Archived - Department of Finance Canada
Future-oriented Statement of Operations (unaudited)

Notes to the Future-oriented Statement of Operations

1. Methodology and significant assumptions

The future-oriented statement of operations has been prepared on the basis of the government priorities and departmental plans as described in the Report on Plans and Priorities.

The information in the estimated results for fiscal year 2015 is based on actual results as at January 16, 2015 and on forecasts for the remainder of the fiscal year. Forecasts have been made for the planned results for the 2016 fiscal year.

The main assumptions underlying the forecasts are as follows:

• Operations and statutory requirements of the Department will remain substantially the same as the previous year;
• Significant management estimates are consistent with those disclosed in the most recently published departmental financial statements unless otherwise indicated;
• Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue;
• External economic and other market variables which can impact the net cost of operations of the Department are assumed to be consistent throughout the projection period in order to permit comparability of financial results. These variables can fluctuate significantly.

These assumptions are adopted as at January 16, 2015.

2. Variations and changes to the forecast financial information

While every attempt has been made to forecast final results for the remainder of 2015 and for 2016, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing this future-oriented statement of operations the Department has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the future-oriented statement of operations and the historical statement of operations include the following:

• Foreign-exchange and interest rates;
• Future legislative changes or changes in policy requirements;
• Borrowing requirements of Crown corporations participating in the Crown Borrowing Program;
• Material changes in the levels or mix of the Official International Reserves of Canada; and
• Further changes to the departmental budget through additional new initiatives or technical adjustments later in the year.

Once the Report on Plans and Priorities is presented, the Department will not be updating the forecast for any changes in financial resources made in ensuing supplementary estimates.

3. Summary of significant accounting policies

The future-oriented statement of operations has been prepared using Government's accounting policies stated below which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Expenses

The Department reports expenses on an accrual basis:

• Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
• Interest and other costs are recognized when incurred and include interest, amortization of debt discounts, premiums and commissions, and servicing and issue costs. Amortization of discounts and premiums is performed on a straight line basis.
• Operating expenses are recognized as incurred.
• The cost of domestic coinage sold is recognized in the period in which the related sale took place.
• Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their terms of employment.
• Services provided without charge by other government departments for accommodation, employer contributions to the health and dental insurance plans and legal services are recorded as operating expenses at their estimated cost.

b) Revenues

The Department reports revenues on an accrual basis:

• Investment income is recognized as revenue in accordance with the terms and conditions of underlying agreements or relevant legislations as applicable.
• Sale of domestic coinage is recognized in the period that the sale took place.
• Interest on bank deposits is recognized as revenue when earned.
• Guarantee fees are recognized when earned and are determined by reference to the terms of the guarantee program or underlying contract.
• Uncashed Receiver General cheques, warrants and bank account cheques for all departments and agencies are recognized as revenue of the Department if they remain outstanding 10 years after the date of issue.
• Unclaimed matured bonds are recognized as revenue if they remain unredeemed 15 years after the date of call or maturity, whichever is earlier.
• Unclaimed bank balances are recognized as revenue when there has been no owner activity in relation to the balance for a period of 40 years.
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
• Revenues earned on behalf of the Government represent revenues that are non-respendable which are not available to discharge the Department's liabilities. While the Deputy Head is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the entity's gross revenues.

c) Employee future benefits

Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

d) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions.

e) Tangible capital assets

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows:

4. Parliamentary authorities

Parliamentary authorities

The Department is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the future-oriented statement of operations in one year may be funded through parliamentary authorities in prior, current, or future years. Accordingly the Department has different net cost of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

a) Reconciliation of net cost of operations to requested authorities

b) Authorities requested

5. Related party transactions

The Department is related as a result of common ownership to all government departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. In addition, the Department has an agreement with Treasury Board of Canada Secretariat related to the provision of accounting services. During the year, the Department received common services which were obtained without charge from other government departments as disclosed below.

a) Common services received without charge from other government departments

The Department is estimated and planned to receive services without charge from certain common service organizations, related to accommodation, legal services, and the employer's contribution to the health and dental insurance plans. These services received without charge have been recognized in the Department's future-oriented statement of operations as follows:

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common services organizations so that one department performs services for all other departments and agencies without charge. The cost of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an estimated or planned expense in the future-oriented statement of operations.

b) Other transactions with related parties

6. Segmented Information

Presentation by segment is based on the Department's program activity architecture. The presentation by segment is based on the same accounting policies as described in the summary of significant accounting policies in note 3. The following table presents the forecasted expenses incurred and forecasted revenuesgenerated for the main program activities, by major object of expenses and by major type of revenues. The segmented results for the period are as follows:

a) Provinces and territories

Transfer payments to provinces and territories are paid pursuant to the Federal-Provincial Fiscal Relations Act, Budget Implementation Acts, and other statutory authorities and are consistent with those described in the Department's Report on Plans and Priorities.

b) Interest and other costs

Interest and other costs include the interest on market debt and on various superannuation accounts as prescribed by legislation. Also included are the amortization of premiums and discounts on unmatured debt, and the servicing costs and the costs of issuing new borrowings.

c) Crown borrowing interest

Estimated and planned Crown borrowing interest is comprised of interest revenue earned on direct lending to Crown corporations participating in the Crown Borrowing Program.

d) Exchange fund account

Estimated and planned revenues from investments includes interest earned, amortization of premiums and discounts using the straight line method, gains or losses on sales of securities, and revenues from securities lending activities. Interest is accrued on short-term deposits, deposits held under repurchase agreements, marketable securities, and Special Drawing Rights.

7. Revenues earned on behalf of Government

The following table presents details of the revenues earned on behalf of Government: