Now Available! Meeting Report from Public Sector Accounting Discussion Group Meeting – November 13, 2025

Application of the Generally Accepted Accounting Principles (GAAP) Hierarchy and the Amendments to IFRS 9 Financial Instruments

Section PS 1150, Generally Accepted Accounting Principles, defines PSAB’s GAAP hierarchy. This standard provides the primary sources of GAAP that are applicable for public sector entities reporting under the CPA Canada Public Sector Accounting (PSA) Handbook. This GAAP hierarchy should be referred to and applied when no pronouncement exists for a particular topic, transaction, or event within the PSA Handbook, or when further clarification relating to an existing pronouncement within the PSA Handbook is required.

When another standard setter amends a standard that is similar to one in the PSA Handbook, questions may arise as to whether similar amendments or interpretations apply to the standard in the PSA Handbook.

The Group examined the application of this topic using the International Accounting Standards Board’s (IASB) amendments to IFRS 9 Financial Instruments issued in May 2024 (the IFRS 9 amendments) as a practical example.

The IFRS 9 amendments address the timing for derecognition of an existing trade receivable asset (by the vendor) or trade payable liability (by the customer), and the corresponding recognition or derecognition of the cash payment (by both counterparties). The IFRS 9 amendments permit earlier derecognition of financial liabilities settled through electronic payment systems if certain criteria are met, one of which being that the settlement risk associated with the electronic payment system is insignificant (paragraph B3.3.8(c) of IFRS 9).¹ This early derecognition option, however, is not available for other payment settlement formats (e.g., payments settled via cheques), since the IASB considered these other payment formats are subject to a more than insignificant degree of settlement risk, until the cash is delivered (paragraph BC3.55 of the Basis for Conclusions for IFRS 9).²

Specifically, while the financial liabilities derecognition guidance provided in paragraph 3.3.1 of IFRS 9 remains unchanged,³ the IFRS 9 amendments have added new application guidance in paragraph B3.1.2A of IFRS 9 to clarify that a financial liability must be derecognized “on the settlement date.”⁴

Adopting a settlement-date approach for the derecognition of financial liabilities and cash under the IFRS 9 amendments may have significant impacts for entities reporting under IFRS Accounting Standards that do not make payments through electronic payment systems. For example, when considering cheque payments, although the historical practice under IFRS Accounting Standards was that a financial liability and the related cash could be derecognized upon issuance of the cheque (i.e., being the date the cheque is physically mailed out by the payor), this practice is no longer permitted under the IFRS 9 amendments for payments not made through electronic payment systems (e.g., cheques). Instead, the earliest that a financial liability (and related cash) may be derecognized under the IFRS 9 amendments (in a cheque-payment scenario) is when the cheque has cleared the customer’s bank account, which typically occurs later than the cheque issuance date.

Conversely, no similar changes relating to the derecognition of liabilities have been made under the Public Sector Accounting Standards (PSAS) framework. Therefore, the IFRS 9 amendments might be viewed as giving rise to a GAAP difference in the treatment of cash between the IFRS Accounting Standards framework versus other accounting standard frameworks (e.g., PSAS) in a financial liability derecognition transaction. Despite this, it must be noted that the wording in Financial Instruments, paragraphs PS 3450.042-.043,⁵ are very similar to the existing wording in paragraph 3.3.1 of IFRS 9³ and the new wording in paragraph B3.1.2A of IFRS 9.⁴ This similarity may result in some interested and affected parties reporting under PSAS to consider whether, in substance, the IFRS 9 amendments’ treatment for cash payments not made through electronic payment systems may be applicable under the PSAS framework.

The purpose of this submission was to consider the applicability of the GAAP hierarchy within PSAS as it relates to the IFRS 9 amendments, and to determine whether the updates made under the IFRS 9 amendments need to be considered by public sector entities reporting under PSAS.

The Group was asked to consider the following scenario when discussing its views:

Entity A is an other government organization, as defined in the Introduction to the PSA Handbook. Entity A prepares PSAS financial statements and has a
March 31 financial year-end date. During the year, Vendor provides a service to Entity A, which results in Entity A recognizing a trade payable to Vendor for
an amount that is considered material to Entity A’s financial statements. On March 25, Entity A issues a cheque to Vendor to settle the material trade payable.
On April 2, Entity A observes that the cash has been withdrawn from its bank account.

Issue: Should Entity A continue with its historical practice and derecognize its trade payable to Vendor on the date of the cheque issuance?

The Group was asked to discuss the following views relating to Entity A’s consideration of the IFRS 9 amendments:

View A: Yes – Entity A would continue with its historical practice.

Entity A would continue its historical practice, as practitioners have not raised any significant concerns regarding this continued treatment, the applicable PSAS guidance has not changed, and changes to other frameworks should not mandate changes to PSAS financial statements.

View B: No – Entity A would not continue with its historical practice.

Entity A would not continue its historical practice, as doing so would result in different accounting than IFRS Accounting Standards for cash, despite the nearly identical wording of PSAS and IFRS Accounting Standards for the relevant guidance, and the existing PSAS guidance could support a settlement-date approach.

View C: It depends – Entity A would have a policy choice to make.

Entity A would have to make a policy choice based on application of Section PS 1150 guidance.

Summary

All Group members supported View A, citing the following:

• No change was implemented under the PSAS guidance.
• PSAS has an existing standard (Section PS 3450, Financial Instruments) addressing this particular issue.
• PSAS is the authoritative source for Canadian public sector entity financial reporting and this framework is not secondary to any other accounting frameworks, including IFRS Accounting Standards.
• Changes to IFRS Accounting Standards do not automatically trigger changes to PSAS. Specifically, IFRS Accounting Standards changes may not be directly incorporated or adopted by the International Public Sector Accounting Standards (IPSAS) in the same form. Furthermore, even if a change in IFRS Accounting Standards is incorporated into IPSAS, PSAS are not automatically amended as a result. PSAB does, however, leverage IPSAS principles when developing new PSAS.
• The existing historical practice adopted by preparers of PSAS financial statements is well established and provides consistency and comparability for financial statement users.
• No gaps or diversity in practice exist under the current PSAS guidance, and financial statement users have not advocated for any equivalent updates to be made in PSAS.
• Any PSAS changes or amendments must follow PSAB’s due process, rather than external developments.

In addition to supporting View A, some Group members noted that View C had some technical merit in allowing for a policy choice when a public sector entity needs to develop a new accounting policy (e.g., when dealing with a new transaction). They cited the following arguments in support of this view:

• room for interpretation exists under PSAS wording (“by paying the creditor”) to support allowing a policy choice; and
• professional judgment and financial statement user needs should guide accounting policy decision making.

A few Group members, however, raised some concerns relating to the practicality, system impacts and consistency of applying the IFRS 9 amendments in practice (e.g., how to determine when the cash payment has been received by the counterparty, resources involved in software system updates that may be required, etc.).

While a Group member commented that they did not believe that the IFRS 9 amendments would drive any changes in practice within the public sector, the Group recommended that PSAB proactively monitor the International Public Sector Accounting Standards Board’s (IPSASB) developments relating to its adoption of the IFRS 9 amendments. Consideration will be given as to whether PSAB will provide a response to a future IPSASB exposure draft on this matter and whether any other clarifications may be needed.

 

---

Back to top

 

Subsequent Measurement of Asset Retirement Obligations (AROs) – Application Issues

Section PS 3280, Asset Retirement Obligations, applies to AROs associated with tangible capital assets controlled by a public sector entity that are in productive use and those that are no longer in productive use.

Section PS 3280 stipulates that the measurement of an ARO liability should result in the best estimate of the amount required to retire a tangible capital asset. This requires professional judgment and, in some cases, the help of other experts. The standard also notes that the carrying amount of an ARO liability should be reconsidered at each financial reporting date and given its long-term nature, the measurement of the amount is likely to change over the useful life of the tangible capital asset.

The submission’s purpose was to discuss the following issues relating to the subsequent measurement of AROs.

Issue 1: Inflationary impacts – how does the current inflationary environment impact the carrying amounts of ARO liabilities?

The Group was asked to discuss the following views about whether inflationary assumptions should be considered when determining the subsequent measurement and valuation of ARO liabilities:

View A: Include inflation assumptions

Inflation assumptions should be incorporated into the measurement and valuation of ARO liabilities.

View B: Do not include inflation assumptions

Inflation assumptions should be ignored in the measurement and valuation of ARO liabilities (i.e., inflation impacts will be automatically factored in during the formal ARO reassessment process).

Summary

Most Group members agreed that regardless of the treatment applied, internal consistency in the assumptions and valuation methodology being applied is the most important factor to consider. For example, inflation assumptions should be incorporated if a nominal discounted cash flow model is applied (both within the discount rate and the cash flow assumptions applied). Conversely, entities using the current cost method would exclude inflation assumptions as these would be captured through the cost estimations obtained during the ARO reassessment process.

Several Group members acknowledged that, in certain circumstances, inflation assumptions may materially impact assets that have long useful lives due to the compound effects over time (e.g., 100 or more years), and that the treatment in practice (i.e., for including versus excluding inflation assumptions) may vary across different asset classes within a public sector entity and across different public sector entities.

The Group also discussed ARO reassessment frequency. While paragraph PS 3280.49 specifies that “[t]he carrying amount of a liability for an asset retirement obligation should be reconsidered at each financial reporting date,” a Group member identified that a gap may exist under Section PS 3280, as the standard does not address the frequency that an ARO reassessment is required to be performed. This ultimately may negatively impact the accuracy of the ARO liability on a subsequent measurement basis. Accordingly, the Group recommended that PSAB consider establishing clearer guidance to address the frequency over which ARO reassessments may be required. See Issue 3 for more discussion on the topic.

Issue 2: How should updated information, assumptions or both be considered in the subsequent measurement of an ARO liability?

The Group was asked to consider the following scenario when discussing their views:

Municipality ABC recently sold a hospital. In preparation for the sale, the asbestos in the building needed to be removed or remediated. The actual costs incurred to remove the asbestos were significantly higher than the estimated amount recognized as the ARO liability associated with that tangible capital asset. At initial recognition of the ARO liability, the hospital was considered a representative example for geographically close buildings of a similar age. Accordingly, Municipality ABC and its experts used the hospital as a proxy for estimating the remaining ARO liabilities within its building asset class. Note: this example is provided solely to help facilitate a discussion of the different views among Group members. While Group members may support a specific view for this example, it is important to note that these views may change or differ depending upon the specific facts and circumstances involved as it relates to each specific case or transaction.

The Group was asked to discuss the following views relating to how the under-adjustment identified within the scenario should be treated as it relates to Municipality ABC’s remaining portfolio of ARO liabilities. (Note that under the following views, reference has been made to both under/over-adjustments, as other situations may arise where an over-adjustment scenario may occur).

View A – Extrapolate

Extrapolation of the under/over-estimation adjustment across the remaining asset class of ARO liabilities is appropriate.

View B – Do not extrapolate

Extrapolation of the under/over-estimation adjustment across the remaining asset class of ARO liabilities is not appropriate.

View C – Partially extrapolate

Partial extrapolation of the under/over-estimation adjustment is appropriate (e.g., across specified assets or subcategory of the portfolio).

View D – Insufficient information

Insufficient information currently exists, so further consultation with experts (both internal and external) is required before considering any extrapolation or other measurement techniques. Under these circumstances, note disclosure considerations may be appropriate.

Summary

Most Group members supported View D, citing the following:

• The need for expert input would be required as insufficient information exists under this scenario to support extrapolating the under/over-adjustment over the entire population of remaining ARO-related assets.
• Professional judgment is required to determine the relevance of the under/over-adjustment identified against the other asset categories within the public sector entity’s ARO portfolio.
• It is important to gain an understanding of the underlying cause generating the deviation (i.e., was this under/over-adjustment an outlier, or indicative of the whole population?).
• Extrapolation of the under/over-adjustment would only be valid if corroborating evidence exists to support that the under/over-adjustment is representative across the remaining portfolio of ARO-related assets.
• The risk and materiality of misstatement must be considered if extrapolation is done with insufficient evidence.

Several Group members also acknowledged the merits of View C, based on the following rationales:

• Partial extrapolation would be preferred over blanket adjustments across Municipality ABC’s entire portfolio of ARO liabilities.
• Partial extrapolation may be appropriate for similar assets or subcategories.
• Conducting a full revaluation exercise could prove to be quite resource intensive, and thus both the costs and benefits of conducting this revaluation exercise must be carefully examined.
• New factors, events, or information may drive the need for the public sector entity to consider performing ARO reassessment(s) earlier than originally planned (e.g., increase in construction price index, discovery of new information, etc.).

During the discussion, some Group members raised the topic of inflation-related adjustments. They noted that if an inflation-driven under-adjustment was identified, then this may justify a broader extrapolation of the adjustment across the remaining portfolio of assets.

Finally, the Group discussed whether the historical sale of a similar or related asset with an underlying ARO liability may provide useful audit evidence for the measurement and valuation of an existing ARO liability. A Group member noted that it would be important to understand the nature or source of the gain/loss generated to help determine whether it was attributable to the tangible capital asset on hand, or to the ARO liability itself. That is, it could involve a valuations expert to determine the relative fair value allocation of the tangible capital asset on an unencumbered basis (i.e., without considering the ARO attached to it).

Ultimately, the Group concluded that while the sale of assets with AROs may provide useful audit evidence, it cautioned that this evidence must be carefully interpreted. A few Group members highlighted the importance of discussing any ARO re-estimation assumptions made with an auditor. They also noted that auditors would still investigate any material misstatements that were identified, regardless of the ARO reassessment policy applied by the public sector entity.

Issue 3: Roundtable discussion: When does new information trigger an ARO reassessment and to what extent?

Under Issue 1, paragraph PS 3280.49 specifies that ARO liabilities “should be reconsidered at each financial reporting date.” Through this ARO reconsideration process, however, a public sector entity may identify a need to reassess its ARO(s) due to changing factors.

The Group was asked to discuss the various factors or indicators that may trigger the need for an ARO reassessment.

Roundtable discussion

The Group discussed that information relating to the following indicators may trigger the need for an ARO reassessment:

• regulatory/legal changes or interpretations;
• technological advances;
• market-condition changes;
• environmental standards, events or factors (e.g., forest fires, changing water levels, new or changes made to environmental standards issued, etc.);
• tangible capital asset impairments or experience with other related assets;
• new knowledge;
• third-party expert reports;
• internal policy changes;
• actual abatement costs incurred (and any related gain/loss generated on settlement of an ARO liability);
• unexpected events (e.g., contamination); and
• demolition or major renovations.

A Group member suggested that regulatory changes may be more heavily weighted as an ARO reassessment indicator. However, most of the Group agreed that none of the listed indicators should be weighted more or less for ARO reassessment considerations. Instead, most of the Group agreed that the materiality and significance of each factor would drive the need for an ARO reassessment, rather than the quantity of indicators (i.e., no fixed number of indicators exist that dictates the need for an ARO reassessment). The Group also emphasized the importance of exercising professional judgment when determining whether an ARO reassessment would be required.

Finally, the Group discussed how often AROs need to be reassessed. One Group member supported annual ARO reassessments at each reporting date. Several other Group members supported annual reconsideration of the ARO assumptions being applied, but only reassessing the ARO in accordance with the public sector entity’s accounting policy (e.g., every three to five years), unless any triggering indicators are identified earlier. A few Group members also supported the idea of more frequent ARO reassessments during high-inflationary periods, while several others supported the view that an ARO reassessment should be initiated once a public sector entity begins incurring actual abatement costs, as this would ultimately help to inform on the ARO reassessment process itself.

 

---

Back to top

 

Considerations for Subsequent Events Disclosures

Section PS 2400, Subsequent Events, establishes the framework for identifying and accounting for events that occur between the financial statement date and the date the financial statements are completed. During this period, issues may arise that require consideration as to how they may affect the general-purpose financial statements. In recent years, significant events have occurred during subsequent events periods more often (e.g., changing economic conditions and related government initiatives to respond to these events, geopolitical changes impacting international trading relationships, etc.).

Consequently, public sector entities need to analyze subsequent events to determine whether:

• they provide evidence of conditions existing at the financial statement date, and thus should be considered when recognizing and measuring elements in the financial statements (“adjusting subsequent events”; see paragraph PS 2400.09⁶); or
• they indicate conditions arising subsequent to the financial statement date (see paragraph PS 2400.10⁷) and would be considered for disclosure but not for recognition and measurement (“non-adjustment subsequent events”).

In certain instances, the determination may be material, thus adding to the public sector entity’s resources that must be allocated to address the issue.

The Group was asked to discuss the following questions relating to subsequent events that have occurred.

Issue 1: Adjusting versus non-adjusting event

The Group was asked to consider the following scenario when discussing whether trading restriction updates made during the subsequent events period would qualify as an adjusting or non-adjusting event:

Near the end of a fiscal period, a foreign government implemented significant international trading restrictions, affecting Canadian Public Sector Entity
(PSE) A. The widespread effects are expected to negatively affect both the overall economy and sector-specific entities. However, the timing of the trading restrictions has had no significant effect on PSE A at the financial statement reporting date.

At the financial statement date, PSE A assessed that the trading restrictions could have a significant effect on various financial statement line items (e.g.,
other revenues, taxes receivable, etc.) in the subsequent reporting period. Preliminary assessments completed at, or near the financial statement date,
however, have determined that PSE A’s operations for the current fiscal year should not be significantly impacted.

During the subsequent events period, several trading restrictions were removed, while some new trading restrictions were introduced. The situation continues
to evolve from week to week. Given the degree to which the situation is evolving, PSE A has been unable to assess the potential overall impact of these
trading restrictions at the date of financial statement completion. This is determined to be an unusual event.

The Group was asked to discuss the following views relating to whether the trading restriction updates made during the subsequent events period would qualify as an adjusting or non-adjusting event:

View A – Adjusting event

The trading restriction updates made during the subsequent events period would qualify as an adjusting event for PSE A’s financial statements.

View B – Non-adjusting event

The trading restriction updates made during the subsequent events period would qualify as a non-adjusting event for PSE A’s financial statements.

Summary

Most Group members supported View B, citing that:

• existing information is insufficient to quantify the adjustment;
• trading restrictions are rapidly changing and evolving;
• PSE A determined that no significant impacts exist for the current fiscal year;
• adjusting events require evidence of conditions existing at the financial statement date, which are not present under this scenario; and
• providing disclosure of the trading restrictions may help to satisfy the financial statement user’s needs (i.e., acknowledgement of the situation), without needing to quantify a financial statement adjustment.

Finally, one Group member also acknowledged that recording a financial statement adjustment could have significant downstream implications for PSE A (e.g., credit agency rating impacts, downgrading of debt rating, going concern considerations, etc.).

Issue 2: Financial statement note disclosures

Applying the same scenario as provided under Issue 1, the Group was asked to consider the following views for determining whether the trading restrictions made during the subsequent events period would qualify for financial statement note disclosure by PSE A.

View A – Yes: Include as financial statement note disclosure

Ongoing uncertainty tied to the trade restrictions implemented by the foreign government is a non-adjusting subsequent event and should be disclosed within the financial statement notes.

View B – No: Do not include as financial statement note disclosure

Instability associated with the ongoing uncertainty tied to the foreign government-implemented trade restrictions does not require additional disclosure.

Summary

Most Group members supported View A, citing that:

• PSE A assessed that the future impact of these trading restrictions could be significant;
• the trading restrictions are a known event that may affect the future decisions, operations and/or the financial statements’ usefulness for the users;
• paragraph PS 2400.13(b)⁸ supports disclosure when an event “will or may” affect future operations; and
• disclosure enhances transparency for the financial statement users, even when the impact is indeterminable.

A few Group members favoured View B but also suggested including the disclosure in the financial statement discussion and analysis (FSD&A), rather than in the financial statement notes, due to the uncertainty surrounding this evolving situation, and the difficulty in quantifying its overall impact.

The Group noted that it is important to assess the overall materiality of the issue when determining the appropriateness of the issue for disclosure (i.e., whether through the financial statement notes or the FSD&A). The Group also emphasized the importance of exercising professional judgment when determining this.

Finally, a few Group members acknowledged that the level of disclosure required for the same event may differ depending upon the level of government or public sector entity in question (e.g., federal, provincial, or municipal).

 

---

Back to top

 

¹ Paragraph B3.3.8 of IFRS 9 states: “Despite the requirement in paragraph B3.1.2A to derecognise a financial liability on the settlement date, when settling a financial liability (or part of a financial liability) in cash using an electronic payment system, an entity is permitted to deem the financial liability (or part of it) to be discharged before the settlement date if, and only if, the entity has initiated a payment instruction that resulted in:

(a) the entity having no practical ability to withdraw, stop or cancel the payment instruction;
(b) the entity having no practical ability to access the cash to be used for settlement as a result of the payment instruction; and
(c) the settlement risk associated with the electronic payment system being insignificant.”

² Paragraph BC3.55 of the Basis for Conclusions for IFRS 9 states: “Electronic payment systems establish a controlled environment for cash transfers so that the risk of the cash not being delivered to the creditor is minimal (or de minimis). This is because these electronic payment systems follow a standard administrative process to complete transactions. For other payment methods, such as cheques, completion of the payment remains subject to settlement risk that is more than insignificant until the cash is delivered (that is, transferred from the payer's account). Consequently, the IASB decided not to expand the scope of the requirements beyond electronic payment systems.”

³ Paragraph 3.3.1 of IFRS 9 states: “An entity shall remove a financial liability (or a part of a financial liability) from its statement of financial position when, and only when, it is extinguished – ie when the obligation specified in the contract is discharged or cancelled or expires.”

⁴ Paragraph B3.1.2A of IFRS 9 states: “Unless paragraph 3.1.2 applies, an entity shall recognise a financial asset or financial liability on the date on which the entity becomes party to the contractual provisions of the instrument (see paragraph 3.1.1). A financial asset is derecognised on the date on which the contractual rights to the cash flows expire or the asset is transferred (see paragraph 3.2.3). Unless an entity elects to apply paragraph B3.3.8, a financial liability is derecognised on the settlement date, which is the date on which the liability is extinguished because the obligation specified in the contract is discharged or cancelled or expires (see paragraph 3.3.1) or the liability otherwise qualifies for derecognition (see paragraph 3.3.2).”

⁵ Paragraph PS 3450.042 states: “A government should remove a financial instrument liability (or part of a financial instrument liability) from its statement of financial position when, and only when, it is extinguished (i.e., when the obligation specified in the contract is discharged or cancelled, or expires).”

Paragraph PS 3450.043 states: “A financial instrument liability (or part of a financial instrument liability) is extinguished when the debtor either:

• discharges the liability (or part of it) by paying the creditor, normally with cash, other financial instrument assets, goods or services; or
• is legally released from primary responsibility for the liability (or part of it) either by process of law or by the creditor. (When the debtor has given a guarantee, this condition may still be met.)”

⁶ Paragraph PS 2400.09 states: “Financial statements should be adjusted when events occurring between the date of the financial statements and the date of their completion provide sufficient, additional evidence relating to conditions that existed at the date of the financial statements.”

⁷ Paragraph PS 2400.10 states: “Adjustment of the financial statements for subsequent events is not appropriate if such events do not relate to conditions existing at the financial statement date. To reflect the effect of such events would not be consistent with the concept that a statement of financial position represents the financial position of a public sector entity at the financial statement date.”

⁸ Paragraph PS 2400.13 states: “Financial statements should not be adjusted for, but disclosure should be made of, those events occurring between the date of the financial statements and the date of their completion that do not relate to conditions that existed at the date of the financial statements but:

(a) cause significant changes to assets or liabilities in the subsequent period; or
(b) will, or may, have a significant effect on the future operations of the public sector entity.”

 

---

Back to top