Background to the Commentaries on Financial Audits

Background to the Commentaries on Financial Audits

Scope of the Office’s financial audits at the federal level

The Office was mandated to perform financial statement audits of 70 federal organizations (see Appendix) for the 2017–18 fiscal year, at a cost of $33 million. These audits include the financial statement audit of the Government of Canada as a whole, which is the biggest financial audit in Canada. It represents 23% of the Office’s financial audit workload.

For the 2017–18 fiscal year, the Office’s federal financial audits covered, on a combined basis, assets of $1.4 trillion and liabilities of $1.7 trillion.

Federal Public Sector audited by the Office of the Auditor General of Canada

1 The Government of Canada’s consolidated balances have been adjusted to exclude investments, loans, and advances to government business enterprises audited by the Office, and the net pension liability for the funded public sector pension plans.

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Financial Summary—Federal Public Sector audited by the Office of the Auditor General of Canada

Category Assets
(in billions of dollars)
Liabilities
(in billions of dollars)
Canada Pension Plan $437 $77
Public sector pension plans $153 $324
Enterprise Crown Corporations audited by the Office of the Auditor General of Canada $406 $315
Government’s financial statements (adjusted, see note 1) $389 $986
Total $1,385 $1,702

1 The Government of Canada’s consolidated balances have been adjusted to exclude investments, loans, and advances to government business enterprises audited by the Office, and the net pension liability for the funded public sector pension plans.

Financial reporting is fundamental to the accountability relationship

What accountability is and why it is important

The federal government as a whole and individual organizations must provide elected officials and the public with information about their decisions and actions to demonstrate how they use taxpayer dollars to deliver programs and services. This is called the “accountability relationship”.

Accountability is achieved when the government and organizations are open and transparent about how they spend taxpayer dollars. Transparency is achieved when relevant information is presented in a manner that makes it easy to understand how the government and organizations are spending taxpayer dollars.

Accountability and good governance go hand in hand. Examining the performance of government officials is a way to determine whether they are working to deliver programs effectively and economically. Good governance therefore builds public confidence and trust in government.

Oversight of public sector finances

Parliamentarians exercise oversight throughout the financial information cycle—from the time they approve the government’s budget to the time they receive the Public Accounts of Canada and the annual reports of the individual organizations. Annual reports usually include audited financial statements.

Financial information cycle
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The public, represented by a maple leaf, and elected officials, represented by the Centre Block of Parliament, oversee the four steps of the spending cycle:

  1. Budget
  2. Program Delivery
  3. Financial Audit
  4. Annual Report

Although lots of financial information is publicly disclosed throughout the financial reporting cycle, it can be difficult to find or hard to understand.

Supporting accountability through reporting

Financial reports are used to provide accountability. These documents are important because they explain to elected officials and the public how tax dollars have been spent and how much taxpayers can expect to pay to fund future programs and services.

Annual reports are essentially financial report cards. Governments and other organizations typically produce them as their primary accountability documents to provide information on their financial situation and performance for a given year.

Elements of an annual report
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An annual report comprises four elements:

  1. Budget
  2. Financial statements
  3. Financial statements discussion and analysis
  4. Other information

The main elements of a federal organization’s annual report are the financial statements and the financial statements discussion and analysis (FSDA).

The FSDA is a narrative that explains the numbers presented in the financial statements and any significant differences from the budget, and it provides insights about future financial prospects.

Public attention often focuses on a government’s annual financial performance against its budget. However, this focus provides only partial insight into the overall financial health of the government or organization. It is important to consider not just the numbers, but the full breadth of the critical information that is provided in an annual report.

Financial statements must be credible

To successfully support the accountability relationship, financial statements must be credible. In other words, readers must have confidence that the financial statements are prepared consistently over time and without undue bias, using numbers that are accurate.

To achieve credibility, government officials who prepare financial statements use objective standards. Auditors then use the same standards to assess whether the financial statements are reasonably accurate. These standards, known as accounting standards, are established by independent standard-setting bodies.

Many government organizations and the federal government as a whole use the Public Sector Accounting Standards, issued by the Public Sector Accounting Board, to prepare their financial statements.

The International Financial Reporting Standards, which are issued by the International Accounting Standards Board, are another common set of standards. They are used by those Crown corporations whose operations are more commercial in nature, such as Canada Post, Export Development Canada, and the Canadian Broadcasting Corporation.

Accounting standards are broad principles rather than prescriptive detailed guidance. The purpose of their uniform application is to create consistency over time and between governments and organizations. Consistency over time is important to reach meaningful conclusions about historical trends, and to better understand the financial health of a government or an individual organization—either at a point in time or over a longer period.

The Office of the Auditor General of Canada plays a critical role in supporting accountability and transparency

The value of financial statement audits

Audits of financial statements are important for several reasons:

All these elements come together to support the accountability relationship between the government and its individual organizations and elected officials and taxpayers.

Appendix—Federal organizations for which the Office of the Auditor General of Canada is mandated to perform audits

Government

Government of Canada

Crown Corporations

Atlantic Pilotage Authority

Atomic Energy of Canada Limited

Business Development Bank of Canada

Canada Council for the Arts

Canada Deposit Insurance Corporation

Canada Development Investment Corporation

Canada GEN Investment Corporation

Canada Hibernia Holding Corporation

Canada Infrastructure Bank

Canada Lands Company Limited

Canada Mortgage and Housing Corporation

Canada Post Corporation

Canadian Air Transport Security Authority

Canadian Broadcasting Corporation

Canadian Commercial Corporation

Canadian Dairy Commission

Canadian Museum for Human Rights

Canadian Museum of History

Canadian Museum of Immigration at Pier 21

Canadian Museum of Nature

Canadian Race Relations Foundation

Canadian Tourism Commission

Defence Construction (1951) Limited

Export Development Canada

Farm Credit Canada

Freshwater Fish Marketing Corporation

Great Lakes Pilotage Authority

International Development Research Centre

Laurentian Pilotage Authority

Marine Atlantic IncorporatedInc.

National Arts Centre Corporation

National Capital Commission

National Gallery of Canada

National Museum of Science and Technology

Pacific Pilotage Authority

Public Sector Pension Investment Board

Ridley Terminals Inc.

Royal Canadian Mint

Standards Council of Canada

Telefilm Canada

The Federal Bridge Corporation Limited

The Jacques Cartier and Champlain Bridges Corporation

The Seaway International Bridge Corporation LimitedLtd.

VIA Rail Canada Inc.

Windsor-Detroit Bridge Authority

Pensions

Department of Employment and Social Development—Government Annuities Account

Department of National Defence—Canadian Forces Pension Plan
(If you would like a complete copy of an Annual Report, please contact pensioninquiries@forces.gc.ca)

Department of National Defence—Reserve Force Pension Plan
(If you would like a complete copy of an Annual Report, please contact pensioninquiries@forces.gc.ca)

Public Sector Pension Investment Board—Canadian Forces Pension Plan Account

Public Sector Pension Investment Board—Public Service Pension Plan Account

Public Sector Pension Investment Board—Reserve Force Pension Plan Account

Public Sector Pension Investment Board—Royal Canadian Mounted Police Pension Plan Account

Royal Canadian Mounted Police—Royal Canadian Mounted Police (Dependants) Pension Fund

Royal Canadian Mounted Police—Royal Canadian Mounted Police Pension Plan

Treasury Board Secretariat and Department of Public Works and Government Services—Public Service Pension Plan

Agents of Parliament

Office of the Chief Electoral Officer

Office of the Commissioner of Lobbying

Office of the Commissioner of Official Languages

Office of the Information Commissioner of Canada

Office of the Privacy Commissioner of Canada

Office of the Public Sector Integrity Commissioner of Canada

Other

Canada Revenue Agency

Canadian Nuclear Safety Commission

Canadian Securities Regulation Regime Transition Office

Department of Employment and Social Development—Employment Insurance Operating Account

Department of Employment and Social Development—Canada Pension Plan

National Energy Board

National Film Board