Directive on Accounting Standards: GC 3300-3310 Contingent Liabilities and Loan Guarantees

Supports the Public Sector Accounting Handbook (PSAH) in stating the Government's accounting policies for contingent liabilities and loan guarantees.
Date modified: 2017-04-01
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This document is part of the Appendix A of the Directive on Accounting Standards.

A. Primary PSAS references

  • PS 3300 Contingent liabilities
  • PS 3310 Loan guarantees

B. Effective date

C. Government of Canada Consolidated Financial Statements

  1. Contingent liabilities may exist at departments and agencies as a result of various activities, such as: guarantees of the indebtedness of others; claims and pending or threatened litigation; environmental contamination; arrangements with international organizations; and insurance programs. (PS 3300.03) Normal uncertainties connected with ongoing and recurring accounting estimates do not fall within the scope of contingent liabilities.
  2. Further to PS 3300.13, the uncertainty relating to the occurrence or non-occurrence of future event(s) can be expressed by a range of probabilities. As a guideline, the range of probabilities can be broadly defined as:
    1. Likely: a greater than 70% probability;
    2. Unlikely: a less than 30% probability; and
    3. Not determinable: a probability between 30% and 70%.
  3. To illustrate the application of the accounting treatment related to contingent liabilities in specific situations please refer to the table below:
    Likelihood of future event
    Likely Not determinable Unlikely

    Table 1 Notes

    Table 1 Note 1

    Unless one of the exceptions in paragraph 6 of GC 3300/3310 applies and is approved by OCG, in which case only disclose in notes.

    Return to table 1 note * referrer

    Amount estimable Record an estimated liability table 1 note * Disclose in notes Do not disclose in notes or record
    Amount not estimable Disclose in notes Disclose in notes Do not disclose in notes or record

D. Departmental Financial Statements

  1. Departmental contingencies are reviewed on a quarterly basis to ensure validity of information and are reported to the Receiver General.
  2. An updated legal opinion from the Department of Justice should be solicited for litigation items for each year-end at a minimum; more frequent updates should be obtained for significant items. Departments and agencies that have a material amount of homogeneous contingencies, such as contingencies related to loan guarantee programs, should develop a methodology to assess the likelihood and amount of possible losses.

E. Exceptions

  1. For departmental financial statements, the following two exceptions to PS 3300.15 apply:
    1. When the magnitude of the estimated liability is so significant that its inclusion in expense/liabilities risks revealing the estimate of potential liability; or
    2. When the contingency relates to decisions of TBS as the public service employer and the potential impact of the claim extends across many departments.

    In these situations,consultation with the Office of the Comptroller General (OCG) is mandatory. The OCG will analyze the specific situation and:

    1. If the OCG determines that the estimated liability should not be recorded by the department, the liability and related expense will be recorded in the consolidated financial statements.
      • However, the department will still need to disclose this in their departmental financial statements notes. The department should provide sufficient description of the nature of the contingency in their departmental financial statements so that the reader understands the significance of its expected impact and that no liability is reflected in the accounts. Particular care should be taken in wording the disclosure of contingent liabilities that are confidential or sensitive in nature. Departments and agencies may wish to consult with the Government Accounting Policy and Reporting Division of Treasury Board Secretariat for proposed note disclosure.
      • The department will record the expense and liability in its accounts once the uncertainty surrounding the liability is removed (for example, when a court decision is rendered or a settlement agreement is reached) and will need to inform OCG in order to reverse the liability from the consolidated financial statements.
    2. If OCG determines that the estimated liability should be recorded by the department, the liability and related expense will be recorded and disclosed in their departmental financial statements.

F. Other related references

  • PS 3200 Liabilities
  • PS 3260 Liability for contaminated sites
  • PS 3270 Solid waste landfill closure and post-closure liability
  • PS 3210 Assets
  • GC 3210 Assets
  • PS 3320 Contingent assets
  • GC 3320 Contingent Assets
  • GC 4500 Departmental Financial Statements
  • Receiver General Manual - Chapter 15 - Public Accounts Instructions
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