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Section III—Financial Performance

Parliamentary appropriations used

In 2006–07, the Office used $77.8 million of the $78.6 million in parliamentary appropriations approved. As a result, the Office lapsed $0.8 million in 2006–07 ($2.8 million in 2005–06). The $78.6 million is comprised of $73.8 million in Main Estimates and a further $4.8 million in Supplementary Estimates and adjustments and transfers. The $4.8 million was routine in nature, including mainly carry-forward funding ($3.1 million) and various salary related entitlements, such as salary increases ($1.7 million).

Like government departments and agencies, subject to parliamentary approval, the Office may carry forward lapsed amounts of up to five percent of its operating budget (based on Main Estimates program expenditures) into the next fiscal year.

Cost of operations

In 2006–07, the net cost of operations for the Office was $90.3 million, as reported in our audited financial statements. This increase of $5.0 million (5.9 percent) from 2005–06 is largely due to an increase in salary and benefits of about $4.0 million (6.3 percent). The increased salary costs are due to a higher number of employees in 2006–07 and the annual economic increases. Refer to note 7 of the financial statements.

Full-time equivalents used

The Office used 610 full-time equivalent (FTE) employees in 2006–07, which represented 102.5 percent of our budget of 595 FTEs. The number of FTE employees is higher than budgeted because the Office hired additional staff to work on new audits without requesting additional funding for 2006–07, pending determination of our increased resource requirements. Additional staff were also hired in anticipation that a higher rate of turnover would continue and because recruiting some of these resources, particularly accounting professionals, was becoming increasingly difficult. This is an increase of 33 in the number of FTE employees used from last year. In 2005–06, we used 577 FTE employees, representing 98 percent of our budget of 590 FTE employees.

As of 31 March 2007, the Office had 623 employees. This is higher than the 610 FTE employees used in 2006–07 because employee turnover and the employment of students and part-time staff results in the use of less than a full FTE per person.

Activities and operations

During 2006–07, the Office

• tabled 30 performance audits of federal departments and agencies and one related report;
• tabled 2 performance audits relating to the monitoring of sustainable development activities and the environmental petitions process;
• tabled 2 performance audit reports with territorial legislative assemblies;
• performed more than 100 financial audits, including those of the financial statements of the Government of Canada, Crown corporations, territorial governments and other organizations;
• completed 4 special examinations of Crown corporations, and
• assessed the performance reports of 3 federal government agencies.

Analysis by subactivity

The 2006–07 Report on Plans and Priorities was based on planned spending of $83.5 million. We have since received parliamentary approval and revised our planned spending (forecast spending) to $86.7 million in our 2007–08 Report on Plans and Priorities. Both 2006–07 actual and revised planned spending are presented in Table 4—Financial and human resources and subactivities.

We manage costs at an Office-wide level and at an individual audit level. Audit budgets are established for planned hours and planned costs of work. All direct salary, professional service, travel, and other costs associated with the delivery of individual audits and professional practice projects are charged directly to them. All other Office expenses, including corporate services and services provided without charge, are treated as overhead and allocated to audits and professional practice projects based on the direct hours charged to them. The hours used on individual audits have the most significant impact on audit costs.

The largest increase in the costs of subactivities was for the financial audits of Crown corporations, territorial governments, and other organizations ($3.1 million), followed by the performance audits ($1.4 million), and monitoring sustainable development activities and the environmental petitions process ($0.4 million). The largest decrease in the costs of subactivities was for the special examinations of Crown corporations ($0.3 million). These variances between current and prior year subactivity costs are based on the Statement of Operations in our audited financial statements.

Performance audits and studies

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Performance audits and studies	44.0	43.9	42.6

Overall, the level of effort in this subactivity is comparable with last year's effort. The higher costs ($1.4 million) are mostly due to slightly higher salary costs resulting from the economic increases. Most of our performance audits are done across two fiscal years. The costs incurred in the reporting period include a portion of the costs of audits reported in the fiscal year as well as costs incurred for audits scheduled to be reported in future fiscal years.

In addition to our performance audit chapters on federal government programs, the performance audits and studies subactivity includes performance audits for territorial legislative assemblies. This year, we invested more time on this type of work and we plan to continue this increased level of investment in future years. The additional work for territorial legislative assemblies was offset this year by a reduction in other types of work included in this subactivity, such as gaining knowledge of entities' business activities and risk assessment work done through the Office's one-pass planning process.

Financial audits of Crown corporations, territorial governments, and other organizations

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Financial audits—Crown corporations, territorial governments, and other organizations	26.6	24.1	23.5

Year-over-year variance

The financial audit work experienced the largest increase in total costs of our product lines ($3.1 million). The increase was mostly due to new audit work ($2.0 million) and to additional work on certain audits that had been delayed ($1.5 million). Included in these increases are higher salary costs of about $0.5 million. These increases were offset by a reduction in the audits of international organizations due to the completion of the Office's mandate for the United Nations Educational Scientific and Cultural Organization (UNESCO) biennial audit ($0.35 million). Although we had planned to achieve efficiencies on some of our audits, these were offset by the impact of new accounting standards and other audit issues, particularly on our larger financial institution-type Crown corporations and entities in Nunavut.

Variance from budget

We began and/or completed new audits under existing legislation and changes to our mandate, including the audits of a number of entities, such as the Canada Post Corporation (joint audit), the National Research Council, the Public Service Commission, the Public Sector Pension Investment Board (joint audit), and the opinions to provincial governments on control procedures at the Canada Revenue Agency. In setting our budgets, we underestimated the complexity, the level of audit effort, and the support needed from the entity for these engagements. This resulted in an impact of about $0.5 million.

We substantially increased our efforts to complete a number of territorial audits that had experienced delays, related primarily to entity readiness. The extent of the additional work was not fully recognized at the time our budgets were established, and it had an impact of about $1.1 million on the most-affected audits.

Over the last few years, we have been required to do a substantial amount of additional work due to the impact of rapidly changing accounting and auditing standards. The impact of these new requirements affects all entities to some degree, but the most significant impact is on the audits of financial institution-type Crown corporations. We were not able to achieve efficiencies to offset these additional new costs, which had an unplanned impact of about $1.0 million.

Audit of the summary financial statements of the Government of Canada

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Audit of the summary financial statements of the Government of Canada	4.7	4.8	4.8

The costs of this subactivity include the audit of the summary financial statements of the Government of Canada and the related audit work on the assessment of financial controls in departmental and management information systems. While the overall costs related to the audit of the summary financial statements were less than the previous year and less than budgeted, there are two key components that make up this work.

The first is the year-end work on the summary financial statements, where costs increased this year as a result of additional auditing requirements related to some entities and additional costs for new staff to gain knowledge of the entities under audit. The second key component of this work is our assessment of financial controls, where we invested less time because federal departments are conducting their own assessments and our resources were allocated to other Office priorities, which offset the increase in the cost for the year-end work.

Special examinations of Crown corporations

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Special examinations of Crown corporations	4.3	3.9	4.6

The total cost of conducting special examinations of Crown corporations varies depending on the number of examinations under way each year; the nature, size, and complexity; and the risk levels of the corporations being examined. As part of the five-year audit cycle, there are cyclical peaks and valleys. In 2006–07, we completed the last special examinations of the fourth cycle and began work on the fifth cycle. This resulted in a planned decrease in the workload. However, the total cost for the special examination subactivity is higher than expected because significant deficiencies were found during the special examination of the Canadian Air Transport Security Authority, which required more time than had been planned. The advancement of target reporting dates for special examinations also resulted in additional audit effort in 2006–07.

In 2006–07, we worked on 12 special examinations of which 4 were completed, compared with the 14 we worked on in 2005–06 of which 10 were completed.

Sustainable development monitoring activities and environmental petitions

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Sustainable development monitoring activities and environmental petitions	2.8	2.2	2.4

This work includes auditing sustainable development strategies, coordinating the petitions process, monitoring departmental responses, and auditing actions taken by departments in relation to specific petition responses. The cost of this subactivity was higher than planned ($0.6 million) because some audit work was advanced and the scope of the work was increased, which resulted in costs being higher than originally planned. This also resulted in higher costs than last year ($0.4 million). The additional work includes an assessment of whether sustainable development strategies are realizing their full potential and a description of the impact of petitions on the federal management of environmental issues.

Assessment of agency performance reports

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Assessment of agency performance reports	1.1	1.1	1.1

The cost required to complete this audit work is the same as last year. The Office is required under legislation to assess the fairness and reliability of performance information included in the annual reports of three government agencies—the Canadian Food Inspection Agency, the Canada Revenue Agency, and Parks Canada Agency.

Professional practices

($ millions)	2006–07		2005–06
	Actual costs	Budget	Actual costs
Professional practices	7.5	7.3	7.4

In 2006–07, our total costs for professional practices were similar to 2005–06. Note 8 of the audited financial statements provides a comparative breakdown of expenses by type for 2006–07 and 2005–06. There was a slight increase in the cost of our international activities and in standard-setting activities.

• The increase in the cost of international activities is the result of a higher level of effort than planned, as part of our role as Chair and Secretariat of the International Organization of Supreme Audit Institutions (INTOSAI) Working Group on Environmental Auditing. Our role as Chair and Secretariat of the Working Group will end in October 2007.
• As the number of accounting and auditing standards issued continue to increase, the cost of participating in standard-setting activities also increases. The new standards have an impact on our audit responsibilities. We comment on proposed new standards, and a number of our senior officials are members of standard-setting bodies.

Financial tables

Table 1—Comparison of planned to actual spending (including full-time equivalents)
($ millions)	2004–05	2005–06	2006–07
	Actual	Actual	Main Estimates	Planned spending	Total authorities	Total actuals
Legislative auditing	72.0	76.8	73.8	73.8	78.6	77.8
Less: Non-respendable revenue1	(1.1)	(1.1)	(0.5)	(0.5)	(0.7)	(0.7)
Plus: Cost of services received without charge	10.1	9.9	10.2	10.2	11.0	11.0
Net cost of program	81.0	85.6	83.5	83.5	88.9	88.1
Full-time equivalents	570	577		595		610
1 The Office charges fees to recover direct costs for the audits of the International Civil Aviation Organization (ICAO) and the United Nations Educational, Scientific and Cultural Organization (UNESCO). These fees represent the major source of non-respendable revenue.

 

Table 2—Voted and statutory items
($ millions)		2006–07
Vote or statutory item	Vote or statutory wording	Main Estimates	Planned spending	Total authorities1	Total actuals
20	Program expenditures	65.0	65.0	69.7	68.9
(S)	Contributions to employee benefit plans	8.8	8.8	8.9	8.9
	Total	73.8	73.8	78.6	77.8
1 The difference between Main Estimates and total authorities represents Supplementary Estimates, adjustments and transfers.

 

Table 3—Services received without charge
($ millions)		2006–07 actual spending
Accommodations provided by Public Works and Government Services Canada		6.7
Contributions covering the employer's share of employees' insurance premiums and expenditures paid by the Treasury Board of Canada Secretariat (excluding revolving funds)		4.3
Total 2006–07 services received without charge		11.0

 

Table 4—Financial and human resources and subactivities
Financial resources ($ millions) 2006–07
Forecast spending1	Total authorities	Actual spending
$86.7	$88.9	$88.1
Human resources (full-time equivalents) 2006–07
Planned	Actual	Difference
595	610	15
Program activity: Legislative auditing ($ millions)
Subactivities2	Forecast spending 2006–07	Actual spending 2006–07
Performance audits and studies	$43.9	$44.0
Financial audits of Crown corporations, territorial governments, and other organizations	24.1	26.6
Audit of the summary financial statements of the Government of Canada	4.8	4.7
Special examinations of Crown corporations	3.9	4.3
Sustainable development monitoring activities and environmental petitions	2.2	2.8
Assessments of agency performance reports	1.1	1.1
Professional practices	7.3	7.5
Sub-total	87.3	91.0
Less: Non-respendable revenue	(0.6)	(0.7)
Net cost of operations reported in our financial statements		90.3
Differences due to accrual accounting (GAAP)3		(2.2)
Net cost of program	$86.7	$88.1
1 Forecast spending is as reported in the 2007—08 Report on Plans and Priorities. 2 We have allocated the cost of audit services to each subactivity. 3 The net cost of operations reported in our audited financial statements, prepared in accordance with Canadian generally accepted accounting principles (GAAP), is $90.3 million, or $2.2 million more than the net cost of program reported above. The difference is due to the accounting treatment and the funding of capital assets, employee benefits, and prepayments.

 

Table 5—Contracting activity for professional services
	Original contracts for less than $25,0001			Original contracts for $25,000 or more1
	($ thousands)	Number	Percentage	($ thousands)	Number	Percentage
Competitive contracts	56	4	1	1,461	22	96
Non-competitive contracts	4,490	528	99	93	1	4
Total	4,546	532	100	1,554	23	100
1Fees only, excluding GST and expenses. All contracts for professional services and procurement of goods and other services awarded by the Office with values over $10,000 (with GST) are reported on our Web site. Table 5 highlights the Office's contracting activity for professional services in 2006. The Auditor General's power to enter into contracts for professional services is governed by subsection 15(2) of the Auditor General Act. The Auditor General's policy on contracting for professional services requires that contracts for estimated professional fees of $25,000 or more be awarded through competition, unless they meet one of the three criteria for exemption: the need is one of pressing urgency, it is not in the public interest to solicit bids due to the nature of the work, or there is only one person capable of performing the work. For contracts with a value close to $25,000, the principle of best value is used to select a contractor. Contract managers are required to contact other consultants prior to making a selection. Contracts that exceed the North American Free Trade Agreement (NAFTA) threshold follow NAFTA rules. In 2006, the majority of contracts were awarded by the Office on a noncompetitive basis. Eighty percent of these contracts had original values of $15,000 or less. In 2006, we awarded one contract for $92,700 on a noncompetitive basis for legal advice related to an audit. Of the 22 competitive contracts greater than $25,000, 8 were for contracts for language training services awarded as a result of a Request For Standing Offer advertised through the MERX system.

 

Table 6—Travel and hospitality expenses
Disclosure of the travel and hospitality expenses for the Auditor General, the Deputy Auditor General, the Commissioner of the Environment and Sustainable Development, and the Assistant Auditors Generals is available on our website under About Us. The Office follows the Treasury Board Travel Directive, rates, and allowances, and the Treasury Board Hospitality Policy.

 

Table 7—Office memberships1
($ thousands)	2006–07
CCAF-FCVI Inc.	380.0
Conference Board of Canada	14.8
Association of Professional Executives of the Public Service of Canada	8.5
Head of Federal Agencies Secretariat	6.0
Public Policy Forum	5.5
Association des institutions supérieures de contrôle ayant en commun l'usage du français	4.0
International Organization of Supreme Audit Institutions (INTOSAI)	3.9
1 The Office participates and supports professional organizations related to its legislative auditing program. The Office also pays individual employee membership fees to a variety of professional organizations.

 

Table 8—Compensation and benefits
The following is a summary of compensation and selected benefits paid to the Office employees by level. Office employees receive benefits comparable to other federal government employees, which are not included in this table.
Position	FTEs1	Salary ($)	Bilingual bonus ($)	Performance pay ($)	Automobile2 ($)	Club membership3 ($)	Total ($)
Auditor General	1	291,1004			2,475	579	294,154
Deputy Auditor General	1	192,410–230,320		0–18,200			192,410–248,520
Assistant auditors general and Commissioner of the Environment and Sustainable Development	12	136,825–181,045		0–18,200		579	136,825–199,824
Senior principals	5	109,020–157,945		0–15,800			109,020–173,745
Principals	55	109,020–140,610		0–14,100			109,020–154,710
Senior directors	1	85,075–126,365		0–12,600			85,075–138,965
Directors	107	85,075–112,825		0–11,300			85,075–124,125
Auditors	244	38,218–92,160	800	0–3,000			38,218–95,960
Audit service officers	79	51,869–86,070	800				51,869–86,870
Audit service specialists	105	32,430–61,302	800				32,430–62,102
	610
1 Full-time equivalents (FTEs) utilized in the fiscal year 2006–07. 2 Taxable benefit for the personal use of an automobile for the 2006 calendar year. 3 The Office paid a club membership for the Auditor General and the former Commissioner of the Environment and Sustainable Development. 4 The salary of the Auditor General is set by statute under subsection 4(1) of the Auditor General Act and is equal to the salary of a puisne judge of the Supreme Court of Canada.

 

Financial statements

Management's statement of responsibility

Management of the Office of the Auditor General of Canada is responsible for the preparation of the accompanying financial statements and related information contained in this 2006–07 Performance Report. These financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Where alternative accounting methods exist, management has chosen methods that it believes to be appropriate in the circumstances. Where estimates or judgments have been required, management has determined such amounts on a reasonable basis. Financial information disclosed elsewhere in this performance report is consistent with these audited financial statements.

In meeting its reporting responsibility, management has established and followed policies and procedures and systems of internal control designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, operations are in compliance with governing authorities, and financial information is reliable. Selected internal control systems are periodically tested and evaluated by the internal auditors, and management takes any action necessary to respond appropriately to their recommendations. Management recognizes the limits inherent in all systems of internal control but believes the Office has established effective and responsive systems of internal control through the careful selection of employees, appropriate division of responsibilities, training and other professional development activities, and development of formal policies and procedures.

The Office's Executive Committee oversees management's preparation of the financial statements and ultimately approves the financial statements and related disclosures based on a recommendation from the Office's Audit Committee. As a basis for recommending approval of the financial statements to the Executive Committee, the Audit Committee reviews selected internal controls and the accounting policies employed by the Office for financial reporting purposes. The Audit Committee also meets independently with the Office's internal and external auditors to consider the results of their work.

The external auditors' report, as to the fairness of presentation of these financial statements in conformity with Canadian generally accepted accounting principles, is included in this performance report.

 

Sheila Fraser, FCA Auditor General of Canada

Jean Landry, CGA A/Comptroller and Senior Financial Officer

Ottawa, Canada
22 June 2007

Auditors' report

To the Speaker of the House of Commons

We have audited the statement of financial position of the Office of the Auditor General of Canada as at 31 March 2007 and the statements of operations, deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Office's management. 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 plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Office as at 31 March 2007 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Further, in our opinion, the transactions of the Office that have come to our notice during our audit of the financial statements have, in all significant respects, been in accordance with the Financial Administration Act and regulations and the Auditor General Act.

Welch & Company LLP and
Lévesque Marchand S.E.N.C.
Chartered Accountants
Licensed Public Accountants

Ottawa, Canada
22 June 2007

Office of the Auditor General of Canada
Statement of Financial Position
as at 31 March

			2007	2006
Assets			(in thousands of dollars)
Current assets
	Due from the Consolidated Revenue Fund		6,642	5,161
	Accounts receivable		680	1,532
	Prepaid expenses		265	418
			7,587	7,111
Capital assets (note 4)			4,388	5,763
			11,975	12,874
Liabilities and Deficit
Current liabilities
	Accounts payable and accrued liabilities
		Due to employees	3,605	2,761
		Due to others	2,401	2,912
		Vacation pay	3,360	2,846
	Current portion of employee future benefits (note 5)		2,668	2,863
			12,034	11,382
Employee future benefits (note 5)			10,843	10,196
Deficit (note 6)			(10,902)	(8,704)
			11,975	12,874

Contingencies (note 9)

The accompanying notes are an integral part of these financial statements.

Approved by

 

Sheila Fraser, FCA Auditor General of Canada

Jean Landry, CGA A/Comptroller and Senior Financial Officer

Office of the Auditor General of Canada
Statement of Operations
for the year ended 31 March

		2007	2006
Expenses (note 7)		(in thousands of dollars)
	Performance audits and studies	43,942	42,572
	Financial audits of Crown corporations, territorial governments, and other organizations	26,600	23,542
	Audit of the summary financial statements of the Government of Canada	4,704	4,797
	Special examinations of Crown corporations	4,342	4,588
	Monitoring sustainable development activities and the environmental petitions process	2,838	2,449
	Assessments of agency performance reports	1,063	1,138
	Total cost of audits	83,489	79,086
	Professional practices (note 8)	7,498	7,365
Total cost of operations		90,987	86,451
Costs recovered
	International audits	478	901
	Other	200	212
Total costs recovered		678	1,113
Net cost of operations		90,309	85,338

The accompanying notes are an integral part of these financial statements.

Office of the Auditor General of Canada
Statement of Deficit
for the year ended 31 March

	2007	2006
	(in thousands of dollars)
Deficit, beginning balance	(8,704)	(8,959)
Net cost of operations	(90,309)	(85,338)
Parliamentary appropriations used (note 3)	77,767	76,798
Services provided without charge by other government departments (note 7)	11,022	9,908
Costs recovered	(678)	(1,113)
Deficit, ending balance	(10,902)	(8,704)

The accompanying notes are an integral part of these financial statements.

Office of the Auditor General of Canada
Statement of Cash Flows
for the year ended 31 March

		2007	2006
Operating activities		(in thousands of dollars)
	Cash payments	(77,267)	(77,767)
	Cash receipts	1,462	1,074
	Parliamentary appropriations used (note 3)	77,767	76,798
	Cash provided from operating activities	1,962	105
Investing activities
	Capital asset acquisitions	(485)	(837)
	Proceeds from the disposal of capital assets	4	3
	Cash used in investing activities	(481)	(834)
Increase (Decrease) in Due from the Consolidated Revenue Fund during the year		1,481	(729)
Due from the Consolidated Revenue Fund, beginning of year		5,161	5,890
Due from the Consolidated Revenue Fund, end of year		6,642	5,161

The accompanying notes are an integral part of these financial statements.

Office of the Auditor General of Canada
Notes to the financial statements for the year ended 31 March 2007

1.	Authority and objective The Auditor General Act, the Financial Administration Act, and a variety of other acts and orders-in-council set out the duties of the Auditor General and the Commissioner of the Environment and Sustainable Development. These duties relate to legislative auditing of federal departments and agencies; Crown corporations; territorial governments; and other organizations, which include two international organizations. The program activity of the Office of the Auditor General of Canada is legislative auditing and consists of performance audits and studies of departments and agencies; audit of the summary financial statements of the Government of Canada; financial audits of Crown corporations, territorial governments, and other organizations; special examinations of Crown corporations; sustainable development monitoring activities and environmental petitions; and assessments of agency performance reports. The Office is funded through annual appropriations received from the Parliament of Canada and is not taxable under the provisions of the Income Tax Act. Pursuant to the Financial Administration Act, the Office is a department of the Government of Canada for the purposes of that Act and is listed in Schedule 1.1, and is a separate agency for the purposes of Schedule V.
2.	Significant accounting policies
	a)	Basis of presentation The financial statements of the Office have been prepared in accordance with Canadian generally accepted accounting principles.
	b)	Parliamentary appropriations The Office is funded by the Government of Canada through annual parliamentary appropriations. Parliamentary appropriations are reported directly in the Statement of Deficit in the fiscal year for which they are approved by Parliament and used by the Office.
	c)	Costs recovered The costs of audits are paid from monies appropriated by Parliament to the Office. Fees for international audits generally recover direct costs and are recorded on an accrual basis. Amounts recovered are deposited in the Consolidated Revenue Fund and are not available for use by the Office. Other costs recovered represent adjustments to prior year's payables and refund of prior years' expenses.
	d)	Due from the Consolidated Revenue Fund The financial transactions of the Office are processed through the Consolidated Revenue Fund of the Government of Canada. The Due from the Consolidated Revenue Fund balance represents the amount of cash that the Office is entitled to draw from the Consolidated Revenue Fund, without further appropriations, in order to discharge its liabilities.
	e)	Capital assets Capital assets are recorded at historical cost less accumulated amortization. The Office capitalizes the costs associated with the development of software used internally including software licences, installation costs, professional service contract costs, and salary costs of employees directly associated with these projects. The costs of software maintenance, project management and administration, data conversion, and training and development are expensed in the year incurred. Amortization of capital assets begins when assets are put into use and is recorded on the straight-line method over the estimated useful lives of the assets as follows: Capital assets Useful life Furniture and fixtures 7 years Leasehold improvements 10 years Informatics software 3 years Informatics Hardware and Infrastructure 3 years Office equipment 4 years Motor vehicle 5 years
	f)	Vacation pay Vacation pay is expensed as benefits accrue to employees under their respective terms of employment using the employees' salary levels at year end. Vacation pay liabilities represent obligations of the Office that are funded through parliamentary appropriations.
	g)	Employee future benefits i) Pension benefits All eligible employees participate in the Public Service Pension Plan administered by the Government of Canada. The Office's contributions are currently based on a multiple of an employee's required contributions and may change over time depending on the experience of the Plan. The Office's contributions are expensed during the year in which the services are rendered and represent its total pension obligation. The Office is not currently required to make contributions with respect to any actuarial deficiencies of the Public Service Pension Plan. ii) Severance benefits Employees are entitled to severance benefits, as provided for under their respective terms of employment. The cost of these benefits is accrued as employees render the services necessary to earn them. Management determined the accrued benefit obligation using the employees' salary at year end. Severance benefits are funded through appropriations once employees' departures are confirmed.
	h)	Services provided without charge by other government departments Services provided without charge by other government departments are recorded as operating expenses by the Office at their estimated cost. A corresponding amount is reported directly in the Statement of Deficit.
	i)	Allocation of expenses The Office charges all direct salary, professional service, travel, and other costs associated with the delivery of individual audits and professional practice projects directly to them. All other expenses, including services provided without charge, are treated as overhead and allocated to audits and professional practice projects based on the direct hours charged to them.
	j)	Measurement uncertainty These financial statements are prepared in accordance with Canadian generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Capital assets and employee severance benefits are the most significant items for which estimates are used. Actual results could differ significantly from those estimates. These estimates are reviewed annually, and as adjustments become necessary, they are recognized in the financial statements in the period in which they become known.
3.	Parliamentary appropriations The Office is funded through annual parliamentary appropriations. Items recognized in the Statement of Operations and the Statement of Deficit in one year may be funded through parliamentary appropriations in prior and future years. Accordingly, the Office's net cost of operations for the year based on Canadian generally accepted accounting principles is different than total appropriations used for the year. These differences are reconciled as follows:
	a)	Reconciliation of net cost of operations to current year appropriations used
	2007 2006   (in thousands of dollars) Net cost of operations 90,309 85,338 Less: Expenses not requiring the use of appropriations     Amortization of capital assets (1,282) (1,232) Write-off of informatics software under development (578) – Services provided without charge by other government departments (11,022) (9,908) Add: Costs recovered 678 1,113   78,105 75,311 Changes in Statement of Financial Position amounts not affecting the current year use of appropriations1 (823) 650 Current year appropriations applied to operations 77,282 75,961 Capital asset acquisitions funded by appropriations 485 837 Current year appropriations used 77,767 76,798 1Components of this amount are prepaid expenses, due to employees, vacation pay and severance benefits.
	b)	Reconciliation of appropriations provided to current year appropriations used
	2007 2006 Appropriations: (in thousands of dollars)   Voted—operating expenditures 69,720 70,223   Statutory contributions to employee benefit plans 8,834 9,417   Proceeds from disposal of capital assets 4 3 Current year appropriations provided 78,558 79,643 Less: Lapsed appropriations 1 791 2,845 Current year appropriations used 77,767 76,798 1Subject to parliamentary approval, the Office can carry forward its lapsed appropriations and adjustments for eligible costs into the next fiscal year up to a maximum of 5 percent of its main estimates operating budget. In 2006–07, this amount is $1.9 million ($3.1 million in 2005–06).
4.	Capital assets   2007 2006   Cost     Opening balance Net additions (disposals) Accumulated amortization Net book value Net book value   (in thousands of dollars) Furniture and fixtures 4,345 34 2,399 1,980 2,562 Leasehold improvements 2,651 145 1,014 1,782 1,910 Informatics software 3,919 (453) 3,103 363 936 Informatics hardware and infrastructure 1,578 (692) 697 189 202 Office equipment 1,043 – 998 45 150 Motor vehicle 24 6 1 29 3   13,560 ( 960 ) 8,212 4,388 5,763 Amortization expense for the year ended 31 March 2007 is $1.28 million ($1.23 million in 2006).
5.	Employee future benefits
	a)	Pension benefits The Office and all eligible employees contribute to the Public Service Pension Plan. This pension plan provides benefits based on years of service and average earnings at retirement. The benefits are fully indexed to the increase in the Consumer Price Index. The Office's and employees' contributions represent the total pension obligation to the Public Service Pension Plan, and are as follows:
	2007 2006   (in thousands of dollars) Office's contributions 6,511 7,015 Employees' contributions 2,825 2,663
	b)	Severance benefits The Office provides severance benefits to its employees based on years of service and salary at termination of employment. This benefit plan is not pre-funded and thus has no assets, resulting in a plan deficit equal to the accrued benefit obligation. Benefits will be paid from future appropriations. Information about the plan, measured as at 31 March, is as follows:
	2007 2006   (in thousands of dollars) Severance benefit obligation, beginning of year 13,059 12,533 Expense for the year 1,317 1,062 Benefits paid during the year (865) (536) Severance benefit obligation, end of year 13,511 13,059
6.	Deficit The deficit represents liabilities incurred by the Office, net of capital assets and prepaid expenses, that have not yet been funded through appropriations. Significant components of this amount are employee severance benefits and vacation pay liabilities.
7.	Summary of expenses by major classification Summary of expenses by major classification for the years ended 31 March are as follows:   2007 2006   (in thousands of dollars) Salaries and employee benefits 68,332 64,288 Professional services 7,207 7,454 Office accommodation 6,661 6,591 Travel and communication 4,187 3,956 Informatics, informatics maintenance, and repairs, office equipment, and furniture and fixtures   2,273   2,517 Printing and publications services 753 526 Materials, supplies, and other payments 616 740 Write-off of informatics software under development1 578 – CCAF-FCVI Inc. 380 379 Total cost of operations 90,987 86,451 In 2007, the total cost of operations included services provided without charge by other government departments totalling $11.02 million ($9.91million in 2006). This is composed of $6.66 million ($6.59 million in 2006) for accommodation and $4.36 million ($3.32 million in 2006) for the employer's contributions to the Public Service Health Care Plan and the Public Service Dental Plan. 1A data warehouse software under development to integrate financial information from several source systems is written-off due to the upcoming implementation of a new financial system.
8.	Professional practices The Office works with other legislative audit offices and professional associations such as the Canadian Institute of Chartered Accountants to advance legislative audit methodology, accounting and auditing standards, and best practices. International activities include participation in organizations and events that impact on our work as legislative auditors. External review includes the cost of participating in the external reviews of other national legislative audit offices and being the subject of an external review.   2007 2006   (in thousands of dollars) International activities 3,711 3,436 Methodology and knowledge management 2,331 2,481 Canadian Council of Legislative Auditors 541 569 Participation in standard-setting activities 449 370 CCAF-FCVI Inc. 380 379 External review 86 130 Professional practices 7,498 7,365
9.	Contingencies In 2000–01, the Public Service Alliance of Canada filed a pay equity suit against the Crown alleging that discrimination based on sex had occurred between 1982 and 1997 in seven separate employers. The Office, although not a party to the suit, is one of the seven employers named in the suit. The Alliance requests that the Treasury Board of Canada Secretariat or the responsible employer retroactively increase the wage rates of employees of specific separate employers to remedy the discrimination. No amount is specified in the claim. In the opinion of management, the estimated amount of the contingent liability for employees of the Office of the Auditor General employed by the Office between 1982 and 1997 is about $5.77 million. Further, in the opinion of management, the outcome of the suit is not determinable at this time and, accordingly, no liability has been recognized in the financial statements.
10.	Related party transactions The Office is related as a result of common ownership to all Government of Canada departments, agencies, and Crown corporations. The Office enters into transactions with these organizations in the normal course of business and on normal trade terms. As Parliament's auditor, the Office is mindful of its independence and objectivity when entering into any such transactions. In 2007, the Office incurred expenses of $22.35 million ($21.44 million in 2006) and recovered expenses of $3.66 million ($1.89 million in 2006) from transactions in the normal course of business with other government departments, agencies, and Crown corporations. These expenses include services provided without charge of $11.02 million ($9.91 million in 2006) as described in note 7. As at 31 March, the accounts receivable and payable with other government departments and Crown corporations are as follows:   2007 2006   (in thousands of dollars) Accounts receivable 510 803 Accounts payable 619 709 These amounts are included respectively in accounts receivable and due to others on the statement of financial position.
11.	Financial instruments The fair value of Due from the Consolidated Revenue Fund, accounts receivable, and accounts payable approximates their respective book values due to their short term to maturity.
12.	Comparative figures Certain 2005–06 comparative figures have been reclassified to conform to the presentation adopted in 2006–07.

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