2. Summary of Significant Accounting Policies (Notes to the Consolidated Financial Statements (Unaudited))
The consolidated financial statements have been prepared in accordance with Treasury Board accounting policies, which are consistent with Canadian generally accepted accounting principles for the public sector.
Significant accounting policies are as follows:
(a) Parliamentary authorities
PWGSC is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to PWGSC does not parallel financial reporting according to Canadian generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Consolidated Statement of Operations and the Consolidated Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.
These consolidated financial statements include the accounts of seven revolving funds as listed below. Each revolving fund prepares a complete set of financial statements annually that are audited and published in the Public Accounts of Canada. The accounts of these revolving funds have been consolidated with those of PWGSC and intradepartmental balances and transactions have been eliminated.
The PWGSC revolving funds are as follows:
- Consulting and Audit Canada Revolving Fund
- Defence Production Revolving Fund
- Optional Services Revolving Fund
- Real Property Disposition Revolving Fund
- Real Property Services Revolving Fund
- Telecommunications and Informatics Common Services Revolving Fund
- Translation Bureau Revolving Fund
(c) Net cash provided by Government
PWGSC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by PWGSC is deposited to the CRF and all cash disbursements made by PWGSC are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.
(d) Change in net position in the Consolidated Revenue Fund
This is the difference between the net cash provided by Government and authorities used in a year, excluding the amount of non-respendable revenue recorded by PWGSC. It results from timing differences between when a transaction affects authorities and when it is processed through the CRF.
- Revenues are recorded on the accrual basis of accounting and are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenue.
- Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
- Expenses are recorded on the accrual basis of accounting.
- Services provided without charge by other government departments for the employer's contribution to the health and dental insurance plans, worker's compensation and legal services are recorded as operating expenses at their estimated cost.
- Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
- The Payments in Lieu of Taxes Program on behalf of all federal departments and agencies under the authority of the Payments in Lieu of Taxes Act is administered by PWGSC. In accordance with the Constitution Act, the Government of Canada is exempt from property taxes. The Government of Canada voluntarily pays an appropriate share of the costs of local government to municipalities and other taxation authorities having jurisdiction to levy and collect real property tax in locations where federal lands and buildings are situated. The payments are made to the taxing authorities by PWGSC and are then recovered from each participating federal department.
(g) Employee future benefits
- Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multi-employer plan administered by the Government of Canada. The department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the department to make contributions for actuarial deficiencies of the Plan.
- Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.
(h) Accounts receivable and advances
Accounts receivable and advances are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.
(i) Lease inducements
Lease inducements represent incentives received by PWGSC to enter into a lease. Lease inducements include incentives such as: free rent, cash received to be applied to rent, lump sum cash, leasehold improvements and moving costs paid by the lessor. Lease inducements are accounted for as follows:
- Rent-free periods or periods of significantly reduced rent are allocated over the term of the lease on a straight-line basis;
- Cash payments from the lessor to the lessee are accounted for by the lessee, as reductions in rental expense over the term of the lease;
- Leasehold improvements are amortized over the remaining life of the lease or the useful life of the improvement, whichever is shorter;
- Moving costs absorbed by the lessor are amortized over the term of the lease.
(j) Contingent liabilities
Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the consolidated financial statements.
(k) Environmental liabilities
Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of the department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the consolidated financial statements.
Inventories held for resale are physical items that will be sold in the future in the ordinary course of business to parties outside of the government reporting entity. Inventories held for re-sale are measured at the lower of cost and net realizable value.
(m) Tangible capital assets
Tangible capital assets are recorded at their acquisition cost, and the following is the capitalization threshold for tangible capital assets:
- Betterments and leasehold improvements carried out on buildings and on works and infrastructure, having an initial cost of $25,000 or more;
- All tangible capital assets having an initial cost of $10,000 or more.
Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of each asset as follows:
Table SummaryThis section presents summary of significant accounting policies.
|Asset Class||Amortization period|
|Works and infrastructure||40 years|
|Machinery and equipment||3 to 15 years|
|Informatics hardware and software||3 to 10 years|
|Vehicles||6 to 20 years|
|Leasehold improvements||Lesser of the remaining term of the lease or useful life of the improvement|
|Assets under construction||Once in service, in accordance with asset class|
|Leased tangible capital assets||In accordance with asset class if ownership is likely to transfer to PWGSC; otherwise, over the lease term|
(n) Measurement uncertainty
The preparation of these consolidated financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. At the time of preparation of these consolidated statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and as adjustments become necessary, they are recorded in the consolidated financial statements in the year they become known.
(o) Seized Property Working Capital Account
The Seized Property Working Capital Account was established pursuant to section 12 of the Seized Property Management Act . Expenses incurred, and advances made, to maintain and manage any seized or restrained property and other properties subject to a management order or forfeited to Her Majesty, are charged to this account. The Seized Property Working Capital Account is credited when expenses and advances to third parties are repaid or recovered and when revenues from these properties or proceeds of their disposal are received and credited with seized cash upon forfeiture.
Any shortfall between the proceeds from the disposition of any property forfeited to Her Majesty and the related amounts that were charged to the Seized Property Working Capital Account is charged to the Seized Property Proceeds Account.
The total amount authorized to be charged against the Seized Property Working Capital Account at any time is $50,000,000.
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