Evidence of meeting #77 for Public Accounts in the 41st Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was accounts.
A recording is available from Parliament.
General Director, Economic and Fiscal Policy Branch, Department of Finance
Sorry, I misunderstood the question. Was the question about the difference between the increase you saw in the accumulated deficit versus the budgetary balance? Why it was larger than—
General Director, Economic and Fiscal Policy Branch, Department of Finance
When it comes to, obviously, the financing requirements of the government, there are also non-budgetary transactions that are involved. In that case, most of the financing, the increase in the deficit, was due to the $26 billion deficit that you mentioned, but there were also non-budgetary transactions of $6 billion that were required. They reflect a lot of things, such as loans and investments, accounts payable, but they're considered off-budget transactions. So they contributed to the increase in unmatured debt that occurred over and above the financing that would be required to fund the deficit.
NDP
Alain Giguère NDP Marc-Aurèle-Fortin, QC
Did the Canadian government incur $6 billion in non-budgetary expenditures, and without statutory authority on top of that?
General Director, Economic and Fiscal Policy Branch, Department of Finance
No, the authority is there. These non-budgetary transactions are part of the process. They are part of the government's opportunity to manage its finances. So, for example, they would be reflected in the debt management strategy that is approved by Parliament.
NDP
Alain Giguère NDP Marc-Aurèle-Fortin, QC
Can you give us a few examples of what that $6 billion covers?
General Director, Economic and Fiscal Policy Branch, Department of Finance
Yes, I could tell you in a sentence. They're responsible for non-financial assets; loans, investments, and advances; accounts payable and receivable; and foreign exchange activities. Again, they're non-budgetary transactions.
NDP
General Director, Economic and Fiscal Policy Branch, Department of Finance
Yes, you can, in the “Financial Source/Requirement” section.
NDP
Alain Giguère NDP Marc-Aurèle-Fortin, QC
Does that mean the $6 billion is part of the budget, but added at the end?
General Director, Economic and Fiscal Policy Branch, Department of Finance
It comes back to the issue of cash and accrual. Again, the budget is on an accrual basis, but from a cash perspective, the government needs cash to undertake certain transactions like the ones I mentioned. In the budget there is a section that always goes through that requirement.
NDP
Alain Giguère NDP Marc-Aurèle-Fortin, QC
So it still goes through the budget, which has had to incorporate everything since the 2000s. You are saying, then, that since 2000, that correction has not been made and, therefore, has not been incorporated into the government's budget.
It would be a good idea to fix that. If you're telling us that those kinds of expenditures are not included in the government's operating budget, incorporating that correction going forward would be a good idea. Rather than having a $26-billion deficit, we would have a $35-billion deficit, as the increase in debt shows.
Comptroller General of Canada, Treasury Board Secretariat
Just by way of an analogy that might help you to understand, in the case of a corporation, if a corporation spends money to acquire a long-term asset, that asset will be capitalized on the balance sheet. It will have no impact on the profit and loss statement. But if that asset were financed with debt, there would be debt associated with it. This is not an exact example, but I'm using it because it kind of illustrates what we're talking about here. It's whether something belongs on the statement of operations versus belonging on, say, our statement of financial position.
NDP
The Chair NDP David Christopherson
Time has expired. We're right on the nose.
We'll move along now to Mr. Hayes.
You have the floor, sir.
Conservative
Bryan Hayes Conservative Sault Ste. Marie, ON
Thank you, Mr. Chair.
First off, I want to thank Mr. Ralston and his staff for putting together the slide presentation of the Public Accounts of Canada. I'm surprised that we actually didn't step through the slide presentation.
Conservative
Bryan Hayes Conservative Sault Ste. Marie, ON
We normally have in the past, but for future reference—
NDP
The Chair NDP David Christopherson
Do you want to contribute your five minutes? It's a suggestion. I'm trying to help.
Conservative
Bryan Hayes Conservative Sault Ste. Marie, ON
That's fine.
I want to step back a little bit to the transition to new accounting standards. I just need some clarity on this, because the different standards are a little bit confusing, and I just want to see if I am understanding this correctly.
Our government is using the Canadian public sector accounting standards, yet it would appear, if I'm reading this correctly, that some of the crown corporations are using something other than the public sector accounting standards. Why would that be? Was that information captured accurately with regard to reporting? Why would they not be using the same standards? Is there some type of recommendation moving forward that they should be using the same standards?
That is for Ms. Cheng first.
Assistant Auditor General, Office of the Auditor General of Canada
Thank you, Mr. Chair.
The important distinction is the accounting framework that supports that reporting entity. In the case of crown corporations, a lot of them are government business enterprises, so in the first instance they are not reliant on appropriation from Parliament. They have a business stream. They have revenues to sustain themselves. Under those circumstances, the accounting standards they should follow should be just like those of any other private sector firm. Therefore, they would follow the IFRS, the more normal, commercial kind of financial reporting framework.
To bring those accounts into the Government of Canada would depend on the nature of those entities. Because some of those entities rely on the government, we tend to consolidate them line by line, in which case, if we're going to take some of their accounts receivable and group them with our accounts receivable, they had better be on the same accounting basis; otherwise we would be adding apples to oranges. All of those have to be converted back to the public sector standard before we add the numbers together.
For those that are the GBEs, government business enterprises, because the underlying framework is IFRS, the standards allow for us to pick up just the portion of the gain or loss in that year right into the accounts of the Government of Canada, and the rest of it really just shows up in the investments/loans line. Some of them also have unrealized gains and losses because of financial instruments, which are standards that have not yet been recognized in the public sector standards, so they show up in these odd numbers, like “other comprehensive income”, which is the term that's used there.
The transitional adjustment that you see is a one-time thing because they changed accounting frameworks from the private sector generally accepted accounting principles to IFRS, and on transition there were a lot of adjustments they had to absorb. Big ones tend to involve employee benefits, and they amount to a huge sum. What do you do with that amount? That amount doesn't flow through the budgetary measures that Mr. Nevison talked about. It shows up in the line at the bottom, which is that $3.3 billion I'm referring to.
There are reasons for using different accounting frameworks in different parts of the Government of Canada, but when we bring those to the public accounts, there are ways and means of making sure we are adding apples to apples.
Conservative
Assistant Auditor General, Office of the Auditor General of Canada
That's what we had to spend the time and effort to audit, and we are satisfied that those transition adjustments, as well as the line-by-line consolidation work, are properly conducted.
Conservative
Bryan Hayes Conservative Sault Ste. Marie, ON
Is there ever any attempt to work backwards and change the Canadian public sector accounting standards to the standards of IFRS?
It seems that's becoming a worldwide thing. I know at Ontario Lottery we went through the transition. We were using GAAP at the time and we went to IFRS. It was hugely cumbersome, but we were doing it because that seemed to be becoming the norm.
Can you speak to that at all?
Assistant Auditor General, Office of the Auditor General of Canada
I would make a few comments, but I'm sure Mr. Ralston would like to jump in because he is a member of the public sector accounting board. Auditor General Michael Ferguson is also a member.
Essentially, a lot of these standard-setting bodies try not to reinvent the wheel. They look at one another's conceptual framework, and where it needs to differ is when they define the differences; they articulate them in individual standards that we need to follow.
In the case of PSAB, basically we could look at the IFRS framework. We could also look at the international public sector framework. From there we decide whether there is a Canadian difference in what the public sector needs to do and then we articulate our own standards accordingly.
Conservative