Annual Report 2007-08

Audited financial statements

Notes to financial statements
Year ended March 31, 2008

1 — Purpose and authority

The Canadian Intellectual Property Office Revolving Fund (the "Fund") grants or registers exclusive ownership of IP in Canada. In exchange, the Fund acquires IP information and state-of-the-art technology which it disseminates to Canadian firms, industries and individuals to improve economic performance and competitiveness and to stimulate further invention and innovation.

The Fund was established on April 1, 1994. The authority to make expenditures out of the Consolidated Revenue Fund was granted on February 22, 1994, and has an authorized limit of $15 million. During the fiscal year ended March 31, 2002, the Fund's authorized limit was reduced from $15 million to $5 million. The Fund has continuing non-lapsing authority from Parliament to make payments out of the Consolidated Revenue Fund for working capital, capital acquisitions and temporary financing of accumulated operating deficits. The Fund may retain surpluses to continue to automate operations.

Pursuant to Treasury Board decision # 833200 (Budget 2006 Spending Restraint), dated November 30, 2006, and effective in 2006–07, the Fund transferred $50 million of its accumulated surplus to the accumulated net charge against the Fund's authority (ANCAFA).

2 — Significant accounting policies

Basis of Accounting

The financial statements have been prepared in accordance with the reporting requirements for revolving funds as described by the Receiver General for Canada. The basis of accounting used in these financial statements differs from Canadian generally accepted accounting principles because services received without charge from other government departments are not reported as expenses; the expenses and liability for termination benefits excludes the portion not funded by the Fund and contingent liabilities are disclosed rather than recorded.

The significant accounting policies are as follows:

Revenue recognition

Revenue derived from processing patent, trade-mark and industrial design applications is recognized using the percentage of completion method as work progresses. Fees received in advance of work being completed are recorded as deferred revenues. When work is completed prior to the receipt of the fee, the amount is recorded as unbilled revenue. In 2007–08, the method by which the Fund estimates the level of effort required within each of the different phases of the process for trade-mark applications was revised, resulting in a decrease of $1.5 million in earned revenue being recognized in 2008 compared to the preceding method. Maintenance fees and other revenue are recognized upon receipt. Fees are prescribed by various orders-in-council.

Capital assets and amortization

Capital assets are recorded at cost and are amortized on a straight-line basis over their estimated useful lives, beginning in the month after acquisition, as follows:

Deferred capital assistance

The Fund received $63.8 million from the Crown for the development of the TechSource automation project,which was implemented in 1997–98. The deferred capital assistance (DCA) was amortized on a straight-line basis over the estimated useful life of the TechSource system and was fully depreciated at the end of the current fiscal year.

Employee termination benefits

Employees of the Fund are entitled to specified termination benefits, calculated based on salary levels in effect at the time of termination as provided for under collective agreements and conditions of employment. Employee termination benefits earned prior to an employee joining the Fund are a liability of the Treasury Board and accordingly have not been recorded in the accounts. As at March 31, 2008, the Treasury Board liability for the Fund's employees is $4.3 million (2007 — $4.8 million). The liability for benefits earned after an employee joins the Fund is recorded in the accounts as the benefits accrue to employees.

The Treasury Board will only fund this portion of the past services up to and including the 15th year of the Fund's operation. In 2009–10, the long-term liability account for termination benefits will be adjusted accordingly with an offset against the Fund's accumulated surplus.

Pension plan

Employees of the Fund are covered by the Public Service Superannuation Plan administered by the Government of Canada. Under present legislation, contributions made by the Fund to the Plan are limited to an amount equal to the employee's contributions on account of current service. These contributions represent the total pension obligations of the Fund and are charged to operations on a current basis. The Fund is not required under present legislation to make contributions with respect to actuarial deficiencies of the Public Service Superannuation Account and/or with respect to charges to the Consolidated Revenue Fund for the indexation of payments under the Supplementary Retirement Benefits Act.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Capital assets, revenues and human resource related accrued liabilities are the most significant items for which estimates are used. Actual results could differ from these estimates. These estimates are reviewed annually, and, as adjustments become necessary, they are recorded in the financial statements in the period in which they become known.

3 — Capital assets and accumulated amortization
(in thousands of dollars)

	Cost March 31, 2007	Additions	Disposals	Cost March 31, 2008	Accumulated amortization	Net carrying value
Leasehold improvements	22 181	40	—	22 221	18 601	3 620
Software	9 537	963	—	10 500	8 665	1 835
Hardware	2 692	24	—	2 716	2 554	162
Equipment	—	30	—	30	—	30
Furniture	—	44	—	44	2	42
Systems
INTREPID	3 984	—	—	3 984	3 855	129
TechSource	88 240	—	—	88 240	86 076	2 164
Other	11 164	—	—	11 164	10 282	882
Systems under development	3 254	1 815	—	5 069	—	5 069
Total	141 052	2 916	—	143 968	130 035	13 933

4 — Deferred capital assistance (DCA)
(in thousands of dollars)

	2008	2007
DCA contribution	63 848	63 848
Less: accumulated amortization	63 848	62 253
Net book value	—	1 595

5 — Net liabilities (in thousands of dollars)

Accumulated net charge against the Fund's authority (ANCAFA)

The ANCAFA is the cash position of the Fund, held by the government on behalf of the Fund..

Accumulated surplus

The accumulated surplus is an accumulation of each year's surpluses, including the absorption of the opening deficit of $9.4 million upon establishment of the Fund.

	2008	2007
Accumulated surplus, beginning of year	34 392	69 406
Net results	14 632	14 986
Transfer of part of the accumulated surplus to the ANCAFA (Note 1)	—	(50 000)
Accumulated surplus, end of year	49 024	34 392
ANCAFA, end of year	(139 353)	(110 844)
Net assets / liabilities	(90 329)	(76 452)

6 — Contractual Obligations (in thousands of dollars)

The Fund is engaged in contractual obligations for:

Information technology services with Public Works and Government Services Canada

	Obligations (in thousands of dollars)
2009	6 564
2010	6 776
Total	13 340

Operating leases for its office premises

	Obligations (in thousands of dollars)
2009	6 493
2010	1 711
2011	1 646
Total	9 850

Applications development and maintenance within the framework of the Continued Systems

	Obligations (in thousands of dollars)
2009	2 713

Searching services and access to online databases

	Obligations (in thousands of dollars)
2009	3 249
2010	1 070
2011	126
Total	4 445

7 — Changes in working capital (in thousands of dollars)

Components of the changes in current assets and liabilities include:

	2008	2007
Accounts receivable	(857)	711
Unbilled revenues (short term)	(131)	(1 188)
Prepaid expenses	63	(12)
Deposit accounts	455	(5)
Accounts payable	8 251	(651)
Deferred revenues (short term)	2 463	7 662
	10 244	6 517

8 — Related party transactions

Through common ownership, the Fund is related to all Government of Canada — created departments, agencies and Crown corporations. Payments for accommodation, translation, legal services, compensation and benefits services, mail services, security services, and mainframe and computing services are made to related parties in the normal course of business.

9 — Insurance

The Fund does not carry insurance on its property. This is in accordance with the Government of Canada policy of self-insurance.

10 — Contingencies

Sick Leave

Employees are permitted to accumulate unused sick leave. However, such leave entitlements do not vest and can be used only in the event of illness. The amount of accumulated sick leave entitlements which will become payable in future years cannot reasonably be determined and accordingly have not been recorded in the accompanying financial statements. Payments of sick leave benefits are included in current operations as incurred.

11 — Income taxes

The Fund is not subject to income taxes.

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Annual Report 2007-08
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