Canadian Intellectual Property Office Revolving Fund
Public Accounts of Canada 2018 Volume III—Top of the page Navigation
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Statement of management responsibility
We have prepared the accompanying financial statements of the Canadian Intellectual Property Office Revolving Fund (the "Fund") as required by and in accordance with section 8.1 of the Receiver General for Canada Public Accounts Instructions. These financial statements were prepared by the management of the Fund in accordance with the significant accounting policies set out in note 2 of the statements, on a basis consistent with that of the preceding year.
Responsibility for the integrity and objectivity of these financial statements rests with the management of the Fund. The information included in these financial statements is based on management's best estimates and judgement with due consideration given to materiality. To fulfill its accounting and reporting responsibilities, the Fund maintains a set of accounts, which provides a centralized record of the Fund's financial transactions. Financial information contained in the ministerial statements and elsewhere in the Public Accounts of Canada is consistent with that in these financial statements, unless indicated otherwise.
The Fund's directorate of financial services develops and disseminates financial management and accounting policies and issues specific directives, which maintain standards of accounting and financial management. The Fund maintains systems of financial management and internal control which gives due consideration to costs, benefits and risks. They are designed to provide reasonable assurance that transactions are properly authorized by Parliament, are executed in accordance with prescribed regulations, and are properly recorded to maintain accountability of Government funds and safeguard the assets under the Fund's administration. The Fund also seeks to assure the objectivity and integrity of data in its financial statements by the careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility and by communication programs aimed at ensuring that its regulations, policies, standards and managerial authorities are understood throughout the organization.
At the request of the Fund, these financial statements have been examined by external auditors, their role being to express an opinion as to whether the financial statements present fairly the financial position as at March 31, 2018 and the results of operations and cash flows for the year then ended in accordance with the significant accounting policies as described in note 2 to the financial statements.
Approved by:
Johanne Bélisle
Chief Executive Officer
Canadian Intellectual Property Office
Philippe Thompson
Chief Financial Officer
Innovation, Science & Economic Development Canada
May 28, 2018
Gatineau, Canada
Statement of authority provided (used) (unaudited) for the year ended March 31
(in thousands of dollars)
| 2018 | 2017 | |||
|---|---|---|---|---|
| EstimatesLink to footnote 1 | Actual | EstimatesLink to footnote 1 | Actual | |
| Net results | (negative 5,722) | (negative 7,843) | (negative 5,309) | 6,238 |
| Items not requiring use of funds | 245 | 381 | 869 | 897 |
| Operating source (use) of funds | (negative 5,477) | (negative 7,462) | (negative 4,440) | 7,135 |
| Items requiring use of funds | ||||
| Net tangible capital assets acquisitions | (negative 24,561) | (negative 14,585) | (negative 14,561) | (negative 7,426) |
| Net other assets and liabilities | 2,009 | 3,053 | 42 | (negative 6,205) |
| Transition payments for implementing salary payments in arrears | – | – | – | (negative 6) |
| Authority provided (used) | (negative 28,029) | (negative 18,994) | (negative 18,959) | (negative 6,502) |
Table notesThe dash means that the amount is 0 or is rounded to 0. | ||||
Reconciliation of unused authority (unaudited) as at March 31
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Debit balance in the accumulated net charge against the Fund's authority | 153,035 | 174,137 |
| Payables charged against the appropriation at year-end | (negative 11,997) | (negative 16,141) |
| Receivables credited to the appropriation at year-end | 1,474 | 826 |
| Other items | 2,982 | 5,666 |
| Net authority provided, end of year | 145,494 | 164,488 |
| Authority limit | 5,000 | 5,000 |
| Unused authority carried forward | 150,494 | 169,488 |
Independent Auditor's Report
To the Deputy Minister, Innovation, Science and Economic Development Canada
We have audited the accompanying financial statements of the Canadian Intellectual Property Office Revolving Fund ("the Fund"), which comprise the statement of financial position as at March 31, 2018 and the statements of operations and net liabilities, and cash flows for the year then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. These financial statements have been prepared by management of the Fund in accordance with section 8.1 of the Receiver General for Canada Public Accounts Instructions.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with section 8.1 of the Receiver General for Canada Public Accounts Instructions, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Fund's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Canadian Intellectual Property Office Revolving Fund as at March 31, 2018, and the results of its operations and its cash flows for the year then ended in accordance with section 8.1 of the Receiver General for Canada Public Accounts Instructions.
Basis of accounting and restriction on use
Without modifying our opinion, we draw attention to note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist the Canadian Intellectual Property Office Revolving Fund to meet the requirements of section 8.1 of the Receiver General for Canada Public Accounts Instructions. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the management of the Canadian Intellectual Property Office Revolving Fund and should not be used by parties other than Canadian Intellectual Property Office Revolving Fund or the Treasury Board of Canada.
PricewaterhouseCoopers LLP
Chartered Professional Accountants,
Licensed Public Accountants
May 28, 2018
Ottawa, Canada
Statement of financial position as at March 31
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Assets | ||
| Financial assets | ||
| Petty cash | 1 | 2 |
| Accounts receivable (note 3) | 2,608 | 2,577 |
| Unbilled revenues | 8,581 | 9,805 |
| Subtotal | 11,190 | 12,384 |
| Non-financial assets | ||
| Prepaid expenses | 453 | 454 |
| Tangible capital assets (note 4) | 27,175 | 13,206 |
| Total | 38,818 | 26,044 |
| Liabilities | ||
| Deposit accounts | 3,100 | 3,225 |
| Accounts payable and accrued liabilities (note 5) | 12,967 | 16,141 |
| Vacation pay | 4,091 | 3,654 |
| Obligation for employee future benefits (note 6) | 2,835 | 3,507 |
| Deferred revenues | 64,858 | 61,809 |
| Subtotal | 87,851 | 88,336 |
| Net liabilities (note 7) | (negative 49,033) | (negative 62,292) |
| Total | 38,818 | 26,044 |
|
Contractual obligations (note 8) The accompnaying notes from an integral part of these financial statements. | ||
Statement of operations and net liabilities for the year ended March 31
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Revenues | 150,181 | 158,252 |
| Operating expenses | ||
| Salaries and employee benefits | 104,380 | 99,426 |
| Provision for employee future benefits | (negative 489) | (negative 700) |
| Professional services | 39,355 | 38,153 |
| Accommodation | 7,568 | 7,569 |
| Information | 2,482 | 2,357 |
| Materials and supplies | 1,639 | 1,727 |
| Repairs and maintenance | 878 | 810 |
| Training | 724 | 652 |
| Travel | 647 | 487 |
| Amortization of tangible capital assets | 616 | 680 |
| Rentals | 108 | 85 |
| Communications | 87 | 22 |
| Freight and postage | 29 | 529 |
| Loss on disposal of tangible capital assets | – | 217 |
| Subtotal | 158,024 | 152,014 |
| Net results | (negative 7,843) | 6,238 |
| Net liabilities, beginning of year | (negative 62,292) | (negative 70,385) |
| Net financial resources (provided) used and change in the accumulated net charge against the Fund's authority, during the year | 21,102 | 1,861 |
| Transfer of the transition payments for implementing salary payments in arrears (note 10) | – | (negative 6) |
| Net liabilities, end of year | (negative 49,033) | (negative 62,292) |
|
The dash means that the amount is 0 or is rounded to 0. The accompanying notes form an integral part of these financial statements. | ||
Statement of cash flows for the year ended March 31
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Operating activities | ||
| Net results | (negative 7,843) | 6,238 |
| Items not requiring use of funds | ||
| Amortization of tangible capital assets | 616 | 680 |
| Loss on disposal of tangible capital assets | – | 217 |
| Subtotal | (negative 7,227) | 7,135 |
| Variations in statement of financial position | ||
| Decrease (increase) in petty cash | 1 | 1 |
| Decrease (increase) in accounts receivable | (negative 31) | (negative 1,641) |
| Decrease (increase) in prepaid expenses | 1 | (negative 115) |
| Decrease (increase) in unbilled revenues | 1,224 | 255 |
| Increase (decrease) in deposit accounts | (negative 125) | (negative 38) |
| Increase (decrease) in accounts payable and accrued liabilities | (negative 3,174) | 4,829 |
| Increase (decrease) in vacation pay | 437 | 251 |
| Increase (decrease) in obligation for employee future benefits | (negative 672) | (negative 767) |
| Increase (decrease) in deferred revenues | 3,049 | (negative 4,339) |
| Total variations in statement of financial position | 710 | (negative 1,564) |
| Transition payments for implementing salary payments in arrears | – | (negative 6) |
| Net financial resources provided (used) by operating activities | (negative 6,517) | 5,565 |
| Capital investing activity | ||
| Acquisitions of tangible capital assets | (negative 14,585) | (negative 7,426) |
| Net financial resources provided (used) and change in accumulated net charge against the Fund's authority, during the year | (negative 21,102) | (negative 1,861) |
| Accumulated net charge against the Fund's authority, beginning of year | 174,137 | 175,998 |
| Accumulated net charge against the Fund's authority, end of year (note 7) | 153,035 | 174,137 |
|
The dash means that the amount is 0 or is rounded to 0. The accompanying notes form an integral part of these financial statements. | ||
Notes to the financial statements for the year ended March 31, 2018
1. Authority and purpose
The Canadian Intellectual Property Office (CIPO) grants or registers exclusive ownership of intellectual property in Canada. In exchange, CIPO acquires intellectual property information and state-of-the-art technology which it disseminates to Canadian firms, industries and individuals to improve economic performance, competitiveness and to stimulate further invention and innovation.
CIPO is financed through a revolving fund authority (the "Fund"), which was established on April 1, 1994. The authority to make expenditures out of the Consolidated Revenue Fund was granted on February 22, 1994 and had an authorized limit of $15 million. During the fiscal year ended March 31, 2002, the Fund's authorized limit was reduced from $15 million to $5 million. The Fund has continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund for working capital, capital acquisitions and temporary financing of accumulated operating deficits. The Fund may retain surpluses to continue to automate operations.
The Fund is not subject to income taxes.
2. Significant accounting policies
The financial statements have been prepared in accordance with reporting requirements for revolving funds described by the Receiver General for Canada. The basis of accounting used in these financial statements differs from Canadian generally accepted accounting principles for the public sector because:
- the net debt indicator and the statement of change in net debt are not presented in the financial statements
- expenses are reported by type in the statement of operations and net liabilities and not by function or major program
- services received without charge from other government departments are not reported as expenses
- budgeted expenses are not disclosed in the statement of operations
- no liability is recorded for sick leave
- employee termination benefits liability are based on management's estimates rather than based on actuarial valuations
- contingent liabilities are disclosed rather than recorded
The significant accounting policies are as follows:
(a) Revenue recognition
Fees received for processing patent, trademark and industrial design applications are recorded as deferred revenues until services are rendered, at which time they are recorded as revenue. Detailed inventory counts of applications are used to determine the amount of deferred revenue taking into account the fee schedule related to the application. Different rates may be charged depending on the size of the entity. Abandonments during the application process are recorded as earned revenue. When work is completed prior to the receipt of the fee, the amount is recorded as unbilled revenue. Fees are prescribed by various Orders in Council.
(b) Tangible capital assets
Tangible capital assets are recorded at cost and are amortized on a straight-line basis over their estimated useful lives, beginning in the month after acquisition, as follows:
| Asset class | Years |
|---|---|
| Leasehold improvements | 5 years |
| Informatics software | 3–10 years |
| Hardware | 5–10 years |
| Machinery and equipment | 10 years |
| Furniture | 10 years |
The costs for assets under construction are capitalized as incurred with amortization commencing in the month after they are put into service.
(c) Employee future benefits
-
Employee severance benefits
Employees of the Fund are entitled to severance benefits, calculated based on salary levels in effect at the time of termination as provided for under collective agreements and conditions of employment. These benefits are accrued as employees render the services necessary to earn them. In Budget 2012, the Government of Canada announced that it was eliminating the accumulation of severance benefits for voluntary resignation and retirement for federal government employees. As part of the implementation of this measure, collective agreements had provided three options to address the balances accumulated to date. These included:
- a single payment at the rate of pay of the employee's substantive position as of the coming into force of the collective agreement
- a single payment at the time of the employee's termination of employment from the core public administration, based on the rate of pay of the employee's substantive position at the date of termination of employment from the core public administration
- a combination of (1) and (2)
With the introduction of captions (1) and (3), the Fund had been required to draw down on the obligation for employee future benefits as the collective agreements came into force.
-
Pension benefits
Employees of the Fund are covered by the Public Service Superannuation Plan administered by the Government of Canada. Under present legislation, contributions made by the Fund to the Plan are limited to an amount equal to the employee's contributions on account of current service. These contributions represent the total pension obligations of the Fund and are charged to operations on a current basis. The Fund is not required under present legislation to make contributions with respect to actuarial deficiencies of the Public Service Superannuation Account and/or with respect to charges to the Consolidated Revenue Fund for the indexation of payments under the Supplementary Retirement Benefits Act.
(d) Use of estimates
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Revenues, unbilled revenues, deferred revenues, the estimated useful lives of tangible capital assets and salary related liabilities are the most significant items for which estimates are used. Actual results could differ from these estimates. These estimates are reviewed annually and as adjustments become necessary, they are recorded in the financial statements in the period in which they become known.
(e) Sick leave
Employees are permitted to accumulate unused sick leave. However, such leave entitlements do not vest and can be used only in the event of illness. Payments of sick leave benefits are included in current operations as incurred.
3. Accounts receivable
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Government of Canada | 586 | 826 |
| Outside parties | 2,022 | 1,751 |
| Net accounts receivable | 2,608 | 2,577 |
4. Tangible capital assets
(in thousands of dollars)
| Cost | Balance, beginning of year | Acquisitions | Transfers | Disposals | Balance, end of year |
|---|---|---|---|---|---|
| Leasehold improvements | 22,434 | – | – | (negative 22,065) | 369 |
| Informatics software | 32,576 | – | 162 | (negative 709) | 32,029 |
| Hardware | 307 | 67 | – | – | 374 |
| Machinery and equipment | 158 | – | – | – | 158 |
| Furniture | 494 | – | – | – | 494 |
| Asset under construction | 11,188 | 14,518 | (negative 162) | – | 25,544 |
| Subtotal | 67,157 | 14,585 | – | (negative 22,774) | 58,968 |
| Accumulated amortization | Balance, beginning of year | Amortization | Adjustments | Balance, end of year | |
| Leasehold improvements | 22,421 | 10 | (negative 22,065) | 366 | |
| Informatics software | 30,918 | 530 | (negative 709) | 30,739 | |
| Hardware | 232 | 14 | – | 246 | |
| Machinery and equipment | 14 | 16 | – | 30 | |
| Furniture | 366 | 46 | – | 412 | |
| Asset under construction | – | – | – | – | |
| Subtotal | 53,951 | 616 | (negative 22,774) | (negative 31,793) | |
| Net book value | 2018 | 2017 | |||
| Leasehold improvements | 3 | 13 | |||
| Informatics software | 1,290 | 1,658 | |||
| Hardware | 128 | 75 | |||
| Machinery and equipment | 128 | 144 | |||
| Furniture | 82 | 128 | |||
| Asset under construction | 25,544 | 11,188 | |||
| Subtotal | 27,175 | 13,206 | |||
5. Accounts payable and accrued liabilities
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Government of Canada | 4,267 | 3,150 |
| Outside parties | 8,700 | 12,991 |
| Total | 12,967 | 16,141 |
6. Obligation for employee future benefits
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Obligation for employee future benefits, beginning of year | 3,507 | 4,274 |
| Benefits paid during the year | ||
| For retirements and departures from the Public Service | (negative 183) | (negative 66) |
| For employees who opted to cash out their accumulated balances as per collective agreements | – | (negative 1) |
| Expense for the year | (negative 489) | (negative 700) |
| Obligation for employee future benefits, end of year | 2,835 | 3,507 |
|
The dash means that the amount is 0 or is rounded to 0. | ||
7. Net liabilities
Accumulated net charge against the Fund's authority
The accumulated net charge against the Fund's authority represents the cumulative receipts and disbursements over the life of the Fund.
Accumulated surplus
The accumulated surplus is an accumulation of the annual net results of operations including the absorption of the opening deficit of $9,448,000 upon establishment of the revolving fund.
(in thousands of dollars)
| 2018 | 2017 | |
|---|---|---|
| Accumulated surplus, beginning of year | 111,845 | 105,613 |
| Net results | (negative 7,843) | 6,238 |
| Transfer of the transition payments for implementing salary payments in arrears | – | (negative 6) |
| Accumulated surplus, end of year | 104,002 | 111,845 |
| Accumulated net charge against the Fund's authority, beginning of year | (negative 174,137) | (negative 175,998) |
| Net financial resources (provided) used and change in the accumulated net charge against the Fund's authority during the year | 21,102 | 1,861 |
| Accumulated net charge against the Fund's authority, end of year | (negative 153,035) | (negative 174,137) |
| Net liabilities, end of year | (negative 49,033) | (negative 62,292) |
|
The dash means that the amount is 0 or is rounded to 0. | ||
8. Contractual obligations
CIPO leases its premises under occupancy instruments. An occupancy instrument is a formal agreement between the CIPO and Public Services and Procurement Canada (formerly known as Public Works and Government Services Canada) recording the terms and conditions that govern the provision and occupancy of the accommodation. Expected future payouts by fiscal year are as follows:
(in thousands of dollars)
| 2019 | 5,870 |
|---|---|
| 2020 | 264 |
| 2021 | 204 |
| 2022 | 68 |
| Total | 6,406 |
9. Related party transactions
Through common ownership, the Fund is related to all Government of Canada created departments, agencies and Crown corporations. Payments for accommodation, legal services, compensation and benefits services, mail services, security services and mainframe and computing services are made to related parties in the normal course of business.
10. Transfer of the transition payments for implementing salary payments in arrears
The Government of Canada implemented salary payments in arrears in 2014–2015. As a result, a one-time payment was issued to employees and will be recovered from them in the future. The transition to salary payments in arrears forms part of the transformation initiative that replaces the pay system and also streamlines and modernizes the pay processes. This change to the pay system had no impact on the expenses of the Fund. However, it did result in the use of authorities by the Fund and impacted the Accumulated net charge against the Fund's Authority. In 2014–2015, transition payments for implementing salary payments in arrears were transferred to a central account administered by Public Services and Procurement Canada, who is responsible for the administration of the Government pay system.