Exam 11: Public Sector Financial Reporting

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A government transfer is the provision of either monetary or tangible assets by one government entity to another.Since there is no transfer of goods or services in return,and no expectation of repayment or financial return,the transaction is a non-exchange transfer.
Restrictive terms may be imposed by the transferor which may set eligibility criteria for who may receive the transfer or what must be done to receive the transfer.Or the restrictive term may be a stipulation which outlines how the transfer will be used and what must be done to keep the transfer.
Transferor accounting - The transferring government will recognize the transfer as an expense when it is authorized and the eligibility criteria have been met.This is the same requirement for both operating and capital transfers.
Recipient accounting - Operating transfers are recognized as revenue when the transfer has been fully authorized and the eligibility criteria have been met.If both criteria have been met,but cash has not yet been received,then a receivable will be recognized at this time.If stipulations are attached,then revenue is not recognized until the stipulations have been met.In this case,the revenue may be deferred until the stipulations are met.
Capital transfers are monetary transfers that will be used to acquire capital assets or direct transfers of the tangible asset itself.There are two approaches currently used by governments with respect to capital transfers.The first alternative is to recognize the revenue by matching it against the cost of the related tangible asset.For this method,the revenue is deferred and recognized as the asset is amortized.The second alternative is to recognize the revenue when the asset is ready for use.In this case,in future years,there will be an amortization cost with no offsetting revenue.To avoid the problem of including deferred revenue in the net asset calculation,PSAB suggests that the revenue be recognized when the transfer has been fully authorized by the transferor and the eligibility criteria have been met.The revenue is only deferred if the transfer results in a liability for the recipient.