Annual Financial Report 2001-2002: 7
- Table of Contents - Previous -

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

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

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

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.

- Table of Contents - Previous -