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VOLUME I

SUMMARY REPORT AND FINANCIAL STATEMENTS

RECEIVER GENERAL FOR CANADA

Hon. J. P. Goyer, M. P., P. C.

. P7SL t

Governmtn* Publication

public accounts of conoda

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VOLUME I

SUMMARY REPORT AND FINANCIAL STATEMENTS

RECEIVER 6ENERAL FOR CANADA

Hon. J. P. Goyer, M. P., P. C.

© Minister of Supply and Services Canada 1977

Available by mail from

Printing and Publishing Supply and Services Canada Ottawa, Canada K1A0S9

or through your bookseller.

Catalogue No. P5 1-1/1977-1 ISBN 0-660-01477-7

Canada: $3.25 Other countries: $3.90

Price subject to change without notice.

To His Excellency

The Right Honourable Jules Leger, C.C., C.M.M., CD., Governor General and Commander-in-Chief of Canada.

MAY IT PLEASE YOUR EXCELLENCY:

The undersigned has the honour to present to Your Excellency the Public Accounts of Canada for the year ended March 31, 1977.

All of which is respectfully submitted.

Jean Chretien Minister of Finance.

OTTAWA, SEPTEMBER 30, 1977.

Minister of Finance.

In accordance with the provisions of Section 55(1) of the Financial Administration Act, Revised Statutes of Canada, 1970, c. F. 10, I have the honour to transmit herewith the Public Accounts of Canada for the year ended March 31, 1977, to be laid by you before the House of Commons.

Respectfully submitted,

J. P. Goyer, Receiver General for Canada.

To The Honourable J. P. Goyer, Receiver General for Canada.

Sir:

I have the honour to submit the Public Accounts of the Government of Canada for the year ended March 31, 1977.

Under Section 55(1) of the Financial Administration Act, Revised Statutes of Canada, 1970, c. F. 10, the Public Accounts for each fiscal year shall be prepared by the Receiver General and shall be laid before the House of Commons by the Minister of Finance on or before the thirty-first day of December next following the end of that year, or if Parliament is not then sitting, within any of the first fifteen days next thereafter that Parliament is sitting.

This annual report is presented in three volumes:

Volume I A survey of the transactions for the year including summary statements; the financial statements of Canada certified by the Auditor General, namely, the statements of revenue and expenditure on a gross and net basis, of the assets and liabilities of Canada and of budgetary appropriations and expenditures together with related notes; the observations of the Auditor General on the financial statements of Canada; analyses of budgetary revenue and expenditure, non-budgetary and foreign exchange transactions, the financing operations of the government and asset and liability accounts together with those statements required by the Financial Adminis- tration Act to be published in the Public Accounts and various other schedules, statements and explanatory notes.

Volume II- departments.

-Details of expenditures and revenues by

Volume III The financial statements of all Crown corporations and the Auditors' reports thereon.

Respectfully submitted,

J. L. Fry,

Deputy Receiver General for Canada.

fAWA, SEPTEMBER 30, 1977

OTTAWA, SEPTEMBER 30, 1977.

FOREWORD

The format of Volume 1 of the Public Accounts of Canada differs somewhat from previous years' presentations. This is due to the changes which have been made this year to implement many of the recommendations of the Report of the Study of the Accounts of Canada, and the refinement of the measures previously taken to implement certain recommendations of the Report of the Independent Review Committee on the Office of the Auditor General of Canada (Wilson Report).

Changes to this edition of the Public Accounts were intro- duced as a result of the recommendations included in the Fifth Report of the Standing Committee on Public Accounts of March 9, 1976. This report endorsed the measures proposed in the Report on the Study of the Accounts of Canada* and recommended that they be implemented as soon as it is technically possible. Recommendations being implemented in the 1976-77 Public Accounts relate mainly to the following:

1 . Where practical, the financial statements of the Govern- ment of Canada are presented to show accounts with outside parties on a basis consistent with the new defini- tions of assets and liabilities;

2. The recommended standard form of presentation of Summary Statements for the reporting of Government financial transactions, used in the Budget Papers of May 25, 1976, and in the Canada Gazette monthly series, is introduced in Section 2 of this volume for purposes of consistency;

3. The Extended National Accounts are introduced to in- corporate other financial transactions which affect the Government's financial requirements, and a presentation of transactions on this basis is now included in the Public Accounts;

4. The format of the Statement of Assets and Liabilities is significantly revised but further revisions will be necessary in 1977-78 to improve its consistency with the new standard summary statement of financial transactions and

to make its contents compatible with the new definitions o assets and liabilities;

5. The format of the Statement of Revenue and Expenditure is also revised to show revenues and expenditures on a gross and net basis, but further work to identify inter departmental transactions is required in order to presen net transactions with those outside the Government o Canada;

6. The recommended distinction between accounts for loans to outside parties and working capital advance accounts has been introduced.

Previous changes to implement recommendations in the Wilson Report included:

1. The location of all statements certified by the Auditor General in one section of the Public Accounts togethe with any notes and explanations;

2. The inclusion of the Auditor General's qualifications or other observations on the financial statements in a repor which is attached to the financial statements in the Public Accounts.

In addition, the Summary of Revenue by Main Classification and Department, formerly included among the main financial statements, was not presented this year to the Auditor General for certification because it includes only details of revenue by department already reported in the Statement of Revenue and Expenditure. This Summary may now be found in Section 6 of this volume.

The Wilson Report also recommended the inclusion of a new statement showing changes in financial position. As a result of this recommendation, a statement of changes in the debt and cash position of the Government is being developed but is not yet considered to be in a form which could be presented for certification by the Auditor General; it has therefore been included as a supplementary statement in Section 5 of this volume.

•The Report of the Study of the Accounts of Canada is available from the Publishing Centre, Supply and Services Canada, under catalogue no. BT 22-6- 1976.

VOLUME

1

TABLE OF CONTENTS

1. The Scope and Methods of the Public Accounts.

2. Comparative Statements of Transactions.

3. Audited Financial Statements of the Government of Canada.

4. Observations by the Auditor General on the Financial Statements of the Government of Canada.

5. Supplementary Financial Statements.

6. Budgetary Revenue.

7. Budgetary Expenditure.

8. Non-Budgetary and Foreign Exchange Transactions.

9. Financing Operations of the Government, the Public Debt and the Cash Position.

10. Asset and Liability Accounts.

11. Supplementary Information Required by the Financial Administration Act and other Miscellaneous Information.

12. Index.

SECTION

1

1976-77

PUBLIC ACCOUNTS

The Scope and Methods of the Public Accounts

CONTENTS

Nature and format of the Public Accounts Government's accounting system

Page

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1-2

PUBLIC ACCOUNTS, 1976-77

THE SCOPE AND METHODS OF THE PUBLIC ACCOUNTS

Nature and Format of the Public Accounts

Nature of the Public Accounts

The Public Accounts of Canada is the annual financial report of the Government of Canada prepared by the Receiver General for Canada as required by Section 55 of the Financial Adminis- tration Act. The report covers the financial transactions of the Government during the year under review even although the Parliamentary authority to undertake these transactions was, in many cases, provided by legislation approved in earlier years. In addition, it includes the financial statements of those Crown corporations and other bodies whose accounts are maintained separately from the accounts of Canada. The financial year of a number of these corporations is the calendar year rather than the fiscal year of the Government that ends on March 3 1 .

Format of the Public Accounts

The Public Accounts is produced in three volumes. Volume I contains:

—An outline of the principal features of the Government's financial statements and accounting system;

Summary statements of the financial transactions of the Government of Canada on both Public Accounts and Extended National Accounts bases of accounting.

The financial statements of the Government of Canada, which are signed by the Deputy Receiver General for Canada and the Deputy Minister of Finance and certified by the Auditor General are as follows: The Statement of Revenue and Expenditure on a Gross

and Net Basis; The Statement of Assets and Liabilities; A Summary of Budgetary Appropriations, Expend- ,

itures, and Unexpended Balances by Departments; and The related Notes to Financial Statements.

—The observations by the Auditor General on the financial statements;

Financial statements which supplement the signed finan- cial statements;

A review of budgetary revenue, expenditure and the surplus or deficit for the year, with comments on the significant aspects of the more important items;

An analysis of non-budgetary and foreign exchange trans- actions;

A summary of the financing operations of the Government and their effect on the unmatured debt and the cash position of the Government;

An analysis of asset and liability accounts;

The statements required by the Financial Administration Act to be published in the Public Accounts together with a number of supporting schedules and statements.

Volume II reviews the financial operations of departments in finer detail. For each department, this volume presents: Budgetary appropriations, expenditures and unexpended

balances; The total cost of each program; An analysis of expenditures by program;

An analysis of expenditures by standard object;

An analysis of expenditures by activities within a program;

A statement of grants, contributions and other transfer payments;

A statement of revenues collected;

A summary of departmental financial transactions; and

Statements of revolving funds and other accounts.

Volume II also provides a range of additional information, by departments, on items such as: Accounts receivable;

Payments for professional and special services; Construction and the acquisition of machinery, equipment, land, buildings, and works.

Volume III includes the financial statements of Crown corporations which keep their own accounts, together with the reports of their auditors.

Government's Accounting System

The accounting practices have developed over a number of years and reflect the provisions of the British North America Act and other legislation.

To assist the reader in interpreting the Government's financial statements, a brief outline of the main features of its accounting methods is given in the paragraphs which follow. This outline includes:

The basic concepts of the Government's accounting system;

The definition of the Government of Canada as an accounting entity;

The identification of financial transactions;

The allocation of transactions to fiscal years;

The measurement of transactions;

The classification of transactions.

Basic Concepts

The two basic concepts of the Government's accounting system in the British North America Act are that all duties and revenues, other than those reserved to the Provinces, "shall form One Consolidated Revenue Fund" and that the balance of the Fund, after certain prior charges, "shall be appropriated by the Parliament of Canada". The Financial Administration Act further provides that "All estimates of expenditures submitted to Parliament shall be for the services coming in course of payment during the fiscal year" but modifies this requirement by permitting debts which are incurred during the year and paid within the following thirty days to be included in the accounts of the year. Any debts so paid may be charged in the accounts of the year just ended. After the period allowed for the payment of debts, no further disbursement may be made from the un- expended balance of any annual appropriation. As a result, there are then no annual appropriations under which debts incurred during a year but still unpaid can be discharged. All disbursements to discharge debts incurred during a year are therefore reflected in the accounts of that year. The effects of these constitutional and legal provisions are examined further in the following sections.

THE SCOPE AND METHODS OF THE PUBLIC ACCOUNTS

1-3

Government of Canada as an Accounting Entity

All the financial transactions of the Government of Canada are reflected in the Public Accounts, irrespective of whether they are undertaken by or on behalf of a department, agency or other body such as a board, commission, council, Crown corporation or fund. There are, however, a number of Crown corporations and other bodies which operate their own banking facilities and keep their own accounts. The financial transactions of these organizations are reflected in the transactions of the Govern- ment of Canada only to the extent that they receive money from or pay it to the Government.

As an accounting entity, the Government of Canada is defined as the aggregate of all its departments, agencies, boards, commissions, councils, Crown corporations, funds and other bodies, with two exceptions. These exceptions are the "Agency" and "Proprietary" Crown corporations, listed respectively in Schedules C and D of the Financial Administration Act and those Crown corporations that are not subject to the Financial Administration Act. The Crown corporations not subject to the Financial Administration Act include the Bank of Canada, the Canada Council, the Canadian Wheat Board, the Federal Business Development Bank, the International Development Research Centre and the National Arts Centre Corporation. This definition is consistent with that given in the Report on the Study of the Accounts of Canada.

Although "Agency" and "Proprietary" Crown corporations are normally permitted to make their own banking arrange- ments, six "Schedule C" corporations the Canadian Dairy Commission, the Canadian Film Development Corporation, the Canadian Livestock Feed Board, the National Harbours Board, the Royal Canadian Mint and Uranium Canada Limited are required to use the Consolidated Revenue Fund for banking purposes. These six "Agency" Crown corporations are treated in the same way as other Schedule C and D corporations and are therefore excluded from the definition of the Government of Canada as an accounting entity.

The distinction drawn between the Government of Canada as an accounting entity and those Crown corporations that are regarded as outside that entity reflects the different nature of the transactions of the Government of Canada and those of the Crown corporations in question. Within the Government of Canada, most financial transactions are undertaken for non- commercial purposes. Within the Crown corporations in ques- tion, commercial objectives are significant and are reflected in their accounting systems.

The following description of the Government's accounting system refers only to the departments, agencies and other accounting sub-entities that are included in the Government of Canada as an accounting entity.

Identification of Financial Transactions

Section 102 of the British North America Act provides that all cash receipts are to be paid into the Consolidated Revenue Fund and that all cash payments are to be made from the Fund. The same requirement, together with the provisions in the Financial Administration Act that bring the bank accounts of the Government within the Consolidated Revenue Fund, ensures that the record of cash transactions into and out of the Consolidated Revenue Fund is complete.

The identification of financial transactions therefore begins with the identification of all cash transactions that lead to

changes in the balance of the Consolidated Revenue Fund. Cash transactions within the Consolidated Revenue Fund when money is moved between bank accounts are therefore excluded from the Public Accounts.

Apart from cash transactions, a number of internal trans- actions are identined. These transactions do not lead to any change in the balance of the Consolidated Revenue Fund but are included in the Public Accounts because of legislation and regulations.

The major internal transactions are:

Interest, Government contributions and deferred charges credited to annuity, insurance and pension accounts;

Amortization of deferred charges for loan flotation costs;

Advances to the Unemployment Insurance Account;

Departmental working capital advances;

Loans to revolving fund accounts;

Appropriations credited to undisbursed balances of appro- priations to special accounts carried forward to future years;

Internal charges and credits to votes from other appro- priations, the Unemployment Insurance Account, the Canada Pension Plan account, special and deposit and trust accounts;

Internal transfers of interest, profits, surpluses and deficits between funds and accounts;

Losses written off and conditional benefits under the Veterans' Land Act.

In addition to the cash and internal transactions that have been described, deferred revenue for income due but not received and two other types of transactions are identified in the Public Accounts of Canada. The initial transactions leading to issues of non-interest-bearing notes payable to the International Monetary Fund and other international organizations together with allocations of Special Drawing Rights received from the International Monetary Fund do not lead to changes in the Consolidated Revenue Fund but influence other assets and liabilities.

Non-interest-bearing notes payable to international organ- izations are issued as a part of Canada's subscriptions to the capital of such organizations. These subscriptions are recorded as assets while the non-interest-bearing notes are recorded as liabilities until they are paid. The initial issue of notes therefore leads to no receipts of cash but there are subsequent cash payments to international organizations when they present the notes for payment.

Special Drawing Rights are allocated to Canada by the International Monetary Fund. At the time of such allocations, no payment is made by Canada even although Special Drawing Rights are assets that can be used to make payments to other countries. To identify the transaction, Special Drawing Rights are recorded as additional advances to the Exchange Fund and the equivalent liability for their re-payment to the International Monetary Fund is recorded.

After the initial issues of non-interest-bearing notes or allocations of Special Drawing Rights, subsequent transactions lead to changes in the balance of the Consolidated Revenue Fund and are therefore identified in the same way as any other transactions that change the balance of the Fund.

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PUBLIC ACCOUNTS, 1976-77

Allocation of Transactions to Fiscal Years

The allocation of transactions to accounting periods is usually determined on either a "cash" or an "accrual" basis. When the "cash" basis is used, revenues are taken into the accounts in the period during which they are collected and expenditures are accounted for when cash disbursements are made. When the "accrual" basis is used, revenues are accounted for when earned or due, even if they are not then collected, while expenditures are accounted for when liabilities are incurred irrespective of whether or not payment is made in the same accounting period.

In the Public Accounts, revenues are reported on a cash basis so that accrued tax revenues and other revenues receivable or accrued (including interest accrued) are not normally reported as assets on the Government's statement of assets and liabilities. Both tax and non-tax revenues that have accrued but not been received are clearly not in the Consolidated Revenue Fund; they therefore cannot be used to finance disbursements.

In the case of expenditure, the Financial Administration Act provides that all estimates of expenditure shall be for the services coming in course of payment during the year but permits payments to discharge debts to be made from annual appropriations for thirty days after the end of the year and reported in the accounts for that year. Thereafter, all annual appropriations lapse. As a result, liabilities under contracts and other accounts payable at March 31, for which cheques are issued during April, are charged as expenditures in the year ended March 3 1 and appear as other liabilities on the statement of assets and liabilities. Any expenditures not so included are those for which annual appropriations have lapsed. This procedure brings into each year's transactions by far the greater part of the Government's expenditures that, on an accrual basis, would be included as accrued expenditure.

Specific provisions are made to accrue interest on the public debt, and salaries and wages.

Charges to budgetary expenditure for interest on unmatured debt, including Treasury bills, are made each month as interest accrues rather than annually or semi-annually as interest becomes payable. Accrued salaries and wages are charged to budgetary expenditures at the end of the year.

The effect of these procedures is to include in budgetary expenditure for each year accrued interest on unmatured debt and other liabilities, accrued salaries and wages and a measure of other accrued expenditures based on debts incurred during a year and paid during the first thirty days after its end. The difference between budgetary expenditure as reported in the Public Accounts and budgetary expenditure on a full accrual basis is therefore the value of debts incurred during a year and not paid during the following thirty days. As already indicated, no annual appropriations then exist to discharge such unpaid debts.

These practices are conservative in that budgetary expendi- ture is included in the accounts for the year as liabilities while accrued revenues are not treated as assets or taken into revenue until collected.

Receipts from the sale of assets and the incurring of liabilities together with payments for the acquisition of assets and the retirement of liabilities are recorded when they occur.

Other transactions that do not lead to any receipts or payments of cash have already been described in the section dealing with the "Identification of Financial Transactions".

Measurement of Transactions

All transactions are measured in terms of Canadian dollars, as required by the Financial Administration Act.

Where a transaction leads to movements of money into or out of the Consolidated Revenue Fund, its value is taken to be that of the cash receipt or disbursement in question. The only significant exception to this practice is in the measurement of receipts from issues of marketable bonds and Treasury bills. Treasury bills are issued at a discount; marketable bonds may be issued at par, a discount or a premium. However, issues of marketable bonds and Treasury bills are recorded at face value. For bonds, discounts and premiums are charged directly to budgetary expenditure in the year of issue and are not amortized over the term of the bond; this represents a change in practice introduced in 1976-77. Treasury bill discount is recorded in the unamortized Treasury bill discount account and amortized over the term of the bill.

Expenditures accrued at the end of a year do not result in payments of money out of the Consolidated Revenue Fund during that year. Accrued expenditures are therefore measured at the proportionate amount of the payment that will be made from the Fund when the related liabilities are liquidated.

Transactions that do not lead to payments into or out of the Consolidated Revenue Fund are measured in a number of ways. For the purposes of measurement, such transactions can be considered in three groups.

The first group consists of transactions arising from the deferring of expenditure or revenue. This group includes charges for actuarial deficiencies in superannuation accounts, deferred charges for loan flotation costs and deferred revenue for loan premiums and interest earned but not received.

In the case of the superannuation accounts for the Public Service, Canadian Forces and Royal Canadian Mounted Police, valuations are made every fifth year and the super- annuation account in question is then credited with the total amount of any deficiency adjustment. At the same time the amount of the adjustment is charged to the account for deferred charges for superannuation accounts. The deferred charge is amortized by annual charges to budgetary expenditure and revolving funds over a period of five years, starting in the year in which it is first set up. Similar adjustments are also made when there are salary increases.

The measurement of transactions arising from the deterring of expenditure is therefore based on their original recorded values and the convention adopted to record such transactions in the accounts over a period of time.

The second group consists of transactions that arise from transfers between accounts or to subsequent years.

They are measured as follows:

Advances to the Unemployment Insurance Account, de- partmental working capital advance accounts and revolv- ing fund accounts represent amounts drawn against authorities to disburse money made available to these accounts;

Additions to the undisbursed balances of appropriations to special accounts are the amounts of authorities to disburse money that are granted annually and which may be carried forward to future years;

Credits to votes where the amounts in question are trans- ferred from one department or agency to another are measured at the amount that the paying department or agency has agreed to transfer to the recipient;

THE SCOPE AND METHODS OF THE PUBLIC ACCOUNTS

1-5

Internal transfers of interest are measured in the normal way on the basis of principal outstanding, the agreed rate of interest and the term of the liability;

Revolving fund surpluses are the excess of revenues over expenses.

The last group of transactions consists of losses written-off. These transactions are measured at the determined amount of the loss; they are, in effect, adjustments of the value of assets.

Classification of Transactions

For the reader's convenience, this section has been subdivided as follows:

Classification of items as budgetary and other than budget- ary; Budgetary revenue; Budgetary expenditure; Definition of assets and liabilities; Assets; Liabilities; Valuation of assets and liabilities.

Classification of transactions as budgetary and other than budgetary

The financial transactions of the Government of Canada are classified into two basic groups, budgetary and other than budgetary.

In general terms, "budgetary" transactions occur when current revenues are raised or current expenditures are made; transactions other than budgetary lead to the acquisition or disposal of a financial asset or to the creation or discharge of a financial liability. Transactions other than budgetary include non-budgetary, foreign exchange and unmatured debt trans- actions. These classifications are, however, subject to a number of exceptions and may also be altered at the discretion of the Minister of Finance or by legislation.

The Minister of Finance is given a discretionary power in Section 55(2Xc) of the Financial Administration Act to deter- mine "such of the assets and liabilities of Canada as, in the opinion of the Minister, are required to show the financial position of Canada as at the termination of the fiscal year". He therefore has the power to change the classification of any transactions from budgetary to other than budgetary, or vice versa.

Most changes in the classification of transactions are, how- ever, made by legislation establishing a new account. These changes in classification apply to both revenue and expenditure. For example, if a new advance account or revolving fund account is allocated certain fees, the classification of these fees will change from budgetary revenue to receipts that no longer are classified as budgetary. Similarly, when an advance account or revolving fund account is created, any capital expenditures it makes are re-classified from budgetary expenditures to pay- ments that are not budgetary.

The effect of these practices is that budgetary revenue is revenue that is not allocated to a specific purpose while budgetary expenditure consists of expenditure that is financed from budgetary revenue, and such other sources as may be used to finance any shortfall of budgetary revenue. Since revenue that was freely disposable can be allocated to a special purpose, and vice versa, the classification of transactions as budgetary or other than budgetary may not be the same from one year to another. Budgetary transactions can be reclassified as other

than budgetary, and conversely, whenever a new advance or fund account is created or discontinued.

For the purpose of accounting and reporting, the Public Accounts uses the definition of budgetary and other than budgetary transactions in force at the end of the year to which the report refers and presents comparative figures for the previous year based on the same definition. This procedure has been adopted to provide as accurate comparisons as possible between the current and previous years in any given edition of the Public Accounts.

Budgetary revenue

Budgetary revenue consists of all revenue that has not been allocated to a special purpose. It includes all tax revenues from income tax, the oil export charge, excise taxes and duties, customs import duties and estate tax subject to the exceptions noted in the following paragraph. In addition, budgetary revenue includes the returns received on investments, postal revenue net of both disbursements and revenues credited to the votes of the Post Office, and certain other non-tax revenues. The main items included in other non-tax revenues are receipts from fees, sales, privileges, licences and permits and bullion and coinage transactions and refunds of previous years' expend- itures. Budgetary revenue also includes other internal trans- actions that do not lead to changes in the balance of the Consolidated Revenue Fund as disclosed under the Iden- tification of Financial Transactions.

Net budgetary revenue is stated after deducting refunds paid and excludes the following in compliance with legislation and regulations:

1 . taxes collected by the Government of Canada but paid to participating provinces in accordance with Federal- Provincial Agreements;

2. receipts from the Air Transportation Tax credited to both the Airports Revolving Fund and budgetary expenditures of the Ministry of Transport;

3. contributions to the Canada Pension Plan, the Unem- ployment Insurance and superannuation accounts;

4. receipts and revenues credited to appropriations;

5. receipts and revenues credited to special and depart- mental accounts;

6. receipts and revenues credited to revolving funds.

Both gross and net budgetary revenue are reported in the Statement of Revenue and Expenditure in which certain receipts and revenues netted against expenditures under authority of Parliament are added in total to revenue to arrive at gross revenue. However, interdepartmental transactions have not been deducted in arriving at gross revenue from outside parties. When the recommendations of the Study of the Accounts of Canada are fully implemented such interdepart- mental transactions will be disclosed.

Budgetary expenditure

Budgetary expenditure consists of expenditure that is financed from budgetary revenue and such other sources as may

1-6

PUBLIC ACCOUNTS, 1976-77

be used to finance any shortfall of budgetary revenue. It includes: Payments made during the year and within thirty days following the end of the year on account of debts incurred for operating expenditures, capital expenditures, grants and contributions; Interest accrued on the public debt; Accruals of certain salaries and wages earned but not paid at the end of the year.

Budgetary expenditures also include certain transactions that do not change the balance in the Consolidated Revenue Fund, such as:

Interest and government contributions credited to super- annuation, other annuity, insurance and pension accounts and to the Unemployment Insurance Account;

Write-off of losses;

Amortization of loan flotation costs and the actuarial deficiencies of superannuation accounts;

Amounts credited to the undisbursed balances of appro- priations to special accounts;

Credits to votes from other appropriations, revolving funds and other accounts.

Budgetary expenditure does not include pensions paid under the Canada Pension Plan, superannuation and other pension accounts, Unemployment Insurance payments other than bene- fits to fishermen, any payments financed from receipts credited directly to undisbursed balances of appropriations to special accounts or expenditures charged to working capital advance accounts and revolving funds.

In the Statement of Revenue and Expenditure, expenditures are reported both gross and net. To arrive at gross expenditures certain receipts and revenues netted against expenditures under the authority of Parliament, are added back. However, inter- departmental transactions have not been deducted to arrive at gross expenditures to third parties. When the recommendations of the Study of the Accounts of Canada are fully implemented, such interdepartmental transactions will be disclosed.

Definition of assets and liabilities

In the Study of the Accounts of Canada, assets are defined as "the financial claims acquired by the Government of Canada on outside organizations and individuals as a result of events and transactions prior to the accounting date", and liabilities are defined as "its financial obligations to outside organizations and individuals as a result of events and transactions prior to the accounting date".

The application of these definitions to the reported assets and liabilities excludes certain balances identified as "Internal accounts" which will continue to be reported on the Statement of Assets and Liabilities until Parliamentary authority to delete them from the Accounts of Canada has been obtained.

Other financial claims on outside parties that yield no income and may not be realizable but for which no authority for deletion has been obtained from Parliament; and

The balances in internal accounts for advances to working capital and revolving fund accounts, the Unemployment Insurance Account, and unamortized bond flotation costs.

Assets not reported on the Statement of Assets and Liabilities include accruals of revenue and inventories. Accruals of revenue are excluded because revenue is reported when it is received. Inventories are excluded because purchases of inventories are charged to expenditure.

The balances in "internal accounts" are not claims on indi- viduals and organizations outside the Government with the following exceptions.

Any debit balance in the Unemployment Insurance Account at the end of a year is recoverable from higher premiums in subsequent years and, where unemployment exceeds a stated percentage, a contribution made by the Government at the start of the next year. The sums recoverable from future increases in premiums could be regarded as claims on contribu- tors to Unemployment Insurance.

The debit balances for unamortized bond flotation costs are those from previous years not yet deleted.

The debit balances for deferred charges appear because of the policy of deferring certain charges. The debit balances in working capital advance and revolving fund accounts occur because of the policy of making advances to these accounts instead of financing them by budgetary appropriations; the effect of this policy is that the financing of certain inventories and fixed assets is reflected in assets.

The classes of assets shown in the Statement of Assets and Liabilities include:

Loans, investments and advances to Crown corporations and agencies;

Other loans, investments and advances, including those to provincial and territorial governments, national govern- ments, the Unemployment Insurance Account and others;

Cash in transit;

Internal accounts including working capital advances to revolving funds, departments and agencies, non-interest- bearing advances to the Unemployment Insurance Ac- count and unamortized bond flotation costs;

Foreign assets including the Exchange Fund Account, subscriptions, loans and advances to the International Monetary Fund and to other international organizations;

Cash balances; and

Fixed assets, a category set up to cover fixed assets that are charged to budgetary expenditure at the time of acquisition or construction and which are shown on the statement of assets and liabilities at a nominal value of $1.

Assets The recorded assets of the Government consist of: The realizable or income-earning financial claims acquired on outside organizations and individuals as a result of events and transactions prior to the accounting date;

Liabilities The liabilities of the Government of Canada consist of: Financial obligations to outside organizations and indivi- duals, including government employees, except for those as noted below as not reported;

THE SCOPE AND METHODS OF THE PUBLIC ACCOUNTS

1-7

Credit balances of internal accounts included in "Undis- bursed balances of appropriations to special accounts".

Financial obligations to organizations and individuals out- side the Government, include accrued interest, accrued salaries and wages, accounts payable and the liabilities of super- annuation accounts. Accounts payable are for liabilities out- standing at March 31 but that are paid within thirty days thereafter in accordance with provisions of the Financial Administration Act. The liabilities for superannuation accounts are periodically re-valued on an actuarial basis except that the calculations of the obligation arising under the indexation scheme are not included in the re-valuation.

The undisbursed balances of appropriations to special accounts do not represent obligations to other organizations and individuals.

Liabilities not reported on the Statement of Assets and Liabilities include the following: Accounts payable for goods and services received in the

year but not paid within thirty days from the end of the

year; Accrued liabilities for certain retroactive salary and wage

settlements and for benefits payable upon termination of

employment;

Actuarial liabilities arising from the indexing to the cost of living of superannuate pensions and annuities.

The classes of liabilities shown in the Statement of Assets and Liabilities include:

Annuity, insurance and pension accounts including the Canada Pension Plan account from which the provincial government securities are deducted, the superannuation accounts from which the unamortized portion of actuarial deficiencies are deducted, government annuities and others.

Other liabilities including interest and matured debt, accounts payable and accrued salaries, outstanding cheques, warrants and money orders, deposit and trust accounts, provincial tax collection agreement accounts and other accounts;

-Internal accounts including undisbursed balances of ap- propriations to special accounts;

-Foreign liabilities including notes payable to the Inter- national Monetary Fund and to other international organi- zations, Special Drawing Rights and the unmatured debt payable in foreign currency; and

-Unmatured debt, consisting of bonds and Treasury bills.

Valuation of assets and liabilities

Assets are valued at cost except for:

Those reported at amounts advanced less amounts repaid or written off as authorized by Parliament;

Short-term assets denominated in foreign currencies, which are valued at year-end closing rates of exchange;

Fixed assets, which are carried at the nominal value of $1.

Assets have not been subject to revaluation to reflect collect- able or recoverable values. However a general allowance for losses on all classes of assets has been provided. This allowance, which was created prior to 1957 by charges to budgetary expenditure, does not constitute a reserve related to any specific asset or classes of assets.

Assets and liabilities denominated in foreign currencies, other than cash and short-term liabilities, are recorded at historical values. Cash and short-term liabilities are valued at year-end closing rates of exchange.

Other liabilities are recorded in the amounts ultimately payable except for pension and annuity obligations. The government's obligations for superannuate pensions and annui- ties are valued on an actuarial basis, except for the obligations under the Canada Pension Plan account and the supplementary retirement benefit account which are not maintained on an actuarial basis.

SECTION

2

1976-77

PUBLIC ACCOUNTS

Comparative Statements of Transactions

CONTENTS

Page

Introduction ^

Summary statement of transactions Public Accounts presen- tation 2*4

Summary statement of transactions— Extended National

Accounts presentation 2.12

Public Accounts and National Accounts reconciliation 2.16

COMPARATIVE STATEMENTS OF TRANSACTIONS

2-3

INTRODUCTION

In this section, the financial transactions of the Government of Canada are set out in summary form with comparative figures for the previous four years. The financial transactions are first presented according to the accounting principles explained in Section I and referred to as the Public Accounts presentation; the second presentation is on the National Income and Expenditure basis, extended to encompass other financial transactions affecting the Consolidated Revenue Fund. This latter form of presentation is hereafter referred to as the Extended National Accounts presentation.

This form of presentation is broadly consistent with Budget Paper B which accompanied the May 25, 1976 Budget. The introduction of this section in the Public Accounts reflects the recommendations in the "Report on the Study of the Accounts of Canada" both with regard to the form of the statements and the extension of the traditional National Income and Expendi- ture Accounts. This section is also consistent with the proposal in the Study for a standard form of reporting the Summary Statements of federal government financial transactions in official publications.

This section is intended to provide an overview of the Government's financial operations both on the Public Accounts basis and on the Extended National Accounts basis. The Public Accounts presentation reflects the accounting pro- cedures and conventions which have been adopted in providing Parliament with an accounting of the source and use of financial resources. The Current Transactions block of the Extended National Accounts presentation is designed prima- rily to facilitate economic analysis of the federal government sector on a basis consistent with that used in measuring revenue and expenditure flows in the economy as a whole. The remaining blocks show the relation between the traditional budget balance on the National Accounts basis and the government's overall financial requirements, debt transactions, and cash position.

Public Accounts Presentation

The "Summary Statement of Transactions" table summa- rizes the transactions in an aggregate form. These transactions are categorized under four main headings: budgetary, non- budgetary, foreign exchange and unmatured debt. The result- ing cash position at the end of the period is also shown.

This form of presentation is broadly consistent with the tables presented in the Budget Speech, the presentation in the Economic Review, the Statement of Financial Operations published each month in the Canada Gazette and is compati- ble with the form of presentation in other sections of the Public Accounts.

It should be noted that, in the Public