have been made to the Section: • Remeasurement gains and losses are reported in a new statement; • Other comprehensive income that can arise when a government includes results of government business enterprises and government business partnerships in its summary financial statements is reported in the statement of remeasurement gains and losses; and • The accumulated surplus or deficit is presented as the total of the accumulated operating surplus or deficit and the accumulated remeasurement gains and losses. The new requirements are to be applied at the same time as PS3450 - Financial Instruments and PS2601 - Foreign Currency Translation and for government organizations are effective for fiscal years beginning on or after April 1, 2012. In the case of governments, the new requirements are effective for fiscal years beginning on or after April 1, 2015. Earlier adoption is permitted. PS 3510 – Tax revenue This section sets out the recognition criteria and reporting requirements of tax revenue. It also provides guidance on a number of tax related accounting issues, including:  taxes imposed on behalf of others;  transfers made through a tax system that are available to people who may not pay tax  tax concessions that are only available to taxpayers (such as tax credits and deductions); and  Depending on the government’s current practice, implementation of this standard may affect the gross / net reporting of certain tax related revenue / expense and may have implications for budgeting and appropriations. These new requirements are effective for fiscal years beginning on or after April 1, 2012. Earlier adoption is permitted. This standard is generally not applicable to government organizations. The Corporation of the District of Maple Ridge January 18, 2013 Page 22 of 33 EXPOSURE DRAFTS Financial Instruments: Income on Externally Restricted Assets Exposure draft issued by the PSAB to clarify various sections of the PSA Handbook as a result of the issue of new Section PS 3450, Financial Instruments, to ensure the reporting of income on externally restricted assets that are financial instruments aligns with the requirements in PS 3100, RESTRICTED ASSETS AND REVENUES. The proposed amendments also address transitional matters that can arise when PS 3450 is adopted. Related party transactions Exposure draft issued by the PSAB to propose the issue of a new section, RELATED PARTY TRANSACTIONS. The main features of the exposure draft are as follows:  Related parties include entities that control or are controlled by the reporting entity, entities under common control and entities that have shared control over or that are subject to shared control of a reporting entity;  Individuals that are members of key management personnel and close members of their family are related parties. Disclosure of key management personnel compensation arrangements is not required;  Determining which related party transactions to disclosure is a matter of judgment based on the assessment of certain factors  A related party transaction, with the exception of contributed goods and services, should normally be recognized by both a provider organization and a recipient organization on a gross basis;  A reporting entity may either disclose information about contribute goods and services or recognize a revenue and expense if those goods and services would otherwise have been purchased;  Related party transactions, if recognized, should be recorded at the exchange amount; and  It may not be necessary or practical for the provider organization or recipient organization to disclose information about transactions undertaken by an entity as part of its operations. Use of Appropriations Exposure draft issued by the PSAB to propose the issue of a new section, USE OF APPROPRIATIONS. The main features of the exposure draft are as follows:  Government sector entities receiving actual transfers of resources would apply PS 3410, GOVERNMENT TRANSFERS;  The use of appropriations would be recognized when an appropriation, supply act or other legislation authorizes an entity to spend resources, and the reporting entity has an eligible transaction or event under that authority;  The use of appropriations should be separately identified in financial statements; and  The use of appropriations can be reported in either the statement of operations when determining the operating surplus or deficit for the period or the reconciliation to the closing accumulated operating surplus or deficit. The Corporation of the District of Maple Ridge January 18, 2013 Page 23 of 33 Update of Terminology (Closed for Comments) PSAB approved an exposure draft of proposed updates to the terminology used in the Public Sector Accounting (PSA) Handbook. The updates form part of a review of the PSA Handbook to explicitly indicate the applicability of individual standards to both governments and those government organizations that follow the PSA Handbook. The PSA Handbook was originally developed to address the financial reporting needs of governments in Canada. The terminology used in many of the standards still indicates that they are applicable to governments preparing their summary financial statements. Some government organizations now follow the PSA Handbook. A number of additional government organizations will be adopting the PSA Handbook for the first time in 2011 and 2012 due to recent amendments to the Introduction to Public Sector Accounting Standards. PSAB staff conducted a review of the PSA Handbook and, in most cases, concluded that only a simple update of terminology (for example, from “government” to “public sector entity”) was needed, in addition to defining the term “public sector entity” in the Introduction to mean both governments and government organizations. However, for some standards, more in- depth consideration of how the text should be updated to explicitly include government organizations is needed and these updates will be exposed for public comment in the future. Main features of Exposure Draft: PSAB issues standards and guidance that serve the public interest by improving information for decision making and by strengthening accountability in the public sector. Included in the scope of PSAB’s mandate are governments and government organizations. Government organizations are defined as organizations controlled by government. In this Exposure Draft, PSAB proposes to define a “public sector entity” to include federal, provincial, territorial and local governments and government organizations. PSAB proposes to replace the current applicability terminology (such as “governments”, “public sector reporting entity”, “entity” or “reporting entity”) with the term “public sector entity” in certain standards and guidelines. As well, the following is proposed: • The term “government partnership” would be removed from paragraph .03 of the Introduction. By definition, a government partnership is not controlled by government and the basis of generally accepted accounting principles (GAAP) to be used by a government partnership is not dictated by the PSA Handbook, but instead is determined by the partners. GOVERNMENT PARTNERSHIPS, Section PS 3060, addresses how to account for a government partnership in the financial statements of a government reporting entity, not how a government partnership is to account for transactions in their financial statements; and • “School boards” would be removed from paragraph .03 of the Introduction. Similar to a government organization, a school board is an organization controlled by government. Currently, footnote 1 to the Introduction is unclear for school boards as it indicates the standards may be applied if considered appropriate. By removing the “school board” references in paragraph .03 and footnote 1 of the Introduction, all organizations controlled by governments, including school boards, will be provided the same direction regarding their basis of GAAP. The Corporation of the District of Maple Ridge January 18, 2013 Page 24 of 33 CONSULTATION PAPERS Characteristics of Public Sector Entities (Closed for Comment) The objective of this project is to review and amend, if necessary, the conceptual framework in PS 1000, FINANCIAL STATEMENT CONCEPTS, and PS 1100, FINANCIAL STATEMENT OBJECTIVES. This review could also affect PS 1201, FINANCIAL STATEMENT PRESENTATION. The issues to be considered include:  How to measure financial performance;  What financial statements can do and cannot do in measuring financial performance;  What aspects of the key concepts underlying financial performance in the framework require review and why;  Alternative approaches to the key concepts being reviewed; and  How the alternative approaches affect the measure of financial performance. INVITATIONS TO COMMENT Related Party Transactions – Definition and Disclosure (Closed for Comment) The PSAB has now issued the exposure draft, RELATED PARTY TRANSACTIONS. ISSUES PAPERS Related Party Transactions – Recognition and Measurement (Closed for Comment) The PSAB has now issued the exposure draft, RELATED PARTY TRANSACTIONS. STATEMENTS OF PRINCIPLES Use of Appropriations (Closed for Comment) The PSAB has now issued the exposure draft, USE OF APPROPRIATIONS. The Corporation of the District of Maple Ridge January 18, 2013 Page 25 of 33 STATUS OF CURRENT PROJECTS 1) Conceptual Framework Project The Conceptual Framework Project has been undertaken to review and amend, if necessary, the concepts underlying financial performance in the existing public sector conceptual framework in FINANCIAL STATEMENT CONCEPTS, Section PS 1000, and FINANCIAL STATEMENT OBJECTIVES, Section PS 1100. This review could also affect FINANCIAL STATEMENT PRESENTATION, Section PS 1201. The Conceptual Framework Task Force has recently released “Consultation Paper 2” which seeks input from stakeholders regarding:  the objective of public sector financial reporting;  the identification of who public sector entities are financially accountable to;  the identification of what public sector entities are financially accountable for;  how the provision of information in financial statements can help to understandably demonstrate those accountabilities; and  reporting model alternatives to demonstrate the accountabilities. One of the key items arising from the Consultation Paper is the consideration of new financial statement presentation models. One of the favoured models, known as the “hybrid model” would result in the Statement of Operations better matching with budgets through the use of deferrals, but not articulating with the Statement of Financial Position which would not include such deferrals. 2) Amendments Arising from Financial Instruments The objective of the project is to amend Public Sector Accounting (PSA) Handbook Sections affected by the issue of Sections PS 1201, FINANCIAL STATEMENT PRESENTATION, PS 2601, FOREIGN CURRENCY TRANSLATION, and PS 3450, FINANCIAL INSTRUMENTS, and to clarify application of the transition provisions. The introduction of financial instruments gave rise to the need to clarify the interaction between Section PS 3450 and other related standards, and the need to make references to and conform to Section PS 3450. Amendments are also required to reflect the scope of application of the new statement of remeasurement gains and losses introduced to Section PS 1201. The PSAB has released the exposure draft, FINANCIAL INSTRUMENTS: INCOME ON EXTERNALLY RESTRICTED ASSETS which is open for comment until October 16, 2012. 3) Appropriations PSAB issued a Statement of Principles on “Entity Level Financial Statements,” in August 2009 proposing principles that would apply to government entities that follow the Public Sector Accounting (PSA) Handbook in preparation of their general purpose financial statements. Some respondents to the Statement of Principles were concerned that government departments may be required to issue general purpose financial statements. Responding to this concern and other issues raised in responses to the document, including related party transactions, appropriations, and the terminology used in the PSA Handbook to describe government entities, PSAB agreed to reconstitute the project into separate projects to address these issues. The Corporation of the District of Maple Ridge January 18, 2013 Page 26 of 33 The objective of this project is to issue a new accounting standard that addresses recognition and disclosure of appropriations. The PSAB has issued an Exposure Draft that proposes standards for deciding when and how appropriations should be reported. Stakeholders are encouraged to submit their comments, on the form provided, by November 28, 2012. 4) Asset Retirement Obligations The objective of this project is to issue a standard that addresses the reporting of legal obligations associated with the retirement of long-lived tangible capital assets currently in productive use. The complex long-term nature of asset retirement obligations requires the use of professional judgment and the need to estimate future costs. Reporting guidance on asset retirement obligations was covered in the pre-changeover accounting standards in Part V of the CICA Handbook – Accounting. Government organizations transitioning to the PSA Handbook would need guidance in this area. The current lack of specific accounting guidance in the PSA Handbook can result in variations in the recognition, measurement, presentation and disclosure of such obligations. PSAB approved an Asset Retirement Obligations project. The project is expected to commence in 2012. The project will address the reporting of legal obligations associated with the retirement of long-lived tangible capital assets currently in productive use. Recognition and measurement of the liability will be a major issue as will be accounting for the related expense. 5) Assets Assets are currently defined in Section PS 1000, Financial Statement Concepts, as “economic resources controlled by a government as a result of past transactions or events and from which future economic benefits are expected to be obtained.” Guidance on applying the definition of assets is currently limited to identification of three essential characteristics of assets and definitions of financial, non-financial and tangible capital assets. This project is expected to result in new standards similar to the approach taken in:  Section PS 3200, Liabilities;  Section PS 3300, Contingent Liabilities; and  Section PS 3390, Contractual Obligations. Section PS 3200 addresses the basic concepts and key terms in the definition of liabilities with further guidance, examples and indicators. It also establishes the recognition and disclosure standards for liabilities. Similar standards on assets would be useful not only for financial statement preparers and auditors in application and interpretation of the definition of assets, but also for development of future standards on specific assets. The Corporation of the District of Maple Ridge January 18, 2013 Page 27 of 33 6) Concepts Underlying Financial Performance A Joint Working Group comprised of selected PSAB members and Deputy Ministers of Finance was established in July 2007 to address concerns expressed by the senior government finance community. Reports prepared by Joint Working Group subgroups were presented to PSAB in January 2009. One of those reports suggested reviewing PSAB’s conceptual framework. In formulating its 2010-2013 Strategic Plan, PSAB planned to review its conceptual framework in conjunction with the work being undertaken by the International Public Sector Accounting Standards Board. The senior government finance community expressed concern about this proposed direction. They believed that PSAB should take a more proactive approach to review the issues raised in the report of the conceptual framework subgroup of the Joint Working Group. In response, PSAB revised its 2010-2013 Strategic Plan to place a high priority on the review of its conceptual framework. The Board noted that measuring financial performance was at the root of the issues being raised. The issues to be addressed include:  how to measure financial performance;  what general purpose financial statements can do and cannot do in measuring financial performance;  what aspects of the key concepts underlying financial performance in the framework require review and why;  what alternative approaches to the key concepts that require review are; and  how the alternative approaches affect the measure of financial performance. The objective of this project is to review and amend, if necessary, the conceptual framework in Sections PS 1000, Financial Statement Concepts, and PS 1100, Financial Statement Objectives. This review could also affect Section PS 1201, Financial Statement Presentation. PSAB’s Conceptual Framework Task Force has issued Consultation Paper 2 that proposes an objective and primary audience for financial reporting, the accountabilities to be reported on in financial statements, and alternative reporting models to demonstrate them. Stakeholders are encouraged to submit comments, on the form provided, by January 31, 2013. 7) Impairment of Non-Financial Assets Currently, there is a lack of Canadian guidance on the impairment of non-financial assets that have service potential. The objective of this project is to issue a standard that addresses the impairment of tangible capital assets that have service potential. The project will define impairment, as well as provide guidance on assessment, recognition, measurement and disclosure of impairment losses. The Corporation of the District of Maple Ridge January 18, 2013 Page 28 of 33 PSAB approved a project proposal. The project will focus on addressing the impairment of tangible capital assets that provide service benefits. Deferred maintenance issues will also be considered. The project will define impairment, and provide guidance on assessment, recognition, measurement and disclosure of impairment losses. 8) Not-for-Profit Organizations The AcSB develops generally accepted accounting principles (GAAP) for private sector not- for-profit organizations. PSAB establishes GAAP for governments and government organizations, including government not-for-profit organizations. Commencing in 2012, private sector not-for-profit organizations are required to adopt either International Financial Reporting Standards (IFRSs) or accounting standards for not- for-profit organizations (Part III of the CICA Handbook – Accounting) in conjunction with accounting standards for private enterprises (Part II of the CICA Handbook – Accounting). Commencing in 2012, government not-for-profit organizations are required to adopt the CICA Public Sector Accounting (PSA) Handbook, either with or without the standards specific to not-for-profit organizations (Sections PS 4200 to PS 4270). The two Boards have established the Joint Not-for-Profit Task Force to improve the accounting standards for future reporting by not-for-profit organizations in both the private and public sectors. This project involves a review of the content of the 4400 series of Sections in Part III of the CICA Handbook – Accounting (applicable for not-for-profit organizations in the private sector) and the PS 4200 series of Sections in the CICA PSA Handbook (applicable to government not-for-profit organizations). Joint task force meetings commenced in January 2011 and are continuing. The Joint Task Force has commenced discussions on improvements that might be made to standards related to:  collections;  contributions;  disclosure of allocated costs;  intangible capital assets;  tangible capital assets;  controlled and related entities;  related party transactions; and  financial statement presentation. The Corporation of the District of Maple Ridge January 18, 2013 Page 29 of 33 9) PSA Handbook Terminology PSAB has issued a number of amendments to the Introduction to Public Sector Accounting Standards in recent years in response to the changes in private sector financial reporting in Canada. The amendments provided direction on the accounting frameworks the different types of government organizations should follow. As a result, many government organizations including government not-for-profit organizations (GNFPOs) that previously followed the CICA Handbook – Accounting will adopt the public sector accounting standards for fiscal years beginning on or after January 1, 2011 or 2012. The PSA Handbook was written primarily for government summary financial statements. The term “government” was used throughout the PSA Handbook. As part of PSAB’s initiative to improve the PSA Handbook for government organizations including GNFPOs, the Board considered the need to clarify the application of the Sections for government organizations and to replace the reference to “government(s)” with a term that would include entities that will adopt the PSA Handbook in the foreseeable future. The objective of the project is to amend the terminology in the CICA Public Sector Accounting (PSA) Handbook to describe public sector entities that follow the PSA Handbook. PSAB continued its discussion on the applicability of the CICA Public Sector Accounting (PSA) Handbook to entities that are integral to governments such as a government department or ministry. The Board concluded that parts of government that are not government organizations should follow the accounting policies of their government (i.e., the PSA Handbook) amended, where appropriate, for policies that reflect their nature as being part of a larger integrated entity when they prepare general purpose financial statements. The Board reviewed a draft exposure draft proposing amendments to the Introduction to the Public Sector Accounting Standards and requested staff to reflect its discussion in a revised issues analysis document. The Board expects to approve the final text of the exposure draft and issues analysis document in late October or early November 2012. 10) Related Party Transactions PSAB issued a Statement of Principles on “Entity Level Financial Statements” in August 2009 proposing principles that would apply to government entities that follow the CICA Public Sector (PSA) Handbook in preparation of their general purpose financial statements. Some respondents to the Statement of Principles were concerned that government departments may be required to issue general purpose financial statements. Responding to this concern and other issues raised in responses to the document, including related party transactions, appropriations, and the terminology used in the PSA Handbook to describe government entities, PSAB agreed to reconstitute the project into separate projects to address these issues. The Corporation of the District of Maple Ridge January 18, 2013 Page 30 of 33 The objectives of this project is to issue a new accounting standard that:  defines a related party in the context of government and government organizations; and  describes the disclosure required for related parties and related party transactions. PSAB has issued an Exposure Draft that proposes a new Handbook Section dealing with related party transactions. Stakeholders are encouraged to submit their comments, on the form provided, by November 21, 2012. 11) Restructurings The objective of this project is to issue a standard that addresses initial recognition and measurement of assets and liabilities transferred in restructurings among public sector entities not under common control, presentation issues in the period the restructuring takes place and disclosure requirements. The standard would provide principle-based guidance that can be applied to a wide range of restructuring transactions, for example, amalgamation and transfer of programs/operations. PSAB considered various accounting and reporting issues based on the preliminary views formed at the June 2012 meeting. Issues discussed at this meeting include definitions, issues related to accounting policies, recognition, presentation and disclosure. The Board expects to approve a statement of principles at its December 2012 meeting. 12) Revenues Revenues are defined in the Public Sector Accounting (PSA) Handbook in Section PS 1000, FINANCIAL STATEMENT CONCEPTS, as “increases in economic resources, either by way of increases of assets or decreases of liabilities, resulting from the operations, transactions and events of the accounting period.” Section PS 1201, FINANCIAL STATEMENT PRESENTATION, addresses recognition and disclosure of revenues in general terms. The PSA Handbook has two standards that address two major sources of government revenues, government transfers (Section PS 3410) and tax revenue (Section PS 3510). Other sources of revenues of governments and government organizations include fines and penalties, royalties, license fees, other fees, sales and rental, etc. Revenue recognition is fundamental to financial reporting. It directly impacts the surplus and deficit reported by governments and government organizations. Though governments and government organizations may be involved in the sale of goods and receive revenues from the provision of services and long-term contracts, these transactions are rarely of an exchange nature (i.e., exchanges of equal value). There is a need to develop revenue recognition principles that apply to revenues that are commonly encountered in the public sector and not addressed in standards for profit-oriented entities. The Corporation of the District of Maple Ridge January 18, 2013 Page 31 of 33 AUDITING AND ASSURANCE STANDARDS - A SUMMARY OF CURRENT PROJECT STATUS 1) Association The objective of this project is to revise and replace Section 5020, Association, to address issues raised by practitioners and other Canadian stakeholders. This project will address key issues including:  determining the meaning of “association”;  identifying when a practitioner becomes associated with information;  establishing the work effort required and the communications needed in the context of the nature and extent of the practitioner’s association with information; and  determining how this standard should interrelate with other standards. The AASB discussed issues related to revising and clarifying Section 5020, Association. The AASB plans further discussions at several upcoming meetings, with the goal of approving an exposure draft in spring 2014. 2) Other Reporting Where No Assurance Is Provided (formerly Reporting on Information Encountered During the Financial Statement Audit) In recent years, auditors have been receiving more requests from various regulatory bodies for reports on information about the entities being audited. These reports deal with matters that the auditor may become aware of while completing the financial statement audit but that go beyond the scope of that audit. There have also been requests from government funding agencies that auditors report separately on detailed schedules of information underlying financial statement items without doing any further audit work on these detailed schedules. From time to time, practitioners have asked what standard should be applied when responding to these requests. Currently, there is no standard that specifically addresses this matter. This project proposes to introduce a new Related Services Standard that would cover various types of information reported to a third party (for example, regulators or funding bodies). Key issues that this project will address include:  How should “derivative reporting” be defined?;  What is the nature and extent of guidance that the new standard should include?; and  How can the auditor clearly and effectively report to external parities on various matters in a manner that will be clear and minimize any user expectation gap? The AASB discussed comments received from stakeholders during consultations held by the task force for this project in the summer of 2012. The AASB will discuss an outline of a proposed standard and significant issues related to this project at its meeting in December 2012, with the aim of approving an exposure draft of the standard in spring of 2013. The Corporation of the District of Maple Ridge January 18, 2013 Page 32 of 33 3) Special Reports – Assurance on Compliance with Agreements, Statutes and Regulations Public accountants are often asked to provide assurance on an entity’s compliance with statutes, regulations and agreements. Section 5800, SPECIAL REPORTS — INTRODUCTION, Section 5815, SPECIAL REPORTS — AUDIT REPORTS ON COMPLIANCE WITH AGREEMENTS, Statutes and Regulations, and Section 8600, REVIEWS OF COMPLIANCE WITH AGREEMENTS AND REGULATIONS, were written several years ago. They need to be updated and drafted in the clarity format. This project is also related to the Other Reporting Where No Assurance Is Provided project, which involves developing a new Related Services Standard to address requests from third parties where no assurance is provided by the practitioner. 4) Standards for Assurance Engagements Significant gaps were identified in the Handbook compared to standards for audits of financial statements when the AASB was developing assurance engagement standards on specific topics, such as reporting on internal control over financial reporting and audits of service organizations. This project is expected to include revising or replacing the following Sections:  Section 5025, STANDARDS FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OF FINANCIAL STATEMENTS AND OTHER HISTORICAL FINANCIAL INFORMATION;  Section 5030, QUALITY CONTROL PROCEDURES FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OF FINANCIAL STATEMENTS AND OTHER HISTORICAL FINANCIAL INFORMATION;  Section 5049, USE OF SPECIALISTS IN ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OF FINANCIAL STATEMENTS AND OTHER HISTORICAL FINANCIAL INFORMATION; and  Section 5050, USING THE WORK OF INTERNAL AUDIT IN ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OF FINANCIAL STATEMENTS AND OTHER HISTORICAL FINANCIAL INFORMATION. These standards for assurance engagements will be revised to:  reflect current practice;  address the needs expressed by the legislative auditing community and other Canadian stakeholders; and  establish a clear interrelationship between upper tier standards for assurance engagements and engagement-specific assurance standards. Key issues that this project plans to address include:  adequacy of guidance;  required expertise in providing assurance;  references to existing GAAS; and  interrelationships between the various levels of assurance engagement standards. The Corporation of the District of Maple Ridge January 18, 2013 Page 33 of 33 5) Standards for Review Engagements Standards for review engagements are being revised to improve their robustness by reflecting current practice and appropriately addressing the needs expressed and issues raised by Canadian stakeholders. Performance of review engagements has evolved over the 20 years since the existing standards were issued. This project will include revising or replacing Section 8100, General Review Standards, Section 8200, Public Accountant’s Review of Financial Statements, and Section 8500, Reviews of Financial Information Other than Financial Statements. This may involve adoption of International Standard on Review Engagements (ISRE) 2400, Engagements to Review Historical Financial Statements. Key issues that this project plans to address include:  the need for a set of comprehensive review engagement standards that “stand alone” (i.e., the standards would contain complete guidance so that users need not refer to other standards in the Handbook for guidance);  determining the nature and extent of review engagement procedures; and  considering the form and content of the practitioner’s report.