Financial statements as of March 31, 2016

1. Authorities and objectives

Under the Economic Development Agency of Canada for the Regions of Quebec (CED) Act, which came into force on October 5, 2005, the mission of CED is to promote the long-term economic development of the regions of Quebec by according special attention to those regions where slow economic growth is prevalent or where opportunities for productive employment are inadequate. In carrying out its mission, CED takes measures to promote co-operation and complementarity with Quebec and the communities in Quebec.

Thus, CED aims to build stronger communities and strengthen the competitiveness of enterprises and regions of Quebec and is encapsulated in a single strategic result: A competitive and diversified economy for the regions of Quebec. To achieve this strategic outcome, CED has four programs:

• Business Development: This program is designed to support development of enterprises throughout their life cycle so as to enhance Quebec’s economic growth. Enterprises are recognized as generating a major share of economic activity and job creation. CED’s aim is to foster the emergence of new businesses and the next generation of entrepreneurs. Its aim is also to enhance the competitiveness of existing businesses and help to ensure their survival by improving their performance through the development of production, innovation, commercialization and export capacities.
  
  
• Regional Economic Development: The purpose of this program is to support the economic development of the various regions in order to increase Quebec’s economic growth. The regions of Quebec are not homogeneous and face different circumstances, with issues, challenges and strengths particular to their region. The regions generate prosperity, and their participation in the economy is essential for Quebec’s economic growth. CED supports the strengthening of their economic base by encouraging stakeholder engagement in economic development and stimulating investment in all regions of Quebec.
  
  
• Strengthening Community Economies: In addition to its regular programs, CED is called upon to develop, administer and implement national programs or temporary, targeted initiatives intended to strengthen community economies and increase Quebec’s economic growth. CED supports the economic development of rural communities and ensures the sound and effective management of infrastructure programs in Quebec. CED also supports economic activity in Quebec communities experiencing economic shocks or where there are major economic development issues or promising opportunities for development.
  
  
• Internal Services: Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations. Internal Services include only those activities and resources that apply across an organization and not to those provided specifically for a program. They ensure greater efficiency in program delivery and thus contribute to providing high quality services for Canadians.

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 - CED is financed by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to CED 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. The planned results amounts in the “Expenses” and “Revenues” sections of the Statement of Operations and Departmental Net Financial Position are the amounts reported in the Future-oriented Statements of Operations included in the 2015-2016 Report on Plans and Priorities. Planned results are not presented in the “Government funding and transfers” section of the Statement of Operations and Departmental Net Financial Position and in the Statement of Change in Departmental Net Debt because these amounts were not included in the 2015-2016 Report on Plans and Priorities.
   
   
2. Net Cash Provided by Government – CED operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by CED is deposited to the CRF, and all cash disbursements made by CED 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 net amount of cash that CED is entitled to draw from the CRF without further authorities to discharge its liabilities.
   
   
4. Revenues - Revenues are accounted for in the period in which the underlying transaction or event that gave rise to the revenue takes place, except for the item listed below. Loans are non-interest bearing and, due to the uncertainty as to ultimate collection, interest income is only charged on overdue amounts when received. Other revenues consist of other fees and gains on the disposal of capital and non-capital assets.
   
   Revenues that are non-respendable are not available to discharge CED’s liabilities. While the Deputy Minister is expected to maintain accounting control, she has no authority regarding 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 in reduction of the entity’s gross revenues.
   
   
5. Expenses - Expenses are recorded on the accrual basis:
   
   
   • Transfer payments are recorded as expenses when authorization for the payment exists and the recipient has met all eligibility criteria or the entitlements established for the transfer payment program. In situations where payments do not form part of an existing program, transfer payments are recorded as expenses 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 financial statements. Transfer payments that become repayable as a result of conditions specified in the contribution agreement that have come into being are recorded as a reduction to transfer payment expense and as a receivable.
   • 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 legal services are recorded as operating expenses at their estimated cost.
     
     
6. Employee future benefits
   1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer pension plan administered by the Government. CED’s contributions to the Plan are charged to expenses in the year incurred and represent CED’s total obligation to the Plan. CED’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, 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.
      
      
7. Accounts and loans receivable are stated at the lower of cost and net recoverable value. The present value of these contributions is not estimated, since insufficient conditions of a concessionary nature are attached to them. Transfer payments that are unconditionally repayable are recognized as loans receivable. A valuation allowance is recorded for accounts and loans receivable where recovery is considered uncertain.
   
   
8. Tangible capital assets - All tangible capital assets and leasehold improvements having an initial cost of $5,000 or more are recorded at their acquisition cost. CED 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 asset, as follows:
   Asset class

   Amortization period

   Computer hardware

   3 to 5 years

   Computer software

   3 years

   Other equipment

   5 years

   Motor vehicles

   6 years

   Leasehold improvements

   Lesser of the remaining term of lease or useful life of the improvement.
   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.
   
   
9. 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 allowances for doubtful accounts, 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

CED receives most of 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, CED has different net results of operations for the year on a government funding basis than on an accrual accounting basis. These differences are reconciled in the following tables:

4. Accounts payable and accrued liabilities

5. Employee future benefits

1. Pension benefits: CED’s employees participate in the public service pension plan (the “Plan”), which is sponsored and administered by the Government of Canada. 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/Québec Pension Plan benefits and they are indexed to inflation.
   
   Both the employees and CED contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to 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 2015-2016 expense amounts to $2,805 thousand ($2,901 thousand in 2014-2015). For Group 1 members, the expense represents approximately 1.25 times (1.41 times in 2014-2015) the employee contributions and, for Group 2 members, approximately 1.24 times (1.39 times in 2014-2015) the employee contributions.
   
   CED’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: CED 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. Information about the severance benefits, measured as at March 31, is as follows:
   
   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.

6. Accounts receivable and advances

Amounts collected in respect to conditionally repayable contributions totalled $5,283 thousand for the 2015-2016 fiscal year ($5,073 thousand in 2014-2015). CED wrote off a total of $11,679 thousand in the 2015-2016 fiscal year for accounts deemed uncollectible ($667 thousand in 2014-2015).

7. Loans receivable

Loans (unconditionally repayable contributions) are transfer payments made to eligible recipients to carry out a project. The contribution agreement sets out strict conditions for repayment which determine the dates and amounts of payments. In general, the repayment schedule does not exceed five years, beginning no later than 24 to 48 months after the project completion date. The amounts collected in respect to unconditionally repayable contributions totalled $63,535 thousand for the 2015-2016 fiscal year ($58,011 thousand in 2014-2015). CED wrote off a total of $3,845 thousand in 2015-2016 for accounts deemed uncollectible ($5,470 thousand in 2014-2015). All loans are held on behalf of Government, since the Deputy Head has no authority with regard to their disposal.

8. Tangible capital assets
(in thousands of dollars)

Tangible capital assets (con't)
(in thousands of dollars)

(1) Adjustments include assets under construction of $307 thousand that were transferred to other categories upon completion of the assets.

9. Contractual obligations

The nature of CED’s activities result in some large multi-year contracts and obligations whereby CED will be obligated to make future payments in order to carry out its transfer payment programs or when the services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

10. Related party transactions

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

b) Administration of programs on behalf of other government departments

Under memorandums of understanding signed with Infrastructure Canada (INFC), CED administers and delivers infrastructure programs through federal-provincial agreements with the province of Quebec. Expenses related to federal contributions for these agreements are reflected in the financial statements of INFC and not those of CED.

Among the agreements covered by these memorandums of understanding are those of the Building Canada Fund (BCF). During the year, CED incurred expenses of $24,279 thousand ($29,285 thousand in 2014-2015). To administer these agreements, CED receives additional operating funds in its own authorities through budget processes, and these expenses are included in these financial statements.

c) Other transactions with related parties

The expenses disclosed in section (c) do not include common services provided free of charge, which are disclosed in section (a).