Federal, provincial, and territorial governments in Canada are now applying the accrual based financial reporting model used in the CICA PSA Handbook. This significant transformation in public sector financial reporting occurred after reporting for decades using a modified cash basis for financial reporting. Among the items that were not recognized when modified cash basis reporting was prevalent include tangible capital assets and employee benefit obligations.

Required

(a) Use the qualitative characteristics (Illustration 10.2) to evaluate accrual based financial reporting as compared to the modified cash basis. Explain how accrual based financial reporting enhances the relevance, reliability, and comparability of public sector financial reports.

(b) Identify three key indicators that would change when accrual based financial reporting is applied. Explain how each measure would be affected when tangible capital assets and employee future benefit obligations are recognized.