3. Changes in accounting policies

As required by section 88(2)(a) of the Canada Customs and Revenue Agency Act, the financial statements of the Agency must be prepared in accordance with accounting principles consistent with those applied in preparing the statements of the Government of Canada. In the 2003-04 federal budget, the Government announced that it would change its basis of accounting from the current modified accrual basis to the full accrual basis for the 2002-03 financial statements. With the exception of software and leasehold improvements as described in note 3(c) below, the changes in accounting principles have been applied on a retroactive basis. Table 1 shows the cumulative effects of these changes for the year ended March 31, 2002 and are as follows:

(a) Financial statement presentation

The Agency's financial statements previously consisted of a statement of operations and notes to the statement of operations. The Agency's financial statements, for the year ended March 31, 2002, contain a statement of financial position, a statement of operations, a statement of net liabilities, a statement of cash flows and notes to the financial statements.

(b) Net cash provided by Government of Canada

The Agency now reports net cash provided by the Government of Canada in the Statement of Net Liabilities and the Statement of Cash Flows. Total net cash provided by the government was $3,099,807,000 in the year ended March 31, 2002.

(c) Capital assets

In prior years, purchases of capital assets were charged to expenses in the year of acquisition. The Agency changed its policy of accounting for capital assets for the year ended March 31, 2002. Capital assets are now recognized as non-financial assets of the Agency and are amortized over their estimated useful lives as detailed in note 2(e). Software and leasehold improvements are being capitalized on a prospective basis from April 1, 2001. Net capital asset acquisitions during the year ended March 31, 2002 in the amount of $118,634,000 which would have previously been expensed, have been capitalized. Amortization expense in the amount of $20,880,000 for the year has been recorded in the Statement of Operations. The net effect of these changes is to decrease various expenses, total expenses and the net cost of operations by $97,754,000 for the year ended March 31, 2002.

(d) Adjustments to prior years' expenses

In prior years, the Agency included adjustments to prior years' expenditures (refunds of prior years' expenditures and adjustment to accounts payable) as an element of non-tax revenue. The Agency has retroactively changed its accounting policy to record these items as adjustments to the appropriate expenses. The net effect of this change is to decrease non-tax revenue, various expenses and total expenses by $4,572,000. There is no impact on the net cost of operations for the year ended March 31, 2002.

(e) Consumable supplies

In prior years, the Agency expensed consumable supplies in the year of purchase. The Agency retroactively changed its accounting policy to record forms, publications and Customs uniforms as non-financial assets at the lower of cost (determined by using the weighted average cost method) or net realizable value and to expense the cost of the items as they are consumed. The net effect of this change is to establish the asset at April 1, 2001, then reduce it at March 31, 2002, and thus increase materials and supplies expense, total expenses and the net cost of operations by $2,165,000 for the year ended March 31, 2002.

(f) Services provided without charge

In prior years, the Agency did not record payroll services as a service provided without charge. The Agency retroactively changed its accounting policy to recognize this item as an expense. The net effect of this change is to increase professional and special services, total expenses and the net cost of operations by $1,865,000 for the year ended March 31, 2002.

(g) Prepaid expenses

In prior years, the Agency recorded prepaid expenses in the year of purchase. The Agency retroactively changed its accounting policy to record these items as non-financial assets at cost at the time of acquisition, and to expense the items when used. The net effect of this change is to establish the asset at April 1, 2001, then increase it at March 31, 2002, and thus decrease various expenses, total expenses and the net cost of operations by $1,222,000 for the year ended March 31, 2002.

(h) Bad debt expense

In prior years, the Agency included accounts receivable in the notes to the statement of operations and recorded non-tax revenues on an accrual basis. However, a provision for bad debts was not recorded as an operating expense. The Agency retroactively changed its accounting policy to record accounts receivable at their estimated net realizable value and to expense the cost of uncollectible amounts. The net effect of this change is to establish the asset and a provision at April 1, 2001, then decrease the net asset at March 31, 2002, and thus increase other expenses, total expenses and the net cost of operations by $134,000 for the year ended March 31, 2002.

(i) Salary advances

In prior years, the Agency recorded salary advances as an operating expense. The Agency retroactively changed its accounting policy to recognize salary advances as an account receivable in the appropriate years. The net effect of this change is to establish the asset at April 1, 2001, then decrease it at March 31, 2002, and thus increase salary expenses, total expenses and the net cost of operations by $45,000 for the year ended March 31, 2002.

(j) Environmental clean-ups

In prior years, the Agency did not record any liability for future environmental clean-ups. The Agency retroactively changed its accounting policy to recognize this liability in the appropriate years. The net effect of this change is to establish the liability at April 1, 2001, then increase it at March 31, 2002, and thus decrease various expenses, total expenses and the net cost of operations by $38,000 for the year ended March 31, 2002.

(k) Comparative figures

Certain comparative figures have been reclassified to conform to current year's presentation.

Date modified:

2003-10-29