When Accounting Principles Obfuscate the Truth

By Greg Hluska

The Canadian Press ran a doozy yesterday…

Saskatchewan is projecting a $1.3 billion drop in potash revenues this fiscal year but still hopes to post an overall budget surplus.To deal with the shortfall the government says it will take a $185 million dividend from the Crown Investments Corporation and delay funding the Children’s Hospital in Saskatoon and some schools.

Compare and contrast that to the LeaderPost’s coverage of the potash shortfall…

Then there’s unexpectedly higher revenue of $668 million from oil, taxes and federal transfers, which covers half the potash revenue shortfall. Gantefoer will make up the rest through accounting measures like taking a $185 million dividend from the Crown corporations and by deferring $132 million in capital projects still in the planning stages. That doesn’t mean the Saskatoon Children’s Hospital has been cancelled, as some critics suggest; the money will be there once construction begins.

Two media sources, two dramatically different stories.  The Canadian Press take on the potash shortfall calls to mind images of sick kids standing on the streets saying, “We don’t have a children’s hospital in Saskatchewan.”  The Leader-Post version spares us that rage-inducing image.    Why is there a disparity here?

The first idea that springs to mind is the fact that the Canadian Press is a pretty bad source for a story of this complexity.  The Saskatchewan Party is making up the lost revenue through a creative use of accounting.  Essentially, they are going to report expenditures in different places and at different times.  For example, they are going to ‘take a dividend’ from the Crown Investments Corporation.  Rather than let the Crown Investments Corporation report those assets, the province is going to report them in its own financial statements.  And, they are going to ‘defer capital expenditures’ (like the Children’s Hospital).  Defer does not mean ‘cancel’, it means ‘enter it later.’

This brings up an interesting question.  Politicians have been using accounting measures to improve their financial results for several years.  Creative accounting cuts all across party lines.  Is this really acceptable?

Personally, I fall into the camp that suggests that government should use the most transparent accounting methods possible.  Deferring expenses and using journal entries to maintain projections seems a little bit questionable when applied to the public records.

What do you think?