EY Financial Reporting Developments webinar for not-for-profit and government organizations

Diana Brouwer:

Welcome, everyone. Welcome to EY's Annual Financial Reporting Development Series that's focused on the government and Not-for-Profits. My name is Diana Brouwer, an Assurance Partner based out of our Toronto office and EY Canada's Not-for-Profit leader. This is our second year. We're doing a virtual presentation, presenting to an audience across Canada. Today, we have over 450 people registered for the event. As a reminder, by attending this event today, you will receive CPE. An email will come out within the week with your CPE. And in addition, it will be a link to the replay, and a copy of the presentation will be provided to everyone who is registered, regardless. If you're able to attend the live session. We do have a tight agenda today So, we won't have time to take questions at the end of each presenter. If there is time at the end, we can try to respond to some of your queries. Otherwise, we will respond to each of you individually within the next few weeks on anything that is submitted through the chat on this webcast. Alternatively, don't hesitate to reach out directly to your EY contact or any of our speakers that are here with you today. So, today for our presenters, we have returning a few presenters that you've seen in the past. We've got Jan Pedder, Sharron Coombs, and Kathi who have presented with us in the past. And new this year, we have Mita and Sonia who have joined us together with Sunniya who will be doing a presentation as well. Today's agenda is going to cover. So, Jan, an Associate Partner in our Indirect Tax Group will be covering Indirect Tax updates for us today. Sharron Coombs, again out of our Tax Compliance Group will be doing a discussion on the registered charities and Not-for-Profits and Income Tax update, in that regard. Kathi Aspros, who's an Associate Partner in our Assurance Services Group will do an annual update on part 2 and part 3 of the CPA Canada handbook, that's covering our Not-for-Profit organizations. And then that will be followed by two of our Associate Partners out of our Ottawa office, Mita Meyers and Sonia Leblanc, who will cover the public sector accountings standards together with the 4,200 series. And then, new this year, a hot topic is on ESG. We have Sunniya who will be dealing with the ESG issues and upcoming disclosures. So, with that, I will turn it over to Jan Pedder to kick off our session on Indirect Tax updates.

Jan Pedder:

Good morning, everyone. Thanks for joining us. Thanks Diana. So, I'm going spend the next 20 minutes talking about federal and provincial updates as well as audit issues and best practices. So, if you were here last year, you probably heard about some of these updates. They were proposed at the time, but over the last year we've seen most of these be legislated and approved. So, let's go to the next slide. So, we'll start with the next slide, please. We'll start with the federal updates. So, coming out of the budget that we saw last year was a lot of the implementation of many items that were mentioned. One big one was Non- Resident requirements to register. So, there's now a simplified registration [INAUDIBLE] for Non-Residents, as well as enhanced registration requirements for some Non-Residents that have to regularly register. So, if a Non-Resident is selling digital products and services of more than $30,000 to consumers in Canada, they now should be registered under the simplified system. And what that means is they will only collect tax from someone who is not registered in Canada. So, it's an odd meeting when we say consumer, most of the time, it would be individuals, but it can also, mean someone who's not registered for the GST. So, many on the call here may not be registered because you don't necessarily make taxable supplies. So, what this means is that, for you, you could be getting a lot of requests from these Non-Resident vendors and maybe have already seen this asking for your GST number. And you do want to provide that if you have one, because what it means is they will not have to charge you GST as long as you provide them with that number. If you don't have the GST number, expect to be charged the GST / HST but keep in mind if you were self-assessing on these items before and you are charged as tax, there's no longer a need to self-assess, but if you're not charged the tax, you still could have to self-assess. So, just keep that in mind. Let's go on to the next slide. So, ,now turning to goods. A lot of vendors who supply goods from outside of Canada to, again, consumers in Canada had to get registered sometime back in July or later last year, if they were selling more than $30,000 of goods to basically non-registrants in Canada and used a, they could be a distribution platform operator, or it could be the vendor themselves, but if they meet that threshold and they're doing it through fulfillment warehouses in Canada, they had to get registered. So, again, what you may be seeing is a lot of Non-Resident platforms and providers, think of an Amazon as a typical example, who are now charging you tax. And this is not a simplified registration. So, they charge once they're registered, it's a regular registration, they charge tax across the board. So, one thing to be careful of when you're getting invoices from Non-registrants, a lot of them aren't that familiar with the rules, So, make sure you're getting the GST number on those invoices. And if you don't, contact the vendor to make sure you get it before you actually pay the invoice, because without that, as you'll see later, you're not able to recover any input tax credits or rebates you're entitled to. So, onto the next slide, we'll talk about, just briefly, there's also, a requirement for platform operators selling or providing short-term accommodation in Canada to get registered as well, if they meet that threshold and sell to Non-Registrants in Canada. So, this would be like an Airbnb, for example, and other similar types of platform operators. So, I don't know if this would apply as much to you, but one thing to keep in mind is these simplified registrations, they require a vendor to collect it only from those who are not registered, but if you don't give a registration number, they will charge you tax and you cannot claim that tax as an input tax credit or rebate, you would have to go back to the vendor to get it refunded. Keep in mind, if you have employees who are acquiring something like this and then submit a reimbursement, they wouldn't have a GST number necessarily to provide the vendor. So, you want to think about those situations and perhaps contract directly with the vendor or have your employee provide the GST number to the vendor So, you're not charged tax. All right, onto the next slide. Again, just a couple, just a quick update. The GST relief for face shields and face masks was passed. These are now zero rated and have been for a little over a year. So, if you're buying these, make sure you're not being charged GST or HST, if So, talk to your vendor. And if you provide them, make sure you are not charging tax on these. So, let's move on to the provincial updates. So, we'll start with B.C. So, some of these were in play for the last couple of years. It was delayed because of COVID, but it was finally passed and became effective last April. Carbonated beverages that contains sugar, natural sweeteners or artificial sweeteners are now subject to PST. So, if you're in B.C. buying these, you're going be paying PST on it unless you buy it for the purpose of resale, in which case you want to contact your vendor, give them your PST number So, that they don't charge you the tax. also, keep in mind that if you are making supplies of beverages and it could be through, like you see there, it could apply to sales through vending machines, soda fountains as well. Keep in mind that you need to be registered for the PST and charging it appropriately. So, let's move on to Saskatchewan. Oh, sorry, still another update for B.C. You can go back one. Thanks. So, again, a big update was that Canadian and foreign sellers of Software and telecommunications services do now need to be registered for PST effective April 1 of last year, if they exceed a $10,000 a year annual threshold of these sales. And So, what this means is, and you'll see it for all the provinces, if you're located in B.C., Saskatchewan, or Manitoba, you're going to expect to be paying a lot more PST on purchases from Non-Resident suppliers and in some cases, local suppliers. So, let's just cover the Saskatchewan updates briefly. I'm not sure if anyone on the call is from Saskatchewan. Didn't see on the list, but just in case I'll run through these quickly. So, these were all effective January 1, 2020. So, electronic distribution platforms, as well as marketplace facilitators. So, think of Amazon in the first case, you know, think of Apple, Google, et cetera. These distribution platforms have to now be registered for provincial sales tax in Saskatchewan and charge PST on anything going to residents of Saskatchewan. Online accommodation platforms, similar to what happened for GST. They also, have to be registered and collecting PST if it's for accommodations in Saskatchewan. And So, again, just keep in mind, you'll be charged tax. You're probably seeing more tax on these supplies, but if you're not charged and tax is owing, the PST is owing, you still have to remember to self-assess. So, keep that in mind for B.C., Manitoba and Saskatchewan, if taxes owing, you do have to self-assess if you're not charged by the vendor. All right, we'll move on to Manitoba now. So, Manitoba had very similar updates, a little more recent for them, December 1 of last year. So, again, online marketplaces, accommodation platforms, they now have to be registered for Manitoba retail sales tax and collecting on supplies to residents of Manitoba. In addition, another update was that audio and video streaming services are now considered to be taxable telecommunication services. So, this means that these streaming service providers located either in or outside Manitoba have to collect and remit RST on these supplies. So, let's move on to the next slide. So, this next section, I'm going to talk about audit issues for both GST and provincial sales taxes, as well as some best practices. So, we'll start with provincial sales taxes. So, you know, other than taxable supplies on which you haven't collected tax, that's one area of course, an auditor's always going to look at. What I find is the most common area of assessment though, is really on the lack of self-assessment. So, as discussed briefly on a previous slides, if you import goods or taxable services into a province, and you're located in one of the PST provinces, you are supposed to self-assess tax if you're not charged by the vendor. And keep in mind, that includes a temporary use of equipment, and for some provinces, the usage of Software. If you're not registered, you can use the forms, indicated on the slide to self-assess. If you are registered, you just self-assess on your regular return. All right, So, we'll move on to GSD now. Again, not surprising, you know, same issue as for provincial sales taxes is self-assessment. So, a lot of you on this call don't necessarily make taxable supplies or some make partly taxable supplies and partly exempt supplies. And So, the idea is if you acquire goods or services or intangibles and you're not able to fully recover tax on those, you would have to self-assess. So, that you're basically on the same playing field as everyone else basically. So, if you import goods, you're going pay 5% when it comes across the border. That's usually going be through a custom broker if you use one, but you have to remember that if you're in an HST province, let's say Ontario, you also, have to self-assess the 8% portion. If it's for something that's not for resupply and tax in making a taxable supply. also, if you move goods from one province to another, be attentive of this, too. So, let's say you buy something in Manitoba, but immediately move it over to Ontario for use in Ontario. While you would've paid, you know, the 5% portion of the GST / HST, but now that it's in an HST province, you have to self-assess the additional 8%. vice versa, if it goes the other way, you may be entitled to a rebate. With services and intangibles, again, you have to be mindful of self-assessment requirements. Most of the time, if you're buying something from a Non-Resident who doesn't charge you tax, and it falls into this category, you're going be required to self-assess. If you're registered, you do it on your regular return. If not, you use GST59 to do So,. There are a couple exceptions, one I mentioned, if you use it, you know, to make taxable supplies, you don't have to self-assess. also, if it's, or let's say an individual, an employee who uses something entirely outside of Canada, like meals, taxis, hotels, no, self-assessment required as well as if it relates to property that's outside of Canada. All right, So, let's move on. Another area that is commonly assessed on is a lack of proper documentation. So, as you know, you're able to claim perhaps input tax credits and or rebates depending on what the purchase is, but you have to have documentation to support that of course, and typically you're going have an invoice, and most of the time it's going have everything you need. Things I do see that where sometimes this is not the documentation is off, is the wrong name of the purchaser or vendor. And in some cases, a missing GST number. And a lot of times this happens, especially the missing GST number when it's a Non-Resident registrant because they're not as familiar with the rules. So, having in place a process to look at your invoices, have your AP people trained to make sure that this information is on the invoices. If you have to allocate your input tax credit, So, you make both taxable and exempt supplies, make sure that if you're claiming a partial input tax credit, that you have some documented methodology that's reasonable that you can present to an auditor at the time where you are audited, because a lot of times we come up with these methodologies, but perhaps forget the reason behind it or the process behind it. And when it comes to an audit, it's harder to make these available. On the sales side, you know, you're going collect tax on anything that's taxable, but that also includes sales to related parties. A lot of times, what I see is we have a transfer of one item to another item-related party, and it's just a GL entry of some sort. So, remember that these are still supplies that they're taxable. You have to collect the tax and issue a proper invoice So, that the other party is entitled to an ITC or rebate can recover. Barters are also, supplies. So, if it's a taxable supply being made, make sure that each party who is making that supply is collecting GST / HST if applicable, and also, make sure that there's a proper invoice. And on zero-rated exports, these are anything where you would normally charge tax, but you don't have to charge tax, and zero-rated exports is a good example. You do have to have proof of why you didn't collect that tax or evidence. So, with the export, for instance, you need proof of export. And if it's something other than a good, you often have to have some sort of declaration from the purchaser that they're a Non-Resident of Canada. And in some cases, like with intangibles of various sorts, rights, et cetera, that they're also, not registered for the GST. And finally, grey areas. So, you know, if CRA, if you have a stance on why something's taxable or not, or why you're able to claim ITC's, make sure you document that, So, when CRA comes in and asks you the question, you have a ready response for them. Okay, onto the next. So, this is just a list you can use of documentary requirements for input tax credits or rebates, So, just for your reference. On to the next slide. Okay, a few other GST / HST audit issues. One of course is uncollected tax. So, when CRA audits, they're going to be looking for at your supplies, and if they think it's taxable and you haven't collected tax, they're going to be questioning further. So, that's obviously a big issue, if you don't agree with CRA on that cost and revenue sharing. So, this one, I just warn you to be very careful. A lot of organizations have cost-sharing situations with related parties. Make sure you document this properly, because if you're claiming an input tax credit or a rebate in respect of these purchases, you need proper documentation, as talked about earlier. So, sometimes it's in the name of one party, but each party is claiming a portion of it. That's fine, if you have a proper agreement in place documenting that, and it should also, make sure that it allows for one party to acquire as agent of the other. And as long as you have all your ducks in a row, you know, you shouldn't have a problem with claiming back that tax, if available. Same on the revenue side. So, CRA is going to expect whoever makes the supply or invoices for it to remit all of the tax. However, if it's truly a revenue-sharing situation, each party would remit the appropriate tax, and you do need to have a proper agreement evidencing this revenue share. There's also, an ability to use an agency election if you want to have one party just remit on behalf of the other. So, that's something to keep in mind. Tax collected in error by charities, So, charities have a difficult time navigating GST / HST. Now, a lot of charities don't make taxable supplies, but if you are making taxable supplies, you have to be very careful because typically, you know, with most taxpayers, if you're not sure about something, if you want to be conservative, you charge a tax. However, with a charity, if you charge a tax, you only remit 60% of that typically. And So, if CRA comes in and says, hey, this was tax charged in error, then you were supposed to have remitted 100% of that. And of course, you wouldn't have known that because you assumed that you were properly collecting tax, only remitted the 60. That would mean a 40% assessment on the other part. So, you have to get advice if you're not sure about some of these, the application of tax and situations, So, just be very careful. Insurance premiums. So, insurance premiums are not subject to GST or HST. You might occasionally see GST on administrative services in respect of perhaps, you know, some sort of policy, but the premiums themselves are not subject to GST / HST, which means you cannot be claiming an [INAUDIBLE] tax credit or rebate in respect to them. What they do have is Ontario retail sales tax though. If you're in Ontario, you're going to see an 8% tax. A lot of times the AP clerk codes it as GST or HST, you recover it, and on audit, you get assessed. The same applies for QST. It's even a little more hidden because it's called QST, but it's not the regular QST that applies to insurance premium, So, just be careful, it's a common area that auditors are well aware of, So, you do need to train your accounts payable people. Real property transactions, just based on the sheer size of them, dollar-wise, you want to be very careful, not only that they're very complicated in some cases. Tax supplies to some real property transactions, not others, sometimes it's based on how the vendor was used in the property, So, it gets very confusing. You don't want to make a wrong decision in these cases, So, make sure you do consult if you're not sure with lawyers or other advisors. And finally, grants. So, this is very applicable for Not-for-Profits. If you're a Not-for-Profit, that's not a university, hospital or school or college, typically, supplies of services are going to be taxable as well as supplies of intangible property, rights, et cetera, use of property. So, when you're receiving a grant from a government source, or government grantor, you have to ask yourself, are you supplying anything? A service, rights or something else to that grant or in return for what you're receiving? And if the answer is yes, then it may well be a taxable supply on which you would have to charge tax. So, make sure that you talk to the grantor about this prior to agreeing on the amount owing and the amount of tax that would be due. You know, there's lots of cases where they truly are grants. You receive the money and you're basically, you just have to provide some reporting on how the grant money was used. There's really no supply there. And so, that's, you know, doesn't have HST implications, but otherwise, keep that in mind. All right, one more slide to go. So, I just wanted to end off briefly on best practices for audits. So, one be prepared, and that's what we've been talking about with all of these audit issues. Know what the audit issues could be and be ready for an audit when it is coming because normally you'll be audited at some point. Consider having a risk in recovery review on occasion just to identify those areas where perhaps there's recovery opportunities or risk areas. And you can correct these before the auditor comes. Keep a good audit trail, so, that when you're asked questions, you have everything that you can provide. I think that's common sense, but sometimes things get lost in busyness. So, keep all of that in mind. I often suggest having one main point of contact for an audit and inform your staff of that as well, because really what you don't want is an auditor coming in, and they're probably not right now because of COVID, but shortly after they'll start coming in and being on-site again. You don't want them talking to any of your staff and staff providing answers that perhaps they don't know the proper answer for, or just don't really understand what the auditor's getting at. So, that's very important. Communication key. So, try to set up regular touchpoints with your auditors. So, if they're going towards an assessment, they tell you about that well in advance and then that allows you to consult with colleagues, professional advisors, throughout the audit, if they are going towards an assessment, because once that assessment is issued, you have to pay it. You may be able to object to it after, but you still have to pay it upfront. So, ideally, you agree on everything, you know, stave off any assessments that aren't necessary prior to the assessment being issued. And then finally, if you are assessed, consider whether you should appeal it. There are routes for appealing, and consult with, you know, professional advisors for this. So, that's it for Indirect Tax. I'm going to turn it over to Sharron now.

Sharron Coombs:

Thank you, Jan, and good day everyone. My name is Sharron Coombs and I'm a Senior Manager in EY Toronto's Income Tax practice. I'll be leading you through the income tax update for registered charities and Not-for-Profit organizations. So, in terms of an agenda, we'll start off with registered charities. I'll be providing an update from the 2021 federal budget. Then we'll discuss some proposed legislation around the use of charities resources. We'll also cover the CRA's recently released report on the charities program, as well as new CRA guidance that was released in 2021. Finally, we'll look at recent changes to the T 3010 return with some helpful reminders about completing your return. Then we'll move on to Not-for-Profit organizations where we'll review a recent CRA technical interpretation on the topic of reserves, and end off with a brief review of common areas of income tax risk for NPOs. So, let's get started with a review of the measures impacting registered charities included in the 2021 federal budget. So, one of the most interesting announcements in last April's budget was the announcement of the launch of public consultations regarding potential disbursement quota reform. As a quick reminder, the disbursement quota is the minimum amount a charity is required to spend each year on its own charitable activities or on gifts to other qualified donees. It's calculated as a percentage, currently three and a half percent of the average value of a charity's property, not used for charitable activities or administration. The government stated that it was launching the consultation to ensure that grantmaking and spending on charitable activities keep pace with the growth in charities, investment assets. So, the public consultation formally ended September 30th, although, from the website, it appears that things officially wrapped up early in December. Feedback from the public consultation and input from the advisory committee on the charitable sector will inform any proposed legislative changes. Now, the changes were expected to be effective in 2022, but currently, we're waiting for further announcements with respect to any proposed legislative changes and the application date. I would say that it is still possible that these changes could be effective in 2022. Next slide. Thank you. So, there are three main areas on the table for potential reform. These are the disbursement quota rate, certain relieving provisions and the enforcement tools available to CRA. With respect to the rate, it is possible that the government may announce an increase from the current minimum spend of three and a half percent. Again, this is to encourage more spending in the sector as investment assets increase. In terms of relieving provisions, the government was looking for feedback on the current available measures, which include a carryover measure, a reduction measure that is at the minister's discretion in appropriate circumstances, and also the accumulation of property measure that effectively allows the minister to temporarily approve a decrease in the disbursement quota requirement while a charity accumulates property for a specific purpose. Also, on the table are the enforcement tools available to CRA. This is because currently, the only available tool is the revocation of a charity's charitable status. Revocation is generally considered a disproportionate tool when the only area of non-compliance is the disbursement quota rules, and as a result, it's rarely used by CRA. For this reason, the government is exploring making additional tools available to CRA's, such as monetary penalties or other intermediate sanctions in order to enforce disbursement quota compliance. So, we'll have to stay tuned and hopefully, we'll hear the results of the DQ consultations in the coming months. Two other measures were announced in the 2021 federal budget, and both of these were enacted June 29th, 2021, which means they are now law. The first measure involves tightening the rules around excluding individuals with a known history of supporting terrorism, from becoming directors, trustees, or similar officials of charities. The second involves allowing the CRA to suspend a charity's tax receding privileges for one year, or revoke its charitable status. Should the charity make a false statement amounting to culpable conduct for the purposes of maintaining charitable registration. So, previously the revocation sanction only applied when a false statement was made for the purpose of obtaining charitable registration. Let's move on to our next topic, which is Bill S-216. So, this bill contains proposed legislation relating to the use of a charity's resources. So, as you likely know, currently the transfer of funds from a registered charity to a non-qualified donee is grounds for revocation of charitable status. And this is because a charity must exclusively use its resources to either carry on its own charitable activities or to make gifts to other qualified donees. So, Bill S-216 proposes to amend the income tax act to permit charities, to provide their resources to a person who is not a qualified donee, provided that the charity takes reasonable steps to ensure those resources are used exclusively for charitable purposes, and reasonable steps are proposed to impose the following obligations on the granting charity. So, the granting charity would need to collect information necessary to satisfy a reasonable person that the resources will be used for a charitable purpose, including information on the identity experience and activities of the person or organization receiving the funds. And the charity would need to establish measures, impose restrictions or conditions, or otherwise take actions necessary to satisfy a reasonable person that the resources will be used exclusively for charitable purposes. Next slide. So, Bill S-216 is a Senate private members bill, and it is in line with the recommendations that were made in the 2019 report of the special Senate committee on the charitable sector. So, the interesting part about this bill is it actually originated in the Senate, which is not the usual process, usually, bills originate in the House of Commons, then go to the Senate and then if approved are enacted. The predecessor bill to Bill S-216 was called Bill S-222. It was adopted by the Senate and received first reading in the House of Commons before the house was dissolved for the last federal election. New Bill S-216 was re-introduced on November 24th. It was adopted by the Senate on December 9th, 2021. And it is expected to be sponsored through the House of Commons by one of the opposition parties when Parliament resumes at the end of this month. So, any amendments that ultimately are enacted would take effect two years after the date on which the implementing bill receives Royal assent. So, that should give charities quite a bit of lead time to get ready for this significant change. Our next topic is a quick review of CRA's report on the charities program 2018 to 2020. So, the CRA periodically publishes this report on the sector and on the charities directorates activities. It contains some interesting facts and insight. For example, the report provides statistics on the number of registered charities by designation. It's interesting to see that on the foundation side, the number of private foundations continues to increase while the number of public foundations has declined over time. The next slide provides statistics included in the report around average revenues and expenditures of all charities. So, this includes both charitable organizations and public and private foundations. So, in terms of revenue, government funding is far and away the largest pool of funding in the charitable sector at about 184 billion, followed by tax receded gifts of about 17 billion dollars, and non-tax receded revenue of about 8.4 billion. On the expenditures side, in the entire sector, charitable activities comprise 75% of spending while gifts to qualified donees represent 3% of spending and all other expenditures, and that would include management and administrative costs, as well as fundraising costs comes in at 22%. The next slide summarizes information included in the report on what CRA refers to as the transformation of its compliance program. So, what this is referring to is a change in how CRA deals with compliance in the charitable sector with a decreased reliance on the full-blown traditional audit, but an increased focus on education, outreach, as well as targeted compliance projects that may, for example, focus on specific fields on the T3010 return. So, for example, they may target charities that have been reporting carrying on charitable activities in a foreign jurisdiction, and then contact all the charities that reported this for further information. So, overall, the report is an interesting read. It's available on the charities section of the CRA website if you'd like to check out more of the findings. Moving on. In August 2021, there were two new guidance documents, and one policy statement released by CRA covering topics that would be of interest to charities that work in the areas of upholding human rights, providing housing and supporting ethnocultural communities. These documents provide useful guidance to new groups seeking charitable registration, but also, to those organizations already operating with these types of charitable purposes. So, I would suggest looking at these new documents, if your organization falls into these categories. Next slide, please. Our last topic for registered charities is the annual T3010 registered charity information return filing. In terms of recent changes, the current version of T3010 return is called T3010 (21) Version A. The only significant change in this version from the previous version is the removal of references to the Corporations Information Act Annual Return for Ontario, Not-for-Profit Corporations, which was known as form RC232. So, previously charities subject to the Ontario Corporations Act. So, basically, Ontario incorporated charities, or those continued into Ontario. These charities were required to submit form RC232 as well as form T1235, which is the director's trustees, and like officials worksheet. Effective May 15th, 2021, the CRA no longer collects information on behalf of the Ontario government. As a result, charities that are subject to the Ontario Corporate Statute must now file their annual return using the new Ontario business registry, and the link is provided on the slide. So, again, this is not the T3010 filing, but it's rather the Ontario Corporate Annual Return. Next slide, please. So, in terms of a few helpful reminders, when you do file your T3010 return just remember that you have a couple of options. You can file it either using My Business Account, So, file it online, or you can still file it in paper format. The paper T3010 returns would be sent to the Summerside PEI tax services office. A complete return includes not only the T3010 itself, but also, the T1235, directors, trustees, and like officials worksheet. If applicable, FormCT1236, the qualified donee's worksheet, and Form T2081, the excess corporate holdings worksheet for private foundations, again, only if applicable. And financial statements for the fiscal period covered by the T3010 return. And that is even if the charity is inactive, you must attach financial statements with your filing. So, what documents cannot be included with the T3010 return? Even though they need to be sent to CRA you should not be included with your T3010 amended governing documents or bylaws, a request to change the fiscal period end, a request to change the charities purposes or activities, a request for voluntary revocation or a request to change or add an authorized representative like a law firm or an accounting firm. So, these types of special requests should be made either directly through My Business Account or on paper, by mailing a letter to the CRA. And that would be at the Ottawa charities director address. Okay, next slide please. I'll now switch gears from registered charities and we'll cover a few topics for Not-for-Profit organizations. So, let's start with a quick reminder of the tax exemption that's available for organizations that are NPOs and not registered charities. So, NPOs that are exempt from income tax under paragraph 149(1)(l) of the Income Tax Act must meet certain tests annually to retain their tax-exempt status. So, NPOs cannot be charities for tax purposes, meaning they cannot have exclusively charitable purposes. NPOs must be organized and operated exclusively for social welfare, civic improvement, pleasure, recreation, or for any other purpose, except profit. And lastly, no part of the income of the MPO can be payable to or otherwise available for the personal benefit of any proprietor, member or shareholder. Next slide, please. So, in October of 2021, the CRA published an external interpretation document where they responded to the following two questions that were posed to them. So, the questions were, first of all, whether an MPO would cease to qualify for tax-exempt status. If it started a secondary business funded by a reserve accumulated from excess member contributions and then used the profits from this secondary business to fund its NPO objectives. The second question was whether the NPO could provide services to non-members of the organization. So, in its response, the CRA confirmed that an NPO that intentionally earns a profit from a secondary business will be considered to have a profit purpose. And because of that, it will not qualify as a tax-exempt entity under 149(1)(l). And that's regardless of whether the profits from the secondary business are used to fund the organization's NPO objectives. The CRA also, commented that the accumulation of a reserve that's large enough to fund a secondary business may be an indication that the NPO has a profit purpose. And I think the interesting part of this interpretation was the CRA's comments around that the reserve may be an indication, and then they provided a bit of colour around the factors that CRA would consider in determining whether this reserve would indicate a profit purpose. And those are how and why the surplus accumulated, the length of time that the surplus had been accumulating, and any reasonable steps taken by the organization to reduce the surplus. On the second question, CRA did confirm that there's nothing in the tax rules that prevents an NPO from providing services to non-members, but again, provided that the NPO does not have a profit purpose in doing that. All right, next slide, please. So, I wanted to wrap things up with just a reminder of common areas of income tax risk for NPOs. So, as we know that tax exemption for NPOs is an annual test, and because of that, certain situations or actions might increase the organization's risk profile when it comes to claiming the NPO tax exemption. So, the main areas of concern are listed here, and they include having a profit purpose, including as we saw in that interpretation document, a secondary profit purpose. NPO, any profits that are earned by an NPO do have to be unanticipated and incidental. NPOs cannot budget for profits, nor can they operate a trader business. Another risk factor is the ongoing accumulation of profits. In this case, you need to consider the source of any accumulated surplus, again, as CRA outlined in that interpretation document. Generally, the surplus should be limited to the NPOs reasonable operating needs. Although an accumulation for a capital project is permitted, If structured appropriately. NPOs should avoid using accumulated funds to invest on a long-term basis or to make loans to non-tax exempt entities. Another common area of income tax risk is providing personal benefits to members, which from the definition we know is not permitted. Often providing these types of payments or benefits is not permitted in NPOs governing documents, but care must be taken in member-based organizations to ensure this is not overstepped. So, next slide, please. I'll wrap things up by saying that if your organization is an NPO, this slide lists a few income tax mitigation strategies, which would include really reviewing areas of potential income tax risk, at least annually, or perhaps even more frequently. Definitely consider income tax risk when entering into new service lines or contracts sometimes as the scope of the NPOs activities increases. That's when we see the income tax risk also increase. Review your budgets and other internal materials from an income tax perspective. And when in doubt seek professional advice. So, this concludes the income tax section of our presentation and I'll now hand things over to my colleague, Kathi Aspros. Thank you.

Kathi Aspros:

Thank you, Sharron. My name is Kathi Aspros. I'm an Assurance Partner in the Toronto office and work exclusively in the, Not-for-Profit and government sectors. So, today I'll be giving an overview. The standards impacting private sector NPOs. So, parts two and three of the CPA Canada handbook. And then we'll turn it over to my colleagues, Sonia Leblanc, Mita Meyers, who will focus on the changes and what's on the horizon in the public sector for those reporting under PSAS and the PSAS Plus 4200 series. So, in terms of the agenda, we'll start with what's happened in part two of the handbook. Sorry, could you just move the slide, please? So, we'll start with what's happened in part two of the handbook for changes that may impact Not-for-Profits. We won't be covering changes with little or no applicability to Not-for-Profits. So, such as changes to income taxes, redeemable shares issued in a tax planning arrangement, or the new agricultural standard. So, if any of these are concern to you please reach out to your local service provider. We did speak to many of these topics in the prior year, So, we'll move more quickly through the update this year, although only minimal changes we did want to highlight the effective dates and some extensions on amendments that arose given the pandemic. Then we'll move on to what's new in part three, including the new standard on combinations and an update on the active project on contributions. So, let's jump right into the activities. So, as the amendments and new standards. Can you move the slide, please? So, we'll get started with leases and as we've seen over the last two years, the economic consequences of COVID 19 have led to various lease concessions, such as payment deferrals, reductions, and waivers. The amendment to the leasing standard provided some relief from the potentially owner's exercise of lease modification, accounting, which would normally be required under section 3065. So, the amendment provided both lessors and lessees with the choice to adopt simpler accounting for certain rent concessions that occur as a direct result of the pandemic and permitted the choice to be made on a lease by lease basis. So, the amendment was effective for periods ending on or after December 31st, 2020. So, not new for those of you who took advantage of this last year. There was one amendment release this past December, which extended the optional relief for both lessees and lessors until December 31st, 2022, which was previously 2021. So, we do encourage you to continue to assess whether any lease modifications you've experienced, meet the conditions on this slide that would provide you with relief from applying the lease modification accounting. Next slide, please. So, the use of this practical expedient requires some additional disclosures and we've outlined those on the slide for you. So, next, we'll turn it over to financial instruments. So, what we'll discuss today is the narrow-scope amendments to section 3856 on related party Financial Instruments and Financial Instrument Disclosures. So, just a reminder that changes to section 4460 in part three of the handbook for related party transactions, actually occurred at the same time as these changes to 3856. So, you may recall that changes were made to resolve some of the diversity in practice and confusion that arose when dealing with related party financial and which standards do apply. So, the revised 3856 standard provides guidance on initial and subsequent measurement of related party transactions. If this does impact you, there's a useful decision tree within the standard to walk through the various scenarios and measurement outcomes. Other topics include modification, impairment, and forgiveness of related party loan. So, we do recommend you review these amendments and assess your related party financial instruments for any impacts. Well, we don't expect the amendments regarding related party transactions to have a significant impact on the sector. The area that will have more impact relates to the clarifications made on the disclosures around Financial Instruments, risks. So, as we've discussed with many of you over the past year, many organizations have rather boilerplate disclosure around such things as credit risk or liquidity risk. And the standard does require that these disclosures be made more entity-specific. So, in this year's financial statements, we would expect to see you only disclosing those risks that are applicable to you and how as an organization you manage those risks. Next slide, please. So, moving on to investments, we're just noting an amendment to clarify some wording within this standard. You know, again, we don't expect significant impacts from this amendment as it just clarifies guidance that was already available, that allows you to apply the cost method to an investment subject, to significant influence. So, moving on to revenue and amendments to section 3400 provides additional guidance on select revenue topics that we've noted on the slide. So, just a reminder, this standard is applicable to Not-for-Profits as the contribution standard in part three directs, Not-for-Profits to apply this section for guidance on revenue recognition from the sales of goods or services. So, again, we don't expect, now this will have a significant impact. These amendments we're really bringing guidance previously included in the old EICs into the standard and to address some areas, not covered such as certain aspects of percentage of completion and guidance related to multiple-element arrangements. We anticipate the ones more applicable to this sector would be the reporting of revenue gross versus net. So, having to evaluate the principal versus agent concept and likely the determining of when to recognize revenue for upfront non-refundable fees or payments. The accounting standards board did defer the effective date for one year from originally announced. So, this is now effective for years beginning on or after January 1^st, 2022 instead of 2021. So, next, we'll move on to employee future benefits. So, the standard for employee future benefits was amended to clarify the measurement of the defined benefit obligation for plans with a legislative regulatory or contractual requirement to prepare a funding valuation. So, the changes require that when the funding valuation is done, new components need to be considered. So, examples of some of the new components include the provision for adverse deviation in Ontario or the stabilization provision in Quebec. The amendments also, remove the choice to apply the funding valuation for plans where there's no funding valuation requirement. So, we encourage those that we're using the funding valuation for other plans to revisit those, to see if a funding valuation can still be used, or if you will be required to revert to the accounting approach. So, moving on to the next slide. Just wanted to mention that transitional relief is available as noted on the slide. Amendments are effective for annual financial statements relating to fiscal years beginning on or after January 1st, 2022. And early application is permitted, but only if applied to all of an entity’s defined benefit plans. So, next, we'll move on to the 2021 annual improvements. So, just a reminder this is an annual process that's undertaken to clarify guidance or wording in the standards, correct relatively minor unintended consequences or oversights. It is not for major improvements or for the issuance of a new standard. So, this year's updates are included on the slide for your information. Given their limited applicability to Not-for-Profits, I'm not going to speak to these in detail. So, next, we'll move on to ASPE and what's next and on the horizon. So, again another update just around financial instruments. So, in September this year, an exposure draft was issued on the topic of IBOR reform. Given that many jurisdictions, including Canada, are replacing existing IBOR benchmarks with alternative benchmarks. So, essentially the exposure draft proposes optional expedience, which would allow an entity to choose to account for debt modifications related to this reform as a continuation of the existing contract and not as an extinguishment. So, essentially why you would care is just, you know, to simplify the accounting, if this does apply to you. So, again, while expecting, this does have limited applicability just wanted to bring it to your attention in case it does impact you. So, next, we'll turn new cloud computing and here really cloud computing arrangements you know, are much more relevant to this sector. So, this project was undertaken by the Accounting Standards Board to better understand different types of cloud computing arrangements being entered into, and the accounting issues related to these arrangements, given they are becoming more and more prevalent. So, the accounting standards board has been discussing a proposal that involves clarifying the application of existing guidance permitting entities to apply a simplified approach to account for cloud computing arrangements and capitalizing directly attributable implementation costs when the arrangement is a Software service. So, the simplified approach is aimed at permitting entities to expense the amounts in a cloud computing arrangement without having to perform the complex analysis around whether capitalization is appropriate. Further, the board also tentatively decided to proceed with developing guidance for entities to capitalize directly attributable implementation costs in a situation when the cloud computing arrangement is a Software service and has also, begun discussing how such costs would be presented in the financial statements. So, the accounting standard board had directed staff to seek input both from its private enterprise advisory committee and the Not-for-Profit advisory committee on the approach that had been developed to determine if the approach actually achieved the intended simplification objective. And now the board is continuing to discuss the feedback received. So, next, we'll discuss Canadian Accounting Standards for Not-for-Profit organizations. So, jumping right into part three. Just a reminder that there is still the commitment to maintain the section of the handbook, but the accounting standards board will continue to align with part two, where possible, and use part three only to deal with the nuances of the sector. So, the strategic plan sets out the broad objectives that guide the accounting standards board in achieving its public interest mandate over a multi-year period. So, the board decides on the strategic objectives after extensive stakeholder consultation. So, the current strategic plan is effective until March 31st, 2022. They've already received feedback on the next strategic plan and are considering the feedback received. So, moving on to new standards that impact Not-for-Profits. So, the combinations, you know, have been occurring in the sector a lot more in the past few years. And previously there was no standard on combinations for the Not-for-Profit sector. So, as these were occurring, you know, preparers and their auditors, you know, we’re going back to U.S. standards, UK standards, some hybrid of the standards, causing a lot of diversity in practice. So, when we met last year at this time, the standard was just being finalized and was subsequently released in March 2021. So, the standard does provide guidance on determining if the combination is an acquisition or an amalgamation along with the related accounting and disclosure requirements to follow. So, while there are no other new standards specific to Not-for-Profits coming into effect in 2021 or 2022, again, just a reminder on updating your financial statements for financial instrument risks, as we had discussed earlier. While completely voluntary, I did want to mention that the framework for reporting performance measures had its first revision and was released this past December. So, this is voluntary guidance that was established to help organizations, whether, you know, you're private, public, Not-for-Profit, or pension plans, to improve the quality of financial and non-financial performance measures. You might report outside of your financial statements such as your annual reports. So, just with increased, you know, momentum and around sustainability recording, disclosure performance measures, including non-financial and operational measures is becoming more relevant today than ever. We're seeing this a lot more, and this is just really a resource that organizations can look to if you're looking to establish more robust policies and procedures around the development of performance measures. So, Not-for-Profits and, and what's next. I'll spend a few minutes just talking about the contribution standard. So, obviously, the contribution standard is a significant one for many organizations on this call to recap, a consultation paper was issued back in May 2020 regarding revenue recognition and related matters for contributions and responses were received just over a year ago. So, the paper was issued to research various matters, including types of contributions, timing of recognition of contributions and other matters, including presentation and disclosure. So, throughout 2021, the accounting standards board has been considering responses to this consultation paper, together with responses to the 2013 statement of principles project which you'll recall had a significant amount of feedback to determine how to best move the project forward. So, on the next slide, we'll talk about the progress of this project to date. So, the board has considered feedback from comment letters, round tables, and the Not-for-Profit advisory committee. So, for those of you not familiar with the Not-for-Profit advisory committee it acts in an advisory capacity to the accounting standards board and assists them in maintaining and improving accounting standards for Not-for-Profit organizations in the private sector. So, over a series of meetings in 2021 the committee advised the board on topics listed on the slide and a summary of these discussions are made publicly available after each meeting that can be found on their website, if you're interested in looking these up. So, these meetings will continue into 2022, we'll have to wait and see if the next steps will actually be an exposure draft that will result from the responses from this or further consultations will be needed. So, stay tuned, as this project will have a significant impact on the sector. And maybe just as a quick plug, as a member of this committee myself, you know, we're always discussing new issues emerging in the practice. So, you know, while I'll continue to update you on current matters, I also, continue to encourage you to also, bring any matters, you know, forward to us So, that we can continue to bring these forward for consideration with the broader standard-setting community. So, a list of the resources available for you to research any of the information I've discussed today will follow at the end of the public sector update. So, now I'll turn it over to Sonia to take us through the public sector updates.

Sonia Leblanc:

Thank you, Kathi. As you see on the slide, there's a lot going on in PSAS and our objective today will be to provide you with an overview of the projects that are ongoing as well as the standards that are coming into effect in the upcoming years. We have provided more detailed information in the slide for your reference. And should you have any questions, please do not hesitate to reach out to us. Without further ado, let's start with the first topic, the PSAB draft 2022-2027 strategic plan. If we could move to the next slide. Thank you. The plan is focused on meeting the demands of the present while also, anticipating the needs of the future. Relevance and timeliness have emerged as key issues, increasingly important due to the abundance of real-time information available online these days. PSAB also recognizes it is essential that the standards help public sector entities provide relevant information to the public in a timely fashion. ESG reporting is also another key factor, and I would say one of the most significant emerging reporting trends and Sunniya will speak more about this topic later. As shown on the next slide. The plan outlines four key strategies, focusing on relevance, quality, relationship with both stakeholders as well as other standard setters, and emerging accounting and reporting matters. Now, let's move on to the conceptual framework and reporting model on the next slide. In brief, the conceptual framework is the foundation from which all other standards are developed. And it also, assesses the prepares to account for items that are not specifically covered by a standard, and also helps users to interpret the financial statements. The existing framework is section 1000 as well as section 1100. While the proposed changes are outlined in ten chapters, touching on subjects, such as financial statements, foundation and objectives, recognition, and measurement to name a few. These chapters would replace certain aspects in the existing framework set out in section 1000. The intent is to clarify and improve the current framework. It is expected that the feedback received by PSAB will lead to clarifications that will improve the framework, but underlying concepts are not expected to change. Approval of the framework and consequential amendments are expected to be approved in this coming March. The effective date might be deferred in response to the feedback that was received. The other part of this project is the proposed reporting model, which we have presented last year in our FRD as well for those who have attended. We have included in the slides illustrative financial statements, highlighting the details of those proposed changes. You can find them in slides 78 to 80 for your future reference, but in summary, there's a number of proposed changes on the statement of financial positions and contrarily the statement of operations is substantially unchanged. The statement of changes in net assets or liabilities is actually a new statement being introduced. On the statement of cash flow. The financing activities are proposed to be isolated, so, slight changes there. There's also, new guidance on the budget amounts presented on the financial statements. So, PSAB took a stronger position that the presented amounts for the budget should be on the same accounting and principle basis as well as the scope as the actual amount. So, the use of an amended budget is only permitted in certain circumstances, in which case you would need to present a reconciliation in the notes. So, next, the PCAB will make improvements to the proposed principle based on the feedback received. The principles are not expected to be changed and the approval is anticipated in September of 2022. The effective date as per the exposure draft is April 1st, 2024, but we note that there was significant feedback asking to delay the state, so, stay tuned. This leads us to the next topic, the international strategy. For a few years now, PSAB has been discussing its international strategy in May of 2020, PSAB made the decision to adopt its [INAUDIBLE] principles when developing future PSAS standards after April 1st, 2021. Since this isn't totally new today, I'll focus on the impact of the implementation. First, the board has established two criteria for modifying an existing IPSAS. First when an IIPSAS standard is contrary to the PSABs conceptual framework or when PSAB finds that the IPSAS principles are not inappropriate for application in Canada based on Canadian public interest. So, just add to a bit of clarity to that, any changes to key principles, such as recognition, measurement presentation, disclosure, as well as definition and scope, would need to be justified using these criteria. On the other end, changes to things like examples, decision trees, transitional provisions would not require justification as part of the implementation activities. The board also has revised a GAAP hierarchy to include. IPSAS at the top. And they also, have revised the due process to reflect the implementation of this international strategy. You can find great resources on IPSAS and IPSAS B its activities on the PSAB section of the frascanada.ca website. The PSAB included a section or dedicated section on international activities to promote awareness and education on international standards. Next, let's discuss the government, Not-for-Profit or GNFO strategy and key strategy and PSABs current strategic plan. The second consultation paper was issued along with the conceptual framework and reporting model exposure draft, So, that all papers could be considered and should be considered together. There were three proposed options as outlined on the slide here, PSAB has recommended the second one. So, as part of this proposal, the existing standards in the 4200 series would be reviewed to determine if they should be retained and incorporated in PSAS. So, a key feature of this option is that there will no longer be a suite of standards for GNF P O specifically. So, in other words, the 4200 series would be removed and instead customization specific to GNFPOS might be permitted within a standard. If PSAB identifies substantive and distinct accountabilities, warranting, and modification of an existing PSAS. The changes that PSAP proposed in its conceptual framework and reporting model project, which I just briefly discussed a few minutes ago are fundamental to the proposed option. The implementation plan should come out in June 2022. It will outline the plan for standards to be addressed. And each standard will go through its own due process. Now let's move on to the employee benefits project. This project has been in the works for several years. As a refresher, the objective of this project is to replace the current sections 3250 and 3255, that are more than 20 years old. That is to meet the evolving needs of Canadian stakeholders. Following the lead of other standard centers who have updated their standards in areas such as discount rates and deferral methods. In August of 2021, the first phase exposure draft was issued related to discount rate guidance and deferral provisions comments were due this last November and responses are currently being reviewed by PSAP. Although the revised project predates the PSAB, International Strategy decision, with IPSAS, starting with IPSAS 39, was considered the best approach for this project. So, PSAB started with modifying IPSAS 39, In line with the criteria that we just spoke about. Phase one of the deferral provisions and discount rate guidance was the main focus. So, currently, this section 3250 follows a deferred recognition approach for the statement of financial position, as well as for the statement of operations. While conversely IPSAS 39 follows immediate recognition approach in the statement of financial position with no recognition on the statement of operations. [INAUDIBLE] felt that the existing IPSAS principle were not inconsistent with the framework, nor that they were not in the best interest of Canadian public and as such, the proposed approach is to immediately recognize revaluations of net DB asset or liability on the statement of financial position with no recognition in the statement of operations, meaning that the gains and losses will accumulate in another component of net assets and will never flow through the statement of ops. The proposed standard introduces a new term which is revaluations of net defined asset or liability. A term that is slightly different or absent from IPSAS 39, revaluations are comprised of actuary yield gains and losses, return on plan asset, as well as any change in the effect of asset ceiling, excluding any amounts that would already be included in the net interest calculation. The second subject of the phase one exposure draft is discount rate. Currently, PSAS do not provide specific guidance on which discount rates should be used to calculate an accrued Defined Benefit Obligation or DB Obligation. In the Canadian public sector practice, the expected return on asset, or ROA is often used for funded plans, while an entity's cost of borrowing is often used for unfunded plans. IPSAS 39 follows a single discount rate approach that reflects the time value of money, usually using a market yield of comparable debt instruments. Based on the feedback received to reflect the uniqueness of the Canadian public sector pension plans, the exposure draft proposes a modification to IPSAS 39, which consists of applying different discount rates, depending on the funding status of a plan. For fully-funded plans, the discount rate to be used would be the rate that approximates the expected market-based ROA at the end of the reporting period, which for a lot of public sector entities, I would say is consistent with current practice. For unfunded plans, the discount rate would be determined by reference to market yields at the end of the reporting period on provincial government bonds, with cash flows in line with the timing and amounts of the expected benefit payments. I would say this is also, similar to what is currently done in practice. However, I would like to highlight that the proposed guidance specifically refers to provincial government bonds. The biggest difference in the complexity really relates to partially funded plans. For the proposed guidance, public sector entities should determine the funding status of a plan at the end of each fiscal year. At a very high level, the assessment consists of comparing the projected plan assets with the projected benefit payments. And we note that this can be complex and cumbersome exercise. The determination of the discount rate to be used would be done in a couple of steps. So, first, a public sector entity would determine a fully funded plan rate for the periods where projected plan assets are greater or equal to the projected payments. And then secondly, the public sector entities would determine an unfunded plan discount rate for the periods where conversely, the balance of projected assets is below projected payments. Then lastly, the public sector entity would calculate a single discount rate that results in the same present value of the defined benefit obligation determines separately using those two rates. The board has also, identified some other changes to the guidance that may result in changes to current practice for Canadian public sector entities, so, let's discuss these briefly. The proposed guidance on the calculation of the net interest now determines the net interest by multiplying the net DV asset or liability by the rate used to discount the obligation. Under the current Section 3250, the interest is calculated separately for plan assets and the obligation using a different discount rate for each. I would like to note that this guidance may actually result in higher net interest cost, in instance when the rate to the discount, the obligation is lower than the expected ROI. PSAB recognizes that many use the guidance on joint DV plans in the current standard, and this guidance is absent in IPSAS 39. As such PSAB included guidance on joint DB plans in the exposure draft and proposed minor modifications to existing guidance for joint DB plans, including changing legal terminology to accounting terminology, by replacing references, to sponsor with participating entities. They also, directed entities to use the multi-employer plan guidance for accounting in its proportion of joint DB plans. Finally, another topic to consider is the guidance on multi-employer plans. Currently PSAS mentions that sufficient information to follow DB accounting is not normally available for each participating employer, other than the sponsoring government. And then as such these are generally accounted for as defined contributions or DC plans. Instead, the exposure draft proposes that when sufficient information is not available to use DB accounting, then a public sector should account for the plan as if it were a DC plan. The softer language here is meant to encourage entities to assess whether or not sufficient information is available and not assuming that sufficient information is not available. I would like to now invite Mita to take us through the standards that are coming into effect in the upcoming years.

Mita Meyers:

Thank you, Sonia. Next slide, please. There are some significant standards coming into effect in the coming years. So, organizations should be working on their impacts of these standards now, given that there are transitional impacts. Most of the standards are not new to you, so I will not go into details of the actual standards, but I will highlight some of the changes and any new information available specifically related to the implementation of these. If you have any questions, as we mentioned, please, don't hesitate to send you a question in and I'll be happy to answer them after the session. So, next slide, please. The first one we will discuss is the public standard 3450 financial instruments, and the related standards along that come with those public sector standard 2601 foreign exchange translation, 3041 portfolio investments, and as well as 1201 financial statement presentation. The implementation date is April 1st, 2022. However, this does not apply to those that have already adopted the standards as part of the 4200 series that transitioned earlier in the years, which already followed the public sector standard 3415. Briefly, as a reminder, the standard requires the financial instruments to be classified into the fair value or amortized cost categories. It requires the preparation of the new statement of remeasure gains and losses, and a number of risk disclosures, in addition to the other disclosures already there on the financial statements. There were a number of amendments as well that were issued, such as [INAUDIBLE] clarifying the scope requirement or contractual rights and obligations specifically in the derivative situations, and some of the transitional provisions. Again, very specific related to the derivatives unamortized premiums, discounts and consolidation. In 2021, there were additional amendments that were approved and now included in 2021 standard, which relates to the presentation of re-measurement impact of derivatives allowing to better explain volatility in net debt and in relation to the foreign exchange, which allows all public sector entities to recognize exchange gain or loss directly in the statement of operations. So, the piece that will continue to monitor and review the accounting for financial instruments and the board will assess whether a post-implementation review should be performed. On the next slide, and in fact, for the next five slides, we are specifically going to talk about the Asset retirement obligations, the standard 3280. PSAB extended the implementation date April 1st 2022 due to Covid limitations. A key message briefly is to start now. The new standard applies to government and government-type organizations and addresses reporting legal obligations associated with retirements of tangible capital assets, for short, TCAs. It includes things like removal of asbestos, retirement landfills, which replaces standard 3270 and retirement of certain hospital equipment, for example, such as x-rays and MRI equipment. It excludes unexpected events that would fall under standard 3260, which is contaminated sites. And essentially the asset retirement obligations [INAUDIBLE] associated with an asset controlled by an entity, which increases the carrying amount of the TCA news and expense in the systematic and rational manner. Again, the adoption can be in one of the three ways, retrospective, modified retrospective, or perspective. Next on the next slide, we'll briefly talk about the recognition, which is limited to legal obligations and includes TCAs both in productive use and not in productive use. Accounting will be dependent on the situation. So, if it's not in productive use, amounts are expensed immediately. The estimation of the liability is based on the available information and the obligation is measured as best estimate at each financial reporting date and revised according [INAUDIBLE]. On the next slide, we listed some of the key items to consider, such as types of costs to be included, what is the process of obtaining the information, consideration of estimation techniques, to name just a few, and we'll go in little bit of details in the next couple of slides. So, in the next slide, we will start off with risks. Again these risks, such as completeness of the arrows. So, in terms of the assessment of the support available. Measurement, which is measurement of the asset retirement obligations to see what the data will be used and what models will be used. What method of transition you'll be using, and of course the documentation and related auditability of the information. Overall for the project, things to consider again is the project team and the plan, that it has developing a policy and engaging internal and external stakeholders, which also includes a scoping process. In the scoping process, it is some of the things to consider are the review of the TCA categories to make sure that it's using a risk-based approach. Have discussions with the stakeholders to ensure that you have a complete listing and consider looking at data sources to assess the completeness, so, such as documents, such as insurance documents or lease documents. Also, something to consider is to educate and communicate and engaging all the accountable groups to ensure that they understand the requirements and their responsibilities. On the next slide, we highlight how to arrive at the best estimate, to remediate where we use, what we use, as well as what is a reasonable approach. So, this takes into consideration cost and benefit analysis. So, some of the options to arrive at this best estimate is to use a third party expert to value those arrows. Specifically, sometimes specific cost extrapolation methodologies used for grouping of similar assets, which is less costly and use existing data. And then there is a standard standardized costing estimate, which is extrapolated to grouping of similar assets. And again, don't forget about the betterments. So, it's not just what you dispose of, but it's the betterments as well. One of the items that was brought up as well is the timing of the retirement activities needed to be considered. So, in what was brought up is that in rare situations when you value something so far into the future it would be so trivial that some argue that you don't need to recognize anything. This is an audit challenge. If you arguing this position, you still need to perform analysis and document supporting as to why you think this is trivial. So, you still have to go through the work and the considerations that we just discussed, and the work to prove that there is no need for recognition. So, a number of transition methods is also available and the method chosen should be well documented. In the next slide, we are going discuss the implications of the new guidance, which is related to the purchased intangibles. So, the guideline 8 removes the prohibition to the extent that it relates to intangibles purchased through an exchange transaction. The developed and inherent intangible prohibitions will still exist, but the earlier is change in practice. The guideline provides a definition of what a purchase in tangible is as well as the guidance as what is not. It is effective as of April 1st, 2023. And again, retrospective or perspective application and early adoption is applicable. Some of the implementation considerations is what is in scope, life of an asset, so, is it definite or indefinite, and impairment considerations, to just a name a few. The next standard that is coming out is public sector standard, 3400 revenue standard. This standard applies retroactively or prospectively and applicable similarly to the year, beginning on or after April 1st, 2023, this standard applies to revenue that is not addressed somewhere else by PSAS and specifically separates revenues into two types. For exchange transactions, which are transfers for consideration and result in a performance obligation, and then recognize these when performance obligation is satisfied. This could be either a point in time or over a period of time. The measurement base is the portion of the price allocated to the satisfied performance obligation. And again, there is a few considerations for if there is you have multiple performance obligations, variable considerations, non-cash considerations, and any concessionary [INAUDIBLE]. And then the second type is the unilateral transactions, which again, which are increasing economic resources when there is no direct transfer of goods and services. And this one is recognized when authority to claim or retain the economic resource and past event giving rise to the claim has occurred. And again, with this standard, there are some additional disclosure requirements that will be considered. The last standard that we're going talk about on the next slide is standard 3160 public-private partnerships. So, approved in December 2020, it is effective April 1st, 2023, and has some key impacts specifically to result in recognition of public-private partnerships infrastructure, where in some cases, the asset previously was not recognized on the entity's books and will now be treated as an asset and presented as one of the entities assets. It will result again, of course, in more consistency, and you will be required to have new estimates and judgments, which will impact the value of the asset. So, hopefully having the additional information and recognition of assets and Associated liability with these contracts will allow better-informed decisions, since there will be clear principles that can be applied and the guidance of how to measure the related asset and liability. On the next slide, we discuss some of the key areas for consideration specifically. One of the areas is the control, and it's very consistent with the concept of control in handbook, section 3210, which is the asset section. Where recognition criteria will include having control of purpose and use of infrastructure, access to future economic benefits and exposure to the risks and significant residual interest. So, if the entity controls the infrastructure, it must recognize it and its financial statements. In terms of the measurement, it is initially measured at cost, which should be equal to the fair value, and in most cases, if there is a competitive process run, you can see the cost in the financial model. In other cases, the fair value objective may be useful in determining estimates. So, one way to value the asset is to discount a couple portion of the annual service payments back to the present value. Some other considerations, the corresponding liability measures, same as the asset, operating and maintenance costs should be accounted for smoothly over the life of service contracts. Additional disclosure requirements are simplified so that it doesn't know they don't overlap with other standards already required certain disclosures. And if you are interested in the componentization of private public, private partnerships infrastructure, they have more information in the basis for conclusion. So, in the next three slides, Appendix A, Sonia already referenced these, they present an example for you to refer to as the change in consideration for the change of the conceptual framework. So, I will not go into details of this presentation, but should you have any questions, both Sonia and I will be able to answer those. So, if I have the next slide. Next one, please. So, the statement is broken down to make sure to show you what is new and what has changed. So, in the next slide, or the wrap-up slide. So, we presented here, if you could just go to the next slide, please. So, in this slide, we are presenting some of the links to some of what we have discussed so far, both from Kathi's presentation, Sonia's and mine, and if you have any questions you can go to the links provided here, or send us an email for further clarification or any questions. So, at this time we're concluding the presentation on the standard updates and Sunniya will present to you the next session on one of the hot topics, ESG. Thank you.

Sunniya Durrani-Jamal:

Thank you very much Mita. A very good afternoon to you all. Yes, indeed. ESG is a very hot topic. So, let me preface by saying that today I hope to cover why it's important, what's happening for the private sector in terms of ESG disclosures, what's coming up for the public sector, and then of course, if you have any questions happy to answer at the end. Next slide, please. Thank you. Next one over. Thank you. So, what are ESG issues and what's different about them? You know, I often get asked this question and what I'd like to say is that this is simply the environment, social and governance issues that have been around for a long, long time. We've talk about sustainability issues in the past. We have enterprise risk management and I'd like you to think of ESG as an approach which sits somewhere in the middle. So, how do you build and contribute to sustainability more broadly and how do you build operational resiliency in the face of risks? To give you some examples, if you look at the little timeline that I have here. Since the 1980s, you know, a number of ESG environment, social and governance, risk issues, have been escalating and have been becoming recurring and have become very prominent globally. So, we hear about them more often. So, in the 1980s you had the huge Nestle formula, baby formula scandal, and there was all this controversy about that compared to breast milk. And then you had Volkswagen in 2015 in the headlines because of some falsifying reports on their emissions from their vehicles to, I guess in 2018, the most relevant for our group here, the Oxfam scandal on some coverup of a sexual harassment case. So, you can see there's a wide range of issues that get covered under ESG. I'd be happy to share further slides on what exactly those are, but really as I mentioned, these are not new issues, but they are gaining prominence, becoming more frequent, and we do have upcoming disclosure requirements around them. I'll just say that in particular, this example of Volkswagen is very important because it touches on the environment issue in terms of the emissions, the social issues of safety of cars. And of course, on the governance issues, whether there were enough escalation protocols. So, in all of these examples, you see some elements of E S and G. Next slide, please. So globally, in terms of disclosure standards, we've all heard of COP26, which concluded in Glasgow, in November [INAUDIBLE]. One of the key issues that has come to service in terms of disclosures is climate risk, and why climate risk? It's because of the time-sensitive nature. So, you know, what has been recognized is that it is a global issue. It's impacting us at all different levels globally, nationally, and particularly for those organizations that have operations, you know, beyond Canada and internationally, it's going be very, very important. I just want to point out three things here which are very relevant for the government and the non-profit sector. One is that in order to address climate risk, it's going require a lot of funds. And particularly at this time and governments under fiscal duress, the private sector has also decided to step up. So, there's a requirement, an estimation of a hundred trillion needed to battle climate risk and to help economies, all of us contributing to transitioning to low carbon growth. A hundred trillion required, 130 trillion committed by the private sector, 80 billion committed by governments, and in order to get to this and to the right kinds of investments that are required we are going to be coming up as you see under 4 some Global Standards. Next slide, please. So, what does it mean, what do ESG disclosure standards mean in Canada? I just want to preface by saying that at the moment, the ESG standards are being drafted for the private sector, but they are coming up for the public sector. There's a number of developments that have happened which are pointing in this direction. First of all, in 2019, the Bank of Canada listed climate risk as a key vulnerability in our financial system, which by the way, is a very well-managed financial system. So, you're getting a policy signal from there. Also, when there was the pandemic, the COVID 19 pandemic bailout funding, the government, the federal government tied that for large companies to their disclosure [INAUDIBLE] on climate risk. In last year's budget, the government has required large crown corporations, which hold more than 1 billion in assets to start reporting on climate-related disclosures and financial risks in their filings for this year and crown corporations, which hold less than a billion in assets will begin reporting by 2024. So, given this sort of policy direction all CFOs,, public or private will need to start preparing for building quantifiable ESG metrics into the financial risk management. And not only rely solely on the non-financial metrics of performance. In addition to CFOs, of course, management has to assure that they have robust mechanisms in place to ensure the accuracy of information. This will be in the future of course for accounting purposes as well. Sorry. I seem to have lost a view of the slides. Let me just go on. Can others see the slides? No, they've gone. All right. We'll just hold. And can we get that back on the system?

Diana Brouwer:

Just wait one minute and hopefully we will have it back up again.

Sunniya Durrani-Jamal:

Thank you. As I was mentioning, both CFOs and management are going to have to ensure the accuracy of information and ensure that the systems are in place when we are reporting on climate risks for any organization. And one of the key issues, I think, from a standards disclosures perspective is that there are many, many standards out there, so the global community is getting together to try and figure out how to make the standards consistent so that they can translate back into international standards and that will be helpful for organizations that are reporting against them. Next slide, please. Here again, I think on the upper bar just wanted to show that there is indeed an alphabet soup of standards at the moment. But again there are efforts underway to standardize these. Next slide, please. I won't go into details and all these measures, but just to let you know that a number of boards, for instance, the climate disclosure standard boards, the international accounting standards board, the task force for climate-related disclosures, the value reporting foundation, the world economic forum, have all got together and we have agreed at COP26 to the international sustainability standards for one of their offices will be in Montreal, and the ISSB, if you go to the next slide please, the ISSB is going to be undertaking consultations globally, jurisdictions in both the developing and the developed world to come up with standards. These standards are then, I hope, I think the consultations are meant to be done by June /July of 2022. Once those consultations are done then the IPSASB, which is the International Public Standards Accounting Standards Board and the CPA will work with the ISSB in translating that into national standards. So, the CPA in Canada, the PSAB board are, you know, keeping all this work. They're watching all these developments very, very closely and for Canada what I'd like to just state is that we have to wait for these international disclosure standards on climate to be finalized prior to them being adapted for Canada. Next slide, please. So, what does all this mean for the public sector? I think since we have a very diverse group here, all I can say is that for government agencies, of course, ESG risks will need to be addressed, particularly those related to climate in terms of policy, which we have very clear policies, legislations, regulations for CFOs, as I mentioned on financial and non-financial reporting. But very importantly, I think if your organization faces a climate risk [INAUDIBLE] then that's going to have implications for your budgets and investments. If you are a non-profit organization and receiving funding from, you know, charitable organizations or others, then those organizations, or even from the private sector, those organizations are going make sure that your ESG risks have been identified and that you have made the disclosure and most importantly, have made provisioning in your budget for managing those risks. So, I'll just end by saying that all of these risks, E S and G, particularly climate risks, are going to have implications for government agencies in terms of the crisis response. And for the non-profit sector, they could have implications for how you continue your service delivery. We are starting globally with climate disclosure but there will be standards coming for biodiversity as well. And very critically for the larger organizations. If you do face certain risks, particularly related to climate, for instance, due to flooding or heating, et cetera that may require investments. And the private sector has committed a lot of financing and particularly this relates I think to municipal governments or to city governments or regional governments. In the case of infrastructure development, the costs are going to grow, and therefore we are expecting an increased look at how the private sector can contribute to the development of infrastructure and its operations. So, I'll just stop there and perhaps take questions if there are any, thank you.

Diana Brouwer:

Thank you, Sonia. We don't see any questions that have popped up on this, but it's obviously a growing area and how it will impact the Not-for-Profits, especially as we move forward will be interesting to see. I know, certainly in my client portfolio and other large organizations I've seen is, you know, don't underestimate in your investment for portfolios and working with your investment managers and where are you investing? What is your ESG policies with respect to that? And I know a lot of investment managers are on top of that as well, and working with our clients. So, thank you, that really wraps up today's session. I want to thank each of the presenters that we're here today in giving updates on all the topics that were presented, just a reminder to everyone that a copy of the presentation will be made available to you with the email that will also, include a link to the replay. So, again, thank you for attending today. And after we conclude this session, there will be a pop-up with a survey, and we would really appreciate your time to respond to the questions, to help us consider how we will do this again next year as well. So, thank you again to everyone.