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

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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 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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