2014-01 Revenue Responses

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Response Questionnaire To be considered, comments must be received by

February 3, 2014

Revenue Statement of Principles

PSAB welcomes comments on all aspects of the Statement of Principles.

This form is not intended to constrain your response. Each text box will accommodate your full comments. You are able to save and forward this form to others in your organization for review prior to submission.

Name: Armand Capisciolto

Organization: BDO Canada LLP

E-mail: [email protected]

General comments:

We support the Board in its desire to develop a standard to deal with revenue recognition on exchange and unilateral transactions. As the number of entities utilizing Public sector Accounting Standards has grown substantially, it is critical that the Board address the needs of these entities and the users of their financial statements as these needs could be significantly different than those of governments.

1. Are there other implications of the proposals that should be considered? If so, please provide a detailed explanation.

There are no other implications that were not addressed in our responses below.

2. Do you agree the identification of performance obligations is useful in distinguishing revenues associated with an exchange of goods or services from revenues such as fines, penalties and taxes that are unilateral by nature? If not, propose an alternative approach. If you believe specific revenues (within the scope of these proposals) would be difficult to classify, or they combine characteristics of exchange and unilateral revenues, identify them and provide background information.

Yes, we agree that the identification of performance obligations is useful in distinguishing revenues associated with an exchange of goods or services from revenue such as fines, penalties and taxes that are unilateral by nature. However, we do believe there are specific revenue streams that would be difficult to classify, as they combine characteristics of exchange and unilateral revenues. As an example, in our municipal clients we have seen an amount sometimes referred to as a “local improvement tax” charged to residents when the municipality installs a new sewer or water system. In this situation, residents have a choice to either pay a lump sum amount up front for their share of the cost or have an amount charged annually on their property tax assessment. There has been some difficulty in classifying what type of revenue this is. There seem to be three potential options. It could be determined that the municipality is providing a service to the property owner, the fee charged could be considered an exchange transaction under the scope of this statement of principles. However, since the property owner really has no choice as to whether or not to connect to the new sewer system and pay this fee, this could also be considered unilateral revenue. Then the question becomes does this unilateral revenue fall under the scope of this statement of principles or would this fee charged by the municipality actually be considered tax revenue since it is administered through the tax system which would then fall under the requirements of Section 3510.

3. Do you agree public sector entities should recognize revenue even though collectibility is uncertain? If you disagree, explain why users should not receive this information. (See paragraphs .044-.053 and paragraphs .122-.123.)

Yes, we agree that public sector entities should recognize revenue even though collectibility is uncertain. However, we would like to point out that paragraphs .122-.123 of this statement of principles appear to be inconsistent with the initial measurement requirements in PS 3510.24, Tax Revenue, which requires the initial recognition of tax revenue to be at its net realizable value.

4. Do you agree with proposed Principle 1 that public sector entities should identify which goods or services are distinct and, hence, should be accounted for as a separate performance obligation? If not, what principle would you recommend, and why?

Yes, we agree with proposed Principle 1 that public sector entities should identify which goods or services are distinct and therefore should be accounted for as a separate performance obligation.

5. Do you agree with proposed Principle 2 that public sector entities should recognize revenue as performance obligations are satisfied by transfer of control of goods or services? If not, what principle would you recommend, and why?

Yes, we agree with proposed Principle 2 that public sector entities should recognize revenue as performance obligations are satisfied by transfer of control of goods or services. This is consistent with the model for recognizing revenue in the IASB's proposed revenue standard.

6. If a decision is the only performance obligation associated with a licence, do you agree the fee is recognized at a point in time and not over the term of the licence? If you disagree, explain your view in terms of continuing performance obligations of the public sector entity and on what basis revenue recognition is proposed. (See paragraphs .083-.091.)

Yes, we agree that if a decision is the only performance obligation associated with a license that the fee is recognized at a point in time and not over the term of the license.

7. Public sector entities issue other licences granting benefits to other parties. At the end of the licence term, the benefits revert to the Crown. One view is that the performance obligation has been met when the licence is granted as it is the licence holder who determines when and how to use the benefit. No further performance is required of the public sector entity. Alternatively, some assert that a transfer of control over the associated benefit occurs over time, as the public sector entity has an ongoing performance obligation to provide access. Indicate the view you support and explain why. If your view would change if the right granted to the licence holder was not exclusive, explain why.

We agree with the alternate view stated in the question above when the right granted to the license holder is exclusive. The public sector entity has an ongoing performance obligation to maintain the exclusivity of that license that they granted to the license holder. As a result, revenue should be recognized by the public sector entity over the license term. If the right granted to the license holder was not exclusive, then our view would change. In this case, we would support recognizing revenue at the point in time that the license was granted since the public sector entity does not have an ongoing performance obligation to maintain the exclusivity of the license.

8. Do you agree with the proposed approach indicating how the requirements would apply to specific issues as outlined in paragraphs .092-.107? If not, explain why not. Explain any specific issues requiring guidance.

Yes, we agree with the proposed approach of how the requirement would apply to the specific issues outlined in paragraphs .092-.107.

9. Do you agree with the distinction between refund liabilities and unearned revenues? If not, explain why not. (See paragraphs .052 and .108-.109.)

Yes, we agree with the distinction between refund liabilities and unearned revenues.

10. Do you agree with proposed Principle 3 that public sector entities should recognize unilateral revenues when there is authority to claim economic resources from other parties and a past event that gives rise to a claim of economic resources? If not, what principle would you recommend, and why?

Yes, we agree with proposed Principle 3 that public sector entities should recognize unilateral revenues when there is authority to claim economic resources from other parties and a past event that gives rise to a claim of economic resources.

11. A table following paragraph .114 illustrates revenue recognition events associated fines and penalties. Do you agree? If not, why not. Are there other situations requiring guidance?

Yes, we agree with the examples presented in the table following paragraph .114 illustrating revenue recognition events associated with fines and penalties.

12. When consideration is variable, the proposals outline two methods that would be available to public sector entity. Do you agree? If not, comment on guidance needed to measure consideration that is variable in amount. (See paragraphs .131-.138.)

Yes, we agree that when consideration is variable both the expected value method and the most likely amount method should be available to the public sector entity. We believe that the guidance included in the standard should specify that the public sector entity should apply the method that they believe would result in the best estimate based on the facts and circumstances of the specific situation.

13. Do you agree with proposed Principle 4 to link recognition of the portion of the transaction price allocated to the performance obligation satisfied? If so, express a view on methods proposed to allocate the transaction price. (See paragraph .141.) If another approach should apply, comment on sources of revenue requiring such guidance and propose one or more approaches.

Yes, we agree with proposed Principle 4 to link recognition of the portion of the transaction price allocated to the performance obligation satisfied. We agree with the methods proposed in paragraph .141 to allocate the transaction price. Given the Board is already looking to the principles in the IASB's proposed revenue standard for revenue recognition related to performance obligations (see question 5 above) we believe the Board should also look to the proposed IFRS for guidance on recognizing multiple deliverable arrangements.

14. Is the measurement of revenue associated with transactions evidencing multiple performance obligations a significant reporting issue for your organization, as it is for profit-oriented entities?

In our client base reporting under PSAS, predominately municipalities, First Nation’s and government not-for-profit organizations, we have not seen a a significant number of multiple deliverable arrangements. However, we have seen some public sector entities who offer telecommunication services and for those clients this is a significant reporting issue.

15. Do you agree that public sector entities should not be required to identify and recognize onerous performance obligations? If not, comment on the scope and measurement guidance needed.

Yes, we agree that public sector entities should not be required to identify and recognize onerous performance obligations.

16. Do you agree contract costs should be expensed unless they give rise to a tangible capital asset or inventories? If not, why not.

Yes, we agree contract costs should be expensed unless they give rise to a tangible capital asset or inventories.

17. Do you agree with the proposed principle applying to presentation and financial statement disclosure requirements? If not, why not.

Yes, we agree with the proposed principle applying to presentation and financial statement disclosure requirements.

18. Are there additional matters that need to be considered?

We have not identified additional matters that need to be considered.


Grant Thornton LLP 12th Floor 50 Bay Street Toronto, Ontario M5J 2Z8

Phone: 1-416-366-4240 Fax: 1-416-360-4944 www.GrantThornton.ca Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8

Phone: 1-514-878-2691 Fax: 1-514-878-2127 www.rcgt.com

Audit • Tax • Advisory Members of Grant Thornton International Ltd

February 3, 2014

Mr. Tim Beauchamp, CA Director, Public Sector Accounting Chartered Professional Accountants of Canada 277 Wellington Street West Toronto, Ontario M5V 3H2 via: [email protected]

Dear Sir:

Subject: Statement of Principles – Revenue (August 2013) Grant Thornton LLP and Raymond Chabot Grant Thornton LLP (hereinafter “we”) would like to thank you for the opportunity to provide comments on the Public Sector Accounting Board’s (hereinafter the “Board”) Statement of Principles, “Revenue” (hereinafter the “SOP”).

We strongly support the development of a revenue standard as the move of many different types of government organizations over to Public Sector Accounting Standards has demonstrated a need for more guidance in this area, because these organizations have varying sources of revenue other than government transfers and tax revenue. We have the following responses to your questions and provide additional comments below:

1. Are there other implications of the proposals that should be considered? If so, please provide a detailed explanation. Yes. If the Board includes requirements to encompass the time value of money (i.e. discounting), when it is material, when measuring revenue (and ultimately any related accounts receivable), then we suggest the Board revisit the requirements related to initial measurement in Section PS 3450, “Financial Instruments”. Currently, this section is silent on the issue and does not require discounting using “market rates” for the initial measurement of a financial instrument. If the Board wants to oblige entities to take into account the time value of money for revenue transactions, then Section PS 3450 should be revised to eliminate any inconsistency that would result from an account receivable having to be discounted (if a material effect) while it would not be required for another financial instrument, like an account payable.

2. Do you agree the identification of performance obligations is useful in distinguishing revenues associated with an exchange of goods or services

mailto:[email protected]

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from revenues such as fines, penalties and taxes that are unilateral by nature? If not, propose an alternative approach. If you believe specific revenues (within the scope of these proposals) would be difficult to classify, or they combine characteristics of exchange and unilateral revenues, identify them and provide background information. We believe the identification of performance obligations is helpful when trying to make a distinction between revenues associated with exchange transactions and non-exchange transactions; however, we believe it may be difficult to determine whether there is a performance obligation in a number of cases, especially when the revenues are derived from activities within the mandate of the government or government organizations. You will find various scenarios below where we suggest classification may be difficult or inconsistent without additional guidance:

a) Within the SOP, logging and mineral rights are classified as unilateral revenue, but we believe this classification is not as clear as suggested. If an entity is paying for the right to log on or extract minerals from Crown land for a period of time, isn’t the obligation to provide access to that land a performance obligation that could make it an exchange transaction? How does it differ from a license to use an intangible asset that is listed in the SOP as an exchange transaction?

b) We believe the example in paragraph .065 requires further clarification to explain why there is no performance obligation related to administrative activities associated with enrolling a student. While we agree that, on their own, administrative services may not result in the provision of a service in many cases (e.g., administration fees paid by a university student to enroll), we suggest that there may be cases when a performance obligation may exist for that activity (e.g. fee paid to enroll a child in public school). In the first case, the administrative fees, from the perspective of the payor, are essentially part of the cost of paying to access an education and would not have a separate performance obligation from the tuition fees themselves, but in the second case, we suggest it could be argued that the payor is paying for the service of registering the child in school which has a value to them.

c) During the CPA Canada Revenue SOP Web Seminar, an example was provided relating to a pass to access a historical site which led to the conclusion that all the revenue would be recognized upon issuance because there was no performance obligation, disregarding the fact that a pass could be purchased for a day, a year or a three-year period. We disagree with this position which suggests that the current proposals in the SOP related to performance obligations may not be consistently applied. Our view is that in this scenario, the entity would be required to provide continued access to the site over the period the pass covers. In addition, the government organization would have to repair and maintain the site in order to provide that access, even if such activities are part of its mandate. If there was a strike by the workers or an event that caused a closure, the entity would most likely have to provide refunds (or any other compensation). Thus we conclude that there would be a performance obligation which would only be met at time passed.

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We also suggest that the concept of tax revenue should not be mentioned in the standard as it would be scoped out of this project. For example, in paragraphs .003 and .019 of the SOP, the right to collect taxes is provided as an example of unilateral revenue.

As a result, we would like to suggest that the Board provide more guidance to delineate the differences between the two types of revenues, because we did not arrive at the same conclusions in some of the examples provided and we believe there will be inconsistencies in practice in applying the concept.

3. Do you agree public sector entities should recognize revenue even though collectibility is uncertain? If you disagree, explain why users should not receive this information. (See paragraphs .044-.053 and paragraphs .122-.123.) No, we do not agree with this principle. First, we believe that this proposal is not consistent with Section PS 3510, “Tax Revenue”, which requires the initial recognition of tax revenues at their realizable amount (i.e. the amount that is expected to be received). The proposal in the SOP also contradicts provisions from Section PS 3050, “Loans Receivable”, which cease the recognition of interest revenue when it is not going to be collectible. Even though the entity may have a legal right to the interest, it can no longer accrue the receivable and revenue and, in turn, the related allowance for non-collectability. As a result, we believe that a public sector entity should initially record the revenue at its net realizable amount, because it essentially represents the transaction price.

4. Do you agree with proposed Principle 1 that public sector entities should identify which goods or services are distinct and, hence, should be accounted for as a separate performance obligation? If not, what principle would you recommend, and why? Yes, we agree with the proposed principle, but we would suggest that the guidance in paragraph .071(a), which states that a good or service is distinct if “the public sector entity regularly offers the good or service separately”, should be revised to say “the public sector entity or any other entity”, because it is also very strong evidence that a good or service is distinct.

5. Do you agree with proposed Principle 2 that public sector entities should recognize revenue as performance obligations are satisfied by transfer of control of goods or services? If not, what principle would you recommend, and why? Yes, we agree with the proposed principle, but we believe that, at times, public sector entities will have difficulties in determining whether there is a performance obligation when revenue is derived from activities within their mandate, as discussed in our answer to question 2. In addition, we recommend the Board provide further guidance with respect to the indicators associated with the timing of revenue recognition to convey whether all or the majority of indicators must be present to recognize revenue.

6. If a decision is the only performance obligation associated with a licence, do you agree the fee is recognized at a point in time and not over the

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term of the licence? If you disagree, explain your view in terms of continuing performance obligations of the public sector entity and on what basis revenue recognition is proposed. (See paragraphs .083-.091.) We believe the answer to this question depends on the facts and circumstances related to the transaction. While we agree with the premise that when a decision is the only performance obligation associated with the issuance of a license, it could be appropriate to account for the revenue once the decision is made and the license issued, we also suggest that in many scenarios, a license provides a user with a right of access to or use of an asset over a period of time, which may lead to a conclusion that there is an ongoing performance obligation over the period of the license.

7. Public sector entities issue other licences granting benefits to other parties. At the end of the licence term, the benefits revert to the Crown. One view is that the performance obligation has been met when the licence is granted as it is the licence holder who determines when and how to use the benefit. No further performance is required of the public sector entity. Alternatively, some assert that a transfer of control over the associated benefit occurs over time, as the public sector entity has an ongoing performance obligation to provide access. Indicate the view you support and explain why. If your view would change if the right granted to the licence holder was not exclusive, explain why. We believe that the second view would be the appropriate, in many cases, as there is an ongoing performance obligation to continue to provide access or allow usage; therefore, there is an obligation to maintain the related asset in good condition for the benefit of its users. However, we believe there could be instances where the first view might be appropriate, such as the issuance of a license to use a computer program, if the public sector entity has no responsibility for service or usage such as upgrades and maintenance (for example, a license to high school students to access a program that provides information about colleges); once the program is downloaded and the “customer” has the key, then all performance obligations may be met.

We do not see any reason why exclusivity to any such right would be a relevant factor in determining when the revenue would be recognized.

8. Do you agree with the proposed approach indicating how the requirements would apply to specific issues as outlined in paragraphs .092-.107? If not, explain why not. Explain any specific issues requiring guidance. Yes, we agree with the proposed approach.

9. Do you agree with the distinction between refund liabilities and unearned revenues? If not, explain why not. (See paragraphs .052 and .108-.109.) Yes, we agree with the distinction between refund liabilities and unearned revenues, because it is important for users to understand the difference between these financial and non-financial liabilities.

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10. Do you agree with proposed Principle 3 that public sector entities should recognize unilateral revenues when there is authority to claim economic resources from other parties and a past event that gives rise to a claim of economic resources? If not, what principle would you recommend, and why? Yes, we generally agree, but we suggest that the Board clearly explain item (b) and provide examples to convey the concept to ensure consistent application.

11. A table following paragraph .114 illustrates revenue recognition events associated fines and penalties. Do you agree? If not, why not. Are there other situations requiring guidance? Yes, we believe examples are very helpful.

12. When consideration is variable, the proposals outline two methods that would be available to public sector entity. Do you agree? If not, comment on guidance needed to measure consideration that is variable in amount. (See paragraphs .131-.138.) Yes, we agree. We suggest that the upcoming Exposure Draft clearly relay the concept that revenue recognition should be delayed until payment is received if it is not possible to reasonably estimate the amount involved (i.e., paragraph .133 in the SOP).

13. Do you agree with proposed Principle 4 to link recognition of the portion of the transaction price allocated to the performance obligation satisfied? If so, express a view on methods proposed to allocate the transaction price. (See paragraph .141.) If another approach should apply, comment on sources of revenue requiring such guidance and propose one or more approaches. Yes, we agree with the proposed principle to link recognition of the portion of the transaction price allocated to the performance obligation satisfied. Many public sector entities (especially those that previously followed Part V of the CPA Canada Handbook - Accounting) have and still look to the former EIC Abstracts in Part V for guidance on how to account for arrangements with multiple deliverables as this is a complex area of accounting; this is specifically because they want and need more guidance on accounting for such arrangements. As a result, we believe that the Board should provide enough detailed guidance on how to allocate consideration in these scenarios (though not at a level of the former EIC Abstracts) to ensure that similar transactions are accounted for consistently by different entities to meet the verifiability and comparability qualitative characteristics of financial statements.

We agree with the Board providing some alternatives as to the how to allocate the consideration with the following specific comments:

• Paragraph .141 – the Board should make it clear that some of the alternatives may not be relevant in some scenarios; for example, item (b) may not be relevant if the revenue is derived from a good or service that is provided by the public sector entity in accordance with its mandate which may not have a “for-profit” objective;

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• Paragraph .141(c) – given that methods (a) and (b) rely on market values or profit margins which may not be easy to determine or relevant to a public sector entity, many entities may look to this method. We suggest that the Board consider the following:

o This method of allocation should be considered only if the methods described in (a) and (b) cannot reasonably be used,

o The residual method should not allow entities to recognize revenue by allocating consideration to those items for which the performance obligations have been met with the residual allocated to the undelivered item (or item for which performance has not yet been achieved). The reason is the allocation of the residual to the undelivered item would allow for potential manipulation by recognizing more revenue earlier than may have been recognized under the other methods with a less reliable and perhaps lower figure allocated to the undelivered portion.

14. Is the measurement of revenue associated with transactions evidencing multiple performance obligations a significant reporting issue for your organization, as it is for profit-oriented entities? While it may not be as significant an issue as it is for for-profit entities, we believe this issue is a much larger issue for our client base of government organizations than it is for governments. As a result, we support providing an overall framework for allocating consideration when there are multiple performance obligation arrangements because this is a complex area of accounting and these entities need complete guidance to ensure consistency and verifiability, given that some of them still follow the recommendations of the former EIC Abstracts.

15. Do you agree that public sector entities should not be required to identify and recognize onerous performance obligations? If not, comment on the scope and measurement guidance needed. Yes, we agree.

16. Do you agree contract costs should be expensed unless they give rise to a tangible capital asset or inventories? If not, why not. Yes, we agree. In addition, given the number of public sector entities that have now transitioned to Public Sector Accounting Standards, we suggest that the Board consider a project to develop an inventory standard to ensure that the amounts entities record as an inventory asset are appropriate and consistent. In addition, the term “contract costs” should be defined, as it may be difficult for some to delineate between inventory and contract costs.

17. Do you agree with the proposed principle applying to presentation and financial statement disclosure requirements? If not, why not. No, we disagree with the following items within the proposal:

• Principle 5(b) relates to measurement uncertainty. We believe that any proposed revenue standard should just refer to Section PS 2130, “Measurement Uncertainty”, and its related requirements;

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• Principle 5(c) is a concept that affects many estimates throughout Public Sector Accounting Standards, including retirement and post-employment benefits, solid waste landfill closure and post-closure costs, and the remediation of contaminated sites. This principle incorporates IFRS concepts that would not only apply to revenues but also to numerous sections of the Handbook. If the Board wants to include disclosures related to significant judgements, we strongly believe it should be included in the Handbook as part of a separate project that encompasses all the standards where significant judgments are required.

We are also concerned with respect to the concepts from paragraph .167 related to offsetting, as we find these proposals confusing. If the intent is to allow work-in-progress or deferred revenue related to long-term contracts, we agree with offsetting, but the concept as written is not clear. We propose that the Board provide very clear guidance to ensure that entities do not incorrectly offset accounts receivable and deferred revenue balances.

18. Are there additional matters that need to be considered? The factors to be considered when evaluating the effect of the time value of money in paragraphs .126(a) and (c) are concepts that are much easier to apply in the private sector than in the public sector. Public sector entities enter into many transactions that the market doesn’t generally enter into; therefore, it may be difficult to assess and find information about consideration in comparable transactions in the private sector or to determine a market interest rate. We propose it may be just as difficult to find comparable data to assess transactions within the public sector. While the effect of the time value of money is a sound concept, in practice it may be very difficult to apply in the public sector and suggest that the effects may be material for quite a few government organizations. Also see our answer to question #1.

If you wish to discuss our comments or concerns, please contact Melanie Joseph, CPA, CA ([email protected] or 416-607-2736) or Stéphane Landry, CPA, CA ([email protected] or 418-647-5008).

Yours sincerely,

Grant Thornton LLP Raymond Chabot Grant Thornton LLP Melanie Joseph, CPA, CA Stéphane Landry, CPA, CA



Montréal, le 3 février 2014 Tim Beauchamp, directeur Comptabilité du secteur public 277, rue Wellington Ouest Toronto (Ontario) M5V 3H2 Monsieur, Vous trouverez ci-joint les commentaires du Groupe de travail technique Secteur public — Comptabilité dans le secteur public de l’Ordre des comptables professionnels agréés du Québec concernant l’énoncé de principes « Revenus ». Nous vous serions reconnaissants de nous faire parvenir une copie de la traduction anglaise de nos commentaires. Veuillez prendre note que ni l’Ordre des comptables professionnels agréés du Québec, ni quelque personne que ce soit ayant participé à la préparation des commentaires ne peuvent être tenus responsables relativement à leur utilisation et ils ne sont tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires, comme décrit dans le déni de responsabilité joint à la présente. Veuillez agréer, Monsieur Beauchamp, l’expression de mes sentiments distingués. Représentante du Groupe de travail technique Secteur public — Comptabilité dans le secteur public, Annie Smargiassi CPA, CA p. j. Déni de responsabilité et commentaires

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DÉNI DE RESPONSABILITÉ

Les documents préparés par le Groupe de travail technique Secteur public — Comptabilité dans

le secteur public de l’Ordre des comptables professionnels agréés du Québec (Ordre) ci-après

appelés les « commentaires », sont fournis selon les conditions décrites dans la présente, pour

faire connaître leur opinion sur des énoncés de principes, des documents de consultation, des

exposés-sondages préliminaires ainsi que des exposés-sondages publiés par le Conseil des

normes comptables, le Conseil des normes d’audit et de certification, le Conseil sur la

comptabilité dans le secteur public, le Conseil sur la gestion des risques et la gouvernance et

d’autres organismes.

Les commentaires fournis par ce comité ne doivent pas être utilisés comme substitut à des

missions confiées à des professionnels spécialisés. Il est important de noter que les lois, les

normes et les règles sur lesquelles sont émis les commentaires peuvent changer en tout temps

et que, dans certains cas, les commentaires écrits peuvent être sujets à controverse.

Ni l’Ordre, ni quelque personne que ce soit ayant participé à la préparation des commentaires ne

peuvent être tenus responsables relativement à l’utilisation de ces commentaires et ils ne sont

tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires. Les

commentaires donnés ne lient pas, par ailleurs, les membres du Groupe de travail technique

Secteur public — Comptabilité dans le secteur public, l’Ordre ou, de façon plus particulière, le

Bureau du syndic de l’Ordre.

La personne qui se réfère ou utilise ces commentaires assume l’entière responsabilité de sa

démarche ainsi que tous les risques liés à l’utilisation de ceux-ci. Elle consent à exonérer l’Ordre

à l’égard de toute demande en dommages-intérêts qui pourrait être intentée par suite de toute

décision qu’elle aurait pu prendre en fonction de ces commentaires. Elle reconnaît également

avoir accepté de ne pas faire état de ces commentaires reçus via le Groupe de travail dans les

avis exprimés ou les positions prises.

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COMMENTAIRES DU GROUPE DE TRAVAIL TECHNIQUE SECTEUR PUBLIC — COMPTABILITÉ DANS LE SECTEUR PUBLIC DE L’ORDRE DES COMPTABLES PROFESSIONNELS AGRÉÉS DU QUÉBEC RELATIFS À L’ÉNONCÉ DE PRINCIPES « REVENUS »

MANDAT DU GROUPE DE TRAVAIL

Le Groupe de travail technique Secteur public — Comptabilité dans le secteur public de l'Ordre des

comptables professionnels agréés du Québec a comme mandat notamment de recueillir et de

canaliser le point de vue des praticiens exerçant en cabinet et de membres œuvrant dans les affaires,

dans les services gouvernementaux, dans l'industrie et dans l'enseignement ainsi que le point de vue

d’autres personnes concernées œuvrant dans des domaines d’expertise connexes.

Pour chaque exposé-sondage ou autre document étudié, les membres du Groupe de travail

technique mettent leurs analyses en commun. Les commentaires ci-dessous reflètent les points de

vue exprimés et, sauf indication contraire, ces commentaires ont fait l'objet d'un consensus parmi les

membres du Groupe de travail ayant participé à cette analyse.

Les commentaires formulés par le Groupe de travail ne font l'objet d'aucune sanction de l'Ordre. Ils

n'engagent pas la responsabilité de celui-ci.

COMMENTAIRES GÉNÉRAUX

La majorité des membres est d’avis qu’il est important que des directives soient incluses dans le

Manuel de comptabilité de CPA Canada pour le secteur public concernant les « revenus ».

Par contre, selon la majorité d’entre eux, cet énoncé de principe ne répond pas aux principales

problématiques touchant la comptabilisation des produits dans le secteur public. Selon eux, il n’y a

pas urgence de publier une telle norme, car ils peuvent se baser sur d’autres sources de PCGR le

cas échéant.

Des membres sont d’avis que les opérations traitées dans l’énoncé de principes sont peu fréquentes

et craignent qu’on se retrouve avec des normes trop complexes non applicables aux opérations

d’entités qui appliquent les normes du secteur public.

Ils ont de plus, indiqués à la question 1, les éclaircissements qu’ils jugent nécessaires.

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Questions du CCSP 1. Les propositions ont-elles d’autres incidences qui devraient être prises en considération?

Dans l’affirmative, veuillez fournir une explication détaillée.

Les membres ont cité ci-dessous des exemples pour lesquels des directives supplémentaires sont

nécessaires.

Selon eux, des éclaircissements devraient être ajoutés pour aider à déterminer si les revenus

correspondent à des droits unilatéraux ou à des revenus de services. En effet, ils indiquent que les

entités du secteur public ont la plupart du temps une obligation de rendre des services, et que

souvent, peu importe l’obligation de prestation directe à un payeur, il peut exister une obligation de

prestation indirecte entraînant des coûts pour l’organisme public.

Selon eux, on devrait mieux définir ce qu’on entend par « obligation de prestation » afin de limiter les

interprétations possibles. Toujours selon eux, les propositions laissent beaucoup de place à

l’interprétation et au jugement. D’autres membres se sont demandés si et comment, la mission de

l’organisation pouvait influer sur la définition.

Par exemple, une obligation de surveillance, liée à un droit quelconque auquel sont associées des

règles à respecter (de circuler en voiture par exemple), amène-t-elle une obligation de prestation de

services qui pourrait inciter à reporter des revenus sur la durée des services reçus sur la durée des

droits? Une obligation de rembourser des droits d’accès au prorata de la période utilisée ou écoulée

constitue-t-elle un indice qu’il y a une obligation de prestation de services ?

En lien avec le paragraphe .066 de l’énoncé de principes, les membres ont également noté que la

définition de passif n’est pas claire et n’est pas appliquée de façon uniforme dans la pratique

actuellement. Cette situation fait craindre des interprétations différentes laissant beaucoup de place

au jugement, comme c’est le cas avec la norme SP 3410 Paiements de transfert. Certains ont indiqué

que l’IASB n’a pas finalisé son projet sur les produits et qu’on devrait attendre ses conclusions avant

de finaliser le projet du CCSP.

Les membres ont noté que les normes s’éloignent de plus en plus du principe de rapprochement des

charges aux produits même si ce concept est encore d’actualité pour les entités du secteur public;

d’ailleurs, les normes concernant les revenus et les actifs affectés soulignent encore l’importance de

ce principe. Selon eux, la volatilité des résultats relevée dans les états financiers et apportée par les

5

normes proposées ainsi que les normes mises en vigueur au cours des derniers exercices n’est ni

souhaitable ni bienvenue.

Des membres ont indiqué que les principes ne sont pas très clairs lorsqu’on doit les appliquer à des

droits qui sont exigés en l’absence de contrat.

2. Estimez-vous que l’identification des obligations de prestation est utile pour distinguer les revenus associés à la fourniture de biens ou de services des revenus qui sont unilatéraux en raison de leur nature, tels que les amendes, les pénalités et les impôts? Dans la négative, veuillez proposer une autre approche. Si vous estimez que certains revenus (entrant dans le champ d’application des présentes propositions) seraient difficiles à classer ou qu’ils présentent des caractéristiques communes aux revenus unilatéraux et aux revenus d’opérations avec contrepartie, veuillez identifier ces revenus et fournir des commentaires explicatifs.

Oui, les membres sont d’avis que l’identification des obligations de prestation est utile et nécessaire.

Des membres se sont demandé pourquoi les propositions et les questions faisaient référence aux

impôts, qui font l’objet du chapitre SP 3510 Recettes fiscales. À leur avis, on devrait totalement les

exclure étant donné les normes détaillées existantes à leur égard.

Des membres se sont demandé si, lorsque les services sont en lien avec la mission de l’entité du

secteur public, il existait une obligation de prestation ou non envers le payeur. Selon eux, les

propositions n’apportent pas de précision concernant cette problématique.

En lien avec le paragraphe .066, certains membres se sont demandé si on pouvait avoir une

obligation de prestation sans répondre à la définition d’un passif. Comme les indications ne sont pas

claires à cet égard, des précisions sont demandées.

3. Êtes-vous d’accord pour que l’entité du secteur public constate les revenus même lorsque leur recouvrabilité est incertaine? Dans la négative, veuillez expliquer pourquoi les utilisateurs ne devraient pas obtenir cette information. (Voir les paragraphes .044 à .053, .122 et .123.)

La majorité des membres sont d’accord avec le principe.

6

Toutefois, certains membres ont un malaise avec cet énoncé basé sur un des critères de constatation

des produits actuels et à venir. Selon eux, il y a un risque que l’IASB modifie les IFRS relatifs à la

comptabilisation des produits. Ils indiquent de plus que les critères de comptabilisation du compte à

recevoir ne sont pas atteints lorsque la recouvrabilité est incertaine. Par contre, dans la pratique des

entités du secteur public, les façons de faire font en sorte que la recouvrabilité est généralement

analysée dans un 2e temps, soit après la comptabilisation du revenu.

Pour certains membres, la question est biaisée, car on pourrait donner l’information dans les états

financiers, d’une autre façon que de comptabiliser les éléments en cause.

Certains membres se sont questionnés sur la cohérence des recommandations avec celles du

chapitre SP 3510. Ils indiquent que les recommandations proposées dans l’énoncé de principes sont

plus claires que celles prévues au SP 3510, notamment lorsqu’il est proposé au paragraphe .048

qu’« Elle ne présente pas les revenus qui sont intrinsèquement irrécouvrables au moment où devrait

avoir lieu la constatation initiale ». Le SP 3510 pourrait être clarifié à cet effet. 4. Êtes-vous d’accord avec le Principe 1 proposé, selon lequel l’entité du secteur public doit déterminer les biens ou les services qui sont distincts et qui, de ce fait, doivent être comptabilisés comme des obligations de prestation distinctes? Dans la négative, quel principe recommanderiez-vous? Pourquoi? Les membres sont d’accord avec le principe, par contre ils sont d’avis qu’on devrait mieux le définir.

Par exemple, au paragraphe .071, les critères devraient inclure le fait qu’un tiers pourrait offrir la

prestation. Les membres font ici référence entre autres aux accords publics/privés.

Ils indiquent également que certains droits qui pourraient être considérés comme unilatéraux, mais

qui sont en liens avec une obligation de prestation de services continus sont exigés et répartis sur

une certaine période et remboursables au prorata. Le tableau précédent le paragraphe .044 ne

présente pas de situations pour lesquelles des revenus de ce genre sont gagnés et répartis sur la

période visée.

5. Êtes-vous d’accord avec le Principe 2 proposé, selon lequel l’entité du secteur public doit constater les revenus lorsque ou à mesure que les obligations de prestation sont remplies par le transfert du contrôle des biens ou des services? Dans la négative, quel principe recommanderiez-vous? Pourquoi?

7

Une majorité des membres est d’accord avec le principe proposé.

Par contre, selon eux, le principe sera difficile à appliquer dans la pratique. Par exemple lorsque la

prestation de service fait partie de la mission d’un gouvernement, que le payeur n’a pas

nécessairement le contrôle des services à obtenir et que les montants sont remboursables selon

certaines conditions. Selon eux, la notion de « transfert de contrôle » devrait être clarifiée dans le cas

des services, car plusieurs situations ne sont pas évidentes.

Les membres ont indiqué également comme situation nébuleuse, les cas où le service est rendu, peu

importe le prix tarifié pour le service, le service faisant partie de la mission d’une entité.

Des membres se sont demandé si le fait de mettre des services à la disposition du bénéficiaire ou du

payeur pouvait avoir un impact sur la façon de comptabiliser.

6. Si le fait de rendre une décision est la seule obligation de prestation associée à un permis, êtes-vous d’accord pour que les droits exigés soient constatés à un moment précis et non pas progressivement sur la durée du permis? Dans la négative, veuillez expliquer votre point de vue quant à l’obligation de prestation continue qui incombe à l’entité du secteur public ainsi que la base sur laquelle les revenus devraient être constatés. (Voir les paragraphes .083 à .091.)

Les membres semblent généralement d’accord avec les propositions, par contre, la réalité des

opérations est différente selon eux. Ils ne voient pas beaucoup de situations en pratique pour

lesquelles aucune obligation de prestation continue n’incomberait à l’entité du secteur public.

Ils ont donné l’exemple du permis de conduire qui donne le droit de conduire un véhicule. La

prestation de services n’est pas directe au bénéficiaire, mais à l’ensemble de la population

également, par exemple la surveillance des conducteurs et l’entretien des routes. Les permis de

pêche peuvent également être associés à des services indirects de surveillance et de protection de la

faune. Pour eux, les permis sont des droits d’utilisations associés à des services, ils ne voient pas

beaucoup de situations applicables en pratique auxquelles associer les propositions.

7. Les entités du secteur public délivrent divers permis qui accordent des avantages à d’autres parties. À l’expiration du permis, ces avantages retournent à la Couronne. Selon certains, l’obligation de prestation est remplie lorsque le permis est délivré, puisque c’est dès lors le détenteur du permis qui détermine quand et comment il en utilise les avantages. Aucune autre prestation n’est requise de l’entité du secteur public. D’autres estiment au contraire que le

8

transfert du contrôle s’effectue progressivement, car l’entité du secteur public a une obligation de prestation continue de fournir l’accès aux avantages. Lequel de ces deux points de vue partagez-vous? Pourquoi? Votre point de vue serait-il différent si les avantages accordés aux détenteurs n’étaient pas exclusifs? Dans l’affirmative, veuillez expliquer pourquoi.

Les membres ne s’entendent pas sur la question car les obligations de prestations ne sont pas

clairement définies dans les propositions.

Certains membres sont d’avis que les 2 situations se produisent. Par exemple, pour un permis de

pêche il n’y a pas d’obligation de prestations particulière envers le détenteur du permis, alors qu’une

obligation de prestation peut découler de certains autres permis. Ils ont cité l’exemple du permis de

conduire; pour certains, l’entité du secteur public est responsable de la surveillance des exigences

réglementaires entourant la délivrance et la conservation du permis, qui pourrait constituer une

obligation de prestation.

Les membres croient que des critères doivent être proposés comme la période de surveillance, la

période d’utilisation, l’obligation de remboursement, l’obligation d’entretien ou autres. Selon plusieurs

membres la délivrance de permis sans obligation de prestation n’existe pas vraiment en pratique dans

le secteur public ou est négligeable.

Les membres ne croient pas que l’exclusivité des avantages accordés aux détenteurs de permis

modifie leur point de vue.

8. Êtes-vous d’accord avec l’approche proposée concernant l’application des dispositions aux questions particulières énoncées aux paragraphes .092 à .107? Dans la négative, veuillez expliquer pourquoi. Veuillez également expliquer toutes questions particulières pour lesquelles il faudrait fournir des indications. Oui, les membres sont d’accord avec l’approche proposée du point de vue théorique.

Par contre, ils n’ont pas identifié d’exemples concrets sur lesquels l’appliquer en pratique.

9

9. Êtes-vous d’accord avec la distinction établie entre les obligations de remboursement et les revenus constatés d’avance? Dans la négative, pourquoi? (Voir les paragraphes .052, .108 et .109.) Oui, les membres sont d’accord avec la distinction établie entre les obligations de remboursement et

les revenus constatés d’avance.

Ils précisent que ce principe est en lien avec les commentaires qu’ils ont émis en réponse à l’énoncé

de principes sur les fondements conceptuels des normes du secteur public.

10. Êtes-vous d’accord avec le Principe 3 proposé, selon lequel l’entité du secteur public doit constater les revenus unilatéraux lorsqu’elle a le pouvoir de revendiquer les ressources d’autres parties et qu’un événement passé donne naissance à une créance sur ces ressources économiques? Dans la négative, quel principe recommanderiez-vous? Pourquoi? Oui, les membres sont d’accord avec le principe proposé selon lequel l’entité du secteur public doit

constater les revenus unilatéraux lorsqu’elle a le pouvoir de revendiquer les ressources d’autres

parties et qu’un événement passé donne naissance à une créance sur ces ressources économiques.

11. Le tableau qui suit le paragraphe .114 donne des exemples d’événements liés à des amendes et des pénalités qui permettent la constatation des revenus. Êtes-vous d’accord avec ces indications? Dans la négative, pourquoi? Y a-t-il d’autres situations pour lesquelles il faudrait fournir des indications? Non, les membres ne sont pas d’accord avec les indications du tableau qui suit le paragraphe .114.

Selon eux, le premier événement à survenir dans le cas d’amendes découlant de la violation d’une loi

ou d’un règlement peut être le délit ou la délivrance de l’amende ou du constat d’infraction. Ils ont

noté que certaines amendes sont exécutoires au moment de l’émission du constat d’infraction et les

possibilités de contestations sont provisionnées aux livres.

Les membres ont noté que les amendes sont de deux types, soit celles qui sont exécutoires au

moment de l’émission d’un constat d’infraction et les autres pour lesquelles un tribunal doit se

prononcer. Dans le deuxième cas, l’événement de contestation (lorsqu’un juge se prononce) devient

l’événement exécutoire et donc le premier événement concluant à survenir du point de vue de la

comptabilisation, mais pas nécessairement dans la première situation où la délivrance du constat

d’infraction est l’élément déclencheur.

10

Les membres sont généralement d’avis que l’émission de l’amende ou d’un constat d’infraction

devrait être ajoutée au tableau comme événement permettant la comptabilisation du revenu.

Des membres sont d’avis que les indications proposées entrent en contradictions avec le chapitre SP

3510.

12. Les propositions présentent deux méthodes d’estimation pour les cas où la contrepartie est d’un montant variable. Êtes-vous d’accord avec ces méthodes? Dans la négative, veuillez donner votre avis sur les indications nécessaires pour mesurer les contreparties dont le montant est variable. (Voir les paragraphes .131 à .138.)

Certains membres ont donné des exemples pour lesquels des indications supplémentaires seraient

nécessaires. Par exemple, comment traiter une situation où l’estimation des montants selon les

probabilités est possible mais non raisonnable, car l’incertitude associée à la probabilité de réalisation

est trop faible?

Certains membres ont indiqué que les indications du paragraphe.133 ne sont pas claires concernant

l’applicabilité de la méthode de comptabilité au fur et à mesure des encaissements ou d’autres

méthodes dans les situations d’incertitudes indiquées. Ils ont indiqué que l’ancien chapitre SP 3410

contenait des nuances à cet égard. Ils ont demandé des précisions ou des balises pour appliquer la

notion de « prudence ».

Des membres se sont questionnés également sur les situations où les informations ne sont pas

disponibles pour effectuer les estimations raisonnables ou lorsque ce sont les bénéficiaires des

prestations qui fournissent les estimations, par exemple les loyers basés sur le revenu des locataires.

Ils se sont questionnés sur la raisonnabilité des estimés qu’ils peuvent faire dans de telles

circonstances et des balises pour la déterminer.

13. Êtes-vous d’accord avec le Principe 4 proposé, selon lequel la constatation à titre de revenus de la partie du prix de transaction affectée à une obligation de prestation est liée à la satisfaction de cette obligation de prestation? Dans l’affirmative, veuillez donner votre point de vue sur les méthodes proposées pour répartir le prix de transaction. (Voir le paragraphe .141.) Si une autre approche devait être adoptée, veuillez expliquer pour quelles sources de revenus et veuillez proposer au moins une approche.

11

Les membres sont d’avis que « l’obligation de prestation » est mal définie dans les propositions. Ils

indiquent que les entités du secteur public ont presque toujours une obligation de prestations, selon

comment on la définie. Ils craignent qu’en l’absence d’indications détaillées permettant de définir les

obligations de prestation, des interprétations divergentes puissent en résulter.

Certains membres sont d’avis que les indications ne sont pas pertinentes dans le contexte du

gouvernement, car elles s’appliquent aux entreprises du gouvernement qui appliquent plutôt les IFRS

et n’appliquent donc pas les normes du secteur public. Ces membres craignent qu’on se retrouve

avec des normes trop complexes, qui s’appliquent à toutes les situations, mais qui risquent de ne pas

s’appliquer au secteur public.

14. Est-ce que la mesure des revenus associés à des opérations comportant de nombreuses obligations de prestation est une question importante pour votre organisation, comme c’est le cas pour les entités à but lucratif?

Les membres sont d’avis que des directives sont requises, car les situations peuvent exister en

pratique.

Par contre, selon leur expérience, il ne s’agit pas d’une question importante pour les organisations du

secteur public en général.

Ils ont cité l’exemple du secteur municipal pour lequel plus de 80 % des produits proviennent des

taxes foncières.

15. Il est proposé que les entités du secteur public ne soient pas tenues d’identifier et de constater les obligations de prestation déficitaires. Êtes-vous d’accord avec cette proposition? Dans la négative, veuillez donner votre avis sur le champ d’application et les indications nécessaires aux fins de la mesure.

Oui, les membres semblent généralement d’accord avec la proposition de ne pas identifier et de ne

pas constater les obligations de prestation déficitaires puisque dans la plupart des cas, les entités du

secteur public ne facturent pas la globalité des coûts, c’est lié à leur mission d’offrir des services aux

citoyens.

12

Certains membres indiquent par contre que leurs états financiers présentent déjà les informations

financières par objet et par activité qui fournissent d’une certaine manière cette information. D’autres

se questionnent sur la quantité d’information qu’on pourrait fournir dans ces situations.

16. Êtes-vous d’accord pour que les coûts du contrat soient passés en charges à moins qu’ils ne donnent naissance à une immobilisation corporelle ou à des stocks? Dans la négative, pourquoi?

Oui, les membres sont d’accord avec les propositions.

Ils ont noté qu’il n’existe pas vraiment d’autre option viable ou valable.

17. Êtes-vous d’accord avec le principe proposé quant à la présentation et aux informations à fournir? Dans la négative, pourquoi?

La majorité des membres semblaient d’accord avec le principe proposé quant à la présentation et aux

informations à fournir.

Par contre, certains membres se sont questionnés sur le niveau de détail élevé exigé pour certains

éléments qui pourraient être de moindre importance. Ces derniers souhaitent que des précisions

soient ajoutées indiquant que seules les informations importantes doivent être fournies et ainsi éviter

d’alourdir les informations financières présentées.

18. Y a-t-il d’autres questions qui devraient être prises en considération? Non, les membres n’ont pas discuté d’autres questions qui devraient être prises en considération.



February 3, 2014




Name: Greg MacBeth

Organization: Office of the Auditor General - Manitoba


General comments:

I am replying on behalf of the Office of the Auditor General - Manitoba. My comments are from the perspective of the public sector within our jurisdiction.


None


Yes


Yes. Collectibility will be considered during the measurement of the receivable associated with the revenue.


Yes


Yes. However, further guidance should be provided as to when control is transferred. For example, when a public entity ships a physical good to a client, does control pass at the time of shipping or when the goods are received by the client?


Yes


We support the first view. We believe that there should be consistency in the standards underlying the concepts in questions in #6 and #7


Yes


Yes


Yes


Yes


Yes


Yes. They are all appropriate depending on the circumstances.


No


Yes. Revenue from the provision of goods and services are often less than the associated cost in the public sector because they are provided as a public service.


Yes.


Yes. However, a requirement should be included to disclose revenues at gross amounts.


No.


Finance Comptroller’s Division Comptroller’s Office 715 – 401 York Avenue Winnipeg, Manitoba R3C 0P8 Phone: (204) 945-4919 Fax: 948-3539 E-mail: [email protected] February 3, 2014 Mr. Tim Beauchamp, Director Public Sector Accounting 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Mr. Beauchamp:

Re: Statement of Principles: Revenue Thank you for the opportunity to comment on the Statement of Principles (SOP): Revenue. The SOP addresses the recognition, measurement, presentation and disclosure of revenues. The SOP does not propose to amend recommendations to externally restricted revenues (PS3100), government transfers (PS3410), the accounting for interest, dividends and gains (PS3450) and taxes (PS3510). But the SOP does propose a framework that would apply to many other forms of revenues reported by public sector entities. A Canadian public sector framework to address these other types of revenues is preferable than to looking at outside sources of GAAP. The primary objective of the SOP is to address revenue recognition for exchange transactions. For exchange transactions, revenue is recognized when a performance obligation is satisfied. Many public sector entities in Canada have in the past based their reporting policies for exchange transactions on those applied by profit-oriented entities. Unilateral transactions are non-exchange transactions and are unique to the public sector. Unilateral revenues do not entitle a resource provider to any specific public service or benefit. Performance obligations are not associated with unilateral transactions. The Province has included responses to the specific questions in the attachment. In general the Province is supportive of the SOP but feels that some key principles are quite subjective and will require evaluation and professional judgment. We appreciate the opportunity to comment on the SOP. If you have any questions or concerns related to these comments please contact the undersigned. Yours truly, Betty-Anne Pratt, CA Provincial Comptroller Province of Manitoba

Page 2 of 5


No. None come to mind.

2. Do you agree the identification of performance obligations is useful in distinguishing

revenues associated with an exchange of goods or services from revenues such as fines, penalties and taxes that are unilateral by nature? If not, propose an alternative approach. If you believe specific revenues (within the scope of these proposals) would be difficult to classify, or they combine characteristics of exchange and unilateral revenues, identify them and provide background information.

Yes. The Province agrees that the identification of performance obligations is useful in distinguishing revenues associated with the exchange of goods and services. The SOP makes it clear that PSAB’s definition is broader than the IASB. The exchange of goods and services may include fees for providing a decision such as providing a driver’s license to a qualified driver. The Province is reluctant to accept the concept that simply providing a decision represents a performance obligation. The SOP mentions that revenues related to natural resources may combine characteristics of both exchange and unilateral revenues. The Province agrees that such revenues could be difficult to classify however their can be established through an evaluation of the facts and circumstances of the underlying revenues.

3. Do you agree public sector entities should recognize revenue even though collectibility

is uncertain? If you disagree, explain why users should not receive this information. (See paragraphs .044-.053 and paragraphs .122-.123.)

Yes. The Province agrees that public sector entities should recognize all revenue. After it is determined that the revenue recognition criteria has been met, then the public sector entity’s assessment of collectibility is a separate measurement decision.

4. Do you agree with proposed Principle 1 that public sector entities should identify which

goods or services are distinct and, hence, should be accounted for as a separate performance obligation? If not, what principle would you recommend, and why?

The Province believes that the proposed principle is the most appropriate approach. When one or more goods and services is to be provided the public service entity should determine if the goods and services provided are distinct. A good or service would be considered distinct if the payor can benefit from the good or service on its own or together with other services that are already available to the payor.

5. Do you agree with proposed Principle 2 that public sector entities should recognize

revenue as performance obligations are satisfied by transfer of control of goods or services? If not, what principle would you recommend, and why?

In situations where goods are transferred or services are performed then the performance obligation has been clearly satisfied. However it is less clear for exchange transactions that involve the provision of a license to a payor for the exclusive access to an intangible asset over a period of time. Under such exchange transactions should the public sector entity

Page 3 of 5

consider its performance obligation as being completed; or does the revenue have to recognized over the period of the agreement? The Province agrees with Principle 2 that revenue from exchange transactions should be recognized when the public sector entity satisfies a performance obligation. A performance obligation is satisfied when the payor has control of the benefits of the goods and services.

6. If a decision is the only performance obligation associated with a licence, do you agree

the fee is recognized at a point in time and not over the term of the licence? If you disagree, explain your view in terms of continuing performance obligations of the public sector entity and on what basis revenue recognition is proposed. (See paragraphs .083-.091.) Currently driver licence fees in Manitoba are amortized into revenue on a monthly basis. However if a decision is the only performance obligation this won’t affect the level of revenue recognized as drivers licences have to be renewed annually in Manitoba. However in other jurisdictions the period till renewal could be much longer. For periods longer than a year it would not seem appropriate to recognize the revenue at the time of the decision. However the Province’s objections are solely based on the principle of matching the revenue to the cost of providing the services, which in the case of licence administration is ongoing. However the Province does agree that once a decision is granted (or denied) the performance obligation is satisfied and the revenue should be recognized.

7. Public sector entities issue other licences granting benefits to other parties. At the end of the licence term, the benefits revert to the Crown. One view is that the performance obligation has been met when the licence is granted as it is the licence holder who determines when and how to use the benefit. No further performance is required of the public sector entity. Alternatively, some assert that a transfer of control over the associated benefit occurs over time, as the public sector entity has an ongoing performance obligation to provide access. Indicate the view you support and explain why. If your view would change if the right granted to the licence holder was not exclusive, explain why. In the Province’s view if the licence grants the licence holder control over the benefits of the asset then the public sector entity has met its performance obligation provided there are no ongoing performance obligations related to the continued access of the asset. There may always be some performance obligation to provide access however if the cost is immaterial in comparison to the licence fee itself then the public sector entity has substantially met its performance obligation. The recognition of the revenue for each licence agreement should be evaluated in accordance with the facts and circumstances of each agreement. Determining if there is a material unfulfilled performance obligation would be a matter of professional judgment.

8. Do you agree with the proposed approach indicating how the requirements would apply

to specific issues as outlined in paragraphs .092-.107? If not, explain why not. Explain any specific issues requiring guidance.

The Province agrees with how the SOP would apply to work in progress, combining contracts, modifications, call and put options.

Page 4 of 5

9. Do you agree with the distinction between refund liabilities and unearned revenues? If

not, explain why not. (See paragraphs .052 and .108-.109.) The Province agrees with the distinction between refund liabilities and unearned revenues. A refund liability is an issue associated with the measurement of the revenue and not its recognition. Unearned revenue is simply consideration received by the public sector entity prior to the performance obligation has been satisfied.

10. Do you agree with proposed Principle 3 that public sector entities should recognize unilateral revenues when there is authority to claim economic resources from other parties and a past event that gives rise to a claim of economic resources? If not, what principle would you recommend, and why? The Province agrees with Principle 3. Unilateral revenues should be recognized when the public sector entity has the legal right to claim resources and there is a readily identifiable past event that gives the public sector entity a right to the revenue.

11. A table following paragraph .114 illustrates revenue recognition events associated fines and penalties. Do you agree? If not, why not. Are there other situations requiring guidance? The Province agrees with the illustration following paragraph .114.


The Province agrees that when the consideration is variable the method applied (i.e. the expected value or most likely amount) should be the one that represents what the public sector entity expects to receive.

13. Do you agree with proposed Principle 4 to link recognition of the portion of the

transaction price allocated to the performance obligation satisfied? If so, express a view on methods proposed to allocate the transaction price. (See paragraph .141.) If another approach should apply, comment on sources of revenue requiring such guidance and propose one or more approaches.

The Province agrees that in situations where there is more than one distinct and substantive performance obligation then a portion of the transaction price should be allocated to each performance obligation.

14. Is the measurement of revenue associated with transactions evidencing multiple

performance obligations a significant reporting issue for your organization, as it is for profit-oriented entities?

The measurement of revenue associated with transactions related to multiple performance transactions is not a significant reporting issue at the Province but it has occurred on occasion.

Page 5 of 5


Yes. The Province agrees that public sector entities should not be required to identify and recognize onerous performance obligations. The approach taken by the private sector does not transfer well into the public sector. However if the good or service is provided to the public is an exchange transaction, rather than an ongoing public service, then losses from onerous performance obligations should be recognized immediately. An example would be if a local government was developing lots for sale at a loss.

16. Do you agree contract costs should be expensed unless they give rise to a tangible

capital asset or inventories? If not, why not.

The Province agrees that contract costs should be expensed unless they give rise to a tangible capital asset or inventory.

17. Do you agree with the proposed principle applying to presentation and financial

statement disclosure requirements? If not, why not.

The Province agrees with Principle 5 applying to presentation and financial disclosure requirements. However the Province is surprised to understand that the reporting of gross revenues and expenses under PS1201 can be satisfied by disclosure in the notes? This implies that amounts on the statement of operations can be presented net of related expenses, if the presentation is viewed to be informative. If this is correct then PSAB should consider amending PS1201 to make this clearer.


No.

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Wayne Morgan Office of the Auditor General of Alberta Edmonton, Alberta February 3, 2014 Tim Beauchamp, Director Public Sector Accounting Chartered Professional Accountants of Canada 277 Wellington Street West Toronto, Ontario Dear Mr. Beauchamp, Our response to PSAB Statement of Principles - Revenue is below.

1. Are there other implications of the proposals that should be considered? If so, please provide a detailed explanation. PSAB should consider a project on intangibles. This may help clarify concepts regarding revenue, especially with respect to transfers or sales of rights, which result in revenues or perhaps gains for public sector entities.

2. Do you agree the identification of performance obligations is useful in distinguishing revenues associated with an exchange of goods or services from revenues such as fines, penalties and taxes that are unilateral by nature? If not, propose an alternative approach. If you believe specific revenues (within the scope of these proposals) would be difficult to classify, or they combine characteristics of exchange and unilateral revenues, identify them and provide background information. Yes, but the application of performance obligations as described in the statement of principles appears too narrow. Under PS 3410, stipulations that meet the definition of a liability on their own or constructively through the actions and communications of the recipient would result in deferred revenue. Under the statement of principles, this would be narrowed to include only liabilities that are provisions of goods or services received directly by the payor. It is unclear whether other liabilities arising from the contract that would require the public sector entity to provide a good or service (but not directly or exclusively to the contract counterparty) should be separately accrued as expenses. The statement of principles uses the term “payor” throughout, as the party to the contract, but that party may not always be to whom the performance obligation is owed. Alternatively, who “pays” may not always be the recipient of the good or service –

Page 2 of 7

someone else may be paying, based on the expectation that another (identifiable) party will directly receive some good or service from the public sector entity.

A public sector entity may deliver programs to eligible recipients indirectly through another public sector entity. From the perspective of the first entity this is a government transfer to the individuals served, while the second entity may deliver these services as an exchange transaction. For example, a government may contract with a public post-secondary institution to provide vocational instruction to unemployed persons. Depending on the contract terms, the arrangement may be a government transfer, an exchange transaction or a flow-through arrangement. Rather than differentiating based on who is receiving direct benefit, it may be helpful to clarify differences between government transfers and exchange transactions based on criteria such as:

• requirement to use all funds for specified purpose versus ability to earn a “profit”, and

• whether the payee or payor determines what services are to be provided, and/or who is to receive the benefit

to differentiate where a contract term represents a stipulation, grant condition or performance obligation.

3. Do you agree public sector entities should recognize revenue even though collectibility is

uncertain? If you disagree, explain why users should not receive this information. (See paragraphs .044-.053 and paragraphs .122-.123.)

Collectibility should be considered in revenue recognition; only revenue expected to be received should be recognized. Exchange transactions should be accounted for based on their substance, not form. This is reflected in the statement of principles through the application of fair value estimates of consideration provided and the application of time value of money. If there is a reasonable expectation at the time the exchange contract is recognized that the other party will not pay the full amount then, in substance, this is a concessionary exchange transaction. It would be appropriate to discount the cash flows the public sector entity expects to receive (consistent with the treatment for concessionary loans and concessionary investments). The proposed criteria (inherently uncollectible) may not be consistent with PS 1000.56, which directs that items be recognized based on what can reasonably be anticipated, contemplated or believed. If there is an intent to apply a less restrictive criteria throughout PSAS (to recognize unless there is certainty that the amount cannot be realized) then PS 1000.56 should be consequently changed accordingly. But we do not support this relaxing of the recognition criteria. While there is a benefit in separately analyzing revenue growth and receivable management, this is already reflected in subsequent allowances for bad debts. Users

Page 3 of 7

analysis of revenue growth will be impaired if revenue amounts include accruals for amounts the entity has no expectation of collecting – i.e. that are not assets. If collectability is not considered as a reduction of revenue but as a receivables management issue, as the statement proposes, then it is inconsistent in paragraph .160 to not require more detailed disclosure on receivables. For example, receivables could be disclosed by type of revenue associated with them, with aging, and allowance for doubtful accounts and writeoffs disclosure. This would permit users to evaluate receivables management.

4. Do you agree with proposed Principle 1 that public sector entities should identify which goods or services are distinct and, hence, should be accounted for as a separate performance obligation? If not, what principle would you recommend, and why? Yes, but the allocation of the revenue amount to individual or bundled goods or services must also consider how partial delivery of these goods or services will be measured to recognize the proportion of revenue for goods/services delivered (paragraphs .092 to .094 of the statement of principles).


revenue as performance obligations are satisfied by transfer of control of goods or services? If not, what principle would you recommend, and why? Yes, as control is fundamental to the definition of an asset.

6. If a decision is the only performance obligation associated with a licence, do you agree

the fee is recognized at a point in time and not over the term of the licence? If you disagree, explain your view in terms of continuing performance obligations of the public sector entity and on what basis revenue recognition is proposed. (See paragraphs .083-.091.)

This section of the statement of principles appears to confuse a decision on eligibility with a performance obligation. Generally, if an application for a license is rejected, no fee is paid and there is, in effect, no transaction. Where a decision on licensing is a performance obligation, this is typically a different transaction. For example, individuals may be required to pass an examination before they can apply for their first license; in this case the examination and results are the performance obligation associated with the examination fee only. It would be clearer to refer in the standard to a situation where the only performance obligation of the public sector entity is to issue the license. We agree that license revenue should be recognized when any related performance obligations have been met, which would be immediately if the only performance obligation is the provision of the license.

7. Public sector entities issue other licences granting benefits to other parties. At the end of the licence term, the benefits revert to the Crown. One view is that the performance

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obligation has been met when the licence is granted as it is the licence holder who determines when and how to use the benefit. No further performance is required of the public sector entity. Alternatively, some assert that a transfer of control over the associated benefit occurs over time, as the public sector entity has an ongoing performance obligation to provide access. Indicate the view you support and explain why. If your view would change if the right granted to the licence holder was not exclusive, explain why.

In our view, there has been a transfer of rights. Therefore, it is appropriate to recognize revenue. Any associated performance obligations must meet the definition of a liability for revenue to be deferred. General obligations such as to maintain a justice system to enforce transferred rights do not meet the definition of a liability. It does not impact revenue recognition if the transfer of rights is only for a limited period of time. Revenue should be recognized when the transfer occurs, not spread over the time period. This is most apparent when the rights do not revert back to the public sector entity, or even if they may revert back to the public sector entity after a time period, then if the rights again may be transferred to a new payor, it is appropriate to recognize revenue when the rights are transferred. As noted above, we believe a PSAB project on intangibles may help resolve issues with revenue and gain recognition. We note that these are different from leases in that the lessor has a specific ongoing obligation to maintain the leased asset suitable for use; the public sector entity has no similar obligation other than general obligations such as maintaining a justice system or a database of rightholders. It does not matter whether the license is exclusive or not; what is important is whether a liability exists.

8. Do you agree with the proposed approach indicating how the requirements would apply to specific issues as outlined in paragraphs .092-.107? If not, explain why not. Explain any specific issues requiring guidance. The combining of contract terms should be based on the same criteria for both contracts negotiated together and subsequent modifications. This could be applied based on the criteria in paragraph .096, but .096(a) should be clarified to be contracts negotiated with specific common purpose(s) as contracts could have more than one purpose. Where the related contracts are negotiated together as a package they should be accounted for on a combined basis. If they are negotiated at different times then the accounting for the preceding contracts should be modified to reflect the new terms as they come into effect.

9. Do you agree with the distinction between refund liabilities and unearned revenues? If

not, explain why not. (See paragraphs .052 and .108-.109.)

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Yes, we support a distinction between amounts the entity does not expect to be able to keep and amounts that have not yet been earned through outstanding service obligations.

However, in drafting the final standard PSAB should avoid using the words “right to recognize” as they appear in paragraph .108. This seems to be a different use of the term “right” outside its accounting meanings such as rights and obligations and instead seems to refer to jurisdictional or constitutional matters. It is better to say that it would be inappropriate to recognize revenue.


unilateral revenues when there is authority to claim economic resources from other parties and a past event that gives rise to a claim of economic resources? If not, what principle would you recommend, and why? We agree.


We agree. However, there may be an argument instead to provide for revenue recognition when a fine is levied, when a reasonable estimate can be made including a provision for reductions due to appeals, rather than when all avenues of appeal have been exhausted, as the table seems to imply.

12. When consideration is variable, the proposals outline two methods that would be

available to public sector entity. Do you agree? If not, comment on guidance needed to measure consideration that is variable in amount. (See paragraphs .131-.138.)

Yes, the methods allow flexibility while still directing that the best estimate be used.

13. Do you agree with proposed Principle 4 to link recognition of the portion of the

transaction price allocated to the performance obligation satisfied? If so, express a view on methods proposed to allocate the transaction price. (See paragraph .141.) If another approach should apply, comment on sources of revenue requiring such guidance and propose one or more approaches.

Progress towards complete satisfaction of a performance obligation (paragraphs .092 to .094) should apply in recognizing the allocated revenue. Having some flexibility in methods is desirable, but guidance should be provided for where each method may be more appropriate. Entities should be directed to apply the method that most closely applies to the economic substance of the transaction, rather than consistently using just one method as may be implied by the language “…applies estimation methods consistently in similar circumstances” in paragraph .141.

Page 6 of 7

14. Is the measurement of revenue associated with transactions evidencing multiple

performance obligations a significant reporting issue for your organization, as it is for profit-oriented entities?

It is important PSAB provide guidance in this area.

15. Do you agree that public sector entities should not be required to identify and recognize

onerous performance obligations? If not, comment on the scope and measurement guidance needed.

Yes, as there is no presumption that public sector entities will recover all costs of services through revenues. Public sector entities may operate under broad program mandates such that everything they do is mandated. Paragraph .056 provides sound logic. Accruals should be limited to amounts that meet the definition of an asset or liability.


Yes, but the criteria should be expanded to meeting the definition of an asset in general and not just these types of assets. If contract costs are expected to be reimbursed or are otherwise recovered, recognition as an asset may also be appropriate. There should be a direct relation between the contract costs and the resulting asset or they should be expensed as incurred.

17. Do you agree with the proposed principle applying to presentation and financial

statement disclosure requirements? If not, why not.

Generally yes, but further disclosures should be considered relating to performance obligations, particularly when the obligations are multi-year. Users’ understanding of the financial statements may be enhanced by separate disclosure of changes in the performance obligation balance, such as:

• the amount the performance obligation increased due to new obligations, and • the amount the performance obligation decreased as obligations were met and

revenue recognized.

Where the management of accounts receivable is important to users of the financial statements, a differentiation of amounts receivable based on the nature of the debtor or the source transaction may be necessary for the financial statement users to understand the risk exposure of the public sector entity and its management of receivables.


Page 7 of 7

Provide further guidance for circumstances where private agents are involved. For example, licenses may be issued directly by a public sector entity or by private entities authorized to issue licenses on the public sector entity’s behalf. Where private entities issue licenses, a portion of the fee may be designated as payment for the service by the private entity. The accounting for an amount retained by the private sector entity for the service provided is not clear. Should the public sector entity recognize the gross revenue amount and record the private sector entity’s fee as an expense, or should revenue be recognized net of any service fees/commissions paid to private agents acting on the public sector entity’s behalf?

Thank you for the opportunity to comment. Sincerely, Wayne Morgan, PhD, CA, CISA



February 3, 2014




Name: Stuart Barr

Organization: Office of the Auditor General of Canada


General comments:


Section PS 3100 We would like PSAB to reconsider its decision to not amend the requirements applying to externally restricted inflows found in Section PS 3100 (paragraph .004 of the SOP). We support PSAB’s current strategy to align the recognition principles for government transfers, contributions (as proposed in the SOP on Improvements to NPO standards) and revenues (as proposed in this SOP) with the liability definition. However, PS 3100 does not clearly align with this strategy. As currently written, PS 3100 requires the recognition of externally restricted inflows as revenue when funds are used for the purposes intended. As we have experienced with the recent adoption of the new PS 3410, the nature of external restrictions imposed on the use of contributed funds varies widely in the public sector. As a result, external restrictions may not always be sufficient on their own to create a liability as defined in PS 3200. There is therefore a risk that the current PS 3100 guidance may lead to the recognition of deferred balances that do not have all of the characteristics of a liability and result in inconsistent revenue recognition practices for externally restricted inflows compared to other types of revenues, which are expected to be aligned with the liability definition subject to the approval of the current proposals following due process. We do not see any reason justifying the current misalignment of PS 3100 with the other revenue recognition requirements found in the PSA Handbook. Conforming amendments to PS 3100 would help to achieve uniformity in practice related to revenue recognition for all types of revenues.


Yes, we agree that the identification of performance obligations is useful to distinguish revenue that arises from a traditional exchange transaction. We also agree that identifying performance obligations is a key factor in determining the timing of revenue recognition (SOP paragraph .022). We however expect it will be difficult to apply the performance obligation concept in scenarios where payors obtain broad or poorly defined services or other intangible benefits in return for amounts paid. There may also be no correlation between the cost of an underlying performance obligation and the amount of consideration received since governments may be in a unique position to set fees or prices that are based on fair market value rather than cost. In situations where consideration is received up-front at inception of a multi-year arrangement, we are concerned that the principles currently proposed may not prevent the recognition of significant liabilities (unearned revenue) that will not in fact be settled by future sacrifice of economic benefits of an equivalent value, and result in overstating the liabilities of the government. Please refer to our response to question 13 below. We are also concerned that the broad principles proposed here will be subject to different interpretations and will lead to inconsistent application in certain scenarios. This could occur, for example, in cases where the Crown grants a license to use an underlying intangible resource for a period of time during which the actions (or performance obligation) necessary to provide on-going access are limited. We would like to see more specific guidance on the types of performance obligations that could lead to liabilities to avoid the risk of multiple interpretations and inconsistent application of the broad principles.


We agree that collectibility is not a revenue recognition consideration. It should instead be considered when measuring accounts receivables arising from revenue transactions. Consistent with other financial reporting frameworks, receivable balances should be subject to an allowance for doubtful accounts, which is recognized as an expense on the statement of operations. It is through that mechanism that users of financial statements should receive relevant information when collectibility of accounts receivable balances is uncertain.


Yes, we agree.


Yes, we agree with proposed Principle 2. However, consistent with our comment under Question 2, we hold the view that it may be difficult in the case of certain broadly or poorly defined services to assess the point in time when control of services is transferred to the payor. The challenge will be in the practical application of this principle in these situations. Recognition of performance obligations as liabilities: We find the SOP could be clearer regarding the initial recognition of a performance obligation as a liability. Paragraph .026 defines performance obligations as enforceable promises to provide goods or services to a payor as a result of exchange transactions. And paragraph .066 states that for a promise to be enforceable, it has the essential characteristics of a liability. Exchange transactions as defined in paragraph .026 include transactions that create performance obligations from

promises of consideration by a payor. This suggests that a performance obligation could be recognized as a liability (with an offsetting receivable balance) prior to the provision of services and exchange of consideration (i.e. payment by the payor). It was unclear if this was the intent of the principles proposed. While a performance obligation can be enforceable through legislation or contractual terms, it does not have all of the characteristics of a liability until the transactions or events obligating the government have occurred. We would expect that only those unfulfilled performance obligations for which consideration has been received from the payor are valid liabilities, in the form of unearned revenues.


Yes, we agree.


Applying the principles of exchange transactions, we expect the licence agreement will outline the nature of the asset being provided in exchange for consideration. We would reasonably expect that where the licence holder determines when and how to use the benefit acquired from the licence, that control of the asset has transferred to the licence holder at licence inception. Review of the licence agreement will further identify whether any performance obligations are present that would impact the timing of revenue recognition. Consistent with our response to Questions 2 and 13, not all performance obligations impact the timing of revenue recognition and we see no need to measure or allocate the entire consideration received to all of the performance obligations identified in a transaction.


Yes, we agree with this approach. The additional guidance is helpful and encourages consistent application of the principles of the standard to specific matters considered pervasive in the public sector.


Yes, we agree.


Yes, we agree.


Yes, we agree with the proposed guidance on fines and penalties.


Yes, we agree with the two methods proposed. We however note that in its ED on revenue from contracts with customers the IASB imposed a limit to the amount of revenue an entity can recognize when variable consideration is involved. Revenue cannot exceed the amount to which the entity is reasonably assured to be entitled, and the IASB established a series of criteria and indicators to help assess when this is the case. It is not clear to us why the more robust IASB proposals have not been replicated here in these proposals.


Yes, we agree with the principle to recognize as revenue a portion of the transaction price allocated to a performance obligation as the public sector entity satisfies that obligation. The difficulty however is in determining the proper allocation approach. Because of the clear distinction between public sector entities and profit-oriented enterprises, the IASB guidance outlined in paragraph .141 of the SOP will often be inadequate or of very limited value in many public sector exchange transactions because of the absence of an active market for many goods and services provided by public sector entities, which often do not have competitors offering similar products. There cannot be an underlying assumption that the consideration involved in the transaction will always be similar to that found in traditional exchange transactions. We encourage further deliberation in this area. As explained in our comments to Question 2, the costs associated with the performance obligation may bear little resemblance to the consideration in the public sector. We would like PSAB to further explore whether it is always appropriate to allocate the entire transaction price to all of the performance obligations identified in a transaction. In cases where an entity forecasts its expected costs of satisfying all performance obligations to be significantly below the transaction price, could it be appropriate to require the immediate recognition of revenue equal to the consideration less the cost of any remaining unsatisfied performance obligations (i.e., limit the value of the performance obligation to the cost of the service being provided)? This questions whether it is appropriate to have unperformed inconsequential activities result in deferrals of revenues that will not in fact be settled by future sacrifice of economic benefits of an equivalent value, an essential characteristic of a liability. Paragraph .065 of the SOP touches on this issue as it relates to administrative activities, but it does not deal with more difficult areas such as granting of licenses to use intangible resources arising from legislative or constitutional authority of a government. While we find the expected cost method described at paragraph .141(b) of the SOP will be relevant and useful to measure performance obligations in user fee or cost recovery type programs, it may not work well in scenarios where there is no correlation between the cost of an underlying performance obligation and the transaction price for the reasons outlined above. We also question the notion of cost plus a “margin”. How does one define appropriate margin in providing a public good, especially when the public sector entity is the sole provider of such goods or services? Without further guidance and common understanding, this could fuel debate on what is acceptable in determining the value associated with certain

performance obligations and the related revenue recognition implications.


Based on our experience, we do not believe that the measurement of revenue associated with multiple performance obligations is a significant reporting issue amongst governments and government organizations we audit both at the federal and territorial levels.


The work of governments and their related organizations is varied and complex. We have experienced scenarios where government organizations subject to private sector standards had onerous performance obligations. If such entities would not have been subject to private sector standards, it would not have been fair presentation, in our view, to ignore the onerous nature of these contracts. These examples illustrate that in our experience this matter is not only an academic question, and scoping it out of the standards may create an important gap. We suggest that PSAB reconsider and further assess the concept of onerous performance obligations in the public sector. The project should address the meaning of an onerous contract in the public sector and offer guidance on the timing of recognition of that excess cost to taxpayers.


Yes, we agree.


Yes, we agree.


Standard terms of services The SOP first introduces this concept at paragraph .026 and further elaborates at paragraphs 0.54 and .055 on how standard terms of services can be evidence of performance obligations in the absence of a contract. While we agree there are valid public sector scenarios where known formal standard terms of services exist, we are concerned entities would reference standard terms of services to suit their revenue recognition preferences when no contract exists. To avoid potential abuse, we suggest that PSAB further define “standard terms of services” to clarify the meaning of this term. Performance obligations have to be sourced from objective standard terms that are clearly communicated and well understood by all relevant stakeholders, including payors. Modifications Paragraphs 0.099 and .100 of the SOP appear inconsistent. Paragraph .099 states a contract modification is not accounted for until each party to a contract agrees to the modification, while paragraph .100 requires a public sector entity to estimate the transaction price in the case of a change in scope when the corresponding change in price is not yet established. Appendix – Decision tree

It would be useful to have a decision tree addressing some of the more detailed considerations of the standard. Examples of relevant questions would be: is there an exchange transaction? Is there transfer of control of the goods or services? Is there a performance obligation? etc.


PROVINCIAL Al 11)11TOR oJ Saskuri honion

February 6, 2014

Mr. Tim Beauchamp, Director Public Sector Accounting Chartered Professional Accountants of Canada 277 Wellington Street West TORONTO, ON M5V 3H2

Dear Mr. Beauchamp:

Re: Revenue — Statement of Principles (August 2013)

We support the development of a standard on revenue and, except, as noted in the attachment, generally agree with the proposals outlined in the Statement of Principles (SOP). The attachment sets out our responses to the specific questions listed in the SOP.

Yours truly,

Judy Ferguson, FCA Acting Provincial Auditor

dd/AI Attachment

1500 Chateau Tower -1920 Broad Street Regina, Saskatchewan S4P 3V2

t 306.787.6398 f 306.787.6383 e [email protected]

www.auditonsk.ca

Mr. Tim BeauchampFebruary 6, 2014Responses to Specific Questions – Provincial Auditor SaskatchewanStatement of Principles - Revenue Page 1

Question Response

1 Are there other implications of the proposals that should beconsidered? If so, please provide a detailed explanation.

See response to #18 below.

2 Do you agree the identification of performance obligations isuseful in distinguishing revenues associated with an exchangeof goods or services from revenues such as fines, penalties andtaxes that are unilateral by nature? If not, propose an alternativeapproach. If you believe specific revenues (within the scope ofthese proposals) would be difficult to classify, or they combinecharacteristics of exchange and unilateral revenues, identifythem and provide background information.

Yes; however, we note that specific performance obligations are not alwaysclear or well defined for all public sector entities (e.g., in the Decision Treeincluded in the Appendix to the Statement).

In Saskatchewan, there is a significant amount of transactions betweenprovincial public sector entities. PSAB may wish to provide guidance onconsidering the impact of these relationships on accounting for revenue(exchange and unilateral) (e.g., the impact of setting and identifying specificperformance obligations).

3 Do you agree public sector entities should recognize revenueeven though collectability is uncertain? If you disagree, explainwhy users should not receive this information. (See paragraphs.044-.053 and paragraphs .122-.123.)

Yes. Recording transactions in this manner would provide users of financialstatements with information on revenues assessed and provide them withsufficient information to question the effectiveness of a public sector entity’scontrols over collection of revenues.

As reflected in SOP paragraph .48 (which provides an example where a publicsector entity would not recognize revenues inherently uncollectible at the dateof recognition), this recognition principle may be viewed as contrary to therecognition criteria set out in PS1000.55 (b) –“it is expected that such benefitswill be obtained or given up”. That is, PS1000.55 seems to be interpreted toinclude the assessment of the likelihood of collectability when determiningwhether to initially recognize an amount in the financial statements.

We encourage PSAB to clarify its intent in this area and seek amendments oradd additional guidance with respect to the intent of PS1000.55 as it related torecognition of revenue.

4 Do you agree with proposed Principle 1 that public sectorentities should identify which goods or services are distinct and,hence, should be accounted for as a separate performanceobligation? If not, what principle would you recommend, andwhy?

Yes

Mr. Tim Beauchamp February 6, 2014 Responses to Specific Questions — Provincial Auditor Saskatchewan Statement of Principles - Revenue

Page 2

Question Response

5 Do you agree with proposed Principle 2 that public sector entities should recognize revenue as performance obligations are satisfied by transfer of control of goods or services? If not, what principle would you recommend, and why?

Yes

6 If a decision is the only performance obligation associated with a licence, do you agree the fee is recognized at a point in time and not over the term of the licence? If you disagree, explain your view in terms of continuing performance obligations of the public sector entity and on what basis revenue recognition is proposed. (See paragraphs .083-.091.)

Yes, except as noted in response #7.

7 Public sector entities issue other licences granting benefits to other parties. At the end of the licence term, the benefits revert to the Crown. One view is that the performance obligation has been met when the licence is granted as it is the licence holder who determines when and how to use the benefit. No further performance is required of the public sector entity. Alternatively, some assert that a transfer of control over the associated benefit occurs over time, as the public sector entity has an ongoing performance obligation to provide access. Indicate the view you support and explain why. If your view would change if the right granted to the licence holder was not exclusive, explain why.

Licences may contain specific performance obligations (terms) that would impact the recognition of the revenue consistent with Principle 2.

For example, if the licence terms specify that the public sector entity can terminate access to the benefit before the end of the licence term and provide a refund for the unused term the licenced party, the performance obligation is ongoing (recognition would be based on achievement of performance obligations). Alternatively, if the terms indicate that public sector entity can terminate the benefit before the end of the licence term without providing a refund to the licenced party, the performance obligation is met when the licence is granted (immediate recognition).

Also, if performance obligation was ill-defined or not specific, revenue would be recognized on issuance of the license.

8 Do you agree with the proposed approach indicating how the requirements would apply to specific issues as outlined in paragraphs .092-.107? If not, explain why not. Explain any specific issues requiring guidance.

Yes

9 Do you agree with the distinction between refund liabilities and unearned revenues? If not, explain why not. (See paragraphs .052 and .108-.109.)

Yes


Page 3

Question Response

10 Do you agree with proposed Principle 3 that public sector entities should recognize unilateral revenues when there is authority to claim economic resources from other parties and a past event that gives rise to a claim of economic resources? If not, what principle would you recommend, and why?

Yes

11 A table following paragraph .114 illustrates revenue recognition events associated fines and penalties. Do you agree? If not, why not. Are there other situations requiring guidance?

Yes. The table does not seem to envision fines or penalties associated with breach of contracts/agreements. These would be measured and recognized upon meeting conditions set out in the related contract/agreement.

12 When consideration is variable, the proposals outline two methods that would be available to public sector entity. Do you agree? If not, comment on guidance needed to measure consideration that is variable in amount. (See paragraphs .131- .138.)

Yes, but the guidance should be expanded to include the use of time value of money.

13 Do you agree with proposed Principle 4 to link recognition of the portion of the transaction price allocated to the performance obligation satisfied? If so, express a view on methods proposed to allocate the transaction price. (See paragraph .141.) If another approach should apply, comment on sources of revenue requiring such guidance and propose one or more approaches.

Yes

14 Is the measurement of revenue associated with transactions evidencing multiple performance obligations a significant reporting issue for your organization, as it is for profit-oriented entities?

As an auditor of public sector entities, we have noted this as a significant reporting issue for those entities.

15 Do you agree that public sector entities should not be required to identify and recognize onerous performance obligations? If not, comment on the scope and measurement guidance needed.

While we recognize that the study of measuring and reporting on onerous performance obligations was beyond the scope of the SOP, we encourage PSAB to further study this area as it relates to exchange transactions and contractual arrangement to which public sector entities are party.


Page 4

Question Response

16 Do you agree contract costs should be expensed unless they give rise to a tangible capital asset or inventories? If not, why not.

Yes

17 Do you agree with the proposed principle applying to presentation and financial statement disclosure requirements? If not, why not.

Yes

18 Are there additional matters that need to be considered? SOP .004 notes the SOP does not propose amendments to PS3100 (Restricted Assets and Revenues). Given the explicit introduction of the concept of performance obligations in the SOP, we encourage PSAB to consider consequential amendments to this section to align its terminology with that used in the proposed standard to avoid potential inconsistent interpretations.

SOP .017 uses the term "net economic resources". As neither the SOP or the current PSA Handbook defines this term, we encourage PSAB do so, if PSAB uses the term in the proposed standard.

SOP.021 table classifies "mineral rights" as "unilateral non-exchange" transactions. We are aware that some argue that these are exchange transactions in that the mineral/oil (simultaneous purchase and sale of related mineral, oil/ gas).

SOP .032 — we pause on logic of the proposed definition of "unilateral revenues" "... without a direct transfer of economic resources to the payor-. given the inclusion of "payor". In SOP .026, the proposed definition of "payor" is a "party that has entered into an exchange transaction that creates performance obligations for the public sector entity." We find the language used in SOP .110 clearer.

SOP .124 - .126 appropriately discusses the concept of the time value of money. We question why the proposed definitions of "expected value" and "most likely amount" do not include this concept.



February 3, 2014




Name: Ann Marie Miller, CMA (Comptroller General of Finance)

Organization: Government of Newfoundland and Labrador


General comments:

The Province does not see a project on revenues as a priority at this time. Such guidance is premature given that elements as well as fundamental concepts are being reviewed as a part of PSAB’s Conceptual Framework project. Additionally, the Province believes that the existing guidance in the PSA Conceptual Framework as well as professional judgment is adequate to address accounting for revenue. The five general principles of the SOP appear reasonable (with the exception of disclosures required in Principle 5 as described in question 17). It is the additional prescriptive criteria in the SOP which is of significant concern. It is believe this would potentially create an onerous standard that minimizes the importance and application of professional judgment in recognizing the substance of various revenue transactions. Further, the Province does not support the inclusion of specific measurement guidance. An approach similar to Section 3400 is preferred which does not explicitly detail measurement allowing it to be determined by agreement between the parties involved”. If such extensive measurement requirements are not required in the private sector, they are certainly not necessary for the public sector. Further, it is the position of the Province that the common issues noted relating to measurement (collectability, time value of money and non-cash consideration) are adequately dealt with in existing concepts and principles of the conceptual framework.


The Province does not see a project on revenues as a priority at this time. Such guidance is premature given that elements as well as fundamental concepts are being reviewed as a part of PSAB’s Conceptual Framework project. This guidance is an elaboration or interpretation on a fundamental element and from the perspective of the Province it is not seen as a specific area that requires detailed guidance especially in regard to exchange transactions. Existing guidance in the PSA Conceptual Framework as well as professional judgment is adequate to currently address accounting of revenues. It is not deemed critical that PSAB should be investing limited resources and time in this project; resources are better served dealing with crucial issues and projects. Any finalization of this section should not occur before the Conceptual Framework project is complete; in fact it should be put on hold at this time.


It is agreed that the identification of performance obligations could be used to distinguish revenues associated with exchanges from those that are unilateral (non-exchange) by nature. This method would align the proposed Public Sector Accounting Board (PSAB) standard with the International Public Sector Accounting Standards Board (IPSASB) standard which also classifies revenue-generating transactions as exchange or non-exchange. As government entities possess unique constitutional powers which allow them to derive revenues without the exchange of consideration it is not appropriate to differentiate revenues according to whether they are a provision of goods or rendering of services as is done in the private sector standards. While the Province agrees that the concept of performance obligations is an acceptable method of differentiation between exchange and unilateral revenues identified (fines penalties and taxes) we take the position that the combination of the conceptual framework, use of professional judgment and pre-existing standards on unilateral revenue streams provide sufficient guidance regarding the recording of these revenues. The largest sources of unilateral revenues: taxation, government transfers and contributions, are already covered by a PSAB standard. This essentially leaves only fines, penalties and fees as unilateral revenues to be covered by this standard. Additionally, the Statement of Principles (SOP) heavily favors exchange transaction issues. This is inappropriate as only a small portion of government revenues are derived from exchange transactions. However, in relation to fees there appears to be some concern with the whole distinction of “performance obligations” in that it may not be sufficient to allow consistent interpretation in categorizing fees as unilateral revenues or revenues from exchange transactions. There currently exists some differing opinions in relation to fees such as drivers’ licenses and whether they would have associated performance obligations and thus impact the categorization and accounting for such revenues.


The Province agrees that revenue should be recorded at the gross amount even though collectability is uncertain. This method provides users with useful information regarding the efficiency of revenue and receivables management which is not available if revenues are recorded net of collection uncertainty. Gross revenue should be recognized with an offsetting entry to valuation allowances and bad debts expense unless the amount is inherently uncollectible. The Province already accounts for collection uncertainty in this manner.


Notwithstanding our position that it is not deemed necessary to develop extensive guidance in the area of revenues and PSAB intends to proceed with principle based guidance; the Province generally agrees with Principle 1 as it does not appear to present any problems from the perspective of the Province. While we agree with the principle proposed we disagree with the extent of the proposed criteria. Paragraphs .071 and .072 are extensively prescriptive, eliminating the ability to apply professional judgment in determining distinct goods/services. Further, it is to be noted that in the public sector, bundled goods and services are uncommon. It is our position that for exchange transactions, the recognition issues that have been identified are excessive. PSAB’s attempt to be “sufficiently robust” is proposing guidance that addresses issues and aspects that are not even particularly developed in the existing guidance for publicly accountable entities (IFRS) and private enterprises (ASPE). This is not appropriate given that the majority of revenues that occur from the perspective of senior governments are not from exchange transactions. The level of detail that has been included goes beyond practicality and usefulness for the public sector.


Notwithstanding our position that it is not deemed necessary to develop extensive guidance in the area of revenues and PSAB intends to proceed with principle based guidance; the Province generally agrees with Principle 2. Recognizing revenue as performance obligations are satisfied at the point that control is transferred ensures the public sector entity maintains no managerial involvement in the goods/services and therefore is not exposed or has access to associated risks or rewards. Thus, it would be assumed that at this point, revenue recognition criteria would be meet (i.e. an appropriate basis of measurement and a reasonable estimate can be made and that future economic benefits will be obtained).


The Province agrees that if a decision is the sole performance obligation associated with a license the associated revenue should be recognized at a point in time instead of over the duration of the license. At this point the public sector entity has provided the goods/services (decision) and possesses no continuing control or involvement with the license. The licensee has the ability to determine when and how the license is used free from public sector entity involvement. This ability indicates that control has been fully transferred.


The Province supports the second method of accounting described, recording the revenue over time, as being most appropriate. In this instance the public sector entity is providing a service to the payor (the ability to access the benefits associated with the license) over a period of time. Therefore, the method of revenue recognition which best depicts the transfer of goods and services would be over time. As further justification it is noted that the substance of this transaction is similar to that of a rental transaction. As the benefits revert at the conclusion of the term control is never completely transferred to the payor therefore recognizing the full revenue up front is inappropriate. In this scenario if the rights granted were not exclusive, the accounting treatment would be the same, with revenue to be recognized over time. In this situation, an entity would still be providing the service, access to the license/benefits, to an individual over a specified period with control reverting back to the public sector entity at the conclusion of the license term. However, it should be noted that the criteria described in paragraph .090 are overly prescriptive to the point of being confusing which adversely affects the understandability of the principle. As noted in question four, criteria of this sort eliminates an accountant’s ability to apply professional judgment when faced with the unique circumstances of a particular situation.


As previously stated, the recognition issues that have been identified in relation to exchange transactions are excessive. It appears that PSAB’s attempt to be “sufficiently robust” is creating guidance that addresses issues and aspects that are not even particularly developed in the existing guidance for publicly accountable entities (IFRS) and private enterprises (ASPE).

This is not appropriate given that the majority of revenues that occur from the perspective of senior governments are not from exchange transactions. The guidance for private enterprises, Section 3400 REVENUE, is much less prescriptive than the proposals of this SOP. Generally, Section 3400 describes recognition criteria and indicates that in in the case of rendering services and long term contracts, performance is to be determined using either the percentage of completion method or the completed contract method which ever relates the revenue to the work accomplished. It identifies issues such as cancellable sales arrangements, right of return arrangements, price protection and refundable fees; however, it does not describe prescriptive criteria in relation to recognition. As such issues are not elaborated upon within the private sector (where revenue transactions are predominantly exchange related) it is our position that they should not be included in a revenue standard in such a prescriptive manner for senior governments and government organizations. Therefore, any standard that may result from this project should not include any detailed guidance on performance obligations satisfied at a point in time or over a period of time, multiple performance obligations and especially combining contracts, modifications, repurchase agreements and put options. Existing guidance as well as the application of professional judgment is adequate to currently address accounting in the area of revenues.


The Province agrees with the distinction between refund liabilities and unearned revenues. The issue arises regarding the ability to know, upon receiving payment, if an amount will be refunded in the future and the ability to accurately measure this potential refund. The Province also feels that the decision to present a separate line item for refund liabilities is onerous. On a materiality basis refund liabilities would not material enough to justify this treatment.


Notwithstanding our position that it is not deemed necessary to develop extensive guidance in the area of revenues and PSAB intends to proceed with principle based guidance; the Province generally agrees with Principle 3. This method of accounting for unilateral revenues is most appropriate as it is the same criteria required to record tax revenues, the most common source of unilateral revenues for senior governments, as described in PS 3510.08.


While the two examples given are useful in a generic sense to illustrate the application of unilateral revenue recognition criteria associated with fines and penalties, it is noted that such specific examples in guidance could eliminate an entity’s flexibility to interpret situations based on the unique legislation across jurisdictions. While this standard seeks to improve the comparability of financial statements across jurisdictions; it is of upmost importance that jurisdictions be able to retain ability to reflect the reality of transactions in relation to its own policies and guidelines.


In relation to measurement, the Province does not support the inclusion of specific measurement guidance. It is to be noted per Section 3400.01 that “it does not deal with the measurement of revenue, which is usually determined by agreement between the parties involved”. In a similar manner, the measurement guidance for revenues from exchange transactions (variable consideration, allocation of consideration, changes in price, onerous performance obligations and contract costs) are not necessary for the public sector. These aspects can be accounted for based on substance of the

transaction (i.e. per agreements) through the application of professional judgment. Further, it is the position of the Province that the common issues relating to measurement (collectability, time value of money and non-cash consideration) are adequately dealt with in existing concepts and principles of the conceptual framework. The inclusion of these methods leads to excessively prescriptive measurement, eliminating the ability to apply professional judgment.


Notwithstanding our position that it is not deemed necessary to develop extensive guidance in the area of revenues and PSAB intends to proceed with principle based guidance; the Province generally agrees with Principle 4. When there are multiple performance obligations identified within a single contract, the total consideration should be allocated among the performance obligations. This ensures that the revenue recognized coincides with the transference of control over the goods/services provided. With that said, the Province believes the proposed standard should deal solely with recognition, not measurement. In situations where a portion of the transaction price must be allocated to performance obligations professional judgment should be applied to the unique circumstances to determine the amount.


No, the existence of multiple performance obligations within a single transaction is not a significant issue for the Province.


While the recording of onerous costs provides beneficial information to financial statements users of profit-oriented enterprises this benefit does not translate to the public sector as users are not as concerned about profitability. A public sector entity’s primary objective is to provide goods/services in the best interest of the public, not to demonstrate profitability. The estimation and recording of potential onerous performance obligations would contradict the historically-based nature of the information depicted on the financial statements. As a result, the Province agrees that onerous performance obligations should not need to be identified and recognized.


The Province agrees. Contract costs are not revenue and therefore, coverage associated with them should be addressed by another standard.


The Province disagrees with the extensive presentation and disclosure requirements principle 5 would entail. The Province believes that, due to the wide variety of revenue streams of a public sector entity, attempting to disclose the individual accounting policies associated with each (when performance obligation satisfied, etc.) would be too onerous a reporting requirement especially in relation to revenues that are not recurring activities. It is questioned whether this “information overload” would generate additional useful information for the user. The amount of detail proposed in relation to describing accounting policies applied appears to go beyond the requirements of PS 2100 DISCLOSURE OF ACCOUNTING POLICIES particularly from the aspect to include why methods chosen are a faithful depiction of the provision of goods and services.


No, there are no additional matters that need to be considered.




February 3, 2014




Name: Brian Jones/Bob Faulkner, Professional Practices

Organization: Office of the Auditor General of British Columbia


General comments:

Overall, we are supportive of the proposals in the Statement of Principles (SOP). In particular, we support the principle that the distinguishing feature of an exchange transaction is the presence of a performance obligation for the public sector entity. The challenges for public sector entities under this approach will be determining, for some transactions, whether an exchange has occurred in the first place (whether a performance obligation exists) and, if a performance obligation is present, determining whether the obligation is satisfied over time or at a point of time. This will be particularly challenging in instances where performance does not result in a recognizable asset. Proposed standards will need to strike a balance between clear application guidance to assist users in these determinations, while allowing for the application of professional judgement to specific circumstances.


Although not directly related to the proposed revenue standard, paragraph .004 of the SOP indicates “PSAB believes the framework and principles outlined are generally compatible with the following detailed standards in the PSA Handbook”. The sections noted include .004 (a) PS 3100 Restricted Assets and Revenue. However, the revenue recognition principles contained in PS 3100 are not consistent with the proposals underlying this SOP, or with the principles contained in PS 3410 and the SOP on not-for-profit accounting. Under PS 3100, externally restricted flows are recognized as revenue in the same period that the funds are used for the purposes intended; under PS 3410 and the SOPs, revenue is recognized when funds are received or receivable except when flows give rise to an obligation that meets the definition of a liability. PS 3100 is based on the outdated matching principle which is inconsistent with the liability model underlying these other standards/proposals. We encourage PSAB to reconsider the need to review PS 3100 to ensure compatibility with the new overarching revenue standard.


We agree that the identification of performance obligations is an appropriate method of distinguishing revenues associated with an exchange of goods and services from revenues such as fines and penalties that are unilateral by nature. This approach appears superior to the current approach underlying IPSAS 9 & 23 which views exchange transactions more

narrowly (i.e., exchange of items and consideration are of approximately equal value). Under the IPSAS method, there is a higher probability of specific revenues having characteristics of both exchange and non-exchange revenues, making classification more difficult. Although we cannot readily identify specific revenues that combine the characteristics of both exchange and unilateral revenues within the scope of these proposals, the possibility exists. In such circumstances, it is not clear whether revenues would need to be allocated and recognized separately, as is required under IPSAS 23. Additionally, we offer the following observations on the underlying definitions in paragraph .026 of the SOP: - Definition of performance obligations: we question whether the wording "...as a result of exchange transactions" is superfluous to the definition. - Definition of "payor": the wording "a party that enters into an exchange transaction" implies that a "payor" would not be party to a non-exchange transaction, although the term is also used in the definition for unilateral revenues in paragraph .032. This apparent inconsistency needs to be resolved. - Having two detailed definitions (exchange and unilateral) may create issues when a specific revenue combines characteristics of both. The Board should consider whether defining unilateral transactions is necessary (i.e., if it’s not an exchange transaction, by default it’s unilateral).


We agree that revenue should be recognized independent of collectibility (uncertainty related to collectibility is a measurement issue, not a recognition issue).


We agree with proposed Principle 1, that distinct goods and services should be accounted for as separate performance obligations.


We agree with proposed Principle 2, that revenue should be recognized based on the satisfaction of a performance obligation. We also agree with the proposal to assess recognition based on control of benefits from a “payors” perspective.


We agree that if the decision is the only performance obligation associated with a licence, then the fee is recognized at a point in time, and not over the term of the licence. However, timing of performance obligations for licences requires careful consideration. In our deliberations on the SOP we found that applying the definition of performance obligations to the licence example led to differing views. Using the renewal of the driver’s licence as an example, we had several views on what good or service was provided. The majority agreed that the issuance of a licence renewal for a fee is the performance obligation (this assumes the good or service is the administrative process of approving the renewal). Another view was the good or service was the “right” to drive on public roads for the term of the licence (use of a public asset), and therefore the performance obligation was met over time. Another view was the fee was associated with the costs to administer the system over the term of the licence (including enforcement costs relating to the drivers). This was further supported by the observation that a licence provides the payor with a direct economic benefit as a drivers licence is often a prerequisite for earning income and, therefore, the government has received consideration that entitles the licence holder to an economic benefit that will be realized over the period of the licence. The different views were partially due to the difficulty in comprehending and applying the criteria in paragraph .090(b) in circumstances where performance does not result in a recognizable asset. In this respect, we recommend that additional criteria be developed that specifically addresses categories of revenue unique to the public sector, such as licences. For

example, one such criteria could be that a public sector's lack of ongoing direct involvement over the term of a licence would indicate recognition at a point in time.


As in our response to question 6, there are differing views in our office as to whether the performance obligation has been met when the licence is granted. The majority believe that where the licence holder determines when and how to use the benefit, control of the “asset” has been transferred to the licence holder at licence inception and, therefore, performance obligations have been satisfied at that point in time. However, there is a minority who support the view that the public sector entity has an ongoing performance obligation to provide access to the benefit over the term of the licence and, therefore, performance obligations are satisfied over time. This view would not likely change if the right granted to the licence holder was not exclusive because it does not change the substance of the obligation to provide access. We would caution here about being too prescriptive in the proposed standard because ultimately the evidence of performance obligations will be assessed against the underlying legislative authority (statute/regulations) supporting the licence. For example, factors embedded in the authority such as rules over the pricing of the licence (e.g., differential pricing) or provisions for refunds during the term of the licence, might impact the timing of revenue recognition. Therefore, PSAB will have to strike a delicate balance between providing sufficient application guidance to ensure consistency and allowing for the application of professional judgement to each circumstance.


We agree with the proposed approach regarding measuring progress towards complete satisfaction of a performance obligation. Although we cannot envision an example of combined contracts, conceptually we agree with the proposed approach.


We agree with the distinction between refund liabilities and unearned revenue.


We agree with proposed Principle 3, that unilateral revenues should be recognized when there is authority to claim economic resources from another party and a past event gives rise to the claim.


We agree with the approach in the table illustrating recognition events associated with fines and penalties.


We agree with the two methods proposed for instances of variable consideration (expected value or the most likely amount). We could not identify any specific examples where variable consideration would be received. However, conceptually we agree with the proposed approach. It would be useful to provide a public sector example to demonstrate when and how the approach might be used.


We agree that a general principle (as proposed in Principle 4) is an appropriate approach in the circumstances. We have no issues with respect to the methods proposed to allocate the transaction price, however. we believe the expected cost method (without margins) will be the most relevant to measure performance obligations in the public sector.


Transactions with multiple performance obligations have not been a reporting issue in the past for the organizations we audit.


We agree with the proposal that public sector entities should not be required to identify and separately recognize onerous performance obligations.


We agree that contract costs should be expensed unless they give rise to a tangible capital asset or inventory.


We are in general agreement with proposed Principle 5 on presentation and disclosure.


1) We believe the decision tree included as an appendix should be expanded to provide further guidance on the key decisions on the timing of performance obligations. Specific questions on decisions related to identification of performance obligations tied to the provision of a good or service would be helpful, for example, "does performance result in a recognizable asset?" or "does the entity have a continuing involvement after initial recognition", etc. 2) If paragraph .077 is carried forward to the Exposure Draft, we recommend deleting the second sentence which refers to Contingent Liabilities. Under PSAS, a warranty obligation is recognized as a liability, not a contingent liability. There is nothing uncertain about whether the liability exists (existence uncertainty); any uncertainty is related solely to the amounts thereof (measurement uncertainty). Therefore, PS 3300 does not apply to a warranty liability.

3) Please consider inclusion of specific public sector examples (similar to IASB in their revenue ED) that illustrate how an entity might apply some of the requirements of the standard, in particular the ancillary recognition issues associated with public sector revenue.


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2014-01 Revenue Responses

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