When PS 3041, Portfolio Investments becomes effective in 2022, how will accounting for bonds and equities in a portfolio change for governments in Canada?
PSAB is replacing its old standard on Portfolio Investments with a new one, Section PS 3041 effective on year ends beginning on of after April 1, 2022. This will apply to all levels of government.
Portfolio investments typically refer to stocks and bonds that public sector entities hold. Most public sector entities have a very conservative investment policy and hold GICs of fixed income financial instruments. However, in an ultra-low interest rate environment, many also hold equity instruments.
The new standard requires public sector entities to follow a new comprehensive standard on Financial Instruments (Section PS 3450). This means listed equities will be required to be measured at their fair value at each year end, and any unrealized gains or losses associated with those equities will be reported on a separate Statement of Re-measurement Gains and Losses.
PS 3450 also provides the option to report all portfolio investments at fair value. Where a public sector entity is managing a complete investment portfolio (stocks and bonds) and has the desire to report its performance on a consistent basis (marked-to-market), then it can do so.
Other aspects of the new standard (write-downs, concessions, etc.) largely remain the same in the new Portfolio Investments standard.