National Defence consolidated future-oriented statement of operations 2020–21 Departmental Plan (unaudited)

Consolidated future-orientated statement of operations (unaudited)

For the year ending 31 March

(in thousands of dollars)

	Forecast results 2019-20	Planned results 2020-21
Expenses
Operations	1,541,964	1,232,798
Ready forces	9,875,820	9,938,978
Defence team	3,417,518	3,530,954
Future force design	770,628	674,373
Procurement of capabilities	3,249,889	3,431,059
Sustainable bases and information technology systems and platforms	3,072,240	3,457,848
Internal services	619,782	679,461
Total expenses	22,547,841	22,945,471

Revenues
Sale of goods and services	392,508	387,286
Gains on disposals of assets	20,567	20,294
Interest and gains on foreign exchange	15,824	15,613
Other	13,375	13,197
Revenues earned on behalf of government	(11,637)	(11,482)
Total revenues	430,637	424,908

Net cost of operations	22,117,204	22,520,563

The accompanying notes form an integral part of the future-oriented statement of operations.

Notes to the consolidated future-oriented statement of operations (unaudited)

1. Methodology and significant assumptions

The consolidated future-oriented statement of operations has been prepared on the basis of government priorities and departmental plans as described in the Departmental Plan.

The information in the forecast results for fiscal year 2019-20 is based on actual results as at December 31, 2019 and on forecasts for the remainder of the fiscal year. Forecasts have been made for the planned results for fiscal year 2020-21.

The main assumptions underlying the forecasts are as follows:

Forecast and planned spending corresponds to the department’s mandated activities.
2019-20 Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical data and trends, up-to-date Annual Reference Level Update (ARLU) information and supplementary estimates. The general historical pattern is expected to continue.
2020-21 Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical data and trends, up-to-date Annual Reference Level Update (ARLU) information. Figures for the planned results do not include items such as carry-forward funding. The general historical pattern is expected to continue.

These assumptions are made as at December 31, 2019.

2. Variations between actual and forecast financial results

Although every attempt has been made to forecast final results for the remainder of 2019-20 and for 2020-21, actual results achieved for both years are likely to differ from the forecast information presented, and this variation could be material.

In preparing this consolidated future-oriented statement of operations, the department has made estimates and assumptions about the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on past experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are continually evaluated.

Factors that could lead to material differences between the consolidated future-oriented statement of operations and the historical statement of operations include:

the timing and the amount of acquisitions and disposals of property, plant and equipment, which may affect gains, losses and amortization expense;
the implementation of new collective agreements;
economic conditions, which may affect both the amount of revenue earned and the collectability of receivables;
the interest rates in effect at the time of issue, which will affect the net present value of non-interest-bearing loans; and
other changes to the operating budget, such as new initiatives or technical adjustments later in the fiscal year.

After the Departmental Plan is tabled in Parliament, the department will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Results Report.

3. Summary of significant accounting policies

The consolidated future-oriented statement of operations has been prepared using the Government of Canada's accounting policies in effect for fiscal year 2019-20, and is 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) Consolidation

This consolidated future-oriented statement of operations includes the accounts of the sub-entities that the deputy head is accountable for. The accounts of these sub-entities have been consolidated with those of the department and all inter-organizational balances and transactions have been eliminated. The consolidated future-oriented statement of operations therefore includes the accounts of the Department of National Defence, the Canadian Armed Forces and several related organizations and agencies in the Defence Portfolio, which carry out the Defence mission and are part of the Defence Services Programme.

Organizations and agencies that are part of the consolidated future-oriented statement of operations include the following:

Canadian Cadet Program and the Junior Canadian Rangers;
Canadian Forces Housing Agency;
Defence Research and Development Canada;
Office of the Ombudsman for the Department of National Defence and Canadian Forces; and
Office of the Judge Advocate General.

The organizations below are excluded from the consolidation because these organizations are not part of the Defence Services Programme, although they fall under the responsibility of the Minister of National Defence.

Military Grievance External Review Committee;
Military Police Complaints Commission;
Communications Security Establishment Canada; and
Office of the Communications Security Establishment Commissioner.

b) Expenses

The department records expenses on an accrual basis. Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met the eligibility (or the entitlements) criteria (for grants) or the performance conditions (for contributions) established for the transfer payment program. In situations where grant payments do not form part of an existing program, payments are recorded as expenses when the government announces a decision to make a non-recurring transfer, provided that the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the 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, employee contributions to health and dental insurance plans, worker's compensation coverage and legal services are recorded as operating expenses at their estimated cost.

c) Revenues

Revenues from regulatory fees are recognized in the accounts based on the services provided in the fiscal year.

Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.

Deferred revenue consists of amounts received in advance of the delivery of goods and rendering of services that will be recognized as revenue in a subsequent fiscal year as it is earned.

Other revenues are recognized in the period the event giving rise to the revenues occurred. Revenues that are non-respendable are not available to discharge the department's liabilities. Although the deputy head is expected to maintain accounting control, he or she has no authority over the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of the entity’s gross revenues.

4. Parliamentary authorities

The department is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the department differs from financial reporting according to generally accepted accounting principles because authorities are based mainly on cash flow requirements. Items recognized in the consolidated future-oriented statement of operations in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the department has different net cost 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 requested authorities:
(in thousands of dollars)

	Forecast 2019-20	Planned 2020-21
Net cost of operations	22,117,204	22,520,563

Adjustments for items affecting net cost of operations but not affecting authorities
Amortization of tangible capital assets	(2,810,480)	(2,958,676)
Services provided without charge by other government departments	(805,792)	(816,537)
Decrease (increase) in employee future benefits	89,461	76,443
Refund of previous years' expenses	51,061	59,349
Vacation Pay and Compensatory Leave	(9,324)	(11,134)
Loss on disposals of capital assets	(132,386)	(203,316)
Adjustments of tangible capital assets	67,699	(30,071)
Refund of program expenses	31,423	32,525
Deferred Revenues	2,470	2,500
Decrease (increase) in accrued liabilities not charged to authorities	160,691	14,681
Bad debt expense	(3,037)	(3,037)
Proceeds from sale of assets	(20,081)	(20,093)
Change in environmental liabilities	8,589	7,536
Miscellaneous	11,950	12,096
Total items affecting net cost of operations but not affecting authorities	(3,357,756)	(3,837,734)

Adjustments for items not affecting net cost of operations but affecting authorities
Acquisition of tangible capital assets	4,016,727	4,596,303
Decrease (increase) in lease obligations for capital assets	45,356	11,503
Increase (decrease) in inventory purchases net of usage and adjustments	32,402	70,782
Increase (decrease) in prepaid expenses	347,389	79,804
Revenues collected from prior years' receivables	(60,424)	(19,174)
Total for items not affecting net cost of operations but affecting authorities	4,381,450	4,739,218

Requested authorities	23,140,898	23,422,047

b) Authorities requested