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FIN-10-140 - 2009 Audited Financial Statements
ILREPORT REPORT TO: Mayor Carl Zehr, Chair, and Members of the Audit Committee DATE OF MEETING: August 23, 2010 SUBMITTED BY: Dan Chapman, General Manager of Financial Services and City Treasurer PREPARED BY: Sheri Brisbane, Supervisor of Financial Reporting WARD(S) INVOLVED: All DATE OF REPORT: August 18, 2010 REPORT NO.: FIN -10 -140 SUBJECT: 2009 AUDITED FINANCIAL STATEMENTS RECOMMENDATION: THAT the 2009 audited financial statements of the City of Kitchener be approved. REPORT: Staff is pleased to submit the 2009 audited financial statements of the City of Kitchener. A presentation of financial statement highlights and key financial indicators will be given at the Audit Committee meeting on August 23. Representatives of the City's external auditors will also be in attendance to discuss the audit findings report. FINANCIAL IMPLICATIONS: None. COMMUNICATIONS: The audited financial statements will be posted in the City website and notice will be provided to all residents through the "Your Kitchener" publication in accordance with Section 295 (1) of the Municipal Act, 2001. ATTACHMENTS: • 2009 audited financial statements • Audit Committee Presentation • Audit Findings Report to Audit Committee (KPMG) ACKNOWLEDGED BY: Dan Chapman, General Manager of Financial Services and City Treasurer 1 -1 rti rim DQ W H V - Z D Q � Z Q - LL ULI ii ULI O O W m W (M) W a Ln c o , � � o Q � a c c0 O 0U C � � C .:.:.::... 0 o a� Z o c (1) N 0 E E cn cn c� U cn Z rti rim U) N F- U) INC tu 0 CIP, 0 CIP, U) 4-0 a C)%O% LO LL • 16. CD C4 C4 S%..w D = o 1 74 •40 4a qmb lob "ft 4mb rti a� a� OC 00*0n% ca of (0) x w 4%wwoo 0 C4 c X N M qq F- (1) � o CO C4 OWN LL 0 ON CY) 04 D • lob N I 74 rti rim 0 *_0 r E i C-1% N 10 1'*- � N 0 CL > 00"0" C**4 U) Q r � t ■ a. L L. F- a. 0 *_0 r 0 0 10 1'*- � N 0 CL r o 00"0" C**4 U) Q r � t O a. L L. 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X cn 2 A--j A--j 0 � E L � O O 0 4. o CD (j cv 0 0 to 7D � DO CD 00 N CD I` CD CD 0�0 m CD N I� O�cl cn .0 CD N � X X 2 A--j A--j 0 0 .1..j 0 4. C: ca wl�mj C/) C/) (1) C/) wl�mj C: :3 0 E m cnO cnU � N � U 0 C: 0 C: > 0 0 ^L Q E 0 wl I wl rti Lei 4=0 L 0 (1) LL pp_ppgpg- I rmm- rti Lei C*#A 0 0 M�� \�J 4 I rmm- CITY OF KITCHENER Consolidated Statement of Financial Position As at December 31, 2009 (in thousands of dollars) 2008 2009 (restated -note 15) Financial assets Cash and temporary investments 64,643 581609 Taxes receivable 20,286 181785 Trade and other accounts receivable 47,999 441569 Inventory for resale 17,247 201442 Investments (note 4) - 12,860 121385 Investment in Kitchener Power Corporation 1709416 1821156 and its affiliates (note 5) 162,872 1691822 Non - financial assets 325,907 3241612 Liabilities Accounts payable and accrued liabilities 62,263 671228 Deferred revenue - obligatory reserve funds (note 7) 5,831 81129 Deferred revenue - other 7,335 221128 Municipal debt (note 8) 72,200 631512 Employee future benefits (note 10) 22,787 211159 1709416 1821156 Net financial assets 155,491 1421456 Non - financial assets Tangible capital assets - net (note 11) 730,480 6971110 Inventory of supplies 1,648 11672 Prepaid expenses 739 661 732,867 6991443 Accumulated surplus 888,358 8411899 See ac 1 -20 CITY OF KITCHENER Consolidated Statement of Operations Year Ended December 31, 2009 (in thousands of dollars) 2009 2008 Actual 2009 Budget (restated - Actual (unaudited) note 15) Revenues 285,439 282129 3021956 Taxation 95,849 96,434 901731 User fees and charges 38,367 33,855 351182 Gasworks 112,394 110,341 1091774 Water and sewer 29,800 33,200 271185 Other 375056 32,500 381254 Grants 18,041 29167 31788 Contributions of tangible capital assets 9..:,117 - 21256 Investment income 6,764 8,270 81983 Penalty and interest on taxes 2,937 2,657 21727 Obligatory reserve funds revenue recognized 11,986 16,578 141709 Share of net income of Kitchener Power Corporation and its affiliates (note 5) 41238 - 41718 Other 12,966 28,712 181332 Total revenues 341048 330,859 3211457 Expenses 285,439 282129 3021956 General government 40,050 38,927 371458 Protection to persons and property 38,367 33,855 351182 Transportation services 27,436 21,702 291969 Environmental services 17,822 14,313 181162 Health services 2141 1,468 11772 Social and family services 1,756 2,087 11649 Recreation and cultural services 58,537 57104 541874 Planning and development 8,450 8,508 281402 Gasworks 90,880 104165 951488 Total expenses 285,439 282129 3021956 Annual surplus 55,709 48,730 181501 Accumulated surplus, beginning of year 841,899 841,899 8131227 Effect of change in accounting policies of Kitchener Power Corporation (9,250) - 101171 Accumulated surplus, end of year 888,358 890,629 8411899 See accompanying notes -z- 1 -21 CITY OF KITCHENER Consolidated Statement of Change in Net Financial Assets Year Ended December 31, 2009 (in thousands of dollars) 2009 2008 Actual 2009 Budget (restated - Actual (unaudited) note 15) Annual surplus 55,709 48,730 181501 Amortization of tangible capital assets 28,155 - 281125 Acquisition of tangible capital assets (73,388) (93,708) (79,933) (Gain) /loss on disposal of tangible capital assets 11,454 - 112 Proceeds on disposal of tangible capital assets 409 - 62 Effect of change in accounting policies of Kitchener Power Corporation (9,250) - 101171 Acquisition of supplies of inventories (6,793) - (11575) Acquisition of prepaid expenses (137) - (146) Consumption of supplies inventory 6,817 - 11881 Use of prepaid expenses 59 - 77 Change in net financial assets 13,035 (44,978) (22,725) Net financial assets, beginning of the year 142,456 142,456 1651181 Net financial assets, end of the year 155,491 97,478 1421456 Seeac ^„W,r��,,;�� -3- 1 -22 CITY OF KITCHENER Consolidated Statement of Cash Flow Year Ended December 31, 2009 (in thousands of dollars) 2009 2008 Operating Annual surplus 55,709 181501 Items not involving cash 409 62 Amortization 2$,155 281125 Loss on sale of tangible capital assets 119454 112 Change in employee future benefits 1,628 11446 Contributions of tangible capital assets (9,117) (21256) Change in non -cash assets and liabilities (66,637) (74,243) Taxes receivable (1,501) (21451) Trade and other accounts receivable (3,430) (674) Inventory of supplies 24 898 Inventory for resale 3,195 (71677) Prepaid expenses (78) (661) Deferred revenue - obligatory reserve funds (2,298) (51577) Deferred revenue - other (14,793) 221128 Accounts payable and accrued liabilities (4,965) 101575 Net change in cash from operating activities 63,983 621489 Investing Acquisition of tangible capital assets (64,271) (77,677) Proceeds on disposal of tangible capital assets 409 62 Share of net income of Kitchener Power Corporation and its affiliates (4,238) (41718) Dividends received from Kitchener Power Corporation 1,938 21121 Net acquisition of long -term investments (475) 51969 Net change in cash from investing activities (66,637) (74,243) Financing Municipal debt issued 15,101 121951 Municipal debt repaid (6,413) (51842) Net change in cash from financing activities 8,688 71109 Net Change in cash and temporary investments 6,034 (41645) Cash and temporary investments, beginning of year 58,609 631254 Cash and temporary investments, end of year 64,643 581609 See accompanying notes 1 -23 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 1. Summary of significant accounting policies These consolidated financial statements of The Corporation of the City of Kitchener (the "City ") have been prepared by management in accordance with Canadian generally accepted accounting principles for local governments as established by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. The following is a summary of the significant accounting policies followed in the preparation of these financial statements: a. Basis of consolidation i. Consolidated entities These consolidated financial statements reflect the assets, liabilities, reserves, surpluses /deficits, revenues, and expenditures of those City funds and governmental functions or entities which have been determined to comprise a part of the aggregate City operations based upon control exercised by the City except for the City's government businesses which are accounted for on the modified equity basis of accounting. The following boards, municipal enterprises and utilities have been included in the consolidated financial statements: • Kitchener Public Library Board • Kitchener Downtown Improvement Area Board of Management • Belmont Improvement Area Board of Management • Centre in the Square Inc. • Waterworks Enterprise • Gasworks Enterprise • Sewer Surcharge Enterprise • Doon Valley Golf Club • Rockway Golf Club All inter - organizational and inter -fund transactions and balances have been eliminated. ii. Government business enterprises Kitchener Power Corporation and its affiliates are not consolidated but are accounted for on the modified equity basis which reflects the City of Kitchener's investment in the enterprises and its share of net income since acquisition. Under the modified equity basis, the enterprises' accounting principles are not adjusted to conform to those of the City, and inter - organizational transactions and balances are not eliminated. iii. Accounting for region and school board transactions The taxation, other revenues, expenditures, assets and liabilities, with respect to the operations of the school boards and the Regional Municipality of Waterloo, are not reflected in these consolidated financial statements. iv. Trust funds Trust funds and their related operations administered by the City are not consolidated, but are reported separately on the "Trust Funds Statement of Continuity and Balance Sheet" (see note 3). 1 -24 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) b. Basis of accounting Accrual basis of accounting The consolidated financial statements are prepared using the accrual basis of accounting. The accrual basis of accounting recognizes revenues in the period in which the transactions or events occurred that gave rise to the revenues; expenditures are recognized in the period the goods and services are acquired and a liability is incurred or transfers are due. ii. Trade and other accounts receivable Trade and other accounts receivable are reported net of any allowance for doubtful accounts. iii. Inventory for resale Inventory for resale is valued at the lower of cost or net realizable value on a first-in- first- out basis. iv. Investments Portfolio investments are carried at cost, net of accumulated amortization on premiums and discounts. Premiums and discounts are amortized on a straight line basis over the term to maturity. Interest income is recorded as it accrues. When the value of any portfolio investment is identified as impaired, the carrying amount is adjusted to estimated realizable amount and any adjustments are included in investment income in the period the impairment is recognized. v. Deferred revenue Government transfers, contributions and other amounts are received from third parties pursuant to legislation, regulation or agreement and may only be used in the conduct of certain programs, in the completion of specific work or for the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed or the tangible capital assets are acquired. vi. Employee future benefits The contributions to a multi - employer, defined benefit pension plan are expensed when contributions are due. The costs of post - employment benefits are recognized when the event that obligates the City occurs; costs include projected future income payments, health care continuation costs and fees paid to independent administrators of these plans, calculated on a present value basis. The costs of post - employment benefits are actuarially determined using the projected benefits method prorated on service and management's best estimate of retirement ages of employees, salary escalation, expected health care costs and plan investment performance. Liabilities are actuarially determined using discount rates that are consistent with the market rates of high quality debt instruments. Any gains or losses from changes in assumptions or experience are amortized over the average remaining service period for active employees. 1 -25 CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) vii. Non - financial assets Non - financial assets are not available to discharge liabilities and are held for use in the provision of services. They have useful lives that extend beyond the current year and are not intended for sale in the ordinary course of operations. The change in non - financial assets during the year, together with the excess of revenues over expenses, provides the consolidated change in net financial assets for the year. a. Tangible capital assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets is amortized on a straight -line basis over their estimated useful lives as follows: Assets Land Land Improvements Building & building Improvements Leasehold improvements Machinery & equipment Computer hardware Computer software Linear assets Vehicles b. Contributions of tangible capital a Amortization period The oriainal cost of land is not 10 to 25 years 20 to 50 years Over the useful life of the improvement or the lease term, whichever is shorter 3 to 15 years 3 to 10 years 1 to 10 years 20 to 100 years 3 to 25 years Tangible capital assets received as contributions are recorded at their fair value at time of receipt and are recorded as revenue. c. Leases Leases are classified as capital or operating leases. Leases which transfer substantially all the risks and benefits incidental of ownership are accounted for as capital leases. All ether leases are accounted for as operating leases and the related lease payments are charged to expenses as incurred. 1 -26 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) d. Inventories Inventories held for consumption are recorded at the lower of cost and replacement cost. e. Works of art and cultural and historic assets Works of art and cultural and historic assets are not recorded as assets in these financial statements. viii. Government transfers Government transfers are recognized in the financial statements in the period in which the events giving rise to the transfer occur, providing the transfers are authorized, any eligibility criteria have been met and reasonable estimates of the amounts can be made. Government transfers and developer contributions -in -kind related to capital acquisitions are required to be recognized as revenue in the consolidated financial statements in the period in which the tangible capital assets are acquired. ix. Use of estimates Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. Actual results could differ from these estimates. 2. Operations of school boards and the Regional Municipality of Waterloo Further to note 1 a) iii, the taxation, other revenues and requisitions for the school boards and the Regional Municipality of Waterloo are comprised of the following: 1 -27 School Region Total board Taxation and user charges 83,143 171052 254,295 Share of payments in lieu of taxes 2 1016 1018 Share of linear properties 64 110 174 Amounts requisitioned 83,209 172,378 255,587 3. Trust funds Trust funds administered by the City have not been included in the "Consolidated Statement of Financial Position ", nor have their operations been included in the "Consolidated Statement of Operations ". The trust funds under administration are comprised of the following: 2009 2008 Cemetery perpetual care and prepaid internment funds %486 91039 Musagetes - Arts & Culture Fund 844 11046 10,330 101085 1 -27 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 4. Investments Investments are made up of the following: 2009 2009 2008 2008 Cost Market Cost Market Value Value Bonds and debentures 11,929 12,047 111872 111505 Common Stock 931 1136 513 482 12,860 13,183 121385 111987 5. Investment in Kitchener Power Corporation and its Affiliates Under the provincial government's Electricity Competition Act (Bill 35), Kitchener Power Corporation, a holding company, along with its wholly owned subsidiaries, including Kitchener - Wilmot Hydro Inc., was incorporated on July 1, 2000. On August 1, 2000, under by -laws passed by the City and the Township of Wilmot, the net assets of the former Hydro - Electric Commission of Kitchener- Wilmot were transferred to the new corporations. The City took back a 92.25% share in the common shares of Kitchener Power Corporation and a 92.25% share in long -term notes payable by the affiliates for the assets transferred. Certain surplus property assets and cash funds were excluded from the transfer and turned over to the City and the Township. The investment is composed of the following: The Kitchener- Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 6 %. There are no repayment terms and there is no intent to redeem the notes or the shares. Effective January 1, 2009, Kitchener Power Corporation adopted the amended sections of CICA Handbook Section 1100 - Generally Accepted Accounting Principles, CICA Handbook Section 3465 - Income Taxes and Accounting Guideline 19 — Disclosures by Entities Subject to Rate Regulation. As a result of these changes, opening retained earnings decreased by $10,027, and regulatory liabilities and future income tax assets increased by $14,123 and $4,096 respectively at January 1, 2009. 2009 2008 Kitchener Power Corporation common shares 615244 611244 Kitchener - Wilmot Hydro Inc. long -term notes receivable 70,998 701998 Share of net income and prior period adjustments due to changes in accounting policies since acquisition, net of dividends 303630 371580 1629872 1691822_ The Kitchener- Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 6 %. There are no repayment terms and there is no intent to redeem the notes or the shares. Effective January 1, 2009, Kitchener Power Corporation adopted the amended sections of CICA Handbook Section 1100 - Generally Accepted Accounting Principles, CICA Handbook Section 3465 - Income Taxes and Accounting Guideline 19 — Disclosures by Entities Subject to Rate Regulation. As a result of these changes, opening retained earnings decreased by $10,027, and regulatory liabilities and future income tax assets increased by $14,123 and $4,096 respectively at January 1, 2009. CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) The following table provides condensed financial information with respect to Kitchener Power Corporation: 2009 2008 Current assets 65,742 75,056 Capital assets 1138,1170 137,850 Regulatory assets 115,072 41306 Long-term investments 0 20 Future income taxes 12,443 11,643 Total assets 231,427 2281875 Current liabilities 27,106 25,235 Long-term debt 76,962 761962 Regulatory liabilities 18,781 10,500 Other liabilities 8,984 9,051 Total liabilities 131,833 121,748 Net assets 9%594 107,127 Results of operation Revenues 1178,829 173,299 Expenses (11 74,235) (168,184) Net income 4,594 5,115 City's share of net income - 92.25% 4,238 4,718 6. Insurance pool Liabilities include an amount of $4,760 (2008 - $4,390) which represents funds belonging to the Waterloo Region Municipalities Insurance Pool and administered by the City on behalf of the Pool's members. The members entered an agreement in 1998 to purchase property damage and public liability insurance on a group basis and share a retained level of risk. The members pay an actuarially determined annual levy to fund insurance, prefund expected losses and contribute to a surplus. The Pool has purchased insurance to fund losses above a predetermined deductible and any losses above a predetermined total in any year. The City's share of Pool levies is 26.23% (2008 - 27.53%) and its share of the Pool surplus as at May 31, 2009 was $1,030 (2008 - $1,289). The City's share of the Pool surplus has not been included in the "Consolidated Statement of Financial Position". -to- 29 CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 7. Deferred revenue - obligatory 2010 7,074 2009 2008 Development charges Recreational land 3,843 1,988 61720 11409 6,046 5,831 81129 The continuity of deferred revenues is as follows: 72,200 2009 2008 Balance, beginning of the year Collections nterest earned Other revenue Contributions used 89129 81836 290 563 (11, 987) 131706 71954 593 584 (14, 708) Balance, end of year 5,831 81129 8. Municipal debt a. The City has assumed responsibility for the payment of principal and interest charges on certain long -term debt issued by other municipalities. At the end of the year, the outstanding principal amount of this liability is $72,200 (2008 - $63,512). b. The annual principal payments are: c. The annual principal and interest payments required to service the long -term debt are within the annual debt repayment limit prescribed by the Ontario Ministry of Municipal Affairs and Housing. d. The long -term liabilities carry interest rates ranging from 1.00% to 6.40 %. 9. Pension plan The City makes contributions to the Ontario Municipal Employees Retirement System (OMERS), which is a multi - employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. Employee contributions are matched by the 1 -30 2010 7,074 2011 6,459 2012 6,094 2013 6,046 2014-2024 46,527 72,200 c. The annual principal and interest payments required to service the long -term debt are within the annual debt repayment limit prescribed by the Ontario Ministry of Municipal Affairs and Housing. d. The long -term liabilities carry interest rates ranging from 1.00% to 6.40 %. 9. Pension plan The City makes contributions to the Ontario Municipal Employees Retirement System (OMERS), which is a multi - employer plan, on behalf of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. Employee contributions are matched by the 1 -30 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) City. Contributions were required on account of current service in 2009 amounting to $5,721 (2008 - $5,472). The latest available actuarial valuation of the OMERS plan indicates the assets of the plan were sufficient to meet all the liabilities in respect of members up to December 31, 2009. 10. Employee future benefits 2009 2008 Sick leave benefit plan 113571 101151 Post retirement benefits 83764 81350 Future payments required to WSIB 23452 21658 223787 211159 a. Sick leave Under the sick leave benefit plan, unused sick leave can accumulate and certain employees may become entitled to cash payments when they leave the City's employment. The expense for the current year was $738 (2008 - $1,669). The actuarial valuation of the future liability for sick leave assumes a discount rate of 5.25% (2008-5%). Anticipated payments over the next five years to employees who are eligible to retire are: 2010 2,032 2011 297 2012 536 2013 786 2014 780 4,431 b. Post- retirement benefits The City of Kitchener pays certain health, dental and life insurance benefits on behalf of its retired employees up to the age of 65 if they have at least ten years service with the City. The expense for the year was $1,195 (2008 - $905) and is comprised of the following items: As at December 31, 2008, the unamortized actuarial losses were $1,628 (2008 — $1,118) and are amortized over 12 years (2008 — 13 years). The amount of contributions and the amount of benefits paid during the year were $780 (2008 - $558). 2009 2008 Current period benefit cost 428 299 Amortization of acturarial losses 240 149 Retirement benefit expenditures 668 448 Retirement benefit interest expenditures 527 457 Total expenditures related to retirement benefits 13195 905 1 -31 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) The actuarial estimate of the future liability for post- retirement benefits assumes a discount rate of 5.25% (2008 — 5 54o) and inflation rates for benefit premiums of 5% to 9% (2008 — 4% to 7.12 %). c. WSIB The Workplace Safety and Insurance Board (WSIB) administers injured worker benefits payments on behalf of the City as a Schedule 2 employer. The expense for the year was $793 (2008 — $718). The actuarial estimate of the future liability for WSIB benefits assumes a discount rate of 5% (2008 — 5 %). 11. Tangible capital assets The write -down of tangible capital assets during the year was $35 (2008 — nil). Assets contributed to the City totaled $9,117 (2008 - $2,256). See Schedule A 1 -32 CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 12. Accumulated surplus The accumulated surplus consists of individual fund surplus/ (deficit) and reserves as follows: Reserve funds set aside for speci Sick leave Capital expenditures Tax rate stabilization Workplace safety and insurance Insurance Centre in the Square Inc. Other Total reserve funds 13. Contingent liabilities ancii Tor: 4,537 2009 2008 Surplus: 1,760 31938 Invested in tangible capital assets 730,480 6971110 Other (6,278) (36, 997) Equity in Kitchener Power Corporation and 41358 its affiliates 162,872 1691820 Unfunded Employee future benefits (229787) (21,159) Total surplus 864,287 8081774 Reserves: Acquisition of capital assets 7,015 81730 Total reserves 7,015 81730 Reserve funds set aside for speci Sick leave Capital expenditures Tax rate stabilization Workplace safety and insurance Insurance Centre in the Square Inc. Other Total reserve funds 13. Contingent liabilities ancii Tor: 4,537 31859 2,575 91495 1,760 31938 (329) (119) 384 424 2,385 21440 5,744 41358 17,056 241395 888,358 8411899_ a. The City has extended a line of credit not to exceed $2,000 to Kitchener Housing Inc. Interest is charged on the outstanding balance at bank prime plus 1% (rate as at December 311 2009 was 1.5 %). b. Legal action has been undertaken against the City relating to a number of contract disputes and other matters. The outcome of these actions is not presently determinable. It is management's opinion that the City's insurance will adequately cover any potential liability arising from these contract disputes and other matters. Should any liability be determined and not covered by insurance it will be recognized in the period when it is determined. 1 -33 Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 14. Segmented information The City of Kitchener is a diversified municipal government institution that provides a wide range of services to its citizens, including fire, roads, water, sewer, gasworks, libraries, and community services. Segmented information has been prepared by major functional classification of activities provided, consistent with the Consolidated Statement of Financial Activities and provincially legislated requirements. For each reported segment, revenues and expenses represent both amounts that are directly attributable to the segment and amounts that are allocated on a reasonable basis. The accounting policies used in these segments are consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 2. For additional information see the Consolidated Schedule of Segmented Disclosure. See Schedule B 15. Change in accounting policy The City has restated its financial statements to comply with the provisions of Section 3150 of the Public Sector Accounting Board Handbook which requires governments to record and amortize their tangible capital assets on their financial statements. In addition, revenue from contributed assets and government grants and transfers relating to capital acquisitions has been included in income. Methods used for determining the cost of each major category of tangible capital assets The financial information recorded includes the actual or estimated historical cost of the tangible capital assets. When historical cost records were not available, other methods were used to estimate the costs and accumulated amortization of the assets. The City applied a consistent method of estimating the replacement or reproduction cost of the tangible capital assets for which it did not have historical cost records, except in circumstances where it could be demonstrated that a different method would provide a more accurate estimate of the cost of a particular type of tangible capital asset. After defining replacement or reproduction cost, the Non- Residential Building construction price index (NRBCPI) was used as a resource for determining appropriate indices in order to deflate the replacement or reproduction cost to an estimated historical cost at the year of acquisition. This change has been applied retroactively and prior periods have been restated. This change in accounting policy has changed amounts reported in the prior period as follows: 1 -34 CITY OF KITCHENER Notes to Consolidated Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 2008 opening accumulated surplus As previously stated Net book value of tangible capital assets recorded Restated balance 2008 annual surplus As previously stated (deficiency) Assets capitalized but previously expensed Revenue from contributed tangible capital assets Amortization expense not previously recorded Loss on disposal of assets Change in non - financial assets not previously reported as Restated balance 177,563 6351664 813,227 (29,110) 771677 21256 (28,125) 16. B u d g et fi g ur es (174) The (4,023T budge 18,501 t figure s reflected in these consolidated statements are those approved by Council at a meeting on January 12, 2009. Capital budget figures are based on the capital forecast for the current year. Actual revenues and expenditures may be significantly different from budget depending on the timing of projects, which may occur in a different year than originally budgeted. 17. Comparative figures Certain of the prior year's comparative figures have been restated to conform to the current year's presentation. -16- 1 -35 cv .v c W Z LL W 2 ca Fm �o � N 0 LL U Oo >=N H � o VZ 4-0 U) uS r , co a N O cn W n ,� cn W p n� W �o M 74 m 00 Lf) 00 O CD LO 00 O O 00 LO co co N Ln CD 00 �-- O O co LO I` N M 00 CD O I` CN I` O " 00 O co N co LO M co I` CD CD L CV 1 1 1 1 1 1 _ LO O cn V- L) N N Lf) LO N D CD O O N M M cn cn N C cn 0 O N co LO 00 M O 00 L n cn 00 ' m M O m CN r LO O N m I` ti N N O O LO I` N O CO CD � � cn M D U J Ca LO LO M M D L cn Ca 1 1 1 LO ' O 00 M cM M co M LO CD 00 CD O C M ti M ti m co M M 00 M m CD � 1 1 1 1 1 C= C6 00 O CO O LO Lid 00 N "' N M M � co T.-- � � 00 I` N r O N ' 00 CD C3� V LO I` N O O V- M 00 Cv LO M 00 N N LO M O N N p O 00 00 co LO M O cu 00 ' � CD CD " M 00 ' ti N � CD O N O co � LO N M N N 0 L O Ca U � CD N N co Liz O N M C6 Lo M ' ' 00 00 O 00 ' lq;r ti Ltd M co Lid CD CD O M 00 m O N N ti m O cn U " }, r CD 00 CD CD CD M r- O CD 00 p M N Lf� M N ti co O M 00 O 00 Cv O lq�r O N E O co O co N O O U C6 O Ca L co M ti Ltd m O m CD M C�4 C-0 CU O r-- N E N M cn > O N � J E ti M M M CD C) C) cn co N ' rl- CD co O CD Cm O 00 M O 00 � 00 M C.0 O 00 CD 00 I` 00 I` m cn Lo 00 N O O O LO CD O Lt7 00 CD .� 00 O co M Lid CU ti ti 00 N O ~ O E O �"' M LO CD M t= 0 N M �. 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M o 1` (D m 1` (D 00 � LO - to M 00 M (D I- m N O ti O O N O � L6 0� 00 CO N N O N I- co O H Oo co LO LS) 1` m o 1` 1` Lf) 1` M O (D N rn ao - U-) I- ti N N N 00 N Ld Ld N N 00 LO CV a0 M M O N O O U-) I- N N O I- O O 00 Ld L6 � O � N d7 O co N O ' M ' O M 00 I- U-) 00 O co 1` O N � O M U-) O N U-) ON m N O co co ' CD 04 ,;T 1;T ti M M ;T - M N M CO Lf) � M_ 1` N Lf) � 00 N NT m O CO Lf) co L CO I- LOf) N M N CO 00 N O 0~O O� m " m O N Lf) U') r- m 00 (D m m O I co r - O Ln N co co co 00- �_ r- �_ 1` NT O- N I` V) O 00 I` I` 1` L N N CO - CO 00 O M N U-) ' co co O co 00 N M M = - N M d7 M V- ' O L E M N O M N O m (6 N o o N 0') O � L 0 'L cn N d ; x > con O 0 M � En Y L) ca 00 Cl) co cn Y in co N -Q N C-0 • CU . 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O X M6 �--� L O O �., ��m(D �CLO C/) QOM LU0 < —j Z I Year Ended December 31, 2009 -20- 1 -39 Trust Funds Balance Sheet Year Ended December 31, 2009 (in thousands of dollars) 2009 2008 Assets Accounts receivable 102 57 Interest receivable 432 461 Investments (note 2) Short -term 2,249 41154 Long -term 7,549 51415 10,331 101087_ Liabilities Accounts payable 2 2 Fund Balance 10,330 101085 10,332 101087_ 1 -40 Trust Funds Statement of Continuity Year Ended December 31, 2009 (in thousands of dollars) _22_ 1 -41 2009 2008 Capital Receipts Perpetual care I nterest earned Other 341 311 27 319 406 20 678 745 Expenditures Transfer to cemeteries operations Other 202 231 263 50 433 313 Net change in fund 245 432 Balance, beginning of year 10,085 91653 Balance, end of the year 10,330 101085 _22_ 1 -41 Notes to the Financial Statements Year Ended December 31, 2009 (in thousands of dollars) 1. Summary of Significant Accounting Policies 2. 3. The Financial Statements have been prepared in accordance with Canadian generally accepted accounting principles for local government as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. The significant accounting policies are summarized below. Basis of Accounting Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes receipts as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. Investments The long -term investments of $7,549 (2008 - $5,415) reported on the Balance Sheet at cost, have a market value of $7,595 (2008 - $5,505). Statement of Cash Flows A separate statement of cash flows is not presented, since cash flows from operating, investing and financing activities are readily apparent from the other financial statements. 1 -42 Trust Funds Schedule of Continuity by Fund Year Ended December 31, 2009 (in thousands of dollars) Cemetery Trusts F.E. Teremain 16 0 LM M N 0 w 16 Florence V. Cober 9 v r. i M C 0 a E 9 L.F. Glick 21 0 1 0 o 0 21 Edna Atherton 1 a � i � � LM � � r George Wright Estate ft-ft M 0 1 0 L. Q E N M ft-ft E. L. Goetz m r a. U. 0 0 0 0 1 Perpetual Care 38 0 1 0 1 0 38 Mount Hope Cemetery 566 0 17 1 17 0 567 Woodland Cemetery 31933 100 122 13 122 0 41045 Bridgeport Cemetery 130 3 4 0 4 0 133 Williamsburg Cemetery 11235 166 40 13 40 0 11414 St. Peter's Cemetery 507 (2) 15 1 15 0 505 Cemetery Trusts F.E. Teremain 16 0 0 0 0 0 16 Florence V. Cober 9 0 0 0 0 0 9 L.F. Glick 21 0 1 0 1 0 21 Edna Atherton 1 0 0 0 0 0 1 George Wright Estate 43 0 1 0 1 0 43 E. L. Goetz 1 0 0 0 0 0 1 E. Weiderhold 38 0 1 0 1 0 38 Prepaid Interments 21539 75 79 0 0 0 21693 General Trusts Musagetes Arts & Culture Fund 11046 0 29 0 0 231 844 101085 341 311 27 202 231 101330 _Zq_ 1 -43 BOARD OF MANAGEMENT AUDITORS LETTER 1 -44 Belmont Improvement Area Board of Management Statement of Financial Position As at December 31, 2009 (in thousands of dollars) 1 -45 2009 2008 Assets Cash 14 19 Term deposit 15 15 Total Assets 29 34 Liabilities and accumulated surplus Accounts payable 3 3 Accumulated net revenue 26 31 Total liabilities and accumulated surplus 29 34 1 -45 Belmont Improvement Area Board of Management Statement of Operations and Accumulated Surplus Year Ended December 31, 2009 (in thousands of dollars) _27_ 1 -46 2009 2008 Revenue Assessments 25 25 Interest revenue 0 1 25 26 Expenses Streetscaping 4 1 Audit 2 1 Summer maintenance 4 4 Insurance 1 1 Winter maintenance 13 11 Advertising 4 5 Miscellaneous 2 1 30 24 Net (deficit) /surplus for year (5) 2 Accumulated surplus, beginning of year 31 29 Accumulated surplus, end of year 26 31 _27_ 1 -46 BOARD OF MANAGEMENT Notes to the financial statements 1. Summary of Significant Accounting Policies The financial statements of the Belmont Improvement Area Board of Management are the representation of management and have been prepared in accordance with Canadian generally accepted accounting principles for local governments as recommended by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgments. The following is a summary of the significant accounting policies followed in the preparation of these financial statements. 2. Basis of Accounting Revenues and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. 3. Statement of Cash Flows A separate statement of cash flows is not presented, since cash flows from operating, investing and financing activities are readily apparent from the other financial statements. 1 -47 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT .. ......... .... ::: ........ r ' ry :f. � �s � r;f- _ - ; t ' ,' x {� t ��• � '� jig - � { � t ri t � }.: r1� w � .fir Y 1 r% 1 W.A'l 9 ft, 0 0- . .... ... ... 1� s • Sri - ,- }{,rs�. i+ _29_ 1 -48 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT •s>i�. ^y> `.`#�'. i�� ra r„i- r+•.Y: 'Lr'?�'3 ?.S �� 'vL� .��. 'g}'? ��5'43s. w .} x� E �5 � y... .L •i. �r� �i�{. �, X �"°i:- fir. f' ELM �+� ... 1 [.�,f ��: �-,i. '.'�` �+i L': . }�; �5:���(5�'y i%i .k� .•� '¢5y� �/ sy. � � ti•,�. .' 'vY`.�s �4 ,CF4 ,�� �x. �.�..'- � €�h .y, tq, "ir °. zJ%�•'4i•�, �.' 'k^- 4� G6.� �.'� ?e.r }�' � c�.. �� }1M ..ffi�Cc _ fir{ s; n % JI .r fro' ar. r +' .i•-' ''4��55 es��{}}�� !f, 55 � s<a� i� y; {�..,�3_,�..�;�rt ks •a;' "tt ''w �':o- �. ;. �'�r`. -30- 1 -49 KITCHENER DOWNTOWN IMPROVEMENT AREA BOARD OF MANAGEMENT "^�._F° P"4 ''�.- 1 {R�^�� � .'�a� �.�-- ^'�'fS. f k, x.l �v4 _. 4 �: •.. ...- f.f�' ..Sti : ,h_. � r 4r ��. t �f'. .f� .2- r �W'�`�" ..y, -.. - m ' x,e'ry^ry ��[� o r• rd �' �'ft�.: �'� ' �'�, tY ,� '�'4 X} 'p� �v -z - ^.� .u: Ir': [ ex �j} r,� $y .�;'q �. /�il�tS Aj oX,. �'�v i'•A' ;:. tb f: ti-.�4 ,44,hJ j �„[ C:. i�� �W �tir "dA'{, n: Wl."sF G': Y:��':J -�' �' ;'" k. ' x'k i'Y!' • }_'. 1. �--5 h Z 4 ^'- •'� '�'� 5 Y - GYP• C {�:i Qf :'YP•�'+ M6 -31- 1 -50 <. S• { � .. i r.' . ;F. •. i ....... , ... � :aoo�' : � _ .. .. KITCHENER PUBLIC LIBRARY BOARD IsI is !�Z -33- 1 52 KITCHENER PUBLIC LIBRARY BOARD Nor.. :3" s �� � �i K a .r 2.%s r3 c-x s. "'� ;sc, rn � _ i. :��nn ' �" �g •'�"•'s�} ' � �'p �pn�C -34- 1 -53 KITCHENER PUBLIC LIBRARY BOARD ............................................ ............................................. ............................................... .... ..... .......................................... . ........................................ ------------------------ 11-1-1-1-11-11 ---------------------------------------------- I -------------------------------------------- 0A, ............................... .................................................................................................................................................................................................................................. 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SAW. ............................................................................................................................................................................................................... ............................... . -38- 1 -57 KITCHENER PUBLIC LIBRARY BOARD } i .. Ty,• r _ � RV ,4 �x < _ _ < . I ., I ,sin •l r •] 1.Y {.il iA�Y �+�y //Nelkt [S Ok. AST : ¢ �" aYS _si�'J 4 #' ri •!k. 90.�+G' }llu }3. + ti' Y � �$� 1 4 F �S �I+III� ,3 � •.a #,y. � m.. 'a.fi•.: "tr 2p:• Cs ivt •>ati ._e: .a.. � Y+x' �Y _ X I�L*5 �' 'RY-0.�J ee' -a." R�i.' ._.}��r.2< s ;.'4r�d�. s >�] �F'3. '^:rt ^s�'4k ^:�'S.x�.� :L4:2 �jJf'l -� .Teti 4Y�'I i ��i�''�i's �i'�•�c3!' J_ x°".i �s�.^� �: +�Y¢�, �iY xy ' -� ','�'�y, �� 3: >�� � J�� ,�` ..1 �e[o '•°,• a+. vK ex ,Iti d' # • M 5 n.l4 .y'. 3 n &e+k ,� ?a ' rc ?ka - - ra. rY�' w,�'�$dP g'j ��' �a � � �yq�*ta' � :'t�`' "��xi' �•`'.r�: °k'� � ��,�:w� .;���'�pIL�# .�r. s� +��k,f, �y �: ,e�,t{. > •ra„x�P�.` TIA 'X �4. 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JIM sawn N, - OPAWO a A e13 10; Off.! a 11 CITY OF KITCHENER GASWORKS STATEMENT OF OPERATIONS AND ACCUMULATED SURPLUS Year ended December 31, 2009 * * DRAFT DELIVERY OPERATIONS Gas delivery Revenues Expenses Other programs Revenues Expenses Contact Centre Revenues Expenses Excess of revenue over expenses Accumulated Surplus - Delivery Balance at the beginning of the year Transfer to City of Kitchener Reserve Funds Transfers to City of Kitchener Add excess of revenue over expenses Balance at end of period SUPPLY OPERATIONS Gas supply Revenues Expenses Excess of revenue over expenses Accumulated Surplus (Deficit) - Supply Balance at beginning of the year Add excess of revenue over expenses Balance at end of period 2008 ACTUAL 42,426,595 25,948,455 16,478,141 6,637,799 5,496,680 1,141,119 17,619,260 61,527,399 (4,986,394) (5,849,625) 50,691,3 80 17,619,260 68,310,640 65,680,434 64,787,261 893,173 (7,683,572) 893,173 (6,790,399) 1 -95 2009 2009 ACTUAL BUDGET 3999669730 4196179817 2297039715 2291489695 1792639015 1994699122 799609035 797999651 591669753 595469098 297939282 292539553 19,570 - 22,918 - (3,348) - 1792219748 1599459675 6893109640 6893109640 (590889285) (497639805) (690259114) (690259114) 5791979241 5795219721 1792219748 1599459675 7494189989 7394679396 6691899256 6292959173 6195649061 5896059922 496259195 396899251 (697909399) (697909399) 496259195 396899251 (291659204) (391019148) 2008 ACTUAL 42,426,595 25,948,455 16,478,141 6,637,799 5,496,680 1,141,119 17,619,260 61,527,399 (4,986,394) (5,849,625) 50,691,3 80 17,619,260 68,310,640 65,680,434 64,787,261 893,173 (7,683,572) 893,173 (6,790,399) 1 -95 Illilvilm', Is Corporation of the City of Kitchener Audit Findings Report to the Audit Committee For the year ended December 31, 2009 AUDIT AUDIT ■ TAX ■ ADVISORY Contents Topicsfor discussion ....................................................................................... ..............................1 Auditstatus ....................................................................................................... ............................... 3 Significantmatters ........................................................................................... ............................... 4 TangibleCapital Assets .................................................................................. ............................... 4 Financial Statement Presentation ................................................................... ............................... 5 FederalGas Tax Revenue .............................................................................. ............................... 6 AuditDifferences .............................................................................................. ............................... 7 Othermatters .................................................................................................... ............................... 8 Matters pertaining to the financial statement audit ......................................... ............................... 8 Other matters (continued) ............................................................................... .............................10 Designated public documents ...................................................................... ............................... 10 Appendices....................................................................................................... .............................11 Appendix 1 — Independence letter ................................................................ ............................... 11 Appendix 2 — Current Developments ............................................................ ............................... 14 Appendix 3 — KPMG's Audit Committee resources ...................................... ............................... 15 This Audit Findings Report (the "Report ") for the year ended December 31, 2009 provides an overview of the results of our audit. This Report is confidential and intended solely for the use of the audit subcommittee in carrying out and discharging its responsibilities, and should not be used for any other purposes. No responsibility for loss or damages, if any, to any third party is accepted as this Report has not been prepared for, and is not intended for, any other purposes. This Report is a by- product of the audit and is therefore a derivative communication and should not be distributed to others outside the City's Management and Council without our prior written consent. KPMG LLP, Chartered Accountants, Licensed Public Accountants 1 -97 Topics for discussion Auditors initiating discussion with the audit committee We have issued this Report to assist you in your review of the Entity's financial statements. The matters that we raise within this Report arise from the audit and are matters that we believe need to be brought to your attention. We propose to highlight the following topics at the upcoming audit committee meeting. We welcome your questions and look forward to discussing our findings with you at this meeting. To is Audit committee action Audit committee input Raise potential concerns, questions and requests Audit status Review and discuss Significant matters Review and discuss Misstatements Review and discuss Designated public documents Review and discuss 5. S Topics for discussion (continued) Audit Committee input/matters to be raised with the auditors This Report may not include all matters of interest to you. Please let us know of other areas you would like to discuss with us. Audit committee members should use this section to note any areas of potential concern that should be raised and discussed at the audit findings meeting. 2 1 -99 Audit status Audit Status: Substantially complete We have not yet completed our audit of the City's financial statements as the following procedures remain to be performed: Completing our discussions with the audit committee Obtaining the Committee's approval of the financial statements. Until we complete our remaining procedures and the Committee approves these financial statements, it is possible that additional procedures or adjustments to the financial statements may be necessary. We will only be in a position to release our audit report when our audit is complete. 3 1 -100 Significant matters Tangible Capital Assets The City has implemented PS 3150, Tangible Capital Assets along with the changes in financial reporting in the financial statements. As a result, tangible capital assets are reflected on the statement of financial position as assets. Expenses no longer include capital expenditures. ■ These changes have been applied retroactively and prior periods have been restated. The restatement resulted in an increase of the accumulated surplus of approximately $635M, representing the accounting net book value (historical cost) of the City's tangible capital assets at the beginning of 2008. The impact of these changes has been disclosed in the notes to the financial statements. The opening balances for many assets, most notably infrastructure assets, were determined using estimation techniques. Actions taken by Management • Management determined the accounting policies to be used for tangible capital asset accounting. • Management prepared an inventory of all assets and determined the appropriate basis for measuring cost for each class of assets • Management estimated the accounting value of those assets for which cost records did not exist. • Management has prepared the required disclosures for 2009 and has recorded the amount of tangible capital assets, amortization, contributed assets and loss on disposal of assets. Audit implications We have examined the accounting policies adopted by Management and determined that they are in accordance with PSAB standards. We have audited the tangible capital asset balances, amortization calculations, additions to tangible capital assets for the year ended December 31, 2009 and the comparative figures. The relevant note disclosures have been reviewed for compliance with the disclosure standards. 4 1 - 101 Significant matters (continued) Financial Statement Presentation With the implementation of PS 1200, Financial Statement Presentation, the financial statements now comprise: • Statement of financial position (with reserves and reserve funds being a component of accumulated surplus and the details of these accounts disclosed in note 12 to the financial statements) • Statement of operations — presents a consolidated view of the City, including all operating, capital, and reserve activities • Statement of cash flows o Statement of changes in net financial assets 5 1 -102 Significant matters (continued) Federal Gas Tax Revenue During the year, the City received approximately $6.2 million in funds from the Federal Gas Tax Revenue program as administered by the Association of Municipalities of Ontario ( "AMO "). Actions taken by Management At December 31, 2009, approximately $5.8M of the received amounts have been spent and included in revenue, the remaining portion is included in deferred revenue. Under the terms and conditions of the new Federal Gas Tax agreement with AMO the City must provide AMO with an auditors' reports as to its compliance with certain sections of the relative funding agreements for the funding received and related expenditures. Effects on the audit KPMG has examined the evidence supporting the City's compliance with the pertinent sections of their funding agreement for the year- ending December 31, 2009 and has issued an unqualified auditors' report to AMO. 6 1 -103 Audit Differences Misstatements Management is responsible for the financial statements and, accordingly, evaluates uncorrected misstatements to determine whether individually, and in the aggregate, these misstatements, in their judgement, are material to the financial statements. Audit Differences We have reviewed the summary of audit differences noted during our examination with management. It is management's representation that these differences are not material to the financial statements and we have concurred with this view. 7 1 -104 Other matters Matters pertaining to the financial statement audit Matters communicated Comments Significant unusual Other than as discussed previously in this document, we did not transactions identify, in the course of our financial statement audit, any significant unusual transactions. Accounting policies, Management describes their critical accounting policies and key judgments and estimates estimates that are subject to uncertainty in the notes to the financial statements. We identified, in the course of our financial statement audit, no material changes in selection or application of accounting policies. Related party transactions We did not identify, in the course of our financial statement audit, any related party transactions outside the normal course of business that involve significant judgments made by management concerning measurement and disclosure. Material weaknesses in We did not identify, in the course of our financial statement audit, any internal control over material weaknesses in the design, implementation or operating financial reporting effectiveness of internal control over financial reporting, including anti- fraud controls. Our audit has not been designed to determine the adequacy of internal control over financial reporting for management purposes. Illegal and fraudulent We did not identify, during our financial statement audit, any illegal activities acts or possibly illegal acts or any: • matters that pose questions regarding the honesty and integrity of management • fraud or suspected fraud involving management • fraud or suspected fraud involving employees who have significant roles in internal control over financial reporting • fraud or suspected fraud (whether caused by management or other employees) that results, or may result, in anon- trivial misstatement of the financial statements • matters that may cause future financial statements to be materially misstated Auditors' independence Our independence letter dated August 23, 2010, in the Appendix, indicates that we have not performed any professional services for the entity or identified any relationships that, in our professional judgment, may reasonably be thought to bear on our independence. We have, since the date of this letter, provided no additional 8 1 -105 professional services nor identified other relationships that, in our professional judgment, may reasonably be thought to bear on our independence. Accordingly, we confirm that, since the date of this letter, we remain independent. Dealings with We received the full cooperation of Management and employees of the Management City and, to our knowledge, had complete access to the accounting records and other documents that we needed in order to carry out our audit. We had no disagreements with Management, and we have resolved all auditing, accounting and presentation issues to our satisfaction. Consultation with other We are not aware of any consultations by Management with other Accountants accountants regarding accounting or auditing matters. Major issues discussed We did not engage in discussion with Management about any major with Management that issues in connection with our appointment as auditors. influence our audit appointment Audit Differences We report that no other misstatements were identified during the financial statement audit. 9 1 -106 Other matters (continued) Designated public documents As at the date of this Report, we have performed the procedures required by professional standards on the designated public documents and resolved all matters. Definition Designated public documents include: glossy annual report other public documents when auditors have been engaged to read or perform services with respect to that document (e.g., preliminary prospectus, press releases, etc.) Professional standards Professional standards require auditors to: determine whether the financial statements and the audit report have been accurately reproduced, including comparing the financial statements and the audit report ultimately posted on the Entity's Web site to the original • read the designated public document and assess whether any of the information appears to be inconsistent with the financial statements or the auditor's knowledge obtained in the course of the audit • be satisfied that translated financial statements and the audit report include the same information and, in all material respects, carry the same meaning as the original version • discuss with Management any information that appears to be inconsistent or a material misstatement of fact or a misrepresentation that auditors may become aware of upon reading the designated public document • report any unresolved matters to the audit committee. Professional standards do not require auditors to perform any other procedures. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 10 1 -107 Appendices Appendix 1 — Independence letter PRIVATE & CONFIDENTIAL Members of the Audit Committee Corporation of the City of Kitchener August 23, 2010 Dear Members of the Audit Committee: We have been engaged to express an opinion on the financial statements of the Corporation of the City of Kitchener (the "City ") as at and for the year ended December 31, 2009. Professional standards require that we communicate at least annually with you regarding all relationships between the City (and its related entities) and us that, in our professional judgment, may reasonably be thought to bear on our independence. A related entity is defined as: (a) in the case of a client that is a reporting issuer, an entity that has control over a client, or over which the client has control, or that is under common control with a client, including the client's parent company and any subsidiaries. (b) in the case of a client that is not a reporting issuer, an entity over which the client has control, or that has control over the client provided the client is material to such entity, and an entity that is under common control with the client provided such entity and the client are both material to the controlling entity. (c) an entity over which a client has significant influence, unless the entity is not material to the client. (d) an entity that has significant influence over a client, unless the client is not material to the entity. In determining which relationships to report, these standards require us to consider relevant rules and related interpretations prescribed by the Institute of Chartered Accountants of Ontario and applicable legislation, covering such matters as: a) provision of services in addition to the audit engagement b) other relationships such as: • holding a financial interest, either directly or indirectly, in a client • holding a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of a client e personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client 9 economic dependence on a client. 11 1 -108 PROVISION OF SERVICES We have been primarily involved in the audit of the financial statements of the Corporation of the City of Kitchener, the Kitchener Public Library Board, The Corporation of the City of Kitchener Trust Funds, The Centre in the Square Inc., Kitchener Downtown Business Association, and the Belmont Business Improvement Area. We have also provided audit services related to the Federal Gas Tax Funds the City of Kitchener Gasworks Enterprise. A summary of fees charged to the City of Kitchener and the related entities is as follows: Description of Service Fees Audits of: Corporation of the City of Kitchener • Base financial statement audit $ 8000 • Audit of opening tangible capital asset figures 1800 Kitchener Public Library 9,500 The Centre in the Square Inc. 14,400 Kitchener Downtown Business Association 3,100 Belmont Business Improvement Area 1,400 Audit - related: Federal Gas Tax Audit $2,950 Tax: Tax advisory $1,975 OTHER RELATIONSHIPS We are not aware of any relationships between the City (and its related entities) and us that, in our professional judgment, may reasonably be thought to bear on our independence that has occurred from January 1, 2009 to August 23, 2010. CONFIRMATION OF INDEPENDENCE Professional standards require that we confirm our independence to you in the context of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario. Accordingly, we hereby confirm that, we are independent with respect to the City (and its related entities) within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario as of August 23, 2010. OTHER MATTERS This letter is confidential and intended solely for use by those with oversight responsibility for the financial reporting process in carrying out and discharging its responsibilities and should not be used for any other purposes. No responsibility for loss or damages, if any, to any third party is accepted as this letter has not been prepared for, and is not intended for, any other purpose. This letter should not be distributed to others outside the entity without our prior written consent. 12 1 -109 We look forward to discussing with you the matters addressed in this letter as well as other matters that may be of interest to you. We will be prepared to answer any questions you may have regarding our independence as well as other matters. Yours very truly, 141� A146� '/4 P Chartered Accountants, Licensed Public Accountants 13 1 - 110 Appendix 2 — Current Developments Tax Revenue • PS 3510 —Tax Revenue was approved by PSAB in November 2009. • This standard sets out revenue recognition principles for tax revenue. • Provides principles for recognition of taxes collected on behalf of others. • This is standard effective for fiscal years beginning on or after April 1, 2012. Liability for Remediation and Mitigation of Contaminated Sites ■ PS 3260 — Liability for Contaminated Sites was approved by PSAB in March 2010. A liability for remediation of contaminated sites should be recognized when an environmental standard exists, the contamination exceeds the environmental standard, the government is directly responsible or accepts responsibility, it is expected future economic benefits will be given up and a reasonable estimate of the amount can be made. This standard is effective for fiscal years beginning on or after April 1, 2012. Government Transfers PSAB approved a 3rd Re- Exposure Draft for Government Transfers Sets outs recognition principles for government transfers for transferring and recipient governments. Transferring governments recognize an expense when the transfer has been authorized and all eligibility criteria have been met by the recipient. Recipient governments recognize revenue when the transfer is authorized and all eligibility criteria have been met, except when a transfer gives rise to a liability. This standard is not yet effective. Financial Instruments Re- Exposure Draft Sets out principles to be used in establishing an accounting standard with respect to financial instruments and derivative instruments. • Fair value measurement proposed for derivatives and portfolio investments that are equity instruments quoted in an active market. Fair value can be applied to non - equity instruments through an accounting policy choice. • PSAB is developing a re- exposure draft expected to be issued in September 2010 with an approved standard in March 2011. • This proposed standard is not yet effective. 14 1 - 111 Appendix 3 — KPMG's Audit Committee resources 15 1 - 112