Public Sector Accounting Board - Exposure Draft on Revenue
October 24, 2017
On May 1st, 2017 the Public Sector Accounting Board (PSAB), a division of Financial Reporting & Assurance Standards Canada , released its Exposure Draft on Revenue. Comments were accepted on the draft document prior to August 15 and the board will be reviewing those comments between September 2017 and June 2018, when the Exposure Draft is expected to become effective as part of the CPA Handbook. The Exposure Draft was written to address a recognized lack of guidance with respect to revenue recognition in the public sector. This deficiency has resulted in inconsistent revenue recognition between various public sector bodies, which has reduced the value of comparisons between like organizations. It was clear that a prescribed solution was needed.
In its Exposure Draft, PSAB defines what is meant by “revenue” and then establishes principles for the recognition of various revenue types. The document defines revenues as “increases in economic resources, either by way of increase of assets or decreases of liabilities, resulting from operations, transactions and events of the accounting period.”
Certain types of revenue are specifically excluded from the scope of the Exposure Draft. These exclusions are Tax Revenue, Government Transfers, Restructuring Transactions, Financial Instruments, Revenue from Government Business Enterprises, and Revenue from Government Partnerships. Revenues that are addressed include revenues generated from the sale of goods or the provision of services, defined as “Exchange Transactions”, facility rentals for example, as well as certain types of revenue that are received but there is no obligation to provide goods or services in return, defined in the exposure draft as “Unilateral Transactions”, such as fines.
With respect to Exchange Transactions, the Exposure Draft states that revenue should be recognized only when the public sector entity satisfies the performance obligation by the provision of the promised goods or services to the payor. Revenue should be recognized when it is earned – not in advance. This requirement may pose a challenge to many Canadian provinces who offer municipal recreation and other facilities for rent. For municipalities who currently utilize recreation software that isn’t integrated into their overall financial software platform, revenue is typically recognized as it is collected, not necessarily when it is earned. An individual books the hall at the arena for a wedding reception and pays a substantial deposit a year in advance to secure their booking. The revenue for the booking is recorded when the advance payment is deposited into the municipality’s bank account, a year before the revenue is earned. This method of revenue recognition won’t be acceptable once the Exposure Draft becomes part of the CPA Handbook in 2018.
In order to comply with the new PSAB rules when they come into effect, municipalities need to reflect these advance payments as credits on their balance sheet until such time as the revenue is actually earned or the service is provided, at which time the credits need to be moved to the income statement and the revenue recognized. They need a way to post an advance payment to a customer’s account in Accounts Receivable, taking the advance payment and posting it as a credit on the balance sheet, while maintaining a link between the payment and an invoice that hasn’t been issued yet. The invoice for the rental which will be generated once the rental has taken place and the revenue has been earned. A facility scheduling software product that offers full integration with the municipality’s financial accounting system will be an invaluable tool in assisting municipalities to comply with the proposed revenue recognition rules.
The Keystone Facility Scheduler module is fully integrated with the Keystone General Ledger and the Keystone Accounts Receivable modules. As part of the USTI family, we are also able to offer integration with asyst Accounts Receivable and asyst General Ledger. The module offers full facility booking functionality as well as financial integration that facilitates compliance with the new PSAB revenue recognition rules. You can:
- Define as many facilities as necessary
- Create customized lists of rates for each facility
- Create contracts for customers with bookings for specific facilities/dates/times
- Print contracts for signature using the template provided or using a custom template you can create yourself
- Perform searches for availabilities for specific facilities/dates/times
- Choose to invoice customers one time at the end of the contract or monthly
- Specify payment schedules for customers where payment is desired prior to the booking
- Apply payments to contracts which in turn are applied as credits to the customer’s A/R account
- Invoice contracts at a point in time that meets with the new PSAB guidelines for revenue recognition
- Print a contract statement reflecting all payments/invoices for a contract and the current balance outstanding
With the addition of the optional web integration interface, you can even post your facility calendars on your website so prospective customers can check availability and create a booking request.
With the Keystone Facility Scheduler module you will be ready to face the challenges posed by the new PSAB revenue recognition guidelines.