Future-Oriented Statement of Operations 2015-2016

Canadian Radio-television and Telecommunications Commission
Future-oriented Statement of Operations (Unaudited)
For the Year Ended March 31

(in thousands of dollars)
  Estimated
Results
2014-2015
Planned
Results
2015-2016
Expenses
Canadian Content Creation 17,451 18,137
Connection to the Communication System 20,836 21,505
Protection within the Communication System 11,539 12,438
Internal services 15,830 15,463
Expenses incurred on behalf of Government (464) (1,200)
Total expenses 65,192 66,343
Revenues
Rights and privileges 107,280 109,426
Regulatory fees 58,765 61,221
Miscellaneous revenues 3,025 6,027
Revenues earned on behalf of Government (121,443) (129,049)
Total revenues 47,627 47,625
Net cost of operations 17,565 18,718

The accompanying notes form an integral part of the future-oriented statement of operations.

Notes to Future-Oriented Statement of Operations

1. Methodology and Significant Assumptions

The future-oriented statement of operations has been prepared on the basis of the 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 November 30, 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:

  1. The department’s operating activities will remain substantially the same as for the previous year.
  2. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience, with the exception of administrative monetary penalties (AMPs). It is not possible to accurately forecast revenues related to AMPs associated with enforcement activities for the Unsolicited Telecommunications Rules (UTRs), Canada’s Anti-Spam Legislation (CASL), and the Voter Contact Registry (VCR). Amounts may vary significantly from year to year based on factors including trends in compliance as well as the number and complexity of investigations. For example, enforcement activities for the VCR are expected to increase during the period of federal elections.
  3. Allowances for bad debt expenses are based on historical experience. The general historical pattern is expected to continue, but may vary, given higher maximum AMPs available under CASL.

The assumptions are adopted as at December 31st, 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 CRTC 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 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 financial statement of operations and the historical statement of operations include the following:

Once the Report on Plans and Priorities is presented, the CRTC 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 are 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:

  1. Expenses

    Expenses are recorded on an accrual basis. Expenses for the Department’s 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 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 terms of employment.

    Expenses also include provisions to reflect changes in the value of assets, including provisions for bad debt on accounts receivable, provision for valuation on loans, investments and advances and inventory obsolescence or liabilities, including contingent liabilities and environmental liabilities to the extent the future event is likely to occur and a reasonable estimate can be made.

    Expenses also include amortization of tangible capital assets which are capitalized at their acquisition cost. 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
    Informatics equipment 3 years
    Informatics software 5 years
    Vehicles 5 years
    Equipment 5 years
    Leasehold improvements 25 years
  2. 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 Deputy Head 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.

(a) Rights & Privileges

Part II licence fees ­ The Broadcasting Licence Fee Regulations, 1997 were amended in 2010 (Broadcasting Regulatory Policy CRTC 2010-476). A cap of $100 million was introduced for the calculation of Part II broadcasting licence fees assessed in 2010-11.  This cap is adjusted annually on a compound basis in accordance with the percentage increase or decrease to the Consumer Price Index (CPI) for the calendar year prior to the year of the adjustment. The CPI index was 1.8% for fiscal year 2011-12, 2.9% for fiscal year 2012-13, 1.5% for 2013-14, 0.9% for 2014-15, and is forecast to be 2.0% for 2015-16. The CPI is the annual average all-items CPI for Canada that is published by Statistics Canada.

These fees recover part of the Government of Canada’s substantial annual investment in the Canadian broadcasting system.

(b) Regulatory Fees

The CRTC collects fees pursuant to regulations made under the authority of the Broadcasting Act and Telecommunications Act.

Broadcasting licence fees ­ Section 11 of the Broadcasting Act gives the Commission the authority to make regulations respecting licence fees. These regulations apply to most licensees, who are required to pay their Part I and Part II licence fees to the Commission annually. The last amendment to the Broadcasting Licence Fee Regulations was done in 2010. Details on the amendment can be found in Broadcasting Regulatory Policy CRTC 2010-476 on the CRTC website at http://www.crtc.gc.ca/eng/archive/2010/2010-476.htm. The Broadcasting Licence Fee Regulations can be found on the Department of Justice web site at: http://laws.justice.gc.ca/.

Part I licence fees - Part I licence fees are based on the broadcasting regulatory costs incurred each year by the Commission and other federal departments or agencies, and are equal to the aggregate of:

The CRTC’s estimated broadcasting regulatory costs are set out in its Expenditure Plan published in Part III of the Estimates of the Government of Canada (Report on Plans and Priorities). In accordance with subsection 9(1) of the Broadcasting Licence Fees Regulations, 1997 (SOR/97-144), the estimated total regulatory costs of the Commission’s broadcasting activity for fiscal year 2015-16 totals $30.6 million.

There is an annual adjustment (‘true-up’) amount to the Part I fee to adjust estimated costs to actual expenditures. Any excess fees or shortfalls are credited or charged to the licensee in a following year’s invoice.

Telecommunications fees ­ Section 68 of the Telecommunications Act grants the CRTC authority to make the Telecommunications Fees Regulations.

The Telecommunications Fees Regulations amended in March 2010 (Telecom Decision CRTC 2010‑183 dated 25 March 2010) requires all telecommunications service providers (TSPs), or groups of related TSPs, with at least $10 million dollars in Canadian telecommunications service revenues (CTSR) to pay telecommunications fees, whether or not they file a tariff for approval with the Commission.  The Telecommunications Fees Regulations can be found on the Department of Justice web site at: http://laws.justice.gc.ca/.

The CRTC’s annual telecommunications fees are equal to the aggregate of:

The CRTC’s estimated telecommunications regulatory costs are set out in its Expenditure Plan, published in Part III of the Estimates of the Government of Canada (Report on Plans and Priorities). In accordance with subsections 3(1) and 3(3) of the Telecommunications Fees Regulations, 2010 (SOR/2010-65), the estimated total regulatory costs of the Commission’s telecommunications activity for fiscal year 2015-16 totals $27.8 million.

There is an annual adjustment (‘true-up’) amount to the telecommunications fees to adjust estimated costs to actual expenditures. Any excess fees or shortfalls are credited or charged to the carriers in the following year’s invoice.

Unsolicited Telecommunications Fees - Section  41.21(1) of the Telecommunications Act grants the CRTC authority to create the Unsolicited Telecommunications Fees Regulations.  The Unsolicited Telecommunications Fees Regulations, came into effect on April 1, 2013, for the 2013-14 fiscal year. These fees are used to fund the CRTC’s Do Not Call List (DNCL) investigation and enforcement activities, on a cost recovery basis, from fees assessed to telemarketers. In accordance with subsection 4.(4) of the Unsolicited Telecommunications Fees Regulations (SOR/2013-7), the Commission’s telemarketing regulatory costs for the fiscal year 2015-16 totals $3.3 million.  These regulations can be found on the Department of Justice web site at: http://laws.justice.gc.ca/.

(c) Miscellaneous Revenues

Miscellaneous revenues are comprised of:  (a) AMPs, (b) interest on overdue accounts receivable for CRTC broadcasting licence fees, telecommunications fees and AMPs (c) miscellaneous non tax revenue (e.g. access to information fees), and (d)gain on disposal of non-capital assets to outside parties.  All revenue from AMPs is recorded as non-respendable non-tax revenue and is considered revenues earned on behalf of the government.

4. Parliamentary Authorities

Parliamentary authorities and vote-netting

The CRTC is financed in part by the Government of Canada through Parliamentary authorities (e.g. Statutory Vote for Employee Benefits Plans (EBP), Budgetary Vote for the CASL and VCR activities) and the balance by vote-netted fees it collects from the broadcasting, telecommunications and telemarketing industries. Vote-netting is a means of funding selected programs or activities wherein Parliament authorizes a department, pursuant to paragraph 29.1(2)(a) of the Financial Administration Act,  to apply revenues collected from fee payers towards costs directly incurred for specific activities. CRTC has the authority to use a portion of: a) the Part I licence fees collected from broadcasters; b) the annual telecommunications fees collected from telecommunications carriers; and c) the unsolicited telecommunications fees from telemarketers to finance the costs it incurs in discharging its statutory responsibilities under the Broadcasting Act and Telecommunications Act (i.e. respendable revenue). The balance of these three fees recovers the costs for items funded through budgetary authorities (e.g. EBP) and costs incurred by other government departments on the CRTC’s behalf and are classified as non-respendable revenue. Part II broadcasting licence fees are entirely classified as non-respendable revenue.

Financial reporting of authorities provided to the CRTC do not parallel financial reporting according to generally accepted accounting principles because 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 CRTC 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
2014-2015
Planned
2015-2016
Net cost of operations 17,565 18,718
Adjustments for items affecting net cost of operations
but not affecting authorities:
Decrease (increase) in employee future benefits -48 -79
Services provided without charge by other government departments -6,329 -6,609
Amortization of tangible capital assets -1,173 -1,101
Decrease (increase) in vacation pay and compensatory leave -14 7
Sub-total -7,564 -7,782
Adjustments for items not affecting net cost of operations but
affecting authorities:
Acquisitions of tangible capital assets 993 910
Increase (decrease) in prepaid expenses 49 -25
Sub-total 1,042 885
Requested authorities 11,043 11,821

 

b) Authorities requested
(in thousands of dollars)
  Estimated
2014-2015
Planned
2015-2016
Authorities requested:
Vote 50 - Operating expenditures  7,916 7,852
Statutory amounts 6,674 6,877
Less:
Forecast estimated lapse: Operating   -3,547 -2,908
Requested authorities 11,043 11,821

 

Authorities presented reflect current forecasts of statutory items, approved initiatives included and expected to be included in Estimates documents and, when reasonable estimates can be made, estimates of amounts to be allocated from Treasury Board central votes.

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