Opening Statement to the Standing Committee on Public Accounts

Report and Observations of the Auditor General on the 2005-06 Financial Statements of the Government of Canada

28 September 2006

Sheila Fraser, FCA
Auditor General of Canada

Mr. Chair, I am pleased to be here today to brief the Committee members on my report on the audited 2005-06 financial statements of the Government of Canada. With me today are Doug Timmins, Assistant Auditor General, and Frank Vandenhoven, Principal, both of whom are responsible for the audit of the financial statements of the Government of Canada.

I am pleased to see that the Committee was able to hold this hearing on the day the Public Accounts were tabled. The Public Accounts are a key accountability report of the Government. The Comptroller General will be explaining the main points in the Government's financial statements to the Committee. I will talk about the highlights of my audit opinion and observations.

My report on the 2005-06 financial statements is included on page 2.4 of Volume 1 of the Public Accounts. My opinion provides Parliament with the assurance that the Government's financial statements are fairly presented in accordance with the Government's stated accounting policies, which conform with Canadian generally accepted accounting principles. My opinion can be referred to as a "clean" opinion. Our Office has been able to issue such an opinion on the Government's financial statements in each of the past eight years.

Mr. Chair, I would like to point out that this is the first year in which our audit opinion indicates that the Government's financial statements conform with Canadian generally accepted accounting principles. This change was made because the standards of the Public Sector Accounting Board were recognized as generally accepted and auditors are now required to opine against those standards. Given our legislative mandate to report against the Government's stated accounting policies, my opinion indicates assurance in that regard as well.

I commend the Government for producing financial statements that are fairly stated in conformity with Canadian generally accepted accounting principles. Parliamentarians and all Canadians can be assured that the financial statements provide sound financial information, and in our view, Canada continues to demonstrate leadership in financial reporting for national governments.

I would like to discuss two key accounting issues that we dealt with during our audit.

Firstly – This year the Government applied the Public Sector Accounting Board's revised standard on the government reporting entity. Under this new standard, organizations are considered to be part of the Government if they are "controlled" by the Government. In essence, these organizations are treated as part of the Government reporting entity and, as a result, their assets, liabilities, expenses and revenues are included in the Government's financial statements. Transfers to such organizations are not treated as expenses until these organizations use the funds for their intended purposes. This was a challenging standard to implement and resulted in the following entities being included in the Government's financial statements for the first time: Canada Foundation for Innovation, Canada Millennium Scholarship Foundation, Canada Foundation for Sustainable Development Technology, Aboriginal Healing Foundation and the St. Lawrence Seaway Management Corporation.

This issue has been a longstanding item of discussion with Government. In fact the Public Accounts Committee recommended that the Government address this issue. The implementation of this new standard resulted in a reduction in the Government's opening accumulated deficit of $5.1 billion. More details of the impacts of this on the financial statements are found in Note 2 on page 2.11 to the Financial Statements.

I am pleased to report that I believe the Government followed a reasonable approach in implementing this standard and that it addressed this difficult issue. This results in a more complete and accurate picture of the Government's financial position and results.

Secondly – The Government's financial results include $3.6 billion in expenses pursuant to authority given to the Government through An Act to Authorize the Minister of Finance to make Certain Payments (Bill C-48). Of this, $3.3 billion related to transfers to provinces and territories. The Government created this obligation prior to 31 March 2006 by communicating its intention to transfer funds to provinces. The actual amount of the transfer was dependent on the size of the surplus.

The Government's accounting treatment was acceptable for these reasons:

• The Government obligated itself to pay the funds,
• It did not stipulate any conditions on the transfers, and
• It had authorization from Parliament to make the payments.

These matters are discussed in more detail in our Observations, which are found starting on page 2.29 of Volume 1 of the Public Accounts. In these Observations, I have also provided an update on issues raised in previous years. I am pleased to report that the issue of "netting" has been resolved. The Government continues to work on the other issues, which while important, were not so significant as to affect our audit opinion. We will continue to monitor progress on these issues.

In conclusion, I would very much like to thank the staff of the Office of the Comptroller General and in all of the departments involved in this work. The actual tabling of these accounts reflects many hours of painstaking work.

Mr. Chair, we would be pleased to answer any questions the Committee may have.