To ensure that the assets and liabilities reported on the financial statements of the Government of Canada present fairly the government's financial position, and the results of its operations.
For year-end financial statement purposes, it is the government's policy to establish and report valuation allowances as required:
This policy applies to all departments, agencies and other organizations that are required to use the Consolidated Revenue Fund and have recorded claims and/or that account for liabilities in the accounts of Canada.
While departments are expected to adhere to the procedural requirements, there can be flexibility in their application. However, departments are accountable if they deviate from them and, in so doing, must ensure that any alternative procedures accomplish the same objective with at least an equivalent degree of accuracy and reliability.
At year-end, the senior financial officers of departments, agencies and other organizations must provide to the Treasury Board Secretariat a preliminary assessment of the collectibility and value of the loans, investments and advances, and accounts receivable that they administer. They must also report to the Treasury Board Secretariat any liabilities of a material amount affecting their accounts that are not or cannot be recorded in the accounts of Canada through their departmental entries.
This policy is issued under the authority of subsection 63(2) of the Financial Administration Act and should be read in conjunction with the following:
This chapter cancels chapter 5-7 of the "Financial Management" volume dated August 1, 1993; and
this policy supersedes section 10.11 and Appendix 10.C of the Treasury Board "Guide on Financial Administration", consolidated revision, April 1991.
Enquiries concerning this policy should be directed to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:Comptroller Sector
The following are the designated classes and guidelines for valuation of year-end balances of financial claims. Additional amounts may be established as allowances at the discretion of the Treasury Board Secretariat.
Amounts that are doubtful or uncollectible are to be included in the related valuation allowance. For pass-through loans and advances to Crown corporations which are lending institutions, the amounts to be included are those that are or may be uncollectible.
The following considerations should be taken into account in determining allowance requirements for investments:
This class includes loans, investments and advances shown in the financial statements under the following sub-categories:
An amount must be included in the year-end allowance in respect of loans and advances to governments (the first two sub-categories listed above) if authorization has been received to delete the item pending appropriate legislation. A valuation adjustment may also be considered where there is significant variation from the existing terms and conditions of a loan or advance or when significant concessionary terms are used.
Guidelines for the last four sub-categories above are:
Amounts to be included in the related valuation allowance are to be determined on the basis of collectibility. Any amounts considered to be doubtful or uncollectible must be included in the valuation allowance. A valuation adjustment will also be considered for claims with significant concessionary terms.
Amounts to be included in the related valuation allowance are to be determined on the basis of recoverability, i.e. whether the amounts paid out will be recovered in the event of either a break-up of the organization or the Government of Canada's withdrawal from it.
If the investment value recorded in the accounts exceeds Canada's share of the corporation's recorded net worth, the amount of the excess must be included in the allowance up to the amount of the investment recorded in the government's accounts.
A subscription is assessed as an equity investment by the Government of Canada in the organization. If the amount recorded in the accounts exceeds Canada's interest in the organization's net worth, as shown by its most recent financial statements, the excess must be included in the allowance up to the amount of the subscriptions recorded in the government's accounts. Only paid-in capital should be used in calculating Canada's interest in the net worth of these organizations. Notes payable issued by the Government of Canada to cover subscriptions should be deducted in calculating both the net worth of the organizations involved and Canada's recorded interest in them.
The Exchange Fund Account is valued at each year-end and net income is paid into the Consolidated Revenue Fund in accordance with the legislative provisions of the Currency Act. No other valuation action is required.
Amounts to be included in the allowance should be based on the best estimate of all or any amounts that may not be collected. Estimates can be made on the basis of knowledge of individual accounts or on the basis of past experience using percentage loss calculations.
The Receiver General deposit accounts held in foreign funds are converted to Canadian dollar equivalents at the year-end rates of exchange. No other valuation action is required.
The Treasury Board Secretariat establishes allowances in respect of potential debt or debt service relief measures for financially troubled countries under multilateral agreements. These allowances are included, as appropriate, in the allowance for valuation of assets and the allowance for borrowings of agent Crown corporations.
The valuation of financial claims should be made on the basis of whether each claim or group of claims is collectible in accordance with the agreed terms of repayment, using conventionally established criteria, e.g.:
record of repayment of the claim or group of claims
Evaluation of collectibility should be made on the basis of one or more of the following factors: the aging of accounts; defaulted or partial payments; legal actions in process or pending; assignment to collection agencies; the debtor's disappearance or death; disputed items; or other evidence or reasons.
evaluation of the debtor's ability to pay
Factors to be used in this evaluation should include one or more of the following: debtor's current credit rating; assessment of the financial statements; assessment of relevant local, national or international political and economic situations; and any other relevant factors.
The collectibility of loans and advances made to Crown corporations by the government should be based on whether or not there is a reasonable certainty that the corporation can repay the outstanding amounts out of operations during the term of the agreement without recourse to parliamentary appropriations for making such repayment. This involves examining the corporation's projected cash flow, commitments, future earnings, market prospects, and other relevant factors to determine whether it can finance operations and projected capital purchases, and make principal and interest payments. The amounts that cannot be repaid according to this analysis are to be considered uncollectible.
The Government of Canada often provides loans or advances that contain forgiveness clauses with respect to interest or principal or both. To the maximum extent possible, the amounts that are expected to be forgiven should be included in the calculation of the allowance at each year-end.
The following are the designated classes and guidelines for the valuation of year-end liabilities.
The Treasury Board Secretariat will establish, for accounting purposes, an allowance to record any shortfall or surplus in the accounts, as determined on an actuarial basis.
The amounts related to unpaid but earned annual vacation leave and the actuarial estimate of employee benefits payable upon termination of employment that are not covered by the Payables at Year-End (PAYE) policy are reviewed by the Treasury Board Secretariat and reported in the allowance as required.
Represents borrowings that are not expected to be repaid by agent Crown corporations. The Treasury Board Secretariat estimates the amounts by taking into consideration the financial position of the entities, in particular their ability to repay their borrowings from internally generated funds.
The Treasury Board Secretariat also establishes allowances in respect of potential debt or debt service relief measures for financially troubled countries under multilateral agreements. These allowances are included, as appropriate, in the allowance for valuation of assets and the allowance for borrowings of agent Crown corporations.
Consists of liabilities that cannot be charged to an appropriation or entered into departmental accounts by a department before the year-end deadlines established by the Receiver General. Differences between payable balances reported in the accounts of Canada and the departmental records should be analyzed and reported to the Treasury Board Secretariat as applicable. Departments should refer to the most recent Receiver General directive on PAYE for further details.
For the purpose of this policy
represent financial claims arising from past or potential budgetary revenue transactions. These claims do not include amounts already recorded as Loans, Investments and Advances. Accounts receivable are classified into two distinct categories: