Accrual Accounting Transition Protocol

DATE: November 15, 2000

TO: Senior Full Time Financial Officers

SUBJECT: FY 2001-02 FIS Transition Period –Transition Protocol and Accounting Requirements

This Bulletin is meant to provide guidance to departments on accrual accounting policy requirements for the third and last year of the FIS transition period.

The Accrual Accounting Transition Protocol was first developed in 1999-2000 to help implement and decentralize accounting policies at the departmental level, while ensuring a ongoing production of accurate and timely financial information on a government-wide basis. The 2001-02 Protocol is also meant to clarify which accounting policies are planned for implementation by departments in 2001-02 and the expectations regarding the ensuing departmental monthly reporting.

Starting April 1^st 2001, it is expected that all departments will be FIS compliant from a system's perspective, and that all will submit monthly trial balances by the due date to the Receiver General using accrual accounting policies identified in this Protocol and coded in accordance with the government-wide Chart of Accounts.

Therefore, the phasing-in latitude of the first two years of the transition period no longer exists and, with one exception, all accrual accounting policies identified in Annex B as the responsibility of departments are now mandatory for all departments effective April 1^st 2001.

These accounting policies will be used to prepare the government consolidated audited financial statements in 2001-2002 with full restatement of the opening balance as of April 1^st 2001, and based on information provided by departments.

With the exception of inventories, and the accounting for unconditionally repayable contributions (as per TBAS 3.2 on Transfers), the policies that are mandatory for implementation as at April 1^st 2001 are basically the same as those announced in last year's Protocol update.

Some exceptions were recently announced in a FIS Accrual Accounting Policy Information Bulletin:

• The recording of inventories will not be mandatory until 2002-03;
• The capitalization of software (acquired or in-house developed) and of leasehold improvements will start on April 1^st 2001, but on a prospective basis only; and
• Costs of intangibles such as patents, copyrights and trademarks will not be capitalized.

Also as announced last year, the accounting for other general allowances and liabilities currently recorded centrally is not yet devolved to departments. These include, among others:

• Allowances for loans, investments and advances and for loan guarantees
• Allowances for severance pay, pension and other employee benefits; and

Other statutory allowances and contingent liabilities that require recording of a liability without the use of a departmental appropriation.

Further study will be required in order to minimize the risk of errors in the consolidated financial statements of the government if and when these allowances are eventually decentralized.

For 2001-02, the recording of environmental liabilities is also planned to be implemented centrally, and while departments will be requested to provide year-end information, these liabilities must not be recorded in their departmental financial statements.

You will find in Annex the Protocol which contains:

• The transition rules: Accrual Accounting Transition Protocol – 2001-02 Update, (Annex A);
• A template showing the 2001-2002 Summary Accrual Accounting Requirements for All Departments which is to be completed by all departments for 2001-02 (Annex B); and
• A detailed matrix of the Accounting Requirements for All Departments for Fiscal year 2001-02 (Annex C) that explains the accounting requirements of departments, depending whether they were or are just becoming FIS compliant.

The summary template at Annex B is to be completed by all departments and should be returned no later than December 14, 2000 to confirm that the department will comply with the Protocol established for 2001-02. The completed template should be sent to both the Government Accounting Policy Division (GAPD) at TBS and the Central and Public Accounts Reporting Directorate (CPARD) of the Receiver General.

I invite you to consult these documents and distribute them widely among your financial staff. I also would like to thank you for your co-operation in implementing these policies.

If required, additional information may be obtained from Bruno Bernier at PWGSC at (819) 956-1794, bruno.bernier@pwgsc.gc.ca,or from John Morgan at TBS at (613) 957-9659, morgan.john@tbs-sct.gc.ca.

Rod Monette

Assistant Comptroller General and
Assistant Secretary
Financial Management Policy & Analysis Sector