Archived - Annual Financial Report of the Government of Canada
Fiscal Year 2006–2007 : 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, 2007, 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, 2007.

For more complete information, readers should refer to my Report, which will be included in Volume I of the Public Accounts of Canada 2007, 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.

These summarized financial statements do not contain all the disclosures required by Canadian generally accepted accounting principles. 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 2007.

Sheila Fraser, FCA
Auditor General of Canada

Ottawa, Canada
August 24, 2007

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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 2007, 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 8
Government of Canada
Condensed Statement of Operations and Accumulated Deficit
for the Year Ended March 31, 2007

	2007		2006
	Budget1	Actual	Actual
	($ millions)
Revenues
Income tax revenues	148,990	153,099	139,944
Other taxes and duties	43,420	45,317	46,156
Employment insurance premiums	16,125	16,789	16,535
Other revenues	18,615	20,761	19,568
Total revenues	227,150	235,966	222,203
Expenses
Transfer payments
Old age security benefits and related payments	30,625	30,284	28,992
Other levels of government	40,075	42,514	40,815
Employment insurance benefits	14,580	14,084	14,417
Children’s benefits	11,140	11,214	9,200
Other transfer payments	27,600	26,844	24,893
Total transfer payments	124,020	124,940	118,317
Other program expenses	64,785	63,329	56,896
Total program expenses	188,805	188,269	175,213
Public debt charges	34,788	33,945	33,772
Total expenses	223,593	222,214	208,985
Annual surplus	3,557	13,752	13,218
Accumulated deficit, beginning of year	481,4992	481,499	494,717
Other comprehensive income (Note 2)		479
Accumulated deficit, end of year	477,942	467,268	481,499
The accompanying notes are an integral part of these statements. 1 Derived from Budget 2006. 2 Adjusted to the actual closing amount of previous year.

Table 9
Government of Canada
Condensed Statement of Financial Position
as at March 31, 2007

	2007	2006
	($ millions)
Liabilities
Accounts payable and accrued liabilities	106,511	101,432
Interest-bearing debt
Unmatured debt	414,192	421,149
Pension and other liabilities	185,060	179,924
Total interest-bearing debt	599,252	601,073
Total liabilities	705,763	702,505
Financial assets
Cash and accounts receivable	92,586	82,843
Foreign exchange accounts	44,178	40,827
Loans, investments and advances	45,094	41,889
Total financial assets	181,858	165,559
Net debt	523,905	536,946
Non-financial assets
Tangible capital assets	49,036	48,355
Other	7,601	7,092
Total non-financial assets	56,637	55,447
Accumulated deficit	467,268	481,499
The accompanying notes are an integral part of these statements.

Table 10
Government of Canada
Condensed Statement of Change in Net Debt
for the Year Ended March 31, 2007

	2007		2006
	Budget1	Actual	Actual
	($ millions)
Net debt, beginning of year	536,9462	536,946	549,587
Change in net debt during the year
Annual surplus	-3,557	-13,752	-13,218
Acquisition of tangible capital assets	4,885	4,789	4,046
Amortization of tangible capital assets	-4,092	-3,807	-3,904
Other	-100	208	435
Net decrease in net debt due to operations	-2,864	-12,562	-12,641
Other comprehensive income (Note 2)		-479
Net decrease in net debt	-2,864	-13,041	-12,641
Net debt, end of year	534,082	523,905	536,946
The accompanying notes are an integral part of these statements. 1 Derived from Budget 2006. 2 Adjusted to the actual closing amount of previous year.

Table 11
Government of Canada
Condensed Statement of Cash Flow
for the Year Ended March 31, 2007

	2007	2006
	($ millions)
Cash provided by operating activities
Annual surplus	13,752	13,218
Items not affecting cash	-1,662	-4,749
	12,090	8,469
Cash used by capital investment activities	-4,587	-3,900
Cash provided by investing activities	2,289	466
Total cash generated before financing activities	9,792	5,035
Cash used by financing activities	-8,245	-4,501
Net increase in cash	1,547	534
Cash at beginning of year	21,149	20,615
Cash at end of year	22,696	21,149
Supplementary information
Cash used for interest	20,026	19,810
The accompanying notes are an integral part of these statements.

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 because changes to the Plan require the agreement of two thirds of participating provinces and it is therefore not controlled by the Government.

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. Within pension and other liabilities, obligations for pension and other employee and veteran future benefits are determined on an actuarial basis. Allowances for valuation are established for loans, investments and advances, as well as for loan guarantees 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. The effect of changes to such estimates and assumptions in future periods could be significant to the financial statements, although, at the time of their preparation, the Government believes the estimates and assumptions to be reasonable. Some of the more significant estimates used in these financial statements affect the accrual of tax revenues and obligations for pension and other employee and veteran future benefits.

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

2. Change in Accounting Policy

During 2006-2007, the Government adopted the new recommendations of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants regarding the recording of other comprehensive income resulting from the accounting of certain unrealized gains and losses on financial instruments by enterprise Crown corporations. In accordance with those recommendations, other comprehensive income is excluded from the calculation of the Government’s annual surplus. It is instead recorded directly to the Government’s Condensed Statement of Accumulated Deficit and Condensed Statement of Change in Net Debt.

This accounting policy change has resulted in an increase of $479 million in loans, investments and advances presented on the Condensed Statement of Financial Position and in a corresponding decrease in the balances of the accumulated deficit and of the net debt of the Government.

3. Contractual Obligations

Contractual obligations that will materially affect the level of future expenditures include transfer payment agreements, acquisitions of property and equipment, and goods and services, operating leases and funding of international organizations. At March 31, 2007, contractual obligations amount to $67,954 million ($69,960 million in 2006), of which $14,365 million pertains to fiscal year 2007-2008.

4. Contingent Liabilities

Guarantees by the Government and callable share capital in certain international organizations at March 31, 2007 amount to $165,321 million ($143,991 million in 2006), net of a recorded allowance of $815 million ($1,031 million in 2006). 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. The Government has recorded an allowance for claims and litigation where it is likely that there will be a future payment and a reasonable estimate of the loss can be made.

At March 31, 2007, insurance in force relating to self-sustaining insurance programs operated by three agent enterprise Crown corporations amounted to $897,490 million ($839,382 million in 2006). The Government expects that all three corporations will cover the cost of both current claims and possible future claims.

5. Subsequent Event

On August 20, 2007, the Government of Canada announced that it has entered into an agreement for the sale of nine office buildings and their subsequent lease-back for a period of twenty-five years. The office complexes and land that are located in six major cities across Canada will be sold for an amount approximating $1,600 million. The impact of this agreement, once finalized, will be reflected in the 2007-2008 financial statements.

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

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