Finance

Specific policies for recording accounting information and determining appropriate accounting treatments for transactions.

A basis of accounting, other than the CICA handbook or the PSAB handbook that represents GAAP for a particular entity. ADBA is directed by the relevant Minister for NWT Health and Social Services Authorities as well as for Divisional Education Councils and District Education

Authorities, whereby the relevant Minister specifies the accounting basis on which those entities financial statements are to be prepared.

An economic resource controlled by the Government as a result of past transactions or events and from which future economic benefits may be obtained

Occurs when an estimate of a potential future liability cannot be confirmed, either because an event required for confirmation has not yet occurred or because a reasonable estimate of the potential amount of liability is not possible. Examples of contingent liabilities include pending litigation, guarantees and indemnities, and possible or inestimatable liabilities resulting from existing agreements, environmental damage, or property damage.

An accrued liability for revenue received under a contract for which work has not been completed at the balance sheet date is recorded as deferred revenue .

The combined set of Governmentowned or controlled departments, public agencies, funds, and enterprises that are accountable to a Minister of the Government or to the Legislative Assembly for the administration of their financial affairs and resources.

A financial asset of the government (the lender) represented by a promise by a borrower to repay a specific amount at a specified time or times, or on demand; usually with interest.³

The equity method of accounting, modified only to the extent that the accounting principles used by a GBE are not adjusted to conform with those of the Government upon consolidation in the Public Accounts .

Financial Statements, published annually by the Government, which include the Consolidated Financial Statements, i.e., Summary Financial Statements, the Non-Consolidated Financial Statements, and Management Discussion & Analysis for the fiscal year.

4.1

Disclosure of Accounting Policies

Alternative accounting principles and methods can produce different reporting results for similar items and transactions. Financial statements of component entities within the GRE must disclose and explain all their significant accounting policies . This element is crucial for all entities that do not follow the accounting principles and methods set out in this policy.

4.2

Accounting Policies for Assets

Accounts and Notes Receivable Accounts receivable include receivable balances from both related and unrelated parties, revolving funds, and accrued interest. Accounts receivable are valued at the amount of the claim less any valuation allowance for doubtful collection of principal or interest. Interest on an overdue balance must cease to be accrued when collection of either principal or interest is not reasonably assured. These are referred to as impaired loans.

Inventories

1. Inventories of bulk fuel, liquor products, and arts and crafts for resale must be recorded at the lower of cost or net realizable value. Bulk fuel cost is determined using the weighted average. Cost for all others is to be determined on a first-in, first-out basis.
2. Inventories of property and materials under development are to be valued at the lower of cost or replacement value. They are to be recorded as work-in-progress and are not subject to amortization.
3. Inventories of supplies are to be expensed when purchased.

4.2.3

Loans Receivable

1. Loans receivable include, among other things, loans to municipalities, promissory notes, mortgages, interim financing loans and student loans.
2. Loans receivable and advances are to be valued at the lower of cost or net recoverable value. The difference between these two, the Allowance for Doubtful Accounts, must be stated separately. Interest earned during the year on these loans must also be stated separately.
3. A loan receivable or portion of a loan receivable that is to be repaid with Government funding is not a financial asset of the Government. It is more in the nature of a grant to the borrower. It must be written off and accrued in full as expenditure incurred during the fiscal year in which it is decided that Government funding will repay the loan, even though the actual repayment will occur in a future year. Any subsequent (unexpected) repayment received from any other source after the end of the decision year must be recorded as a recovery of a prior year expenditure. (PS3050.10.16)
4. Allowance for losses for non-performing mortgages are calculated as the difference between the carrying value of the mortgage and the depreciated property value. Depreciated value is determined by the declining balance method.
5. If the Government expects a loan to be repaid, except for loans made under specific conditions (e.g. remissible Student Loans), the Government has a financial asset until the loan is written off or repaid. Based on experience, a reasonable provision for loan impairment must be recorded. Conversely, where the Government advances funds it does not expect to be repaid, unless the most likely expectations are not met, (e.g. a student ceases to meet the requirements for a grant of Student Financial Assistance), the amount advanced is more in the nature of a grant. The Government does not have a financial asset until the unexpected event occurs. The amount advanced must be recorded as an expense. If the advance recipient becomes ineligible for a grant, the ineligible portion of the advance is recorded as a recovery of an expense at that time.
6. Interest revenue must be recognized on a loan receivable when earned and ceases to be accrued when the collectability of either principal or interest is not reasonably assured.

Concessionary Loans and Discounted Mortgages

1. If the terms of all or part of a concessionary loan or discounted mortgage are such that the substance of the transaction is in the nature of a grant, the grant portion must be recorded as an expenditure during the fiscal year in which the loan or mortgage is made. For example, when interest is charged at a rate below the Government's interest cost for equivalent borrowing, the expenditure recorded is the difference between the face value and present value when the loan is made. (PS3050.20-.25.)
2. A portion of each repayment received on a concessionary loan or discounted mortgage is applied to reduce the principal. The balance is classified as grant recovery revenue.

Valuation Allowances

1. A valuation allowance is a provision for doubtful loans receivable and must be determined using the best estimates available in light of past events and current conditions, taking into account all known circumstances at the date the financial statements are prepared. Such valuation allowance must be disclosed separately.
2. Tax credits and adjustments are not valuation allowances. By agreement with the Government of Canada, personal income tax, corporate income tax, and property tax must be recorded net of tax credits and adjustments based on revised assessments of actual tax revenue of previous taxation years.

Investments

1. Investments that are held over one year are valued at the lower of cost or market value on an aggregate basis. When portfolio investments include marketable securities, the quoted market value of such securities, as well as their carrying value, must be disclosed. Interest earned on these investments must also be disclosed.
2. Money market securities, other short term investments, and readily marketable securities held as temporary investments are valued at the lower of cost or market value. Interest earned on these investments must be disclosed.
3. Investments in wholly-owned enterprises of a commercial nature, that have been classified as GBE, are valued using the equity method and are reported by the Government as investments in associated entities on the consolidated statement of financial position.

Impairment in Value of Investments

1. A fixed income bond or debenture is written down to net realizable value if there is a restructuring of the debenture or default (where payment is 90 days overdue) in principal or interest payments for a debenture or bond.
2. When the value of common or preferred shares becomes permanently impaired, the value of the security is written down to net realizable value.
3. Mortgages are written down to the value of the underlying assets , as determined by management and based on independent appraisal, if payments are three months in arrears.
4. Investments other than those mentioned in paragraphs (a) to (c) above are written down to net realizable value if there is evidence that their values have become permanently impaired. The written down value is the new adjusted cost for the investments.
5. All valuation adjustments are charged to expense in the year of occurrence.
6. The basis for determining the amount of an allowance for loan impairment and the events and conditions considered in determining the charge to expense must be disclosed.
7. A write-down to reflect a permanent impairment in the value of an investment must not be reversed due to any subsequent increase in value.

Tangible Capital Assets (TCAs)

The Government will report its TCAs based on PSAB recommendations. The minimum capitalization threshold in Financial Administration Manual policy 2201 - Tangible Capital Assets is $50,000. TCAs are to be amortized on a straight-line basis over the estimated useful life of the asset .

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities include all financial claims to be paid. All liabilities to related entities, including amounts payable to the Government of Canada, must be disclosed in total by entity. Contingent liabilities such as guarantees and indemnities are to be recorded as liabilities only when management determines that there is a likelihood of payment. The amount to be recorded for guarantees and indemnities is an estimate of future payments less recoveries. The total by categories for non related entities must be disclosed

Deferred Revenue

An accrued liability for revenue received under a contract for which work has not been completed at the balance sheet date is recorded as deferred revenue . Such revenue is to be recorded as income when the work is completed. When a contract is only partially completed at year-end, only the portion of the revenue earned in the reporting year may be recognized in the financial statements for that year.

Pension Liabilities

Actuarial Valuation

The period between actuarial valuations should not normally exceed three years. The valuation determines the present value of liabilities for benefits expected to be paid in the future to pension plan members, the actuarial value of assets , and any net unfunded actuarial liability or net asset . The assumptions and methods used must be consistent with sound actuarial principles for the purpose of the valuation. The actuarial value of net assets must be taken to be the market value, or marketrelated value, of the net assets . In the years between valuations, an extrapolation of the expected net pension liability may be used. The actuarial present value of accrued pension benefits attributed to services rendered up to the reporting date, the value of pension fund assets , and the unamortized balance of actuarial gains or losses must be disclosed.

Defined Benefit Pension Plan

1. This plan specifies the method for determining the amount of pension benefits. The cost of pension benefits provided in exchange for employees' services rendered in the period must be determined using an accrued benefit method. (PS3250.16)
2. Estimation adjustments due to experience gains or losses and changes in actuarial assumptions must be amortized on a rational and systematic basis over an appropriate period of time, which would normally be the expected average remaining service life of the related employee group covered by the plan.
3. Where a plan amendment results in prior period costs, those costs must be recorded in the year the plan amendment is implemented.
4. The actuarial present value of accrued pension benefits attributed to services rendered up to the reporting date and the value of pension fund assets must be disclosed.

Contractual Obligations

A contractual obligation that is significant to the Government's current financial position or future operation must be disclosed in the notes to the Financial Statements. Examples are contribution funding agreements (operational commitments) and capital projects requiring the Government to make payments beyond the end of the current fiscal year .

Contingencies

1. A contingent liability must be disclosed in the notes to the financial statements and must not be recorded as a liability (PS3300).
2. A liability is to be booked when an event confirming the existence of a liability as at the reporting date, is likely to occur. If the amount can be reasonably estimated, a liability must be accrued as at the reporting date, based on the best available estimate. For example, suspected environmental damage has been confirmed after the reporting date and a reasonable cost estimate of site restoration or cleanup is possible.

Subsequent Events

a) Events that occur subsequent to the balance sheet date that have a significant financial impact on the assets or liabilities of the Government or on its future operations are to be reported. There are two major types of subsequent events:

i) Events that provide additional evidence of conditions that existed at the balance sheet date; and

ii) Events indicative of conditions arising after the balance sheet date. Examples of major subsequent events are bankruptcy of a debtor or default of a material loan; commencement of litigation; a liability imposed by litigation; significant loss of assets due to natural disaster; privatization after the Balance Sheet date; and purchase or disposal of major assets .

b) For events that provide additional evidence of conditions that existed at the balance sheet date, the financial statements will be adjusted to reflect the impact.

c) For events indicative of conditions arising after the balance sheet date, note disclosure is required.

Recognition

1. Revenue is recorded on an accrual basis, except where the accrual amount cannot be reasonably determined or where estimation is impracticable.
2. Revenue collected for and on behalf of crown corporations, commissions, or agencies and paid to them as directed by statute must be recorded and reported as accounts payable and must not be included in revenue.

Grant from the Government of Canada

The Grant from the Government of Canada is calculated based on a three-year moving averages of personal and corporate income taxes (with a two year delay), fuel taxes, tobacco tax and alcoholic beverage revenues, changes in national average tax rates, population changes and the growth in provincial/local government spending. The Grant is estimated once for each fiscal year and is not revised.

Taxes

1. Income tax revenue is recognized on an accrual basis. Personal and corporate income tax revenues are collected by the Government of Canada under the tax collection agreement and are remitted to the Government of the Northwest Territories monthly. The remittances are based on the estimates for the taxation year and are adjusted when the final income tax assessments are completed. Where the Government of Canada has not made a remittance but has recognized a liability prior to the end of the fiscal year, an accrual should be made for the amount recognized by the Government of Canada.
2. Fuel, tobacco, and payroll taxes are recorded on an accrual basis based on the statements received from collectors and employers. Adjustments from reassessments are recorded in the year they are identified.
3. Property and school taxes are assessed on a calendar year basis and are recognized on an accrual basis.

Other Revenue

1. For practicality, due to difficulty in estimating the amounts, licenses, fees and permits are recorded on a cash basis. All other revenues are recorded on an accrual basis.
2. Expense under-accruals, valuation allowance reversals, and recoveries of prior years' expenses (RPYE) are shown separately from other revenue for the year and are not to be used to offset current expenditures. Pursuant to Section 36(9) of the FAA , reversals and recoveries may not be used to increase appropriations

Recognition

Expenses are recorded on an accrual basis except where the accrual amount cannot be estimated with reasonable certainty.

Projects for Government of Canada and Others

Accountable advances received from the Government of Canada and other third parties for projects performed on their behalf are recorded separately from the normal revenues and expenses. Unapplied advances are recorded as current liabilities; eligible expenses in excess of advances are recorded as accounts receivable.

Grants-in-Kind

1. Controllable assets (i.e., expensed) that are gifted must be recorded as grant-in-kind expense with a corresponding grant-in-kind revenue. The Government is giving up a resource that has monetary value and the transfer must be accounted for in the same manner as a monetary grant. (see FAM 1905 for details of the accounting and reporting requirements.)
2. For TCAs and work-in-progress, a grant-in-kind must be recorded as an expense with a corresponding credit to remove the asset from the books.

Unrecorded Liabilities

Material liabilities that are not recorded prior to the year-end cut-off date must be charged to the old year appropriation by means of a post-closing adjustment.

Recoveries of Expenses

Pursuant to Section 56 of the FAA , recoveries of expenses may be recorded as a credit to the appropriate expense account when all of the following conditions are met:

1. The recoveries can be specifically identified with an expense transactions and the payment was actually made from a current appropriation; and,
2. Provision for the transaction is approved through the Estimates (i.e. Budget); and, In all other instances, the recovery must be recorded as RPYE.

Foreign Currency Translation

1. Monetary assets and liabilities denominated in foreign currency at the year-end must be translated to Canadian dollars at the year-end rate. Monetary transactions made during the year must be translated at the exchange rate prevailing at the date of the transaction unless it is hedged by a forward exchange contract, which specifies a rate of exchange.
2. Adjustments arising as a result of foreign currency translation must be credited to revenue (increases) or charged to an appropriation (decreases) at the time the adjustments arise.
3. Unrealized exchange gains or losses on longterm monetary assets and liabilities must be reported as deferred credits or charges and amortized over the remaining terms of the related items on a straight-line basis.
4. Non-monetary assets and liabilities must be translated at the historical rates of exchange at the time of their acquisition/occurrence.

Principles of Consolidation

The preparation of Consolidated Financial Statements, in accordance with PSAB (PS 1300, PS 2500 and PS 2510), must include the accounts of the Government and organizations controlled by the Government. Entities that are deemed to be GBEs must be accounted for using the modified equity method . All other Government controlled entities must be accounted for on a line-by-line consolidation basis. The following related Government boards and agencies are reflected in the statements only to the extent of the Government's contributions (current and future liability ) to them:

• Workers' Safety and Compensation Commission
• Legislative Assembly Retiring Allowances Fund; and
• Territorial Court Judges' Registered Pension Plan.

Entities with Different Fiscal Year-Ends

1. If a component entity's fiscal year-end differs from that of others in the consolidated reporting entity of the Government, the financial results must be adjusted, unless the Government determines that the adjustment would be insignificant to the consolidated operating results and financial position.
2. Where an adjustment is required, the component entity shall provide to the Government a statement of financial position and statement of operations for the twelve (12) months ending March 31 (the Government's fiscal year-end), and audited financial statements detailing the results of its operations for its fiscal year.

Timing of Reporting

Component entities within the consolidated reporting entity of the Government shall provide annual accounting information to the Comptroller General within the time frames and according to the form and content established by the Office of the Comptroller General, Department of Finance.