Archived [2010-03-31] - Accounting Standard 1.2 - Treasury Board - Departmental and Agency Financial Statements

The objective of this financial statement package is to provide a model for the general-purpose financial statements prepared by departments.  This model should be used in order to ensure comparability with other departments.  It sets out overall considerations for the presentation of financial statements, guidance for their structure, and minimum requirements for the content of financial statements prepared using the accrual basis of accounting while also providing information on the use of funding provided by the Government of Canada through the appropriations.

The external readers should readily understand terminology used in the financial statements. Consequently, those responsible for the preparation of the financial statements should not use government jargon or acronyms that are not widely understood outside the public service (e. g. the terms specified purpose accounts (SPAs) and consolidated specified purpose accounts are particular to government). These terms should be avoided and replaced with words that describe their substance (e.g. deferred revenue and endowments). In cases where the use of government jargon is unavoidable, then the term should be defined such as is done for "Repayable Contributions".

The illustrative financial statement package contained in this section cannot consider all the unique circumstances and peculiarities of each and every department and therefore, departmental personnel must use professional judgement in modifying the package to meet their reporting requirements.  It should not be used as a template.

As indicated earlier, it is recognized that reporting requirements may be different or desirable for many departments. Consequently, departments have flexibility to adjust the format to meet their reporting requirements, provided all relevant TBAS and PSAB reporting requirements are met.

For all statements:

• Financial statements that are subject to an external audit will have an Auditor's Report appended to them.  For departments that are not audited, the financial statements must be annotated "unaudited" on each page.
• Indicate on all statements whether amounts are in dollars or thousands of dollars.  Presentation of amounts in notes should be consistent with that used for the statements.
• All statements should cross-reference to other statements and notes.  For example, the total receivables on the Statement of Financial Position (SFP) must equal the amount shown in the note on receivables and the increase/(decrease) in the receivables balance on the SFP must equal the amount shown on the Statement of Cash Flow.
• The term "the department" has been used throughout the package.  The name of the entity should replace "the department" wherever possible.

A brief description of each of the components of the financial statements follows indicating some major differences from those found in the private sector.

Purpose:

A statement of management responsibility states management's responsibility for the financial statements and other financial information, as well as the financial reporting process that produces such statements and other information.  The report also states the role of the board of directors and, when one exists, the audit committee.  The purpose of this statement is to communicate to users of the financial statements the key elements of responsibility for the representations made in financial statements and other financial information, to clarify whose representations they are and to clarify the limits of their accuracy.  It is to be signed by the Deputy Head and the Senior Financial Officer.

Structure and Format:

The statement should be modified or tailored, as required, to suit the department's mode of operations.  For example, if there is no internal audit function in the department, reference to it in the statement should be removed.  Departmental personnel are encouraged to consult the CICA accounting guidance AcG-7, which provides guidance on the minimum content of a statement of management responsibility.

The statement should be dated to indicate the point to which events have been taken into account.  The date would normally be the same as the date of the auditor's report with a view to ensuring consistent consideration of subsequent events.

Example:

Statement of Management Responsibility

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2006 and all information contained in these statements rests with departmental management.  These financial statements have been prepared by management in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.  

Management is responsible for the integrity and objectivity of the information in these financial statements.  Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality.  To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the department's financial transactions.  Financial information submitted to the Public Accounts of Canada and included in the department's Departmental Performance Report is consistent with these financial statements.

Management maintains a system of financial management and internal control designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are in accordance with the Financial Administration Act, are executed in accordance with prescribed regulations, within Parliamentary authorities, and are properly recorded to maintain accountability of Government funds.  Management also seeks to ensure the objectivity and integrity of data in its financial statements by careful selection, training and development of qualified staff, by organizational arrangements that provide appropriate divisions of responsibility, and by communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the department.

Where an audit committee exists describe its role and responsibilities.

As applicable add: The financial statements of the department have been audited by the Auditor General of Canada, the independent auditor for the Government of Canada or the firm of ________________________. or

The financial statements of the department have not been audited.

Purpose:

The purpose of the Statement of Operations is to report the revenues and expenses and the net cost of operations from one point in time to another point in time, normally from April 1^st of one year to March 31^st of the next year.  In conjunction with other performance information, it provides information for determining the efficiency of the entity's operations.

Structure and Format:

The structure of the Statement of Operations is different in a number of aspects to ones found in the private sector:  The "bottom-line" for this statement is Net Cost of Operations (i.e. expenses exceed revenues).  In the private sector, the "bottom-line" is normally Net Profit (i.e. revenues exceed expenses). This has implications for the Statement of Cash Flows prepared using the indirect method; the starting amount is opposite to the starting amount normally found in the private sector or in accounting textbooks because expenses exceed revenues.  Another change from the private sector is that expenses may be presented ahead of revenues in the statements.  A department may choose this presentation where its revenues are insignificant compared to its expenses.

Expenses and revenues should be listed in order from largest to smallest.

Presentation by major program:  The Statement should present the revenues and expenses by function or major program and also by object (i.e. major type of expense such as salaries, transfer payments, amortization, etc.).  Departments should consider the Program-Activity level of the entity's Program-Activity Architecture (PAA) in determining the major programs or functions.  Where a department has a very large number of program activities, it may be appropriate to group certain program activities together or present the statement at the strategic outcome level.

The revenues and expenses of the corporate services program activity code should be allocated to the other program activity codes.  The allocation of revenues and expenses to the program activities should be based on a rational allocation basis which is tied to the nature of the item.  For example, amortization expense should be allocated to the programs activities which use the asset.

The first illustrative example of the Statement of Operations presents results on both a major program basis and object of expense basis in the statement.  This presentation may be appropriate where a department has a very small number of program activities.  The second illustrative example presents results solely on a major program basis; object of expense information is presented in a note.  This latter presentation is preferable where a department has several program activities.

Services without charge:

• In accounting for services without charge, it is important that services provided by other government departments are accounted for on a consistent basis from year to year. As such, the statement of operations should contain an expense in the amount of the estimated cost for any service from another government department that is not consistently provided without charge.  At a minimum, these costs will include: 
  • Accommodation from PWGSC
  • Health and dental from TBS
  • Legal services from Justice Canada

For services provided consistently without charge by other government departments, the accounting treatment is limited to a description of the nature of the service in the note on related party transactions.

• The department that provides the service without charge should provide the estimated cost to the recipient department.
• The amount must not be included in the CFMRS Trial Balance.  To ensure that there is a nil effect, a corresponding amount is credited to equity. Adequate documentation (i.e. an audit trail) must be retained for amounts presented in the statement.
• The recording of services provided without charge as an expense affects the Statement of Operations, the Statement of Equity of Canada, the Statement of Cash Flow (when prepared under the indirect method) and the note on the reconciliation of net results to appropriations used.
• Services provided without charge that relate to assets under construction are not to be capitalized as part of the assets' cost (only expensed in the year).
• Services provided without charge are to be grouped under the appropriate object of expense and program activity (i.e. they are not to be presented on a separate line).

Examples:

Department Name
Statement of Operations (Unaudited)
For the Year Ended March 31
(in thousands of dollars)

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

Department Name
Statement of Operations (Unaudited)
For the Year Ended March 31
(in thousands of dollars)

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

Purpose:

The purpose of the Statement of Financial Position is to present the assets and liabilities that the department is responsible for administering, and the equity of Canada, as at a specific point of time, normally March 31^st.

Structure and Format:

Although the basic structure of the Statement of Financial Position is similar to ones found in the private sector, it is important to take note of some important differences:

• Assets are classified as either financial assets or non-financial assets and are reflected on the Statement as such.  There is no distinction between current and non-current;
• Liabilities are not classified as current or non-current but are listed generally in order of expected repayment.

GST Refundable Advance Account:  Although GST Refundable Advance Account is shown under the Advance classification in the chart of accounts, the nature of the account at the departmental level is an account receivable.  For presentation purposes, departments should include the amount in OGD accounts receivable or as a reduction to OGD payables.

Cash:  The main components of cash reported by most departments are cash awaiting deposit and deposits and payments in transit to the Receiver General.  A net positive balance, or net deposits in transit, is a financial asset.  A net negative balance, or net payments in transit, should be reported as an accounts payable or other liability.

Example:

Department Name
Statement of Financial Position (Unaudited)
At March 31
(in thousands of dollars)

Contingent liabilities (Note 12)
Contractual obligations (Note 13)
The accompanying notes form an integral part of these financial statements.

Purpose:

The purpose of this statement is to present the reconciliation of the opening balance of the equity of Canada to the closing balance.

Structure and Format:

Since departments do not record appropriations as revenue, the amount of appropriations used by the department is included in the statement of equity of Canada as an offset to net cost of operations.  Since departments operate within the Consolidated Revenue Fund (CRF) which is on a cash basis and appropriations used are on a modified cash basis, two reconciling items must be included to the statement: revenues not respendable by the department and change in net position in the CRF (see note 2(d) for additional information).    

The amount of services provided without charge is added to complete the reconciliation of the opening to closing balances.

Example:

DepartmentName
Statement of Equity of Canada (Unaudited)
At March 31
(in thousands of dollars)

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

Purpose:

The purpose of the Statement of Cash Flow is to show how the department generated and used cash in the accounting period (including interdepartmental settlement transactions).  It normally covers a year from 1 April of one year to the 31 March of the next.

Structure and Format:

Other than amounts that have yet to be deposited and small amounts of travellers' cheques, departments do not generally keep cash balances. The beginning and ending cash balances are therefore usually zero; however, departments do use cash throughout the year.  The use of cash is measured by the Receiver General Control Accounts – financial reporting accounts that begin with "6".  Although the statement is formatted to present the change in cash balances from beginning to the end of the year, since these balances are generally zero, the statement effectively must reconcile to the total of these control accounts. Where the cash balances are nil, departments have the option of dropping the last three lines of the sample statement.

Since control accounts are at the departmental level, a split of these accounts will be necessary for the statements of most revolving funds.  Also, where a department makes payments of appropriation amounts to a Crown corporation, these amounts must be deducted from the control accounts to complete the reconciliation.  As this financial activity is neither under the control or responsibility of the department (i.e. is acting as a flow-through only), the amounts should not be reported in the financial statements.

This statement can be prepared using either the direct or indirect method, although PSAB encourages governments to use the direct method.  

The Statement covers cash flows relating to: operating, capital, investing and financing activities:

• Departments do not normally carry out financing transactions, except for the Department of Finance on behalf of the entire government.  Therefore, the only financing activity to be reported by a department is the net cash provided by the Government of Canada, that is, the balance of the Receiver General Control Accounts.
• Gains and/or losses on the disposal or write-down of tangible capital assets are included in operating activities; proceeds from disposal and cash paid on acquisition should be included in capital activities.  (PS1200.114)
• Changes in the balances of advances to employees should be included in operating activities.
• Investing activities are generally limited to departments with investments in Crown corporations.
• Interest on capital leases should be listed under operating activities.

Example – Direct Method:

Department Name
Statement of Cash Flow (Unaudited)
For the Year Ended March 31
(in thousands of dollars)

The accompanying notes form an integral part of these financial statements.
If the department has no cash balances, the last line of the statement should be the Net cash provided by Government of Canada

Example – Indirect Method:

Department Name
Statement of Cash Flow (Unaudited)
For the Year Ended March 31
(in thousands of dollars)

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

Purpose:

The purpose of the notes is to provide a narrative description of various accounting issues particular to the department to aid the readers and users of the financial statements to better understand and interpret the statements.

Structure and Format:

The Notes are very similar to those found in private sector financial statements but do include some items that are particular to the federal government departments.

• The first note provides information on the authority and objectives of the department and helps the reader understand the context of the department and its raison d'être;
• The second note provides a summary of the significant accounting policies of the department. Particular attention should be made to the requirement to include sub-notes on parliamentary appropriations, services provided without charge, measurement uncertainty and employee benefits.
• The note on measurement uncertainty is to alert readers that there are certain significant amounts in the financial statements that are based on estimates and assumptions.  The most significant estimates are mentioned in the note (e.g. useful life of tangible capital assets, unamortized discount on repayable contributions or other loans, allowance for bad debts, employee severance benefits) as applicable to the department.
• If the department has repayable contributions as assets, then a note is required to describe the receivable and any allowance recorded on the receivable.
• There is a requirement to include a note on related party transactions.  This note describes the relationship of departments to each other and the government as a whole and on what basis the department enters into transactions with other departments.

Departments are encouraged to include other notes specific to their operation to either provide more relevant information or to aid readers to better understand or interpret the financial statements. However, it is important to find the right balance between too much information and too little information.

An example of a set of notes follows. These notes are all mandatory to the extent that they are applicable to a department. However, they are not necessarily all-inclusive.  Departments will need to modify or add to the notes to fit specific departmental circumstances. Only those notes that are applicable to the department should be included.

Example:

Department Name
Notes to the Financial Statements (Unaudited)

1. Authority and Objectives

A brief description of the authority and objectives of the department must be included here.

2. Summary of Significant Accounting Policies

The financial statements have been prepared in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector.

Significant accounting policies are as follows:

(a) Parliamentary appropriations – the Department is financed by the Government of Canada through Parliamentary appropriations. Appropriations provided to the department do not parallel financial reporting according to generally accepted accounting principles since appropriations are primarily based on cash flow requirements. Consequently, items recognized in the statement of operations and the statement of financial position are not necessarily the same as those provided through appropriations from Parliament. Note 3 provides a high-level reconciliation between the bases of reporting.

(b) Consolidation – these financial statements include the accounts of the following sub-entities of the department (specify the various sub-reporting entities in existence e.g. Revolving Fund, Special Operating Agencies, organizations such as Communications Security Establishment, etc.). The accounts of these sub-entities have been consolidated with those of the department and all inter-organizational balances and transactions have been eliminated.  Where applicable, departments should note that investments in Crown corporations are reported at cost and not consolidated.

(c) Net Cash Provided by Government – The department operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada.  All cash received by the department is deposited to the CRF and all cash disbursements made by the department are paid from the CRF.  The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the federal government.

(d) Change in net position in the Consolidated Revenue Fund is the difference between the net cash provided by Government and appropriations used in a year, excluding the amount of non respendable revenue recorded by the department.  It results from timing differences between when a transaction affects appropriations and when it is processed through the CRF.

(e) Revenues:

• Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
• Funds received from external parties for specified purposes are recorded upon receipt as deferred revenues.  These revenues are recognized in the period in which the related expenses are incurred.
• Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.
• Revenues that have been received but not yet earned are recorded as deferred revenues.

(f) Expenses – Expenses are recorded on the accrual basis:

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

(g) Employee future benefits

1. Pension benefits:  Eligible employees participate in the Public Service Pension Plan (identify appropriate plan), a multiemployer administered by the Government of Canada.  The department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan.  Current legislation does not require the department to make contributions for any actuarial deficiencies of the Plan.
2. Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment.  These benefits are accrued as employees render the services necessary to earn them.  The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

(h) Accounts and loans receivables are stated at amounts expected to be ultimately realized; a provision is made for receivables where recovery is considered uncertain.  

(i) Repayable contributions are contributions where the recipient is expected to repay the amount advanced. Depending on their nature, they are classified as either unconditionally repayable or conditionally repayable and are accounted for differently.

1. Unconditionally repayable contributions are contributions that must be repaid without qualification.  Normally, these contributions are provided with a low or no interest clause.  Due to their concessionary nature, they are recorded on the Statement of Financial Position as loans at their estimated present value. A portion of the unamortized discount is brought into income each year to reflect the change in the present value of the contributions outstanding. An estimated allowance for un-collectibility is also recorded where appropriate.
2. Conditionally repayable contributions are contributions that, all or part of which become repayable, if conditions specified in the contribution agreement come into effect. Accordingly, they are not recorded on the Statement of Financial Position until such time as the conditions specified in the agreement are satisfied at which time they are then recorded as a receivable and a reduction in transfer payment expenses.  An estimated allowance for un-collectibility is recorded where appropriate.

(j) Contingent liabilities – Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur.  To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded.  If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.

(k) Environmental liabilities – Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites.  Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs.  If the likelihood of the department's obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.

(l) Inventories – Inventories consist of parts, material and supplies held for future program delivery and not intended for re-sale. They are valued at cost.  If they no longer have service potential, they are valued at the lower of cost or net realizable value.

(m) Foreign currency transactions – Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency are translated into Canadian dollars using the rate of exchange in effect on 31 March.  Gains and losses resulting from foreign currency transactions are included in – specify the line – on the statement of operations. (Note not required where department has insignificant foreign exchange transactions).

(n) Tangible capital assets – All tangible capital assets and leasehold improvements having an initial cost of $10,000 (If the department has a different threshold, then this amount should be reflected) or more are recorded at their acquisition cost.  The department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.(This portion of the note should be expanded as required to comply with PS3150.41 of the CICA Public Sector Accounting Handbook.)

Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the asset as follows: (This portion of the note would be amended to reflect the amortization methodology, rates and classes of assets being used in the department. Classes should match those listed in note 8)

(o) Measurement uncertainty –– The preparation of these financial statements in accordance with Treasury Board accounting policies which are consistent with Canadian generally accepted accounting principles for the public sector requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, environmental liabilities, the liability for employee severance benefits and the useful life of tangible capital assets (list as applicable).  Actual results could significantly differ from those estimated.  Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.  This note should be enhanced if a department has a particular significant measurement uncertainty.

3. Parliamentary Appropriations

The Department receives most of its funding through annual Parliamentary appropriations.  Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary appropriations in prior, current or future years.  Accordingly, the Department has different net results of operations for the year on a government funding basis than on an accrual accounting basis.  The differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to current year appropriations used:

(b) Appropriations provided and used

Notes:

1.  Schedule B should be modified to include only those appropriations applicable to the department.

2. The amount to include is the total amount for each type of appropriation. There is no need to break the amounts into more detail but departments may provide further detail if desired.

3. Amounts of appropriations provided and used must agree with the amounts shown as Available for Use and Authorities Used as reflected in the Source and Disposition of Authorities in Volume II of the Public Accounts.

c) Reconciliation of net cash provided by Government to current year appropriations used

(1) Include refunds of previous year's expenditures.  However, in the unusual situation where the refund amount is large, consider presenting it on its own line.

(2) Assumes that the department has vote-netting authority (i.e. appropriations provided are net of revenues). For departmental corporations, the reconciliation will have to be tailored to include revenue available for spending and any carry-forward provision.

(3) Amounts are the changes taken from the Statement of Financial Position. Only list the balance sheet items where some part of the amount affects either net cash provided by Government or appropriations used.  For example, a change in the liability for employee severance does not affect net cash provided since it is an accrual entry and the entry to record the liability does not impact appropriations.  Hence the change in this liability is not included in the reconciliation.

(4) Other adjustments reflect the cumulative difference between the changes in assets and liabilities listed above which do not have an impact on either net cash provided by Government or Appropriations Used. For example, within accrued liabilities, some amounts would have been recorded by an expense that was charged to an "F" authority code (such as an accrual for contingent liabilities) and would not have affected appropriations used.  As a result, the increase in this portion of accrued liabilities would have no effect on either the amount of net cash provided by government or appropriations used, and should be removed for the reconciliation.  Other elements to include in the adjustment where appropriate include (but are not limited to):

• Changes in accounts receivable from external parties (regardless as to whether revenue is respendable or not);
• Changes in accounts receivable for non respendable revenue.

4. Expenses (only required where details of expenses are not provided on the Statement of Operations)

The following table presents details of expenses by category:

5. Revenues (only required where details of revenues are not provided on the Statement of Operations)

The following table presents details of revenues by category:

6. Accounts Receivable and Advances

The following table presents details of accounts receivable and advances:

7. Loans Receivable:

(This is a suggested note for organizations that have repayable contributions or other loans receivable. It must be changed to reflect the department's particular operating environment.)

For departments with repayable contributions and other loans receivable, consult the disclosure requirements in PS 3050.54 and .56 of the CICA Public Sector Accounting Handbook to determine the extent of information to disclose.

8. Tangible Capital Assets

(in thousands of dollars)

8. Tangible Capital Assets (cont'd)

 (in thousands of dollars)

8. Tangible Capital Assets (cont'd)

 (in thousands of dollars)

Amortization expense for the year ended March 31, 2006 is $74,564 (2005 - $74,713).

9. Deferred revenue (example of disclosure for a non-consolidated specified purpose account)

Deferred revenue represents the balance at year-end of unearned revenue stemming from donations, which are restricted to fund the salary costs related to research in the field of xxx.  Revenue is recognized each year in the amount of the salary costs incurred.  Details of the transactions related to this account are as follows:

Note: if the specified purpose account (SPA) is created under legislation, reference to it should be made.  If the department has a consolidated SPA, a separate note on the split of the equity of Canada balance between the unrestricted and the restricted balances (the consolidated SPA) should be presented.

10. Lease Obligation for Tangible Capital Assets

The department has entered into agreements to rent information technology equipment (general description of leased assets) under capital lease with a cost of $111,000 and accumulated amortization of $47,000 as at March 31, 2006 ($111,000 and $36,000 respectively as at March 31, 2005) (note 7).  The obligations for the upcoming years include the following:

(Any significant restrictions imposed on the department as a result of the lease agreement should be disclosed.)

11. Employee Benefits

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

Both the employees and the department contribute to the cost of the Plan.  The 2005-06 expense amounts to $XXX ($xxx in 2004-05), which represents approximately 2.6 time the contributions by employees.

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

(b) Severance benefits:  The department provides severance benefits to its employees based on eligibility, years of service and final salary.  These severance benefits are not pre-funded.  Benefits will be paid from future appropriations.  Information about the severance benefits, measured as at March 31, is as follows:

12. Contingent liabilities

(a) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs.  The department has identified approximately 50 sites (49 sites in 2005) where such action is possible and for which a liability of $20,304,000 ($8,000,000 in 2005) has been recorded.  The department has estimated additional clean-up costs of $3,000,000 ($1,000,000 in 2005) that are not accrued, as these are not considered likely to be incurred at this time.  The department's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites.  These liabilities will be accrued by the department in the year in which they become known.

(b) Claims and litigation

Claims have been made against the department in the normal course of operations.  Legal proceedings for claims totalling approximately $20,000,000 ($14,000,000 in 2005) were still pending at March 31, 2006.  Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur.  To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.  * Department should provide details of significant cases – refer to disclosure requirements in PS 3300.28 of the CICA Public Sector Accounting Handbook.   

13. Contractual Obligations

The nature of the department's activities can result in some large multi-year contracts and obligations whereby the department will be obligated to make future payments when the services/goods are received.  Significant contractual obligations that can be reasonably estimated are summarized as follows:

14. Related party transactions

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

(a) Services provided without charge:

During the year the department received without charge from other departments, accommodation, legal fees and the employer's contribution to the health and dental insurance plans.  These services without charge have been recognized in the department's Statement of Operations as follows:

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge.  The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General (list activities relevant to the department), are not included as an expense in the department's Statement of Operations.

(b) Payables and receivables outstanding at year-end with related parties:

(Note: if the amount of receivables and payables is presented elsewhere in the financial statements, there is no need to present the information in this note).

(c) Administration of programs on behalf of other government departments (Note: only recommended for departments which administer significant amounts of funds on behalf of other government departments)

Under a memorandum of understanding signed with Industry Canada on April 1, 2004, the department administers program XXX in Northern Canadian communities.  During 2005-06, the department issued $xxx in transfer payments ($xxx in 2004-05) on behalf of Industry Canada.  These expenses are reflected in the financial statements of Industry Canada and not those of the department.  Provide a description of the activities performed by your department and the dollar amount of funds administered.

15. Comparative information

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

This note should be used only when appropriate.