HomeMy WebLinkAboutFCS-12-117 - 2011 Financial Statements to the Audit Committee & PresentationStaff Report
KITCHENER finance and Corporate Services Department www.kitchenerca
REPORT TO: Audit Committee
DATE OF MEETING: June 25, 2012
SUBMITTED BY: Dan Chapman, Deputy CAO, Finance and Corporate
Services and City Treasurer ext 2347
PREPARED BY: Sheri Brisbane, Supervisor of Financial Reporting, ext 2349
WARD(S) INVOLVED: All
DATE OF REPORT:
REPORT NO.:
SUBJECT:
RECOMMENDATION:
June 12, 2012
FCS -12 -117
2011 Audited Financial Statements
THAT the 2011 audited financial statements of the City of Kitchener be approved.
BACKGROUND:
Staff is pleased to submit the 2011 audited financial statements of the City of Kitchener. A
presentation of financial statement highlights will be given at the Audit Committee meeting on
June 25. Representatives of the City's external auditors will also be in attendance to discuss
the audit findings report.
REPORT:
These financial statements combine the results of the tax based operations, enterprises, local
boards, capital activity, and reserves and reserve funds activities. Local boards include The
Center in the Square Inc., Kitchener Public Library, Belmont Improvement Area, and Kitchener
Downtown Business Association. The 2011 year end results for the tax based operations and
the enterprises were reported to Council in March. There have been no changes to those
results.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This reporting falls within the Efficient and Effective Government plan foundation area of the
Strategic Plan.
It helps support the financial goal of ensuring openness and transparency of city finances.
FINANCIAL IMPLICATIONS:
None
2-1
COMMUNITY ENGAGEMENT:
The audited financial statements will be posted on the City website and notice will be provided
to all residents through the Kitchener Post in accordance with Section 295 (1) of the Municipal
Act, 2001.
ATTACHMENTS:
• 2011 audited financial statements
• Audit Committee Presentation
• Audit Findings Report to Audit Committee (KPMG)
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO of Finance and Corporate Services and
City Treasurer
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J
KiTcHENER
FINANCIAL
REPORT
Year Ended December 31, 2011
Prepared by: Accounting Division
Finance and Corporate
Services Department
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:46 PM Page 2
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:46 PM Page 3
Table of Contents
INTRODUCTORY SECTION
Welcome to Kitchener .............................................. ..............................1
Kitchener City Council ............................................. ..............................3
Where we are .......................................................... ..............................4
Messagefrom the Mayor .......................................... ..............................5
Organizational Structure .......................................... ..............................6
2011 in Review ....................................................... ..............................7
CityTreasurer's Message .......................................... ..............................9
FINANCIAL SECTION
Consolidated Financial Statements .......................... .............................17
Trust Funds ............................................................ .............................38
Belmont Improvement Area Board of Management .... .............................44
Kitchener Downtown Improvement Area Board of Management ...............50
Kitchener Public Library ......................................... .............................58
TheCentre in the Square Inc ................................... .............................68
Gasworks Enterprise .............................................. .............................81
KitchenerPower Corp .............................................. .............................84
STATISTICAL SECTION
Financial and Statistical Review .............................. ............................109
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:46 PM Page 4
itchener has been a thriving, progressive city for nearly a century, built upon proud tradition and
strategic leadership that continues to secure its position as one of the most vibrant, prosperous
and livable communities in Canada.
Renowned for an atmosphere that fosters business growth and a desired quality of
Life, throughout the decades Kitchener has always invested soundly — both financially
and socially - in programs and initiatives that contribute to an active and engaging
community for residents, neighbours and visitors.
Widely regarded as the hub of Waterloo Region, Kitchener contributes a positive
attitude and fiscal maturity that continues to set standards for steady, measured and
healthy economic progress.
As the region continues to evolve past traditional commerce and build a new economy that is exciting,
sustainable and growing - Kitchener is enjoying much of that growth while playing a key role as a partner
in the future of this sector. This is leading to the creation of new jobs and opportunities for both seasoned
workers, and those just entering the workforce.
Strategic and forward thinking, resilient and daring -- Kitchener is a community that embraces innovation
and technology and believes in long -term investing.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:46 PM Page 5
In 2004, the City launched its economic development investment fund: a 10 -year, $110 million
commitment and a pledge to significantly develop local employment lands and work hand -in -hand with
local businesses to help thern grow and flourish.
The return on that investment includes increased employment, increased tax revenue,
and increased public and private- sector investments. In fact, approximately $660
million worth of commercial, residential and institutional construction has occurred
in downtown Kitchener alone since this fund was announced.
The City is now renowned as a hotbed of innovation - and home to among the most
successful business start -ups and incubators in the country.
On top of its robust economy is its enviable quality of life.
There's something for every interest, every skill and every age in Kitchener: a vital, sophisticated culture,
rich in diversity, a robust arts and culture scene, with festivals and special events year- round, and
gorgeous parks, trails and natural areas.
Kitchener offers all of the big -city amenities residents and visitors desire, without losing that friendly,
small -town feel. Come - see for yourself!
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:46 PM Page 6
Kitchener City Council
itcliener city council is an elected body, made up of one mayor and 10 city councillors. All council
members are elected for a four -year term. The mayor is elected by voters from all parts of the city;
and councillors are elected by voters within specific wards.
Members of city council meet at regularly scheduled council and committee meetings
throughout the year to discuss issues facing the city and its residents - as well as day -
to -day operational business, and to make decisions on those items based on information
presented by city staff as well as their own knowledge and beliefs, and the opinions
expressed by constituents.
Public hearings, special council meetings, business license hearings and courts of
revision are also held as needed to consider specific matters.
As a collective group, representing the interests of citizens, council is responsible for:
• Representing the public and considering the well -being and interests of the municipality.
• Developing and evaluating the policies and programs of the municipality.
• Determining which services the municipality provides.
• Ensuring administrative policies, practices and procedures and controllership policies, practices
and procedures are in place to implement the decisions of council.
• Ensuring the accountability and transparency of the operations of the municipality, including the
activities of the senior management of the municipality.
• Maintaining the financial integrity of the municipality.
a
Mayor Councillor Councillor Councillor Councillor
Carl Zehr Scott Davey Berry Vrbanovic John Gazzola Yvonne Fernandes
Ward 1 Ward 2 Ward 3 Ward 4
Councillor Councillor
Paul Singh Bit Ioannidis
Ward 6 Ward 7
Councillor
Kelly Galloway
Ward 5
Councillor Councillor Councillor
Zyg Janecki Frank Etherington Dan Glenn- Graharr
Ward 8 Ward 9 Ward 10
CC)
Financial Report-BrendaJunel 8 Layout 1 12-06-20 4:46 PM Page 7
17�
M A a I A A
— of I
I TLOntario, close to major highways - including Canada's
super highway, 401 - that easily connect to London,
Stratford and the Greater Toronto Area.
Situated on the Grand River, Kitchener is the perfect
destination for recreation and Leisure activities,
with a plethora of choices, including many parks,
trails and natural areas.
Downtown Kitchener is the heart of the arts
and culture scene for Waterloo Region.
Weilingwin , 1*1 Orangeville King City —
North Call 0101tiOn Mark
Arthur 19 Vaughan (n , Mill
Erin Ndl—d.le
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Halton Hills Toronlo
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oc arri Burlington
iaFt\oGe
Festivals and special events provide
V, U,-
the opportunity to experience
a variety of activities and cuLturat
events, in celebration of
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Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:46 PM Page 8
Message from the Mayor
t gives me pleasure to unveil the City of Kitchener s 2011 annual financial report - a document that
paints a clear picture of the fiscal state of our community.
So, how is Kitchener doing? Financially, we're in good shape. The City enjoys a strong financial position
relative to our comparators; we have excellent investments. We're fiscally accountable and we have
established a solid track record of sound financial planning.
However, like municipalities across this country, we have been facing a new economic
reality. All municipalities are facing serious pressures as Canada's 19th century taxation
system continues to take too much out of our communities — while returning too little.
In fact, municipalities are responsible for 53 per cent of Canada's infrastructure — up
from 36 per cent in the 1960s — yet municipalities receive only eight cents of every tax
dollar paid to all orders of government.
Today, cities are more important than ever before. With over 80 per cent of Canadians living in an urban
setting, Canada is one of the most highly urbanized countries in the world. Expecting municipalities to
continue to rely on the outdated, regressive property tax system is simply not sustainable.
But we must also recognize just how fortunate we are with this region's current economic climate - and a
Lot of that fortune is a result of our constant quest to strike a balance between three important pressures:
• Keeping the property tax levels competitive and affordable. Year after year Kitchener is consistently
ranked as having one of the lowest property taxes of similar -sized Ontario municipalities.
• Providing high quality services our residents and businesses have told us they want from their city.
• Making investments in the long -term health of our community.
This City's long -term investments into diversifying and modernizing our local economy are already paying
off much faster than anticipated. These returns have come in the form of increased tax revenues, private
sector investments and employment opportunities for residents.
..............
.................................
...........................
.................................
Carl Zehr
Mayor, City of Kitchener
June 25, 2012
Iroanizational Structure
City Council
Office of the Chief Administrative Officer
Carla Ladd: Chief Administrative Officer
Communications and Customer Service
- -__. .... .............. .............:_ _ . - -__ ......._... .__...... _.._.. ._..__ _.... _.._ . .._ ... ..... _.
Economic Development
.... .... _.. ......... ........ ...... ......... ......... ......... ......... ..... .... ............ ..... ... ..... .........
Office of the Mayor and Council
........ .. ....
Strategic Planing
Community Services
Jeff Willmer: Deputy CAO
Infrastructure Services
Pauline Houston: Deputy CAO
Finance & Corporate Services
Dan Chapman: Deputy CAO
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 10
2011 in Review
HIGHLIGHTS AND MILESTONES
nder the national infrastructure stimulus funding program, a three -way funding partnership with
the federal and provincial governments which began in 2010, the City of Kitchener was able to
complete some very significant capital projects. The three levels of government contributed
$37.6 million to the following 16 local projects:
• Consolidated maintenance facility now
formally known as Kitchener Operations
Facility
• Solar roof
• McLennan Park
• Sewer and watermain improvements
• Storm water infrastructure improvements
• Bridgeport community centre renovation
• Upgrades to Harry Class Aquatic Facility
• Energy management systems upgrade
• King Street streetscape reconstruction
• Centre in the Square building improvements
• Accessibility improvements at multiple
city facilities
• City hall lighting improvements
• Sportsworld Arena improvements
• Upgrades to Wilson /Kingsdale
Aquatic Facility
• Upgrades to Chicopee Aquatic Facility
• Upgrades to Breithaupt Aquatic Facility
Highlights of some of the largest
stimulus projects are as follows:
The Kitchener Operations Facility
(KOF) became operational in early
2011. The project entailed
rehabilitating a 45 -acre industrial
brownfield site and renovating the
existing 300,000 square -foot
industrial building. The KOF has
integrated municipal operations
from five existing locations and
houses approximately 500 City
employees, as well as their work -
related vehicles and equipment.
In 2011, the City installed a 500 -kW
photovoltaic solar roof, made of
200 -watt solar panels, on top of the Kitchener Operations Facility - the largest solar rooftop installation
in Canada. The solar roof is expected to generate more than $364,000 in net revenue for the City each
year - and more than $3.5 million over the course of two decades with the Ontario Power Authority.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 11
McLennan Park officially opened in 2011. This is located on a former landfill site at the corner of
Ottawa Street South and Strasburg Road. McLennan Park offers a variety of recreational activities;
and supports the city's commitment toward preserving and enhancing the local environment. Within
the park there is a community -trail system, playground, splash pad, multi -use court and washroom
building, in addition to a state -of- the -art skateboard park.
Although not part of the
infrastructure stimulus funding,
another significant capital project
that got underway in 2011 was
the restoration work to improve
Victoria Park Lake. Nestled at the
heart of downtown Kitchener's
crown jewel, Victoria Park,
Victoria Park Lake was created
as part of the original park
development more than 100 years
ago; and it serves as an important
recreational and visual resource
for park visitors. Improvements
to the lake will include deepening
the lake, adding a sediment
forebay at the upstream end,
maintaining the aesthetics and heritage values associated with the lake, and improving debris
management, operations and maintenance. This work will build on the Environmental Assessment
that the City undertook in 2008 and completed in 2009.
In 2011, Kitchener implemented a storm water management utility using an impervious area
calculation to set the rate structure. This structure provides full, sustainable and dedicated funding
for its critical storm water management - a service that had previously been consistently underfunded
through the tax base. The new user rate allows the city to improve its storm water service levels by
keeping pollutants out of the storm water system - leading to better protection of the source water;
preventing local flooding and pollution from reaching the creeks and streams - preserving their health
and vitality; and replacing aging storm water infrastructure (pipes, catch basins), some of which are
80 to 100 years old.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 12
City Treasurer's Message
am pleased to present the Annual Financial Report fur the City of Kitchener for the year ended
December 31, 2011. The purpose of this report is to communicate to Council, residents and other
interested parties the 2011 financial operations for the City of Kitchener. The financial results
demonstrate Kitchenet's continued excellence in sound financial management and fiscal prudence.
FINANCIAL MANAGEMENT
The City maintains the following processes to ensure appropriate financial controls and accountability
are maintained and to take a proactive approach to identify and address financial challenges.
The preparation and presentation of the financial statements and related information contained in this
annual report are the responsibility of the management team of the City of Kitchener. Management has
instituted a system of internal controls which is intended to safeguard assets and to provide accurate,
timely and complete financial information for both internal decision making and external reporting.
Effective and Efficient Government
The key strategic priorities related to effective and efficient government focus on five specific areas:
financial management; asset management; information technology; communications, marketing and
customer service; and organizational governance.
The City of Kitchener is constantly looking at ways to improve its financial sustainability through a
balanced approach to financial management. The City looks at how to use public monies in the most
responsible manner while ensuring fair levels of taxation - in order to create a sustainable financial
position today, tomorrow and for generations to come.
In order to preserve its infrastructure, the City has dedicated itself to effectively managing its assets.
Understanding the health and status of capital assets, like roads, bridges and facilities, positions the
City well to ensure the community can prosper as it did in past generations, by building upon a strong
foundation of core infrastructure.
As the world of technology moves forward at a rapid pace, the City's Information Technology group supports
the technological infrastructure for many of the City's financial and operational services. With increasing
demands for real -time information, the City is looking to bolster the use of mobile technology to help
staff report on activities remotely from the field.
The City believes in transparency as a core element to delivering high - quality customer service. This is
exemplified by the fact that the City provides accessible, plain language access through a variety of formats
to citizens on pressing and emerging issues affecting the City. It is through being open and accessible that
the City believes it can improve its engagement with the community on a broader suite of issues.
Finally, the City works to deliver on the programs and services that matter most to the citizens of Kitchener.
This is demonstrated by the fact that all City work undertaken is aligned directly with a strategic priority
pulled from the community's strategic plan. Yet, it is not just important to simply deliver what matters
most to citizens, but also to support that delivery through a robust governance and management approach,
including a close eye on risk management and legislative compliance.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 13
Business Plan and Budgetary Process
Integrated planning, the direct tie between the City's strategic plan and its day -to -day work helps make sense
of what is being done and why, and allows for a more effective and efficient delivery of valued services to
citizens. Together, staff and Council will continue to build an innovative, caring and vibrant Kitchener with
safe and thriving neighbourhoods. The vision originally articulated in 2000 and confirmed again in 2007 is
the foothold of the City's strategic work for 2011. The strategic plan was developed in concert with City
Council's term of office, now on a four -year cycle from 2011 -2014.
Departmental business plans which are completed on a four year cycle, take their direction from the strategic
plan. This formalizes the link between the strategic priorities of the community and Council with action items
expressed through the organization's workplans.
Staff are building a business planning process which will lead to more informed decision -
making and transparency within the administration and for Council. The final steps in
the integrated process translates strategic priorities into action, establishing budgets
and measurable outcomes, and then reporting back to the public on progress against
these goals.
In addition to the multi -year business planning process, City Council approves the
operating and capital budgets for the property tax supported operations as well as all
City enterprises. Provincial legislation requires that the property tax supported
operating budget is balanced so that sufficient revenues are raised to meet all budgeted
expenditures. Municipalities may not budget for surpluses or deficits and any that occur
must be fully accounted for in the next year's budget.
Variance reports are prepared and presented to Council three times per year. These reports ensure
departmental accountability for financial results and are a key tool to allow management to respond
to financial pressures during the year.
External Audit
As required by the Municipal Act, City Council has appointed an accounting firm, KPMG LLP to express an
independent audit opinion on management's Consolidated Financial Statements. Their reports to the
members of Council, inhabitants and ratepayers of the Corporation of the City of Kitchener accompany
the various financial statements in the financial section of this report.
Audit Committee
The audited Consolidated Financial Statements are presented to the Audit Committee for approval.
The Audit Committee provides a focal point for communications between Council, the external auditor,
the internal auditor and management, and facilitates an impartial, objective and independent review
of management practices through the internal and external audit functions.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 14
FINANCIAL STATEMENT DISCUSSION AND ANALYSIS
The City of Kitchene>'s Consolidated Financial Statements have been prepared in accordance with reporting
standards set by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered
Accountants. KPMG LLP have audited the financial statements and provided the accompanying Auditors'
Report. The financial statements and auditors' report satisfy a legislative reporting requirement as set out
in the Municipal Act of Ontario.
The following financial statement discussion and analysis has been prepared by management and should be
read in conjunction with the audited Consolidated Financial Statements and Financial and Statistical
Review.
There are four required financial statements:
- statement of financial position
- statement of operations
- statement of changes in net financial assets, and
- statement of cash flows.
The Consolidated Financial Statements reflect the assets, liabilities, reserves, surpluses /deficits, revenues,
and expenditures of the City funds and governmental functions or entities. These functions and entities
have been determined to comprise a part of the aggregate City operations based upon control exercised
by the City. The exception is the City's government business enterprises which are accounted for on the
modified equity basis of accounting. References to the "City' below, include all activity for the
consolidated entity.
Consolidated Statement of Financial Position (Balance Sheet)
The Consolidated Statement of Financial Position highlights four key figures that together describe the
financial position of a government: 1) cash resources, 2) net financial asset position, 3) non - financial
assets that are normally held for service provision such as tangible capital assets, and 4) accumulated
surplus /deficit. The statement is used to evaluate the City's ability to meet its financial obligations
and commitments.
The City's net financial Net Financial Assets
asset balance is $160 million $190,000.O0o
(2010 $148 million), an $170000000
increase of $12 million. $160,000,000
This balance is calculated $150,000.000
as total financial assets $14O,000,O0O
Less liabilities and represents 5130,000,000
the amount available to 5120,000,00{5
finance future operations. $110.000.000
5100. o00,OO o 21A 7 2009 2009 201 0 ;011
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 15
Cash Position
The City's cash position is closely managed and remains adequate along with short -term investments to
meet ongoing cash requirements. The cash position increased to $62 million from $25 million in 2010 as
the City was holding more in cash equivalents rather than investments in anticipation of being able to
purchase upcoming investments with higher yields. The increase is also due to timing of funding received
for capital projects compared to when the expenditures are made. The Consolidated Statement of Cash
Flows summarizes the sources and uses of cash in 2011.
Investment in Kitchener Power Corp.
The City's investment in Kitchener Power Corp. and its affiliates is made up of the City's initial investment
and its share of net income since acquisition. See Note 5 to the Consolidated Financial Statements for
further details.
Debt
The City has three components that comprise the overall debt total. Debt can be issued to fund:
• a portion of the tax - supported capital program
• capital improvements to Enterprises, where the debts charges will be funded through
user fees and external sources, such as the Parking Enterprise
• Economic Development Investment Fund (EDIF)
The City's capital investment philosophy ensures that any increases in debt charges from one year to the
next do not exceed assessment growth. As well, the overall contribution from the tax base through taxes
and debt charges will not increase more than assessment growth plus inflation from one year to the next.
This philosophy has ensured that the impact on the taxpayer does not exceed inflation and that the City
must prioritize projects to fit the funding available.
In 2004 after an extensive public and corporate engagement process, the City of Kitchener created a
unique and creative economic development strategy to meet the needs of the City's rapidly growing
population; and a significant piece of the strategy is the City's 10 year, $110- million economic
development investment fund (EDIF).
As a result of these EDIF investments, a number of other developments have occurred, including:
• Communitech Hub: Digital Media Mobile and Accelerator
• Kaufman Lofts
• McMaster University's Michael G. DeGroote School of Medicine Waterloo Regional Campus
• More than 20 storefront /facade
improvements
• The Tannery District
In addition, since EDIF was introduced, the
City has enjoyed significant surges in:
• Assessment growth
• Residential development downtown
• Employment
• Contributions from other sources toward
EDIF - supported projects
Debt
5120,000,000
5100,000,000
$80,000,000
$811,000,000
$99.000.000
$20.000.000
$_
2007 2008 2009 2010 2011
Tax ■ EnIe peise EDIF
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 16
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 ranging
from 1 to 100 years.
During 2011, the City spent
$94 million on tangible
capital assets (2010 $120
million) with $30 million in
amortization. Refer to Note
11 and Schedule A in the
financial statements for a
detailed breakdown of
tangible capital asset
activity for 2011. The net
book value of tangible
't I t +n b
cape a arse s a ecem er
31, 2011 is $870 million,
up from $807 million in 2010.
Accumulated Surplus
The City's accumulated
surplus for fiscal 2011 is
$1.03 billion (2010 $0.96
billion). The accumulated
surplus reflects the resources
that have been built over
time at the City and the
balance includes items such
as tangible capital assets,
equity in Kitchener Power
Corp., and reserves.
■ 2411
2410
¢3i3 ryG
aIl
Accumulated Surplus
5i.2�0,40.0,000
St.00p,Q00,O0�J
5800,000,000 Reserves
Ern*yee future benefits
5600,000,000
Equity in Kitchaner Power Corp. arxi ils
affiliates
5400,000,000 ■other
5200,000,000 ■ Ir vested in Iangihfe capital assets
2,311 2010
S 1200,000,0005
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 17
Reserves and Reserve Funds
Reserves and reserve funds are included as
part of accumulated surplus and these balances
are disclosed in Note 12 to the financial
statements. Reserve Balances have increased
during 2011 to $30 million ($21.5 million
2010).
Under the authority of the Municipal Act,
the City of Kitchener has established reserve
funds to set aside funds to be used for future
purposes. Reserves and reserve funds are
Reserves
545,000.000
540,000,000 - -
535,900.090
530,000.000 -
525,000.[00 .
520,000.00 0
515,000,000
510,000,000 -
$5,900.000
5_
2497 2008 2009 2010 2011
established to ensure future liabilities can be met, capital assets are properly maintained and
sufficient financial flexibility exists to respond to economic cycles or unanticipated financial
requirements. Council is responsible for exercising discretion with respect to the use of reserve funds,
subject to the terms of Council policy, as well as statutory and legal requirements.
As part of the ongoing update to the City's long -term financial planning framework, a comprehensive
review of the City's reserve funds is being completed in 2012 to ensure the reserves continue to
support the financial goals and serve the highest priority needs of the City and its citizens.
Consolidated Statement of Operations
The Consolidated Statement of Operations reports the revenues collected by the City, the cost of
providing municipal services and the resulting annual surplus /deficit in the accounting period.
The City ended the year with property tax supported operations recording a $0.238 million deficit
which equates to approximately 0.2% of the total budget. There were nearly $1.4 million of capital
closeouts available to be transferred into the operating budget, so a net surplus of $1.15 million
was transferred to the Tax Stabilization Reserve Fund in accordance with City policy.
This year, overall assessment growth was 2.08 %, generated primarily from new residential
development. While this new assessment creates revenue for the City, there is also a cost to provide
services to new development. In addition, cost increases in excess of inflation, public demand for
new services and unreliable revenue sources all place significant pressure on the City budget. These
pressures, coupled with the transfer of the storm water operating costs to the newly created Storm
Water Enterprise, resulted in an overall tax decrease of 2.79% for the year, which included an increase
in funding for the City's Economic Development Investment Fund (EDIF). This marks the eighth year
of the ten -year EDIF fund.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 18
Revenues
Revenues are received from
the following sources:
taxation, users fees, grants
and other. Kitchener is one
of only two municipally
owned and operated natural
gas distributors in Ontario.
The 'Other' category includes
revenues such as
contribution of tangible
$120.000,000
$100.000,000
$8u.4u4,u06
$04.400,090
$40.000MD
$20,400,000
$- Is
Revenues
capital assets, investment income, penalties and interest on taxes, obligatory reserve funds revenue
recognized, and share of net income of Kitchener Power Corp.
New in 2011, the storm water fees have been included in the water, sewer ad storm water grouping.
Gasworks revenues are down from 2010 and from budget due to lower customer consumption related to a
warm winter at the end of 2011. The City does not budget for the contribution of tangible capital assets
or share of net income of Kitchener Power Corp. Other revenue is down from the prior year as a result of
not being able to recognize all development charge revenue given the reserves are currently in a deficit
balance.
Expenses
The City of Kitchener is a
diversified government
institution and provides a
wide range of services to its
citizens including fire, roads,
water, sewer, gasworks,
Libraries, and community
services. Schedule B of
the Consolidated Financial
Statements breaks the
expenses into major
$80.40D,000
$70.40D.004
$00,000.000
$50.400.000
$40.444,044
$ao-.44o-,44D
$2o-,444,44D
$t0,44o-,444
5-
Gmer51 poeemmerYL Prdecien b 4r8nsporl
Wr— 59MKS9
aNd ArgWt V
02011 swat
Expenses
functional activities,
consistent with provincially legislated requirements.
elibn E- ifonme I R—Imn Id Mbar
5 6BfY1�6 4YIII.lF9
earvlce�
2411 Acival ■26i0AUVal
G:es.vaks
As is consistent with the majority of municipalities, the City does not budget for amortization of tangible
capital assets or gains and losses on disposal of assets. These tangible capital asset expenses alone
account for the majority of the variance in budget to actual figures as presented above. Gasworks
expenses are down from prior year due to the lower consumption.
Financial Report- BrendaJunel8_Layout 1 12 -06 -20 4:47 PM Page 19
Consolidated Statement of Change in Net Financial Assets
The statement of change in net financial assets explains the difference between a municipality's surplus
or deficit for the reporting year and its change in net financial assets in the same reporting year.
This statement provides for the reporting of the acquisition of tangible capital assets and other
significant items that impact the difference between the annual surplus /deficit and the change
in net financial assets.
Consolidated Statement of Cash Flow
The statement of cash flows reports changes in cash and cash equivalents resulting from operations,
investing and financing activities and shows how the City financed its activities during the year and
met its cash requirements.
Looking Ahead
Looking ahead to 2012, the City will face continued pressure from the public to increase levels of service
while at the same time curb tax rate increases. The City has begun work on an integrated business
planning process to respond to these pressures. This work aligns the City's Strategic Plan with
departmental business plans. This, along with the development of long -term financial planning,
and a renewed strategy for debt and reserve management will help the City achieve an optimal
balance of taxes levied and services provided.
The City of Kitchener is constantly looking at ways to improve its financial sustainability through a
balanced approach to financial management in order to create a sustainable financial position today,
tomorrow and for generations to come.
Dan Chapman, CA, MPA
Deputy CAO Finance and Corporate Services
and City Treasurer
June 25, 2012
INDEPENDENT AUDITORS' REPORT
To the Members of Council, Inhabitants and Ratepayers of The Corporation of
the City of Kitchener:
We have audited the accompanying financial statements of The Corporation of
the City of Kitchener ( "the Entity "), which comprise the financial position as at
December 31, 2011 and the statement of operations, changes in net assets, and
cash flow for the year then ended, and a summary of significant accounting
policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these
financial statements in accordance with Canadian generally accepted accounting
principles, and for such internal control as management determines is necessary
to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with Canadian generally
accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the
Entity's preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
17
2-40
Opinion
In our opinion, the financial statements present fairly, in all material respects, the
financial position of The Corporation of the City of Kitchener as at December 31,
2011, and the results of its operations and its cash flows for the year then ended
in accordance with Canadian generally accepted accounting principles.
9]:y_1M1
Chartered Accountants, Licensed Public Accountants
June 25, 2012
Waterloo, Canada
ix
2-41
CITY OF KITCHENER
Consolidated Statement of
Financial Position
As at December 31, 2011
2011 2010
(Restated
Note 15)
Financial assets
Cash and cash equivalents
$ 62,394,615
$ 24,798,295
Taxes receivable
22,275,777
20,977,878
Trade and other accounts receivable
39,840,980
52,833,252
Inventory for resale
13,871,309
15,048,219
Investments (Note 4)
56,379,944
60,530,305
Investment in Kitchener Power Corp. and
208,432, 755
194, 510, 244
its affiliates (Note 5)
173,948,297
168,641,520
Non - financial assets
368,710,922
342,829,469
Liabilities
Accounts payable and accrued liabilities
74,263,690
80,973,606
Deferred revenue - obligatory reserve funds (Note 7)
1,665,764
332,789
Deferred revenue - other
8,672,152
8,389,582
Municipal debt (Note 8)
98,187,960
81,327,413
Employee future benefits (Note 10)
25,643,189
23,486,854
208,432, 755
194, 510, 244
Net financial assets
160,278,167
148,319,225
Non - financial assets
Tangible capital assets - net (Note 11)
869,949,742
807,562,321
Inventory of supplies
2,049,446
1,691,095
Prepaid expenses
1,111,167
910,332
873,110,355
810,163,748
Accumulated surplus
$1,033,388,522
$ 958,482,973
See accompanying notes
19
2-42
CITY OF KITCHENER
Consolidated Statement of
Operations
Year Ended December 31, 2011
2011 2011 2010
Budget (Restated
(unaudited) Note 15)
Revenues
Taxation
User fees and charges
$ 98,986,506 $ 99,419,306 $ 101,265,560
Gasworks
91,301,382
94,871,570
100,782,038
Water, sewer and stormwater
45,889,666
45,687,174
34,820,660
Other
37,359,162
42,703,477
40,271,420
Grants
20,841,316
21,766,293
23,255,638
Contributions of tangible capital assets
-
8,672,341
8,504,526
Investment income
6,465,000
7,281,219
6,602,500
Penalty and interest on taxes
3,216,100
3,155,724
3,226,490
Obligatory reserve funds revenue
recognized
16,455,000
9,928,202
17,839,885
Share of net income of Kitchener
Power Corp. and its affiliates (Note 5)
-
8,351,027
7,522,009
Other
5,211,735
6,838,439
8,883,263
Total revenues
325,725,867
348,674,772
352,973,989
Expenses
General government
33,564,592
34,509,466
27,563,305
Protection to persons and property
37,342,933
38,691,182
40,695,461
Transportation services
15,356,673
31,101,409
30,117,870
Environmental services
15,017,979
20,999,387
22,529,620
Health services
1,306,965
1,866,803
1,774,559
Social and family services
1,788,913
1,858,795
1,829,536
Recreation and cultural services
53,942,238
60,168,971
57,206,122
Planning and development
11,542,634
11,064,848
11,829,620
Gasworks
76,996,106
73,508,362
79,392,595
Total expenses
246,859,033
273,769,223
272,938,688
Annual surplus
78,866,834
74,905,549
80,035,301
Accumulated surplus, beginning of year 958,482,973 958,482,973 878,447,672
Accumulated surplus, end of year
(Note 12) $1,037,349,807 $1,033,388,522 $ 958,482,973
See accompanying notes
20
2-43
CITY OF KITCHENER
Consolidated Statement of
Change in Net Financial Assets
Year Ended December 31, 2011
Annual surplus
2011 2011 2010
Budget (Restated Note
(unaudited) 15)
$ 78,866,834 $ 74,905,549 $ 80,035,301
Amortization of tangible capital assets
-
29,898,245
28,435,130
Acquisition of tangible capital assets
(108,712,224)
(93,591,507)
(119,632,298)
Loss on disposal of tangible capital assets
-
990,947
3,849,706
Proceeds on disposal of tangible capital
assets
-
314,894
355,418
Acquisition of supplies of inventories
-
(5,590,870)
(3,832,059)
Acquisition of prepaid expenses
-
(1,004,169)
(265,043)
Consumption of supplies inventory
-
5,232,519
3,788,925
Use of prepaid expenses
-
803,334
93,334
Change in net financial assets
(29,845,390)
11,958,942
(7,171,586)
Net financial assets, beginning of the year
148,319,225
148,319,225
155,490,811
Net financial assets, end of the year
$ 118,473,835
$ 160,278,167
$ 148,319,225
See accompanying notes
21
2-44
CITY OF KITCHENER
Consolidated Statement of
Cash Flow
Year Ended December 31, 2011
Cash and cash equivalents, end of year $ 62,394,615 $ 24,798,295
See accompanying notes
22
2-45
2011
2010
(Restated
Note 15)
Operating
Annual surplus
$ 74,905,549
$ 80,035,301
Items not involving cash
Amortization
29,898,245
28,435,130
Loss on sale of tangible capital assets
990,947
3,849,706
Share of net income of Kitchener Power
Corp. and its affiliates
(8,351,027)
(7,522,009)
Change in employee future benefits
2,156,335
699,955
Contributions of tangible capital assets
(8,672,341)
(8,504,526)
Change in non -cash assets and liabilities
Taxes receivable
(1,297,899)
(692,158)
Trade and other accounts receivable
12,992,272
(4,833,759)
Inventory of supplies
(358,351)
(43,134)
Inventory for resale
1,176,910
2,199,270
Prepaid expenses
(200,835)
(171,709)
Deferred revenue - obligatory reserve funds
1,332,975
(5,498,636)
Deferred revenue - other
282,570
1,054,180
Accounts payable and accrued liabilities
(6,709,916)
18,710,616
Net change in cash from operating activities
98,145,434
107,718,227
Investing
Acquisition of tangible capital assets
(84,919,166)
(111,127,772)
Proceeds on disposal of tangible capital assets
314,894
355,418
Dividends received from Kitchener Power Corp.
3,044,250
1,752,750
Net acquisition of investments
4,150,361
8,435,289
Net change in cash from investing activities
(77,409,661)
(100,584,315)
Financing
Municipal debt issued
24,117,000
16,129,000
Municipal debt repaid
(7,256,453)
(7,002,026)
Net change in cash from financing activities
16,860,547
9,126,974
Net change in cash and cash equivalents
37,596,320
16,260,886
Cash and cash equivalents,
beginning of year
24,798,295
8,537,409
Cash and cash equivalents, end of year $ 62,394,615 $ 24,798,295
See accompanying notes
22
2-45
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
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
• Kitchener Downtown Improvement Area Board of Management
• Belmont Improvement Area Board of Management
• The Centre in the Square Inc.
• Waterworks Enterprise
• Gasworks Enterprise
• Sewer Surcharge Enterprise
• Storm Water Management Enterprise
• Building Enterprise
• Golf Enterprise
• Parking Enterprise
All inter - organizational and inter -fund transactions and balances have been eliminated
ii. Government business enterprises
Kitchener Power Corp. 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).
23
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CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
1. Summary of significant accounting policies (continued)
b. Basis of accounting
i. 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. Cash and cash equivalents
Cash and cash equivalents include cash on hand and highly liquid investments with
original maturity of 90 days or less as at the end of the year.
iii. Trade and other accounts receivable
Trade and other accounts receivable are reported net of any allowance for doubtful
accounts.
iv. Inventory for resale
Inventory for resale is valued at the lower of cost or net realizable value on an average
cost basis.
v. 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 the
estimated realizable amount and any adjustments are included in investment income in
the period the impairment is recognized.
vi. 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.
vii. 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.
24
2-47
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
1. Summary of significant accounting policies (continued)
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.
viii. 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 Amortization period
Land The original cost of land is not amortized
Land improvements 10 to 25 years
Building & building improvements 20 to 50 years
Leasehold improvements Over the useful life of the improvement or the
lease term, whichever is shorter
Machinery & equipment 3 to 15 years
Computer hardware 3 to 10 years
Computer software 1 to 10 years
Linear assets 20 to 100 years
Vehicles 3 to 25 years
b. Contributions of tangible capital assets
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 other leases are accounted for as operating leases and the related
lease payments are charged to expenses as incurred.
d. Inventory of supplies
Inventories held for consumption are recorded at the lower of cost and replacement
cost.
2.5
2-48
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
1. Summary of significant accounting policies (continued)
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.
ix. 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.
x. 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:
School Region Total
Boards
Taxation and user charges
$ 85,085,417
$ 186,532,587
$ 271,618,004
Share of payments in lieu of taxes
7,242
1,224,170
1,231,412
Share of linear properties
63,469
122,187
185,656
Amounts requisitioned
$ 85,156,128
$ 187,878,944
$ 273,035,072
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 cemetery
perpetual care and prepaid internment funds totaling $10,788,779 (2010 - $10,323,567).
26
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CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
4. Investments
Investments are made up
of the following:
2011
2011
2010
2010
Cost
Market
Cost
Market
Value
Value
Guaranteed investment
certificates
$ 46,500,000
$ 47,026,397 $
34,598,823 $
34,829,949
ONE Funds
-
-
6,554
6,403
Bonds and debentures
8,885,836
8,823,002
24,789,342
24,857,561
Common stock
994,108
1,123,668
1,135,586
1,351,315
$ 56,379,944
$ 56,973,067 $
60,530,305 $
61,045,228
5. Investment in Kitchener Power Corp. and its Affiliates
Under the provincial government's Electricity Competition Act (Bill 35), Kitchener Power
Corp., 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 corporation. The City took back a 92.25% share in the common shares of Kitchener
Power Corp. 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:
2011 2010
Kitchener Power Corp. common shares $ 61,244,208 $ 61,244,208
Kitchener - Wilmot Hydro Inc. long -term notes
receivable 70,997,576 70,997,576
Share of net income and prior period adjustments due to
changes in accounting policies since acquisition,
net of dividends 41,706,513 36,399,736
$ 173,948,297 $ 168,641,520
The Kitchener - Wilmot Hydro Inc. notes are unsecured and bear interest at the rate of 5.87 %.
There are no repayment terms and there is no intent to redeem the notes or the shares.
27
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CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
5. Investment in Kitchener Power Corp. and its Affiliates (continued)
The following table provides condensed financial information with respect to Kitchener Power
Corp.:
6. Insurance pool
Liabilities include an amount of $3,721,040 (2010 - $4,711,429) 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 24.88% (2010 — 25.05 %) and its share of the Pool surplus
as at May 31, 2011 was $1,086,203 (2010 - $1,052,252). The City's share of the Pool surplus
has not been included in the Consolidated Statement of Financial Position.
28
2-51
2011
2010
Current assets
$ 68,435,132
$ 75,023,889
Capital assets
152,895,083
143,258,355
Regulatory assets
21,536,416
20,970,013
Future income taxes
13,287,674
12,860,747
Total assets
256,154,305
252,113,004
Current liabilities
33,107,940
34,677,240
Long -term debt
84,844,106
85,713,896
Regulatory liabilities
17,338,259
16,606,383
Other liabilities
9,264,302
9,268,391
Total liabilities
144,554,607
146,265,910
Net assets
111,599,698
105,847,094
Results of operation
Revenues
203,946,014
195,770,643
Expenses
(194,893,410)
(187,616,704)
Net income
9,052,604
8,153,939
City's share of net income - 92.25%
$ 8,351,027
$ 7,522,009
6. Insurance pool
Liabilities include an amount of $3,721,040 (2010 - $4,711,429) 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 24.88% (2010 — 25.05 %) and its share of the Pool surplus
as at May 31, 2011 was $1,086,203 (2010 - $1,052,252). The City's share of the Pool surplus
has not been included in the Consolidated Statement of Financial Position.
28
2-51
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
7. Obligatory deferred revenue
2011 2010
Development charges $ - $ (2,444,240)
Recreational land 1,665,764 2,777,029
$ 1,665,764 $ 332,789
The continuity of deferred revenue is as follows:
2011 2010
Balance, beginning of year
$ 332,789
$ 5,831,426
Collections
10,410,211
11,552,559
Interest earned
7,858
46,485
Other revenue
843,108
742,203
Contributions used
(9,928,202)
(17,839,884)
Balance, end of year
$ 1,665,764
$ 332,789
8. Municipal debt
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 $98,187,961 (2010 - $ 81,327,413).
The annual principal repayments are:
2012
$ 8,480,162
2013
8,452,712
2014
8,756,188
2015
8,466,007
2016
8,726,509
2017 and thereafter
55,306,382
$ 98,187,960
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.
The long -term liabilities carry interest rates ranging from 1.35% to 5.50 %. Interest charges
for 2011 relating to municipal debt totaled $3,542,626 (2010 - $3,275,100).
29
2-52
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
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
City. Contributions were required on account of current service in 2011 amounting to
$7,290,301 (2010 - $6,214,298).
10. Employee future benefits
The estimated liability for employee future benefits is comprised of the following
The actuarial valuation of the future liability for sick leave assumes a discount rate of 3.75%
(2010 — 4.75 %). The last actuarial valuation for this liability was completed at December 31,
2009, with an actuarial update provided to the end of the current year.
As at December 31, 2011, the unamortized actuarial losses were $8,784,414 (2010 —
$5,383,106) and are amortized over 13 to 14 years (2010 — 13 to 14 years). The amount of
benefits paid during the year were $1,364,382 (2010- $1,900,120).
A reserve fund to provide for this liability is included in accumulated surplus, in the amount of
$4,530,942 (2010 - $4,604,768).
30
2-53
2011
2010
Sick leave benefit plan
$ 12,698,320 $
11,827,420
Post retirement benefits
9,505,669
9,117,734
Future payments required to WSIB
3,439,200
2,541,700
$ 25,643,189 $
23,486,854
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 $2,235,282 (2010
- $2,156,845) and is comprised of
the following
items:
2011
2010
Current period benefit cost
$ 963,198 $
893,530
Amortization of actuarial losses
441,237
391,395
Retirement benefit expenditures
1,404,435
1,284,925
Retirement benefit interest expenditures
830,847
871,920
Total expenditures related to retirement benefits $ 2,235,282 $
2,156,845
The actuarial valuation of the future liability for sick leave assumes a discount rate of 3.75%
(2010 — 4.75 %). The last actuarial valuation for this liability was completed at December 31,
2009, with an actuarial update provided to the end of the current year.
As at December 31, 2011, the unamortized actuarial losses were $8,784,414 (2010 —
$5,383,106) and are amortized over 13 to 14 years (2010 — 13 to 14 years). The amount of
benefits paid during the year were $1,364,382 (2010- $1,900,120).
A reserve fund to provide for this liability is included in accumulated surplus, in the amount of
$4,530,942 (2010 - $4,604,768).
30
2-53
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
10. Employee future benefits (continued)
Anticipated payments over the next five years to employees who are eligible to retire are:
2012
$ 1,725,986
2013
618,789
2014
686,130
2015
814,066
2016
855,230
$ 4,700,201
b. Post - retirement benefits
The City 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 $1,288,498 (2010 - $1,191,549) and is comprised of the following
items:
2011 2010
Current period benefit cost $ 491,928 $ 430,368
Amortization of actuarial losses 266,668 215,001
Retirement benefit expenditures 758,596 645,369
Retirement benefit interest expenditures 529,902 546,180
Total expenditures related to retirement benefits $ 1,288,498 $ 1,191,549
The actuarial valuation of the future liability for post- retirement benefits assumes a discount
rate of 3.75% (2010 — 4.75 %) and inflation rates for benefit premiums of 4% to 8% (2010 —
5% to 9 %).
As at December 31, 2011, the unamortized actuarial losses were $6,329,401 (2010 —
$1,996,447) and are amortized over 10 to 12 years (2010 — 10 to 12 years). The amount of
benefits paid during the year were $900,563 (2010 - $837,733). The last actuarial valuation
for this liability was completed at December 31, 2009, with an actuarial update provided to
the end of the current year.
The City holds no reserve in accumulated surplus to meet this liability.
c. WSIB
The Workplace Safety and Insurance Board (WSIB) administer injured worker benefits
payments on behalf of the City as a Schedule 2 employer. The expense for the current year
was $1,668,800 (2010 - $817,400) and is comprised of the following items:
2011 2010
Current period benefit cost $ 1,148,600 $ 679,000
Amortization of actuarial losses 246,300 -
Retirement benefit expenditures 1,394,900 679,000
Retirement benefit interest expenditures 273,900 138,400
Total expenditures related to retirement benefits $ 1,668,800 $ 817,400
31
2-54
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
10. Employee future benefits (continued)
The actuarial valuation of the future liability for WSIB assumes a discount rate of 3.75%
(2010 — 4.75 %). The last actuarial valuation for this liability was completed at December 31,
2010, with an actuarial update provided to the end of the current year.
As at December 31, 2011, the unamortized actuarial losses were $2,368,600 (2010 —
$2,462,700) and are amortized over 10 years (2010 — 10 years). The amount of benefits paid
during the year were $771,300 (2010 - $728,000).
A reserve fund to provide for this liability is included in accumulated surplus, in the amount of
$836,218 (2010 - $0).
11. Tangible capital assets
The write -down of tangible capital assets during the year was $0 (2010 — $1,933,627). Assets
contributed to the City totaled $8,672,341 (2010 - $8,504,526).
See Schedule A
12. Accumulated surplus
The accumulated surplus consists of individual fund surpluses/ (deficits) and
reserves as
follows:
Capital expenditures
5,631,669
4,682,137
Tax rate stabilization
2010
1,159,081
Workplace safety and insurance
(Restated
-
2011
Note 15)
Surplus:
The Centre in the Square Inc.
2,522,335
Invested in tangible capital assets $
869,949,742 $
807,562,321
Other
(14,984,489)
(15,885,715)
Equity in Kitchener Power Corp. and its affiliates
173,948,297
168,641,520
Unfunded
Employee future benefits
(25,643,189)
(23,486,854)
Total surplus
1,003,270,361
936,831,272
Reserves:
Acquisition of capital assets 6,831,974 6,265,635
Total reserves 6,831,974 6,265,635
Reserve funds set aside for specific purpose by Council for:
Sick leave
4,530,942
4,604,768
Capital expenditures
5,631,669
4,682,137
Tax rate stabilization
3,596,967
1,159,081
Workplace safety and insurance
836,218
-
Insurance
253,118
131,175
The Centre in the Square Inc.
2,522,335
2,680,105
Enterprise stabilization
7,959,981
-
Other
(2,045,043)
2,128,800
Total reserve funds
23,286,187
15,386,066
$1,033,388,522 $ 958,482,973
32
2-55
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
13. Contingent liabilities
a. The City has extended a line of credit not to exceed $2,000,000 to Kitchener Housing Inc.
Interest is charged on the outstanding balance at bank prime plus 1% (rate as at December
31, 2011 was 4 %).
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.
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, storm sewer, gasworks,
libraries, and community services.
Segmented information has been prepared by major functional classification of activities
provided, consistent with the Consolidated Statement of Operations 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 1.
See Schedule B
15. Restatement of comparative figures
In 2009, the City implemented Section 3150 of the Public Sector Accounting Handbook which
requires governments to record and amortize their tangible capital assets in their financial
statements.
Through the normal process of reviewing amounts moving from assets under construction to
final assets in 2011, it was determined that amounts that had been recorded in the opening
2010 tangible capital asset balance had not been removed from assets under construction at
the time of capitalization.
The City also reviewed the completeness of the recorded amounts and revised the recorded
estimated amounts for assets under construction for items that were previously expensed.
As a result, the comparative figures for the year ended December 31, 2010 have been
restated resulting in a reduction in the opening balance of tangible capital assets in the
amount of $9,374,698, a net reduction in expenses in the amount of $535,045 and a
reduction in the accumulated surplus, beginning of the year in the amount of $9,909,743.
33
2-56
CITY OF KITCHENER
Notes to Consolidated Financial
Statements
Year Ended December 31, 2011
15. Restatement of comparative figures (continued)
The comparative financial statements have been restated as follows:
16. Budget figures
The budget figures reflected in these consolidated statements are those approved by Council
at a meeting on January 20, 2011. Budget figures have been translated to reflect changes in
Public Sector Accounting Board standards.
17. Comparative figures
Certain of the prior year's comparative figures have been restated to conform to the current
year's presentation.
34
2-57
As previously
stated
Adjustments
Restated
Tangible capital assets - net
$ 816,937,019
$ (9,374,698)
$ 807,562,321
Recreation Expenses
58,577,392
(1,371,270)
57,206,122
General Government Expenses
26,727,080
836,225
27,563,305
Accumulated surplus, beginning of year
888,357,415
(9,909,743)
878,447,672
16. Budget figures
The budget figures reflected in these consolidated statements are those approved by Council
at a meeting on January 20, 2011. Budget figures have been translated to reflect changes in
Public Sector Accounting Board standards.
17. Comparative figures
Certain of the prior year's comparative figures have been restated to conform to the current
year's presentation.
34
2-57
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2-60
INDEPENDENT AUDITORS' REPORT
To the Members of Council, Inhabitants and Ratepayers of The Corporation of
the City of Kitchener:
We have audited the accompanying financial statements of the Trust Funds of
the Corporation of the City of Kitchener ( "the Entity "), which comprise the
financial position as at December 31, 2011 and the statement of operations,
changes in net assets, and cash flow for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these
financial statements in accordance with Canadian generally accepted accounting
principles, and for such internal control as management determines is necessary
to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with Canadian generally
accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the
Entity's preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
-38-
2 -61
Opinion
In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Trust Funds of the Corporation of the City of Kitchener as
at December 31, 2011, and the results of its operations and its cash flows for the
year then ended in accordance with Canadian generally accepted accounting
principles.
DRAFT
Chartered Accountants, Licensed Public Accountants
June 25, 2012
Waterloo, Canada
-39-
2 -62
TRUST FUNDS
Balance Sheet
Year Ended December 31, 2011
2011 2010
Assets
Accounts receivable $ 146,983 $ 191,071
Interest receivable 49,121 35,666
Investments (Note 2)
Short -term 1,920,306 2,072,082
Long -term 8,674,469 8,026,848
10,790,879 10,325,667
Liabilities
Accounts payable
2,100 2,100
Fund Balance 10,788,779 10,323,567
$ 10,790,879 $ 10,325,667
-40-
2 -63
TRUST FUNDS
Statement of Continuity
Year Ended December 31, 2011
2011 2010
Capital Receipts
Perpetual care
$ 274,368 $
328,056
Interest earned
428,965
338,892
Other
58,484
548,934
761,817
1,215,882
Expenditures
Transfer to cemeteries operations
296,605
245,047
Other
0
976,917
296,605
1,221,964
Net change in fund
465,212
(6,082)
Balance, beginning of year
10,323,567
10,329,649
Balance, end of the year
$ 10,788,779 $
10,323,567
-41 -
2 -64
TRUST FUNDS
Notes to the Financial Statements
Year Ended December 31, 2011
Summary of Significant Accounting Policies
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.
2. Investments
The long -term investments of $8,674,469 (2010 - $8,026,848) reported on the Balance Sheet
at cost, have a market value of $8,782,669 (2010 - $8,029,908).
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.
-42-
2 -65
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2-68
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Financial Position
As at December 31, 2011
Financial assets
Cash
Term deposit
Accounts receivable
2011 2010
$ 13,756 $ 12,228
- 15,286
175 -
13,931 27,514
Financial liabilities
Accounts payable 7,408 6,866
Net financial assets 6,523 20,648
Non - financial assets
Tangible capital assets 5,492 -
Net assets 12,015 20,648
Accumulated surplus
Accumulated net revenue 6,523 20,648
Invested in tangible capital assets 5,492 -
Total accumulated surplus $ 12,015 $ 20,648
See accompanying notes
-46-
2 -69
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Revenue and Expenses and Accumulated Surplus
Year Ended December 31, 2011
See accompanying notes
-47-
2 -70
2011
2010
Revenue
Assessments
$ 25,000 $
25,000
Interest revenue
94
58
Other revenue
2,488
-
27,582
25,058
Expenses
Streetscaping
1,564
3,459
Audit
1,695
1,639
Summer maintenance
8,245
8,598
Insurance
1,192
1,134
Winter maintenance
13,656
10,151
Advertising
7,646
5,457
Miscellaneous
1,607
141
Amortization
610
-
36,215
30,579
Net deficit for year
(8,633)
(5,521)
Accumulated surplus, beginning of year
20,648
26,169
Accumulated surplus, end of year
$ 12,015 $
20,648
See accompanying notes
-47-
2 -70
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Change in Net Financial Assets
As at December 31, 2011
See accompanying notes
-48-
2 -71
2011
2010
Net deficit for year
$ (8,633) $
(5,521)
Acquisition of tangible capital assets
(6,102)
-
Amortization of tangible capital assets
610
-
Change in net financial assets
(14,125)
(5,521)
Net financial assets, beginning of year
20,648
26,169
Net financial assets, end of year
$ 6,523 $
20,648
See accompanying notes
-48-
2 -71
BELMONT IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to the Financial Statements
Year ended December 31, 2011
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 judgment. The following is a summary
of the significant accounting policies followed in the preparation of these financial statements
a)Tangible capital assets
Tangible capital assets are recorded at cost which includes amounts that are directly
attributable to acquisition, construction, development or betterment of the asset. The
cost, less residual value, of the tangible capital assets, are amortized on a straight -line
basis over their estimated useful lives as follows:
Assets Amortization period
Equipment 5 years
Annual amortization is charged in the year of acquisition and in the year of disposal.
Assets under construction are not amortized until the asset is available for productive
use.
Tangible capital assets received as contributions are recorded at their fair value at the
date of receipt and also are recorded as revenue.
b) Accrual 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.
2. 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.
-49-
2 -72
KPMG LLP Telephone 515 - 747-9800
Chartered Accountants Fax 519-74730
115 King Street South, 2" Floor Intemet www.kpmgce
Vy�terloo ON N2J 543
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying financial statements of Kitchener Downtown Improvement Area
Board of Management, which comprise the financial position as at December31 ,2011 the statements
of revenue and expenses and accumulated surplus and changes in net financial assets for the year
then ended, and notes, comprising a summary of significant accounting policies and other explanatory
information.
Management's ReT onsibility for the Financial Statements
Management is responsible far the preparation and fair presentation of these financial statements in
accordance with Canadian generally accepted accounting principles, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' ResponsibiYity
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing proceduresto obtain audit evidence aboutthe amounts and disclosures in
the financial statements. The procedures selected depend on ourjudgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe thatthe audit evidence we have obtained is sufficient and appropriate to provide a basisfor
our audit opinion.
KPMG LLP, is a Csnadien limird lab My patnership erd a member fitn of the KPMG
network of itdeperdxrt member fitn s effilieted w ith KPM G Interratione I Cooperetire
[ "KPMG Inteir Wnel " }, e Swiss entity.
KP M G Canada prow ides sere ices to KP M G LLP .
-50-
2 -73
MEMM
Page 2
Opi=n
In our opinion, the financial statements present fairly, in all material respects, the financial position of
Kitchener Downtown Improvement Area Board of Management as at December 31, 2011, and its
results of operations and its cash flows forthe yearthen ended in accordance with Canadian generally
accepted accounting principles.
�w"'- ZZ-00
Chartered Accountants, Licensed Public Accountants
March 20, 2012
Waterloo, Canada
-51 2-74
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Financial Position
Year ended December 31, 2011, with comparative figures for 2010
Accumulated Surplus
Reserve for future assessment write -offs $ 29,478 $ 29,478
Accumulated net revenue 29,789 29,918
Invested in tangible capital assets 21,727 2,350
Total accumulated surplus $ 80,994 $ 61,746
See accompanying notes to financial statements.
-52-
2 -75
2011
2010
Financial Assets
Cash
$ 7,255
$ 98,550
Term deposits (note 2)
64,086
64,087
Accounts receivable
50,418
18,789
Prepaid expenses
1,488
5,479
123,247
186,905
Financial Liabilities
Accounts payable and accrued charges
51,268
91,374
Due to the City of Kitchener (note 4)
12,712
33,755
Deferred sublease revenue
-
2,350
63,980
127,479
Net financial assets
59,267
59,426
Non- Financial Assets
Tangible capital assets (note 6)
21,727
2,320
Net assets
$ 80,994
$ 61,746
Accumulated Surplus
Reserve for future assessment write -offs $ 29,478 $ 29,478
Accumulated net revenue 29,789 29,918
Invested in tangible capital assets 21,727 2,350
Total accumulated surplus $ 80,994 $ 61,746
See accompanying notes to financial statements.
-52-
2 -75
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Revenue and Expenses and Accumulated Surplus
Year ended December 31, 2011, with comparative figures for 2010
Revenue:
Assessments
Interest
Graffiti removal co -op
Other income
Expenses
Budget Actual Actual
2011 2011 2010
$ 585,000
1,500
5,000
22,000
$ 600,000
1,505
5,000
32,942
$ 580,000
1,468
10,000
48,505
613,500 639,447 639,973
Promotions and advertising
208,000
206,294
117,791
Salaries and wages
232,800
246,620
223,918
Administration
69,200
68,945
102,406
Meetings and seminars
18,000
14,256
16,912
Safety and beautification
50,500
17,626
62,604
Member relations
35,000
48,464
84,645
Amortization
-
5,262
1,552
613,500
607,487
609,828
Net revenue before other items
-
31,960
30,145
Net assessment write -offs (note 4)
12,712
33,755
Net revenue (expenses) - 19,248 (3,610)
Accumulated surplus, beginning of year 61,746 61,746 65,356
Accumulated surplus, end of year $ 61,746 $ 80,994 $ 61,746
See accompanying notes to financial statements.
-53-
2-76
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Statement of Changes in Net Financial Assets
Year ended December 31, 2011, with comparative figures for 2010
Net revenue (expenses)
Acquisition of tangible capital assets
Amortization of tangible capital assets
2011 2010
$ 19,248 $ (3,610)
(24, 689) (2,100)
5,282 1,552
Change in net financial assets (159) (4,158)
Net financial assets, beginning of year 59,426 63,584
Net financial assets, end of year $ 59,267 $ 59,426
See accompanying notes to financial statements.
-54-
2 -77
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements
Year ended December 31, 2011
1. Summary of significant accounting policies:
Kitchener Downtown Improvement Area Board of Management ( "the Board ") is established for the
main purpose of revitalizing the Central Business District of the City of Kitchener. It is designated
as a Business Improvement Area (BIA) through the Ontario Municipal Act and a City of Kitchener
by -law enacted in 1977.
These financial statements of the Board 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 (PSAB) 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
judgment.
(a) Tangible capital assets:
Tangible capital assets are recorded at cost which includes amounts that are directly
attributable to acquisition, construction, development or betterment of the asset. The cost,
less residual value, of the tangible capital assets, excluding land and landfill sites, are
amortized on a straight -line basis over their estimated useful lives as follows:
Asset Useful Life - Years
Computers 4 years
Furniture and fixtures 7 years
Leasehold improvements 7 years
Annual amortization is charged in the year of acquisition and in the year of disposal. Assets
under construction are not amortized until the asset is available for productive use.
Tangible capital assets received as contributions are recorded at their fair value at the date of
receipt and also are recorded as revenue.
(b) 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.
-55-
2 -78
KITCHENER DOWNTOWN IMPROVEMENT AREA
BOARD OF MANAGEMENT
Notes to Financial Statements, page 2
Year ended December 31, 2011
2. Term deposit:
The term deposits consist of the following:
Principal Maturity Rate
$54,000 June 6, 2012 1.85%
$10,087 October 22, 2012 1.45%
3. Commitments:
During 2011, the Board executed a new joint premises lease agreement with two other unrelated
parties. The lease allows for certain amounts of exclusive space for the Board and certain
amounts of common area space shared with the other joint tenants. The lease expires on June
30, 2016. The Board is committed to the following minimum payments under the agreement:
2012
$ 28,921
2013
29,282
2014
30,005
2015
30,728
2016
15,545
4. City of Kitchener:
The Board receives assessment income from the City of Kitchener for its operations. During the
year, assessment write -offs were incurred for $12,712. This amount was paid to the City of
Kitchener in 2012.
5. 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.
-56-
2 -79
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KPMG LLP
Chartered Accountants
115 King Street South
2nd Floor
Waterloo ON N2J 5A3
Telephone (519) 747 -8800
Fax (519) 747 -8830
Internet www.kpmg.ca
INDEPENDENT AUDITORS' REPORT
To the members of the Kitchener Public Library Board
We have audited the accompanying financial statements of the Kitchener Public Library, which
comprise the statement of financial position as at December 31, 2011 and the statements of revenues
and expenses and accumulated net revenue and changes in net financial assets for the year then
ended, and notes, comprising a summary of significant accounting policies and other explanatory
information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian generally accepted accounting principles, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified audit opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independam member firms affiliated with KPMG International Cooperative
1 "KPMG International'), a Swiss ontity,
KPMG Canada provides services to KPMG LLP
-58-
2 -81
F—T-1 I
Page 2
Basis for Qualified Opinion
In common with many public library boards, the Kitchener Public Library derives revenue from fines,
rentals, partnerships, photocopying and other miscellaneous revenues, the completeness of which is
not susceptible to satisfactory audit verification. Accordingly, our verification of these revenues was
limited to the amounts recorded in the records of the entity and we were not able to determine whether
any adjustments might be necessary to contributions, excess of revenues over expenses, current
assets and net financial assets.
Qualified Opinion
In our opinion, except for the possible effects on the financial statements of the matter described in the
Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects,
the financial position of the Kitchener Public Library as at December 31, 2011, and its results of
operations and its cash flows for the year then ended in accordance with Canadian generally accepted
accounting principles.
14P
Chartered Accountants, Licensed Public Accountants
March 9, 2012
Waterloo, Canada
-59-
2 -82
KITCHENER PUBLIC LIBRARY
Statement of Financial Position
December 31, 2011, with comparative figures for 2010
2011 2010
Financial Assets
Cash $ 1,099,422 $ 912,763
Accounts receivable 86,094 99,116
Due from City of Kitchener 66,507 104,378
1,252,023 1,116,257
Financial Liabilities
Accounts payable and accrued liabilities 534,798 634,946
Deferred revenue (note 2) 717,421 480,958
1,252,219 1,115,904
Net financial assets (196) 353
Non - Financial Assets
Tangible capital assets (note 3) 5,538,308 5,720,794
$ 5,538,112 $ 5,721,147
Accumulated Surplus
General $ (196) $ 353
Invested in tangible capital assets 5,538,308 5,720,794
Net assets $ 5,538,112 $ 5,721,147
See accompanying notes to financial statements.
-60-
2 -83
KITCHENER PUBLIC LIBRARY
Statement of Revenues and Expenses and Accumulated Net Revenue
Year ended December 31, 2011, with comparative figures for 2010
Expenses
Personnel costs (Schedule)
2011
2010
Revenue:
1,578,672
1,587,481
Grants:
411,017
334,909
Province of Ontario
$ 286,755
$ 286,755
City of Kitchener:
435,880
457,760
Operating
8,927,661
8,673,816
Capital and special (note 4)
560,887
534,631
Special grants (note 5)
67,165
79,412
Fines
256,405
292,596
Interest and miscellaneous
28,337
24,324
Partnerships
38,977
40,704
Room rental
7,212
21,800
Photocopy
22,282
23,783
10,195,681
9,977,821
Expenses
Personnel costs (Schedule)
7,357,235
7,181,103
Resource materials
1,578,672
1,587,481
Equipment (Schedule)
411,017
334,909
Administrative (Schedule)
212,715
179,832
Facilities costs (Schedule)
435,880
457,760
Processing /bindery
86,691
131,613
Programs and publicity (Schedule)
63,572
27,797
General library equipment
9,070
16,747
Expenditures related to capital and special (note 4)
156,699
227,192
Required expenditures related to special grants (note 5)
67,165
79,412
10, 378, 716
10, 223, 846
Net deficit
Accumulated net revenue, beginning of year
(183,035)
5,721,147
(246,025)
5,967,172
Accumulated net revenue, end of year $ 5,538,112 $ 5,721,147
See accompanying notes to financial statements.
-61 -
2 -84
KITCHENER PUBLIC LIBRARY
Statement of Changes in Net Financial Assets
Year ended December 31, 2011, with comparative figures for 2010
Deficiency of revenue over expenditures
Acquisition of tangible capital assets
Amortization of tangible capital assets
Change in net financial assets
Net financial assets, beginning of year
2011 2010
$ (183,035) $ (246,025)
(1,266,294) (1,146,298)
1,448, 780 1,392,637
(549) 314
353 39
Net financial assets, end of year $ (196) $ 353
See accompanying notes to financial statements.
-62-
2 -85
KITCHENER PUBLIC LIBRARY
Notes to Financial Statements
Year ended December 31. 2011
The Kitchener Public Library (the "Board ") was incorporated as a not - for - profit organization, without
share capital, under the laws of Ontario. It is a Board of the City of Kitchener (the "City ") and is
dependent on the City for a significant portion of its operating and capital funding.
The Board contributes to the community as a resource and a gateway with sources of information and
works of imagination.
The financial statements of the Board 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 judgements. The following is a summary of the
significant accounting policies followed in the preparation of these financial statements.
1. Significant accounting policies:
(a) 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.
(b) Tangible capital assets:
Tangible capital assets are recorded at cost which includes amounts that are directly
attributable to acquisition, construction, development or betterment of the asset. The cost,
less residual value, of the tangible capital assets, excluding land are amortized on a straight -
line basis over their estimated useful lives as follows:
Furniture, fixtures and equipment
Specialty and other equipment
Computer
Books and audio visual resources
2. Deferred revenue:
10 - 30 years
8 years
3 - 10 years
2 - 10 years
Deferred revenue represents the annual Board's approval of the appropriation of unspent funds,
and are subject to external restrictions as to how the funds are disbursed. These appropriations
are included in required expenses and are subsequently charged directly to operations when
spent.
-63-
2 -86
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CD
KITCHENER PUBLIC LIBRARY
Notes to Financial Statements, page 4
Year ended December 31. 2011
4. Capital and special grants:
Each year, the City approves capital and special grants for the Board to purchase specific capital
items.
The capital grants approved for 2011 included $82,600 for general renovations, maintenance and
upgrading of existing facilities, $376,298 for communication infrastructure and technology
upgrades, and $35,000 for customer needs surveys.
The portion of these grants and previous year grants that are included in revenue in 2011, is
$560,887 (2010 - $534,631).
5. Special grants:
In 2011, the Board received various special non - recurring grants and donations totaling $226,313
(2010 - $210,480). The portion of these grants and previous year special grants that are included
in revenue in 2011, is 67,165 (2010 - $79,412). The remainder is included in deferred revenue.
6. Pension plan:
The Board makes contributions to the Ontario Municipal Employees Retirement Systems
(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 rate of pay.
During the year, the Board incurred expenses equal to $436,805 (2010 - $374,838) for current
service on behalf of its staff.
7. Related party transactions:
The Kitchener Public Library Foundation (the "Foundation ") is an independent organization which
raises funds to support the development of the Kitchener Public Library.
The accounts of the Foundation are not included in these financial statements.
During the year, the Foundation donated $7,833 (2010 - $24,871) to the Board to fund various
projects.
8. 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.
-66-
2 -89
KITCHENER PUBLIC LIBRARY
Schedule of Personnel, Equipment, Administrative, Facilities and Programs and Publicity Expenses
Year ended December 31, 2011, with comparative figures for 2010
-67-
2 -90
2011
2010
Personnel:
Salaries
$
6,151,533
$
6,057,545
Health benefits
312,392
331,102
Pension benefits
670,924
607,422
Employment insurance
119,918
115,242
WSIB
19,803
18,314
Sick leave reserve
25,000
25,000
Staff training
57,655
26,478
$
7,357,235
$
7,181,103
Equipment:
Technology
$
162,136
$
161,044
Equipment maintenance
33,902
19,301
Amortization
214,979
154,564
$
411,017
$
334,909
Administrative:
Postage and delivery
$
17,549
$
11,150
Insurance
16,555
16,555
Professional services
74,153
38,876
General business
50,411
49,437
Telephone
20,222
31,941
Stationery
33,825
31,873
$
212,715
$
179,832
Facilities:
Facilities expenses
$
209,183
$
236,511
Country Hills building
41,982
24,750
Main utilities
143,843
152,388
Forest Heights utilities
18,137
17,982
Pioneer Park building
19,309
21,898
Grand River Stanley Park building
3,426
4,231
$
435,880
$
457,760
Programs and publicity:
Promotional
$
29,960
$
19,683
Public programs
33,612
8,114
$
63,572
$
27,797
-67-
2 -90
KLP�kQl
KPMG LLP
Telephone 1519) 747 -8809
Chartered Accourrtants
Fax (519) 747 -8830
T15 King Str =r,t Souir
lnternet WWW.kprtng.Ca
2nd Roar
V,'VJ lerloc ON 1`12! 5F,:?
INDEPENDENT AUDITORS' REPORT
To the Directors of The Centre in the Square Inc
We have audited the accompanying financial statements of The Centre in the Square Inc., which
comprise the financial position as at December 31, 2011, the statements of operations, changes in net
financial assets, and cash flows for the year then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian generally accepted accounting principles, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity's preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements..
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
-68-
2 -91
Page 2
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
The Centre in the Square Inc. as at December 31, 2011, and its results of operations and its cash
flows for the year then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants, Licensed Public Accountants
March 30, 2012
Waterloo, Canada
-69-
2 -92
THE CENTRE IN THE SQUARE INC.
Statement of Financial Position
December 31, 2011, with comparative figures for 2010
Accumulated Surplus
Operating fund activities (note 12) $ - $ -
Reserves - Capital (note 6) 576,384 478,161
Reserves - Performance Development (note 7) 514,359 497,933
Reserves - Sustainability (note 8) - 322,777
Reserves - Restricted (note 9) 1,431,592 1,381,234
Invested in tangible capital assets 8,794,075 8,366,876
Accumulated surplus S 11,316,410 $ 11,046,981
See accompanying notes to financial statements.
-70-
2 -93
2011
2010
Net Assets
Financial assets-
Cash
$ 3,135,487
$ 3,046,047
Due from The City of Kitchener
94,717
187,728
Funds held with The City of Kitchener (note 2)
279,886
279,886
Accounts receivable
97,363
75,238
Interest receivable
3,392
4,607
Cost to be recovered
257,185
271,211
Investments (note 4)
1,412,439
1,665,916
Total financial assets
5,280,469
5,530,633
Financial liabilities:
Accounts payable and accrued liabilities
1,164,079
936,672
Deferred revenue (note 5)
1,724,480
2,006,560
2,888,559
2,943,232
Net financial assets
2,391,910
2,587,401
Non - financial assets:.
Tangible capital assets (note 11)
8,794,075
8,366,876
Inventories (note 3)
39,705
52,219
Prepaid expenses
90,720
40,485
8,924,500
8,459,580
Net assets
$ 11,316,410
$ 11,046,981
Accumulated Surplus
Operating fund activities (note 12) $ - $ -
Reserves - Capital (note 6) 576,384 478,161
Reserves - Performance Development (note 7) 514,359 497,933
Reserves - Sustainability (note 8) - 322,777
Reserves - Restricted (note 9) 1,431,592 1,381,234
Invested in tangible capital assets 8,794,075 8,366,876
Accumulated surplus S 11,316,410 $ 11,046,981
See accompanying notes to financial statements.
-70-
2 -93
THE CENTRE IN THE SQUARE INC.
Statement of Operations
Year ended December 31, 2011, with comparative figures for 2010
Excess of revenues over expenses 720 269,429 251,327
Accumulated surplus, beginning of year 11,046,981 11,046,981 10,795,654
Accumulated surplus, end of year $ 11,047301 $ 11,316,410 $ 11,046,981
See accompanying notes to financial statements.
-71 -
2 -94
Budget 2011
Actual 2011
Actual 2010
(unaudited)
Revenues-
Performances $
5,000,000
S 5,214,435
$ 4,534,493
Ticket surcharge (notes 6 and 8)
2.50,000
284,748
266,319
Grants from The City of Kitchener - Operating
1,420,079
1,420,089
1,336,227
Grants from other governments - Capital
400,000
415,958
329,940
Grants from other governments - Operating
40,000
40,000
40,000
Grants from The City of Kitchener - Capital
237,000
237,000
245,520
Capital donations
75,000
75,000
-
Donations
2,500
19,270
27,410
Investment income
1,000
91 231
78,081
Other
2,151,435
1.842,621
1,744.370
Gain on investments
35,000
27,429
92,489
Total revenue
9,612,014
9,667,781
8,694,849
Expenses:
Direct:
Performances
4,696,100
5,217,044
4,509,000
Bar operations
175.000
176,413
161,244
Programme
20,000
22,017
23,777
Star memberships
-
20
3,956
Financial services
2,500
2,615
2,674
Ticket services
145,000
140,590
126,342
Operating:
Administration
764,864
790,239
622,952
Box office
8,200
9 „558
11,579
Promotion
460,675
462,274
402,913
Occupancy
740,258
675,629
621,265
Salaries and wages
2,934,317
2,735,583
2,765,460
Recoveries - performances
(1,633,341)
(1,696,952)
(1,644,517)
Amortization
600,000
607,608
595,484
Write down of tangible capital assets
100,000
112,436
12,769
Reserves expenditures
597,000
134,168
228,223
Refund to The City of Kitchener
721
9,100
601
Total expenses
9,611,294
9,398,342
8,443,522
Excess of revenues over expenses 720 269,429 251,327
Accumulated surplus, beginning of year 11,046,981 11,046,981 10,795,654
Accumulated surplus, end of year $ 11,047301 $ 11,316,410 $ 11,046,981
See accompanying notes to financial statements.
-71 -
2 -94
THE CENTRE IN THE SQUARE INC.
Statement of Change in Net Financial Assets
Year ended December 31, 2011, with comparative figures for 2010
Excess of revenues over expenses
Acquisition of tangible capital assets
Amortization of tangible capital assets
Write -downs of tangibie capital assets
2011 2010
$ 269,429
$ 251,327
(1,147,243)
(564,728)
607,608
595,484
112,436
12,769
(157,770)
294,852
Net (acquisition) use of supplies inventory 12,514 (12,492)
Net (acquisition) use of prepaid expenses (50,235) (4,763)
(37,721) (17,255)
Increase (decrease) in net financial assets (195,491) 277,597
Net financial assets, beginning of year
2,587,401 2,309,804
Net financial assets, end of year $ 2,391,910 $ 2,587,401
See accompanying notes to financial statements.
-72-
2 -95
THE CENTRE IN THE SQUARE INC.
Stalement of Cash Flow
Year ended December 31, 2011, with comparative figures for 2010
2011 2010
Operating activities
Excess of revenues over expenses
S 269,429
5 251,327
Items not involving cash:
Amortization
607,608
595,484
Write down of tangible capital assets
112,436
12,769
Change in non -cash operating working capital
(6,267)
679,965
Cash provided by operating activities
983,206
1,539,545
Capital activities:
Cash used to acquire tangible capital assets
(1,147,243)
(564,728)
Investing activities:
Decrease (increase) in investments 253,447 (55,963)
Increase in cash 89,440 918,854
Cash, beginning of year
3,046,047 2,127,193
Cash, end of year S 3 „135,487 $ 3,046,047
See accompanying notes to financial statements.
-73-
2 -96
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements
Year ended December 31, 2011
The mission of The Centre in the Square Inc. ( "The Centre "), is to create memorable experiences. It
is incorporated as a municipal, not- for -profit corporation without share capital, is exempt from income
taxes under the Income Tax Act, and is a registered charity. The Centre is a Board of The City of
Kitchener ( "the City ") and receives a portion of its operating and capital funding from the City.
1. Significant accounting policies:
The financial statements of The Centre 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 (PSAB) 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
judgement.
(a) Tangible capital assets:
Tangible capital assets are recorded at cost which includes amounts that are directly
attributable to acquisition, construction, development or betterment of the asset. The cost,
less residual value, of the tangible capital assets, excluding land, are amortized on a straight -
line basis over their estimated useful lives as follows:
Asset Rate
Building 9 - 100 years
Equipment 4 - 50 years
Computers 5 - 14 years
Software 3 years
Site 10 - 50 years
(b) 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..
-74-
2 -97
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2011
1. Significant accounting policies (continued):
(c) Inventories:
Bar stock inventories are valued at the most recent replacement cost. Supplies inventories
are valued at the lower of cast and net realizable value on a first -in, first -out basis. Net
realizable value is defined as replacement cost.
(d) Investments:
Investments are recorded at the lower of cost or market value on a fund portfolio basis.
Interest income and all expenses are fully accrued.
(e) Deferred revenue:
Performance revenue is recognized when the show occurs. Deferred gift certificate revenue
is an estimate based upon gift certificate sales during the period from July 1 to December 31
of the current year.
2. Funds held with The City of Kitchener:
Funds held with the City represent cash held in a pooled fund by the City on behalf of the Centre.
3. Inventories:
Inventories consist of the following:
2011 2010
Bar stock $ 35,034 S 37,545
Supplies 4,671 14,674
5 39,705 S 52,219
-75-
2 -98
THE CENTRE IN THE SQUARE INC.
Dotes to Financial Statements, continued
Year ended December 31, 2011
4. Investments:
Investments consist of:
Carrying value
Market
Carrying value
Market
2011
2011
2010
2010
Shares
$ 994,108
$ 1,123,668
$ 1,135,586
S 1,351, 315
Bonds
412,022
425,697
484,186
492,836
Cash
6,309
6,309
46,144
46,144
$ 1.412,439
$ 1,555,674
$ 1,665,916
$ 1.890,295
5. Deferred revenue:
Deferred revenue consists of the following
2011
2010
Sponsorships
$ 142,654
$ 118,029
Performances
1,421.393
1,764,866
Gift certificates
52,195
58,876
Donations
33,179
46,081
Membership
2,839
2,987
Other
72,220
29,828
$ 1,724,480
S 2,020,667
6. Capital Reserve Fund:
The Capital Reserve Fund represents the collection of a surcharge from sale of tickets,
accumulation of grant revenues and fundraising, plus interest earned.
At the direction of the Board of Directors, expenditures from the Capital Reserve Fund are made
to finance, in whole or in part, major capital items or replacements and major maintenance
projects.
-76-
2 -99
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31. 2011
7. Performance Development Reserve Fund:
The Centre has an agreement with the City, whereby The Centre's annual operating net revenue
is shared equally between The Centre and the City.
At the direction of the Board of Directors, transfers are made to and from the Performance
Development Reserve Fund, equal to one -half of the annual operating net revenue.
In 2011, The Centre's Board of Directors approved the transfer of half of the 2011 net operating
surplus to the Performance Development Reserve Fund.
8. Sustainability Reserve Fund:
Revenues for this Fund come from fundraising contributions. At the direction of the Board of
Directors, funds are allocated for specific capital projects and programming initiatives to ensure
the long -term sustainability of The Centre.
During 2011, the Board of Directors directed that the remainder of this fund be used to match
grants from provincial and federal governments to fund the Infrastructure Stimulus Funding capital
improvements.
9. Restricted Fund:
The Restricted Fund was set up by the Board of Directors of The Centre in 2000 by a transfer of
investments from the Sustainability Reserve Fund in accordance with the Restricted Fund Policy.
Income from this fund is to be used for capital requirements, special projects and/or new
programming initiatives that help further The Centre's mandate.
10. 2011 budget:
The original budgeted figures were approved by the Board of Directors at their meeting in
September 2010 and included certain expenses and offsetting recoveries on a net basis. For
purposes of presentation in these financial statements, these items have been shown as gross
amounts.
-77-
2 -100
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2 -101
THE CENTRE IN THE SQUARE INC.
Notes to Financiai Statements, continued
Year ended December 31, 2011
12. Operating fund activities:.
Budget Actual Actual
2011 2011 2010
Revenues:
Performances
$ 5,000,000
5 5,214,435
$ 4,534,493
Grants from City of Kitchener
1,420,079
1,420,079
1,336,227
Grants, other Governments and Foundations
40,000
40,000
40,000
Donations
2.500
14,625
16,880
Investment income
1,000
22,126
12,187
Other
1,851,435
1,841 „965
1,668,060
Total revenue
8,315,014
8,553,230
7,607,847
Current fund expenditures:
Direct:
Performances
4,696,100
5,217,044
4,509,000
Bar operations
175,000
176,413
161,244
Programme
20,400
22,017
23,777
Star memberships
-
20
3,956
Ticket services
2,500
2,615
2,674
Financial services
145,000
140,590
126,342
Operating:
Administration
764,864
790,239
622,952
Box office
8,200
9,558
11,579
Promotion
460,675
462,274
402,913
Occupancy
740,258
675,629
621,265
Salaries and wages
2,934,317
2,735,583
2,765,060
Recoveries - performances
(1,633,341)
(1,696,952)
(1,644,517)
Total current fund expenditures
8,313,573
8,535,030
7,606,245
Operating fund net revenues (expenditures)
before amortization 1,441 18,200 1,602
Transfer from reserve funds (721) (9,100) (801)
Transfer to City of Kitchener (720) (9,100) (801)
Fund balances, end of year $ - $ - $ -
-79-
2 -102
THE CENTRE IN THE SQUARE INC.
Notes to Financial Statements, continued
Year ended December 31, 2011
13. Schedule of reserve funds:
Expenditures
Cost of fundraising 116,635 - - 116,635
Professional fees - 1,757 15,776 17,533
Programming grant - - - - -
116,635 1,757 15,776 134,168
Excess of revenue over expenditures
Performance
905,009
17,666 50,358 980,359
Transfer to accumulated surplus -
Total
Development
Capital
Sustainabilily
Restricted
Funds
Other transfers
9,100
340,443
(340,443) - 9,100
Balance, beginning of year
497,933
Revenue:
322,777 1,381,234 2,680,108
Donations and sundry
S 43
$ 1,055
$ 605
`5 3,584
S 5,287
Grants from The City
of Kitchener
-
237,000
-
-
237,000
Grants from other
governments
-
415,958
415,958
Capital donations
-
75,000
75,000
Ticket surcharge
-
284,748
-
-
284,748
Investment income
7,283
7,883
4,401
49,538
59,105
Gain on investments
-
14,417
13,012
27,429
7,326
1,029,644
19,423
66,134
1,114,527
Expenditures
Cost of fundraising 116,635 - - 116,635
Professional fees - 1,757 15,776 17,533
Programming grant - - - - -
116,635 1,757 15,776 134,168
Excess of revenue over expenditures
7,326
905,009
17,666 50,358 980,359
Transfer to accumulated surplus -
tangible capital assets
-
(1,147,229)
- (1,147,229)
Other transfers
9,100
340,443
(340,443) - 9,100
Balance, beginning of year
497,933
478,161
322,777 1,381,234 2,680,108
Balance, end of year S
514,359
$ 576,384
$ - $ 1,431,592 $ 2,522,335
-80-
2 -103
INDEPENDENT AUDITORS' REPORT
To the Mayor and Members of Council, Inhabitants and Ratepayers of The
Corporation of the City of Kitchener
We have audited the accompanying statement of operations of The Corporation
of the City of Kitchener Gasworks Enterprise for the year ended December 31,
2011 ( "the financial statement ").
Management's Responsibility for the Financial Statement
Management is responsible for the preparation and fair presentation of this
financial statement in accordance with Canadian generally accepted accounting
principles relevant to preparing such a financial statement, and for such internal
control as management determines is necessary to enable the preparation of the
financial statement that is free from material misstatement, whether due to fraud
or error.
Auditors' Responsibility
Our responsibility is to express an opinion on the financial statement based on
our audit. We conducted our audit in accordance with Canadian generally
accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statement. The procedures selected
depend on our judgment, including the assessment of the risks of material
misstatement of the financial statement, whether due to fraud or error. In making
those risk assessments, we consider internal control relevant to the entity's
preparation and fair presentation of the financial statement in order to design
audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial
statement.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
-81 -
2 -104
Opinion
In our opinion, the financial statement presents fairly, in all material respects the
results of operations of The Corporation of the City of Kitchener Gasworks
Enterprise for the year ended December 31, 2011 in accordance with Canadian
generally accepted accounting principles relevant to preparing such a financial
statement.
DRAFT
Chartered Accountants, Licensed Public Accountants
June 28, 2011
Waterloo, Canada
-82-
2 -105
THE CORPORATION OF THE
CITY OF KITCHENER
GASWORKS ENTERPRISE
Statement of Operations and Accumulated Surplus
Year ended December 31, 2011
2011 BUDGET
-83-
2 -106
(Unaudited)
2011 ACTUAL
2010 ACTUAL
DELIVERY OPERATIONS
Gas delivery
Revenues
36,937,016
42,988,230
39,650,017
Expenses
19,334,370
22,821,885
23,065,776
17,602,646
20,166,345
16,584,241
Other programs
(Customer Service, Rental Water Heaters & Financing)
Revenues
8,145,066
8,734,562
8,597,448
Expenses
5,623,242
6,154,160
4,934,228
2,521,824
2,580,402
3,663,220
Dispatch
Revenues
680,500
681,503
1,149,113
Expenses
680,500
681,503
1,149,113
Excess of revenue over expenses
20,124,470
22,746,747
20,247,461
Accumulated Surplus
Balance, beginning of year
84,182,105
84,182,105
77,250,191
Transfer to Tax Stabilization Reserve
-
(2,000,000)
-
Transfer to Gas Capital Investment Fund
(6,417,993)
(6,977,331)
(7,133,780)
Dividend Transfer to City
(6,802,311)
(6,802,311)
(6,181,767)
70,961,801
68,402,463
63,934,644
Add excess of revenue over expenses
20,124,470
22,746,747
20,247,461
Balance, end of year
91,086,271
91,149,210
84,182,105
SUPPLY OPERATIONS
Gas supply
Revenues
47,732,847
46,150,650
55,069,195
Expenses
51,844,457
46,701,556
49,937,325
Excess of revenue over expenses
(4,111,610)
(550,906)
5,131,870
Accumulated Net Revenue (Deficit) - Supply
Balance, beginning of year
2,966,666
2,966,666
(2,165,204)
Add excess of revenue over expenses
(4,111,610)
(550,906)
5,131,870
Balance, end of year
(1,144,944)
2,415,760
2,966,666
-83-
2 -106
KITCHENER POWER CORP.
� , T "11
KPMG LLP Telephone 519-747-9800
Ghartamd,dccountarns Fax 519-747-9930
115 King Street South Internet wvwv.lpmg.Ga
2" Fbor
Waterloo ON N2J 543
Canada
INDEPENDENT AUDITORS'REPORT
To the shareholders of Kitchener Power Corp
We have audited the accompanying consolidated financial statements of Kitchener Power Corp.,
which comprise the consolidated balance sheet as at December 31, 2011, the consolidated
statements of operations and comprehensive income, retained earnings and cash flows for the year
then ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management's Responsib tyfortyreConsolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Canadian generally accepted accounting principles, and for such
internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with Canadian generally accepted auditing standards.
Those standards require thatwe comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, we consider
internal control relevant to the entity's preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
KPMG LLP, isa Canadian limited liability partnership and a rrerrberfirmoftheKPMG
networkof independantmer rberfirmsaffiliatied wit h KPMG International Coo perati%ne
t "KPMG InternationalI. a Swiss entity.
KPMG Canada provides servbes to KPMG LLP.
2-107
KITCHENER POWER CORP.
Page 2
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Kitchener Power Corp. as at December 31, 2011, and its
consolidated results of operations and its consolidated cash flows for the year then ended in
accordance with Canadian generally accepted accounting principles.
kA�lG 2/4-'
Chartered Accountants, Licensed Public Accountants
March 30, 2012
Waterloo. Canada
-85-
2 -108
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED BALANCE SHEET
As at December 3151
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (note 4)
Inventories (note 5)
Prepaid expense
Payment -in -lieu of corporate income taxes receivable
Current portion of regulatory assets (note 18)
Total current assets
Non - current assets
Capital assets — net of accumulated amortization (note 6)
Regulatory assets (note 18)
Future income tax assets (note 19)
Total non - current assets
Total assets
See accompanying notes
2011 2010
23,456,329
32,032,880
37,610,347
35,828,545
3,421,943
3,668,935
696,284
826,486
453,540
371,230
2,796,689
2,295,813
68,435,132
75,023,889
152,895,083
143, 258, 355
21,536,416
20,970,013
13,287,674
12, 860, 747
187,719,173
177,089,115
256,154,305 252,113,004
-86-
2 -109
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED BALANCE SHEET (continued)
As at December 31St
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities (note 7)
Current portion of long term debt
Current portion of customers and construction deposits (note 8)
Current portion of regulatory liabilities (note 18)
Total current liabilities
Long -term liabilities
Long -term debt (note 9)
Customer deposits (note 8)
Post - employment benefits (note 11)
Regulatory liabilities (note 18)
Total long -term liabilities
Total liabilities
Shareholders' equity
Share capital — common shares (note 12)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
See accompanying notes
2011 2010
21,805,253
22,279,170
874,212
842,385
7,649,045
6,373,071
2,779,430
5,182,614
33,107,940
34,677,240
84, 844,106
85, 713, 896
3,797,881
3,887,326
5,466,421
5,381,065
17, 338, 259
16, 606, 383
111,446,667
111, 588, 670
144, 554, 607 146, 265, 910
66,389,385
66,389,385
45,210,313
39,457,709
111,599,698
105, 847, 094
256,154,305 252,113,004
-87-
2 -110
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
As at December 31St
Retained earnings, beginning of year
Net Income
Dividends paid out (note 25)
Retained earnings, end of year
See accompanying notes
2011 2010
39,457,709
33,203,770
9,052,604
8,153,939
(3,300,000)
(1,900,000)
45,210,313
39,457,709
-88-
2 -111
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME
For the year ended December 31St
2011 2010
REVENUE
Sales revenue
Distribution services revenue 38,326,403 35,568,752
Electric energy services (note 13) 163,154,684 157,002,725
201,481,087 192, 571, 477
Other revenue
163,154,684
157,002,725
Other investment income
444,625
373,372
Late payment penalties
248,288
234,173
Miscellaneous revenue (note 14)
1,005,182
1,080,334
Community relations
1,698,095
1,687,879
Non - utility operations revenue
425,860
582,347
Energy Conservation - OPA Funding (note 15)
766,832
1,511,287
Total revenue
203,946,014
195,770,643
EXPENSE
Operation expense
Electric energy services (note 13)
163,154,684
157,002,725
Distribution operations and maintenance
7,869,812
6,844,507
Customer accounts
2,689,629
2,535,818
General administration
2,931,990
2,668,993
Community relations
533,979
285,937
Property and capital taxes
425,860
582,347
Amortization (note 16)
9,654,186
9,597,026
187,260,140
179, 517, 353
Non - utility operation expense
Energy conservation - OPA programs (note 15)
564,037
1,174,061
Total expense
187,824,177
180,691,414
Income before interest and provision for
16,121,837
15,079,229
payments -in -lieu of corporate income taxes
Interest expense
4,764,050
4,884,770
Income before provision for payments -in -lieu
11,357,787
10,194,459
of corporate income taxes
Provision for payments -in -lieu of corporate income taxes (note 19)
2,305,183
2,040,520
NET INCOME
9,052,604
8,153,939
See accompanying notes
-89-
2 -112
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31 sc
2011 2010
OPERATING ACTIVITIES
Net Income 9,052,604 8,153,939
Add (deduct) charges to operations not requiring a current cash payment:
Gain on disposal of capital assets
(2,998)
(113,244)
Amortization (note 16)
10,392,283
10,276,551
Decrease (increase) in future income tax assets (note 19)
(71,579)
36,818
Increase (decrease) in non - current customer deposits (note 8)
(89,445)
240,585
Increase in post - employment benefits obligation (note 11)
85,357
43,945
Net change in non -cash operating working capital (note 17)
(3,588,921)
1,198,756
Cash provided byoperating activities
15,777,301
19,837,350
INVESTING ACTIVITIES
Additions to capital assets
(22,909,722)
(20,832,224)
(Increase) in long -term regulatory assets! liabilities (note 18)
(131,598)
(7,172,173)
Proceeds on disposals of capital assets
12,382
119,927
Cash applied to investing activities
(23,028,938)
(27,884,470)
FINANCING ACTIVITIES
Increase in contributed capital
2,813,049
4,105,073
Increase (decrease) in long term debt
(837,963)
9,594,139
Dividends paid out (note 23)
(3,300,000)
(1,900,000)
Cash provided by (applied to) financing activities
(1,324,914)
11,799,212
Net cash provided (applied) during the year
(8,576,551)
3,752,092
Cash and cash equivalents, beginning of year
32,032,880
28,280,788
Cash and cash equivalents, end of year
23,456,329
32,032,880
Cash and cash equivalents represented by:
Cash
12,438,822
9,032,880
Cash equivalents
11,017,507
23,000,000
23,456,329
32,032,880
Supplemental cash flow information
Interest paid
5,112,467
4,968,519
Payments -in -lieu of corporate income taxes and capital taxes
2,523,099
2,568,005
See accompanying notes
-90-
2 -113
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
1. INCORPORATION
On July 1, 2000, Kitchener Power Corp. [the Company] was incorporated under the Business
Corporation Act (Ontario) along with its affiliate companies, Kitchener - Wilmot Hydro Inc., Kitchener
Energy Services Inc. and FibreTech (Kitchener) Inc. The incorporation was required in accordance with
the provincial government's Electricity Competition Act (Bill 35). The City of Kitchener and the Township
of Wilmot both passed by -laws, which transferred the net assets of the former Hydro - Electric
Commission of Kitchener - Wilmot to the new Company on August 1, 2000. Certain surplus property
assets and cash funds were excluded from the transfer and were retained by the City and the Township.
The net assets of FibreTech (Kitchener) Inc. were subsequently transferred to Fibretech
Telecommunications Inc. on November 1, 2000 as a result of a statutory amalgamation with Fibretech
Telecommunications (Cambridge) Inc and Fibretech Waterloo Inc. On September 1, 2005, Fibretech
Telecommunications Inc. merged with Guelph FibreWired to create a new telecommunications company,
Atria Networks Inc. ( "Atria "). Atria was subsequently sold to a third party on November 7, 2006 and was
dissolved on October 15, 2009 pursuant to Section 237(b) of the Business Corporation Act (Ontario).
Kitchener Power Corp., the holding company for the affiliate companies, oversees the operations of
Kitchener - Wilmot Hydro Inc., a regulated distribution company, and Kitchener Energy Services Inc., an
unregulated retail services company.
Outstanding share capital includes 18,450 common shares held by the City of Kitchener and 1,550
common shares held by the Township of Wilmot. These municipalities are the sole shareholders of
Kitchener Power Corp.
2. SIGNIFICANT ACCOUNTING POLICIES
[I] Adoption of new accounting standards
Publicly accountable enterprises in Canada were required to adopt International Financial Reporting
Standards [ "IFRS "] in place of Canadian GAAP for annual reporting purposes for fiscal years
beginning on or after January 1, 2011. On September 10, 2010, the Accounting Standards Board
granted an optional one -year deferral for IFRS adoption for entities subject to rate regulation. The
Company elected to take the optional one -year deferral of its adoption of IFRS; therefore, it
continues to prepare its consolidated financial statements in accordance with Canadian GAAP
accounting standards in Part V of the CICA Handbook in 2011.
[II] Basis of accounting
The financial statements have been prepared by management in accordance with Canadian
generally accepted accounting principles [ "GAAP "] including accounting principles prescribed by the
Ontario Energy Board [the "OEB "] in the Accounting Procedures Handbook [the "AP Handbook "] for
Electric Distribution Utilities, and reflect the significant accounting policies as summarized below.
-91 -
2 -114
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[III] Regulation
Kitchener - Wilmot Hydro Inc. [ "KW Hydro "] is regulated by the OEB under the authority of the Ontario
Energy Board Act, 1998. The OEB is charged with the responsibility of approving or fixing rates for
the transmission and distribution of electricity, providing continued rate protection for rural and
remote electricity customers, and for ensuring that the distribution companies fulfill obligations to
connect and service customers.
The OEB has the general power to include or exclude costs and revenues in the rates of a specific
period, resulting in a change in the timing of accounting recognition from that which would have
applied in an unregulated company. The economic impact of rate regulation is reported in these
financial statements.
The following regulatory treatments have resulted in accounting treatments that differ from GAAP for
enterprises operating in a non - regulated environment:
Regulatory assets represent future increase in revenues associated with costs that have been
deferred because it is probable that they will be recovered from customers in future periods through
the rate - making process.
Regulatory liabilities represent future reduction in revenues associated with amounts that are
expected to be refunded to customers through the rate - making process.
[IV] Other accounting policies
[a] Financial instruments
Financial instruments — recognition and measurement — Section 3855
This Section establishes the standards for the recognition and measurement of financial
assets and financial liabilities. At inception, all financial instruments which meet the definition
of a financial asset or financial liability are to be recorded at fair value, unless fair value cannot
be reliably determined. Depending on the nature of the financial instrument, revenues,
expenses, gains and losses would be reported in either net income or other comprehensive
income. Subsequent measurement of each financial instrument will depend on the balance
sheet classification elected by the Company. The Company has elected the following balance
sheet classifications with respect to its financial assets and financial liabilities:
• Cash is classified as "Assets Held- for - Trading" and is measured at fair value.
• Cash equivalents, comprising short -term investments, are classified as "Held -to-
Maturity Investments" and are measured at amortized cost, which, upon initial
recognition, is considered equivalent to fair value.
• Accounts receivable are classified as "Loans and Receivables" and are measured at
amortized cost, which, upon initial recognition, is considered equivalent to fair value.
Subsequent measurements are recorded at amortized cost using the effective interest
rate method.
• Accounts payable and accrued liabilities and the long -term debt are classified as
"Other Financial Liabilities" and are initially measured at their fair value. Subsequent
measurements are recorded at amortized cost using the effective interest rate method.
-92-
2 -115
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive income — Section 1530
This Section describes the recognition and disclosure requirements with respect to
comprehensive income. Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income represents the changes in the fair value
of a financial instrument which have not been included in net income.
The Company had no adjustments to other comprehensive income during the period ending
December 31, 2011.
Hedges — Section 3865
This Section establishes standards regarding the use of hedge accounting, in particular, the
criteria to be met for the application of hedge accounting and the methods of executing various
hedging strategies. The Company has not entered into any hedging transactions as at
December 31, 2011.
[b] Inventories
Inventories consist of parts, supplies and materials held for future capital expansion. The
Company valued its inventories according to the provisions of CICA Handbook Section 3031.
Under this standard, inventories are valued at the lower of cost and net realizable value, and
items considered major spare parts are recorded as capital assets. The standard also contains
provisions requiring the reversal of inventory write -downs if the circumstances resulting in the
original write -down have reversed.
[c] Spare transformers and meters
Spare transformers and meters are classified as capital assets in accordance with guidance in
the CICA Handbook
-93-
2 -116
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies (continued)
[d] Capital assets and amortization
Capital assets are recorded at cost. Costs for assets installed or erected by the Company
include material, labour and overhead.
Amortization is provided on a straight -line basis for capital assets available for use over their
estimated service lives, at the following annual rates:
Buildings
2.00%
Transformer station equipment
2.50%
Distribution station equipment
3.33%
Distribution system
4.00%
Mete rs
4.00%
SCADA equipment
6.67%
Other capital assets 10-25%
Amortization on general equipment directly used in the installation of other capital assets, is
capitalized to the new assets based on a pro- ration of the time during the year they are used for
such purposes.
Full amortization is recorded in the year of acquisition and none in the year of disposal, except
for readily identified assets, which are amortized on a monthly basis.
For readily identifiable assets retired or disposed of, the asset and related accumulated
amortization are removed from the records. Differences between the proceeds, if any and the
unamortized asset amount plus removal costs are recorded as a gain or loss in the year of
disposal.
For grouped assets, the assets and accumulated amortization are removed from the records at
the end of their estimated average service life, regardless of actual service life.
[e] Construction in progress
Capital assets under construction at year -end are referred to as construction in progress and
disclosed as a component of capital assets. Construction in progress is recognized as a capital
asset and amortized when the asset is either put into service or construction is substantially
completed.
[f] Contributed capital
Contributed capital contributions are required contributions received from outside sources, used
to finance additions to capital assets. Contributed capital contributions received are treated as a
"credit' contra account included in the determination of capital assets. The amount is
subsequently amortized by a charge to accumulated amortization and a credit to amortization
expense, at an equivalent rate to that used for the amortization of the related capital assets.
-94-
2 -117
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies (continued)
[g] Customer deposits
Customer deposits are cash collections from customers to guarantee the payment of energy
bills. Deposits expected to be refunded to customers within the next fiscal year are classified as
a current liability.
[h] Payments -in -lieu of corporate income taxes and capital taxes
The current tax- exempt status of the Company under the Income Tax Act (Canada) and the
Corporations Tax Act (Ontario) reflects the fact that the Company is wholly owned by
municipalities. This tax - exempt status might be lost in a number of circumstances, including if
the municipality ceases to own 90% or more of the shares or capital of the Company or if a non -
government entity has rights immediately or in the future, either absolutely or contingently, to
acquire more than 10% of the shares of the Company.
Commencing October 1, 2001, the Company is required, under the Electricity Act 1998, to make
payments -in -lieu of corporate income taxes ['PILs "] to the Ontario Electricity Financial
Corporation, which will be used to repay the stranded debt incurred by the former Ontario
Hydro. These payments are calculated in accordance with the rules for computing income and
taxable capital and other relevant amounts contained in the Income Tax Act (Canada) and the
Corporations Tax Act (Ontario) as modified by the Electricity Act 1998 and related regulations.
As a result of becoming subject to payments -in -lieu of corporate income taxes [ "PILs"], the
Company's taxation year was deemed to have ended immediately beforehand and a new
taxation year was deemed to have commenced immediately thereafter. The Company was
therefore deemed to have disposed of each of its assets at their then fair market value and to
have reacquired such assets at that same amount for purposes of computing its future income
subject to PILs. For purposes of certain provisions, the Company was deemed to be a new
company and, as a result, tax credits or tax losses not previously utilized by the Company would
not be available to it after the change in tax status. Essentially, the Company was taxed as
though it had a "fresh start" at the time of its change in tax status.
[i] Post - employment benefits
Employee future benefits provided by KW Hydro include medical and life insurance benefits.
These plans provide benefits to certain employees when they are no longer providing active
service. Employee future benefit expense is recognized in the period in which the employees
render the services.
Employee future benefits are recorded on an accrual basis. The accrued benefit obligations
and current service cost are calculated using the projected benefits method pro -rated on service
and based on assumptions that reflect management's best estimate. The current service cost
for a period is equal to the actuarial present value of benefits attributed to employees' services
rendered in the period. Past service costs from plan amendments are amortized on a straight -
line basis over the average remaining service period of employees active at the date of
amendment.
An actuarial valuation of the plan obligation was completed as at January 1, 2011 resulting in an
unamortized net actuarial loss of $570,483. The Company has adopted the corridor method of
accounting for the actuarially determined experience gains (losses). The excess of the net
accumulated actuarial gains (losses) over 10% of the accrued benefit obligation is amortized
into expense over the average remaining service period of active employees.
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[IV] Other accounting policies (continued)
0] Pension plan
KW Hydro provides a pension plan for its employees through the Ontario Municipal Employees
Retirement System ['OMERS "]. OMERS is a multi - employer pension plan, which operates as
the Ontario Municipal Employees Retirement Fund [the "Fund "] and provides pensions for
employees of Ontario municipalities, local boards, public utilities, and school boards. The Fund
is a contributory defined benefit pension plan, which is financed by equal contributions from
participating employers and employees, and by the investment earnings of the Fund. The
Company recognizes the expense related to this plan as contributions are made.
[k] Revenue recognition and cost of electrical energy
KW Hydro records revenue from the sale of energy on the basis of regular meter readings and
estimates of customer usage since the last meter reading to the end of the year. The cost of
power is recognized when the energy is consumed.
[I] Use of estimates
The preparation of the consolidated financial statements, in conformance with Canadian
generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenue and expense for the year. Actual results could differ from those estimates including
changes as a result of future decisions made by the OEB, Minister of Energy, or the Minister of
Finance.
3. CREDIT RISK AND FINANCIAL INSTRUMENTS
[i] Credit risk
For distribution retail customers, credit losses are generally low across the sector. The Company
provides for an allowance for doubtful accounts to absorb credit losses.
At December 31, 2011, there are no significant concentrations of credit risk with respect to any class
of financial assets.
[ii] Interest rate risk
Cash balances not required to meet day -to -day obligations of the Company are invested in
Canadian money market instruments, with terms of one day to 364 days, exposing the Company to
fluctuations in short-term interest rates. These fluctuations could impact the level of interest income
earned by the Company.
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
4. ACCOUNTS RECEIVABLE
Electric energy
Miscellaneous
Less: Allowance for doubtful accounts
Unbilled revenue receivable
Interest receivable
Related parties receivable:
City of Kitchener
Township of Wilmot
2011 2010
11,501,599
14, 594, 450
2,543,908
1,653,488
14,045,507
16, 247, 938
(250,000)
(300,000)
13,795,507
15, 947, 938
23,380,400 19, 649, 500
81,353 141,267
315,287 81,326
37,800 8,514
353,087 89,840
37,610,347 35,828,545
Related Party Transactions
The Company conducted the following transactions with related parties during the year ended December
31, 2011. These transactions are in the normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and agreed to by the related parties.
2011 2010
City of Kitchener — capital and maintenance of street lights 1,172,593 744,667
Township of Wilmot — capital and maintenance of street lights 83,743 121,664
1,256,336 866,331
5. INVENTORIES
Inventories consist of:
2011 2010
Stores 2,896,577 3,029,844
Transformers 468,021 530,751
Thermostats for conservation programs 57,346 108,340
3,421,943 3,668,935
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
6. CAPITAL ASSETS —NET OF ACCUMULATED AMORTIZATION
Accumulated Net Book
2011 Cost Amortization Value
Land
Land Rights
Buildings
Transformer Station Equipment
Distrbution Station Equipment
Distribution System - Conductors and devices
Distribution System - Line and network transformers
Meters
SCADA- System Supervisory Equipment
Other Capital Assets
Construction in Progress
Less: Contributed Capital
T otal
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2 -121
Accumulated
3,735,257
-
3,735,257
265,449
252,568
12,881
19,513,618
5,439,167
14,074,451
59,878,130
17,378,248
42,499,882
2,853,105
1,965,929
887,176
162,690,428
74,124,121
88,566,307
49,922,477
24,998,388
24,924,089
1,924,725
488,701
1,436,024
1,566,480
1,451,404
115,076
17,714,313
12,397,806
5,316,507
4,545,881
72,105,303
4,545,881
324,609,863
138,496,332
186,113,531
(44,537,160)
(11,318,712)
(33,218,448)
280, 072, 703
127,177, 620
152, 895,083
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2 -121
Accumulated
2010
Cost
Amortization
Net Book Value
Land
3,730,479
-
3,730,479
Land Rights
265,449
249,915
15,534
Buildings
17,834,427
5,075,870
12,758,557
Transformer Station Equipment
51,454,525
15,920,916
35,533,609
Distrbution Station Equipment
2,853,105
1,888,472
964,633
Distribution System - Conductors and devices
158,942,439
72,105,303
86,837,136
Distribution System - Line and network transformers
50,109,118
25,528,138
24,580,980
Meters
3,623,917
2,197,301
1,426,616
SCADA- System Supervisory Equipment
1,566,480
1,387,014
179,466
Other Capital Assets
16,889,346
11,266,257
5,623,089
Construction in Progress
3,794,140
3,794,140
311, 063, 425
135, 619,186
175, 444,239
Less: Contributed Capital
(41,724,111)
(9,538,227)
(32,185,884)
Total
269, 339, 314
126, 080, 959
143, 258,355
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Independent Electricity System Operator
Ontario Electricity Financial Corporation (DRC)
Energy rebates payable (OCEB)
CDNVOPAprograms payable
Others
8. CUSTOMER AND CONSTRUCTION DEPOSITS
Construction deposits
Customer deposits — current portion
Customer deposits — non current portion
2011 2010
15,967,796
15, 294, 269
915,933
889,221
94,019
-
554,624
13,049
4,272,881
6,082,631
21,805,253 22,279,170
2011 2010
4,830,945
3,574,171
2,818,100
2,798,900
7,649,045
6,373,071
3,797,881 3,887,326
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
9. LONG -TERM DEBT
[i] Effective August 1, 2000, KW Hydro incurred unsecured promissory notes payable to the City of
Kitchener and to the Township of Wilmot.
During 2010, KW Hydro incurred a ten year senior unsecured debenture payable to Ontario
Infrastructure Projects Corporation. The initial payable of $7,000,000 was received by the
Corporation on February 1, 2010 followed by a second payment of $3,000,000 on May 17, 2010.
The amounts due at the end of the year are:
2011 2010
City of Kitchener 70,997,576 70,997,576
Township of Wilmot 5,964,566 5,964,566
Ontario Infrastructure Projects Corporation 8,756,176 9,594,139
85,718,318 86,556,281
Less: Ontario Infrastructure Projects Corporation - Current
Portion 874,212 842,385
84,844,106 85,713,896
[ii] For Shareholder Debt, interest is paid quarterly at an annual effective rate established by the OEB.
The annual effective rate for January 1, 2011 to December 31, 2011 was 5.87 %. Repayment of all
or part of the outstanding principal may be made upon eighteen months written notice.
For Ontario Infrastructure Project Corporation debt, the annual effective interest rate is 4.28 %.
Payments, which include both principal and interest, are made semi - annually in May and November.
The Company paid the following interest:
2011 2010
City of Kitchener 4,167,558
4,197,902
Township of Wilmot 350,120
352,669
Ontario Infrastructure Projects Corporation 397,336
284,231
4,915,014
4,834,802
10. PENSION PLAN
As directed by the OEB the cash pension costs paid by KW Hydro for 2005 totalling $678,442 and for
January 1, 2006 to April 30, 2006 totalling $247,542 were deferred and recognized as regulatory assets.
These amounts are currently being recovered through distribution rates as a rate rider, which became
effective when KW Hydro rebased for rate setting purposes in 2010.
The cash pension costs for the year ended December 31, 2011 in the amount $1,005,894 (2010 —
$868,303) have been expensed during the period in which they were incurred.
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
11. POST - EMPLOYMENT BENEFITS
KW Hydro pays certain health, dental and life insurance benefits on behalf of its retired employees.
The significant actuarial assumptions adopted in measuring the accrued benefit obligations are as
follows:
Unamortized acturial gains
Balance, beginning of the year
Acturial loss for the year
Current year amortization
Accrued benefit liability at December 31 as determined by
actuarial valuation
1,083,200 1,178, 535
(570,483) -
(30,130) (95,335)
482,587 1,083, 200
5,466,421 5,381, 065
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2 -124
2011
2010
Discount Rate - Jan 1
5.00%
5.25%
Discount Rate - Dec 31
4.50%
Future general salary and wage levels increase
3.30%
3.80%
Future general inflation increase
2.00%
2.30%
Dental costs increase
5.00%
5.00%
Medical costs increase
8.00%
8.00%
Information about KV1/ Hydro's defined benefits plans is as follows:
2011
2010
Accrued Benefit Obligation
Balance, beginning of year
4,297,864
4,158,585
Current service cost
696,689
116,213
Interest cost
228,489
219,276
Benefits paid
(239,208)
(196,209}
4,983,834
4,297,865
Unamortized acturial gains
Balance, beginning of the year
Acturial loss for the year
Current year amortization
Accrued benefit liability at December 31 as determined by
actuarial valuation
1,083,200 1,178, 535
(570,483) -
(30,130) (95,335)
482,587 1,083, 200
5,466,421 5,381, 065
-101 -
2 -124
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
12. SHARE CAPITAL
Authorized
Unlimited common shares
Issued
20,000 common shares
13. ELECTRIC ENERGY SERVICES
Revenue
Electricity revenue
Wholesale market services
Transmission services
Retailer services
Costs
Electricity
Wholesale market services
Transmission services
Retailer services
14. MISCELLANEOUS REVENUE
Pole attachment rentals, buildings and other rentals
Change of occupancy charges
Scrap sales
Net gain on disposal of capital assets
Unsealing 1 reconnection charges
Accounts payable discounts taken
Return cheque charges
Sundry
15. NON - UTILITY OPERATIONS
2011 2010
66,389,385 66,389,385
2011 2010
139,564,210
132,266,184
10, 268, 968
10,192, 522
13, 251,712
14,481, 775
69,794
62,244
163,154,684
157,002, 725
139,564,210
132,266,184
10, 268, 968
10,192, 522
13, 251,712
14,481, 775
69,794
62,244
163,154,684
157,002, 725
2011 2010
554,095
541,300
152,440
162,470
147,237
101,727
2,998
113,244
37,995
63,960
24,535
29,277
23,438
22,505
62,444
45,851
1,005,182
1,080,334
In 2007, KW Hydro entered into an agreement with the Ontario Power Authority [ "OPA "] to deliver OPA
funded energy conservation and demand management [ "CDM "] programs. The OEB classifies the
revenue funding and related expense to deliver the OPA CDM programs as non - utility operations.
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KITCHENER POWER CORP.
Kitchener Power Corp.
M CIR107 I1. 7_r 1:11 1010 11=Mi lairIFIVC9]►_ll I'If_r0=1M1:1101111 &1
18. REGULATORY ASSETS AND LIABILITIES
The "Electricity Pricing, Conservation and Supply Act, 2002" [Bill 210] deems certain costs and variance
account balances to be accounted for as regulatory assets [note 2(111)].
[i] Regulatory assets consist of the following:
Current portion regulatory assets
Conservation and demand management
OEB cost assessments
OMERS pension costs
Retailer service cost variances
Retail settlement variances
Other deferred costs
Long -term portion regulatory assets
FIRS transition costs
OEB cost assessments
OMERS pension costs
Renewable connection
Special purpose charge
Retailer service cost variances
Retail settlement variances
Smart meter funding and cost recovery
Other deferred credits
Less: regulatory assets recovered
Total regulatory assets
2011 2010
59
135
233,150
108,134
47,427
531,584
12,396
28,264
2,483, 564
1,620,450
20,093
7,246
2,796,689
2,295,813
149,240
55,030
-
233,150
-
47,427
-
25,620
-
331,875
32,067
34,765
6,430, 761
5,627,075
14,824,502
14,366,011
99,846
276,511
21,536,416
20, 997, 464
-
(27, 451)
21,536,416
20, 970, 013
24, 333,105 23, 265, 826
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
18. REGULATORY ASSETS AND LIABILITIES
The "Electricity Pricing, Conservation and Supply Act, 2002" [Bill 210] deems certain costs and variance
account balances to be accounted for as regulatory assets [note 2(111)].
[i] Regulatory assets consist of the following:
Current portion regulatory assets
Conservation and demand management
OEB cost assessments
OMERS pension costs
Retailer service cost variances
Retail settlement variances
Other deferred costs
Long -term portion regulatory assets
FIRS transition costs
OEB cost assessments
OMERS pension costs
Renewable connection
Special purpose charge
Retailer service cost variances
Retail settlement variances
Smart meter funding and cost recovery
Other deferred credits
Less: regulatory assets recovered
Total regulatory assets
2011 2010
59
135
233,150
108,134
47,427
531,584
12,396
28,264
2,483,564
1,620,450
20,093
7,246
2,796,689
2,295,813
149,240
55,030
-
233,150
-
47,427
-
25,620
-
331,875
32,067
34,765
6,430,761
5,627,075
14,824,502
14,366,011
99,846
276,511
21,536,416
20,997,464
-
(27, 451)
21,536,416
20,970,013
24, 333,105 23, 265, 826
2-127
KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
19. CORPORATE INCOME AND CAPITAL TAXES
The provision for PILs differs from the amount that would have been recorded using the combined
Canadian Federal and Ontario statutory income tax rate. Reconciliation between the statutory and
effective tax rates is provided as follows:
[i] Statement of Operations
Rate reconciliation:
Income from continuing operations before income taxes
Statutory Canadian Federal and Provincial income tax rate
Expected taxes on income
Other permanent differences
Increase (decrease) in income taxes resulting from:
Adjustment of prior years taxes
Other current year timing differences not benefited
Other adjustments
Valuation allowance against current year temporary difference:
Dividend refund
Increased tax on investment income
Income tax expense
Effective tax rate
Components of income tax expense:
Current tax expense
Future tax provision (recovery) arising from
temporary differences
[ii] Balance Sheet
2011 2010
11,357, 787 10,194, 459
28.25% 31.00%
3,208,575 3,160,282
52,038 (50,254)
(169,698)
(481,372)
(675,232)
(532,254)
(162,543)
(45,840)
-
15,202
-
(87,805)
67,045
62,561
2,320,185 2,040,520
20.43% 20.02%
2,376,762 2,003,702
(56,577) 36,818
2,320,185 2,040,520
Future income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's future income tax assets as at December
31, 2011 are as follows:
2011 2010
Capital assets - differences in net book value and
8,879,067
8,580,31
undepreciated capital cost
Regulatory adjustments
2,958,022
2,869,18
Post - employment benefits
1,361,605
1,345,26
Loss carry- forwards
73,978
65,97
13,272,672
12, 860, 74
The Company has capital losses of $82,340 [2010 — $82,340] and net loss carry forwards of
approximately $322,186 [2010 — $281,240] as at December 31, 2011.
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
20. PRUDENTIAL SUPPORT OBLIGATION
KW Hydro purchases power from the Independent Electricity System Operator [IESO] on behalf of its
customers and retailers. The IESO is responsible for ensuring that prudential support is posted by all
market participants to mitigate the impact of an event of default by a market participant on the rest of the
market. In this regard, at December 31, 2011, KW Hydro has posted an irrevocable standby letter of
credit as security in the amount of $29,782,438 [2010 - $29,782,438] underwritten by KW Hydro's
principal bank. KW Hydro has entered into a credit facility agreement with its bank in which contains
certain financial covenants.
21. GENERAL LIABILITY INSURANCE
The Company is a member of the Municipal Electric Association Reciprocal Insurance Exchange
[ MEARIE], which is a pooling of general liability insurance risks. Members of MEARIE would be
assessed on a pro -rata basis should losses be experienced by MEARIE, for the years in which the
Company was a member. To December 31, 2011, the Company has not been made aware of any
additional assessments.
22. CONTINGENT LIABILITY
Griffith et al. v. Toronto Hydro - Electric Commission et al.
This action was brought under the Class Proceedings Act, 1992. The plaintiff class was seeking $500
million in restitution for amounts paid to Toronto Hydro and to other Ontario municipal electric utilities
( "LDCs ") who received late payment penalties which constitute interest at an effective rate in excess of
60% per year, contrary to Section 347 of the Criminal Code. Pleadings have closed in this action. The
action was certified as a class action following the outcome of a similar proceedings brought against
Enbridge Gas Distribution Inc. (formerly Consumers Gas).
On April 22, 2004, the Supreme Court of Canada released a decision in the Consumers Gas case
rejecting all of the defences which had been raised by Consumers Gas, although the Court did not permit
the Plaintiff class to recover damages for any period prior to the issuance of the Statement of Claim in
1994 challenging the validity of late payment penalties. The Supreme Court remitted the matter back to
the Ontario Superior Court of Justice for determination of the damages. At the end of 2006, a mediation
process resulted in the settlement of the damages payable by Enbridge and that settlement was
approved by the Ontario Superior Court.
In 2007, Enbridge filed application to the OEB to recover the Court- approved amount and related
amounts from ratepayers. On February 4, 2008 the OEB approved recovery of the same amounts from
ratepayers over a five year period.
After the release by the Supreme Court of Canada of its 2004 decision in the Consumers Gas case, the
plaintiffs in the LDC late payment penalties class action indicated their intention to proceed with their
litigation against the LDCs.
On July 22, 2010, The Honourable Mr. Justice Cumming of the Ontario Superior Court of Justice
approved the settlement in the Late Payment Penalty class action. The approved settlement of
$17,037,500 is to be shared amongst all LDCs in the Province of Ontario that did not opt out of the
settlement. As KW Hydro did not opt out of the settlement, its share of the total settlement amount is
$271,910 which the Company paid on June 29, 2011 to Ogilvy Renault in Trust to be disbursed to people
in need of financial assistance in Kitchener - Wilmot Hydro's service territory.
In 2010, the Company recorded the settlement as a current liability and a regulatory asset.
In February 2011, the OEB issued a generic decision in EB -2010 -0295 allowing affected distributors to
recover the LPP amounts paid back from customers as a rate rider.
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
22. CONTINGENT LIABILITY (Continued)
KW Hydro applied for a class specific rate rider to recover the LPP amount through its 2011 rate
application (EB — 2010 — 0094) and received approval from the OEB on March 28, 2011 for a one year
rate rider to run from May 1, 2011 to April 30, 2012. In its decision, the OEB did not require a regulatory
asset account to be established for the amounts nor did it require final true up. As the amount was
accrued as a regulatory asset in 2010 (therefore not affecting net income), the amount of $271,904 has
been expensed in 2011.
23. DIVIDENDS
Dividends in the amount of $NIL were received in 2011 from KW Hydro, a subsidiary of Kitchener Power
Corp [2010 — $5,750,000]
Dividends paid out to shareholders are as follows:
2011 2010
City of Kitchener 3,044,250 1,752,750
Township of Wilmot 255,750 147,250
3,300,000 1,900,000
24. COMMITMENTS
In support of the Province of Ontario's decision to install smart meters throughout Ontario by 2010 and
pursuant to Ontario Regulation 427/06, KW Hydro launched its smart meter initiative in 2008. KW Hydro
has committed to install 86,000 smart meters and supporting infrastructure by the end of 2010 at an
estimated capital cost of $13,500,000. As of December 31, 2011, approximately 86,900 smart meters or
99% deployment was completed.
In December 2009, KW Hydro signed a financing agreement with Ontario Infrastructure Projects
Corporation [ "OIPC "] to make financing available up to a maximum amount of $10,000,000 for its
investment in smart metering infrastructure assets. This funding was received by KW Hydro in 2010. The
outstanding amount owing at the end of 2011 is $8,756,176 (2010 - $9,594,139)
The OEB adopted the policy that specific funding for the capital cost of smart meters should be included
in distribution rates by all Ontario electric distribution companies. The Board decided that "seed" funding
equivalent to $0.27 per metered customer per month be included in KW Hydros distribution rates
commencing May 1, 2006. This funding was increased to $1.00 per metered customer per month
effective May 1, 2009 pursuant to OEB Decision and Order of March 10, 2009. This rate rider was again
increased to $2.00 per metered customer per month effective May 1, 2011 following an OEB decision in
March 2011. Revenue has been reduced by the amount funded in rates, and has been deferred and
netted against smart metering capital costs incurred in accordance with the AP Handbook. Unfunded
costs including financing expenses, are expected to be recovered through future distribution rates once
the project is completed, pursuant to the OEB's guidelines.
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KITCHENER POWER CORP.
Kitchener Power Corp.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
25. EMERGING ACCOUNTING CHANGES
International Financial Reporting Standards [ "IFRS "]
On February 13, 2008, the Accounting Standards Board of Canada [ "AcSB"] announced that publicly
accountable enterprises will be required to change over to IFRS effective January 1, 2011.
In 2010, the cutover date was deferred to January 1, 2012 for regulated entities, at which time, the
Company will adopt IFRS standards.
Some of the converged standards will be implemented in Canada during the transition period with the
remaining standards adopted at the change over date. The Company has launched an internal initiative
to govern the conversion process and is currently in the process of evaluating the potential impact of the
conversion to IFRS on its financial statements.
26. COMPARATIVE FIGURES
Certain prior year comparative figures may have been restated to conform to the current year's
presentation.
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A 44r.11
cuVing Orough comp emiry "
AUDIT
City of Kitch(
Audit Findings Report
For the year ended Decei
KPMG LLP, Chartered Ac
Accountants
kpmg.ca
Dear Audit Committee members,
We have prepared this audit findings report to assist you with your review of the financial statements
and the carrying out of your audit committee responsibilities. We are here to help. We encourage
you to ask us for more information on any of the matters covered in this report —and beyond.
Developments in the audit profession
As part of our ongoing effort to keep you informed on issues critical to your responsibilities, we bring
to your attention that the Public Company Accounting Oversight Board ( PCAOB) issued two concept
releases. The first release speaks to auditor independence and audit firm rotation, and requests input
on ways auditor independence, objectivity, and professional skepticism could be enhanced. The
primary focus of this first release is the issue of mandatory audit firm rotation. The second release
discusses several alternatives for changing the auditor's reporting model that focus on increasing
transparency and relevance to financial statement users, while not compromising audit quality.
The European Commission has proposed legislative changes covering many of the same issues,
including those around independence, auditor rotation and audit firm concentration.
Both the PCAOB concept releases and the European Commission proposals are summarized in
"International developments relating to auditing" in the appendices of this report.
KPMG is fully committed to the goal of enhancing auditor independence, objectivity, and professional
skepticism. We will continue to be actively engaged with the PCAOB, Canadian Public Accountability
Board, and other regulatory bodies to pursue actions that will improve audit quality and enhance
market confidence in the independent audit.
Audit quality
The quality of an audit and the resulting financial statements are receiving an increased level of
scrutiny around the world. Audit quality is at the core of everything we do at KPMG, and we believe
that it is not just about providing the right audit opinion, but also the steps we take to provide that
audit opinion. One component of our efforts in this area is the development and implementation of
the KPMG Audit Quality Framework to help ensure that every partner and professional concentrates
on the fundamental skills and behaviours required to deliver an appropriate and independent audit
opinion. We invite you to review "KPMG's Audit Quality Framework ", summarized in the appendices
of this report.
Reaching out to audit committees
KPMG's Audit Committee Institute holds Audit Committee Roundtables across the country twice
yearly. You are cordially invited to attend. For information and registration, please visit
www.kr)mq.ca/auditcommittee/roundtables.html.
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We appreciate the assistance of management and staff in conducting our audit. We hope this audit
findings report is of assistance to you as you carry out your agenda, and we look forward to
discussing our findings and answering your questions at the upcoming audit committee meeting.
Yours sincerely,
Tom Mennill, CA
Partner
Matthew Betik, CA
Partner
'Ii
Contents
�Y
Executivesummary ................................................................................... ............................... 1
Significant audit, accounting and reporting matters ............................. ............................... 2
Significant qualitative aspects of accounting practices ........................ ............................... 4
Misstatements............................................................................................ ............................... 5
Controldeficiencies ..................................................................................... ............................... 6
Appendices................................................................................................. ............................... 7
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Executive summary
Overview
The purpose' of this Audit Findings Report is to assist you, as a member of the audit committee, in
your review of the financial statements of the Corporation of the City of Kitchener for the year ended
December 31, 2011.
Status
As of the date of this report, we have completed the audit of the financial statements, with the
exception of certain remaining procedures which include:
• completing our discussions with the committee
• obtaining evidence of the approval of the financial statements.
Please refer to the Appendices for our draft audit report. We will update you on any significant
matters arising from the completion of the audit, including completion of the above procedures, Our
audit report will be dated upon completion of any remaining procedures.
Changes in Audit Plan
There were no changes in our audit plan from what was presented to the Audit Committee
previously.
This Audit Findings Report should not be used for any other purpose or by anyone other than the audit committee. KPMG
shall have no responsibility or liability for loss or damages or claims, if any, to or by any third party as this Audit Findings
Report has not been prepared for, and is not intended for, and should not be used by, any third party or for any other
purpose.
I I P a g e
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Significant audit,
accounting and
reporting matters
Matters to discuss
Included in this report are matters we have highlighted for discussion at the upcoming audit
committee meeting. We look forward to discussing these matters and our findings with you.
Other matters
We have highlighted below other significant matters that we would like to bring to your attention:
Storm Water Management Fee Rebate Accrual
•
During 2011, the City implemented its Storm Water Management (SWM) utility and the related
fees were charged to property owners.
•
In connection with new program, a rebate mechanism was implemented in order to encourage
property owners to manage storm water as well as reduce their costs.
•
While no rebates were paid in fiscal 2011, management has accrued an amount for expected
rebates of the 2011 fees.
•
Management has based this accrual on a detailed analysis of the various SWM fee rebate
programs, supplemented by data and experience collected from other municipalities.
KPMG comments
•
The rebate accrual is based on 5 % of the SWM fees for 2011. As noted above, this was based
on an analysis of the rebate programs.
•
PSAB requires that management make its best estimate of accruals where measurement
uncertainty exists. In this case, as the amount of rebates to be paid are unknown, management
is required to use all relevant information in estimating and recording the accrual.
•
We have reviewed the support for the rebate accrual at December 31, 2011 and have
concurred with management's approach to estimating the rebate accrual and the amounts
recorded in the financial statements.
•
We will continue to monitor the development of the rebate programs and the accruals in future
years.
•
It is expected that management will utilize the City's actual experience with the rebate program
in setting and revising its rebate accrual in future periods.
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Development Charge Revenue
•
The City collects Development Charges (DCs) in order to fund infrastructure expenditures in
development areas.
•
Current government legislation requires that unspent DC funds be retained in an obligatory
reserve fund for DCs.
•
In most cases, DCs are collected in advance of the associated expenditures, and as a result, the
DC reserve fund tends to be in a surplus position.
•
PSAB requires that surplus balances in obligatory reserve funds, such as the DC fund, be
recorded as deferred revenue in the statement of financial position, This is due to the fact that
external restrictions are placed on the expending of the DC funds collected.
KPMG comments
•
During 2011, the City made development charge related expenditures in excess of the amounts
collected, which in turn created a deficit in the DC reserve fund.
•
While a surplus in the DC reserve fund results in a liability on the statement of financial position,
in contrast a deficit in the DC reserve fund does not result in an asset on the statement of
financial position.
•
This is due to the fact that expectation of future DC collections does not meet the definition of
an asset, in accordance with the PSAB accounting standards.
•
The effect of this is that DC revenue recognized in the financial statements, which is normally
recognized as the expenditures are incurred, is lower, and is limited by the amount of DCs
collected.
•
In future years, when DC collections exceed the related expenditures, the DC revenue
recognized will be higher than the related expenditures, until such time as the DC reserve fund
returns to a surplus position.
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Significant
qualitative aspects of
accounting practices
The following are the significant qualitative aspects of accounting practices that we plan to discuss
with you:
Significant • No significant changes in accounting policies
accounting policies
Significant • Management's identification of accounting estimates is:
accounting • Amortization period for Tangible Capital Assets
estimates
• Accruals
• Allowance for doubtful accounts
Significant • There are no new significant disclosures.
disclosures
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Misstatements
Identification of misstatements
Misstatements, if any, identified during the audit have been categorized as follows:
• uncorrected misstatements, including disclosures
• corrected misstatements, including disclosures
Uncorrected misstatements
We have concurred with management's assertion that any uncorrected audit differences, individually
and in aggregate, are not material to the financial statements
Corrected misstatements
Management has approved of the recommended audit corrections made during the course of our
exam ination
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Background and professional standards
Control deficiencies
As your auditors, we are required to obtain an understanding of internal control over financial
reporting (ICFR) relevant to the preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances for the purpose of expressing
an opinion on the financial statements, but not for the purpose of expressing an opinion on internal
control. Accordingly, we do not express an opinion on the effectiveness of internal control.
Our understanding of ICFR was for the limited purpose described above and was not designed to
identify all control deficiencies that might be significant deficiencies and therefore, there can be no
assurance that all significant deficiencies and other control deficiencies have been identified.
Our awareness of control deficiencies varies with each audit and is influenced by the nature, timing,
and extent of audit procedures performed, as well as other factors.
Identification
We did not identify any control deficiencies that we determined to be significant deficiencies in ICFR.
Definitions
Terminology
Definition
Deficiency in
A deficiency in internal control exists when the design or operation of a control does not
internal control
allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect misstatements on a timely basis. A deficiency in design
exists when (a) a control necessary to meet the control objective is missing; or (b) an
existing control is not properly designed so that, even if the control operates as
designed, the control objective would not be met. A deficiency in operation exists when
a properly designed control does not operate as designed or the person performing the
control does not possess the necessary authority or competence to perform the control
effectively.
Significant
A significant deficiency in internal control is a deficiency or combination of deficiencies
deficiency in
in internal control that, in the auditor's professional judgment is of sufficient importance
internal control
to merit the attention of those charged with governance.
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Appendices
Draft audit report
Independence letter
International developments relating to auditing
KPMG's Audit Quality Framework
Other current developments
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Draft Independent auditors' report
INDEPENDENT AUDITORS' REPORT
To the Members of Council, Inhabitants and Ratepayers of The Corporation of the City of Kitchener:
We have audited the accompanying financial statements of The Corporation of the City of Kitchener
( "the Entity "), which comprise the financial position as at December 31, 2011 and the statement of
operations, changes in net assets, and cash flow for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Canadian generally accepted accounting principles, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, we consider internal control relevant to the Entity's
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
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Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of
The Corporation of the City of Kitchener as at December 31, 2011, and the results of its operations
and its cash flows for the year then ended in accordance with Canadian generally accepted
accounting principles.
DRAFT
Chartered Accountants, Licensed Public Accountants
June 25, 2012
Waterloo, Canada
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Independence letter
Corporation of the City of Kitchener
200 King Street West
Kitchener, ON
N2G 4G7
June 12, 2012
Dear Audit Committee Members:
We have been engaged to express an opinion on the consolidated financial statements of the
Corporation of the City of Kitchener ( "the Entity ") as at and for the period ended December 31, 2011.
Professional standards specify that we communicate to you in writing, at least annually, all
relationships between the Entity (and its related entities) and our firm, that may reasonably be thought
to bear on our independence.
In determining which relationships to report, we are required to consider relevant rules and related
interpretations prescribed by the Institute of Chartered Accountants of Ontario and any applicable
legislation or regulation, 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
• personal or business relationships of immediate family, close relatives, partners or retired
partners, either directly or indirectly, with a client
• economic dependence on a client.
We have prepared the following comments to facilitate our discussion with you regarding
independence matters.
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PROVISION OF SERVICES
The following summarizes the professional services rendered by us to the Entity its related
entities) for the period ended December 31, 2011:
Description of Service
Audit
• Audit of the consolidated financial statements of the Corporation of the City of Kitchener,
including Trust Funds and Gasworks Enterprise
• Audit of the Federal Gas Tax Agreement
• Audit of the Ministry of Health Report for the Seniors Day Out Program
• Audit of the Capital Cost Report for the Consolidated Maintenance Facility under the
Green Municipal Fund Program
Tax
• Various tax advisory matters
All other
• Special Report on the Kitchener Rangers Hockey Club Loan
OTHER RELATIONSHIPS
We are not aware of any relationships between our firm and the Entity (and its related entities) that
may reasonably be thought to bear on our independence during the period from January 1, 2011 to the
date of this letter.
CONFIRMATION OF INDEPENDENCE
Professional standards require that we confirm our independence to you in the context of the Rules of
Professional Conduct /Code of Ethics of the Institute of Chartered Accountants of Ontario.
Accordingly, we hereby confirm that we are independent with respect to the Entity (and its related
entities) within the meaning of the Rules of Professional Conduct /Code of Ethics of the Institute
Chartered Accountants of Ontario as of the date of this letter.
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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 their responsibilities and should not be
used for any other purposes. No responsibility for loss or damages, if any, to any third parry 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.
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,
Chartered Accountants, Licensed Public Accountants
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International developments relating to auditing
Some recent developments and proposed changes in the auditor /client relationship include:
The Public Company Accountability Oversight Board ( "PCAOB ") has issued a Concept Release
that discusses whether auditor independence, objectivity and professional skepticism could be
enhanced through the mandatory rotation of audit firms. The PCAOB is seeking comment on
matters including:
the advantages and disadvantages of mandatory audit firm rotation after a fixed number of
years of acting as auditor for an entity;
whether mandatory audit firm rotation would be required for all issuer audits or for a subset
of issuer audits such as only for larger entities;
whether mandatory audit firm rotation would limit a entity's choice of auditor; and
whether to prohibit audit committees from removing an auditor without good cause prior to
the end of the allowable term.
The PCAOB has issued another Concept Release that discusses several alternatives for changing
the auditor's reporting model that propose increasing transparency and relevance to financial
statement users, while not compromising audit quality. Aspects of the concept release include:
an Auditor's Discussion and Analysis that could provide investors and other financial
statement users with a view of the audit and the financial statements "through the auditor's
eyes," regarding the company's financial statements, such as management's judgments and
estimates, accounting policies and practices, and difficult or contentious issues, including
"close calls;"
mandating the use of emphasis of matter paragraphs in all audit reports and further
expanding the emphasis of matter paragraphs to highlight significant matters. The auditor
could also be required to comment on key audit procedures performed pertaining to the
identified matters;
a requirement for auditors to provide assurance on information outside the financial
statements, such as MD &A, or other information; and
clarification of language in the standard auditor's report to provide additional explanation
about what an audit represents and the related auditor responsibilities.
• The European Commission ( "EC ") released a Green Paper in October 2010: The European
Commission green paper on Audit Policy, which sought comment on the role of the auditor in
light of the financial crisis of 2008. Based on this Green Paper and comments received, the EC
released proposals on November 30, 2011 which include the following new rules governing
auditing firms:
mandatory audit firm rotation for a client after six years, with an extension to nine years if
joint audits are performed;
mandatory tendering for appointing auditors though an "open and transparent tender
procedure," including requiring at least one of the firms invited to tender to be a smaller firm;
restricting firms that audit issuers from performing non -audit services;
requiring that at least one audit committee member be competent in auditing and another
member be competent in auditing and /or accounting;
expanded reporting requirements to be addressed in the auditors' report.
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KPMG's Audit Quality
Framework
Audit quality, and the respective roles of the auditor and
audit committee, is fundamental to the integrity of
financial reporting in our capital markets.
This is why audit quality is at the core of everything we do
at KPMG. And we believe that it is not just about reaching
the right opinion, but how we reach that opinion.
To help ensure that every partner and employee
concentrates on the fundamental skills and behaviours
required to deliver an appropriate and independent
opinion, we have developed our global Audit Quality
Framework.
The framework comprises seven key drivers of audit
quality.
The seven key drivers of audit quality
Tone at the top
Association with
the right clients
Clear standards
and robust audit
tools
Recruitment,
development and
assignment of
appropriately
qualified
personnel
Commitment to Association with the
continuous right clients
improvement
Performance of Tone at Clear standards and
(effective and efficient the top J robust audit tools
audits 11
Commitment to
technical excellence
and quality service
delivery
Recruitment,
development and
assignment of
appropriately
qualified personnel
Audit quality is part of our culture and Assures you that:
our values and therefore non- , Our culture supports our
negotiable promise to you of excellent
Allows the right behaviours to permeate client service and a high
across our entire organization and each quality audit — consistently
of our engagements . You're receiving an
Ethics above all independent, transparent,
audit opinion
Eliminates any potential independence
and conflict -of- interest issues
A solid rule book
Rigorous internal policies and guidance
that help ensure our work meets
applicable professional standards,
regulatory requirements, and KPMG's
standards of quality
People who add value
Helps us attract and retain the best
people and reinforces the importance of
developing their talents
Assigns Partners' portfolios based on
• You're receiving an efficient
and high quality audit that will
help you maintain investor
confidence in your financial
statements.
Provides you with:
• An engagement team
handpicked for your business
needs –a team with relevant
professional and industry
experience
• An audit engagement team
whose qualifications evolve
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A code of conduct, audit delivery tools,
and internal policies and procedures that
help ensure the work performed by
engagement personnel meets applicable
professional standards, regulatory
requirements, and our standards of
quality
Commitment to Comprehensive and effective
continuous monitoring
improvement
We solicit our clients regularly for
feedback. Our robust internal quality
review program ensures the work of
each partner is reviewed every three
years. Additionally, our procedures and a
sample of our audits of listed clients are
reviewed by the Canadian Public
Accountability Board (CPAB), the
independent regulator of the
accountancy profession in Canada. The
Public Accountability Oversight Board
(PCAOB) in the US also conducts an
annual inspection of a sample of our
audits of SEC registrants. Finally, a
sample of other audits and reviews is
undertaken annually by the various
provincial institutes in Canada. We
consider the recommendations that
come from these reviews and
implement actions to strengthen our
policies and procedures, as appropriate.
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their specific skill sets
The right tools for the right job
as your business grows and
changes
Commitment to
technical
Promotes technical excellence and
• An audit opinion that
excellence and
quality service delivery through training
continues to meet your
quality service
needs as a participant in the
delivery
and accreditation, developing business
capital markets
understanding and industry knowledge,
investment in technical support,
Assists you with:
development of specialist networks, and
effective consultation processes
• Assessing the effectiveness
and efficiency of the audit
Performance of
We understand that how an audit is
effective and
conducted is as important as the final
• Performing your governance
efficient audits
result.
role with confidence.
A code of conduct, audit delivery tools,
and internal policies and procedures that
help ensure the work performed by
engagement personnel meets applicable
professional standards, regulatory
requirements, and our standards of
quality
Commitment to Comprehensive and effective
continuous monitoring
improvement
We solicit our clients regularly for
feedback. Our robust internal quality
review program ensures the work of
each partner is reviewed every three
years. Additionally, our procedures and a
sample of our audits of listed clients are
reviewed by the Canadian Public
Accountability Board (CPAB), the
independent regulator of the
accountancy profession in Canada. The
Public Accountability Oversight Board
(PCAOB) in the US also conducts an
annual inspection of a sample of our
audits of SEC registrants. Finally, a
sample of other audits and reviews is
undertaken annually by the various
provincial institutes in Canada. We
consider the recommendations that
come from these reviews and
implement actions to strengthen our
policies and procedures, as appropriate.
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The regulatory landscape is changing
Uncertain economic forecasts and a changing regulatory environment define today's world; reliable
financial information and high - quality audits have never been more essential.
We believe that high quality audits contribute directly to market confidence and we share your objectives
of credible and transparent financial reporting.
Our Audit Quality Framework is particularly relevant to Audit Committees, and we see our role in being
transparent to you as a key mechanism to support you in the execution of your responsibilities.
Our commitment to quality
The independence, judgment and professional skepticism of your auditors add value to your financial
statements, and we believe it is important to be transparent about the processes we follow to
develop a KPMG audit report. We want you to have absolute confidence in us and in the quality of
your audit.
Our own professional standards dictate technical requirements for reaching and communicating an
audit opinion. And we live and abide by these requirements. We invest heavily in our quality, and the
Audit Quality Framework helps ensure these investments are the right ones —that they help us
continuously drive and maximize our quality improvements. But we feel it is also important that we
communicate to you how we view and implement audit quality. The seven key drivers outlined here,
combined with the commitment of each individual in KPMG, are meant to do just that.
KPMG member firms across the world use this audit quality framework to describe, focus on and
enhance audit quality for the benefit of our clients and in support of the efficacy of our capital
markets.
It is our hope that sharing our vision of what audit quality means is a significant step in building
confidence in the value of our audits.
Audit quality is fundamental to the way we work – it is non - negotiable.
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Other current developments
Government Transfers
• Sets outs recognition principles for government transfers.
• May allow deferral of transfers received if certain conditions exist that create a liability.
• This standard is effective for fiscal years beginning on or after April 1, 2012. The standard
may be applied retroactively or prospectively.
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 standard is effective for fiscal years beginning on or after April 1, 2012.
Financial Instruments
• 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.
• This standard is effective for fiscal years beginning on or after April 1, 2012.
Foreign Currency Translation
• PSAB has approved amendments to Section PS 2600 to be consistent with the new
standard for Financial Instruments.
• This standard requires all monetary items and those non - monetary items included in the
fair value category to be translated using the exchange rate on the financial statement
date. Hedge accounting and the scope exclusion for foreign exchange reserves in PS
2600 have been removed.
• The amended standard is effective for fiscal years beginning on or after April 1, 2012 and
must be adopted when the new Financial Instruments standard is adopted.
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, 2014.
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