Public sector entities in Canada have legal obligations to retire certain tangible capital assets at the end of their lives. In accordance with the Public Sector Accounting Board’s (PSAB) new PS 3280 Asset Retirement Obligations (AROs), which come into effect this year, a liability must be reflected in their financial statements.
This accounting standard, issued in August 2018, establishes guidelines for public sector entities that address the accounting and reporting of legal obligations associated with the retirement of tangible capital assets.
Section PS 3280 is effective for fiscal years beginning on or after April 1, 2022, which means March 31, 2023 and Dec. 31, 2023 will be the first year-ends impacted.
The new standard on AROs introduces several key benefits to public sector entities, including:
- Enhancing stakeholder understanding of the cash flow requirements to meet future obligations.
- Assisting users’ understanding of the full cost of the tangible capital assets acquired or developed.
- Improving consistency in accounting for these obligations.
- Bringing current standards into alignment with environment, sustainability, and governance (ESG) reporting.