Annual Financial Report 2001-2002: 7
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Condensed Financial Statements of the Government of Canada

The fundamental purpose of these condensed financial statements is to provide an overview of the financial affairs and resources for which the Government is responsible under authority granted by Parliament. Responsibility for the integrity and objectivity of these statements rests with the Government.

These financial statements are extracted and condensed from the audited financial statements included in Section 1 of Volume I of the 2002 Public Accounts of Canada, which are expected to be tabled in Parliament later this year. As these condensed financial statements are, by their nature, summarized, they do not include all disclosure required for financial reporting by governments in Canada. Readers interested in the disclosure of more detailed data should refer to the audited financial statements in the Public Accounts.

Table 10
Government of Canada
Condensed Statement of Revenues, Expenditures and Accumulated Deficit for the Year Ended March 31, 2002

	2002	Restated 2001
	($ millions)
Revenues
Tax revenues
Income tax	117,661	122,052
Other taxes and duties	39,602	39,017
Employment insurance premiums	17,980	18,731
	175,243	179,800
Non-tax revenues	12,224	13,550
Total gross revenues	187,467	193,350
Amounts deducted to arrive at net revenues	14,152	13,760
Total net revenues	173,315	179,590
Expenditures
Transfer payments
Old Age Security and related payments	24,632	23,667
Other levels of government	26,616	23,724
Employment insurance benefits	13,748	11,444
Other transfer payments	30,375	33,216
	95,371	92,051
Crown corporation expenditures	5,511	4,665
Other program expenditures	39,943	36,392
Total gross program expenditures	140,825	133,108
Amounts deducted to arrive at net  program expenditures	14,152	13,760
Total net program expenditures	126,673	119,348
Interest on debt	37,735	42,094
Total net expenditures	164,408	161,442
Surplus for the year	8,907	18,148
Opening accumulated deficit     as originally reported	547,378	564,526
Less: Adjustment to tax revenues (note 2)	1,982	982
Opening accumulated deficit as restated	545,396	563,544
Accumulated deficit at end of year	536,489	545,396

Table 11
Government of Canada
Condensed Statement of Assets and Liabilities
as at March 31, 2002

	2002	Restated 2001
	($ millions)
Liabilities
Payables, accruals and allowances
Accounts payable and accruals	31,434	34,135
Allowances for guarantees and    employee benefits	9,245	9,509
Total	40,679	43,644
Interest-bearing debt
Unmatured debt
Marketable bonds	293,843	294,973
Treasury bills	94,039	88,700
Canada savings and Canada       premium bonds	23,966	26,099
Non-marketable bonds and notes	3,391	3,473
Total payable in Canadian currency	415,239	413,245
Payable in foreign currencies	27,032	33,158
Total	442,271	446,403
Pension and other accounts
Public sector pensions	126,921	129,185
Due to Canada Pension Plan	6,770	6,391
Other	7,469	7,253
Total	141,160	142,829
Total interest-bearing debt	583,431	589,232
Total liabilities	624,110	632,876
Assets
Cash and accounts receivable
Cash	13,467	15,594
Accounts receivable	3,362	2,966
Total	16,829	18,560
Foreign exchange accounts	52,046	50,270
Loans, investments and advances
Enterprise Crown corporations and other    government business enterprises	9,192	10,085
National governments and     international organizations	7,342	7,541
Other	11,283	10,203
Total	27,817	27,829
Less allowance for valuation	9,071	9,179
Total	18,746	18,650
Total assets	87,621	87,480
Accumulated deficit	536,489	545,396

Table 12
Government of Canada
Condensed Statement of Changes in Financial Position
for the Year Ended March 31, 2002

	2002	Restated 2001
	($ millions)
Cash provided by operating activities
Surplus for the year	8,907	18,148
Expenditures not requiring cash	9,301	5,194
	18,208	23,342
Net payments from pension and  other accounts	(10,470)	(7,111)
Net change in receivables, payables  and accruals	(4,006)	4,960
	3,732	21,191
Cash provided (used for) investing activities
Net decrease (increase) in loans,  investments and advances	49	(1,329)
Cash used for foreign exchange activities
Net (decrease) increase in foreign  currency borrowings	(6,126)	570
Net increase in foreign exchange accounts	(1,776)	(8,776)
	(7,902)	(8,206)
Net cash (required) generated  before financing activities	(4,121)	11,656
Cash provided by (used for)  financing activities
Net increase (decrease) in Canadian  currency borrowings	1,994	(10,573)
Net (decrease) increase in cash	(2,127)	1,083
Cash at beginning of year	15,594	14,511
Cash at end of year	13,467	15,594

Notes to the Condensed Financial Statements

1. Significant Accounting Policies

The Government of Canada reporting entity includes all departments, agencies, corporations and funds which are owned or controlled by the Government and which are accountable to Parliament. The financial activities of all these entities are consolidated in these statements, except for enterprise Crown corporations and other government business enterprises, which are not dependent on the Government for financing their activities. These corporations are reported as investments at their original cost adjusted by an allowance for valuation to reflect their annual profits or losses. The Canada Pension Plan is excluded from the reporting entity as it is under the joint control of the Government and participating provinces.

The Government basically accounts for transactions on an accrual basis. Two notable exceptions are tax revenues and related refunds, which are generally accounted for on a cash basis; and capital assets, which are fully charged to expenditures at the time of acquisition or construction.

As a consequence, the only assets recorded on the Condensed Statement of Assets and Liabilities are financial assets, as they can provide resources to discharge liabilities or finance future operations. Assets are recorded at the lower of cost or net realizable value. Liabilities are recorded on an accrual basis with public sector pension and severance liabilities being determined on an actuarial basis. Valuation allowances are established for loan guarantees, concessionary and sovereign loans, and other obligations.

Some amounts in these statements are based on estimates and assumptions made by the Government. By their nature, such estimates are subject to measurement uncertainty, although all of them are believed to be reasonable.

Comparative figures for 2001 have been reclassified to conform to the current year’s presentation.

2. Overpayments Under Tax Collection Agreements

On September 4, 2002, the Government announced its decision to recover over a 10-year period beginning in fiscal year 2004-2005, approximately $1,421 million in overpayments to provinces related to mutual fund trust capital gain refunds applicable to the 1997 to 1999 tax years.

The misclassification of mutual fund trust capital gain refunds resulted in the understatement of tax revenues for fiscal years prior to 2001-2002. To reflect the increase in tax revenues resulting from the decision to recover $1,421 million in overpayments, $982 million on a present value basis, for fiscal years 1997-1998 to 1999-2000, the opening accumulated deficit as at March 31, 2000 has been decreased by $982 million. In addition, the financial statements for fiscal year 2000-2001 have been restated to reflect a $1,000 million increase in tax revenues due to the correction of the understatement of tax revenues for tax year 2000. The cumulative effect of these adjustments results in a decrease in the opening accumulated deficit as at March 31, 2001, of $1,982 million.

3. Reporting of Revenues and Expenditures on a Gross Basis

Detailed amounts on the Condensed Statement of Revenues, Expenditures and Accumulated Deficit are presented on a gross basis only. Gross revenues include revenues of consolidated Crown corporations, and revenues of government departments, agencies and funds which, on the net basis, are deducted from expenditures for budget and parliamentary authority purposes. Gross expenditures include expenditures determined through the tax system, such as child tax benefits and quarterly GST tax credits, that are deducted from revenues on the net basis.

4. Contractual Commitments

Contractual commitments that will materially affect the level of future expenditures include transfer payment agreements, benefit plans for veterans and others, capital asset acquisitions and other purchases, operating and capital leases, and funding of international organizations. At March 31, 2002, contractual commitments amounted to approximately $40 billion ($37 billion in 2001).

5. Contingent Liabilities

Contingent or potential liabilities that may become actual liabilities in future years include: guarantees by the Government; callable share capital in international organizations; claims and pending and threatened litigation; and environmental contingencies. Contingent liabilities related to guarantees by the Government and to international organizations amount to $77 billion ($72 billion in 2001). The total amount claimed against the Government for other claims and pending and threatened litigation is not determinable; however, there are over $200 billion in claims for Aboriginal and comprehensive land claims. The Government is confident that the ultimate settlement for these contingent liabilities will be for amounts significantly lower than those being disclosed.

Insurance in force relating to self-sustaining insurance programs operated for the Government by three enterprise Crown corporations amounted to approximately $615 billion ($586 billion in 2001). The Government expects that it will not incur any costs to cover the claims for these programs.

6. Changes in Accounting Policies

The Government had intended to change its basis of accounting from the current modified accrual basis to the full accrual basis for the preparation of these financial statements. Given the timing of the 2001 budget and the fact that important components of the information required to implement full accrual accounting had not yet been verified and audited, the Government decided to delay the implementation of full accrual accounting for at least one year.

Other Sources of Information The Public Accounts of Canada The Public Accounts of Canada, as required under section 64(1) of the Financial Administration Act, are tabled in the fall of each year by the President of the Treasury Board. This report is presented in two volumes: Volume I contains the Government’s audited financial statements and supporting schedules and information; and Volume II contains details of financial operations by ministry (Part I) and additional information and analyses (Part II). The Budget The budget, usually introduced in February, presents the Government’s overall fiscal plan, incorporating revenue projections and spending plans, which combine to determine the resulting budgetary balance. The budget also introduces proposals for changes in taxation. The Fiscal Monitor This monthly newsletter produced by the Department of Finance highlights the financial results of the Government together with the reasons underlying major variances. Debt Management Strategy This report is tabled annually in Parliament. It provides information on the federal government’s debt management strategy for the coming fiscal year. The Debt Management Report This annual document provides an accounting of the key elements of federal debt strategy and describes various strategic and operational aspects of the Government’s debt program and cash management activities over the past fiscal year. The Estimates Each year the Government prepares Estimates in support of its request to Parliament for authority to spend public monies. This request is formalized through the tabling of appropriation bills in Parliament. The Estimates are tabled in the House of Commons by the President of the Treasury Board and consists of three parts: Part I – The Government Expenditure Plan provides an overview of federal spending and summarizes the relationship of the key elements of the Main Estimates to the Expenditure Plan set out in the budget. Part II – The Main Estimates directly support the Appropriations Act. Part III – Departmental Expenditure Plans, which consist of two components – Reports on Plans and Priorities and Departmental Performance Reports.

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