Accounting Procedures for Purchase of Capital Assets

Res #: 11-03A
Number: 11
Year: 2003
Midterm: No
Expired: Yes
Responses Received: No
Departments: Saskatchewan Government Relations

Resolution No. 11-03A

WHEREAS, rural municipalities in the Province of Saskatchewan have traditionally followed a modified basis of accounting and have used fund accounting as a means to provide for the accounting of a capital asset acquisition such as a motorgrader or other piece of road construction equipment; and

WHEREAS, the Saskatchewan Department of Government Relations and Aboriginal Affairs has recently changed the significant accounting and reporting policies for rural municipalities as well as the format of the Annual Financial Statements for rural municipalities; and

WHEREAS, these changes now require that the full cost of a capital asset purchase be fully reported as an expense in the year the asset is acquired; and

WHEREAS, this "new" method accounting and reporting restricts the budget flexibility for rural municipalities that need to acquire road construction or road maintenance equipment and wish to expense that cost over time;

THEREFORE BE IT RESOLVED, that SARM lobby the Province of Saskatchewan to permit rural municipalities to follow a modified basis of accounting and utilize the fund accounting wherein that portion of a capital asset acquisition that is financed from current operations would be included as a current expenditure and the principal repayments of any long-term debt incurred to acquire a capital asset would be included as an expenditure in the fiscal period during which it is paid.

Response from the Honourable Ron Osika, Minister of Government Relations:

Section 70(1) of The Rural Municipality Act, 1989 requires municipal financial information to be presented in accordance with generally accepted accounting principles for local government as recommended by the Canadian Institute of Chartered Accountants and the Public Sector Accounting Board (PSAB).

The new financial statement was developed in partnership with the Rural Municipal Administrators Association of Saskatchewan, the Urban Municipal Administrators Association of Saskatchewan, the Saskatchewan Institute of Chartered Accountants and others, to address the needs of all stakeholders. Other local government jurisdictions across the country are already reporting to these standards or are in the process of moving towards these standards.

Municipalities still have the ability to use fund accounting in order to more clearly identify activities within current operating, capital and reserve funds. For purposes of reporting to external parties, internal transfers between the various funds are to be removed in order to comply with generally accepted accounting principals established by PSAB. The previous use of modified accounting methods and its reporting structure fell short of these generally accepted accounting principles.

A municipality's ability to plan and budget for capital assets is not impaired by the new accounting requirements. The new statement continues to reflect amounts that are contributed from current operations to the acquisition of capital assets, and includes the amount of principal repaid on a municipality's long-term debt. Municipalities have the option to enhance this information within the notes to the statements.