Most people would agree that financial statements are not the most user friendly documents. When it comes to a government’s financial statements, you’re looking at a tonne of information disseminated through hundreds, if not thousands, of pages.
But it’s important for taxpayers to understand what is in those documents, because ultimately, those documents are all about how the government is managing money on behalf of Canadians.
The first step to better understanding the government’s financial statements is to nail down a few basic concepts. The financial statements are like a snapshot of the Canadian government’s finances at a particular point in time.
It all starts with the taxes we all pay to the government. They are the government’s main source of revenues. A large part of that money is used to deliver programs and services to Canadians, such as parks, health care, education, passports, defence, to name a few. These are the government’s expenses. The government also needs to buy or build assets, such as bridges, buildings, and boats.
But tax revenues are often not enough to pay for all these assets or services. The government can defer payments in the future, like Canadians do when they use a credit card or borrow money to buy a house or a car. This creates obligations for future payments, which are known as liabilities.
So now that we’ve covered the basics, let’s get back to what this all looks like in the government’s financial statements. Revenues, expenses, assets and liabilities are captured in the two main financial statements that are part of the Public Accounts of Canada. They are the Statement of Financial Position and the Statement of Operations.
The Statement of Financial Position provides a long-term perspective by showing the government’s assets, what it owns, and its liabilities, what it owes. The difference between assets and liabilities is the government’s net worth or accumulated deficit. The Statement of Operations provides a short-term view of the government’s financial performance by tracking recent revenues and expenses. In any given year, the difference between revenues and expenses is called the government’s annual surplus or deficit. Combined, these two statements provide a snapshot of the government’s financial health at one point in time.
However, it’s important to understand that the Public Accounts also include many supporting notes and tables, as well as the Financial Statements Discussion Analysis. It is in this supplementary information that you need to look to get the details of the government’s financial position and appreciate the story of its finances over time.
For example, if you want to know how a liability of 2.3 trillion dollars in Note 6 of the financial statements becomes 16.5 billion dollars in the Statement of Financial Position, then let’s follow the money.