Revenue

The Proposal
The Statement of Principles, Revenue, proposes definitions and principles applying to a broad range of revenues public sector entities report on. Responses are requested by January 10, 2014. What revenues do the proposals apply to? The proposals apply to exchange transactions involving a sale of goods or services. One or more performance obligations are always associated with an exchange transaction. The proposals also cover other forms of revenue that do not involve an exchange, such as fines and penalties. These revenues are categorized as unilateral revenues. These revenues are unilateral in their nature as a payor receives no direct economic benefit in return. Why are these proposals important? With these proposals, PSAB aims to enhance the consistency of revenue recognition and its measurement. Enhancing the reliability of amounts reported as revenue should increase the usefulness of financial reports. How would the recognition of revenue be affected? Adoption of these principles would result in a need to assess current accounting policies. In the case of revenues arising from an exchange, a public sector entity must ensure the recognition of revenue aligns with the satisfaction of related performance obligations. For unilateral revenues, recognition occurs when there is authority to record the revenue and an event has happened that gives the public sector entity the right to the revenue. The same basis of recognition applies when reporting on taxes. The proposals also clarify how PSABs present general recognition criteria apply to revenue. Revenue is not reduced upon initial recognition simply because collectibility is uncertain. When collectibility is uncertain, a corresponding allowance for doubtful accounts is established for the associated receivable. Will reporting on taxes, government transfers, and contributions be affected? Standards already in place for taxes and government transfers will continue to apply. Principles that apply to contributions are currently being reviewed as part of the Joint Not-for-Profit Review. What are the next steps? Once comments on this Statement of Principles have been received and discussed, PSAB will prepare a draft standard and expose it for comment.
The Public Sector Accounting Board (PSAB) was created to serve the public interest by establishing accounting standards and providing guidance for financial and other performance information reported by the public sector. Final standards are issued in the CICA Pubic Sector Accounting Handbook.

Adoption of these principles would result in a need to assess current accounting policies for revenues.

Revenue in Plain Language, August 2013