Financial Statements, March 31 2016

Statement of Management Responsibility Including Internal Control Over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the ten-month period ended March 31, 2016 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 Performance 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.

2015-16 is POLAR's first year of operations and as a result, POLAR has not been able to undertake a risk-based assessment of the system of ICFR for the ten-month period ended March 31, 2016, in accordance with the Treasury Board Policy on Internal Control. POLAR will undertake a risk-based assessement of the system of ICFR in the 2016-2017 fiscal year.

The financial statements of POLAR have not been audited.

David J. Scott, Ph.D.
President and Chief Executive Officer

Julie Brunet
Chief Financial Officer

Ottawa, Canada
September 2, 2016

Statement of Financial Position (Unaudited)

As at March 31, 2016

(in dollars) March 31, 2016
 
Liabilities
  Accounts payable and accrued liabilities (note 5) 1,105,754
  Vacation pay and compensatory leave  125,535
  Employee future benefits (note 6) 84,086
Total liabilities 1,315,375
 
Financial assets
  Due from Consolidated Revenue Fund 1,074,726
  Accounts receivable and advances (note 4) 26,076
Total financial assets 1,100,802
 
Departmental net debt 214,573
 
Non-financial assets
  Prepaid expenses 9,085
  Tangible capital assets (note 7) 127,069
Total non-financial assets 136,154
 
Departmental net financial position (78,419)

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

David J. Scott, Ph.D.
President and Chief Executive Officer

Julie Brunet
Chief Financial Officer

Ottawa, Canada
September 2, 2016

Statement of Operations and Departmental Net Financial Position (Unaudited)

(in dollars) For the 10-month period ended March 31, 2016
 
Expenses
  Science and Technology for the North 5,506,419
  Polar Knowledge Application 1,121,846
  Internal services 2,059,476
Total expenses 8,687,741
 
Net cost of operations before government funding and transfers 8,687,741
 
Government funding and transfers
  Net cash provided by Government 7,235,429
  Change in due from Consolidated Revenue Fund 1,074,726
  Services provided without charge by other government departments (note 8) 228,685
  Transfer of assets and liabilities from other government departments (note 9) 70,482
Net cost of operations after government funding and transfers 78,419
 
Departmental net financial position - Beginning of year -
Departmental net financial position - End of year (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 10-month period ended March 31, 2016
 
Net cost of operations after government funding and transfers 78,419
 
Change due to tangible capital assets
  Acquisition of tangible capital assets (note 7) -
  Amortization of tangible capital assets (note 7) (19,281)
  Transfer from other government departments (note 9) 155,109
  Net loss on disposal of tangible capital assets including adjustments (8,759)
Total change due to tangible capital assets 127,069
Change due to prepaid expenses 9,085
Net increase in net debt 214,573
Departmental net financial position - Beginning of year -
Departmental net financial position - End of year 214,573

Segmented information (note 10)

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

Statement of Cash Flows (Unaudited )

(in dollars) For the 10-month period ended March 31, 2016
 
Operating activities  
 
Net cost of operations before government funding and transfers 8,687,741
 
Non-cash items:
  Amortization of tangible capital assets (note 7) (19,281)
  Loss on disposal of tangible capital assets (note 7) (8,759)
  Services provided without charge by other government departments (note 8) (228,685)
 
Variations in Statement of Financial Position:
  Increase in accounts receivable and advances 26,076
  Increase in prepaid expenses 9,085
  Increase in accounts payable and accrued liabilities (1,105,754)
  Increase in vacation pay and compensatory leave (125,535)
  Increase in employee future benefits (84,086)
  Transfer of liabilities and non-capital assets from other government departments (note 9) 84,627
Cash used in operating activities 7,235,429
 
Departmental net financial position - End of year 214,573

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

Notes to the Financial Statements (Unaudited)

For the 10 month-period ended March 31, 2016

  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. The Act merged the mandate and functions of the Canadian Polar Commission and the pan-northern science and technology program associated with the Canadian High Arctic Research Station (CHARS) project of AANDC (now INAC).

    The functions of POLAR are to:

    • Undertake scientific research and develop technology
    • Implement scientific research and technology development programs and projects
    • Promote the testing, application, transfer, diffusion and commercialization of technology
    • Publish and disseminate studies, reports and other documents
    • Complement national and international networks of expertise and of facilities.

    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 have been prepared 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
      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.
    2. 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.
    3. 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.
    4. Expenses
      Expenses are recorded on the accrual basis:
      1. Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment; and
      2. 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.
    5. Employee future benefits
      1. 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.
      2. 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.
    6. 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.
    7. 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
    8. 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 10-month period ended March 31, 2016
     
    Net cost of operations before government funding and transfers 8,687,741
     
    Adjustments for items affecting net cost of operations but not affecting authorities:
      Services provided without charge by other government departments (228,685)
      Amortization of tangible capital assets (19,281)
      Amortization of prepaid expenses (21,192)
      Increase in vacation pay and compensatory leave (84,315)
      Increase in employee future benefits (84,086)
      Refunds / Adjustments to previous years' expenses 29,803
      Loss on disposal of tangible capital assets (note 7) (8,759)
    Total items affecting net cost of operations but not affecting authorities (416,515)
     
    Adjustments for items not affecting net cost of operations but affecting authorities:
    Increase (Decrease) in prepaid expenses 15,485
    Total items not affecting net cost of operations but affecting authorities 15,485
    Current year authorities used 8,286,711

    (b) Authorities provided and used

    (in dollars) For the 10-month period ended March 31, 2016
     
    Authorities provided:
      Vote 1 - Program expenditures 9,476,139
      Statutory amounts 390,554
    Total authorities provided 9,866,693
    Less:
      Lapsed: Operating (1,579,982)
    Current year authorities used 8,286,711
  4. Accounts receivable and advances

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

    (in dollars) March 31, 2016
    Accounts receivable - Other government departments and agencies 17,682
    Accounts receivable - External parties 1,002
    Employee advances 7,392
    Total accounts receivable and advances 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, 2016
    Accounts payable - Other government departments and agencies 359,040
    Accounts receivable - External parties 269,713
    Total accounts payable 628,753
    Accrued liabilities 477,001
    Total accounts payable and accrued liabilities 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.

    For the ten-month period ended March 31, 2016, expense amounts to $269,209. For Group 1 members, the expense represents approximately 1.25 times the employee contributions and, for Group 2 members, approximately 1.24 times 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:

     
    (in dollars) March 31, 2016
    Accrued benefit obligation, beginning of year -
    Expense for the year 84,086
    Accrued benefit obligation, end of year 84,086
  7. Tangible capital assets

    Cost

    (in dollars)
    Opening Balance
    June 1, 2015
    Acquisitions Adjustments(1) Disposals and Write-Offs Closing Balance
    March 31, 2016
    Machinery and equipment - - 2,229 (2,229) -
    Informatics hardware - - 113,584 (113,584) -
    Informatics software - - 49,105 (49,105) -
    Other equipment, including furniture - - 30,252 (6,748) 23,504
    Ships and Boats - - 23,400 - 23,400
    Motor Vehicles (Non-Military) - - 88,656 - 88,656
    Other Vehicles - - 22,549 - 22,549

      - - 329,775 (171,666) 158,109

     
    Accumulated Amortization

    (in dollars)
    Opening Balance
    June 1, 2015
    Amortization Adjustments(1) Disposals and Write-Offs Closing Balance
    March 31, 2016
    Machinery and equipment - - 2,229 (2,229) -
    Informatics hardware - - 110,256 (110,256) -
    Informatics software - - 44,731 (44,731) -
    Other equipment, including furniture - 1,959 7,258 (5,691) 3,526
    Ships and Boats - 1,950 1,365 - 3,315
    Motor Vehicles (Non-Military) - 13,493 7,136 - 20,629
    Other Vehicles - 1,879 1,691 - 3,570

      - 19,281 174,666 (162,907) 31,040

     
    Net Book Value

    (in dollars)
    Opening Balance
    June 1, 2015
    Closing Balance
    March 31, 2016
    Machinery and equipment - -
    Informatics hardware - -
    Informatics software - -
    Other equipment, including furniture - 19,978
    Ships and Boats - 20,085
    Motor Vehicles (Non-Military) - 68,027
    Other Vehicles - 18,979

      - 127,069

    (1)Adjustments include tangible capital assets with a net book value of $155,109 that were transferred, effective June 1, 2015, from other government departments (refer to note 9 for further detail on the transfer).
  8. Related party transactions

    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 10-month period ended March 31, 2016
    Employer's contribution to the health and dental insurance plans 228,685
    Total 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 10-month period ended March 31, 2016
    Expenses - Other government departments and agencies 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 Acts and included the stewardship responsibility for the assets and liabilities related to these programs. Accordingly, POLAR received assets and liabilities from the following departments on June 1, 2015:

    (in dollars) CPC AANDC Total
     
    Assets
    Accounts receivable and advances 45,682 -   45,682
    Prepaid expenses 14,792 -   14,792
    Tangible capital assets  8,759 146,350 155,109
    Total assets received  69,233 146,350  215,583
     
    Liabilities
    Accounts payable and accrued liabilities 103,881 -   103,881
    Vacation pay and compensatory leave 41,220 -   41,220
    Total liabilities received 145,101 - 145,101
    Adjustment to the departmental net
    financial position
    (75,868) 146,350  70,482

    Canadian Polar Commission (CPC)

    Aboriginal Affairs and Northern Development Canada (AANDC)

  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 10-month period ended March 31, 2016
      (in dollars) Science and Technology for the North Polar Knowledge Application Internal services Total
     
     
    Transfer Payments
      Other Levels of Government  1,039,738 80,000 -   1,119,738
      Individuals  495,109 -   -   495,109
      Native Peoples 177,420 -   -   177,420
      Non-profit institutions and other organizations -   76,000 -   76,000
      Industry  24,703 -   -   24,703
      Total Transfer Payments 1,736,970 156,000 -   1,892,970
    Operating expenses
      Salaries and employee benefits 1,583,904 718,281 1,029,700 3,331,885
      Professional and special services 588,808 36,259 394,876 1,019,943
      Machinery and equipment 664,442 462 85,449 750,353
      Transportation and telecommunications 262,747 178,460 251,987 693,194
      Utilities, materials and supplies 444,045 529 32,492 477,066
      Rentals 130,581 -   211,264 341,845
      Information 75,586 48,529 31,654 155,769
      Amortization of tangible capital assets 19,281 -   -   19,281
      Other 55 (16,783) 19,893 3,165
      Repairs and maintenance -   109 2,161 2,270
      Total Operating Expenses  3,769,449 965,846 2,059,476 6,794,771
     
    Net cost of operations before government funding and transfers 5,506,419 1,121,846 2,059,476 8,687,741
  11. Comparative information

    Comparative figures are not presented as 2015-16 was POLAR's first year of operations as a separate entity.

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