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Future-Oriented Financial Statements and Notes 2012-2013

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Foreign Affairs and International Trade Canada

Year ended March 31

Statement of Management Responsibility

Departmental management is responsible for these future-oriented financial statements, including responsibility for the appropriateness of the assumptions on which these statements are prepared. These statements have been prepared in accordance with Treasury Board Accounting Standard 1.2 and are based on the best information available as at March 1, 2012. Assumptions adopted are consistent with amounts reported in Part 2 of the Main Estimates and reflect the plans described in the Report on Plans and Priorities (RPP).

Estimated results for 2011-12 and forecasted results for 2012-13 are based on current year forecasted information and planned spending, submitted as part of the 2012-13 Annual Reference Level Updates (ARLU) and subsequently approved Treasury Board submissions. The forecasted plans do not take in consideration any Budget 2012 items.

The actual results achieved for the fiscal years covered in the accompanying Future-Oriented Financial Statements will vary from the information presented. Actual results will be reported in the Departmental unaudited financial statements for both 2011-12 and 2012-13 respectively.

Louis Lévesque
Deputy Minister of International Trade
Ottawa, Canada
Date:

Morris Rosenberg
Deputy Minister of Foreign Affairs
Ottawa, Canada
Date:

Nadir Patel
Chief Financial Officer
Ottawa, Canada
Date:

FUTURE ORIENTED STATEMENT OF OPERATIONS (UNAUDITED)

Segmented information (Note 11)

The accompanying notes form an integral part of these future-oriented financial statements.

The accompanying notes form an integral part of these future-oriented financial statements.

The accompanying notes form an integral part of these future-oriented financial statements.

The accompanying notes form an integral part of these future-oriented financial statements.

1. Authority and Objectives

The Department of Foreign Affairs and International Trade (hereinafter called “the Department”) operates under the legislation set out in the Department of Foreign Affairs and International Trade Act, RSC 1985, c. E-22.

The 2012-2013 Report on Plans and Priorities (RPP) is based on the Department’s Program Activity Architecture (PAA), as approved by Treasury Board (TB). The PAA consists of three strategic outcomes supported by seven program activites, as well as Internal Services, which support all program activities and strategic outcomes. In short, the strategic outcomes indicate the longterm, enduring benefits for Canadians generated by the Department, as follows:

Strategic Outcome #1: Canada's International Agenda: The international agenda is shaped to Canada's benefit and advantage in accordance with Canadian interests and values.

• Program Activity #1: International Policy Advice and Integration - providing strategic direction, intelligence and advice, including integration and coordination of Canada’s foreign and international economic policies.
• Program Activity #2: Diplomacy and Advocacy - engaging and influencing international players and delivering international programs and diplomacy.

Strategic Outcome #2: International Services for Canadians: Canadians are satisfied with commercial, consular and passport services.

• Program Activity #3 : International Commerce - managing and delivering commerce services and advice to Canadian business.
• Program Activity #4 : Consular Services and Emergency Management - managing and delivering consular services and advice to Canadians.
• Program Activity #5 : Passport Canada - managing and delivering passport services to Canadians through the use of the Passport Canada Revolving Fund.

Strategic Outcome #3: Canada’s International Platform: The Department maintains a network of infrastructure and services to enable the Government of Canada to achieve its international priorities.

• Program Activity #6: Governance, Strategic Direction and Common Services Delivery - managing and delivering services and infrastructure at headquarters and missions to enable Canada’s representation abroad.
• Program Activity #7: Government of Canada Benefits - managing of statutory payments to Government of Canada employees abroad.

Internal Services are the combination of process- and service-related activities that make possible all of the Department’s operations. Overall, Internal Services enable the Department to carry out its mandated functions toward the achievement of its strategic outcomes.

2. Methodology and significant assumptions

The future-oriented financial statements have been prepared on the basis of the government priorities and the plans of the department as described in the Report on Plans and Priorities.

The main assumptions are as follows:

a) The Department's activities, will remain substantially the same as the previous year.

b) The Estimated Results for 2012 are derived from the actuals as at December 31, 2011, plus forcasted results for the last quarter.

c) Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue.

d) Allowances for uncollectability are based on historical experience. The general historical pattern is expected to continue.

e) Gains and losses from foreign exchange revaluation, are unpredictable. As such, these gains and losses have been excluded.

f) Estimated year end information for 2011-12 is used as the opening position for the 2012-13 planned results.

These assumptions are adopted as at March 1, 2012.

3. Variations and Changes to the Forecast Financial Information

While every attempt has been made to forecast final results for the remainder of 2011-12 and for 2012-13, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing these future-orientd financial statements, the Department has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the future-oriented financial statements and the historical financial statements include, but is not limited to:

a) The timing and amounts of acquisitions and disposals of property, plant and equipment may affect gains/losses and amortization expense.

b) Implementation of new collective agreements.

c) Economic conditions may affect both the amount of revenue earned and the collectability of receivables.

d) Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

e) Budget announcements planned for March 29, 2012.

f) Emergency response to possible natural disasters, hostile actions or civil unrest.

Once the RPP is presented, the Department will not be updating the forecasts for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report (DPR).

4. Summary of Significant Accounting Policies

The future-oriented financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

(a) Parliamentary authorities

The Department is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items presented in the Future-oriented Statement of Operations and the Future-oriented Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. A reconciliation between the basis of reporting is provided in note 5.

(b) Consolidation

These future oriented financial statements include the accounts of Passport Canada. These accounts have been consolidated with those of the Department and all inter-organizational balances and transactions have been eliminated.

(c) Net Cash Provided by Government

The Department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the department is deposited to the CRF and all cash disbursements made by the department 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 Government.

d) Due from the CRF

This is the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the Department is entitled to draw from the CRF without further parliamentary expenditure authorities to discharge its liabilities.

(e) Revenues

Revenues are recorded on an accrual basis:

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
• Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
• Funds that have been received are recorded as deferred revenue, provided the department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
• Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenues.

(f) Expenses

Expenses are recorded on an accrual basis:

• Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the future-orientd financial statements;
• Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement, provided that the transfer is authorized and a reasonable estimate can be made;
• Vacation pay and compensatory leave are accrued as the benefits are accrueed under the respective terms of employment;
• Services provided without charge by other government departments for accommodation, the employer contributions to the health and dental insurance plans, legal services and worker's compensation are recorded as operating expenses at their estimated cost.

(g) Employee future benefits

(i) Pension benefits: Eligible Canada-based staff (CBS) participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor. Current legislation does not require the Department to make contributions for any actuarial deficiencies of the plan. Eligible locally engaged staff (LES) participate in a combination of plans developed and administered based on local law and practice, or in a worldwide pension scheme which is administered at the Department's headquarters.

(ii) Severance benefits: Employees (CBS and LES) 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 CBS 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. The LES obligation is established on the basis of operational requirements of the mission, local laws or practice and is calculated based on the number of eligible employees multiplied by the estimated severance payment based on historical experience.

(h) Cash in transit

Cash for the Department consists of the funds in transit from missions and funds received and not yet deposited, partially offset by credits in imprest accounts. This cash is for the faciliation of operations. All foreign currency accounts are valued at the rate of exchange in effect on March 31.

(i) Accounts receivables

Accounts receivables are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.

(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 future-oriented financial statements.

(k) Prepaid expenses

Prepaid expenses for the Department consist primarily of rent payments. Prepaid expenses are accounted for as non-financial assets until the related services are rendered or goods are consumed.

(l) Inventories

Inventories consists of parts, material and supplies held for future program delivery and not intended for resale, as well as inventory for sale. Inventories of material and supplies are valued at the lower of cost (using the average cost) or net realizable value.

(m) Tangible capita

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. The Department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, and assets located in museum collections.

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the assets. The amortization periods are as follows:

5. Parliamentary Authorities

The Department receives most of its funding through expenditure authorities provided by Parliament. Items recognized in the Future-oriented Statements of Operations and Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

Forcasted Authorities requested for year ending March 31, 2013 are the planned spending amounts presented in the 2012-13 Report on Plans and Priorities ($3,075.8 million), excluding net voted revenues ($356.9 million). Authorities presented reflect current forecasts of statutory items, approved initiatives included and expected to be included in Estimates documents and, when reasonable estimates can be made, estimates of amounts to be allocated from Treasury Board central votes.

6. Accounts Receivable and Advances

7. Tangible capital assets

8. Accounts payable and accrued liabilities

9. Employee Future Benefits

(a) Pension benefits:

The Department's Canada Based Staff (CBS) participate in the Public Service Pension Plan, which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2 percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Quebec Pension Plans benefits and are indexed to inflation.

Both the employees and the Department contribute to the cost of the Plan. The forecasted expenses are $88,181,337 in 2012 and $84,036,814 in 2013, which represents approximately 1.9 times the contributions by employees.

The Department's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

Locally engaged staff (LES) participate in a combination of pension plans developed and administered based on local law and practice, or in the worldwide pension scheme which is administered at the Department's headquarters. The Government of Canada is the sponsor of all plans which may be defined contribution, defined benefit and either prefunded or pay-as-you-go. The forecasted expenses are $23,673,493 in 2012 and $20,685,387 in 2013.

(b) Severance benefits:

The Department provides severance benefits to its employees based on eligibility, years of service and final salary. The severance benefit liability for Canada-based staff is based on a percentage provided by Treasury Board, applied to the eligible payroll as at March 31. Treasury Board determines the percentage based on an actuarial evaluation of the future liability for the entire governments eligible employees. For locally engaged staff, the liability is based on historical data whereby an average severance payment per locally engaged staff is calculated. This cost is multiplied by the total number of eligible locally engaged staff and a layoff/payout rate. These severance benefits are not pre-funded. Benefits will be paid from future appropriations. Information about the severance benefits, measured as at March 31, is as follows:

The CBS severance benefits liability amounts to $23 million whereas the LES liability is $80 million for 2013 ($58 million and $81 million for 2012).

10. Related party transactions

The Department is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Department enters into transactions with these entities in the normal course of business and on normal trade terms. Also, during the year, the Department received services which were obtained without charge from other Government departments as follows:

(a) Common services provided without charge by other government departments

During the year, the Department is forecasted to receive without charge from other departments, accommodation, legal fees, workers’ compensation coverage and the employer's contribution to the health and dental insurance plans. These services without charge have been recognized in the Department's Future-Oriented Statement of Operations as follows:

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the Department’s future-oriented statement of operations.

(b) Administration of programs on behalf of other government departments

The Department has a number of memorandums of understanding (MOUs) with partner departments for the administration of unique, in year programs delivered abroad. At the date of preparation of these future oriented financial statements, the Department

plans to incur expenses of $163,000,000 for operational and program activities on behalf of our partner departments. The Department also plans to collect $230,000,000 in revenues on behalf of our partner departments as of the date of preparation of these statements. These expenses and revenues are not reflected in these Future-Oriented Financial Statements, but rather in the Financial Statements of the respective government departments.

11. Segmented information

12. Transfer to Shared Services Canada

Effective November 15, 2011, the Department transferred the responsibility for the operation and support of the MITNET global telecommunications network and voice, data and video communications to Shared Services Canada in accordance with Order-in- Council 2011-1297. The revenues and expenses related to the transfer of employees and financial resources have been deducted from the Estimated and Planned results within the Statement of Operations. The actual amount of assets and liabilities transferred as of March 31, 2012 will be disclosed in the 2011-12 Departmental Financial Statements.

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Date Modified:

2013-03-18