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

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)

Segmented information (note 10)

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

Statement of Change in Departmental Net Debt (Unaudited )

Segmented information (note 10)

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

Statement of Cash Flows (Unaudited )

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.