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 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, 2017 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

Colette Downie
Chief Financial Officer
Innovation, Science & Economic Development Canada

May 26, 2017
Gatineau, Canada

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

(in thousands of dollars)

  2017 2016
EstimatesLink to footnote 1 Actual EstimatesLink to footnote 1 Actual
Net results (negative 5,309) 6,238 (negative 590) 12,362
Items not requiring use of funds 869 897 909 619
Operating source (use) of funds (negative 4,440) 7,135 319 12,981
Items requiring use of funds
Net tangible capital assets acquisitions (negative 14,561) (negative 7,426) (negative 9,362) (negative 3,147)
Net other assets and liabilities 42 (negative 6,205) 412 (negative 6,238)
Transition payments for implementing salary payments in arrears (negative 6) (negative 12)
Authority provided (used) (negative 18,959) (negative 6,502) (negative 8,631) 3,584

Reconciliation of unused authority (unaudited) as at March 31

(in thousands of dollars)

  2017 2016
Debit balance in the accumulated net charge against the Fund's authority 174,137 175,998
Payables charged against the appropriation at year-end (negative 16,141) (negative 11,312)
Receivables credited to the appropriation at year-end 826 282
Other items 5,666 6,022
Net authority provided, end of year 164,488 170,990
Authority limit 5,000 5,000
Unused authority carried forward 169,488 175,990

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, which comprise the statement of financial position as at March 31, 2017 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.

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 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, 2017 and the results of its operations and its cash flows 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 and the Deputy Minister of Innovation, Science and Economic Development 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 and the Treasury Board of Canada.

PricewaterhouseCoopers LLP
Chartered Professional Accountants,
Licensed Public Accountants

May 29, 2017
Ottawa, Canada

Statement of financial position as at March 31

(in thousands of dollars)

  2017 2016
Assets
Financial assets
Petty cash 2 3
Accounts receivable (Note 3) 2,577 936
Unbilled revenues 9,805 10,060
Subtotal 12,384 10,999
Non-financial assets
Prepaid expenses 454 339
Tangible capital assets (Note 4) 13,206 6,677
Total 26,044 18,015
Liabilities
Deposit accounts 3,225 3,263
Accounts payable and accrued liabilities (Note 5) 16,141 11,312
Vacation pay 3,654 3,403
Obligation for employee future benefits (Note 6) 3,507 4,274
Deferred revenues 61,809 66,148
Subtotal 88,336 88,400
Net liabilities (Note 7) (negative 62,292) (negative 70,385)
Total 26,044 18,015

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

(in thousands of dollars)

  2017 2016
Revenues 158,252 162,621
Operating expenses
Salaries and employee benefits 99,426 99,215
Professional services 38,153 34,330
Accommodation 7,569 7,441
Information 2,357 2,102
Materials and supplies 1,727 3,092
Repairs and maintenance 810 883
Amortization of tangible capital assets 680 619
Training 652 556
Freight and postage 529 599
Travel 487 462
Loss on disposal of tangible capital assets 217
Rentals 85 62
Communications 22 2
Provision for employee future benefits (negative 700) 896
Subtotal 152,014 150,259
Net results 6,238 12,362
Net liabilities, beginning of year (negative 70,385) (negative 79,778)
Net financial resources (provided) used and change in the accumulated net charge against the Fund's authority, during the year 1,861 (negative 2,957)
Transfer of the transition payments for implementing salary payments in arrears (note 10) (negative 6) (negative 12)
Net liabilities, end of year (negative 62,292) (negative 70,385)

Statement of cash flows for the year ended March 31

(in thousands of dollars)

  2017 2016
Operating activities
Net results 6,238 12,362
Items not requiring use of funds
Amortization of tangible capital assets 680 619
Loss on disposal of tangible capital assets 217
Subtotal 7,135 12,981
Variations in statement of financial position
Decrease (increase) in petty cash 1 (negative 1)
Decrease (increase) in accounts receivable (negative 1,641) (negative 99)
Decrease (increase) in prepaid expenses (negative 115) 38
Decrease (increase) in unbilled revenues 255 (negative 1,378)
Increase (decrease) in deposit accounts (negative 38) (negative 448)
Increase (decrease) in accounts payable and accrued liabilities 4,829 2,008
Increase (decrease) in vacation pay 251 167
Increase (decrease) in obligation for employee future benefits (negative 767) 141
Increase (decrease) in deferred revenues (negative 4,339) (negative 7,293)
Total variations in statement of financial position (negative 1,564) (negative 6,865)
Transition payments for implementing salary payments in arrears (negative 6) (negative 12)
Net financial resources provided by operating activities 5,565 6,104
Capital investing activity
Acquisitions of tangible capital assets (negative 7,426) (negative 3,147)
Net financial resources provided (used) and change in accumulated net charge against the Fund's authority, during the year (negative 1,861) 2,957
Accumulated net charge against the Fund's authority, beginning of year 175,998 173,041
Accumulated net charge against the Fund's authority, end of year (note 7) 174,137 175,998

Notes to the financial statements for the year ended March 31, 2017

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 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:

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
    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
    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

(in thousands of dollars)

  2017 2016
Government of Canada 826 282
Outside parties 1,751 654
Net accounts receivable 2,577 936

4. Tangible capital assets

(in thousands of dollars)

Cost Balance at
April 1, 2016
Acquisitions Transfers Disposals Balance at
March 31, 2017
Leasehold improvements 22,434 22,434
Informatics software 31,644 1,896 (negative 964) 32,576
Hardware 294 13 307
Machinery and equipment 158 158
Furniture 494 494
Asset under construction 6,046 7,413 (negative 2,054) (negative 217) 11,188
Subtotal 60,912 7,426 (negative 1,181) 67,157
Accumulated amortization Balance at April 1, 2016 Amortization   Adjustments Balance at March 31, 2017
Leasehold improvements 22,354 67 22,421
Informatics software 31,345 537 (negative 964) 30,918
Hardware 220 12 232
Machinery and equipment 14 14
Furniture 316 50 366
Asset under construction
Subtotal 54,235 680 (negative 964) 53,951
Net book value 2017 2016
Leasehold improvements 13 80
Informatics software 1,658 299
Hardware 75 74
Machinery and equipment 144
Furniture 128 178
Asset under construction 11,188 6,046
Subtotal 13,206 6,677

5. Accounts payable and accrued liabilities

(in thousands of dollars)

  2017 2016
Government of Canada 3,150 1,324
Outside parties 12,991 9,988
Total 16,141 11,312

6. Obligation for employee future benefits

(in thousands of dollars)

  2017 2016
Obligation for employee future benefits, beginning of year 4,274 4,133
Benefits paid during the year
For retirements and departures from the Public Service (negative 66) (negative 741)
For employees who opted to cash out their accumulated balances as per collective agreements (negative 1) (negative 14)
Expense for the year (negative 700) 896
Obligation for employee future benefits, end of year 3,507 4,274

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)

  2017 2016
Accumulated surplus, beginning of year 105,613 93,263
Net results 6,238 12,362
Transfer of the transition payments for implementing salary payments in arrears (negative 6) (negative 12)
Accumulated surplus, end of year 111,845 105,613
Accumulated net charge against the Fund's authority, beginning of year (negative 175,998) (negative 173,041)
Net financial resources (provided) used and change in the accumulated net charge against the Fund's authority during the year 1,861 (negative 2,957)
Accumulated net charge against the Fund's authority, end of year (negative 174,137) (negative 175,998)
Net liabilities, end of year (negative 62,292) (negative 70,385)

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)

2018 7,455
2019 5,663
2020 1,480
Total 14,598

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 Services and Procurement 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.

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