Canadian Intellectual Property Office Revolving Fund
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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 the Receiver General Instructions related to Volume III of the Public Accounts of Canada. 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, 2020 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
Douglas McConnachie
Chief Financial Officer
Innovation, Science and Economic Development Canada
June 10, 2020
Gatineau, Canada
Statement of authority used (unaudited) for the year ended March 31
(in thousands of dollars)
| 2020 | 2019 | |||
|---|---|---|---|---|
| EstimatesLink to footnote 1 | Actual | EstimatesLink to footnote 1 | Actual | |
| Net results | (negative 23,711) | (negative 30,725) | (negative 12,146) | (negative 4,668) |
| Items not requiring use of funds | 3,988 | 6,868 | 845 | 882 |
| Operating use of funds | (negative 19,723) | (negative 23,857) | (negative 11,301) | (negative 3,786) |
| Items requiring use of funds | ||||
| Net tangible capital assets acquisitions | (negative 23,281) | (negative 13,934) | (negative 27,991) | (negative 15,735) |
| Net other assets and liabilities | 2,384 | 18,192 | 14,529 | 3,391 |
| Authority used | (negative 40,620) | (negative 19,599) | (negative 24,763) | (negative 16,130) |
Reconciliation of unused authority (unaudited) as at March 31
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Debit balance in the accumulated net charge against the Fund's authority | 124,846 | 139,728 |
| Payables charged against the appropriation at year-end | (negative 12,818) | (negative 13,934) |
| Receivables credited to the appropriation at year-end | 2,515 | 1,366 |
| Other items | (negative 4,778) | 2,204 |
| Net authority provided, end of year | 109,765 | 129,364 |
| Authority limit | 5,000 | 5,000 |
| Unused authority carried forward | 114,765 | 134,364 |
Independent auditor's report
To the Deputy Minister, Innovation, Science and Economic Development Canada
Our opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Canadian Intellectual Property Office Revolving Fund (CIPO Revolving Fund) as at March 31, 2020, and its financial performance and its cash flows for the year then ended in accordance with Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada.
What we have audited
CIPO Revolving Fund's financial statements comprise:
- the statement of financial position as at March 31, 2020;
- the statements of operations and net liabilities for the year then ended;
- the statement of cash flows for the year then ended; and
- the notes to the financial statements, which include a summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the CIPO Revolving fund in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Emphasis of matter-basis of accounting and restriction on use
We draw attention to note 2 to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist CIPO Revolving Fund to meet the requirements of Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the management of CIPO Revolving Fund and should not be used by parties other than CIPO Revolving Fund, Innovation, Science, and Economic Development Canada, the Receiver General of Canada and the Treasury Board of Canada. Our opinion is not modified in respect of this matter.
Responsibilities of management and those charged with governance for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Section 1 of the Receiver General for Canada Instructions for Volume III of Public Accounts of Canada; 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.
In preparing the financial statements, management is responsible for assessing CIPO Revolving Fund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate CIPO Revolving Fund or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing CIPO Revolving Fund's financial reporting process.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit 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 CIPO Revolving Fund's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on CIPO Revolving Fund's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause CIPO Revolving Fund to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
PricewaterhouseCoopers LLP
Chartered Professional Accountants,
Licensed Public Accountants
Ottawa, Ontario
June 12, 2020
Statement of financial position as at March 31
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Assets | ||
| Financial assets | ||
| Petty cash | 1 | 1 |
| Accounts receivable (note 3) | 3,815 | 2,504 |
| Unbilled revenues | 2,646 | 8,513 |
| Subtotal | 6,462 | 11,018 |
| Non-financial assets | ||
| Prepaid expenses | 634 | 581 |
| Tangible capital assets (note 4) | 51,168 | 42,283 |
| Total | 58,264 | 53,882 |
| Liabilities | ||
| Deposit accounts | 4,326 | 3,780 |
| Accounts payable and accrued liabilities (note 5) | 13,701 | 14,698 |
| Vacation pay | 6,417 | 4,588 |
| Obligation for employee future benefits (note 6) | 2,584 | 2,595 |
| Deferred revenues | 87,473 | 68,615 |
| Subtotal | 114,501 | 94,276 |
| Net liabilities (note 7) | (negative 56,237) | (negative 40,394) |
| Total | 58,264 | 53,882 |
Statement of operations and net liabilities for the year ended March 31
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Revenues | 150,604 | 156,079 |
| Operating expenses | ||
| Salaries and employee benefits | 121,778 | 108,924 |
| Provision for employee future benefits | 343 | 328 |
| Professional services | 39,868 | 36,203 |
| Accommodation | 7,332 | 7,348 |
| Amortization of tangible capital assets | 4,364 | 627 |
| Information | 3,075 | 2,888 |
| Materials and supplies | 1,261 | 1,930 |
| Repairs and maintenance | 803 | 911 |
| Training | 695 | 790 |
| Loss on disposal of tangible capital assets | 685 | – |
| Travel | 625 | 544 |
| Freight and postage | 276 | 88 |
| Rentals | 169 | 133 |
| Communications | 55 | 33 |
| Subtotal | 181,329 | 160,747 |
| Net results | (negative 30,725) | (negative 4,668) |
| Net liabilities, beginning of year | (negative 40,394) | (negative 49,033) |
| Net financial resources used and change in the accumulated net charge against the Fund's authority, during the year | 14,882 | 13,307 |
| Net liabilities, end of year | (negative 56,237) | (negative 40,394) |
Statement of cash flows for the year ended March 31
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Operating activities | ||
| Net results | (negative 30,725) | (negative 4,668) |
| Items not requiring use of funds | ||
| Amortization of tangible capital assets | 4,364 | 627 |
| Loss on disposal of tangible capital assets | 685 | – |
| Subtotal | (negative 25,676) | (negative 4,041) |
| Variations in statement of financial position | ||
| Decrease (increase) in accounts receivable | (negative 1,311) | 104 |
| Increase in prepaid expenses | (negative 53) | (negative 128) |
| Decrease in unbilled revenues | 5,867 | 68 |
| Increase in deposit accounts | 546 | 680 |
| Increase (decrease) in accounts payable and accrued liabilities | (negative 997) | 1,731 |
| Increase in vacation pay | 1,829 | 497 |
| Decrease in obligation for employee future benefits | (negative 11) | (negative 240) |
| Increase in deferred revenues | 18,858 | 3,757 |
| Total variations in statement of financial position | 24,728 | 6,469 |
| Net financial resources provided (used) by operating activities | (negative 948) | 2,428 |
| Capital investing activity | ||
| Acquisitions of tangible capital assets | (negative 13,934) | (negative 15,735) |
| Net financial resources used and change in accumulated net charge against the Fund's authority, during the year | (negative 14,882) | (negative 13,307) |
| Accumulated net charge against the Fund's authority, beginning of year | 139,728 | 153,035 |
| Accumulated net charge against the Fund's authority, end of year (note 7) | 124,846 | 139,728 |
Notes to the financial statements for the year ended March 31, 2020
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 and net liabilities
- no liability is recorded for sick leave and
- the employee termination benefits liability are based on management's estimates rather than based on actuarial valuations
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 | Over the term of the lease |
| 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, or
- 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, or
- 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)
| 2020 | 2019 | |
|---|---|---|
| Government of Canada | 897 | 240 |
| Outside parties | 2,918 | 2,264 |
| Total | 3,815 | 2,504 |
4. Tangible capital assets
(in thousands of dollars)
| Cost | Balance, beginning of year | Acquisitions | Transfers | Disposals | Balance, end of year |
|---|---|---|---|---|---|
| Leasehold improvements | 369 | – | – | (4) | 365 |
| Informatics software | 32,029 | 2,819 | 29,564 | (13,025) | 51,387 |
| Hardware | 418 | – | – | (93) | 325 |
| Machinery and equipment | 158 | – | – | – | 158 |
| Furniture | 494 | – | – | (378) | 116 |
| Asset under construction | 41,235 | 11,115 | (29,564) | (677) | 22,109 |
| Total | 74,703 |
13,934 | – | (14,177) |
74,460 |
| Accumulated amortization | Balance, beginning of year | Amortization | Disposals | Balance, end of year | |
| Leasehold improvements | 369 | – | (4) | 365 | |
| Informatics software | 31,281 | 4,291 | (13,025) | 22,547 | |
| Hardware | 274 | 31 | (93) | 212 | |
| Machinery and equipment | 46 | 16 | – | 62 | |
| Furniture | 450 | 26 | (370) | 106 | |
| Asset under construction | – | – | – | – | |
| Total | 32,420 | 4,364 | (13,492) |
23,292 |
|
| Net book value | 2020 | 2019 | |||
| Leasehold improvements | – | – | |||
| Informatics software | 28,840 | 748 | |||
| Hardware | 113 | 144 | |||
| Machinery and equipment | 96 | 112 | |||
| Furniture | 10 | 44 | |||
| Asset under construction | 22,109 | 41,235 | |||
| Total | 51,168 |
42,283 |
|||
|
The dash means that the amount is 0 or is rounded to 0. | |||||
5. Accounts payable and accrued liabilities
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Government of Canada | 2,055 | 4,520 |
| Outside parties | 11,646 | 10,178 |
| Total | 13,701 | 14,698 |
6. Obligation for employee future benefits
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Obligation for employee future benefits, beginning of year | 2,595 | 2,835 |
| Benefits paid during the year for retirements and departures from the Public Service | (negative 354) | (negative 568) |
| Expense for the year | 343 | 328 |
| Obligation for employee future benefits, end of year | 2,584 | 2,595 |
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 Fund.
(in thousands of dollars)
| 2020 | 2019 | |
|---|---|---|
| Accumulated surplus, beginning of year | 99,334 | 104,002 |
| Net results | (negative 30,725) | (negative 4,668) |
| Accumulated surplus, end of year | 68,609 | 99,334 |
| Accumulated net charge against the Fund's authority, beginning of year | (negative 139,728) | (negative 153,035) |
| Net financial resources used and change in the accumulated net charge against the Fund's authority during the year | 14,882 | 13,307 |
| Accumulated net charge against the Fund's authority, end of year | (negative 124,846) | (negative 139,728) |
| Net liabilities, end of year | (negative 56,237) | (negative 40,394) |
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 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)
| 2021 | 7,323 |
|---|---|
| 2022 | 7,081 |
| 2023 | 7,013 |
| 2024 | 6,870 |
| 2025 and thereafter | 35,164 |
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.
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