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Part 2 - Schedules to the Consolidated Financial Statements
Introduction
The financial statements in this annual
report of the Government of Alberta are consolidations of ministry
consolidated financial statements, which themselves are consolidations
of the financial statements of departments, regulated funds, Provincial
agencies and Crown-controlled corporations, for which separate financial
statements are presented in ministry annual reports. A listing of
these organizations is provided in Schedule 16 to the financial
statements.
The method of consolidation is described
in the Accounting Policies note that forms part of the financial
statements.
Management's
Responsibility for the Consolidated Financial Statements
Responsibility for the integrity and
objectivity of the consolidated financial statements of the Province
of Alberta rests with the government. The consolidated financial
statements are prepared by the Controller under the general direction
of the Deputy Minister of Finance, as authorized by the Minister
of Finance pursuant to the Financial Administration Act.
The consolidated financial statements are prepared in accordance
with the government’s stated accounting policies, and of necessity
include some amounts that are based on estimates and judgements.
As required by the Government Accountability Act, the consolidated
financial statements are included in the consolidated annual report
of the Government of Alberta that forms part of the Public Accounts.
To fulfill its accounting and reporting
responsibilities, the government maintains systems of financial
management and internal control which give consideration to costs,
benefits and risks, and which are designed to:
- provide reasonable assurance that
transactions are properly authorized, executed in accordance with
prescribed legislation and regulations, and properly recorded
so as to maintain accountability for public money, and
- safeguard the assets and properties
of the Province of Alberta under government administration.
Under the Financial Administration
Act, deputy heads are responsible for the collection of revenue
payable to the Crown, and for making and controlling disbursements
with respect to their departments. They are also responsible for
prescribing the accounting systems to be used in their departments.
In order to meet government accounting and reporting requirements,
the Controller obtains information relating to departments, regulated
funds, Provincial agencies and Crown-controlled corporations from
ministries as necessary.
The consolidated financial statements
are reviewed by the Audit Committee established under the Auditor
General Act. Under the Fiscal Responsibility Act,
the Audit Committee must report publicly to the Executive Council
on the progress made in eliminating the accumulated debt. The Audit
Committee advises the Lieutenant Governor in Council on the scope
and results of the Auditor General’s audit of the consolidated
financial statements of the Province.
The Auditor General of Alberta provides
an independent opinion on the consolidated financial statements
prepared by the government. The duties of the Auditor General in
that respect are contained in the Auditor General Act.
Annually, the consolidated annual report
is tabled in the Legislature as a part of the Public Accounts and
is referred to the Standing Committee on Public Accounts of the
Legislative Assembly.
Approved on behalf of the Finance Department:
Brian Manning
Deputy Minister of Finance
Tim Wiles, CA
Controller
Edmonton, Alberta
June 21, 2005
Auditor's
Report
To the Members of
the Legislative Assembly
I have audited the consolidated statement
of financial position of the Province of Alberta as at March 31,
2005 and the consolidated statements of operations, change in net
financial assets and cash flows for the year then ended. These financial
statements are the responsibility of the Government of Alberta and
are prepared on its behalf by Finance Department management. My
responsibility is to express an opinion on these financial statements
based on my audit.
I conducted my audit in accordance
with Canadian generally accepted auditing standards. Those standards
require that I plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation.
In my opinion, these consolidated financial
statements present fairly, in all material respects, the financial
position of the Province of Alberta as at March 31, 2005 and the
results of its operations, change in its net financial assets and
its cash flows for the year then ended in accordance with the disclosed
basis of accounting as described in Note 1 to the consolidated financial
statements.
[Original Signed]
Fred J. Dunn, FCA
Auditor General
Edmonton, Alberta
June 8, 2005
Consolidated
Statement of Operations
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Consolidated
Statement of Financial Position
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Consolidated
Statement of Change in Net Financial Assets
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Consolidated
Statement of
Cash Flows
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Notes
to the Consolidated Financial Statements
Note 1 - Summary of
Significant Accounting Policies and Reporting Practices
The recommendations of the Public Sector
Accounting Board of the Canadian Institute of Chartered Accountants
are the primary source for the disclosed basis of accounting. These
financial statements are prepared in accordance with the following
accounting policies..
A) Reporting
Entity
These financial statements include
the accounts of the Offices of the Legislative Assembly and all
government entities including departments, the Alberta Heritage
Savings Trust Fund, and other regulated funds, Provincial agencies
and Crown-controlled corporations. A listing of these organizations
is provided in Schedule 16. Accountable organizations such as universities,
public colleges, technical institutes, regional health authorities
and school boards are not included in the consolidated financial
statements.
The Public Sector Accounting Board
has released new guidance that controlled entities are to be included
and how they are to be included effective April 1, 2005. This may
affect how the Province reports accountable organizations such as
universities, public colleges, technical institutes, regional health
authorities and school boards depending on the results of the current
review being conducted to determine whether control exists. The
government has agreed in principle to include the financial statements
of these entities commencing from fiscal year beginning April 1,
2006, if it is determined that control exists.
B) Method
of Consolidation
The accounts of the Offices of the
Legislative Assembly, departments, regulated funds and Provincial
agencies, except those designated as commercial enterprises, are
consolidated. Revenue and expense transactions, capital, investing
and financing transactions, and related asset and liability accounts
between consolidated entities have been eliminated.
The accounts of Crown-controlled corporations
and Provincial agencies designated as commercial enterprises are
reported on the modified equity basis, the equity being computed
in accordance with Canadian generally accepted accounting principles.
The year end of some Provincial agencies
is other than March 31. Transactions of these agencies that have
occurred during the period to March 31, 2005 and that significantly
affect the consolidation have been recorded.
C) Basis
of Financial Reporting
Revenues
All revenues are reported on the accrual basis of accounting.
Cash received for which goods or services have not been provided
by year end is recorded as unearned revenue and included in accounts
payable.
Non-renewable resource revenue are
reported based on estimated royalties on oil and gas produced
during the year.
Transfers from Government of Canada
are recognized as revenues when authorized by federal legislation
or federal/provincial agreements, eligibility criteria if any
are met, and a reasonable estimate of the amounts can be made.
Payments received in excess of the estimated amounts applicable
to the fiscal year are included in accounts payable.
Expenses
Expenses represent the cost of resources consumed during the year
on government operations. Expenses include provisions for amortization
of acquired tangible capital assets and expenses incurred in accordance
with the terms of approved grant programs, including grants for
capital purposes. Grants are recognized as expenses when authorized,
eligibility criteria if any are met, and a reasonable estimate
of the amounts can be made.
Pension costs comprise the cost of
pension benefits earned by employees during the year, interest
on the Province’s share of the unfunded pension liability,
and the amortization over the expected average remaining service
life of employees of deferred adjustments arising from experience
gains and losses and changes in actuarial assumptions. Schedule
12 provides additional information on the amortization policy
relating to pensions. In the Consolidated Statement of Operations,
pension costs which are funded are included in expenses by function
and costs which have not been funded are recorded as pension provisions.
Costs arising from obligations under
guarantees and indemnities are recorded as expenses when management
determines that the Province will likely be called upon to make
payment. The expense represents management’s estimate of
future payments less recoveries.
The estimated increase or decrease
for the year in accrued employee vacation entitlements is also
recorded in the appropriate expense function.
Financial Assets
Financial assets are limited to financial claims on external organizations
and individuals and inventories for resale at the year end.
Temporary investments are valued
at cost or fair value, whichever is lower, on an aggregate basis.
Portfolio investments, which are
investments to provide income for the long term, are carried at
cost. Realized gains and losses on disposals of these investments
are included in the determination of excess of revenues over expenses
for the year. Where there has been a loss in value of an investment
that is other than a temporary decline, the investment is written
down to recognize the loss. The written down value is deemed to
be the new cost.
Loans are recorded at cost less any
discounts and allowance for credit loss.
Inventories for resale representing
the Province’s share of royalty oil in feeder and trunk
pipelines are stated at net realizable value. Other inventories
for resale are valued at the lower of cost, determined on a first-in,
first-out basis, and estimated net realizable value.
Liabilities
Liabilities include all financial claims payable by the Province
at the year end.
Debentures included in unmatured
debt are recorded at the face amount of the issue less net unamortized
discount, which includes issue expenses and hedging costs.
Income or expense on interest rate
swaps and forward interest rate agreements used to manage interest
rate exposure is recorded as an adjustment to debt servicing costs.
The exchange gain or loss on the foreign exchange contracts used
to manage currency exposure is deferred and amortized over the
life of the contract.
Liabilities also include the following:
- estimates of the present value
of the Province’s obligations for future pension contributions
and/or benefits under defined benefit pension plans for current
and former provincial and other public sector employees, and certain
current and former Members of the Legislative Assembly, including
deferred adjustments,
- the Province’s obligation
to provide future funding to school boards to enable them to repay
the principal portion of their debentures to the Alberta Capital
Finance Authority, and
- accrued employee vacation entitlements.
Non-financial Assets
Non-financial assets are limited to tangible capital assets and
inventories of supplies.
Tangible capital assets of commercial
enterprises are included in the Consolidated Statement of Financial
Position within equity in commercial enterprises. Other tangible
capital assets are included in non-financial assets on the Consolidated
Statement of Financial Position.
Tangible capital assets on the Consolidated
Statement of Financial Position are restricted to capital assets
the Province acquired for cash or for other assets, and donated
assets. Tangible capital assets acquired by right, such as Crown
lands, forests, water and mineral resources, are not included.
Amortization of tangible capital
assets is calculated on a straight line basis over the periods
expected to benefit from their use (see Schedule 14), and the
annual amortization is included in the expenses reported in the
Consolidated Statement of Operations. The annual amortization
of the costs of tangible capital assets is allocated to the functions
of the government that employ those assets.
Inventories of supplies are valued
at the lower of cost, determined on a first-in, first-out basis,
and replacement cost.
Derivative Contracts
Income and expense from derivative contracts are included in investment
income or expenses by function. Certain derivative contracts,
which are primarily interest rate swaps and cross-currency interest
rate swaps, are designated as hedges of market risks for purposes
of hedge accounting. Hedge accounting recognizes gains and losses
from derivatives in the same period as the gains and losses of
the specific assets and liabilities being hedged.
Derivative contracts not designated as hedges for purposes of
hedge accounting, which are primarily bond index swaps, equity
index swaps, equity index futures contracts and forward foreign
exchange contracts, are recorded at fair value.
The estimated amount receivable and
payable from derivative contracts are included in accrued interest
receivable and payable respectively.
Foreign Currency
Assets and liabilities denominated in foreign currency are translated
at the year end rate of exchange.
Foreign currency transactions are
translated into Canadian dollars using average rates of exchange,
except for hedged foreign currency transactions which are translated
at rates of exchange established by the terms of the forward exchange
contracts.
Amortization of deferred exchange
gains and losses and other exchange differences on unhedged transactions
are included in the determination of excess of revenues over expenses
for the year.
Measurement Uncertainty
Estimates are used in accruing revenues and expenses in circumstances
where the actual accrued revenues and expenses are unknown at
the time the financial statements are prepared. Uncertainty in
the determination of the amount at which an item is recognized
in financial statements is known as measurement uncertainty. Such
uncertainty exists when there is a variance between the recognized
amount and another reasonably possible amount, as there is whenever
estimates are used.
Measurement uncertainty that is material
to these financial statements exists in the accrual of personal,
corporate income taxes, Health Transfers and Canada Social Transfer
entitlements, royalties derived from non-renewable resources,
farm safety-net payments under the Canadian Agricultural Income
Stabilization (CAIS) Program and corresponding contributions from
the Government of Canada, and provisions for pensions and loans
and advances. The nature of the uncertainty in these items arises
from several factors such as the effect on accrued taxes of the
verification of taxable income, the effect on accrued royalties
of the receipt of revised production data and reassessments, the
effect of CAIS being a relatively new program with little historical
experience, the effect on accrued pension obligations of actual
experience compared to assumptions, and the effect on loans and
advances of actual collectibility and changes in economic conditions.
Personal income tax, recorded as
$4,649 million (2004 $4,613 million) in these consolidated financial
statements, is subject to measurement uncertainty due primarily
to the use of economic estimates of personal income growth. Use
of this information in the past has resulted in a number that
differs from final results by a geometric average of plus or minus
$200 million over the last four years.
While best estimates have been used
for reporting items subject to measurement uncertainty, management
considers that it is possible, based on existing knowledge, that
changes in future conditions in the near term could require a
material change in the recognized amounts. Near term is defined
as a period of time not to exceed one year from the date of the
financial statements.
Note 2 - Valuation
of Financial Assets and Liabilities
Fair value is the amount of consideration
agreed upon in an arm’s length transaction between knowledgeable,
willing parties who are under no compulsion to act.
Due to their short term nature, the
fair values of cash and cash equivalents, accrued interest, receivables,
payables and accrued liabilities are estimated to approximate their
book values. Fair values of some of the loans and advances are not
reported due to there being no organized financial market for the
instruments and it is not practicable within constraints of timeliness
or cost to estimate the fair values with sufficient reliability.
The fair value of unmatured debt and
debt of Alberta Capital Finance Authority is an approximation of
its fair value to the holder.
T he methods used to determine the
fair values of temporary investments and portfolio investments are
as follows:
Public fixed-income securities and
equities are valued at the year-end closing sale price, or the
average of the latest bid and ask prices quoted by an independent
securities valuation company.
Mortgages and certain non-public
provincial debentures are valued based on the net present value
of future cash flows. These cash flows are discounted using appropriate
interest rate premiums over similar Government of Canada benchmark
bonds trading in the market.
The fair value of alternative investments
including absolute return strategy investments, investments in
private investment funds, private equities and securities with
limited marketability is estimated using methods such as cost,
discounted cash flows, earnings multiples, prevailing market values
for instruments with similar characteristics and other pricing
models as appropriate and may not reflect amounts that could be
realized upon immediate sale, nor amounts that may ultimately
be realized. Accordingly, the estimated fair values may differ
significantly from the values that would have been used had a
ready market existed for these investments.
Real estate investments are reported
at their most recent appraised value, net of any liabilities against
the real property. Real estate properties are appraised annually
by qualified external real estate appraisers using methods such
as cost, discounted cash flows, earnings multiples, prevailing
market values for properties with similar characteristics and
other pricing models as appropriate.
The value of derivative contracts is
determined by the following methods. Equity and bond index swaps
are valued based on changes in the appropriate market based index
net of accrued floating rate interest. Interest rate swaps and cross-currency
interest rate swaps are valued based on discounted cash flows using
current market yields and exchange rates. Credit default swaps are
valued based on discounted cash flows using current market yields
and calculated default probabilities. Forward foreign exchange contracts
and equity index futures contracts are valued based on quoted market
prices.
At the year end, the fair value of
investments and any other assets and liabilities denominated in
a foreign currency are translated to Canadian dollars at the year
end exchange rate.
Note
3 - Risk Management
A)
Liability Management
The objective of the Province's liability management
program is to achieve the lowest cost on debt within an acceptable
degree of variability of debt servicing costs. In order to achieve
this objective, the Province manages four financial risks: interest
rate risk, currency exchange risk, credit risk, and refinancing
risk. The Province manages these four risks within approved policy
guidelines. The management of these risks and the policy guidelines
apply to the Province’s direct debt, excluding debt raised
to fund requirements of provincial corporations and regulated
funds. Debt of provincial corporations and regulated funds is
managed separately in relation to their assets.
The Province has decided, in light of the current
debt reduction environment, that the most effective liability
risk management strategy is to allow existing debt instruments
to mature in accordance with their terms.
B) Asset Management
The majority of the Province’s portfolio investments are
in the Alberta Heritage Savings Trust Fund (Heritage Fund). The
investment objective is to invest in a diversified portfolio to
maximize long-term returns at an acceptable level of risk. The
policy asset mix for fixed income securities is 35%. The policy
mix for public equity investment is 46%. The remainder of the
portfolio is invested in real estate, private equities and absolute
return strategies.
The General Revenue Fund also holds substantial amounts of the
Province’s portfolio investments. General Revenue Fund portfolio
investments are used to repay debt as it matures, to provide funding
for the capital plan, and to help protect operating and capital
spending from short term declines in revenue and the costs of
emergencies, disasters, natural gas rebates and settlements with
First Nations. The investment objective is to preserve the value
of the investments while maintaining appropriate liquidity and
earning a fair or reasonable rate of return.
The investments in the Alberta Heritage Foundation for Medical
Research Endowment Fund, the Alberta Heritage Science and Engineering
Research Endowment Fund and the Alberta Heritage Scholarship Fund
are managed to preserve the capital of the funds over the long
term and to provide an annual level of income to intermediary
boards responsible for making grants to researchers in the fields
of medicine, science and engineering, and to students.
Note 4 - Budget
The budget amounts were derived from
Budget 2004 tabled in the Legislature on March 24, 2004. The following
table compares the Province’s net financial position with
the March 31, 2005 estimate provided in Budget 2004. The table uses
the same grouping of financial assets and liabilities as the budget.
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(a) Alberta Capital Finance
Authority and Agriculture Financial Services Corporation.
(b) The Alberta Sustainability Fund was established to help protect
operating and capital spending from short term declines in revenue
and the costs of emergencies, disasters, natural gas rebates and
settlements with First Nations.
(c) Alberta Heritage Foundation for Medical Research Endowment Fund,
Alberta Heritage Science and Engineering Research Endowment Fund
and Alberta Heritage Scholarship Fund.
(d) The Capital Account was established to provide funding for the
capital plan. Under the Province’s fiscal framework, funds
can be deposited into the Capital Account in one year to pay for
capital projects in the following years.
Note 5- Fiscal Responsibility
Legislation
Since 1999, the Fiscal Responsibility
Act (the Act) has required that the Province not incur a deficit,
as defined under the Act, in any fiscal year and that accumulated
debt be eliminated according to a defined schedule. During 2004-05,
the Province complied with the Act.
Accumulated Debt
Under the Act, accumulated debt, as
defined, must be no greater than $6,245 million by the end of 2004-05
fiscal year and must be eliminated by March 31, 2025.
The table below shows the progress
made in eliminating accumulated debt during 2004-2005.
In addition, Note 4 shows
that funds amounting to $3,479 million (2004 $1,241 million), at
cost, have been set aside in the Debt Retirement Account to retire
accumulated debt that has not yet matured.
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Subsequent to the year
end, the Act has been amended to require the financial assets in
the Debt Retirement Account must be equal to or greater than the
amount of the accumulated debt at the fiscal year end in 2005-06
and subsequent fiscal years.
Note
7- Contractual Obligations
Estimated payment requirements
for each of the next five years and thereafter are as follows:
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The government has various commitments
relating to the devolution of services or disposition of assets
to the private sector. Those commitments include the performance
of duties and obligations if the private sector organization fails
to meet them.
Note 7- Contingent
Liabilities
Set out below are details of contingent
liabilities resulting from guarantees, indemnities and litigation,
other than those reported as liabilities and shown in Schedule 13.
Any losses arising from the settlement of contingent liabilities
are treated as current year expenses.
A)
Indemnities and Guarantees
Guarantees amounting to $153 million (2004 $190
million) are analyzed in Schedule 15.
B) Contingent
Liailities of Commercial Enterprises
The Credit Union Deposit Guarantee
Corporation has a potential liability under guarantees relating
to deposits of credit unions. At December 31, 2004 credit unions
in Alberta held deposits totalling $9.0 billion (2003 $8.2 billion)
and had assets in excess of deposits.
At March 31, 2005, Alberta Treasury
Branches had a potential liability under guarantees and letters
of credit amounting to $133 million (2004 $108 million).
N.A. Properties (1994) Ltd. has provided
guarantees of principal and interest on mortgages sold to a chartered
bank. The principal and interest on these mortgages totalled $2
million at March 31, 2005 (2004 $2 million).
C) Legal Actions
At March 31, 2005, the Province was
involved in various legal actions, the outcome of which is not
determinable. Accruals have been made in specific instances where
it is probable that losses will be incurred which can be reasonably
estimated. The resulting loss, if any, from claims in excess of
the amounts accrued cannot be determined.
The Province has a contingent liability
in respect of 34 claims (2004 39) concerning aboriginal rights,
Indian title and treaty rights. In most cases, these claims have
been filed jointly and severally against the Province of Alberta
and the Government of Canada, and in some cases involve third
parties. Of these claims, 21 (2004 24) have specified amounts
totalling $125.2 billion (2004 $129.5 billion) plus a provision
for interest and other costs that is not calculable. The other
13 claims (2004 15) have not specified any amounts.
Further, the Province was named as
defendant in various other legal actions in addition to those
noted above. The total claimed in specific legal actions amounts
to approximately $7.3 billion (2004 $3.6 billion).
Note
8- Trust Funds Under Administration
Trust funds under administration are
regulated and other funds consisting of public money over which
the Legislature has no power of appropriation. Because the Province
has no equity in the funds and administers them for the purposes
of various trusts, they are not included in the consolidated financial
statements.
At March 31, 2005, trust funds under
administration were as follows:
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Note 9 Defined
Benefit Plans
A) Pension
Plans
The government administers three
contributory defined benefit pension plans for its current employees:
the Public Service Pension Plan, Management Employees Pension
Plan and Supplementary Retirement Plan for Public Service Managers.
Pension costs for these plans, which were funded during 2004-05
and included in expenses by function in these financial statements,
amounted to $113 million (2004 $99 million).
Benefits paid from these plans are
based on length of service and pensionable earnings. The average
age of the approximately 44,200 active employees is 44. In addition,
there are approximately 10,000 former employees who are entitled
to refunds of contributions with interest or pension benefits
when all of the eligibility requirements are met. At present,
these plans provide benefits for approximately 19,500 retirees.
Benefit payments were $243 million in 2004-05 (2004 $227 million).
Total contributions were $287 million in 2004-05 (2004 $241 million),
of which employee contributions amounted to $139 million (2004
$115 million). The government guarantees payment of all benefits
under the Management Employees Pension Plan arising from service
before 1994.
A separate pension plan fund administered
by the government is maintained for each pension plan. Pension
plan fund assets are invested in both marketable investments of
organizations external to the government and in Province of Alberta
bonds and promissory notes.
At December 31, 2004, the Supplementary
Retirement Plan for Public Service Managers reported a surplus
of $9 million (2003 $9 million) when the Management Employees
and the Public Service Pension Plans reported deficiencies. The
deficiencies were extrapolated to March 31, 2005 and the government’s
share of the employer’s estimated accrued benefit liability
with respect to the Management Employees and the Public Service
Pension Plans is analyzed in Schedule 12.
B)
Long Term Disability Income Continuance Plans
The government also administers two
long term disability income continuance plans. At March 31, 2005,
these plans taken together reported an actuarial deficiency of
$9 million (2004 $8 million). At March 31, 2005, the government’s
share of the estimated accrued benefit liability for these plans
amounting to $9 million (2004 $7 million) has been recognized
in these financial statements.
Note 10 Comparative
Figures
Certain 2004 figures have been reclassified
to conform to 2005 presentation.
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