Financial Statements 2016-2017

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2017 and all information contained in these statements rests with the management of Polar Knowledge Canada (POLAR). These financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of POLAR’s financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in POLAR’s Departmental Results Report, is consistent with these financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerial authorities are understood throughout POLAR and through conducting an annual risk-based assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess effectiveness of associated key controls, and to make any necessary adjustments.

POLAR will be subject to periodic core control audits performed by the Office of the Comptroller General and will use the results of such audits to adhere to the Treasury Board Policy on Internal Control.

In the meantime, POLAR has initiated a risk-based assessment of the system of ICFR for the fiscal year ended March 31, 2017, in accordance with the Treasury Board Policy on Internal Control and the results and action plan will be presented in future years.

The financial statements of POLAR have not been audited.

Statement of Financial Position (Unaudited)

As at March 31, 2017

(in dollars)	March 31, 2017	March 31, 2016
Liabilities
Accounts payable and accrued liabilities (note 5)	2,063,616	1,105,754
Vacation pay and compensatory leave	200,784	125,535
Employee future benefits (note 6)	94,439	84,086
Total liabilities	2,358,839	1,315,375
Financial assets
Due from Consolidated Revenue Fund	1,874,455	1,074,726
Accounts receivable and advances (note 4)	185,122	26,076
Total financial assets	2,059,577	1,100,802
Departmental net debt	299,262	214,573
Non-financial assets
Prepaid expenses	34,303	9,085
Tangible capital assets (note 7)	1,845,224	127,069
Total non-financial assets	1,879,527	136,154
Departmental net financial position	1,580,265	(78,419)

The accompanying notes form an integral part of the financial statements.

Statement of Operations and Departmental Net Financial Position (Unaudited)

(in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
Expenses
Science and Technology for the North	8,795,168	5,506,419
Polar Knowledge Application	3,058,025	1,121,846
Internal services	3,973,189	2,059,476
Total expenses	15,826,382	8,687,741
Net cost of operations before government funding and transfers	15,826,382	8,687,741
Government funding and transfers
Net cash provided by Government	15,043,014	7,235,429
Change in due from Consolidated Revenue Fund	799,729	1,074,726
Services provided without charge by other government departments (note 8)	349,476	228,685
Transfer of assets and liabilities from other government departments (note 9)	1,292,847	70,482
Net cost of operations after government funding and transfers	(1,658,684)	78,419
Departmental net financial position - Beginning of year	(78,419)	-
Departmental net financial position - End of year	1,580,265	(78,419)

Segmented information (note 10)

The accompanying notes form an integral part of the financial statements.

Statement of Change in Departmental Net Debt (Unaudited)

(in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
Net cost of operations after government funding and transfers	(1,658,684)	78,419
Change due to tangible capital assets
Acquisition of tangible capital assets (note 7)	540,690	-
Amortization of tangible capital assets (note 7)	(115,382)	(19,281)
Transfer from other government departments (note 9)	1,292,847	155,109
Net loss on disposal of tangible capital assets including adjustments	-	(8,759)
Total change due to tangible capital assets	1,718,155	127,069
Change due to prepaid expenses	25,218	9,085
Net decrease in departmental net debt	84,689	214,573
Departmental net debt - Beginning of year	214,573	-
Departmental net debt - End of year	299,262	214,573

The accompanying notes form an integral part of the financial statements.

Statement of Cash Flows (Unaudited)

(in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
Operating activities
Net cost of operations before government funding and transfers	15,826,382	8,687,741
Non-cash items:
Amortization of tangible capital assets (note 7)	(115,382)	(19,281)
Loss on disposal of tangible capital assets (note 7)	-	(8,759)
Services provided without charge by other government departments (note 8)	(349,476)	(228,685)
Variations in Statement of Financial Position:
Increase in accounts receivable and advances	159,046	26,076
Increase in prepaid expenses	25,218	9,085
Increase in accounts payable and accrued liabilities	(957,862)	(1,105,754)
Increase in vacation pay and compensatory leave	(75,249)	(125,535)
Increase in employee future benefits	(10,353)	(84,086)
Transfer of liabilities and non-capital assets from other government departments (note 9)	-	84,627
Cash used in operating activities	14,502,324	7,235,429
Capital investing activities
Acquisition of tangible capital assets	540,690	-
Cash used in capital investing activities	540,690	-
Net cash provided by Government of Canada	15,043,014	7,235,429

The accompanying notes form an integral part of the financial statements.

Notes to the Financial Statements (Unaudited)

For the Year Ended March 31, 2017

1. Authority and objectives

   Polar Knowledge Canada (POLAR) is a federal agency (departmental corporation) that was established with the coming into force of the Canadian High Arctic Research Station Act on June 1, 2015. POLAR advances knowledge of the Canadian Arctic and strengthens Canadian leadership in polar science and technology. POLAR has a unique role to advance our collective understanding of polar environments by mobilizing current knowledge produced by others, in a meaningful and accessible way, to address the gaps and concerns of Northern communities.

   POLAR has one strategic outcome: Canada has world-class Arctic science and technology to support the development and stewardship of Canada’s North and is recognized as a leader on circumpolar research issues. According to the approved Program Aligment Architecture (PAA), the Statement of Operations and Departmental Net Financial Position was detailed by the following programs (business lines):

   Science and Technology for the North

   This program aims to create the conditions for Polar Knowledge Canada to anchor a strong research presence in Canada’s Arctic. Through both partnering and internal science and technology, POLAR will acquire the wide range of information needed for effective solutions to Arctic issues, policy and research program development in the North, and to advance Canada’s position as a leading Arctic nation. The depth of knowledge gained through scientific and technological research and training will support greater sustainable use of the North’s land and natural resources.

   Polar Knowledge Application

   Lead the mobilization of polar science and technology into action. POLAR will analyze and disseminate polar knowledge from its Science and Technology Program, as well as that from other federal, territorial and other stakeholders, and investments to inform management, programming, and policies; promote Arctic science and technology nationally and internationally; and build capacity through training, outreach, and learning opportunities. This will ensure polar knowledge is relevant to stakeholders and indigenous communities, and builds a science culture in Canada that incorporates indigenous and local knowledge.

   Internal services

   Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization. Internal services include only those activities and resources that apply across an organization, and not those provided to a specific program. The groups of activities are; Management and Oversight Services, Communications Services, Legal Services, Human Resources Management Services, Financial Management Services, Information Management Services, Information Technology Services, Real Property Services, Materiel Services and Acquisition Services.

2. Summary of significant accounting policies

   These financial statements are prepared using POLAR'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:

   (a) Parliamentary authorities
   POLAR is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to POLAR do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Statement of Operations and Departmental Net Financial Position and in the Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. Planned results are not presented in the “Government funding and transfers” section of the Statement of Operations and Departmental Net Financial Position, in the Statement of Change in Departmental Net Debt and in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental Net Financial Position because these amounts were not included in the 2016-2017 Report on Plans and Priorities.

   (b) Net cash provided by Government
   POLAR operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by POLAR is deposited to the CRF, and all cash disbursements made by POLAR 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.

   (c) Due from the CRF
   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 net amount of cash that POLAR is entitled to draw from the CRF without further authorities to discharge its liabilities.

   (d) Expenses
   Expenses are recorded on the accrual basis:

   • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment; and
   • Services provided without charge by other government departments for employer contributions to the health and dental insurance plans are recorded as operating expenses at their estimated cost.

   (e) Employee future benefits

   • Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. POLAR’s contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. POLAR’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.
   • Severance benefits: Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.

2. Summary of significant accounting policies (continued)

   (f) Accounts receivable
   Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for receivables where recovery is considered uncertain.

   (g) Tangible capital assets
   All tangible capital assets having an initial cost of $10,000 or more are recorded at their acquisition cost. POLAR does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, or assets located on Indian Reserves and museum collections.

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

   Asset Class	Amortization Period
   Machinery and equipment	5 years
   Informatics hardware	5 years
   Informatics software	3 years
   Other equipment, including furniture	5 to 10 years
   Ships and boats	10 years
   Motor vehicles (Non-military)	4 to 7 years
   Other vehicles	10 years
   Leasehold improvements	Lesser of the remaining term of lease or useful life of the improvement

   (h) Measurement uncertainty
   The preparation of these 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 where estimates are used are 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.

   3. Parliamentary authorities

      POLAR receives its funding through annual parliamentary authorities. Items recognized in the Statement of Operations and Departmental Net Financial Position and the Statement of Financial Position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, POLAR 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:

      (a) Reconciliation of net cost of operations to current year authorities used

      (in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
      Net cost of operations before government funding and transfers	15,826,382	8,687,741
      Adjustments for items affecting net cost of operations but not affecting authorities:
      Services provided without charge by other government departments	(349,476)	(228,685)
      Amortization of tangible capital assets	(115,382)	(19,281)
      Amortization of prepaid expenses	(9,085)	(21,192)
      Increase in vacation pay and compensatory leave	(75,250)	(84,315)
      Increase in employee future benefits	(10,353)	(84,086)
      Refunds / Adjustments of prior years' expenditures	31,442	29,803
      Loss on disposal of tangible capital assets (note 7)	-	(8,759)
      Total items affecting net cost of operations but not affecting authorities	(528,104)	(416,515)
      Adjustments for items not affecting net cost of operations but affecting authorities:
      Variation in prepaid expenses	34,302	15,485
      Acquisition of tangible capital assets	540,690	-
      Variation in advances	(6,792)	-
      Total items not affecting net cost of operations but affecting authorities	568,200	15,485
      Current year authorities used	15,866,478	8,286,711

      (b) Authorities provided and used

      (in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
      Authorities provided:
      Vote 1 - Program expenditures	19,215,842	9,476,139
      Statutory amounts	503,400	390,554
      Total authorities provided	19,719,242	9,866,693
      Less:
      Lapsed: Operating	(3,852,764)	(1,579,982)
      Current year authorities used	15,866,478	8,286,711

   4. Accounts receivable and advances

      The following table presents details of POLAR's accounts receivable and advances:

      (in dollars)	March 31, 2017	March 31, 2016
      Accounts receivable - Other government departments and agencies	160,638	17,682
      Accounts receivable - External parties	19,080	1,002
      Employee advances	5,404	7,392
      Total accounts receivable and advances	185,122	26,076

   5. Accounts payable and accrued liabilities

      The following table presents details of POLAR's accounts payable and accrued liabilities:

      (in dollars)	March 31, 2017	March 31, 2016
      Accounts payable - Other government departments and agencies	790,533	359,040
      Accounts payable - External parties	414,728	269,713
      Total accounts payable	1,205,261	628,753
      Accrued liabilities	858,355	477,001
      Total accounts payable and accrued liabilities	2,063,616	1,105,754

   6. Employee future benefits

      (a) Pension benefits

      POLAR's employees participate in the Public Service Pension Plan (the 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 Canada/Quebec Pension Plans benefits and they are indexed to inflation.

      Both the employees and POLAR contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to the Economic Action Plan 2012, employee contributors have been divided into two groups – Group 1 relates to existing plan members as of December 31, 2012 and Group 2 relates to members joining the Plan as of January 1, 2013. Each group has a distinct contribution rate.

      The 2016-2017 expense amounts to $350,719 ($269,209 in 2015-2016). For Group 1 members, the expense represents approximately 1.12 times (1.25 times in 2015-2016) the employee contributions and, for Group 2 members, approximately 1.08 times (1.24 times in 2015-2016) the employee contributions.

      POLAR'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.

      (b) Severance benefits

      POLAR provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

      As part of collective agreement negotiations with certain employee groups, and changes to conditions of employment for executives and certain non-represented employees, the accumulation of severance benefits under the employee severance pay program ceased for these employees commencing in 2012. Employees subject to these changes have been given the option to be immediately paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits on termination from the public service. These changes have been reflected in the calculation of the outstanding severance benefit obligation. Information about the severance benefits, measured as at March 31, is as follows:

      The changes in the obligations during the year are as follows:

      (in dollars)	March 31, 2017	March 31, 2016
      Accrued benefit obligation, beginning of year	84,086	-
      Expense for the year	10,353	84,086
      Accrued benefit obligation, end of year	94,439	84,086

   7. Tangible capital assets

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

      Cost	Opening Balance April 1, 2016	Acquisitions	Adjustments(1)	Disposals and Write-Offs	Closing Balance March 31, 2017
      (in dollars)
      Machinery and equipment	-	-	1,154,250	-	1,154,250
      Other equipment, including furniture	23,504	-	-	-	23,504
      Ships and Boats	23,400	-	-	-	23,400
      Motor Vehicles (Non-Military)	88,656	-	152,327	-	240,983
      Other Vehicles	22,549	-	-	-	22,549
      Leasehold improvements	-	540,690	-	-	540,690
      	158,109	540,690	1,306,577	-	2,005,376

      Accumulated Amortization	Opening Balance April 1, 2016	Amortization	Adjustments(1)	Disposals and Write-Offs	Closing Balance March 31, 2017
      (in dollars)
      Machinery and equipment	-	70,244	-	-	70,244
      Other equipment, including furniture	3,526	2,350	-	-	5,876
      Ships and Boats	3,315	2,340	-	-	5,655
      Motor Vehicles (Non-Military)	20,629	38,193	13,730	-	72,552
      Other Vehicles	3,570	2,255	-	-	5,825
      Leasehold improvements	-	-	-	-	-
      	31,040	115,382	13,730	-	160,152

      Net Book Value	Opening Balance April 1, 2016	Closing Balance March 31, 2017
      (in dollars)
      Machinery and equipment	-	1,084,006
      Other equipment, including furniture	19,978	17,628
      Ships and Boats	20,085	17,745
      Motor Vehicles (Non-Military)	68,027	168,431
      Other Vehicles	18,979	16,724
      Leasehold improvements	-	540,690
      	127,069	1,845,224

      ⁽¹⁾ Adjustments include tangible capital assets with a net book value of $1,292,847 that were transferred in 2016-2017 from other government departments (refer to note 9 for further detail on the transfer).

   8. Contractual obligations

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

      a) Common services provided without charge by other government departments

      During the year, POLAR received services without charge from certain common service organizations, related to the employer’s contribution to the health and dental insurance plans. These services provided without charge have been recorded in POLAR’s Statement of Operations and Departmental Net Financial Position as follows:

      (in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
      Employer's contribution to the health and dental insurance plans	349,476	228,685
      Total	349,476	228,685

      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 are not included in POLAR’s Statement of Operations and Departmental Net Financial Position.

      (b) Other transactions with related parties

      (in dollars)	For the 12-month period ended March 31, 2017	For the 10-month period ended March 31, 2016
      Expenses - Other government departments and agencies	2,964,430	2,390,057

      Expenses disclosed in (b) exclude common services provided without charge, which are already disclosed in (a).

   9. Transfer from other government departments

      Effective June 1, 2015, the former Canadian Polar Commission (CPC) and the former Science and Technology program at Aboriginal Affairs and Northern Development Canada (AANDC) transferred responsibility of all of its programs (CPC) and programs related to the development and implementation of CHARS (AANDC) to POLAR. The transfer was done in accordance with the Canadian High Arctic Research Act and included the stewardship responsibility for the assets and liabilities related to these programs. Accordingly, POLAR received assets from AANDC in 2016-2017:

      (in dollars)	Total
      Assets
      Tangible capital assets	1,292,847
      Total assets received	1,292,847
      Adjustment to the departmental net financial position	1,292,847

   10. Segmented information

       Presentation by segment is based on POLAR's program alignment architecture. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 2. The following table presents the expenses incurred for the main programs, by major object of expense. The segment results for the period are as follows:

       	For the 12-month period ended March 31, 2017				For the 10-month period ended March 31, 2016
       (in dollars)	Science and Technology for the North	Polar Knowledge Application	Internal services	Total	Total
       Transfer payments
       Other Levels of Government	4,453,473	1,278,350	-	5,731,823	1,119,738
       Individuals	10,000	-	-	10,000	495,109
       Native Peoples	609,430	50,000	-	659,430	177,420
       Non-profit institutions and other organizations	-	-	-	-	76,000
       Industry	641,483	60,000	-	701,483	24,703
       Total Transfer payments	5,714,386	1,388,350	-	7,102,736	1,892,970
       Operating expenses
       Salaries and employee benefits	1,818,288	1,128,447	1,674,302	4,621,037	3,331,885
       Professional and special services	770,424	101,760	754,731	1,626,915	1,019,943
       Machinery and equipment	12,363	33	56,319	68,715	750,353
       Transportation and telecommunications	310,469	289,020	629,923	1,229,412	693,194
       Utilities, materials and supplies	28,138	4,330	161,235	193,703	477,066
       Rentals	19,820	1,536	639,710	661,066	341,845
       Information	397	144,367	32,661	177,425	155,769
       Amortization of tangible capital assets	115,383	-	-	115,383	19,281
       Other	-	-	9,229	9,229	3,165
       Repairs and maintenance	5,500	182	15,079	20,761	2,270
       Total operating expenses	3,080,782	1,669,675	3,973,189	8,723,646	6,794,771
       Net cost of operations before government funding and transfers	8,795,168	3,058,025	3,973,189	15,826,382	8,687,741