Staff Consultation on Amendments to the Uniform Classification of Accounts: Stage I Staff Consultation Document

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Introduction

The Canadian Transportation Agency(Agency), as an economic regulator, is required under the Canada Transportation Act,  S.C., 1996, c. 10, as amended (CTA) to issue a number of railway-related cost determinations based on data supplied by the railway companies. Uniform Classification of Accounts and related railway records (UCA) based information is also required as part of each railway company's Annual Report to the Minister of Transport, Infrastructure and Communities.
These companies are required to supply that data according to a structure of accounts and operational statistics specified by the Agency in the UCA. The UCA sets out accounting guidelines and instructions to guide railway companies in providing information required by the Agency. The UCA is a highly technical document and reporting requirements are managed on a day-to-day basis between the Agency's staff and staff at each railway company.
The last substantive revision to the UCA was completed in 1998. There were also limited revisions in 2009 and 2010.  Many changes have occurred since the last major review in 1998. The railway industry's accounting systems have evolved in response to changes in railway operations and accounting standards. As well, a number of Agency decisions have had implications for the UCA, but the prescribed changes in methodology have not been reflected in the document.
The purpose of the current review is to ensure that the UCA:

  • Provides the Agency with the information required to meet its regulatory costing needs and ensure fair and reasonable regulatory outcomes;
  • Responds to the evolution of the railway industry, by ensuring that the accounts being used are representative of current railway operations;
  • Responds to the government policy directions to reduce industry administrative burden, by allowing railway companies to provide required information in a cost effective way;
  • Reflects improvements based on the experience gained since 1998 in performing regulatory determinations;
  • Incorporates recent Agency decisions affecting UCA methodologies; and,
  • Responds to the impacts of the evolution of accounting standards on regulatory costing.

In support of these objectives, staff consultations will be held to elicit input from all stakeholders, which will be carried out in two phases.
This first phase focuses on the accounting rules and the account structure at the conceptual level while providing an opportunity to stakeholders to submit proposals. The detailed specification of the accounts or of the accounting instructions are not to be considered in this phase.  The objective in this phase is to ensure that all rail-related costs and revenues are captured in a way that is reasonably clear, and that allows costs to be differentiated based on their underlying operational causes.

A second round of consultations will be held in the summer of 2013 to ensure the language used in the revised UCA is also appropriate and consistent with Agency decisions first, and accounting language and rules second. Such a hierarchy is consistent with the view that the UCA is not simply a reflection of GAAP for railway companies. Rather, it is an alternative structure which may utilize accounting principles which are widely accepted in North America, and are deemed appropriate by the Agency for application in regulatory costing purposes.

Approach

This consultation document is designed to be read alongside the current UCA.  The document highlights the proposed staff amendments to the UCA document currently in force. It includes amendments to principles and accounting/statistical structure with descriptions to give an indication of the direction being proposed. Specific wording will be considered in the second phase of the staff consultation.

This consultation document will be disseminated to a wide range of stakeholders via email. All responses to the consultation will be shared with the stakeholders identified. 

What input is expected

Responses to the consultation document are expected to provide specific comments to the amendments proposed by Agency staff (see "Specific Proposed Amendments From Agency Staff").  In addition, stakeholders are invited to provide comments of a more general nature on the UCA. For instance, Agency staff would be interested to know the views of stakeholders with respect to the following:

  1. any rules and or accounts, currently in effect, that are no longer useful;
  2. any economic activities and/ or economic events that are reflective of current railway operations but for which there are no rules and/ or accounts in the current UCA;
  3. any areas of the UCA where the reporting burden could be reduced while meeting the regulatory needs of the Agency;
  4. any UCA rules that need to be modified in order to be reflective of current railway operations;
  5. any UCA accounting instructions/rules that need to be aligned with GAAP, where GAAP better reflects the regulatory cost;
  6. any areas of the UCA that should deviate from GAAP in order to  reflect regulatory costs and;
  7. any sections of the UCA that differ from GAAP and are not captured above.

In order to fully evaluate responses and encourage a full discussion of the issues and proposals from stakeholders, Agency staff is planning a stakeholder workshop in April 2013 to review and discuss proposed amendments to the current UCA.

Specific Proposed Amendments from Agency Staff

The following section presents the proposed amendments by Agency staff. The rationale for the proposed change is also indicated when required.

Please note that strike-out to the wording of the original UCA has been added by Agency staff in order to identify deletions and modifications and is only applicable within the context of this consultation document.

Section 1103 Reporting of Results

Subsection 1103.02 currently reads:

1103.02 The Annual Report and Financial and Related Data are to be completed in accordance with the provisions of Part II of the Carriers and Transportation and Grain Handling Undertakings Information Regulations under section 50 of the CTA, with submissions provided to Transport Canada not later than May 31 of the year following that for which the report is made. This will be regarded as confidential in accordance with section 51 of the CTA.

Agency Staff proposes to be amended to:

1103.02 The Annual Report and Financial and Related Data are to be completed in accordance with the provisions of Part II of the Carriers and Transportation and Grain Handling Undertakings Information Regulations (SOR/96-334) under section 50 of the CTA, with submissions provided to Transport Canada not later than May 31 of the year following that for which the report is made, or another date as set out in SOR/96-334. This will be regarded as confidential in accordance with section 51 of the CTA.

Rationale:

The May 31st date is set out in the regulations, but if the date were to change in the regulations, under the current UCA's wording, the railway companies would still be required to file on May 31. 

Section 1104 Interpretation and Clarification of UCA

Subsection 1104.01 currently reads:

1104.01 When in doubt as to the intent of the UCA on any matter, carriers are to submit to the Secretary of the Agency questions seeking interpretation and/or clarification of the issue(s). In addition, the Agency may issue interpretations on its own initiative.

Agency Staff proposes to be amended to:

1104.01 When in doubt as to the intent of the UCA on substantive matters of interpretation or policy, carriers are to submit to the Secretary of the Agency questions seeking interpretation and/or clarification of the issue(s). In addition, the Agency may issue interpretations on its own initiative.

Rationale:

The change recognizes that there are many issues of a technical nature which can be best handled through a less burdensome process.  This amendment is in keeping with current practices, and is meant to clarify those current practices.

Agency Staff proposes to delete Subsections 1104.03- .05, which currently read:

1104.03 The Agency will publish its interpretations and judgments in the form of Bulletins.

1104.04 Any carrier may object to an interpretation by filing with the Secretary of the Agency within thirty days after the date of the Bulletin containing the interpretation, or within such further time as the Agency allows. The objection and the reasons in support thereof are to be stated in writing.

1104.05 The procedure to be followed in respect of issues concerning generally accepted accounting principles is set out in Section 1201, General Accounting Instructions.

Rationale:

The significance of the issues to be interpreted or determined could be varied. The process for issuing Agency interpretations would be more effective if determined by the Agency on a case by case basis to ensure efficient communications that avoid unnecessarily burdening railway companies and shippers.

Section 1106 Revision of Minimum Amounts

Subsection 1106.01 currently reads:

1106.01 The accounting instructions in this UCA set out certain minimum amounts which are used as a guide to appropriate accounting procedures in specific circumstances. The Agency will issue such periodic revisions to these minimum amounts as are necessary to accommodate cost inflation, and in so doing will provide adequate notice of the revisions to be made.

Agency Staff proposes to be amended to:

1106.01 The accounting instructions in this UCA set out certain minimum amounts which are used as a guide to appropriate accounting procedures in specific circumstances. The Agency will consider periodic revisions to these minimum amounts as necessary to accommodate cost inflation and other relevant factors, and will provide adequate notice of the revisions to be made.

Rationale:

The current wording suggests that the Agency will monitor all amounts on an on-going basis. The alternative wording provides the Agency more discretion to consider such revisions in light of cost inflation and other relevant factors, upon request. 

Section 1200 Regulatory Costing Purpose

Agency Staff proposes inclusion of the following:

1200.01 The principal use of the UCA is as the primary source of data for regulatory cost analysis. For that reason, all accounts in this UCA are designed to reflect rail regulatory costs.

1200.02 The Agency approach for determining regulatory costs is based on the principles enunciated by the MacPherson Commission, whose recommendations are embedded in the CTA, and on a number of regulatory railway costing instruments, including, among others, the Railway Costing Manuals, the Uniform Classification of Accounts, Order No. 6313[1] and Reasons for Order No. 6313[2]).

1200.03 Two fundamental principles underlie this approach. First, the costs of railway companies must reflect the use of a resource that has an opportunity cost (i.e., the use of an economic resource) that was incurred for the purpose of providing rail transportation service.

1200.04 Second, for the proper determination of which costs are "variable" and which are "constant" with respect to traffic volume, the costs must be reasonably matched to the time period in which the activity that incurred the costs was actually performed.

1200.05 The application of these two principles ensures the establishment of a causal relationship between the real resources consumed and the activities that caused these real resources to be consumed.

1200.06 Where the prescribed accounting methods result in costs that conform with the definition of regulatory costs as set out in subsections 1200.03 - 1200.04, the UCA directs for the cost to be reported in accordance with those accounting methods.

1200.07 Where the prescribed accounting methods result in costs that do not conform with the definition of regulatory costs as set out in subsections 1200.03 - 1200.04,   the UCA directs for the costs to be determined and reported according to methods that do conform with subsections 1200.03-1200.04.

1200.08 Subsections 1201.03-1201.06 set out the process for application of subsections 1200.06 and 1200.07.

Section 1201 Application of Generally Accepted Accounting Principles

Subsection 1201.03 currently reads:

1201.03 Paragraph 1201.03 deleted (effective May 2010).

Agency Staff proposes to be amended to:

1201.03 The method of accounting used in providing UCA data must meet the purposes of rail regulatory costing as described in section 1200. In general, accounts should be provided according to the above mentioned generally accepted accounting principles, except as directed through Agency Orders, Decisions, or Regulations, as appropriate.

Where a railway company finds that prescribed accounting methods do not meet the test for rail regulatory costs as set out in subsections 1200.03-1200.04, the railway company should communicate that to the Agency as set out in subsection 1201.05.

The Agency could also on its own initiative, commence a consultation, where the Agency is concerned that prescribed accounting methods may not conform with subsections 1200.03 and 1200.04.

NOTE. In Decisions No. 97-R-2012 and176-R-2009, the Agency determined a more suitable method of recognition for rail regulatory costs concerning pension benefits and stock-based compensation, respectively.

By extension, one area needing attention is the reporting of accounting provisions, where the timing and/or value of future costs is uncertain. Consequently, the resources actually used may differ greatly from the current projections used in determining accounting expenses.

Railway companies are required to bring forward any areas where current accounting principles used in preparing UCA accounts may not conform to subsections 1200.03 and 1200.04.

Subsection 1201.04 currently reads:

1201.04 From time to time, the above-mentioned accounting principles change. It is possible that the new principles will not be appropriate for the railways. Accordingly, when new Accounting Recommendations are published by the CICA, carriers may, within 60 days of publication, submit to the Agency their views as to:

  1. Whether the new accounting principles are appropriate for a railway;
  2. Whether the new accounting principles should be adopted on a retroactive or prospective basis; and
  3. The most appropriate method of implementing the new accounting principles, if applicable.
Agency Staff proposes to be amended to:

1201.04 From time to time, the above-mentioned accounting principles change. It is possible that the new principles will not meet the test for rail regulatory costs as defined in subsections 1200.03-1200.04. Accordingly when new accounting recommendations are published by the CICA/FASB, railway companies may, within 60 days of publication, submit to the Agency their views as to whether the new accounting recommendations meet the test for rail regulatory costs. If:

  1. The new accounting recommendations meet the test for regulatory costs, railway companies may, in the same submission, submit their views as to:
    1. Whether the new accounting principles should be adopted on a retroactive or prospective basis; and
    2. The most appropriate method of implementing the new accounting principles; or
  2. The new Accounting Recommendations do not meet the test for regulatory costs, railway companies must follow the procedure set out in section 1201.05
Subsection 1201.05 currently reads:

1201.05 Where the Agency has received a submission from a carrier concerning a new accounting principle, it will direct all carriers of the accounting principles and methods to be followed before the earlier of the following deadlines: the effective date of the accounting principle, or a date 180 days after publication of the accounting principle.

Agency Staff proposes to be amended to:

1201.05 In all cases where an expense determined according to prescribed accounting methods does not meet the test for rail regulatory costs as defined in subsections 1200.03-1200.04, the railway company will provide details of the prescribed accounting methods used in determining the expense. The Agency will direct all railway companies of the appropriate accounting principles and methods to be followed.

Subsection 1201.06 currently reads:

1201.06 Further, new types of transactions may arise which are not similar to transactions for which accounting practice has been developed. In such situations, carriers should submit to the Agency their views as to the accounting principle or method most appropriate in the circumstances. The Agency will direct all carriers of the accounting principles and methods to be followed within 120 days of receipt of such a submission.

Agency Staff proposes to be amended to:

1201.06 Further, new types of transactions may arise which are not similar to transactions for which accounting practice has been developed. In such situations, railway companies should submit to the Agency their views as to the accounting principle or method most appropriate in the circumstances and follow the procedure set out in subsection 1201.05.

Section 1202 Scope of UCA

Subsection 1202.01 currently reads:

1202.01 The property, revenue and expense accounts provided in this UCA are intended to contain only transactions and balances resulting from Canadian Rail operations defined as follows:

Agency Staff proposes to be amended to:

1202.01 All accounts provided in this UCA are intended to contain only transactions and balances resulting from Canadian Rail operations defined as follows:

Subsection 1202.03 currently reads:

1202.03 Canadian rail operations are those of:

Canadian railway companies;

lines in the United States which comprise short ends or interchange points or a part of continuous Canadian lines which pass through the United States due to geographic location of the terminal points (Accounts for these lines shall be in accordance with the Uniform System of Accounts for Railroad Companies as prescribed by the Surface Transportation Board, unless the Surface Transportation Board gives the carrier permission to adopt accounting principles generally accepted in Canada.);

  • lines in Canada owned and/or operated by United States railway companies;
  • affiliated railway companies or terminal companies which are jointly owned;
  • leased railway companies included in Canadian rail operations.
Agency Staff proposes to be amended to:

1202.03 Canadian rail operations are those of:

Canadian railway companies in Canada;

lines in the United States which comprise short ends or interchange points or a part of continuous Canadian lines which pass through the United States due to geographic location of the terminal points (Accounts for these lines shall be in accordance with the Uniform System of Accounts for Railroad Companies as prescribed by the Surface Transportation Board, unless the Surface Transportation Board gives the carrier permission to adopt the rules, instructions and structure of this document);

  • lines in Canada owned and/or operated by United States railway companies;
  • affiliated railway companies or terminal companies which are jointly owned;
  • leased railway lines in Canada.
Subsection 1202.07 – Canada/US Operational Splits
Agency Staff proposes the addition of the following new subsection:

Canadian Share of Trans-border Activity

1202.07 Where railway companies operate across jurisdictions (i.e. Canada and the United States) Canadian revenues, costs and operating activities should be captured by direct assignment.

1202.08 Where specific direct assignment is not possible, railway companies should submit to the Agency, for review, their method of allocating revenues, costs, and operating statistics.

Section 1205 Accounting Procedures for Class II and III Railway Companies

Section 1205 currently reads:

1205.01 The procedures and account structure prescribed in this UCA are to be followed by Class II and III railways with the following exceptions:

  • geographic separations of the accounts and geographic separations of operating publication/statistics
  • division of investment in rail (Account 103) into first position and other than first position components.

These items are required for Class I railways only.

Agency staff is seeking the view of stakeholders as to:
  • whether the requirement of the UCA should apply to all Class II or III railways?
  • which aspects of the UCA should not apply to Class II or III railways?
  • how would changes in the requirements impact filings to other Government of Canada departments.
Rationale:

It is recognized that adopting the procedures and maintaining the account structure specified in this UCA impose a cost to railway companies. In the case of Class II and Class III railway companies these costs may be significant if they were to comply with every aspect of the UCA requirements. Furthermore, recent experience suggests that the use of the UCA for regulatory costing work has been limited to the evaluation of Public Passenger Service Provider, for class II and III railway companies. 

Section 1303 Nature of Costs to be Included as Additions to Property Accounts

Subsection 1303.07 currently reads:

1303.07 The cost of labour includes:

  • an appropriate share of the salaries, wages and fringe benefits of the carrier's own officers and employees;
  • the cost of labour expended for preliminary work, such as sinking test holes or making soundings, for tunnels, gradings, buildings, and other structures;
  • the cost of labour expended in laying and taking up tracks for temporary use in construction, except the cost of labour expended on tracks provided for the protection of traffic during the progress of addition or replacement work.
Agency Staff proposes to be amended to:

1303.07 The cost of labour includes:

  • an appropriate share of the salaries, wages and fringe benefits of the railway company's own officers and employees;
  • the cost of labour expended for preliminary work, such as sinking test holes or making soundings, for tunnels, gradings, buildings, and other structures;
  • the cost of labour expended in laying and taking up tracks for temporary use in construction, except the cost of labour expended on tracks provided to maintain freight traffic during the progress of addition or replacement work.

Section 1304 Construction in Progress

Subsection 1304.03 currently reads:

1304.03 Interest during the period between the commencement of construction and the coming into service of property included in Construction in Progress (Account 31) may be added to the construction cost of such property. The approval of the Agency must be obtained before adopting such an accounting procedure.

Agency Staff has identified the need to review this section:

Agency Staff wishes to clarify the purposes and implications of this rule and determine the appropriate treatment of construction in progress for regulatory costing purposes. 

There is a reasonable likelihood this will be revised, but staff does not have sufficient information to provide appropriate instructions at the time. 

Section 1305 Minimum Amount Rule

Section 1305 currently reads:

1305.01 Carriers may apply to the Agency to determine amounts below which additions to, and replacements and major renewals of, operating property other than land and all elements of track structure may be charged to expense. No subsequent change is to be made in the minimum amounts except by authority of the Agency.

1305.02 The carrier shall not combine unrelated items of property for the purpose of including in the property accounts items which would otherwise be charged to expense, nor shall expenditures for related items be parcelled out into smaller parcels for the purpose of charging to expense items which would otherwise be included in the property accounts.

Agency Staff proposes to be amended to:

1305.01 Carriers may apply to the Agency to determine amounts below which additions to, and replacements and major renewals of, operating property other than land and all elements of track structure may be charged to expense. No subsequent change is to be made in the minimum amounts except by authority of the Agency.

1305.02 The carrier shall not combine unrelated items of property for the purpose of including in the property accounts items which would otherwise be charged to expense, nor shall expenditures for related items be parcelled out into smaller parcels for the purpose of charging to expense items which would otherwise be included in the property accounts.

1305.03 The minimum amount is set at $7,000.

Section 1311 Amortization Accounting

Subsection 1311.02 currently reads

1311.02 Service life is the period of time between the installation of the property and its retirement for accounting purposes. In the case of rail and other reusable items the service life may be broken into two or more periods for the purpose of determining rates for amortization of such items in more than one position.

Agency Staff proposes to be amended to:

1311.02 Service life is the period of time over which services are expected to be rendered by the property. Service life commences when the property begins providing its intended service and ends upon its retirement for accounting purposes. In the case of rail and other reusable items the service life may be broken into two or more periods for the purpose of determining rates for amortization of such items in more than one position.

Rationale:

This proposed text provides a more precise definition of service life and better describes the costs currently captured by this account.

Subsection 1311.13 currently reads

1311.13 When gross additions to, or retirements from, a property account or group of property accounts for which a amortization rate has been established aggregate in a five year period, 15% or more of the gross investment in the account or group, a review of the rate shall be carried out within one year unless the rate has been reviewed within the five preceding years

Agency Staff proposes to be amended to:

1311.13 When gross additions to, or retirements from, a property account or group of property accounts, over a five year period, exceed 15% of the gross investment in that account or group, the Agency may request a review of the rate be carried out within one year unless the rate has been reviewed within the five preceding years.

Rationale:

The current text requires a review irrespective of the materiality of the account. The proposed text would give the Agency the discretion to determine whether a review is necessary in the circumstances.

Section 1313 and 1314 – Transitional Provisions

Subsection 1313.01 currently reads:

1313.01 The requirements that property records for assets in the Way and Structures Group include the location of the asset (Reference: Section 1301) and that accounts for the same asset group be recorded by geographic cost centre (Reference: Section 1702, preamble to the way and structures account texts) may be delayed in the case of existing balances until a time to be determined by the Agency. All new investment in the way and structures group is to be recorded by geographic cost centre.

Subsection 1314.01 currently reads:

1314.01 The process of subdividing existing property account balances involves the implementation of revised amortization rates for each of the newly created property account headings as well as reallocation of accumulated amortization balances. This process is expected to extend over several years until the procedure contemplated in Section 1311.12 Review of Rates of the UCA is capable of being followed (i.e., until all the rates have been initially revised). In the interim, as property accounts and the related accumulated amortization accounts are subdivided, amounts may become identified as under- or over-provisions for amortization with respect to some property accounts. At the same time, there will remain certain other accounts, which, when analyzed later, may also contain under- or over-provisions for amortization. These provisions may be off-setting due to deficiencies in the methods of assigning accumulated amortization balances to property account balances at the time the existing balances were first sub-divided many years ago. As an interim measure the Agency, upon request by carrier, will authorize the collection of such under- and over-provisions into a single interim accumulated amortization account entitled "Unallocated Accumulated Amortization - Property" (Account 33.2). It is intended that this account balance be used until all property account balances and related accumulated amortization account balances have been established in accordance with the UCA. The Agency will, when authorizing the use of Account 33.2, specify the date by which it must be disposed of.

Agency Staff proposes to delete these sections:

Sections 1313 and 1314 deleted.

Rationale:

These two provisions were transitional provisions which are no longer required.

Section 1501 Natural Expense Categories

Subsection 1501.03 currently reads:

1501.03 "Labour" consists of compensation payable to employees for services performed, and for vacations, holidays and sick time, and other payments for time not worked, including amounts payable under profit sharing and stock option plans that are included in employee compensation.

*Note: The Canadian Transportation Agency may, for its regulatory purposes and at its discretion, give special consideration to stock-based forms of employee compensation.

Agency Staff proposes to be amended to:

1501.03 "Labour" consists of compensation earned by employees for services performed, and for vacations, holidays and sick time, and other payments for time not worked, including amounts earned under profit sharing and stock option plans that are included in employee compensation.

Rationale:

In staff's opinion the term "earned" better circumscribes the nature of the amounts to be recognized as it includes both amounts already paid and amounts payable. The note on stock-based compensation is no longer needed, as specific instructions for stock-based compensation appear later in this manual.

Section 1502 Geographic Cost Centres

Remove and replace subsection 1502.01 with:

1502.01 The UCA specifies that many expense accounts are to be recorded by geographic cost centre. This term is used to denote the narrowest geographic unit at which railway companies can reasonably match costs to their relevant operating activities in an accurate and efficient way so as to satisfy the regulatory requirement for cross-sectional analysis in order to keep the unit cost variabilities reasonably up-to-date.

Geographic cost centres are required in order to perform cross-sectional analysis that defines the causal nature of expenses. The minimum number of cost centers for each of the accounts and the frequency of updating of the account expenses by cost center is indicated in Appendix A.

Railway companies can at any time make applications to redefine the Geographic Cost Centres and the frequency of updating of the expense accounts presented in Appendix A, as long as the proposal allows the Agency to satisfy the regulatory requirement for cross-sectional analysis in order to keep the unit cost variabilities reasonably up-to-date.

Note: Appendix A has not yet been produced, as it will depend on discussions with the railway companies.

Rationale:

The current definition of cost centers is too specific and not focused on the objective to be met. The proposed approach will give the railway companies flexibility to meet the regulatory requirements.

Subsection 1502.02 currently reads:

1502.02 It is recognized that not all costs recorded in the accounts to be recorded by geographic cost centre can reasonably be attributed to particular geographic cost centres. To the extent that costs are incurred at the regional and system levels or at other levels of aggregation higher than the geographic cost centre, they may be recorded as such. The following types of cost, however, should not be regarded as regional expense: costs of way and structure maintenance gangs who are directly responsible to regional-level officers, and costs which can be identified with a particular supervisor or foreman whose territory includes parts of two or more geographic cost centres. In both of these cases, expenses should be attributed to the particular cost centres in which the work was done. To the extent possible, this should be done by using specific records of work performed; otherwise, through a reasonable method of allocation.

Agency Staff proposes to be amended to:

1502.02 It is recognized that not all costs recorded in accounts which require reporting by geographic cost centre, can reasonably be attributed to a particular geographic cost centre. To the extent that costs are incurred at the regional and system levels or at other levels of aggregation higher than the geographic cost centre, they may be recorded as such. The following types of cost, however, should not be regarded as regional expense: costs of way and structure maintenance gangs who are directly responsible to regional-level officers, and costs which can be identified with a particular supervisor or foreman whose territory includes parts of two or more geographic cost centres. In both of these cases, expenses should be attributed to the particular cost centres in which the work was done. To the extent possible, this should be done by using specific records of work performed; otherwise, through a reasonable method of allocation.

Subsection 1502.03 currently reads:

1502.03 The instructions outlined in Section 1501.01 shall apply to amounts recorded by geographic costs centre and to amounts recorded at other levels in accordance with Instruction 1502.02.

Agency Staff proposes to be amended to:

1502.03 The instructions outlined in Section 1501.02 shall apply to amounts recorded by geographic costs centre and to amounts recorded at other levels in accordance with Instruction 1502.02.

Subsection 1502.05 currently reads:

1502.05 Fuel costs are to be recorded by type of service in Accounts 619, 623, 627 and 651. Records are also to be maintained of the total fuel costs (i.e., aggregate of Accounts 619, 623, 627 and 651) by geographic cost centre if these costs are used in cross sectional regression analysis.

Agency Staff proposes to be amended to:

1502.05 Fuel costs are to be recorded by type of service in Accounts 619, 623, 627 and 651. Records are also to be maintained of the total fuel costs (i.e., aggregate of Accounts 619, 623, 627 and 651) by geographic cost centre.

Rationale:

Costs would only be maintained by geographic cost centre if they are to be used in cross sectional analysis. As such, this qualifier is superfluous. This explanation will not be repeated where the same change is being proposed later in this document.

Proposed Amendments to Chart of Accounts

Section 1701 - Balance Sheet Accounts

General Discussion

Issue:

Much of the terminology in section 1701 is no longer in line with the accounting rules, and will be considered as part of Phase II of the staff consultation.

Proposed Changes:

  • Use "Future" rather than "Deferred"
  • Eliminate Account 21- Segregated Assets
  • Eliminate separate line item for "loans from Government of Canada"
  • A more complete explanation of Net Investment in Rail Assets and what it includes/represents

New Account for Pension Accounting

Issue:

As a result of Agency Decision No. 97-R-2012, a new account is required to track the pension asset.

Proposed Changes:

Create Account 38, Net Pension Asset, with details reported in supporting tables:

  • F52-1 Detailed Schedule of Pension Asset (Gross Asset); and
  • F52-2, Detailed Schedule of Pension Asset (Accumulated Amortization)

Section 1704- Revenue Accounts

Account 302 Deductions from Freight Revenue

Issue:

Confusion can be created by the disjointed accounting of revenues and deductions. Under the current UCA, freight revenue earned is recognized in account 301 and deductions to that revenue are to be recorded in account 302.

Proposed Changes:

  • Include all adjusting entries to freight revenue, recorded under account 301, in that account.
  • Delete Account 302 – Deductions From Freight Revenue, which currently reads:

Include the following charges against Freight Revenue:

  • The carrier's portion of overcharges resulting from the use of erroneous rates, weights, classifications or computations;
  • The carrier's portion of refunds on account of errors in routing and billing;
  • The carrier's portion of uncollected revenue on freight lost or destroyed in transit or refunds of revenue on such shipments;
  • The carrier's portion of uncollected tariff charges on damaged shipments for which charges neither shipper nor consignee is liable.

Section 1705 - Expense Accounts

1705.511- 513 Freight Car Maintenance Accounts

Issue:

Accounts 511 and 513 are no longer reflective of railway operations.

Proposed Change: 

Delete accounts 511 and 513, and replace them with:

510 Freight Car Maintenance - Owned and Capital Leased Cars

Include the cost of repairing owned and capital leased freight cars.

Do not include amounts paid or payable to others for repairs.

Record according to Schedule C (section 1903) and by geographic cost centre.

Reference: Instruction 1502.04.

512 Freight Car Maintenance - Operating-Leased Cars

Include the cost of repairing leased freight cars on operating  leases.

Do not include amounts paid or payable to others for repairs.

Record according to Schedule C (section 1903) and by geographic cost centre.

514 Freight Car Maintenance - Foreign Cars

Include the cost, and revenues of repairing foreign freight cars.

Do not include amounts paid or payable to others for repairs.

1705.521-523 Passenger Car Maintenance Accounts

Issue:

Accounts 521 and 523 are no longer reflective of railway operations.

Proposed Change: 

Delete accounts 521 and 523, and replace with:

520 Passenger Car Maintenance - Owned and Capital Leased Cars

Include the cost of repairing owned and capital leased passenger cars.

Do not include amounts paid or payable to others for repairs.

Record according to Schedule H (section 1908) and by geographic cost centre.

Reference: Instruction 1502.04.

522 Passenger Car Maintenance - Operating-Leased Cars

Include the cost of repairing leased passenger cars on operating leases.

Do not include amounts paid or payable to others for repairs.

Record according to Schedule H (section 1908) and by geographic cost centre.

524 Passenger Car Maintenance - Foreign Cars

Include the cost, and revenues of repairing foreign passenger cars.

Do not include amounts paid or payable to others for repairs.

1705.575 Shop Overheads 

Issue:

Account 575 is not instructive of the process for distributing these expenses to direct accounts.

Proposed Change:

Update the description of the allocation procedures to give specific directions:

Current Definition:

575 Shop Overheads

Include all items of expense at shops, engine-houses, repair tracks and other places at which mechanical work is done, when such items are not assignable to specific accounts.

Amounts in this account are to be distributed to other accounts. The method of distribution must be approved by the Agency.

Any amounts which cannot reasonably be distributed to other accounts may be left as an uncleared balance in the present account.

Reference: Instruction 1506.

Proposed Definition:

575 Shop Overheads

Include all items of expense at shops, engine-houses, repair tracks and other places at which mechanical work is done, when such items are not assignable to specific accounts.

Amounts in this account are to be distributed to other accounts that can be shown to be reasonably linked to these costs.

Expenses should be allocated for each month, cost centre and natural expenses category, based on share of productive labour.

Any amounts which cannot reasonably be distributed to other accounts may be left as an uncleared balance in the present account.

Reference: Instruction 1506.

1705.741 Loss and Damage Accounts

Issue:

Account 741 is not allowing loss and damage expenses to be linked to causal relationships.

Proposed Changes:

Account 741 should be broken down into two separate accounts for costing purposes: one for train accidents and one for other accidents.

Current Definitions

741 Loss and Damage - Freight

Include payments and expenses on account of loss, destruction, damage, or delays of revenue freight shipments and expenses on account of loss, destruction or damage of OCS shipments.

Proposed Definitions

741 Loss and Damage – Freight Train Accidents

Include payments and expenses on account of loss, destruction, damage, or delays of revenue freight shipments, and expenses on account of loss, destruction or damage of On Company Service shipments resulting from train accidents.

742 Loss and Damage – Other Accidents

Include payments and expenses on account of loss, destruction, damage, or delays of revenue freight shipments, and expenses on account of loss, destruction or damage of On Company Service shipments resulting from accidents, fires or other causes excluding train accidents.

1705.751 Miscellaneous Operating Expenses

Issue:

Account 751 is not sufficiently specific for costing purposes. Too many large expenses with different costing processes are grouped in this account.

Proposed Changes:

Account 751 should be broken down into four separate accounts for costing purposes: one for crew accommodations, one for crew transportation, one for crew unproductive time and the original account for other miscellaneous expenses.

This is critical for specific costing exercises, in order to ensure that when specific costs for accommodations or transportation are known they can be used without eliminating the impact of other miscellaneous expenses.

Current Definitions

751 Miscellaneous Operating Expense

Include the cost of stationery, printing and office appliances used in connection with rail operations, rail-related operations of other transport modes, and related administration. Include all other expenses in connection with rail and rail-related operations not chargeable to other accounts in the Operations group.

Record by geographic cost centre.

Proposed Definitions

751 Miscellaneous Operating Expense

Include the cost of stationery, printing and office appliances used in connection with rail operations, rail-related operations of other transport modes, and related administration. Include all other expenses in connection with rail and rail-related operations not chargeable to other accounts in the Operations group.

Record by geographic cost centre.

NEW ACCOUNTS (sub-dividing account 751)

635 Crew Accommodation

Include the cost of Crew Accommodation.

Record by geographic cost centre.

637 Crew Transportation

Include crew transportation expenses by taxi and rental car and all other crew transportation expenses which cannot be attributed to a specific account.

Record by geographic cost centre.

639 Crew Unproductive Time

Include all costs related to crew unproductive time. That is the portion of crewing expenses not captured in other accounts above.

This account will be used in evaluating crew related unproductive ratios for costing purposes.

Record by geographic cost centre.

1705.820 Stock-based Compensation and Profit Sharing

Issue:

Account 820 was the focus of a major review, and has been defined by Agency Decision No. 176-R-2009.

Proposed Changes:

The definition in the current UCA will be replaced with more suitable language and reference to Decision No.176-R-2009. 

Current Definitions

820 Compensation Cost – Profit Sharing and Stock Option Compensation

Include the compensation cost for amounts awarded to employees under profit sharing and stock option plans, including stock appreciation rights (SARs).

Proposed Definitions

820.1 Stock-Based Compensation and Profit Sharing – Cash Settlements

Include the compensation cost for amounts awarded to employees under profit sharing and stock option plans, including stock appreciation rights (SARs), when settlement is in cash.

This account should be reported in accordance with Agency Decision No. 176-R-2009 (Issue of Stock-Based Compensation).

820.2 Stock-Based Compensation and Profit Sharing – Valuations

Include the valuation of compensation cost for amounts awarded to employees under profit sharing and stock option plans, including stock appreciation rights (SARs).

This account should be reported in accordance with Agency Decision No. 176-R-2009 (Issue of Stock-Based Compensation). This account will not be included in calculating regulatory costs, but is required for verification purposes.

1705.821 Pension Accounting

Issue:

Account 821 was the focus of a major review, and has been defined by Agency Decision No. 97-R-2012.

Proposed Changes:

The definition in the current UCA will be replaced with more suitable language and reference to Decision No. 97-R-2012.  Information should be reported in sub-components as described below.

Current Definitions

821 Pension Costs

Include:

amounts contributed to private pension plans in respect of current services of employees;

pensions paid directly to retired employees, gratuities paid to the heirs and families of employees, amounts paid to trustees to provide annuities for retired employees, and other similar items;

amounts contributed to pensions trusts as special payments in respect of past services of employees to cover revisions of pension benefits or adjustments resulting from an actuarial valuation of pension obligations;

related administrative costs.

Proposed Definitions

821 Pension Costs

These accounts capture the elements of pension costs as defined by Agency Decision No. 97-R-2012.

821.1 Pension Plan Expenses

Include:

cash payments in respect of contributions to pension plans and employee pension accounts (paid during the current year or payable at the end of the year, both in respect of the current year) for Defined Contribution Plans, Supplemental Benefit Plans, Non-Registered Pension Plans, Post-Retirement Benefit Plans, and the current service portion of Defined Benefit Plans

Any pension-related administrative costs borne exclusively by the railway company, and not captured elsewhere in the UCA.

821.2 Current Year Statutory Deficit Payment Amortization

Include the current year's amortized portion of current statutory deficit payments as defined in Decision No. 97-R-2012.

821.3 Current Year Amortization of Past Unamortized Statutory Deficit Payments

Include the current year's amortization of past unamortized statutory deficit payments, as laid out in Decision No. 97-R-2012.

1705.855 Material Stores Expenses

Issue:

Accounts 855 and 856 are not instructive of the process for distributing these expenses to direct accounts.

Proposed Changes:

Update the description of the allocation procedures to give specific directions:

Current Definition:

855 Material Store Expense

Include the cost of purchasing, handling, storing and distributing material, including the operating expenses of switching locomotives exclusively assigned to stores service.

Amounts in this account are to be allocated to other primary accounts or to recoverable expense according to instructions given in the text of Account 856 - Material Store Expense - Absorbed.

856 Material Store Expense - Absorbed

Include amounts distributed from Account 855 - Material Store Expense to other accounts or to recoverable expenses.

The total amount in Account 855 attributable to capital projects or recoverable from other parties must be distributed. Any amounts directly related to a particular type of material are to be added to the cost of such material.

The method of distributing amounts from Account 855 must be approved by the Agency.

Proposed Definition:

855 Material Store Expense

Include the cost of purchasing, handling, storing and distributing material, including the operating expenses of switching locomotives exclusively assigned to stores service.

Amounts in this account are to be allocated to other primary accounts or to recoverable expense according to instructions given in the text of Account 856 - Material Store Expense - Absorbed.

856 Material Store Expense - Absorbed

Include amounts distributed from Account 855 - Material Store Expense to other accounts or to recoverable expenses.

The total amount in Account 855 attributable to capital projects or recoverable from other parties must be distributed. Any amounts directly related to a particular type of material are to be added to the cost of such material.

Expenses should be distributed to accounts 401 through 751, as appropriate, based on each account's share of the current year's material costs.

1705.863 Deferred Expenses

Issue:

Accounts 863 is no longer used

Proposed Changes:

Account 863, Deferred Expenses – Freight in Transit, should be deleted.

Current Definition:

863 Deferred Expenses - Freight in Transit

Include, in respect of uncompleted freight movements for which no revenue has been recognized, the increase or decrease in deferred costs attributed to the uncompleted service between the beginning and end of the year.

Regulatory vs. Accrual Accounting

Introduction:

Agency staff has identified a number of specific accounts in the current UCA that may not respect the concept of regulatory cost as defined in section 1200.  These accounts are broken into groups below for ease of analysis.

Accounts for Injuries to Person:

Issue:

In the view of Agency staff, current accounting principles estimate expenses for accounts 463, 571, 743, and 861 (Injuries to Persons) that may not conform with rail regulatory costs as defined in subsections 1201.03-1201.04.

Proposed Changes:

Consider revising the definition of each account to specify the regulatory costs as per section 1200 of the UCA. This will require a more detailed study of the nature of the costs incurred with respect to injuries to persons. In some cases, it is possible that certain regulatory costs might have to be amortized, in which case, further instructions might be required.

Accounts for Employee Separation and Job Security:

Issue:

Current accounting principles estimate expenses for account 835 (Employment Separation Payments) and Accounts 837 (Job Security Payments) that may not conform with regulatory costs as defined in section1200 of the UCA.

Proposed Changes:

Consider revising the definitions of the accounts to specify the costs that conform to section 1200 of the UCA. This will require a more detailed study of the nature of the costs incurred with respect to Employment Separation and Job Security, to determine the account definitions.

1705.835 – Employment Separation Payments

Current Definition:

Include wages and the fringe benefits and any other payments related to the lump sum payments made for employment separation payments.

1705.837 – Job Security Payments

Current Definition:

Include wages, fringe benefits and any other payments related to the payments made for job security payments.

Note: No proposed definitions are offered at this point by Agency staff as further information is needed on the nature of the expenses currently being reported under these accounts.

Account for Environmental Remediation:

Issue:

No UCA account is currently specified for Environmental Remediation Payments. Those expenses are currently listed wherever the railway company chooses. Further, current accounting principles estimate expenses for environmental remediation that may not conform with rail regulatory costs as defined in section 1200.

Proposed Changes:

It is proposed to specify a separate account for environmental remediation in the UCA.

A detailed assessment of the nature of the payments will need to be conducted to define environmental remediation costs as defined in section 1200.

Proposed Amendments to Operating Statistics

Section 1802.01 Schedule S-11, Freight Car Miles

Issue:

Agency staff believes that subsection 1802.02 is unnecessarily complicated to read, and could lead to misinterpretation

Proposed Change:

Agency staff proposes amending subsection 1802.02, which currently reads:

S-11 Freight Car Miles

1802.01 A freight car mile is the movement of a freight car over one mile of track.

1802.02 With this exception of certain transfer train movements, all movements are included. Car miles in transfer trains are to be included only if they occur at locations or in services which are significant generators of such mileages. Records are to be kept of the specific locations and services involving freight car miles in transfer trains for use in the application of related unit costs to particular branch lines, services or movements.

1802.03 For purposes of developing this statistic a transfer train is defined as one which operates entirely within terminal limits.

Agency Staff proposes the subsections be amended to:

S-11 Freight Car Miles

1802.01 A freight car mile is the movement of a freight car over one mile of track.

1802.02 All movements are included, except in the case of transfer trains. Car miles in transfer trains are to be included only if they occur at locations or in services which are significant generators of such mileages. Records are to be kept of the specific locations and services involving freight car miles in transfer trains.

1802.03 For purposes of developing this statistic a transfer train is defined as one which operates entirely within terminal limit.

Subection 1803.11 Schedule S-29, Average Train Speed

Issue:

This schedule is no longer used in regulatory costing.

Proposed Change:

Delete Schedule S-29 Average Train Speed from the UCA as it is not required.

Appendices

Section 1902 Schedule B

Issue:

It may be more efficient to have only one schedule for reporting locomotive expenses.

Proposed Change:

Consider deleting schedule B and using only schedule A for reporting expenses by locomotive type.

Section 1903 Schedule C

Issue:

Agency staff notes that Schedule C is no longer reflective of the current industry car types, and railway companies have suggested it is a significant burden to railway companies to maintain expenses and operating statistics according to Schedule C.

Proposed Change:

Agency staff has indentified the following options, and seeks railway companies' comments on the appropriateness of each of the options:

  1. Adopt the coding system used by the AAR as it is used by the railway companies for their own internal purposes.  The AAR car types could be grouped as in the second table (Proposed Car types) below, based on discussions with railway companies.
  2. Delete obsolete car types and amalgamate similar car types as shown below.
A. Current Car types
UCA Car CodeDescription
300 Box Car - Standard, 40 Foot
301 Box Car - Standard, 50 Foot and Longer
302 Box Car - Insulated
303 Box Car - Equipped
310 Hopper Car - Standard, Open
311 Hopper Car - Standard, Covered
312 Hopper Car - Equipped
320 Gondola Car - Standard
321 Gondola Car - Equipped
330 Refrigerator Car
340 Flat Car - General Service
343 Flat Car - Bulkhead
344 Flat Car - Other
341 Flat Car - Multi-Level
342 Flat Car - Intermodal
350 Stock Car
360 Caboose
380 All Other Freight Cars
390 Amounts Billed to Others
391 Cost of Work Performed for Others

Proposed Changes:

  • All Box Cars (formerly UCA car codes 300, 301, 302, 303) would be grouped together in code 300
  • Standard Covered Hopper Cars (code 311) are broken out into Non-Government Cars (311) and Government Hoppers (313)
  • All Gondolas (Codes 320, and 321) are grouped together in code 320
  • General Service, Bulkhead, and Other Flat Car (codes 340, 343, and 344) are grouped together in code 340, while leaving Intermodal and Multi-Level Flat Cars Separate.
  • Added a new Code 370 for Tank Cars
  • Refrigerator Cars (code 330), Stock Cars (code 350), and Cabooses (code 360) are added to All Other Freight Cars, code 380.

These changes would yield the following proposed car types:

B. Proposed Car types
UCA Car CodeDescription
300 Box Car
310 Standard, Open Hopper Car
311 Standard, Covered Hopper Car- Non-Government
312 Equipped Hopper Car
313 Standard, Covered Hopper Car - Government
320 Gondola Car
340 General Flat Car
341 Multi-Level Flat Car
342 Intermodal Flat Car
370 Tank Car
380 All Other Freight Cars
390 Amounts Billed to Others
391 Cost of Work Performed for Others

Section 1905 - 1907 Schedules E, F and G

Issue:

It may be more efficient to have only one schedule to report expenses by freight car types.

Proposed Change:

Consider deleting schedules E, F, G and using only schedule C for reporting expenses by freight car types.

Cost Centres

The UCA requires the railway companies to record several expenses and operating statistics by geographic location. Reference is made to several schedules in section 1502 of the UCA that are not defined in the UCA. Furthermore, the existing schedules for geographic cost centres are out of date, and railway companies either cannot or do not capture expenses and operating statistics jointly for these areas.

As such, the Agency must work with the railway companies to redefine what a geographic cost centre is, consistent with the proposed revisions to section 1502. 

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