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On October 24, 2001, the Financial Consumer Agency of Canada Act (the Act) came into force, establishing the Financial Consumer Agency of Canada (FCAC, or the Agency). The Financial Consumer Agency of Canada is responsible for strengthening the oversight of consumer protection measures in the federally regulated financial sector and for expanding consumer education activities. The Agency is a department of the Government of Canada and is listed in schedule I.1 of the Financial Administration Act.
FCAC’s mandate is specifically set out in the Financial Consumer Agency of Canada Act. It must:
Section 18(3) of the Act provides that the Agency’s costs of operations are to be assessed to the industry. Pursuant to Section 13(2) of the Act FCAC’s operations are typically funded entirely through this process. FCAC is however entitled to receive a parliamentary appropriation as authorized under Section 13(3) of the Act.
FCAC’s assessment revenues are charged in accordance with the Financial Consumer Agency of Canada Assessment of Financial Institutions Regulations, which outline the methodology used to determine each institution’s assessment.
The Agency manages its working capital requirements by borrowing funds from the Government of Canada as authorized under Section 13(1) of the Act.
Adoption of new accounting standards
On April 1, 2008, FCAC adopted the following new Canadian Institute of Chartered Accountants (CICA) Handbook Sections:
Section 1535 —“Capital Disclosures”
This standard requires the disclosure of both qualitative and quantitative information that enables users of financial statements to evaluate the entity’s objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital, as well as its compliance with any externally imposed capital requirements. The new standard did not have an effect on the financial position or earnings of FCAC, as it only relates to disclosure. The new disclosures are provided in note 13.
Section 3862 — “Financial Instruments — Disclosures” and Section 3863 — “Financial Instruments — Presentation” These new standards replace accounting standard 3861 “Financial Instruments — Disclosure and Presentation”. Enhanced disclosure is required to assist users of the financial statements in evaluating the significance of financial instruments on FCAC’s financial position and performance, including qualitative and quantitative information about FCAC’s exposure to risks, including credit, interest rate, liquidity, currency and other price risks arising from financial instruments. The new accounting standards cover disclosure only and had no effect on the financial results of FCAC. The new disclosures are provided in notes 5, 7 and 8.
Future accounting changes
Goodwill, Intangible Assets and Financial Statement Concepts
In November 2007, the CICA issued Handbook Section 3064 “Goodwill and Intangible Assets”, amended Handbook Section 1000 “Financial Statement Concepts” and withdrew Handbook Section 3450 “Research and Development Costs”. Handbook Section 3064 clarifies that costs may only be deferred when they relate to an item that meets the definition of an asset. Handbook Section 3064 replaces Handbook Section 3062 and provides extensive guidance on when expenditures qualify for recognition as intangible assets. The new and amended standards are effective for FCAC beginning April 1, 2009. FCAC is currently assessing the impact of this standard on its financial statements.
International Financial Reporting Standards (“IFRS”)
On February 13, 2008, the Accounting Standards Board (AcSB) of the CICA confirmed that the use of International Financial Reporting Standards (IFRS) will be required in 2011 for all publicly accountable Canadian reporting entities. IFRS will replace Canada’s current generally accepted accounting principles for these entities that are responsible to large or diverse groups of stakeholders. FCAC will adopt IFRS commencing on April 1, 2011, with comparatives for the year commencing April 1, 2010. FCAC has commenced its initial assessment of the impact to its financial statements of adopting IFRS.
Basis of presentation
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles for the private sector.
FCAC does not have its own bank account. All of the financial transactions of the Agency are processed through the Consolidated Revenue Fund (CRF), a banking facility administered by the Receiver General for Canada. FCAC’s cash entitlement represents the amount the Agency is entitled to withdraw from the CRF without further authority. This amount does not earn interest.
The classification of financial instruments is determined by FCAC at initial recognition and depends on the purpose for which the financial assets were acquired or liabilities were incurred. All financial instruments are recognized initially at fair value. The fair value of financial instruments on initial recognition is based on the transaction price, which represents the fair value of the consideration given or received. Subsequent to initial recognition, financial instruments are measured based on the accounting treatment corresponding to their classification.
Cash Entitlement is classified as “Held-for-trading”.
Cash Entitlement is measured at fair value. Gains and losses arising from changes in the fair value are recorded in Operating Results before Government Funding and Administrative Monetary Penalties in the period in which they arise.
|Loans and Receivables||
Assessments Receivable, Accrued Assessments and Other Receivables are classified as “Loans and Receivables”.
Loans and Receivables are non-derivative financial assets with fixed or determinable payments that are not debt securities.
Subsequent to initial recognition, Loans and Receivables are measured at amortized cost using the effective interest method. Any gain, loss or interest income is recorded in revenues or expenses depending on the nature of the loan and receivable that gave rise to the gain, loss or income.
|Other Financial Liabilities||
Accounts Payable and Accrued Liabilities and Unearned Assessments are classified as “Other Financial Liabilities”.
Other Financial Liabilities are non-derivative financial liabilities that have not been designated at fair value.
Subsequent to initial recognition, Other Financial Liabilities are measured at amortized cost using the effective interest method. Any gain, loss or interest expense is recorded in revenues or expenses depending on the nature of the financial liability that gave rise to the gain, loss or expense.
FCAC assesses at each Balance Sheet date whether there is objective evidence that a financial asset is impaired. For the classification of Loans and Receivables, any write down or impairment is recognized in the period incurred and collected in the following year through assessments.
All capital assets are initially recorded at acquisition cost. Amortization of capital assets is calculated on a straight-line basis over the estimated useful life of the asset, as follows:
|Furniture and Fixtures||7 years|
|Leasehold Improvements||lesser of useful life or remaining term of the lease|
|Informatics Software||5 years|
|Office Equipment||4 years|
|Informatics Hardware||3 years|
FCAC’s eligible employees participate in the Public Service Pension Plan administered by the Government of Canada. Pension benefits accrue up to a maximum period of 35 years at a rate of 2% per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with the Canada/Québec Pension Plan benefits and they are indexed to inflation. Supplementary retirement benefits may also be provided in accordance with the Special Retirement Arrangements Act.
Both the employees and FCAC contribute to the cost of the Plan. FCAC’s responsibility with regard to the Plan is limited to its contributions, which are recorded in the Statement of Operations, Comprehensive Income and Retained Earnings. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan’s sponsor. Current legislation does not require FCAC to make contributions for any actuarial deficiencies of the Plan.
On termination of employment, employees are entitled to certain benefits provided for under their conditions of employment through a severance benefits plan. The cost of these benefits is accrued as the employees render their services necessary to earn severance benefits. These benefits represent the only obligation of FCAC that entails settlement by future payment.
The cost of severance benefits is actuarially determined as at March 31 of each year using the projected benefit method prorated on services. The valuation of the liability is based upon a current market discount rate and other actuarial assumptions, which represent management’s best long-term estimates of factors such as future wage increases and employee resignation rates. The excess of any net actuarial gain (loss) over 10% of the benefit obligation is amortized over the average remaining service period of active employees.
Other future benefits
The federal government sponsors a variety of other future benefit plans from which employees and former employees may benefit during employment or upon retirement. The Public Service Health Care Plan and the Pensioners’ Dental Service Plan are the two major plans available to FCAC employees and retirees. FCAC’s responsibility with regard to these two plans is limited to its contributions, which are recorded in the Statement of Operations, Comprehensive Income and Retained Earnings.
The Agency is dependent on its revenue from the assessment of financial institutions to fund its costs of operations, including those related to employee future benefits. FCAC matches its revenue to its operating costs. Any assessments that have been billed and for which costs have not been incurred are classified as Unearned Assessments on the balance sheet.
Assessments are billed annually based on an estimate of the current fiscal year’s costs of operations together with an adjustment for any differences between the previous year’s assessed costs and actual. The assessment process is undertaken before December 31 in each year, in accordance with Section 18(1) of the Act. As a result, at March 31 of each year, amounts may have been collected in advance of the incurrence of costs or, alternatively, funds may be owed to the Agency to fund its costs of operations.
Administrative monetary penalties may be issued by the Commissioner of the FCAC through Notices of Violations. These penalties are imposed in cases where the Commissioner believes that there has been either a violation of the consumer provisions or non-compliance with any Compliance Agreement entered into pursuant to an Act listed in Schedule 1 to the Financial Consumer Agency of Canada Act. The penalty amount may be as high as $50,000 for an individual and $200,000 for an institution. Penalties levied by FCAC are non-respendable and are to be remitted to the Consolidated Revenue Fund. The funds are not available to FCAC and are not included in the balance of the Cash Entitlement. As a result, the penalties do not reduce the amount that FCAC assesses the industry in respect of its operating costs.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. The most significant items involving the use of estimates and assumptions are the benefits costs, the total severance benefits liability and the useful lives of capital assets. Actual results could significantly differ from those estimates.
As at March 31, the aging of non-related party accounts receivable was as follows (for terms and conditions relating to related party receivables, refer to note 6):
|Days Outstanding||Current||31—60||61—90||91—120||> 120||Total|
|2009||$ —||$ —||$ —||$ 88,516||$ 26,748||$ 115,264|
|2008||$ —||$ —||$ —||$ 1,253,528||$ 9,000||$ 1,262,528|
FCAC records an allowance for doubtful accounts considering the age of an outstanding receivable and the likelihood of its collection. Provisions are also made where collection of the receivable is doubtful based on information gathered through collection efforts. An allowance is reversed once collection of the debt is successful or the amount is written off.
An account receivable will be considered to be impaired and written off when FCAC is certain that collection will not occur and all requirements of the Debt Write-Off Regulations 1994 have been met. During the year, no interest was earned on impaired assets and none of the past due amounts has been renegotiated. Those that are neither past due nor provided for or impaired are considered to be of good quality.
At March 31, 2009 accounts receivable at initial value of $9,001 (2008: $9,000) were impaired and fully provided for. The following table provides a reconciliation of the movement in this allowance during the year:
|Allowance for Doubtful Accounts, beginning of year||$ 9,000||$ 14,000|
|Amounts written off||—||—|
|Unused amounts reversed||—||(5,000)|
|Allowance for Doubtful Accounts, end of year||$ 9,001||$ 9,000|
The concentrations of accounts receivable as at March 31, 2009 are as follows:
|Assessments Receivable||Other Receivables||Total||% of Total Exposure|
|Federally Regulated Financial Institutions||$ 115,264||$ —||$ 115,264||83%|
|$ 115,264||$ 23,039||$ 138,303||100%|
All assessments receivable and accrued assessments are recoverable from federally regulated financial institutions. FCAC regulates over 400 financial institutions and does not have a significant receivable from any individual financial institution.
There are no Accrued Assessments that have not been billed at March 31, 2009.
FCAC is related, in terms of common ownership, to all Government of Canada departments, agencies and crown corporations. The Agency has entered into service agreements with several departments and one crown corporation for the supply of key services to the Agency and its staff in carrying out its mandate. FCAC currently works with the following partners:
FCAC also enters into transactions with other government entities in the normal course of business and on normal trade terms applicable to all individuals and enterprises. The following table summarizes the impact of the Agency’s significant related party transactions for the year on total expenses and the amounts due to (from) those related parties at the end of the year. The transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
|Related Party and Nature of Service Provided||Expense||Payable/ (Receivable)||Expense||Payable/ (Receivable)|
|Accommodation||$ 455,371||$ —||$ 459,837||$ —|
|CDIC — Professional Services|
|Call Centre Administration||555,687||—||412,157||—|
|OSFI — Professional Services|
|Human Resources Services||114,864||—||125,599||—|
|Internal Audit Services||99,120||99,120||69,150||69,150|
|Department of Finance|
|Interest on Loan from the Consolidated Revenue Fund||62,199||—||135,831||10,623|
|Fisheries & Oceans Canada|
|Royal Canadian Mounted Police|
|Total||$ 2,776,520||$ 177,119||$ 2,320,752||$ 158,601|
Due to their short-term nature, the carrying value of FCAC’s financial instruments is presumed to approximate their fair value.
FCAC’s financial liabilities include Accounts Payable and Accrued Liabilities and Unearned Assessments. The main purpose of these liabilities is to provide short-term financing for FCAC’s operations. Financial assets include Assessments Receivable, Accrued Assessments and Other Receivables.
FCAC is exposed to market risk, credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest risk, currency risk and other price risk, such as equity risk. FCAC is exposed to currency risk on any amounts payable that are to be made to foreign jurisdictions but is not exposed to interest risk or to other price risk.
Currency risk is the risk that the fair value or future cash flows will fluctuate because of changes in foreign exchange rates. FCAC’s exposure to the risk of changes in foreign exchange rates relates primarily to FCAC’s operating activities (when revenues or expenses are denominated in a currency other than the Canadian dollar).
FCAC manages its exposure to currency risk by structuring its contracts in Canadian dollars wherever possible. The majority of FCAC’s transactions during the fiscal year were denominated in Canadian dollars; as such, FCAC’s exposure to currency risk as at March 31, 2009 is insignificant.
There is no impact to revenues since all billings are done in Canadian dollars.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. FCAC’s exposure to the risk of market interest rates relates primarily to FCAC’s loans payable with floating interest rate as determined by the Department of Finance. As all amounts borrowed are required to be repaid by March 31 of any fiscal year, FCAC is not exposed to interest rate risk at the year end date. FCAC attempts to reduce the borrowings necessary by effectively forecasting its required cash flows from assessments from financial institutions. FCAC is not authorized to enter into any arrangements in order to reduce its exposure to interest rate risk.
The table below demonstrates the sensitivity to FCAC’s operating expenses of a one percentage point fluctuation in market interest rates, with all other variables held constant.
|Fluctuation in Interest Rate||Effect on Expenses|
|2009||+ 1%||$ 22,192|
|2008||+ 1%||$ 30,575|
Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument, leading to a financial loss. The maximum exposure FCAC has to credit risk is $138,303 which is in relation to its Assessments Receivable, Accrued Assessments and Other Receivables.
All federally regulated financial institutions are required to register with FCAC and pay the assessments as established by FCAC. Any loss incurred by FCAC as a result of a counterparty not meeting its obligations is recorded in the year incurred and collected in the following year, as outlined in the FCAC Act. All remaining receivables are with other government organizations, where there is minimal potential risk of loss. FCAC does not hold collateral as security.
Liquidity risk is the risk that FCAC will encounter difficulty in meeting obligations associated with financial liabilities. FCAC’s objective is to maintain sufficient Cash Entitlement through collection of assessments and fees in order to meet its operating requirements. FCAC manages liquidity risk through a detailed annual planning and billing process which is structured to allow for sufficient liquidity from one billing period to the next. FCAC’s objective is to accurately estimate its operating costs for the year in order to accurately estimate the assessments and fees to collect from federally regulated financial institutions.
The table below summarizes the maturity profile of FCAC’s financial liabilities at March 31, 2009 based on contractual undiscounted payments.
|On Demand||Less than 3 months||3 to 12 months||1 to 5 years||Greater than 5 years||Total|
|Accounts Payable and Accrued Liabilities||$ 217,937||$ 859,334||$ 207,120||$ —||$ —||$ 1,284,391|
|Total||$ 217,937||$ 859,334||$ 1,345,825||$ —||$ —||$ 2,423,096|
By December 31 of each year, the Commissioner must determine the total expenses incurred by the Agency during the preceding fiscal year for, or in connection with, the administration of the Financial Consumer Agency of Canada Act and the consumer provisions. The Commissioner then assesses each federally regulated financial institution a portion of these expenses, as determined by regulation. Interim assessments are also possible. To temporarily fund expenses until institutions are assessed, before March 31 of each year, the Agency must seek Ministerial authority to borrow from the Consolidated Revenue Fund, for the next fiscal year, up to a predetermined limit. The authority to borrow from the Consolidated Revenue Fund is granted under section 13 of the Financial Consumer Agency of Canada Act. For the year ended March 31, 2009 the Minister has approved up to $8,000,000 (2008: $8,000,000). All amounts borrowed during any fiscal year, must be repaid at the end of the fiscal year. The Agency pays interest on the funds borrowed as described under “Interest Risk”.
Refer to note 1 for further information on FCAC’s authority.
|Gross Book Values||Accumulated Amortization||Net Book Values|
|Categories||Opening balance||Additions||Closing balance||Opening balance||Amortization expense||Closing balance||2009||2008|
|Furniture and Fixtures||$ 597,682||$ —||$ 597,682||$ 413,454||$ 63,782||$ 477,236||$ 120,446||$ 184,228|
|Total||$ 1,396,132||$ 85,169||$ 1,481,301||$ 1,019,376||$ 207,046||$ 1,226,422||$ 254,879||$ 376,756|
FCAC and all eligible employees contribute to the Public Service Pension Plan. This pension plan provides benefits based on years of service and average earnings at retirement. The benefits are fully indexed to the increase in the Consumer Price Index. The estimated employer contributions to the Public Service Pension Plan during the year were $475,611 (2008: $401,828).
As required under present legislation, the contributions made by FCAC to the Plan are 1.91 times the employees’ contribution on amounts of salaries of $136,700 or less and 7.55 times the employees’ contribution on amounts of salaries in excess of $136,700.
Information about FCAC’s severance benefit plan is presented in the table below.
|Accrued Benefit Obligation, beginning of year||$ 391,556||$ 365,928|
|Current service cost||49,361||43,812|
|Accrued Benefit Obligation, end of year1||425,329||391,556|
|Unamortized Net Actuarial Loss||(43,870)||(65,197)|
|Accrued Benefit Liability||$ 381,459||$ 326,359|
|Net Benefit Plan Expense|
|Current service cost||$ 49,361||$ 43,812|
|Amortization of net actuarial losses2||1,929||4,778|
|Net Benefit Plan Expense||$ 68,691||$ 65,069|
1 The cost corresponding to annual changes in the accrued benefit liability is recovered from FCAC’s revenue from assessments outlined in note 3f) to the financial statements. Amounts collected in excess of benefits paid are presented on the Balance Sheet under the heading of Cash Entitlement.
A discount rate of 4.0% (2008: 4.25%) was applied in measuring the Agency’s accrued benefit obligation. Management’s best estimate for the general salary increases used to estimate the current service cost and the accrued benefit obligation as at March 31, 2009 is an annual economic increase of 1.5% for the plan years 2010 to 2012 inclusively (2008: 2.5% for the plan year 2009). Thereafter an annual economic increase of 2.0% (2008: 2.0%) is assumed. The average remaining service period of the active employees covered by the benefit plan is 14 years (2008: 14 years).
Contractual obligations arising from service agreements entered into with various departments and one Crown corporation for the supply of key services to the Agency, as well as future minimum lease payments for the remaining term of the Agency’s lease for office space are outlined below.
|Year ending March 31||Service agreements||Operating lease||Total|
|2010||$ 724,819||$ 469,972||$ 1,194,791|
|Total||$ 3,494,892||$ 469,972||$ 3,964,864|
Effective 2007-2008, FCAC is entitled to receive a parliamentary appropriation as authorized under Section 13(3) of the Act. The funding is to develop and share instructional materials for financial literacy education programs, particularly directed towards young adults, and to facilitate the dissemination of these materials and information through financial education providers. During 2008-2009, FCAC received an appropriation of $1,945,466 (2008: $943,915).
FCAC includes Contributed Surplus and Accumulated Deficit, collectively entitled “Equity of Canada”, in its definition of capital.
|Equity of Canada||$ —||$ —|
FCAC operates on a cost recovery basis. Its objective when managing capital is to closely manage actual costs to those estimated and communicated to its paying stakeholders. FCAC is prohibited from issuing its own capital or its own debt to meet any capital requirements. Any operating shortfall or excess is factored into the assessments charged to regulated entities in the following year. FCAC fully recovered all of its costs incurred in the year.
FCAC is not subject to any externally imposed capital requirement.
Administrative monetary penalties levied by FCAC are non-respendable and are to be remitted to the Consolidated Revenue Fund. The funds are not available to FCAC and are not included in the balance of the Cash Entitlement. As a result, the penalties do not reduce the amount that FCAC assesses the industry in respect of its operating costs.
FCAC levied $50,000 (2008: $76,000) in administrative monetary penalties during fiscal year 2008-2009.
Certain 2008 comparative figures have been reclassified to conform to the presentation adopted in 2009.