Future-Oriented Financial Statements

Canadian Institutes of Health Research
Statement of Management Responsibility

CIHR management is responsible for these future-oriented financial statements, including responsibility for the appropriateness of the assumptions on which these statements are prepared. These statements are based on the best information available and assumptions adopted as at February 29, 2012 and reflect the plans described in the Report on Plans and Priorities.

Alain Beaudet, MD, PhD
President

James Roberge, CMA
Chief Financial Officer

Ottawa, Canada
March 19, 2012

Contingent liabilities (Note 11)
Contractual obligations (Note 12)

The accompanying notes are an integral part of these financial statements.

Segmented information (note 14)

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

Canadian Institutes of Health Research
Notes to the Future-Oriented Financial Statements

1. Authority and Objectives

The Canadian Institutes of Health Research (CIHR) was established in June 2000 under the Canadian Institutes of Health Research Act, replacing the former Medical Research Council of Canada. It is listed in Schedule II to the Financial Administration Act as a departmental corporation.

CIHR's objective is to excel, according to international standards of scientific excellence, in the creation of new knowledge, and its translation into improved health, more effective health services and products, and a strengthened Canadian health care system. CIHR achieves these objectives through its strategic outcome of being a world-class health-research enterprise that creates, disseminates and applies new knowledge across all areas of health research. The strategic outcome is based on four program activities. The first program activity is Health Knowledge; these programs aim to support the creation of new knowledge across all areas of health research to improve health and the health system. The second, Health and Health Services Advances, aims to support the creation of new knowledge in strategic priority areas and its translation into improved health and a strengthened health system. The third program activity, Health Researchers, aims to build health research capacity to improve health and the health system by supporting the training and careers of excellent health researchers. The fourth, Health Research Commercialization, aims to support and facilitate the commercialization of health research to improve health and the health system.

CIHR is led by a President who is the Chairperson of a Governing Council of not more than nineteen other members appointed by the Governor in Council. The Governing Council sets overall strategic direction, goals and policies and oversees programming, resource allocation, ethics, finances, planning and accountability.

CIHR has thirteen Institutes that focus on identifying the research needs and priorities for specific health areas, or for specific populations, then developing strategic initiatives to address those needs. Each Institute is led by a Scientific Director who is guided by an Institute Advisory Board, which strives to include representation of the public, researcher communities, research funders, health professionals, health policy specialists and other users of research results.

CIHR's grants, awards, and operating expenditures are funded by budgetary authorities. Employee benefits are funded by statutory authorities.

2. Methodology and Significant Assumptions

The future-oriented financial statements have been prepared on the basis of the government priorities and the plans of CIHR as described in the Report on Plans and Priorities.

The main assumptions are as follows:

1. CIHR's activities will remain substantially the same as for the previous year.
2. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience. The general historical pattern is expected to continue.
3. Estimated year end information for 2011-12 is used as the opening position for the 2012-13 forecasts.

These assumptions are adopted as at February 29, 2012.

3. Variations and Changes to the Forecast Financial Information

While every attempt has been made to forecast final results for the remainder of 2011-12 and for 2012-13, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing these future-oriented financial statements, CIHR has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Factors that could lead to material differences between the future-oriented financial statements and the historical financial statements include:

1. The timing and amounts of acquisitions and disposals of property, plant and equipment may affect gains/losses and amortization expense.
2. Economic conditions may affect the amount of revenue earned.
3. Further changes to the operating budget through additional new initiatives or technical adjustments later in the year, such as any impact from the Government's deficit reduction action plan, which aims to achieve $4 billion in ongoing annual savings government-wide by 2014-15.

Once the Report on Plans and Priorities is presented, CIHR will not be updating the forecasts for any changes to authorities or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of Significant Accounting Policies

The future-oriented financial statements have been prepared in accordance with the Treasury Board accounting policies in effect for the 2011-12 fiscal year. These accounting policies, stated below, are based on Canadian generally accepted accounting principles for the public sector. Management believes that the presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles, except as disclosed in Note 16 – Net Debt Indicator.

Significant accounting policies are as follows:

1. Parliamentary authorities - CIHR is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CIHR does not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Future-oriented Statement of Operations and Net Accountability and the Future-oriented Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 5 provides a reconciliation between the bases of reporting.
2. Net cash provided by Government – CIHR operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CIHR is deposited to the CRF and all cash disbursements made by CIHR 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. 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 amount of cash that CIHR is entitled to draw from the CRF without further parliamentary expenditure authorities to discharge its liabilities.
4. Revenues
   • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenues. These revenues are recognized in the period in which the related expenses are incurred.
   • Funds that have been received are recorded as deferred revenue, provided CIHR has an obligation to other parties for the provision of goods, services, or the use of assets in the future.
   • Other revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place.
5. Expenses – Expenses are recorded on the accrual basis:
   • Grants and awards are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the future-oriented 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, employer contributions to the health and dental insurance plans, and audit services are recorded as operating expenses at their estimated cost.
6. Refunds of previous years' expenses - These amounts include the return of grants and awards funds to CIHR in the current fiscal year for expenses incurred in previous fiscal years due to cancellations; refunds of previous years' expenses related to goods or services; and adjustments of previous years' accounts payable. These refunds and adjustments are recorded against the related expenses in the financial statements but are recorded as revenue on an authority basis and therefore are excluded when determining current year authorities used.
7. Employee future benefits
   1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer defined benefit plan administered by the Government. CIHR's contributions to the Plan are charged to expenses in the year incurred and represent the total obligation of CIHR to the Plan. Current legislation does not require CIHR to make contributions for any actuarial deficiencies of the Plan.
   2. Severance benefits: Prior to October 2, 2011, CIHR non-represented employees and executives were entitled to severance benefits under a collective agreement or terms and conditions of employment for voluntary and involuntary departures. These benefits were accrued as employees rendered the services necessary to earn them. Effective October 2, 2011, CIHR non-represented employees and executives were no longer eligible to accrue severance benefits for voluntary departures (e.g. resignation or retirement). Employees were provided with three options in relation to the severance termination provisions, such as the immediate payout of the accumulated weeks of severance at their current rate of pay, retain the accumulated weeks of severance with a payout upon termination of employment with CIHR at their exit rate of pay, or a combination thereof. Severance benefits continue to accrue for involuntary departures, however, benefits payable would be reduced by the severance termination option exercised for service up to October 1, 2011, should an involuntary departure occur.

   Management believes these amounts to be a reasonable estimate of CIHR's liability for employee severance benefits.

8. Accounts receivable and advances are stated at the lower of cost and net recoverable value; a valuation allowance is recorded for receivables where recovery is considered uncertain.
9. Contingent liabilities - Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense is recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the future-oriented financial statements.
10. Tangible capital assets - All tangible capital assets having an individual initial cost of $5,000 or more are recorded at their acquisition cost. CIHR does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, 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 capital asset as follows:

    Asset class	Amortization period
    Informatics hardware	3-5 years
    Informatics software	3-10 years
    Office equipment	10 years
    Vehicles	5 years

    Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

11. Measurement uncertainty - The preparation of these future-oriented financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the future-oriented financial statements. At the time of preparation of these statements, management believes the estimates and assumptions to be reasonable. Actual results could significantly differ from those estimated.

5. Parliamentary Authorities

CIHR receives most of its funding through annual Parliamentary authorities. Items recognized in the Future-oriented Statement of Operations and the Future-oriented Statement of Financial Position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, CIHR 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:

1. Reconciliation of net cost of operations to current year authorities used
   (in thousands of dollars)

   	Estimated 2012	Planned 2013
   Net cost of operations	$1,007,699	$978,332
   Adjustments for items affecting net cost of operations but not affecting authorities:
   Services provided without charge	(6,822)	(6,389)
   Refunds of previous years' expenses	4,180	4,180
   Decrease in employee severance benefits	5,618	2,144
   Amortization of tangible capital assets	(958)	(958)
   Increase in vacation pay and compensatory leave	(151)	(165)
   	1,867	(1,188)
   Adjustments for items not affecting net cost of operations but affecting authorities:
   Acquisitions of tangible capital assets	800	800
   Increase in prepaid expenses	(601)	-
   	199	800
   Forecast authorities available	$1,009,765	$977,944

2. Authorities provided and used
   (in thousands of dollars)

   	Estimated 2012	Planned 2013
   Authorities Provided:
   Vote 20 - Operating expenditures	$52,740	$49,057
   Vote 25 - Grants	951,733	922,269
   Statutory amounts	5,292	6,618
   Forecast authorities available	$1,009,765	$977,944

6. Accounts Receivable and Advances

The following table presents details of CIHR's accounts receivable and advances balances:
(in thousands of dollars)

7. Tangible Capital Assets

(in thousands of dollars)

Amortization expense (in thousands) for the year ended March 31, 2012 is $958 (2013 - $958).

8. Accounts Payable and Accrued Liabilities

The following table presents details of the CIHR's accounts payable and accrued liabilities:
(in thousands of dollars)

9. Deferred Revenue

Deferred revenue represents the balance at year-end of unearned revenues stemming from amounts received from external parties which are restricted to fund the expenditures related to specific research projects and amounts received for fees prior to services being performed. Revenue is recognized in the period that these expenditures are incurred or the service is performed. Details of the transactions related to this account are as follows:
(in thousands of dollars)

10. Employee Future Benefits

Employees of CIHR are entitled to specific benefits on or after termination or retirement, as provided for under various collective agreements or conditions of employment.

1. Pension benefits: CIHR's employees participate in the Public Service Pension 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 the Canada/Quebec Pension Plans benefits and they are indexed to inflation.

   Both the employees and CIHR contribute to the cost of the Plan. The forecasted expense (in thousands of dollars) amounts to $4,853 in 2011-12 and $4,866 in 2012-13, which represents approximately 1.9 times the contributions by employees.

   CIHR'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: Prior to October 2, 2011, CIHR provided severance benefits to its non-represented employees and executives for voluntary and involuntary departures, based on eligibility, years of service and final salary. Effective October 2, 2011, non-represented employees and executives will no longer accrue severance benefits for voluntary departures. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, measured as at March 31, is as follows:
   (in thousands of dollars)

   	Estimated 2012	Planned 2013
   Accrued benefit obligation, beginning of year	$8,914	$3,296
   Expense for the year	(3,146)	-
   Benefits paid during the year	(2,472)	(2,144)
   Accrued benefit obligation, end of year	$3,296	$1,152

11. Contingent Liabilities

CIHR may be subject to legal claims in the normal course of business. In management's view, there are currently no such claims with a material impact on the financial statements and consequently, no provision has been made.

12. Contractual Obligations

CIHR is committed to disburse grants and awards in future years subject to the appropriation of funds by Parliament. In addition, the nature of CIHR's operating activities result in some multi-year contracts whereby CIHR will be committed to make some future payments when the goods or services are rendered. Future year contractual obligations are as follows:
(in thousands of dollars)

13. Related Party Transactions

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

1. Common services provided without charge by other government departments

   During the year, CIHR received services without charge from certain common service organizations, related to accommodation, the employer's contribution to the health and dental insurance plans, and audit services. These services provided without charge have been recorded in CIHR's Statement of Operations as follows:
   (in thousands of dollars)

   	Estimated 2012	Planned 2013
   Accommodation provided by Public Works and Government Services Canada	$3,476	$3,019
   Employer's contribution to the health and dental insurance plans provided by Treasury Board Secretariat	3,172	3,196
   Audit services provided by the Office of the Auditor General of Canada	174	174
   Total	$6,822	$6,389

   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 are not included in CIHR's Statement of Operations.

2. Administration of CIHR funds by other government departments

   Other federal departments and agencies administer funds on behalf of CIHR to issue grants, awards and related payments. During the year, other federal departments and agencies administered $99,166,000 in funds for grants and awards for both 2011-12 and 2012-13, primarily pertaining to the Canada Research Chairs program. These expenses are reflected in CIHR's Statement of Operations.

14. Segmented Information

Presentation by segment is based on CIHR's strategic outcome. The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in note 4. The following table presents the expenses incurred and revenues generated for the main strategic outcomes, by major object of expenses and by major type of revenues. The segment results for the period are as follows:
(in thousands of dollars)

15. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation.

16. Net Debt Indicator

The presentation of the net debt indicator and a statement of change in net debt is required under Canadian generally accepted accounting principles.

Net debt is the difference between a government's liabilities and its financial assets and is meant to provide a measure of the future revenues required to pay for past transactions and events. A statement of change in net debt would show changes during the period in components such as tangible capital assets, prepaid expenses and inventories. Departments are financed by the Government of Canada through appropriations and operate within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by departments is deposited to the CRF and all cash disbursements made by departments are paid by the CRF. Under this government business model, assets reflected on the departmental financial statements, with the exception of the Due from the CRF, are not available to use for the purpose of discharging the existing liabilities of the department. Future appropriations and any respendable revenues generated by the department's operations would be used to discharge existing liabilities.
(in thousands of dollars)

Date modified:

2012-04-11