Government of Canada
Symbol of the Government of Canada

Future-Oriented Financial Statements
For the years ending March 31, 2013 and 2014

Statement of Management Responsibility for the Future-oriented Financial Statements

Responsibility for the compilation, content and presentation of the Future-oriented Financial Statements and accompanying notes for the years ending March 31, 2013 and 2014 rests with the Office of the Superintendent of Financial Institutions’ (OSFI’s) management, including the appropriateness of the underlying assumptions. These Future-oriented Financial Statements have been prepared by management based on the best information available and assumptions adopted as at December 19, 2012, in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The actual results achieved for the fiscal years covered in the accompanying Future-oriented Financial Statements will vary from the forecast information presented and these variations may be material.

The Future-oriented Financial Statements have not been audited.

Guy Arseneau
Chief Financial Officer

Julie Dickson
Superintendent of Financial Institutions

Ottawa, Canada
January 11, 2013

 

Future-oriented Statement of Financial Position
As at March 31, 2013 and 2014
(in thousands of Canadian dollars)
(Unaudited)

  Note 2014 2013
Assets
Current Assets
Cash Entitlement   $37,241 $42,870
Trade and Other Receivables, net 8, 9 11,460 9,093
Prepaid Expenses   824 824
Non Current Assets
Property, Plant and Equipment 10 5,925 5,469
Intangible Assets 11 14,650 9,736
Total Assets   $70,100 $67,992
Liabilities and Equity of Canada
Current Liabilities
Accrued Salaries and Benefits   $18,382 $17,355
Trade and Other Payables 9,19 6,715 6,372
Unearned Pension Plan Fees 19 5,186 5,186
Deferred Revenue 19 389 389
Employee Benefits – Sick Leave 13 4,066 3,785
Employee Benefits – Severance 13 832 692
Non Current Liabilities
Employee Benefits – Severance 13 9,542 9,225
    45,112 43,004
Equity of Canada
Contributed Surplus 20 28,327 28,327
Accumulated Deficit 20 (3,339) (3,339)
    24,988 24,988
Total Liabilities and Equity of Canada   $70,100 $67,992
Provisions 12    
Operating lease arrangements 17    

The accompanying notes form an integral part of these Future-oriented Financial Statements.

Guy Arseneau
Chief Financial Officer

Julie Dickson
Superintendent of Financial Institutions

 

Future-Oriented Statement of Operations and Total Comprehensive Income
For the years ending March 31, 2013 and 2014
(in thousands of Canadian dollars)
(Unaudited)

  Note 2014 2013
Regulation and Supervision of
Federally Regulated Financial Institutions
Revenue 14, 15 $128,183 $120,065
Expenses 14, 15 128,183 120,065
Administrative Monetary Penalties Revenue 16 200 145
Administrative Monetary Penalties Revenue Earned on Behalf of the Government   (200) (145)
Regulation and Supervision of
Federally Regulated Private Pension Plans
Revenue 14, 15 7,502 7,137
Expenses 14, 15 7,502 7,137
Net Results   - -
Actuarial Valuation and Advisory Services
Revenue 14, 15 6,704 5,937
Expenses 14, 15 7,613 6,846
Net Results   (909) (909)
Net Results of Operations Before Government Funding   (909) (909)
Government Funding 9 909 909
Net Results of Operations and Other Comprehensive Income   $ - $ -

The accompanying notes form an integral part of these Future-oriented Financial Statements.

 

Future-Oriented Statement of Changes in Equity
(in thousands of Canadian dollars)
(Unaudited)

  Contributed Surplus Accumulated Deficit Total
Equity at March 31, 2012 $28,327 ($3,339) $24,988
Net Results of Operations and Total Comprehensive Income - - -
Equity at March 31, 2013 28,327 (3,339) 24,988
Net Results of Operations and Total Comprehensive Income - - -
Equity at March 31, 2014 $28,327 ($3,339) $24,988

The accompanying notes form an integral part of these Future-oriented Financial Statements.

 

Future-Oriented Statement of Cash Flows
For the years ending March 31, 2013 and 2014
(in thousands of Canadian dollars)
(Unaudited)

  Note 2014 2013
Cash Flows from Operating Activities
Cash Receipts from Financial Institutions, Pension Plans and Other Government Departments   $143,646 $132,151
Cash Paid to Suppliers and Employees   (139,146) (129,491)
Administrative Monetary Penalties Revenue Remitted to the Consolidated Revenue Fund 16 (200) (145)
Net Cash Provided by Operating Activities   4,300 2,515
Cash Flows from Investing Activities
Acquisition of Property, Plant and Equipment 10 (3,845) (3,024)
Acquisition of Intangible Assets 11 (6,084) (5,702)
Net Cash Used in Investing Activities   (9,929) (8,726)
Net Decrease in Cash Entitlement   (5,629) (6,211)
Cash Entitlement, Beginning of the Year   42,870 49,081
Cash Entitlement, End of the Year   $37,241 $42,870

The accompanying notes form an integral part of these Future-oriented Financial Statements.

 

Notes to the Future-oriented Financial Statements
Years ending March 31, 2013 and 2014 (in thousands of Canadian dollars)
(Unaudited)

1. Authority and Objectives

Mandate

The Office of the Superintendent of Financial Institutions (OSFI) was established by the Office of the Superintendent of Financial Institutions Act (OSFI Act) in 1987. Pursuant to the Financial Administration Act (FAA), OSFI is a department of the Government of Canada for the purposes of that Act and is listed in schedule I.1 of the Act. The Government of Canada is OSFI’s parent and the ultimate controlling party of OSFI.

In 1996, OSFI subsequently received a legislated mandate that clarified its objectives in the regulation and supervision of federal financial institutions and private pension plans. In support of a safe and sound Canadian financial system, OSFI’s mandate under the legislation is to:

  • Supervise federally regulated financial institutions (FRFIs) and private pension plans to determine whether they are in sound financial condition and meeting minimum plan funding requirements respectively, and are complying with their governing law and supervisory requirements;
  • Promptly advise institutions and plans in the event there are material deficiencies and take, or require management, boards or plan administrators to take, necessary corrective measures expeditiously;
  • Advance and administer a regulatory framework that promotes the adoption of policies and procedures designed to control and manage risk;
  • Monitor and evaluate system-wide or sectoral issues that may impact institutions negatively.

The Office of the Chief Actuary provides a range of actuarial valuation and advisory services, under the Canada Pension Plan Act and the Public Pensions Reporting Act to the Canada Pension Plan (CPP) and some federal government departments, including the provision of advice in the form of reports tabled in Parliament.

Revenue and spending authority

Pursuant to Section 17 of the OSFI Act, the Minister of Finance may spend any revenues collected under Sections 23 and 23.1 of the OSFI Act to defray the expenses associated with the operation of OSFI. The Act also establishes a ceiling for expenses at $40 million above the amount of revenue collected.

OSFI’s revenues comprise assessments, service charges and fees. The expenses against which assessments may be charged include those in connection with the administration of the Bank Act, the Cooperative Credit Associations Act, the Green Shield Canada Act, the Insurance Companies Act, and the Trust and Loan Companies Act. The formula for the calculation of assessments is included in regulations.

Section 23 (2) of the OSFI Act provides that assessments may be charged for the administration of the Pension Benefits Standards Act, 1985 (PBSA, 1985). The assessments are set annually by regulation pursuant to Section 23 (2) of the OSFI Act.

Section 23.1 of the OSFI Act provides that the Superintendent may assess against a person a prescribed charge (“service charge”) and applicable disbursements for any service provided by or on behalf of the Superintendent for the person’s benefit or the benefit of a group of persons of which the person is a member. “Person” includes individuals, corporations, funds, unincorporated associations, Her Majesty in Right of Canada or of a province, and a foreign government. The service charges are detailed in the regulations.

Pursuant to Section 16 of the OSFI Act, Parliament provides annual appropriations to support the operations of the Office of the Chief Actuary.

2. Background Information

These Future-oriented Financial Statements were authorized for issue by the Superintendent of Financial Institutions on January 11, 2013. OSFI’s principal activities are described in Note 1. The head office is located at 255 Albert Street in Ottawa, Ontario, Canada.

3. Significant Assumptions

The Future-oriented Financial Statements have been prepared on the basis of the government priorities and the plans of the agency as described in OSFI’s 2013-2014 Report on Plans and Priorities. The significant assumptions are as follows:

  1. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience and trends, as well as known new requirements.
  2. OSFI’s full-time equivalent staffing level is forecast to increase by 7.4% in the year ending March 31, 2013 and 4.6% in the year ending March 31, 2014 to respond to risks emanating from the economy and regulatory reforms and to meet OSFI’s expanded mandate for oversight of the Canadian Mortgage Housing Corporation’s commercial activities.
  3. OSFI is making significant capital investments to upgrade its aging core infrastructure and applications, as part of the implementation of the Information Management/Information Technology Strategy approved in 2009-2010.
  4. The employee benefit rate in 2012-2013 is the rate prescribed by the Treasury Board Secretariat (TBS) at the beginning of the 2012-2013 fiscal year; while the rate for 2013-2014 is the rate provided by TBS for the 2013-2014 Annual Reference Level Update.
  5. The salary economic adjustment of 1.75% for 2012-2013 and 1.5% for 2013-2014 represents OSFI’s best estimates at the time these Future-oriented Financial Statements were prepared. OSFI’s collective agreements expired on March 31, 2011. Negotiations are in progress.
  6. The estimated results for the year ending March 31, 2013 include 6 months of actual results and 6 months of projected results. The forecast for the year ending March 31, 2014 reflects management’s most recent estimate based on the significant assumptions noted in this section, and OSFI’s business plans for 2013-2016. It also assumes that there will be no changes to OSFI’s funding model.

4. Variations and Changes to the Forecast Financial Information

While every attempt has been made to reasonably forecast results for the remainder of the year ending March 31, 2013 and for the year ending March 31, 2014, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing the Future-oriented Financial Statements, OSFI has made estimates and assumptions concerning the future. Subsequent actual results may differ from these estimates and judgments. Estimates and judgments 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:

  1. The timing and amounts of acquisitions of property, plant and equipment and intangible assets may affect amortization expense.
  2. Implementation of new collective agreements.
  3. Further changes to the operating budget to respond to risks emanating from the economy and regulatory reforms.
  4. Fluctuations in the discount rate used to calculate actuarial gain/loss on the severance and sick leave liabilities.

5. Basis of Preparation

The Future-oriented Financial Statements have been prepared on a historical cost basis, except for cash entitlement which has been measured at fair value.

The Future-oriented Financial Statements are presented in Canadian dollars because that is the currency of the primary economic environment in which OSFI operates.

Statement of compliance

The Future-oriented Financial Statements of OSFI have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), including International Accounting Standards prevailing at December 31, 2012.

6. Significant Accounting Policies

The principal accounting policies of OSFI are set out below:

a. Cash entitlement (Cash overdraft)

OSFI does not have its own bank account. The financial transactions of OSFI are processed through the Consolidated Revenue Fund (CRF) of Canada. Cash entitlement represents the maximum amount OSFI is entitled to withdraw from the CRF without further authority.

Through the Annual Reference Level Update (ARLU) estimates process, OSFI secures a revolving expenditure authority pursuant to Section 17.4 of the OSFI Act. This authority enables OSFI to draw up to $40 million from the Consolidated Revenue Fund to ensure availability of funds prior to receipt of revenue. Drawings on this facility are presented as cash overdraft.

No interest is earned or charged on these amounts.

b. Financial instruments

The classification of financial instruments is determined by OSFI at initial recognition and depends on the purpose for which the financial assets are acquired, or liabilities are incurred. All financial instruments are recognized initially at fair value. The fair value of financial instruments on initial recognition is based on the transaction price, which represents the fair value of the consideration given or received. Subsequent to initial recognition, financial instruments are measured based on the accounting treatment corresponding to their classification.

Classification

Accounting Treatment

Fair Value through Profit and Loss

Cash Entitlement is classified as “Fair Value through Profit and Loss”.

Cash Entitlement is measured at fair value.

Loans and Receivables

Trade and Other Receivables are classified as “Loans and Receivables”.

Loans and Receivables are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Subsequent to initial recognition at fair value, Loans and Receivables are measured at amortized cost using the effective interest method, less impairment. Any gain, loss or interest income is recorded in revenues or expenses depending on the nature of the loan and receivable that gave rise to the gain, loss or income.

Financial Liabilities measured at amortized cost

Accrued Salaries and Benefits, Trade and Other Payables, excluding employer’s contributions for employee benefit plans, and Unearned Pension Plan Fees are classified as “Financial Liabilities measured at Amortized Cost”.

Financial Liabilities measured at amortized cost are non‑derivative financial liabilities that have not been designated as Financial Liabilities at fair value through net results.

Subsequent to initial recognition at fair value, Financial Liabilities are measured at amortized cost using the effective interest method. Any gain, loss or interest expense is recorded in revenues or expenses depending on the nature of the financial liability that gave rise to the gain, loss or expense.

Impairment of financial assets

OSFI assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

For financial assets carried at amortized cost, OSFI first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If OSFI determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write off is later recovered, the recovery is credited to the Statement of Operations and Total Comprehensive Income depending on the receivable that gave rise to the initial impairment.

c. Property, plant and equipment

Property, plant and equipment is stated at historical cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Historical cost includes the costs of replacing parts of property and equipment when incurred, if the recognition criteria are met. Repair and maintenance costs are recognized in the Statement of Operations and Total Comprehensive Income as incurred.

Depreciation is recorded using the straight line method over the estimated useful lives of the assets as follows:

Assets

Useful Life

Leasehold improvements

Lesser of useful life or remaining term of the lease

Furniture and fixtures

7 years

Office equipment

4 years

Informatics hardware

3 or 5 years

Informatics infrastructure (Networks)

4 or 5 years

Informatics software

5 years

Software is capitalized as property, plant and equipment when the software is integral to the use of the related hardware.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate.

d. Intangible assets

Intangible assets consist of internally developed and externally purchased software that is not an integral part to the related hardware.

Following initial recognition of the development expenditure as an asset, the historical cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Intangible assets acquired separately are measured on initial recognition at cost. The cost of internally developed software consists of directly attributable costs necessary to create, produce, and prepare the software to be capable of operating in the manner intended by OSFI.

OSFI holds intangible assets that have finite lives and are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method is reviewed at least at each financial year end. Amortization is calculated using the straight line method over their estimated useful lives of five years and is recorded in the relevant expense line item depending on the business activity to which the expense pertains.

Amortization of the assets begins when development is complete and the assets are available for use. They are amortized over the period of expected future benefit.

Costs incurred during the pre-development stage are expensed in the period incurred.

e. Impairment of non financial assets

OSFI assesses at each reporting date whether there are any internal indicators that an asset may be impaired (e.g. damaged assets or assets no longer being used). If any indication exists, or when annual impairment testing for an asset is required, OSFI estimates the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s fair value less cost to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. There is no risk of not recovering the carrying amount of the asset given OSFI’s ability to recover all costs from Federally Regulated Financial Institutions and Federally Regulated Private Pension Plans.

For internally developed intangible assets not yet in use, OSFI performs an analysis on an annual basis in order to analyse its intention to use the assets and determine whether there are any indicators of impairment.

f. Employee benefits
i. Short-term benefits

Short-term benefits are recorded in the Statement of Operations and Total Comprehensive Income when an employee has rendered the service. Unpaid short-term compensated leave that has vested at the reporting date is accrued at year end and not discounted. Short-term compensated leave expected to occur within twelve months of the reporting date is classified as short-term employee benefits. OSFI contributes to the Government of Canada sponsored Public Service Health Care Plan and Dental Service Plan for employees.

ii. Post employment benefits

Pension benefits
Substantially all of the employees of OSFI are covered by the public service pension plan (the “Plan”), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in the year when employees have rendered service and represent the total pension obligation of OSFI.

Severance benefits
On termination of employment, employees are entitled to certain benefits provided for under their conditions of employment through a severance benefits plan. The cost of these benefits is accrued as the employees render their services necessary to earn severance benefits. The severance benefits are based upon the final salary of the employee.

The cost of benefits is actuarially determined as at March 31 of each year using the projected benefit method prorated on services. The obligation is unfunded. The calculation of the liability is based upon a current market discount rate which is based on the market yields at the valuation date on high quality corporate bonds and other actuarial assumptions, which represent management’s best long-term estimates of factors such as future wage increases and employee resignation rates. All actuarial gains (losses) are recognized in the Statement of Operations and Total Comprehensive Income in the period in which they arise.

Other benefits
The Government of Canada sponsors a variety of other benefit plans from which former employees may benefit upon retirement. The Public Service Health Care Plan and the Pensioners’ Dental Service Plan are the two major plans available to OSFI retirees. These are defined benefit plans sponsored by the Government of Canada. Contributions are required by OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to any past service or funding deficiencies of the Plan. Consequenlty, contributions are recognized as an expense in the year when employees have rendered service and represent the total obligation of OSFI with respect to these plans.

iii. Other long-term benefits

Sick leave
Employees are eligible to accumulate sick leave until retirement or termination. Unused sick leave is not eligible for payment on retirement or termination, nor can it be used as vacation. All sick leave is an accumulating non-vesting benefit. A liability is recorded for sick leave balances expected to be taken in excess of future allotments.

The cost of sick leave as well as the present value of the obligation is determined using an actuarial evaluation. Any gains and losses are recognized in net results in the period in which they arise.

g. Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under operating leases (net of any incentives received from the lessor) are charged to the Statement of Operations and Total Comprehensive Income on a straight-line basis over the period of the lease.

OSFI does not have borrowing authority and therefore cannot enter into lease agreements that are classified as finance leases. OSFI has established procedures to review all lease agreements and identify if the proposed terms and conditions would result in a transfer to OSFI of substantially all the benefits and risks incidental to ownership.

OSFI records the costs associated with operating leases in the Statement of Operations and Total Comprehensive Income in the period in which they are incurred.

h. Statement of Operations and Total Comprehensive Income

The format of the Statement of Operations and Total Comprehensive Income has been designed to show the revenues and expenses by each of OSFI’s business lines. It is considered that this format best represents the nature of the activities of OSFI. Expenses have been disclosed by nature in Note 15 of these Future-oriented Financial Statements.

i. Revenue recognition

OSFI recognizes revenue so as to recover its expenses. Any amounts that have been billed for which costs have not been incurred are classified as unearned revenue on the Statement of Financial Position. Revenue is recorded in the accounting period in which it is earned (service provided) whether or not it has been billed or collected. At the end of the period, amounts may have been collected in advance of the incurrence of costs or provision of services, alternatively, amounts may not have been collected and are owed to OSFI.

Base Assessments – Revenue from base assessments is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Base Assessments are billed annually based on an estimate of the current fiscal year’s operating costs (an interim assessment) together with a final accounting of the previous year’s assessment for actual costs incurred. Assessments are calculated prior to December 31 of each year, in accordance with Section 23(1) of the OSFI Act and the Assessment of Financial Institutions Regulations, 2001. Differences between billed estimates and actual costs incurred at the end of the period are recorded as accrued base assessment or unearned base assessment.

Cost-Recovered Services represent revenue earned from services not governed by specific regulation. These services are provided in accordance with the terms and conditions agreed to by the transacting parties. Revenue from cost-recovered services is recognized based on actual costs incurred and all costs are considered recoverable.

Pension Plan Fees are earned from registered pension plans. Fee rates are set annually by regulation based on budgeted expenses, pension plan membership and actual results from previous years. Pension plan fees are charged in accordance with Section 23(2) of the OSFI Act. Revenue from pension plan fees is recognized based on actual costs incurred as services are charged based on cost recovery and all costs are considered recoverable. Differences between the amounts billed to industry and actual cost incurred at the end of the period are recorded as accrued pension plan fees or unearned pension plan fees.

User Fees and Charges include revenue earned pursuant to the Charges for Services Provided by the Office of the Superintendent of Financial Institutions Regulations, 2002 – as amended from time to time – in respect of legislative approvals and approvals for supervisory purposes, and surcharges assessed to federally regulated financial institutions assigned a “stage” rating pursuant to the Guide to Intervention for Federal Financial Institutions. Assessment surcharges are charged in accordance with the Assessment of Financial Institutions Regulations, 2001. Revenue from user fees and charges is recognized by reference to the stage of completion of the service. Percentage of completion is measured based on actual services performed to date as a percentage of total services to be completed.

Administrative Monetary Penalties are penalties levied to financial institutions when they contravene a provision of a financial institutions Act and are charged in accordance with the Administrative Monetary Penalties (OSFI) Regulations. Penalties levied are not available to reduce the net costs that OSFI assesses the industry (i.e., they are non respendable) and are remitted to the Consolidated Revenue Fund when collected. OSFI assesses its Administrative Monetary Penalty revenue against specific criteria in order to determine if it is acting as principal or agent. OSFI has concluded that it is acting as a principal for Administrative Monetary Penalty revenue.

j. Provisions

Provisions are recognized when OSFI has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the Statement of Operations and Total Comprehensive Income. If the effect of the time value of money is material, provisions are discounted using a rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

k. Government funding

Government funding, including parliamentary appropriations, are recognized where there is reasonable assurance that the funding will be received and all attached conditions will be complied with. When the funding relates to an expense item, it is recognized as income over the period necessary to match the funding on a systematic basis to the costs that it is intended to compensate. The funding and the corresponding expense item are recognized at their gross amounts.

Services provided without charge from other government related entities are recorded at fair value.

7. Significant Accounting Judgments, Estimates and Assumptions

The preparation of OSFI’s Future-oriented Financial Statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Judgments

In the process of applying its accounting policies, management has made the following judgments which have the most significant effect on the amounts recognized in the Future-oriented Financial Statements:

Operating lease commitments – OSFI as lessee

Public Works and Government Services Canada (PWGSC) enters into commercial property leases for OSFI’s office space and recovers such cost from OSFI. OSFI also enters into leases for certain office equipment. OSFI has determined, based on an evaluation of the terms and conditions of the arrangements, that significantly all of the risks and rewards of ownership have not been transferred to OSFI and as such accounts for these contracts as operating leases.

Administrative monetary penalty revenue – OSFI as principal

OSFI collects administrative monetary penalties from financial institutions when they contravene a provision of a financial institutions Act. OSFI has determined that it is the principal in the arrangement and records the administrative monetary penalties as a revenue.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the Future-oriented Statement of Financial Position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Estimated useful lives of assets

The estimated useful lives of property, plant and equipment and intangible assets are based on management’s intentions with respect to the asset, historical experience with the asset, internal asset management plans and other factors as determined by management. The useful lives are reviewed on an annual basis and any revisions to the useful lives are accounted for prospectively.

Severance benefits

The cost of the defined benefit severance plan as well as the present value of the obligation is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salary increases, and departure rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discount rate management considers the interest rates of corporate bonds in Canada with an AAA or AA rating. Departure rates are based on experience from the public service of Canada and include mortality, disability, termination and retirement. Future salary increases and pension increases are based on expected future inflation rates in Canada.

Further details about the assumptions used are given in Note 13(a).

Sick leave

The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salary increases, usage rates, and departure rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discount rate management considers the interest rates of corporate bonds in Canada with an AAA or AA rating. Departure rates are based on experience from the public service of Canada and include mortality, disability, termination and retirement. Future salary increases are based on expected future inflation rates in Canada.

8. Trade and Other Receivables

The breakdown of forecast amounts owing to OSFI, by type, as at March 31, 2014 and 2013 is as follows:

  Federally Regulated Financial Institutions Federally Regulated Private Pension Plans Actuarial Valuation and Advisory Services Other Total
March 31,
2014
Trade Receivable $2,090 $753 $127 $233 $3,203
User Fees and Charges 3,161 - - - 3,161
Cost Recovered Services and Other - - - 371 371
Related Parties - - - 5,019 5,019
Trade and Other Receivables, gross 5,251 753 127 5,623 11,754
Allowance for Doubtful Accounts (39) (255) - - (294)
Trade and Other Receivables, net 5,212 498 127 5,623 11,460
% of Total Exposure 45.50% 4.30% 1.10% 49.10% 100.00%


  Federally Regulated Financial Institutions Federally Regulated Private Pension Plans Actuarial Valuation and Advisory Services Other Total
March 31,
2013
Trade Receivable $1,975 $712 $120 $220 $3,027
User Fees and Charges 3,867 - - - 3,867
Cost Recovered Services and Other - - - 352 352
Related Parties - - - 2,118 2,118
Trade and Other Receivables, gross 5,842 712 120 2,690 9,364
Allowance for Doubtful Accounts (32) (239) - - (271)
Trade and Other Receivables, net 5,810 473 120 2,690 9,093
% of Total Exposure 63.9% 5.2% 1.3% 29.6% 100.0%

OSFI records an allowance for doubtful accounts considering the age of an outstanding receivable and the likelihood of its collection. Provisions are also made where collection of the receivable is doubtful based on information gathered through collection efforts. An allowance is reversed once collection of the debt is successful or the amount is written off. Impairment losses on accounts receivable during the period ending March 31, 2013 are forecasted to be $57 (March 31, 2014 – $23).

An account receivable will be considered to be impaired and written off when OSFI is certain that collection will not occur and all requirements of the OSFI Act or the Debt Write Off Regulations, 1994 have been met. No interest is forecasted to be earned on impaired assets and no past due amounts are expected to be renegotiated. Those that are neither past due nor provided for or impaired are considered to be fully collectible.

9. Related Party Transactions

a. The ultimate parent

The Government of Canada is the ultimate parent of OSFI, and has control over OSFI.

b. Compensation of Key Management Personnel

Key Management Personnel includes the following positions: the Superintendent, Deputy Superintendent, Assistant Superintendents, the Chief Actuary and all Senior and Managing Directors or equivalent level positions at OSFI. Total compensation forecasted to be paid to key management personnel for the year ending March 31 is provided in the table below.

  2014 2013
Short-term employee benefits $13,172 $11,735
Post-employment benefits 5,232 4,538
Other long-term benefits 202 186
Total $18,606 $16,459
Average Number of Employees 49 46
c. Government related entities

OSFI is related, in terms of common ownership, to all Government of Canada departments, agencies and crown corporations. OSFI enters into transactions with these entities in the normal course of business and on normal trade terms. These transactions are measured at the exchanged amount, which is the amount of consideration established and agreed to by the related parties.

For the year ending March 31, 2013, OSFI forecasts purchases of goods and services of $30,045 (2014 - $31,491) and revenue of $8,814 (2014 - $12,439) from transactions with other government departments. Individually these transactions are in the normal course of business. Although most transactions are not individually significant, OSFI forecasts the following individually significant transactions:

Entity Nature March 31, 2013
Expense
March 31, 2014
Expense
March 31, 2013
Payable
March 31, 2014
Payable
Treasury Board Pension contributions and other employee benefits $20,581 $21,350 $1,048 $1,127
PWGSC Rent and other services $8,154 $8,520 $ - $ -

For the year ending March 31, 2013, the amounts of trade and other receivables, and trade and other payables from these related parties are forecasted to be $2,118 (2014 - $5,019) and $1,826 (2014 - $1,877), respectively.

OSFI receives an annual parliamentary appropriation pursuant to Section 16 of the OSFI Act to support its mandate relating to the OCA. OSFI was granted $909 for 2012-2013 and expects to be granted $909 for 2013-2014 which has been recognized into income and shown on the Statement of Operations and Total Comprehensive Income. There are no unfulfilled conditions or contingencies attached to this appropriation.

10. Property, Plant and Equipment

  Leasehold improvements Furniture and fixtures Office equipment Informatics hardware Informatics infrastructure Total
Cost
Balance at March 31, 2012 $7,165 $4,823 $915 $1,652 $3,048 $17,603
Additions 1,714 406 120 356 428 3,024
Balance at March 31, 2013 $8,879 $5,229 $1,035 $2,008 $3,476 $20,627
Additions 2,205 550 120 670 300 3,845
Balance at March 31, 2014 $11,084 $5,779 $1,155 $2,678 $3,776 $24,472
Accumulated depreciation
Balance at March 31, 2012 $5,297 $3,788 $358 $1,415 $1,349 $12,207
Depreciation expense 1,699 322 192 414 324 2,951
Balance at March 31, 2013 $6,996 $4,110 $550 $1,829 $1,673 $15,158
Depreciation expense 1,946 300 235 589 319 3,389
Balance at March 31, 2014 $8,942 $4,410 $785 $2,418 $1,992 $18,547
Net book value
Balance at March 31, 2012 $1,868 $1,035 $557 $237 $1,699 $5,396
Balance at March 31, 2013 $1,883 $1,119 $485 $179 $1,803 $5,469
Balance at March 31, 2014 $2,142 $1,369 $370 $260 $1,784 $5,925

None of the assets held have any restriction on title and none of the assets have been pledged as security for liabilities.

11. Intangible Assets

  Externally purchased software Internally developed software Internally developed software under development Total
Cost
Balance at March 31, 2012 $10,455 $1,756 $3,769 $15,980
Additions 283 - 5,419 5,702
Transfer to “in use” - 4,103 (4,103) -
Balance at March 31, 2013 $10,738 $5,859 $5,085 $21,682
Additions 174 - 5,910 6,084
Transfer to “in use” - 6,533 (6,533) -
Balance at March 31, 2014 $10,912 $12,392 $4,462 $27,766
Accumulated amortization
Balance at March 31, 2012 $9,302 $1,458 $ - $10,760
Amortization 736 450 - 1,186
Balance at March 31, 2013 $10,038 $1,908 $ - 11,946
Amortization 226 944 - 1,170
Balance at March 31, 2014 $10,264 $2,852 $ - $13,116
Net book value
Balance at March 31, 2012 $1,153 $298 $3,769 $5,220
Balance at March 31, 2013 $700 $3,951 $5,085 $9,736
Balance at March 31, 2014 $648 $9,540 $4,462 $14,650

The internally developed software under development will be assessed for impairment at March 31 of each year to determine whether an impairment should be recognized.

12. Provisions

In its normal course of operations, OSFI is involved in claims and litigation for which provisions are made to the extent determinable, in accordance with accounting policy note 6 (j).

13. Employee Benefits

a. Post-employment benefits
i. Pension benefits

Substantially all of the employees of OSFI are covered by the public service pension plan (the “Plan”), a contributory defined benefit plan established through legislation and sponsored by the Government of Canada. Contributions are required by both the employees and OSFI. The President of the Treasury Board of Canada sets the required employer contributions based on a multiple of the employees’ required contribution. The general contribution rate forecasted for the end of the year is 12.570% (2014 – 12.000%). Total contributions of $9,686 (2014 - $9,963) are expected to be recognized as an expense during the year.

The Government of Canada holds a statutory obligation for the payment of benefits relating to the Plan. Pension benefits generally accrue up to a maximum period of 35 years at an annual rate of 2 percent of pensionable service times the average of the best five consecutive years of earnings. The benefits are coordinated with Canada/Québec Pension Plan benefits and they are indexed to inflation.

ii. Severance benefits

Information about OSFI’s severance benefit plan is presented in the table below.

  March 31, 2014 March 31, 2013
Accrued Benefit Obligation, beginning of the year $9,917 $9,487
Current service cost 764 737
Interest cost 396 379
Benefits paid (692) (688)
Actuarial (gain)/loss (11) 2
Accrued Benefit Obligation, end of the year1 10,374 9,917
Current Portion of Accrued Benefit Obligation, end of the year 832 692
Long-term Portion of Accrued Benefit Obligation, end of the year 9,542 9,225
Accrued Benefit Obligation, end of the year1 10,374 9,917
Net Benefit Plan Expense    
Current service cost 764 737
Interest cost 396 379
Actuarial (gain) loss (11) 2
Benefit Expense $1,149 $1,118

1 The cost corresponding to annual changes in the accrued benefit liability is recovered from OSFI’s various sources of revenue outlined in Note 6(i) to the Future-oriented Financial Statements. Amounts collected in excess of benefits paid are presented on the Future-oriented Statement of Financial Position under the heading of Cash Entitlement.

Annually, as at March 31 of each year, OSFI obtains an actuarial valuation of its accrued benefit obligation. Actuarial assumptions are reviewed at each valuation date. The last annual valuation was completed as at March 31, 2012.

The significant actuarial assumption adopted in measuring OSFI’s accrued benefit obligation is a discount rate of 4.8%. For measurement purposes, management’s best estimate for the general salary increases to estimate the current service cost and the accrued benefit obligation as at March 31, 2014 is an annual economic increase of 1.5% for the plan years 2012 and 2013, 2.5% for 2014. Thereafter, an annual economic increase of 1.5% is assumed. The average remaining service period of active employees covered by the benefit plan is 13 years.

b. Other long-term benefits
i. Sick leave

Information about OSFI’s sick leave plan is presented in the table below.

  March 31,
2014
March 31,
2013
Accrued Benefit Obligation, beginning of the year $3,785 $3,505
Current service cost 426 415
Interest cost 153 142
Benefits paid (290) (262)
Actuarial (gain)/loss (8) (15)
Accrued Benefit Obligation, end of the year1 4,066 3,785
Net Benefit Plan Expense    
Current service cost 426 415
Interest cost 153 142
Actuarial (gain) loss (8) (15)
Benefit Expense $571 $542

1 The cost corresponding to annual changes in the accrued benefit liability is recovered from OSFI’s various sources of revenue outlined in Note 6(i) to the Future-oriented Financial Statements. Amounts collected in excess of benefits paid are presented on the Future-oriented Statement of Financial Position under the heading of Cash Entitlement.

Annually, as at March 31 of each year, OSFI obtains an actuarial valuation of its accrued benefit obligation. Actuarial assumptions are reviewed at each valuation date. The last annual valuation was completed as at March 31, 2012.

The significant actuarial assumption adopted in measuring OSFI’s accrued benefit obligation is a discount rate of 4.8%. For measurement purposes, management’s best estimate for the general salary increases to estimate the current service cost and the accrued benefit obligation as at March 31, 2014 is an annual economic increase of 1.5% for the plan years 2012 and 2013, 2.5% for 2014. Thereafter, an annual economic increase of 1.5% is assumed. The average remaining service period of active employees covered by the benefit plan is 13 years.

14. Revenue and Expenses by Business Activity

Revenue by Business Activity
March 31, 2014
  Base Assessments Cost-Recovered Services Pension Plan Fees User Fees and Charges Total
Regulation and Supervision of Federally Regulated Financial Institutions $118,635 $5,768 $ - $3,780 $128,183
Regulation and Supervision of Federally Regulated Private Pension Plans - - 7,502 - 7,502
Actuarial Valuation and Advisory Services - 6,704 - - 6,704
Total Revenue Earned from Respendable Sources $118,635 $12,472 $7,502 $3,780 $142,389


March 31, 2013
  Base Assessments Cost-Recovered Services Pension Plan Fees User Fees and Charges Total
Regulation and Supervision of Federally Regulated Financial Institutions $112,492 $3,030 $ - $4,543 $120,065
Regulation and Supervision of Federally Regulated Private Pension Plans - - 7,137 - 7,137
Actuarial Valuation and Advisory Services - 5,937 - - 5,937
Total Revenue Earned from Respendable Sources $112,492 $8,967 $7,137 $4,543 $133,139
Expenses by Business Activity
  2014 2013
Regulation and Supervision of
Federally Regulated Financial Institutions
Risk Assessment and Intervention $91,155 $85,175
Regulation and Guidance 25,288 24,190
Approvals and Precedents 11,740 10,700
Total 128,183 120,065
Regulation and Supervision of Federally Regulated Private Pension Plans 7,502 7,137
Actuarial Valuation and Advisory Services
Public Sector Pension and Insurance Programs 3,721 3,409
Canada Pension Plan and Old Age Security Program 2,682 2,235
Canada Student Loans Program 1,210 1,202
Total 7,613 6,846
Total Expenses $143,298 $134,048

15. Revenue and Expenses by Major Classification

  2014 2013
Revenue
Base Assessments $118,635 $112,492
Cost-Recovered Services 12,472 8,967
Pension Plan Fees 7,502 7,137
User Fees and Charges 3,780 4,543
Total Revenue Earned from Respendable Sources 142,389 133,139
Expenses
Human Resources 108,166 100,741
Information Management/Technology 13,869 13,205
Facilities 10,896 10,738
Administration 3,416 3,514
Travel 3,657 3,253
Professional Development 1,764 1,569
Professional Services 1,530 1,028
Total Expenses 143,298 134,048
Net Results of Operations before Government Funding and Non-Respendable Administrative Monetary Penalties Revenue (909) (909)
Government Funding 909 909
Administrative Monetary Penalties Revenue 200 145
Administrative Monetary Penalties Earned on Behalf of the Government (200) (145)
Net Results of Operations and Total Comprehensive Income $ - $ -
Average Number of Employees 667 637
Human Resources Expenses
  2014 2013
Wages and salaries $81,660 $75,136
Other benefits 13,476 13,263
Post-employment benefits other than Severance 9,963 9,686
Other Personnel Costs 1,918 1,538
Severance benefits 1,149 1,118
Total Human Resources Expenses $108,166 $100,741

16. Adminstrative Monetary Penalties

Administraive monetary penalties levied by OSFI are remitted to the Consolidated Revenue Fund. The funds are not available for use by OSFI and are not included in the balance of the Cash Entitlement. As a result, the penalties do not reduce the amount that OSFI assesses the industry in respect of its operating costs.

For the year ending March 31, 2013, OSFI is forecasted to levy $145 (2014 – $200) in administrative monetary penalties.

17. Operating Lease Arrangements

OSFI enters into operating lease agreements for office space and office equipment in four locations across Canada and contracts for services. These leases have an average life of between two and ten years with no renewal option included in the contracts. There are no restrictions placed upon OSFI when entering into these leases. The forecast minimum aggregate annual payments for future fiscal years can be reasonably estimated as follows:

  2014 2013
Within one year $5,333 $7,268
After one year but not more than five years 5,207 10,372
More than five years 384 552
Total $10,924 $18,192

18. Fair Value

OSFI’s financial instruments are primarily short-term and their carrying values approximate their fair values.

19. Financial Risk Management

OSFI’s financial liabilities include Accrued Salaries and Benefits, Trade and Other Payables and Unearned Pension Plan Fees. The main purpose of these liabilities is to provide short-term financing for OSFI’s operations. Financial assets include Cash Entitlement and Trade and Other Receivables.

OSFI is exposed to market risk, credit risk and liquidity risk, in connection with its financial instruments. OSFI’s risk exposures and its processes to manage these risks are not expected to change significantly for the years ending March 31, 2013 and March 31, 2014.

a. Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity risk. OSFI is exposed to currency risk on any amounts payable that are to be settled in a currency other than the Canadian dollar but is not exposed to interest rate risk nor to other price risk.

Currency risk – Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. OSFI’s exposure to the risk of changes in foreign exchange rates relates primarily to OSFI’s operating activities (when revenues or expenses are denominated in a currency other than the Canadian dollar).

OSFI manages its exposure to currency risk by structuring its contracts in Canadian dollars wherever possible. The majority of OSFI’s transactions are denominated in Canadian dollars; as such, OSFI’s exposure to currency risk for all years are expected to be insignificant.

There is no impact to revenues since all billings are done in Canadian dollars.

b. Credit risk

Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument, resulting in a financial loss. The maximum exposure OSFI has to credit risk as at March 31, 2013 is expected to be $9,093 (March 31, 2014 – $11,460) which is equal to the carrying value of its forecasted Trade and Other Receivables.

All federally regulated financial institutions and federally regulated private pension plans are required to register with OSFI and pay the base assessments and fees as established by OSFI. Any loss incurred by OSFI as a result of a counterparty not meeting its obligations is recorded in the year incurred and collected in the following year through assessments to the industry to which the balance pertains, as outlined in the OSFI Act. All remaining receivables are with other Canadian federal and provincial government organizations, where there is minimal potential risk of loss. OSFI does not hold collateral as security.

c. Liquidity risk

Liquidity risk is the risk that OSFI will encounter difficulty in meeting its obligations associated with financial liabilities. OSFI’s objective is to maintain sufficient Cash Entitlement through its collection of base assessments, fees, cost-recovered services and other charges in order to meet its operating requirements. OSFI manages liquidity risk through detailed annual planning and billing processes that are structured to allow for sufficient liquidity from one billing period to the next. OSFI’s objective is to accurately estimate its operating costs and cash requirements for the current year and to recover these through its interim base assessments, fees and other sources of revenue.

OSFI’s policy is to satisfy liabilities by the following means (in decreasing order of priority):

  • Disbursing payments from its Cash Entitlement account
  • Drawing on its revolving expenditure authority, pursuant to section 17.4 of the OSFI Act.

Drawings on this facility are forecasted to be $Nil as at March 31, 2013 (2014 - $Nil).

Refer to Note 1 for further information on OSFI’s authority and Note 6 (a) for further information on the accounting policies for its revolving spending authority.


20. Equity of Canada

Contributed SurplusOSFI was established on July 2, 1987 by the OSFI Act. OSFI was created through the merger of its two predecessor agencies – the Department of Insurance and the Office of the Inspector General of Banks. To help fund OSFI’s first year of operations and establish a pool of working capital necessary to support its annual assessment and expenditure cycle, OSFI was credited with the assessments that recovered the costs of its predecessors for the previous fiscal year. This amount is reflected as contributed surplus.

Accumulated Deficit – The accumulated deficit was created as part of OSFI’s transition to accrual accounting under Canadian generally accepted accounting principles (CGAAP) in fiscal 2000-2001. The transition to CGAAP accounts for $789 of the balance. On April 1, 2010 OSFI transitioned to IFRS from CGAAP which increased the accumulated deficit by $2,170. The balance as at March 31, 2011 increased by an additional $380 as a result of the operations for the year ended March 31, 2011 as determined under IFRS. The balance has not changed since March 31, 2011.

Capital ManagementOSFI includes Contributed Surplus and Accumulated Deficit, collectively entitled “Equity of Canada”, in its definition of capital. OSFI operates on a cost recovery basis. Its objective when managing capital is to closely manage actual costs to those estimated and communicated to its paying stakeholders. Any operating shortfall or excess is factored into the assessments and fees charged to regulated entities in the following year. OSFI fully recovers all of its costs incurred in the year.

OSFI is not subject to any externally imposed capital requirement.

OSFI’s capital management objectives, policies or processes during the years ending March 31, 2013 and 2014 are not expected to change.