Archived - Annual Financial Report of the Government of Canada
Fiscal Year 2005–2006: 2

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Report of the Auditor General, on the Condensed Financial Statements of the Government of Canada

To the Minister of Finance:

The accompanying condensed statements of operations and accumulated deficit, financial position, change in net debt and cash flow are derived from the complete financial statements of the Government of Canada as at March 31, 2006, and for the year then ended on which I expressed an opinion without reservation in my Report to the House of Commons dated August 24, 2006.

For more complete information, readers should refer to my Report, which will be included in Volume I of the Public Accounts of Canada 2006, expected to be tabled in the House of Commons later this year.

The fair summarization of the complete financial statements is the responsibility of the Government. My responsibility, in accordance with the applicable Assurance Guideline of The Canadian Institute of Chartered Accountants, is to report on the condensed financial statements.

In my opinion, the accompanying condensed financial statements fairly summarize, in all material respects, the related complete financial statements in accordance with the criteria described in the Guideline referred to above.

Since these are condensed financial statements, readers are cautioned that these statements may not be appropriate for their purposes. For more information on the Government’s results of operations and accumulated deficit, financial position, change in net debt and cash flow, reference should be made to the related complete financial statements, which will also be included in Volume I of the Public Accounts of Canada 2006.

 

Sheila Fraser, FCA
Auditor General of Canada

Ottawa, Canada
August 24, 2006


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 2 of Volume I of the Public Accounts of Canada 2006, 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 9
Government of Canada
Condensed Statement of Operations and Accumulated Deficit
for the Year Ended March 31, 2006


  2006 Restated (Note 2) 2005
 

  Budget1 Actual Actual

  ($ millions)
Revenues      
  Income tax 136,100 139,944 132,037
  Other taxes and duties 45,000 46,156 42,857
  Employment insurance premiums 17,200 16,535 17,307
  Other revenues 16,000 19,568 19,742
 
Total revenues 214,300 222,203 211,943
Expenses      
  Transfer payments      
    Old age security and related payments 29,100 28,992 27,871
    Other levels of government 37,500 40,815 41,955
    Employment insurance benefits 15,700 14,417 14,748
    Other transfer payments 35,800 34,093 34,141
    Total transfer payments 118,100 118,317 118,715
  Other program expenses 57,100 56,896 57,647
 
Total program expenses 175,200 175,213 176,362
  Public debt charges 35,100 33,772 34,118
 
Total expenses 210,300 208,985 210,480
 
Annual surplus 4,0002 13,218 1,463
Accumulated deficit, beginning of year 494,7003    494,717 496,180
 
Accumulated deficit, end of year 490,700 481,499 494,717

1 Derived from Budget 2005 and adjusted to a gross basis.

2 Budget 2005 disclosed the budgetary surplus as $4 billion before deducting reserves for contingency ($3 billion) and economic prudence ($1 billion).

3 Adjusted to the actual closing amount of previous year.

Table 10
Government of Canada
Condensed Statement of Financial Position
as at March 31, 2006


  2006 Restated
(Note 2)
2005

  ($ millions)
Liabilities    
  Accounts payable and accrued liabilities 101,432 97,740
  Interest-bearing debt    
    Unmatured debt 421,149 427,424
    Pension and other liabilities 179,924 179,808
 
  Total interest-bearing debt 601,073 607,232
 
Total liabilities 702,505 704,972
Financial assets    
  Cash and accounts receivable 82,843 76,346
  Foreign exchange accounts 40,827 40,871
  Loans, investments and advances 41,889 38,168
 
Total financial assets 165,559 155,385
 
Net debt 536,946 549,587
Non-financial assets    
  Tangible capital assets 48,355 48,210
  Other 7,092 6,660
 
Total non-financial assets 55,447 54,870
 
Accumulated deficit 481,499 494,717

Table 11
Government of Canada
Condensed Statement of Change in Net Debt
for the Year Ended March 31, 2006


  2006 Restated (Note 2) 2005
 

  Budget1 Actual Actual

  ($ millions)
Net debt, beginning of year 549,6002     549,587 551,002
Change in net debt during the year      
  Annual surplus (4,000)3 (13,218) (1,463)
  Acquisition of tangible capital assets 4,800 4,046 4,619
  Amortization of tangible capital assets (3,900) (3,904) (3,696)
  Other   435 (875)
 
Net decrease in net debt (3,100) (12,641) (1,415)
 
Net debt, end of year 546,500 536,946 549,587

1 Derived from Budget 2005.

2 Adjusted to the actual closing amount of previous year.

3 Budget 2005 disclosed the budgetary surplus as $4 billion before deducting reserves for contingency ($3 billion) and economic prudence ($1 billion).

Table 12
Government of Canada
Condensed Statement of Cash Flow
for the Year Ended March 31, 2006


  2006 Restated
(Note 2)
2005

  ($ millions)
Cash provided by operating activities    
  Annual surplus 13,218 1,463
  Items not affecting cash (4,751) 4,527

  8,467 5,990
Cash used for capital investment activities (3,900) (4,475)
Cash provided by investing activities 468 3,071
 
Total cash generated 5,035 4,586
Cash used to repay unmatured debt (4,501) (4,543)
 
Net increase in cash 534 43
Cash at beginning of year 20,615 20,572
 
Cash at end of year 21,149 20,615

Notes to the Condensed Financial Statements of the Government of Canada

1. Summary of Significant Accounting Policies

The reporting entity of the Government of Canada includes all departments, agencies, corporations, organizations and funds, which are controlled by the Government. The financial activities of all these entities are consolidated in these financial 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 under the modified equity basis of accounting. 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 accounts for transactions on an accrual basis, using the Government’s accounting policies that are described in Note 1 to its audited financial statements, which are based on Canadian generally accepted accounting principles for the public sector. The use of these stated accounting policies does not result in any significant differences from Canadian generally accepted accounting principles.

Financial assets recorded on the Condensed Statement of Financial Position can provide resources to discharge liabilities or finance future operations and are recorded at the lower of cost or net realizable value. Non-financial assets cannot normally be converted into cash to finance future operations without disrupting government operations; they are recorded at cost less accumulated amortization. Liabilities are recorded at the estimated amount ultimately payable, with pension and other future benefits being determined on an actuarial basis. Allowances for valuation 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 the Government believes them to be reasonable.

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

2. Change in Accounting Policy

During 2005–06, the Government retroactively adopted the new recommendations of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants regarding the government reporting entity. As a consequence, some organizations that were previously not part of the Government’s reporting entity are now included in the Government’s financial statements through either consolidation or the modified equity basis of accounting.

The impact of the change on the 2005 opening accumulated deficit and net debt is as follows:


  Accumulated deficit Net debt

  ($ millions)
Government’s holdings of unmatured debt (1,000) (1,000)
Investments in enterprise Crown corporations    and other government business enterprises 49 49
Other loans, investments and advances and    other net assets (4,358) (4,358)
Tangible capital assets (4)  
 
Decrease in opening balance (5,313)      (5,309)

3. Contractual Obligations

Contractual obligations that will materially affect the level of future expenses include transfer payment agreements, acquisitions of property and equipment, and goods and services, operating leases and funding of international organizations. At March 31, 2006, contractual obligations amounted to approximately $70 billion ($63 billion in 2005).

4. Contingent Liabilities

Guarantees by the Government and callable share capital in certain international organizations at March 31, 2006 amount to $144 billion ($126 billion in 2005) net of any recorded allowance. In addition, there are a number of contaminated sites where the Government could be obligated to incur costs. There are thousands of claims and pending and threatened litigation cases against the Government; the total amount claimed in these instances is significant but the final outcome is not determinable. Where cases are likely to be lost and an estimate of loss can be made, an amount is recorded in the financial statements. At March 31, 2006, insurance in force relating to self-sustaining insurance programs operated by three agent enterprise Crown corporations amounted to approximately $839 billion ($719 billion in 2005). The Government expects that it will not incur any costs to cover insurance claims under these programs.

Other Sources of Information

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 three volumes:

  • Volume I contains the Government’s audited financial statements and supporting schedules and information.
  • Volume II contains details of financial operations by ministry.
  • Volume III contains additional information and analyses.

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.

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.

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 consist 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 consist of two components—Reports on Plans and Priorities and Departmental Performance Reports.

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