Future-Oriented Financial Statements 2013-14

Canadian Institutes of Health Research
Statement of Management Responsibility

CIHR management is responsible for these future-oriented financial statements, including responsibility for the appropriateness of the assumptions on which these statements are prepared. These statements are based on the best information available and assumptions adopted as at January 11, 2013 and reflect the plans described in the Report on Plans and Priorities.

Alain Beaudet, MD, PhD
President

James Roberge, CMA
Chief Financial Officer

Ottawa, Canada
January 11, 2013

Canadian Institutes of Health Research
Notes to the Future-Oriented Financial Statements

1. Authority and Objectives

The Canadian Institutes of Health Research (CIHR) was established in June 2000 under the Canadian Institutes of Health Research Act, replacing the former Medical Research Council of Canada. It is listed in Schedule II to the Financial Administration Act as a departmental corporation.

CIHR's objective is to excel, according to international standards of scientific excellence, in the creation of new knowledge, and its translation into improved health, more effective health services and products, and a strengthened Canadian health care system. CIHR achieves these objectives through its strategic outcome of being a world-class health-research enterprise that creates, disseminates and applies new knowledge across all areas of health research. The strategic outcome is based on fourprogram activities. The first program activity is Health Knowledge; these programs aim to support the creation of new knowledge across all areas of health research to improve health and the health system. The second, Health and Health Services Advances, aims to support the creation of new knowledge in strategic priority areas and its translation into improved health and a strengthened health system. The third program activity, Health Researchers, aims to build health research capacity to improve health and the health system by supporting the training and careers of excellent health researchers. The fourth, Health Research Commercialization, aims to support and facilitate the commercialization of health research to improve health and the health system.

CIHR is led by a President who is the Chairperson of a Governing Council. The Governing Council made up of up to 18 Canadians – each from a unique background and possessing an outstanding skill set – is CIHR's Board of Directors. Its members come together from across Canada to set the broad strategic direction for the creation of new knowledge and translation into better health for Canadians, better health services and products, and a stronger health care system.

CIHR has thirteen Institutes that focus on identifying the research needs and priorities for specific health areas, or for specific populations, then developing strategic initiatives to address those needs. Each Institute is led by a Scientific Director who is guided by an Institute Advisory Board, which strives to include representation of the public, researcher communities, research funders, health professionals, health policy specialists and other users of research results.

CIHR's grants, awards, and operating expenditures are funded by budgetary authorities. Employee benefits are funded by statutory authorities.

2. Methodology and Significant Assumptions

The future-oriented financial statements have been prepared on the basis of the government priorities and the plans of CIHR as described in the Report on Plans and Priorities.

The information in the estimated results for the fiscal year 2012-13 is based on actual results as at January 11, 2013 and forecasts for the remainder of the fiscal year. Estimated year end information for 2012-13 is used as the opening position for the 2013-14 planned results, and forecast have been made for the planned results for the 2013-14 fiscal year.

The main assumptions underlying the forecasts are as follows:

1. CIHR's activities will remain substantially the same as for the previous year.
2. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The impact of the savings measures announced in Budget 2012 to refocus government and programs, to make it easier for Canadians and business to deal with their government, and to modernize and reduce the back office are also incorporated into these future-oriented financial statements.

These assumptions are adopted as at January 11, 2013.

3. Variations and Changes to the Forecast Financial Information

While every attempt has been made to forecast final results for the remainder of 2012-13 and for 2013-14, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing these future-oriented financial statements, CIHR has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the future-oriented financial statements and the historical financial statements include:

1. The timing and amounts of acquisitions and disposals of property, plant and equipment may affect gains/losses and amortization expense.
2. Implementation of new collective agreements.
3. Economic conditions may affect the amount of revenue earned.
4. Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

Once the Report on Plans and Priorities is presented, CIHR will not be updating the forecasts for any changes to authorities or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of Significant Accounting Policies

The future-oriented financial statements have been prepared in accordance with the Treasury Board Accounting Standard 1.2 (which applies to the 2011-12 fiscal year and subsequent years) using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

1. Parliamentary authorities - CIHR is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CIHR does not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Future-oriented Statement of Operations and Departmental Net Financial Position and the Future-oriented Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 5 provides a reconciliation between the bases of reporting.
2. Net cash provided by Government – CIHR operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CIHR is deposited to the CRF and all cash disbursements made by CIHR are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government.
3. Amounts due from the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the amount of cash that CIHR is entitled to draw from the CRF without further parliamentary expenditure authorities to discharge its liabilities.
4. Revenues – Revenues are recorded on the accrual basis:
   • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenues. These revenues are recognized in the period in which the related expenses are incurred.
   • Funds that have been received are recorded as deferred revenue, provided CIHR has an obligation to other parties for the provision of goods, services, or the use of assets in the future.
   • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
5. Expenses – Expenses are recorded on the accrual basis:
   • <>Grants and awards (transfer payments) are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expense when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the future-oriented financial statements.
   • <>Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
   • <>Services provided without charge by other government departments for accommodation and employer contributions to the health and dental insurance plans are recorded as operating expenses at their estimated cost.
6. Refunds of previous years' expenses - These amounts include the return of grants and awards funds to CIHR in the current fiscal year for expenses incurred in previous fiscal years due to cancellations; refunds of previous years' expenses related to goods or services; and adjustments of previous years' accounts payable. These refunds and adjustments are presented against the related expenses in the future-oriented financial statements but are recorded as revenue in accordance with accounting policies and therefore are excluded when determining current year authorities used.
7. Employee future benefits
   1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer defined benefit plan administered by the Government. CIHR's contributions to the Plan are charged to expenses in the year incurred and represent the total obligation to the Plan. CIHR's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.
   2. Severance benefits: Prior to October 2, 2011, CIHR executives and non-represented employees were entitled to severance benefits under labour contracts or conditions of employment for voluntary and involuntary departures. These benefits were accrued as employees rendered the services necessary to earn them. Effective October 2, 2011, CIHR executives and non-represented employees were no longer eligible to accrue severance benefits for voluntary departures (e.g. resignation and retirement). Employees were provided with three options in relation to the severance termination provisions, such as the immediate payout of the accumulated weeks of severance at their current rate of pay, retain the accumulated weeks of severance with a payout upon termination of employment with CIHR or retirement at their exit rate of pay, or a combination thereof. Severance benefits continue to accrue for involuntary departures, however, benefits payable would be reduced by the severance termination option exercised for service up to and including October 1, 2011, should an involuntary departure occur.
8. Accounts receivable and advances are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for receivables where recovery is considered uncertain.
9. Contingent liabilities - Contingent liabilities are potential liabilities that may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense is recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the future-oriented financial statements.
10. Tangible capital assets - All tangible capital assets having an individual initial cost of $5,000 or more are recorded at their acquisition cost.

    Amortization of tangible capital assets is done on a straight-line basis over the estimated useful life of the capital asset as follows:

    Asset class	Amortization period
    Informatics hardware	3-5 years
    Informatics software	3-10 years
    Office equipment	10 years
    Vehicles	5 years

    Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

11. Measurement uncertainty – The preparation of these future-oriented financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the future-oriented financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are contingent liabilities, the liability for employee future benefits and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the financial statements in the year they become known.

5. Parliamentary Authorities

CIHR receives most of its funding through annual Parliamentary authorities. Items recognized in the Future-oriented Statement of Operations and Departmental Net Financial Position and the Future-oriented Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, CIHR has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

1. Authorities requested
   (in thousands of dollars)

   	Estimated 2013	Planned 2014
   Vote 20 - Operating expenditures	$ 50,417	$ 50,321
   Vote 25 - Grants	949,075	925,094
   Statutory - Contributions to employee benefit plan	6,618	5,935
   Forecast authorities available	$ 1,006,110	$ 981,350

   Authorities presented reflect current forecasts of statutory items, approved initiatives included and expected to be included in Estimates documents and, when reasonable estimates can be made, estimates of amounts to be allocated from Treasury Board central votes.

2. Reconciliation of net cost of operations to requested authorities
   (in thousands of dollars)

   	Estimated 2013	Planned 2014
   Net cost of operations before government funding	$ 1,008,118	$ 983,956
   Adjustments for items affecting net cost of operations but not affecting authorities:
   Services provided without charge by other government departments	(6,803)	(6,366)
   Refunds of previous years' expenses	4,591	4,591
   Decrease (increase) in employee severance benefits	1,402	(94)
   Amortization of tangible capital assets	(1,520)	(1,066)
   Increase in vacation pay and compensatory leave	(77)	(81)
   	(2,407)	(3,016)
   Adjustments for items not affecting net cost of operations but affecting authorities:
   Acquisitions of tangible capital assets	546	410
   Increase in prepaid expenses	(147)	-
   	399	410
   Forecast authorities available	$ 1,006,110	$ 981,350

6. Accounts Payable and Accrued Liabilities

The following table presents details of the CIHR's accounts payable and accrued liabilities:
(in thousands of dollars)

7. Deferred Revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received from external parties which are restricted to fund the expenditures related to specific research projects and amounts received for fees prior to services being performed. Revenue is recognized in the period that these expenditures are incurred or the service is performed. Details of the transactions related to this account are as follows:
(in thousands of dollars)

8. Employee Future Benefits

1. Pension benefits:

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

   Both the employees and CIHR contribute to the cost of the Plan. The 2012-13 forecast expense (in thousands of dollars) amounts to $4,778 ($4,424 in 2013-14), representing approximately 1.8 times (1.8 times in 2013-14) the contributions by employees.

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

2. Severance benefits:

   CIHR provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, estimated as at the date of these statements, is as follows:

   As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment of CIHR executives and non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing 2011-12. Employees subject to these changes have been given the option to be immediately paid in full or partial value of benefits earned to date or collect the full remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation.
   (in thousands of dollars)

   	Estimated Results 2013	Planned Results 2014
   Accrued benefit obligation - Beginning of year	$ 3,285	$ 1,883
   Expense for the year	90	94
   Benefits paid during the year	(1,492)	-
   Accrued benefit obligation - End of year	$ 1,883	$ 1,977

9. Accounts Receivable and Advances

The following table presents details of CIHR's accounts receivable and advances balances:
(in thousands of dollars)

10. Tangible Capital Assets

(in thousands of dollars)

Amortization expense (in thousands) for the year ended March 31, 2013 is $1,520 (2014 - $1,066).

11. Contractual Obligations

The nature of CIHR's activities result in some large multi-year contracts and obligations whereby CIHR will be obligated to make some future payments in order to carry out its grants and awards payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:
(in thousands of dollars)

12. Contingent Liabilities

A legal suit for employment equity was initiated by the Public Service Alliance of Canada against Her Majesty the Queen naming certain separate employer organizations of the Government of Canada, including the Canadian Institutes of Health Research (CIHR), as defendants. The amount of this claim, as it relates to CIHR, is estimated to be $747,000. In management's opinion, the outcome of this litigation is not presently determinable and no estimated liability has been accrued or expense recorded in the future-oriented financial statements.

A legal suit for wrongful dismissal was initiated by an ex-employee against the Canadian Institutes of Health Research. The amount of this claim, as it relates to CIHR, is estimated to be $500,000. In management's opinion, the outcome of this litigation is not presently determinable and no estimated liability has been accrued or expense recorded in the future-oriented financial statements.

CIHR may be subject to other claims in the normal course of business. In management's view, these claims are not anticipated to have any material impact on the future-oriented financial statements and consequently, no provision has been made for these claims.

13. Related Party Transactions

CIHR is related as a result of common ownership to all Government departments, agencies, and Crown Corporations. CIHR enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, CIHR received common services which were obtained without charge from other Government departments as disclosed below.

1. Common services provided without charge by other government departments

   During the year, CIHR receives services without charge from certain common service organizations, related to accommodation and the employer's contribution to the health and dental insurance plans. These services provided without charge have been recorded in CIHR's Future-oriented Statement of Operations and Departmental Net Financial Position as follows:
   (in thousands of dollars)

   	Estimated Results 2013	Planned Results 2014
   Accommodation provided by Public Works and Government Services Canada	$ 3,530	$ 3,340
   Employer's contribution to the health and dental insurance plans provided by Treasury Board Secretariat	3,273	3,026
   Total	$ 6,803	$ 6,366

   The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General of Canada are not included in CIHR's Future-oriented Statement of Operations and Departmental Net Financial Position.

2. Administration of CIHR funds by other government departments

   Other federal departments and agencies administer funds on behalf of CIHR to issue grants, awards and related payments. Other federal departments and agencies are forecasted to administer $99.2M in funds for grants and awards for both 2012-13 and 2013-14, primarily pertaining to the Canada Research Chairs program. These expenses are reflected in CIHR's Future-oriented Statement of Operations and Departmental Net Financial Position.

14. Segmented Information

Presentation by segment is based on CIHR's program activity architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 4. The following table presents the forecasted expenses incurred and forecasted revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the period are as follows:
(in thousands of dollars)

15. Comparative information

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

Date modified:

2014-05-07