Canadian Intellectual Property Office Revolving Fund

Public Accounts of Canada 2016 Volume III - Top of the page Navigation

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 the Treasury Board Policy on Special Revenue Spending Authorities and the reporting requirements of the Receiver General for 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, 2016 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

David Enns
Chief Financial Officer
Innovation, Science & Economic Development Canada

May 25, 2016
Ottawa, Canada

Statement of authority provided (used) (unaudited) for the year ended March 31

Table summary

The table presents on a comparative basis the statement of authority provided (used) (unaudited). It consists of five columns: item descriptions, current year with two columns—estimates and actual, and previous year with two columns—estimates and actual. Subtotals are displayed at operating source of funds and totals are displayed at authority provided (used).

(in thousands of dollars)

  2016 2015
Estimates Actual Estimates Actual
Net results (negative 590) 12,362 2,659 8,705
Items not requiring use of funds 909 619 1,191 1,649
Operating source of funds 319 12,981 3,850 10,354
Items requiring use of funds
Net tangible capital assets acquisitions (negative 9,362) (negative 3,147) (negative 10,784) (negative 1,843)
Net other assets and liabilities 412 (negative 6,238) (negative 1,884) (negative 5,356)
Transition payments for implementing salary payments in arrears (negative 12) (negative 2,890)
Authority provided (used) (negative 8,631) 3,584 (negative 8,818) 265

Reconciliation of unused authority (unaudited) as at March 31

Table summary

The table presents on a comparative basis the reconciliation of unused authority (unaudited). It consists of three columns: item descriptions, current year and previous year. Subtotals are displayed at net authority provided end of year and totals are displayed at the unused authority carried forward.

(in thousands of dollars)

  2016 2015
Debit balance in the accumulated net charge against the Fund's authority 175,998 173,041
Payables charged against the appropriation at year-end (negative 11,312) (negative 12,540)
Receivables credited to the appropriation at year-end 297 837
Other items 6,007 6,068
Net authority provided, end of year 170,990 167,406
Authority limit 5,000 5,000
Unused authority carried forward 175,990 172,406

Independent Auditors' 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, which comprise the statement of financial position as at March 31, 2016 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 to meet the requirements of section 6.4 of the Treasury Board of Canada's Special Revenue Spending Authorities.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with section 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities, 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.

Auditors' 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 entity's preparation and fair presentation 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 entity'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, 2016 and the results of its operations and its cash flow for the year then ended in accordance with section 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities.

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 6.4 of the Treasury Board of Canada's Policy on Special Revenue Spending Authorities. 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, the Deputy Minister of Innovation, Science and Economic Development Canada, and the Treasury Board of Canada and should not be used by parties other than Canadian Intellectual Property Office Revolving Fund, the Deputy Minister of Innovation, Science and Economic Development Canada or the Treasury Board of Canada.

PricewaterhouseCoopers LLP
Chartered Professional Accountants,
Licensed Public Accountants

May 25, 2016
Ottawa, Canada

Statement of financial position as at March 31

Table summary

The table presents on a comparative basis the statement of financial position. It consists of three columns: item descriptions, current year and previous year. Item descriptions are grouped in two: assets and liabilities, both displaying totals. Current item descriptions are grouped together for assets and for liabilities, both displaying subtotals.

(in thousands of dollars)

  2016 2015
Assets
Financial assets
Petty cash 3 2
Accounts receivable (Note 3) 936 837
Unbilled revenues 10,060 8,682
Subtotal 10,999 9,521
Non-financial assets
Prepaid expenses 339 377
Tangible capital assets (Note 4) 6,677 4,149
Total 18,015 14,047
Liabilities
Current liabilities
Deposit accounts 3,263 3,711
Accounts payable and accrued liabilities (Note 5) 11,312 9,304
Vacation pay 3,403 3,236
Current portion of obligation for employee future benefits (Note 6) 951
Deferred revenues 38,562 40,694
Subtotal 57,491 56,945
Long-term liabilities
Obligation for employee future benefits (Note 6) 3,323 4,133
Deferred revenues 27,586 32,747
Subtotal 30,909 36,880
Net liabilities (Note 7) (negative 70,385) (negative 79,778)
Total 18,015 14,047

Statement of operations and net liabilities for the year ended March 31

Table summary

The table presents on a comparative basis the statement of operations and net liabilities. It consists of three columns: item descriptions, current year and previous year. Item descriptions for expenses are grouped together displaying subtotals. Subtotals for revenues net of expenses are displayed at net results and totals are displayed at net liabilities end of year.

(in thousands of dollars)

  2016 2015
Revenues 162,621 153,460
Operating expenses
Salaries and employee benefits 99,215 95,678
Professional services 34,330 34,400
Accommodation 7,441 7,399
Materials and supplies 3,092 988
Information 2,102 2,048
Provision for employee future benefits 896 (negative 354)
Repairs and maintenance 883 966
Amortization of tangible capital assets 619 839
Freight and postage 599 582
Training 556 804
Travel 462 506
Rentals 62 87
Communications 2 3
Loss on disposal of tangible capital assets 809
Subtotal 150,259 144,755
Net results 12,362 8,705
Net liabilities, beginning of year (negative 79,778) (negative 83,968)
Net financial resources provided and change in the accumulated net charge against the Fund's authority, during the year (negative 2,957) (negative 1,625)
Transfer of the transition payments for implementing salary payments in arrears (Note 10) (negative 12) (negative 2,890)
Net liabilities, end of year (negative 70,385) (negative 79,778)

Statement of cash flows for the year ended March 31

Table summary

The table presents on a comparative basis the statement of cash flows. It consists of three columns: item descriptions, current year and previous year. Item descriptions are grouped in two: operating activities which displays subtotals and investing activities. Subtotals are displayed at net financial resources provided and change in the accumulated net charge against the Fund's authority account during the year. Totals are displayed at accumulated net charge against the Fund's authority account end of year.

(in thousands of dollars)

  2016 2015
Operating activities
Net results 12,362 8,705
Items not requiring use of funds
Amortization of tangible capital assets 619 839
Loss on disposal of tangible capital assets 810
Subtotal 12,981 10,354
Variations in statement of financial position
Decrease (increase) in petty cash (negative 1) 1
Decrease (increase) in accounts receivable (negative 99) (negative 212)
Decrease (increase) in prepaid expenses 38 (negative 73)
Decrease (increase) in unbilled revenues (negative 1,378) (negative 705)
Increase (decrease) in deposit accounts (negative 448) 537
Increase (decrease) in accounts payable and accrued liabilities 2,008 1,014
Increase (decrease) in vacation pay 167 (negative 265)
Increase (decrease) in obligation for employee future benefits 141 (negative 1,016)
Increase (decrease) in deferred revenues (negative 7,293) (negative 3,277)
Total variations in statement of financial position (negative 6,865) (negative 3,996)
Transition payments for implementing salary payments in arrears (negative 12) (negative 2,890)
Net financial resources provided by operating activities 6,104 3,468
Capital investing activities
Acquisitions of tangible capital assets (negative 3,147) (negative 1,843)
Net financial resources provided and change in the accumulated net charge against the Fund's authority, during the year 2,957 1,625
Accumulated net charge against the Fund's authority, beginning of year 173,041 171,416
Accumulated net charge against the Fund's authority, end of year (Note 7) 175,998 173,041

Notes to the financial statements for the year ended March 31, 2016

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 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 accounting standards issued by the Treasury Board of Canada Secretariat and the 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 because:

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:

Table summary

The table presents capital assets and amortization and consists of two columns: the assets categories with respective amortization periods.

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

  1. 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:

    1. 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
    2. 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
    3. a combination of (1) and (2).

    With the introduction of options (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.

  2. 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. The amount of accumulated sick leave entitlements which will become payable in future years cannot reasonably be determined and accordingly have not been recorded in the accompanying financial statements. Payments of sick leave benefits are included in current operations as incurred.

3. Accounts receivable

Table summary

The table presents on a comparative basis the accounts receivable. It consists of three columns: item descriptions, current year and previous year. The last row presents the totals for accounts receivable net of allowance for doubtful accounts.

(in thousands of dollars)

  2016 2015
Government of Canada 297 59
Outside parties 639 778
Total 936 837

4. Tangible capital assets

Table summary

The table presents capital assets (above) and accumulated amortization (below), both displaying subtotals. The capital asset section of the table consists of six columns (item descriptions, opening balance, acquisitions, transfers, disposals, and closing balance) and the accumulated amortization section of the table consists of five columns (item descriptions, opening balance, acquisitions, disposals and closing balance). The bottom of the table displays the capital assets net of accumulated amortization totals at net total for the columns: opening balance and closing balance.

(in thousands of dollars)

Cost Balance at April 1, 2015 Acquisitions Transfers Disposals Balance at March 31, 2016
Leasehold improvements 22,434 22,434
Informatics software 31,953 (negative 309) 31,644
Hardware 481 (negative 187) 294
Furniture 494 494
Asset under construction 2,899 3,147 6,046
Total 58,261 3,147 (negative 496) 60,912
Accumulated amortization Balance at April 1, 2015 Amortization   Adjustments Balance at March 31, 2016
Leasehold improvements 22,287 67 22,354
Informatics software 31,163 491 (negative 309) 31,345
Hardware 395 12 (negative 187) 220
Furniture 267 49 316
Asset under construction
Total 54,112 619 (negative 496) 54,235
Net book value 2016 2015
Leasehold improvements 80 147
Informatics software 299 790
Hardware 74 86
Furniture 178 227
Asset under construction 6,046 2,899
Total 6,677 4,149

5. Accounts payable and accrued liabilities

Table summary

The table presents on a comparative basis the accounts payable and accrued liabilities. It consists of three columns: item descriptions, current year and previous year. The last row presents the totals.

(in thousands of dollars)

  2016 2015
Government of Canada 1,324 1,992
Outside parties 9,988 7,312
Total 11,312 9,304

6. Obligation for employee future benefits

Table summary

The table presents on a comparative basis the employee future benefits. It consists of three columns: item descriptions, current year and previous year. Totals are displayed at accrued benefit obligation end of the year.

(in thousands of dollars)

  2016 2015
Obligation for employee future benefits, beginning of year 4,133 5,149
Benefits paid during the year
For retirements and departures from the Public Service (negative 741) (negative 401)
For Employees who opted to cash out their accumulated balances as per collective agreements (negative 14) (negative 261)
Expense for the year 896 (negative 354)
Obligation for employee future benefits, end of year 4,274 4,133
Current portion of obligation for employee future benefits (negative 951)
Long-term portion—obligation for employee future benefits 3,323 4,133

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 funds.

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.

Table summary

The table presents on a comparative basis the net liabilities. It consists of three columns: item descriptions, current year and previous year. Subtotals are displayed at accumulated surplus closing balance and totals are displayed at net liabilities end of year.

(in thousands of dollars)

  2016 2015
Accumulated surplus, beginning of year 93,263 87,448
Net results 12,362 8,705
Transfer of the transition payments for implementing salary payments in arrears (negative 12) (negative 2,890)
Accumulated surplus, end of year 105,613 93,263
Accumulated net charge against the Fund's authority, beginning of year (negative 173,041) (negative 171,416)
Net financial resources provided and change in the accumulated net charge against the Fund's authority during the year (negative 2,957) (negative 1,625)
Accumulated net charge against the Fund's authority, end of year (negative 175,998) (negative 173,041)
Net liabilities, end of year (negative 70,385) (negative 79,778)

8. Contractual obligations

CIPO leases its premises under occupancy instruments. An occupancy instrument is a formal agreement between the CIPO and Public Works and Government Services Canada recording the terms and conditions that govern the provision and occupancy of the accommodation. Expected future payouts are as follows:

Table summary

The table presents the total annual contractual obligations. The left hand column lists the years, and the right hand column lists the estimated future payments. The last row presents the totals for those years.

(in thousands of dollars)

2017 7,408
2018 7,428
2019 5,667
2020 79
Total 20,582

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 Revolving Fund. However, it did result in the use of authorities by the Revolving 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 Works and Government Services Canada, who is responsible for the administration of the Government pay system.

11. Comparative information

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

12. Change in accounting estimates

As a result of a change to the methodology used to calculate deferred revenues, an adjustment was made in 2015–2016 to reduce the long-term deferred revenues balance by $2,500,000 as at March 31, 2016.

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