Chapter 7
Government financial reporting

7.1 Government accountability

Governments are accountable for their activities. They are obligated to inform the public about the stewardship of their jurisdictions. Disclosures usually take the form of annual reports that include an accounting of government's financial transactions for a fiscal period. In Canada, these financial reporting exercises are generally governed by the accounting guidelines prescribed by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.

Public Sector Accounting Board's "Public Sector Accounting Handbook" states that governments' financial statements should consolidate the financial statements of all organizations under their control with the exception of government business enterprises. Government business enterprises should be reported in the government's summary financial statements on a modified equity basis. The net assets of the government business enterprises are reflected as an investment (a financial asset) on the government's consolidated statement of financial position, while the government business enterprises net income is presented as a separate item on the government's statement of results.

Under the Public Sector Accounting Board's reporting guidelines, governments have been directed to list all entities that have been included in their consolidated financial statements. The list can vary by jurisdiction, but generally comprises government units such as their autonomous funds and organizations; hospitals, universities, colleges and schools; and the consolidated revenue fund. As governments revise their reporting methods to comply with the Public Sector Accounting Board guidelines, these units will eventually be consolidated using the full line by line consolidation method.

7.2 The reporting cycle

Before the commencement of a fiscal period, public administrations submit estimates of expenditure to the federal parliament, provincial-territorial legislatures or municipal councils to seek funding approval for the programs and services necessary to fulfill their mandates. At the end of a fiscal period, activities are summarized to report on government's budgeted intentions compared to actual expenditures. All financial transactions are consolidated into a primary set of financial statements and audited by an appropriate authority. At government's discretion, financial information may be disaggregated from their consolidated statements, in order to account for the activities of special purpose organizations, funds and enterprises. The extent of this disclosure depends on government's ability to provide details for each entity in their administration.

7.3 Statistical perspective

Often, it is not possible to obtain financial information for each unit of an economic reporting entity. While statistical coverage is complete for a sector, data for component aggregations within sub-sectors may be incomplete due to the fact that governments have chosen to provide separate financial statements only for certain entities while the transactions of other entities are embedded within a government's main financial statements. Thus, information is readily available for entities that have their own financial statements or that have the ability to report separately from their parent entity's consolidated statements. These institutional units are usually the autonomous government funds, organizations and business enterprises that are mandated to maintain their own books of account. Classifications can be applied to distinguish, group and measure their unique activities with similar units.

Embedded entities, on the other hand, are not institutional units. They do not have separate financial information. Their operations are included with the parent government's financial transactions. Since their performances cannot be distinguished from the government's operations, they must be classified to the same sub-component as their parent's, according to the concepts of the System of National Accounts 2008 (SNA 2008). Embedded entities may be classified according to their characteristics using the North American Industrial Classification System and listed with units of similar activity to show a complete universe. However, their embedded status restricts sectoral measurement to their parent's sub-component classification.

7.4 Entities embedded in the federal government sub-sector

These embedded entities are the federally controlled non-profit public institutions whose financial transactions are not available separately from their parent government. Examples of these units are federal hospitals, nursing stations, residential care facilities and colleges operating through the Department of National Defence, Health Canada and Veteran's Affairs Canada.

7.5 Entities embedded in the provincial and territorial government sub-sector

These embedded entities are the provincially or territorially controlled non-profit public institutions whose financial transactions are not available separately from their parent government.  Examples of these units are some provincial or territorial hospitals, residential care facilities and school boards.

7.6 Entities embedded in the local government sub-sector

These embedded entities are the locally controlled non-profit public institutions whose financial transactions are not available separately from their parent local government.  Examples of these units are municipally owned hospitals and residential care facilities.