National Defence Consolidated Future-Oriented Statement of Operations 2015-16 Report on Plans and Priorities (Unaudited)

Consolidated Future-Oriented Statement of Operations (Unaudited)

For the year ending March 31

(in thousands of dollars)

 Estimated Results
2014-15 
Planned Results
2015-16 
Expenses    
 Defence Combat & Support Operations 1,562,928  1,475,760 
 Defence Services & Contributions to Government 520,065  431,645 
 Defence Ready Force Element Production 3,604,476  3,233,452 
 Defence Capability Element Production 12,980,071  13,468,503 
 Defence Capability Development & Research 427,224  371,371 
 Internal Services 485,361  462,755 
 Total expenses 19,580,125 19,443,486
   
Revenues    
 Sale of goods and services  430,561 435,866 
 Other  23,276 23,563 
 Gains on disposals of assets  20,862 21,119 
 Interest and gains on foreign exchange  10,531 10,660 
 Revenues earned on behalf of Government  (21,449) (21,713) 
 Total revenues  463,781 469,495 
   
Net cost of operations 19,116,344  18,973,991

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

 

Notes to the Consolidated Future-Oriented Statement of Operations (Unaudited)

1. Methodology and Significant Assumptions

The future-oriented statement of operations has been prepared on the basis of government priorities and departmental plans as described in the Report on Plans and Priorities.

The information in the estimated results for fiscal year 2014-15 is based on actual results as at 31 December 2014 and on forecasts for the remainder of the fiscal year.  Forecasts have been made for the planned results for the 2015-16 fiscal year.

The main assumptions underlying the forecasts are as follows:

  • The department’s activities will remain substantially the same as for the previous year; 
  • 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.

These assumptions are adopted as at 31 December 2014.

2. Variations and Changes to the Forecast Financial Information

While every attempt has been made to forecast final results for the remainder of 2014-15 and for 2015-16, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing this future-oriented statement of operations the Department of National Defence (DND) 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 statement of operations and the historical statement of operations include:

  • The timing and amount of acquisitions and disposals of property, plant and equipment may affect gains/losses and amortization expense. 
  • Implementation of new collective agreements. 
  • Economic conditions may affect both the amount of revenue earned and the collectability of loan receivables. 
  • Interest rates in effect at the time of issue will affect the net present value of non-interest bearing loans. 
  • Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

Once the Report on Plans and Priorities is presented, DND will not be updating the forecasts for any changes in financial resources made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

3. Summary of Significant Accounting Policies

The future-oriented statement of operations has been prepared using Government’s accounting policies that were in effect for the 2014-15 fiscal year 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:

(a) Consolidation

These consolidated financial statements include the accounts of the sub-entities that the deputy head (DH) is accountable for. The accounts of these sub-entities have been consolidated with those of the Department and all inter-organizational balances and transactions have been eliminated. The Department is comprised of DND, the Canadian Armed Forces and several related organizations and agencies in the Defence Portfolio, which carry out the Defence mission and are part of the Defence Services Program.

Organizations and agencies that are part of these consolidated financial statements include the following:

  • Canadian Cadet Program and the Junior Canadian Rangers;
  • Canadian Forces Housing Agency;
  • Defence Research and Development Canada;
  • Office of the Department of National Defence and Canadian Forces Ombudsman;
  • Office of the Judge Advocate General; and
  • National Search and Rescue Secretariat.

The Canadian Forces Grievance Board, the Military Police Complaints Commission, Communications Security Establishment Canada and the Office of the Communications Security Establishment Commissioner are excluded from the consolidation because these organizations are not part of the Defence Services Program, although they fall under the responsibility of the Minister of National Defence.

b) Expenses

Expenses are recorded on an accrual basis. Expenses for departmental operations are recorded when goods are received or services are rendered including services provided without charges for accommodation, employee contributions to health and dental insurance plans, legal services and worker’s compensation which are recorded as expenses at their estimated cost.  Vacation pay and compensatory leave as well as severance benefits are accrued and expenses are recorded as the benefits are earned by employees under their respective terms of employment.

Transfer payments are recorded as expenses when the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement or, in the case of transactions which do not form part of an existing program, 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 statement.  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 the transfer payment expense and as a receivable.

c) Revenues

Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.

Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. 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 the Department 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.

Revenues that are non-respendable are not available to discharge the Department's liabilities. While the DH is expected to maintain accounting control, he or 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.

4. Parliamentary Authorities

The Department is financed by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the Department do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Items recognized in the Future-Oriented Statement of Operations in one year may be funded through parliamentary authorities in prior, current, or future years. Accordingly, the Department has different net cost of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

(a) Reconciliation of net cost of operations to requested authorities

 (in thousands of dollars)

  Estimated
2014-15
 Planned
2015-16
Net cost of operations  19,116,344 18,973,991 
   
Adjustments for items affecting net cost of operations but not affecting authorities:

 

 
 Amortization of tangible capital assets  (2,760,307) (2,514,116) 
 Services provided without charge by other government departments  (764,727) (759,316) 
 Decrease in employee future benefits  211,848 210,349 
 Refund of previous year's expenses  98,567 97,869 
 Increase in vacation pay and compensatory leave  4,633 4,600 
 Loss on disposals of capital assets  (317,785)  (315,536)
 Adjustments of tangible capital assets  111,752  110,961
 Decrease in deferred revenue  2,995  2,974
 Increase in accrued liabilities not charged to authorities  (49,786)  (49,433)
 Bad debts expense  (1,777)  (1,765)
 Sale of Real Property through Canada Lands Company  153,660
 Proceeds from sale of assets 10,501 0
 Miscellaneous (3,630) 7,468
Total items affecting net cost of operations but not affecting authorities: (3,304,056) (3,205,945)
   
Adjustments for items not affecting net cost of operations but affecting autorities:    
 Acquisition of tangible capital assets  3,104,859 3,082,887 
 Decrease in lease obligations for capital assets  54,690 54,303 
 Increase in inventory purchases net of usage and adjustments  123,276 122,404 
 Increase in prepaid expenses  (78,363) (86,514) 
 Revenues collected from prior year receivables  935 928 
 Transition payments for pay in arrears  59,373
 Miscellaneous 0 0
 Total for items not affecting net cost of operations but affecting authorities: 3,264,770 3,174,008
   
Requested authorities  19,077,058 18,942,054


(b) Authorities Requested

 (in thousands of dollars)

 

 Estimated
2014-15 
 Planned
2015-16
Vote 1 - Operating expenditures  13,794,550  13,483,693
Vote 5 - Capital expenditures  3,859,538 4,020,884 
Vote 10 - Grants and contributions  178,765 168,743 
Statutory Amounts  1,244,205 1,268,734 
   
Requested authorities 19,077,058  18,942,054

 

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