Consolidated financial statements - March 31, 2023

Table of contents

Statement of management responsibility including internal control over financial reporting

Responsibility for the integrity and objectivity of the accompanying consolidated financial statements for the year ended March 31, 2023 and all information contained in these consolidated statements rests with the management of the National Research Council Canada (NRC). These consolidated financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these consolidated financial statements. Some of the information in the consolidated financial statements is based on management's best estimates and judgment and gives due consideration to materiality. To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of the NRC's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada and included in the NRC's Departmental Results Report, is consistent with these consolidated financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting (ICFR) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its consolidated financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout the NRC; and through conducting an annual assessment of the effectiveness of the system of ICFR.

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess the effectiveness of associated key controls and to make any necessary adjustments.

A risk‑based assessment of the system of ICFR for the year ended March 31, 2023 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

The effectiveness and adequacy of the NRC's system of internal control is reviewed by the work of Internal Audit and Financial Monitoring staff, who conduct periodic audits of different areas of NRC's operations and by the NRC Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting, and which reviews the consolidated financial statements.

Ernst & Young LLP has expressed an opinion on the fair presentation of the consolidated financial statements of the NRC for the year ended March 31, 2023, which does not include an audit opinion on the annual assessment of the effectiveness of the NRC's ICFR.

Iain Stewart
President

Dale MacMillan, CPA, CGA
Vice-President, Corporate Services and Chief Financial Officer

Ottawa, Canada
June 29, 2023

Independent auditor's report to the National Research Council Canada

Opinion

We have audited the consolidated financial statements of the National Research Council Canada ["NRC"], which comprise the consolidated statement of financial position as at March 31, 2023, the consolidated statement of operations and departmental net financial position, the consolidated statement of change in departmental net financial assets and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of NRC as at March 31, 2023, and its consolidated results of operations, and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of NRC in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Canadian public sector accounting standards, 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.

In preparing the consolidated financial statements, management is responsible for assessing NRC's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate NRC or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the NRC's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit 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 NRC's internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
  • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on NRC's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause NRC to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the NRC to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Ermst & Young, LLP
Chartered Professional Accountants
Licensed Public Accountants

Ottawa, Canada
June 29, 2023

Consolidated statement of financial position as of March 31

Table 1 (in thousands of dollars)
  2023 2022
Restated
(note 4)
Financial assets
Due from Consolidated Revenue Fund 322,954 280,089
Accounts receivable (note 5) 43,779 30,922
Inventory for resale 7,253 6,898
Cash and investments (note 6) 16,899 8,629
Total gross financial assets 390,885 326,538
Financial assets held on behalf of Government
Accounts receivable (note 5) (76) (43)
Total financial assets held on behalf of Government (76) (43)
Total net financial assets 390,809 326,495
Liabilities
Accounts payable and accrued liabilities (note 7) 192,830 175,732
Vacation pay and compensatory leave 41,858 41,763
Lease inducements 17,666 20,014
Deferred revenues (note 8) 23,823 14,724
Employee future benefits (note 9) 42,345 43,250
Asset retirement obligations (note 14) 15,771 11,256
Total liabilities 334,293 306,739
Departmental net financial assets 56,516 19,756
Non-financial assets
Prepaid expenses 17,625 13,199
Endowment fund investments (note 10) 5,613 5,575
Inventory for consumption 24,848 22,889
Tangible capital assets (note 11) 876,570 835,135
Total non-financial assets 924,656 876,798
Departmental net financial position 981,172 896,554

The accompanying notes form an integral part of these consolidated financial statements.

Iain Stewart
President

Dale MacMillan, CPA, CGA
Vice-President, Corporate Services and Chief Financial Officer

Ottawa, Canada
June 29, 2023

Consolidated statement of operations and departmental net financial position for the year ended March 31

Table 2 (in thousands of dollars)
  2023
Planned
Results
2023 2022
Restated
(note 4)
Expenses
Science and Innovation 1,293,183 1,312,088 1,244,230
Internal Services 157,148 167,829 158,602
Total expenses 1,450,331 1,479,917 1,402,832
Revenues
Technical services 85,268 83,304 78,558
Research services 78,584 73,329 68,141
Intellectual property, royalties and fees 7,076 5,900 5,668
Grants and contributions 1,479 9,208 2,723
Rentals 6,733 5,470 5,608
Sales of goods and information products 2,860 3,376 3,406
Lease inducement revenues 2,548 2,348 2,548
Other 3,009 6,396 1,805
Revenues earned on behalf of Government (35) (77) (40)
Total revenues 187,522 189,254 168,417
Net cost of operations before government funding and transfers 1,262,809 1,290,663 1,234,415
Government funding and transfers
Net cash provided by Government 1,298,270 1,293,351 1,261,728
Change in due from Consolidated Revenue Fund - 42,865 9,960

Services provided without charge by other government departments and agencies (note 16a)

40,574 41,516 42,486
Transfers from other government departments (note 17) - (2,451) (885)
Net revenues from operations after government funding and transfers 76,035 84,618 78,874
Departmental net financial position – Beginning of year 896,554 896,554 817,680
Departmental net financial position – End of year 972,589 981,172 896,554

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of change in departmental net financial assets for the year ended March 31

Table 3 (in thousands of dollars)
  2023
Planned
Results
2023 2022
Restated
(note 4)
Net revenues from operations after government funding and transfers 76,035 84,618 78,874
Change due to tangible capital assets
Acquisition of tangible capital assets (126,865) (98,546) (120,189)
Amortization of tangible capital assets 53,173 66,507 57,374
Proceeds from disposal of tangible capital assets - 348 234
Net loss on disposal of tangible capital assets including adjustments 250 161 206
Transfers from other government departments (note 17) - 2,451 885
Other adjustments - (12,356) (2,043)
Total change due to tangible capital assets (73,442) (41,435) (63,533)
Change due to inventory for consumption - (1,959) (15,754)
Change due to endowment fund investments - (38) (32)
Change due to prepaid expenses - (4,426) (1,140)
Net change in departmental net financial assets 2,593 36,760 (1,585)
Departmental net financial assets – Beginning of year 19,756 19,756 21,341
Departmental net financial assets – End of year 22,349 56,516 19,756

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated statement of cash flows for the year ended March 31

Table 4 (in thousands of dollars)
  2023 2022
Restated
(note 4)
Operating activities
Net cost of operations before government funding and transfers 1,290,663 1,234,415
Non-cash items:
Amortization of tangible capital assets (66,507) (57,374)
Net loss on disposal of tangible capital assets (161) (206)

Services provided without charge by other government departments and agencies (note 16a)

(41,516) (42,486)
Other adjustments to tangible capital assets 12,356 2,043
Variations in consolidated statement of financial position:
Increase (decrease) in accounts receivable 12,824 (2,983)
Increase (decrease) in inventory for resale 355 (642)
Increase (decrease) in prepaid expenses 4,426 1,140
Increase (decrease) in inventory for consumption 1,959 15,754
Decrease (increase) in accounts payable and accrued liabilities (17,098) (4,356)
Decrease (increase) in vacation pay and compensatory leave (95) 426
Decrease (increase) in asset retirement obligations (4,515) (262)
Decrease (increase) in lease inducements 2,348 2,548
Decrease (increase) in deferred revenue (9,099) (5,560)
Decrease (increase) in employee future benefits 905 533
Cash used in operating activities 1,186,845 1,142,990
Capital investing activities
Acquisitions of tangible capital assets 98,546 120,189
Proceeds from disposal of tangible capital assets (348) (234)
Cash used in capital investing activities 98,198 119,955
Investing activities
Income from endowment fund investments 113 107
Awards granted from endowment fund (75) (75)
Increase (decrease) in CFHT and TIO cash and investments 8,270 (1,249)
Cash used in (provided by) investing activities 8,308 (1,217)
Net cash provided by Government of Canada 1,293,351 1,261,728

The accompanying notes form an integral part of these consolidated financial statements.

Notes to consolidated financial statements for the year ended March 31, 2023

1. Authority and objectives

The NRC is the Government of Canada's largest science and research organization and exists under the National Research Council Act (NRC Act). The NRC is a departmental corporation named in Schedule II of the Financial Administration Act. The mission of the NRC is to have an impact by advancing knowledge, applying leading‑edge technologies and working with other innovators to find creative, relevant and sustainable solutions to Canada's current and future economic, social and environmental challenges.

In delivering its mandate, the NRC reports under the Core Responsibility Science and Innovation, which is to grow and enhance the prosperity of Canada through: undertaking, assisting and promoting innovation‑driven research and development; advancing fundamental science and Canada's global research excellence; providing government, business and research communities with access to scientific and technological infrastructure, services and information; and supporting Canada's skilled workforce and capabilities in science and innovation.

Internal Services are those groups of related activities and resources that the federal government considers to be services in support of programs and/or required to meet corporate obligations of an organization. Internal Services refers to the activities and resources of the 10 distinct services that support program delivery in the organization, regardless of the Internal Services delivery model in a department. These services are:

  • management and oversight services
  • communications services
  • legal services
  • human resources management services
  • financial management services
  • information management services
  • information technology services
  • real property services
  • material management services
  • acquisition management services

2. Summary of significant accounting policies

These consolidated financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Parliamentary authorities

The NRC is financed mainly by the Government of Canada through parliamentary authorities. Financial reporting of authorities provided to the NRC does not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the consolidated statement of operations and departmental net financial position and in the consolidated statement of financial position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the "Expenses" and "Revenues" sections of the consolidated statement of operations and departmental net financial position are the amounts reported in the consolidated future‑oriented statement of operations included in the 2022‑23 Departmental Plan. The planned results amounts in the "Government funding and transfers" section of the consolidated statement of operations and departmental net financial position and the consolidated statement of change in departmental net financial assets were prepared for internal management purposes and have not been previously published.

b) Consolidation

These consolidated financial statements include both the NRC and its portion of the accounts for organizations for which it has consolidated operations between January 1 and December 31, 2022. These organizations include the Canada‑France‑Hawaii Telescope Corporation (CFHT) and the TMT International Observatory, LLC (TIO). The NRC relationship with CFHT and TIO meets the definition of a government partnership under Canadian public sector accounting standards, which requires that its results be proportionally consolidated within those of the NRC. All inter‑organizational balances and transactions are eliminated as part of the consolidation process. CFHT and TIO have audited financial statements as at and for the year ended December 31, 2022 that have been proportionally consolidated with the NRC's March 31, 2023 financial statements.

c) Net cash provided by Government

The NRC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by the NRC is deposited to the CRF and all cash disbursements made by the NRC are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments (including agencies) of the Government.

d) Amounts due from the Consolidated Revenue Fund

Amounts due from the CRF are the result of timing differences at year‑end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that the NRC is entitled to draw from the CRF without further authorities to discharge its liabilities.

e) Revenues

Revenues are recognized in the year in which the underlying transaction or event occurred that gave rise to revenues as follows:

  • Research and technical services: Revenues are recognized as services are provided based on percentage of completion.
  • Licences and fees for intellectual property: Revenues are recognized at the point of time when the customer has a right to use the NRC's intellectual property and the performance obligation is satisfied.
  • Royalties generated from usage or based on customers' sales from licences: Revenues are recognized over the licence period as performance is satisfied and the right to payment is enforceable.
  • Sales of goods and information products: Revenues are recognized when goods or information products are delivered to the client.
  • Rentals: Revenues are recognized in the period to which the lease or use of property relates.
  • Grants and contributions: Revenues are recognized when the transfer payment is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability.

Funds received for which the NRC has an obligation to other parties for the provision of goods, services or the use of assets in the future are recorded as deferred revenues.

Receipts are deposited to the CRF. Under the NRC Act, money received by the NRC through the conduct of its operations is respendable in the current or in subsequent years.

Revenues that are non‑respendable are not available to discharge the NRC's liabilities. While the President of the NRC is expected to maintain accounting control, he has no authority regarding the disposition of non‑respendable revenues. As a result, non‑respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of NRC's gross revenues.

f) Expenses

  • Expenses are recorded on an accrual basis.
  • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement, provided that the transfer is authorized and a reasonable estimate can be made.
  • Grants are recognized in the year in which the conditions for payment are met. In the case of grants that do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non‑recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the consolidated financial statements.
  • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  • Services provided without charge by other government departments and agencies for accommodation, employer contributions to the health and dental insurance plans, legal services and workers' compensation are recorded as operating expenses at their estimated cost, when estimable.

g) Employee future benefits

  1. Pension benefits

    Eligible employees participate in the Public Service Pension Plan (the Plan), a multi‑employer pension plan administered by the Government of Canada. The NRC's contributions to the Plan are charged to expenses in the year incurred and represent the NRC's total obligation to the Plan. The NRC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

  2. Severance benefits

    Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is derived from an actuarial valuation specific to the NRC. A straight‑line method is used to amortize actuarial gains and losses over the expected average remaining service life of 12.3 years for the related employee groups. Amortization commences in the year following the effective date of the related actuarial valuation.

  3. Sick leave benefits

    The NRC employees are eligible to accumulate sick leave until termination of employment. Unused sick leave is not eligible for payment on retirement or termination, nor can it be used as vacation. All sick leave is an accumulating non‑vesting benefit. A liability is recorded for sick leave balances expected to be taken in excess of future allotments. The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. A straight‑line method is used to amortize actuarial gains and losses over the expected average remaining service life of 13.3 years for the related employee groups. Amortization commences in the year following the effective date of the related actuarial valuation.

h) Lease inducements

Lease inducements represent incentives received by the NRC to enter into lease agreements for property at a nominal cost of one dollar. Lease inducements are deferred and amortized on the same basis as the related tangible capital assets.

i) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for receivables where recovery is considered uncertain.

j) Contingent liabilities

Contingent liabilities are potential liabilities, which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the consolidated financial statements.

k) Environmental liabilities

Environmental liabilities consist of estimated costs related to the remediation of contaminated sites as well as estimated costs related to obligations associated with the retirement of tangible capital assets and other environmental liabilities.

  1. Contaminated sites

    A liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied:

    • an environmental standard exists
    • contamination exceeds the environmental standard
    • the NRC is directly responsible or accepts responsibility
    • the NRC expects that future economic benefits will be given up
    • a reasonable estimate of the amount can be made

    The liability reflects the NRC's best estimate of the amount required to remediate the sites to the current minimum standard for their use prior to contamination. When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government's cost of borrowing, associated with the estimated number of years to complete the retirement or remediation.

    The recorded liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

    If the likelihood of the Government's responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated financial statements.

  2. Asset retirement obligations

    An asset retirement obligation is recognized when all of the following criteria are satisfied:

    • there is a legal obligation to incur retirement costs in relation to a tangible capital asset
    • the past event or transaction giving rise to the retirement liability has occurred
    • it is expected that the Government will give up future economic benefits to retire the asset
    • a reasonable estimate of the amount can be made

    The costs to retire an asset are normally capitalized and amortized over the asset's estimated remaining useful life. An asset retirement obligation may arise in connection with a tangible capital asset that is not recognized or no longer in productive use. In this case, the asset retirement cost would be expensed. The measurement of the liability is the Government's best estimate of the amount required to retire a tangible capital asset.

    When the future cash flows required to settle or otherwise extinguish a liability are estimable, predictable and expected to occur over extended future periods, a present value technique is used. The discount rate used reflects the Government's cost of borrowing, associated with the estimated number of years to complete the retirement or remediation.

    The recorded liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

    If the likelihood of the Government's responsibility is not determinable, a contingent liability is disclosed in the notes to the consolidated financial statements.

l) Inventory

Inventory consists of parts, materials and supplies held for future program delivery as well as inventory for resale. Inventory for resale is recorded at the lower of cost, using the average cost method, or net realizable value. Inventory for consumption is recorded at cost using the average cost method.

m) Equity investments

Equity investments include shares in public and privately held companies. Equity investments are typically obtained as a result of debt settlement negotiations or as a result of non‑monetary transactions (where financial assistance at better‑than‑market conditions was provided to firms through access to intellectual property, equipment and incubation space in laboratories). If the estimates of the non‑monetary transactions cannot be determined, the equity investments are initially recorded at a nominal value. Otherwise, they are initially recorded at fair value based on market prices. If the fair value of equity investments becomes lower than the book value and this decline in value is considered to be other than temporary, the equity investments are written down to fair value.

n) Endowment fund investments

Endowments consist of donations subject to externally imposed restrictions stipulating that the resources be maintained permanently by the NRC. Income from the endowment fund investments may only be used for the purposes established by the donors.

Funds received for endowments are invested in bonds and other low‑risk instruments and are carried at amortized cost. Discounts and premiums arising on the purchase of these investments are amortized over the term of the investments.

o) Foreign currency transactions

Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in a foreign currency and CFHT and TIO assets and liabilities are translated into Canadian dollars using the rate of exchange in effect at year‑end. Gains and losses resulting from foreign currency transactions are included in the applicable line on the consolidated statement of operations and departmental net financial position according to the activities to which they relate. Net gains and losses relating to the sale of goods or services denominated in a foreign currency are included in revenues. Net gains and losses relating to the purchase of goods or services denominated in a foreign currency are included in expenses. Contractual obligations may contain foreign currencies that are translated into Canadian dollar equivalents using the rate of exchange in effect at March 31, 2023. CFHT and TIO revenues and expenses are translated into Canadian dollar equivalents using the average rate during the fiscal year.

p) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Contributed tangible capital assets are recorded at fair value at the date of contribution. The NRC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value. Assets acquired under tangible capital leases are initially recorded at the lower of the present value of the minimum lease payments at the inception of the lease or fair value. Tangible capital assets held for sale are recorded at the lower of their carrying value or fair value less cost to sell and no amortization is recorded once the tangible capital asset is deemed held for sale.

Amortization of tangible capital assets is calculated on a straight‑line basis over the estimated useful life of the asset as follows:

Table 5
Asset class Amortization period
Land Not applicable
Buildings and facilities 25 years
Works and infrastructure 25 ‑ 40 years
Machinery, equipment and furniture 10 years
Informatics equipment 5 years
Informatics software 5 years
Vehicles 7 years
Aircraft 15 ‑ 30 years
Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement
Leased tangible capital assets In accordance with the asset class

Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

Where the NRC enters into land leases at a nominal value, the transaction is considered as a non‑monetary transaction and is recorded at fair value. If the fair value cannot be reasonably determined, the amount of the transaction is recorded at a nominal value.

The tangible capital assets consolidated from CFHT are stated at cost. Amortization is calculated on the straight‑line method over the estimated useful lives of the tangible capital assets ranging from 4 to 50 years.

The tangible capital assets consolidated from TIO are stated at cost. Amortization is calculated on the straight‑line method over the estimated useful lives of the tangible capital assets ranging from 2 to 10 years.

q) Financial instruments

The NRC records its consolidated entities—CFHT and TIO's cash and cash equivalents, interest and other receivables, accounts receivable and accounts payable and accrued liabilities at amortized cost using the effective interest method of amortization, which approximates fair value given the short term to maturity. Transactions are recorded on a settlement date.

r) Measurement uncertainty

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. At the time of preparation of these consolidated financial statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are percentage of completion on revenues from the provision of services, contingent liabilities, remediation liabilities, asset retirement obligations, the liability for employee severance benefits, sick leave benefits, accrued wages linked to collective bargaining, the allowance for doubtful accounts, the fair value of non‑monetary transactions related to leased tangible capital assets and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the consolidated financial statements in the year they become known.

Environmental liabilities and asset retirement obligations are subject to measurement uncertainty due to the evolving technologies used in remediation activities of contaminated sites or asset retirements, the use of discounted present value of future estimated costs, inflation and interest rates. Changes to underlying assumptions, the timing of the expenditures, the technology employed, the revisions to environmental standards or changes in regulatory requirements could result in significant changes to the liabilities recorded.

Adoption of new accounting standards

The NRC adopted the new accounting standards issued by the Public Sector Accounting Board that became effective on April 1, 2022 namely PS 3450 Financial Instruments ("PS 3450"), PS 1201 financial statement presentation ("PS 1201") and 2601 Foreign currency translation. PS 3450 addresses the recognition and derecognition, classification, measurement and disclosure of financial instruments, while PS 1201 establishes general reporting principles for disclosure of information in the financial statements and 2601 the accounting for and reporting of transactions that are denominated in a foreign currency. The adoption of these new standards did not result in any significant changes to the NRC's consolidated financial statements.

Standards effective for fiscal years beginning on or after April 1, 2023

PS 3400 Revenue was recently issued and proposes a framework that includes 2 categories of revenue—exchange transactions or unilateral transactions. Revenue from an exchange transaction is recognized when the public sector entity has satisfied the performance obligation(s). If no performance obligation is present, it would be unilateral revenues. Unilateral revenues are recognized when a public sector entity has the authority to claim or retain an inflow of economic resources and a past event gives rise to a claim on economic resources. This new section will be effective for fiscal years beginning on or after April 1, 2023. Earlier adoption is permitted.

The NRC continues to assess the impacts of the above standard. The NRC expects to adopt the above standard when it becomes effective.

3. Parliamentary authorities

The NRC receives most of its funding through annual parliamentary authorities. Items recognized in the consolidated statement of operations and departmental net financial position and the consolidated statement of financial position in one year may be funded through parliamentary authorities in prior, current or future years. Accordingly, the NRC has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables.

a) Reconciliation of net cost of operations to current year authorities used

Table 6 (in thousands of dollars)
  2023 2022
Restated
(note 4)
Net cost of operations before government funding and transfers 1,290,663 1,234,415
Adjustments for items affecting net cost of operations but not affecting authorities:
Revenues 189,254 168,417
Amortization of tangible capital assets (66,507) (57,374)

Services provided without charge by other government departments and agencies (note 16a)

(41,516) (42,486)
Decrease (increase) in salary accrual (10,569) (4,466)
Decrease (increase) in employee future benefits 905 533
Refund of previous years' expenditures 3,307 3,680
Other decrease (increase) (202) 51
Bad debt expense (67) (135)
Gain (loss) on foreign exchange linked to revenues (165) (247)
Net loss on disposal of tangible capital assets (161) (206)
Decrease (increase) in vacation pay and compensatory leave (95) 426
Asset retirement obligations accretion expense (268) (262)
Decrease (increase) in accrued liabilities not charged to authorities 305 1,637
Decrease (increase) in remediation liabilities (note 14) 549 (1,740)
Post capitalization expense reduction 119 716
Portions of accounts of CFHT and TIO (note 16c and 16d) 5,025 1,861
Total items affecting net cost of operations but not affecting authorities 79,914 70,405
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets and additions to assets under construction 93,387 115,237
Increase (decrease) in prepaid expenses 4,426 1,140
Increase (decrease) in inventory 2,314 15,112
Asset retirement obligations remediation 53 -
Total items not affecting net cost of operations but affecting authorities 100,180 131,489
Current year authorities used 1,470,757 1,436,309

b) Authorities provided and used

Table 7 (in thousands of dollars)
  2023 2022
Restated
(note 4)
Authorities provided:
Vote 1 – Operating expenditures 571,010 525,707
Vote 5 – Capital expenditures 105,049 137,123
Vote 10 – Grants and contributions 680,915 754,965
Statutory amounts:
Revenues pursuant to paragraph 5(1)(e) of the National Research Council Act 302,563 289,261
Contributions to employee benefit plans 68,706 65,845
Proceeds from the disposal of surplus Crown assets 581 270
Loss on foreign exchange - 50
Less
Revenues available for use in future years (166,978) (126,433)
Lapsed authorities:
Frozen allotments – Operating (149) (1,280)
Frozen allotments – Grants and contributions - (45,000)
Unexpended authorities – Grants and contributions (68,589) (119,159)
Unexpended authorities – Operating (10,188) (18,186)
Unexpended authorities – Capital (12,163) (26,854)
Current year authorities used 1,470,757 1,436,309

4. Accounting changes

Asset retirement obligation:

Effective April 1, 2022, the NRC adopted the new Public Sector Accounting Standard PS3280 Asset Retirement Obligations. This standard requires public sector entities to recognize legally obligated costs associated with the retirement of tangible capital assets on acquisition, construction or development and expense those costs systematically over the life of the asset.

The NRC applied the modified retrospective application transitional approach. On initial application of the standard, the NRC recognized at the beginning of the first period presented:

  1. a liability for any existing asset retirement obligations, adjusted for accumulated accretion to that date
  2. an asset retirement cost capitalized as an increase to the carrying amount of the related tangible capital assets
  3. accumulated amortization on that capitalized cost
  4. an adjustment to the opening balance of the accumulated surplus/deficit

Asset retirement obligations associated with assets no longer in productive use recognized a liability and a corresponding adjustment to the opening accumulated surplus/deficit.

These amounts were measured using information, assumptions and discount rates that are current at the beginning of the fiscal year. The amount recognized as an asset retirement cost is measured as of the date the asset retirement obligation was incurred. Accumulated accretion and amortization are measured for the period from the date the liability would have been recognized had the provisions of this standard been in effect to the date as of which this standard is first applied.

A reconciliation of the restatement for the significant consolidated financial statement line items follows.

Table 8 (in thousands of dollars)
  2022
As previously stated
Effect of
change
2022
Restated
(note 4)
Consolidated statement of financial position
Accounts payable and accrued liabilities 178,229 (2,497) 175,732
Asset retirement obligations - 11,256 11,256
Total liabilities 297,980 8,759 306,739
Department net financial assets 28,515 (8,759) 19,756
Tangible capital assets 833,450 1,685 835,135
Total non-financial assets 875,113 1,685 876,798
Departmental net financial position 903,628 (7,074) 896,554
Consolidated statement of operations and departmental net financial position
Total expenses 1,402,442 390 1,402,832
Departmental net financial position – Beginning of year 824,364 (6,684) 817,680
Departmental net financial position – End of year 903,628 (7,074) 896,554

5. Accounts receivable

The following table presents details of the NRC's accounts receivable balances:

Table 9 (in thousands of dollars)
  2023 2022
Receivables from external parties 35,875 26,668
Receivables from Canada Revenue Agency GST (note 16b) 2,304 2,664
Receivables from other government departments and agencies (note 16b) 6,092 1,831
CFHT – Accounts receivable 32 85
Receivable and advances from employees 204 346
  44,507 31,594
Less: Allowance for doubtful accounts on receivables from external parties (728) (672)
Accounts receivable net of allowances 43,779 30,922
Accounts receivable held on behalf of Government (76) (43)
Net accounts receivable 43,703 30,879

6. Cash and investments

Table 10 (in thousands of dollars)
  2023 2022
Cash and investments held by CFHT 3,320 2,941
Cash held by TIO 13,579 5,688
Equity investments - -
Cash and investments 16,899 8,629

Equity investments include shares in 2 public companies (2 in 2022) and 1 privately held company (1 in 2022). These shares were obtained through debt settlement or non‑monetary transactions. The NRC will consider timely opportunities for divestiture of equity investments by taking into account the interests, market liquidity and expected future growth of the applicable company.

As at March 31, 2023, the book value of the equity investments was 3 dollars (3 dollars in 2022). The fair value of the NRC's equity investments in public companies was 3 dollars (3 dollars in 2022). The fair value of the privately held companies is not determinable.

7. Accounts payable and accrued liabilities

The following table presents details of the NRC's accounts payable and accrued liabilities:

Table 11 (in thousands of dollars)
  2023 2022
Restated
(note 4)
Accounts payable – External parties 133,574 128,811
Accounts payable – Other government departments and agencies (note 16b) 4,566 6,807
Accrued wages and employee benefits 46,004 30,894
Contractor holdbacks 953 1,583
Remediation liabilities (note 14a) 3,435 3,984
Sales tax payable 449 393
CFHT – Accounts payable 226 195
TIO – Accounts payable 3,623 3,065
Total accounts payable and accrued liabilities 192,830 175,732

8. Deferred revenues

Deferred revenues represent the balances at year‑end of unearned revenues stemming from amounts received from external parties that are restricted in order to fund the expenditures related to specific research projects and stemming from amounts received for fees prior to services being performed. Revenues are recognized in the period in which these expenditures are incurred or in which the service is performed. Details of the transactions related to this account are as follows.

Table 12 (in thousands of dollars)
  2023 2022
Opening balance 14,672 8,991
Funds received 45,525 39,421
Revenues recognized (36,439) (33,740)
Closing balance 23,758 14,672
CFHT – Deferred revenues 65 52
Total deferred revenues 23,823 14,724

9. Employee future benefits

a) Pension benefits

Eligible NRC employees participate in the Public Service Pension Plan (the Plan), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum of 35 years at a rate of 2% per year of pensionable service, times the average of the best 5 consecutive years of earnings. The benefits are integrated with Canada and Quebec Pension Plans benefits and they are indexed to inflation.

Both the employees and the NRC contribute to the cost of the Plan. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada's Economic Action Plan 2012, employee contributors have been divided into 2 groupsGroup 1 relates to existing Plan members as of December 31, 2012 and Group 2 relates to members joining the Plan on or after January 1, 2013. Each group has a distinct contribution rate.

The 2022‑23 expense amounts to $44,885,513 ($44,484,857 in 2022). For Group 1 members, the expense represents approximately 1.02 times (1.01 times in 2022) the employee contribution and, for Group 2 members, approximately 1.00 times (1.00 times in 2022) the employee contribution.

NRC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

b) Severance benefits

NRC provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. However, since 2011, the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities. The changes in the obligations during the year were as follows.

Table 13 (in thousands of dollars)
  2023 2022
Accrued benefit obligation, beginning of year 26,401 27,323
Expense for the year:
Current service cost 862 805
Interest cost 250 269
  27,513 28,397
Benefits paid during the year (2,371) (1,996)
Accrued benefit obligation, end of year 25,142 26,401
Actual accrued benefit obligation per actuarial valuation 24,971 26,245
Unamortized actuarial gain (loss) 156 170
Actuarial gain (loss) amortization (14) (14)
Accrued benefit obligation, end of year 25,113 26,401

The latest actuarial valuation of the NRC's severance benefits obligation was conducted as at March 31, 2021 using the projected benefit method. The significant actuarial assumptions adopted in measuring the severance benefit obligation are as follows:

Table 14 (in thousands of dollars)
  2023 2022
Discount rate 1.04% 1.04%
Rate of compensation economic increase per year:
2022 1.5% 1.5%
2023 2.0% 2.0%
Average remaining service period of active employees 12.4 years 12.3 years

c) Sick leave benefits

The NRC provides benefits for sick leave to its eligible employees consisting of one and one quarter (1 1/4) days of sick leave per calendar month. Sick leave can only be used for paid time off at the employee's normal rate of pay when the employee is unable to perform their duties because of illness or injury. Unused sick leave benefits accumulate during the employee's period of service and no payment is due to employees upon termination of employment for unused days. The changes in the obligation during the year were as follows.

Table 15 (in thousands of dollars)
  2023 2022
Accrued benefit obligation, beginning of year 16,446 16,460
Expense for the year:
Current service cost 2,549 2,499
Interest cost 174 174
  19,169 19,133
Benefits paid during the year (2,742) (2,687)
Accrued benefit obligation, end of year 16,427 16,446
Actual accrued benefit obligation per actuarial valuation 21,779 21,798
Unamortized actuarial gain (loss) (4,949) (5,352)
Actuarial gain (loss) amortization 402 403
Accrued benefit obligation, end of year 17,232 16,849

The latest actuarial valuation of the NRC's sick leave benefit obligation was conducted as at March 31, 2021 using the projected benefit method prorated on services. The significant actuarial assumptions adopted in measuring the employee sick leave benefit obligation are as follows.

Table 16
  2023 2022
Discount rate 0.8% 0.8%
Rate of compensation economic increase per year:
2022 2.0% 2.0%
2023 2.0% 2.0%
Average remaining service period of active employees 13.3 years 13.3 years

10. Endowment fund investments

This account was established pursuant to paragraph 5(1)(f) of the NRC Act to record the residue of the estate of the late H.L. Holmes. Up to two thirds of the endowment fund's annual net income (maximum of $100,000) is used to finance the H.L. Holmes award on an annual basis. The award provides the opportunity to post‑doctoral students to study at world‑famous graduate schools or research institutes under outstanding researchers. The monetary value and number of awards granted are established by the H.L. Holmes selection committee.

Table 17 (in thousands of dollars)
  2023 2022
Endowment fund investments, beginning of year 5,575 5,543
Net income from endowment 113 107
Awards granted (75) (75)
Endowment fund investments, end of year 5,613 5,575

The portfolio for endowment fund investments had an average effective return of 2.20% (1.86% in 2022) and an average term to maturity of 2.30 years as at March 31, 2023 (2.69 years as at March 31, 2022). The fair value of the endowment fund investments as at March 31, 2023 was $5,338,675 ($5,361,347 in 2022).

11. Tangible capital assets

Table 18 (in thousands of dollars)
  Cost Accumulated amortization Net book value
Tangible capital asset class Opening balance Acquisitions Adjustments Table note 1 Disposals and write‑offs Closing balance Opening balance Amortization Adjustments Disposals and write‑offs Closing balance 2023 2022
Restated
(note 4)
Land 13,852 - - - 13,852 - - - - - 13,852 13,852
Buildings and facilities 1,021,897 5,829 65,009 - 1,092,735 (631,403) (27,919) (446) - (659,768) 432,967 390,494
Works and infrastructure 67,063 1,578 2,427 - 71,068 (26,830) (1,719) (2,148) - (30,697) 40,371 40,233
Machinery, equipment and furniture 612,233 16,598 35,536 (20,859) 643,508 (483,173) (28,773) 2,180 20,548 (489,218) 154,290 129,060
Informatics equipment 37,706 392 88 (1,102) 37,084 (32,518) (1,639) 5 1,102 (33,050) 4,034 5,188
Informatics software 21,786 576 1,336 (848) 22,850 (19,741) (838) 10 813 (19,756) 3,094 2,045
Vehicles 4,059 177 16 (144) 4,108 (3,033) (280) - 137 (3,176) 932 1,026
Aircraft 21,266 239 24 - 21,529 (13,461) (1,446) 1 - (14,906) 6,623 7,805
Leasehold improvements 17,746 - 1,721 - 19,467 (11,001) (813) (612) - (12,426) 7,041 6,745
Assets under construction 149,634 67,445 (98,277) (156) 118,646 - - - - - 118,646 149,634
Assets under construction – NRC/TIO 28,617 553 - - 29,170 - - - - - 29,170 28,617
Leased tangible capital assets 63,700 - - (10,000) 53,700 (43,686) (2,348) - 10,000 (36,034) 17,666 20,014
CFHT – Tangible capital assets 18,038 131 1,823 (68) 19,924 (13,106) (657) (1,450) 56 (15,157) 4,767 4,932
TIO – Tangible capital assets 35,882 5,028 2,709 (38) 43,581 (392) (75) (35) 38 (464) 43,117 35,490
Total 2,113,479 98,546 12,412 (33,215) 2,191,222 (1,278,344) (66,507) (2,495) 32,694 (1,314,652) 876,570 835,135

Amortization expense for the year ended March 31, 2023 is $66,507,117 ($57,374,522 in 2022).

At March 31, 2023, the NRC held 8 land lease agreements (8 in 2022) for a nominal annual cost with universities. In these instances, the NRC owns the building on the leased land. The fair value of the land leases for these non‑monetary transactions could not be determined at the inception of the lease; therefore, they are recorded at a nominal value.

On March 21, 1996, the NRC entered into a non‑monetary transaction consisting of a lease agreement with the University of Western Ontario, whereby leased property was provided to the NRC for 25 years (to August 31, 2022) at a nominal cost of 1 dollar. The property was recorded as a leased tangible capital asset at its fair value of $10,000,000. Up to August 31, 2022, the annual amortization of $400,000 for the leased tangible capital asset was exactly offset by the amortization of the deferred contribution related to the leased property. On August 31, 2022, the net book value of this leased building was $0. A new lease was signed and came to effect commencing on September 1, 2022 for a 10‑year term with 2 consecutive renewal options. This new lease stipulates that the NRC shall pay the minimum monthly rent of $88,983 subject to annual adjustment of 3%, plus additional rent pursuant to the lease agreement. The new lease is a normal commercial lease in nature; therefore, the leased tangible capital asset was written off.

On May 23, 2006, the NRC took possession of a new facility and entered into a non‑monetary transaction with the University of Alberta at a nominal cost of one dollar per year. The lease provides a one‑year term with options to renew on 10 sequential occasions, each of the first 9 renewals to be for a period of 5 years and the 10th renewal for a period of 4 years (to May 22, 2031). The building was recorded as a leased tangible capital asset at its fair value of $44,400,000. The annual amortization of $1,776,000 for the leased tangible capital asset is exactly offset by the amortization of the deferred contribution related to the leased building.

On September 1, 2006, the NRC took possession of a new facility and entered into a non‑monetary transaction with the University of Prince Edward Island at a nominal cost of one dollar per year. The latest lease starting April 1, 2018 provides a 3‑year term with renewal options for 2 additional periods of 1 year. The building was recorded as a leased tangible capital asset at its fair value of $9,300,000. The annual amortization of $372,000 for the leased tangible capital asset is exactly offset by the amortization of the deferred contribution related to the leased building.

12. Contractual rights

The activities of the NRC sometimes involve the negotiation of contracts or agreements with outside parties that result in the NRC having rights to both assets and revenues in the future. They principally involve research and technical services, and intellectual property, royalties and fees. Major contractual rights that will generate revenues in future years and that can be reasonably estimated are summarized as follows:

Table 19 (in thousands of dollars)
  2024 2025 2026 2027 2028
and thereafter
Total
Revenue contracts 58,943 20,151 13,767 4,472 17,890 115,223

13. Contractual obligations

The nature of the NRC's activities can result in some large multi‑year contracts and obligations whereby the NRC will be obligated to make future payments in order to carry out its transfer payment programs or when the services and goods are received. Transfer payments and significant operating contractual obligations that can be reasonably estimated are summarized as follows:

Table 20 (in thousands of dollars)
  2024 2025 2026 2027 2028
and thereafter
Total
Transfer payments 355,597 125,180 35,260 26,171 106,632 648,840
Operating contracts 90,375 19,797 5,232 2,153 1,657 119,214
Total 445,972 144,977 40,492 28,324 108,289 768,054

Transfer payments contractual obligations to CFHT and TIO as shown in (notes 16c and 16d) have been excluded from the contractual obligations.

14. Environmental liabilities

a) Remediation of contaminated sites

The Government has developed a "Federal Approach to Contaminated Sites", which incorporates a risk-based approach to the management of contaminated sites. Under this approach, the Government has inventoried the contaminated sites on federal lands; each site identified is to be classified, managed and recorded in a consistent manner. The systematic approach aides in the identification of the high-risk sites in order to allocate limited resources to those sites that pose the highest risk to the environment and human health.

The NRC has identified 2 sites (2 sites in 2022) where action is possible and for which a liability of $3,434,851 ($3,983,800 in 2022) has been recorded. The estimated liability is based on either external scientific and engineering consultants or NRC environmental officers with contaminated site experience reviewing the results of the assessments and underlying assumptions, and estimating the cost of the most likely remediation or risk management scenario. No additional sites were identified during 2022‑23.

The following table presents the total estimated amounts of these liabilities by nature, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2023 and March 31, 2022. When the liability estimate is based on future cash requirements, the amount is adjusted for inflation using a forecast Consumer Price Index rate of between 2.1% and 3.1%. Inflation is included in the undiscounted amount. The source of the contamination is associated with the operations and maintenance where activities such as fuel storage/handling, waste sites and use of metal-based paint resulted in former or accidental contamination, e.g., metals, petroleum hydrocarbons, polyaromatic hydrocarbons, etc. Sites often have multiple sources of contamination.

Table 21 Nature of liability
Nature Number of sites 2023 Estimated liability 2023 Estimated total undiscounted expenditures 2023 Number of sites 2022 Estimated liability 2022 Estimated total undiscounted expenditures 2022
Office/commercial/industrial operations 2 3,434,851 3,652,159 2 3,983,800 4,074,064
Total 2 3,434,851 3,652,159 2 3,983,800 4,074,064

There were no expected recoveries in 2022 and 2023.

b) Asset retirement obligations

The NRC has recorded asset retirement obligations for the removal of asbestos and other hazardous materials in buildings, removal of the storage fuel tanks and the retirement activities linked to machinery and equipment. The changes in the asset retirement obligations during the year are as follows:

Table 22 (in thousands of dollars)
  2023 2022
  Asbestos and other hazardous material in buildings and others Underground storage tanks Machinery and equipment Total Total
Restated
(note 4)
Opening balance 9,354 606 1,296 11,256 10,994
Liabilities incurred 435 18 - 453 -
Liabilities settled (53) - - (53) -
Revisions in estimated cash flows 3,847 - - 3,847 -
Accretion expense Table note 1 223 14 31 268 262
Closing balance 13,806 638 1,327 15,771 11,256

The undiscounted future expenditures, adjusted for inflation, for the planned projects comprising the liability are $22.5 million ($17.9 million at March 31, 2022).

Key assumptions used in determining the provision are as follows:

Table 23 (in thousands of dollars)
  2023 2022
Restated
(note 4)
Discount rate Table note 1 1.885% ‑ 3.000% 1.885% ‑ 3.000%
Discount period and timing of settlement 1 ‑ 30 years 1 ‑ 30 years
Long‑term rate of inflation 2.1% 2%

15. Contingent liabilities

Claims have been made against the NRC in the normal course of operations. Legal proceedings for one claim were pending at March 31, 2023 (one in 2022). The NRC has no claim that it believes will likely result in a liability (none in 2022), no claim that it believes will likely result in a liability where the amount is indeterminable (none in 2022) and one claim that it believes that outcome is indeterminable, as is the liability amount (one in 2022). In 2023, the NRC has no claims that it believes the outcome is unlikely (none in 2022).

16. Related party transactions

The NRC is related as a result of common ownership to all government departments, agencies and Crown corporations. The NRC enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, the NRC received common services that were obtained without charge from OGDs as disclosed below.

a) Common services provided without charge by OGDs and agencies

During the year, the NRC received services without charge from OGDs and agencies. These services have been recognized in the NRC's consolidated statement of operations and departmental net financial position as follows:

Table 24 (in thousands of dollars)
  2023 2022
Employer's contributions to the health and dental insurance plans provided by Treasury Board Secretariat 40,905 41,894
Legal services provided by Justice Canada 210 205
Workers' compensation benefits provided by Employment and Social Development Canada 150 139
Accommodation Services provided by Public Services and Procurement Canada (PSPC) 251 248
Total 41,516 42,486

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by PSPC, are not included in the NRC's consolidated statement of operations and departmental net financial position.

b) Other transactions with related parties

Table 25 (in thousands of dollars)
  2023 2022
Accounts receivable from OGDs and agencies 8,396 4,495
Accounts payable to OGDs and agencies 4,566 6,807
Expenses – OGDs and agencies 126,428 127,664
Revenues – OGDs and agencies 80,427 78,975

Expenses and revenues disclosed in b) exclude common services provided without charge, which are already disclosed in a).

c) Canada-France-Hawaii Telescope Corporation

The NRC has a related party relationship with the following non-federal government entity:

The NRC was a founding member of the Canada-France-Hawaii Telescope Corporation (CFHT), a tax-exempt, not-for-profit organization established under Hawaii state law to design, construct and operate a large optical telescope near the summit of Mauna Kea, Hawaii, USA, along with laboratories, equipment and associated installations. CFHT was established in 1974 by a Tripartite Agreement among the NRC, the Centre National de la Recherche Scientifique of France and the University of Hawaii. The NRC makes annual contributions to fund its 42.5% share of the cost of operations of the telescope and receives no direct benefit in return. However, as a result of the NRC's contributions, Canada receives access to telescope observation hours for Canadian astronomers. As a founding member, the NRC can appoint 4 of the 10 members of the Board of Directors. The NRC relationship with CFHT is considered a government partnership for accounting purposes and CFHT results are proportionally consolidated in these statements. In 2023, the NRC contributed $4.7 million to CFHT ($4.4 million in 2022). These contributions are eliminated upon consolidation. CFHT's condensed financial information for the year ended December 31 is as follows.

Table 26 (in thousands of dollars)
  December 31, 2023 December 31, 2022
Total assets 19,293 18,875
Total liabilities 1,295 1,183
Total unrestricted net assets 17,998 17,692
Total revenues 12,969 12,346
Total expenses 14,044 12,836
Net operating results (1,075) (490)

NRC's future contractual obligations to CFHT are not included in the transfer payment contractual obligations (note 13) and are as follows:

Table 27 (in thousands of dollars)
  2024 2025 2026 2027 2028 and thereafter Total
CFHT 4,898 4,996 5,096 5,197 10,708 30,895

d) TMT International Observatory, LLC

The NRC has a related party relationship with the following non-federal government entity:

The NRC is a member since April 2015 of the TMT International Observatory, LLC (TIO), a tax-exempt, not-for-profit organization established under the state law of Delaware, USA. TIO was incorporated in May 2014 and formed for the purpose of the execution of the Thirty Meter Telescope Project through the construction, commissioning and operation of an observatory. TIO was established in 2014 by the Regents of the University of California, the California Institute of Technology, the National Institutes of Natural Sciences (Japan) and the National Astronomical Observatories of the Chinese Academy of Sciences. The Department of Sciences of Technology, Government of India and NRC subsequently became members in 2014 and 2015, respectively. The NRC relationship with TIO is considered a government partnership for accounting purposes and TIO results are proportionally consolidated in these statements. The NRC membership participation was 19.5% as of December 31, 2022 based on the aggregate pledged by all current parties. In 2023, NRC contributed $9.8 million for TIO's assets under construction ($9.5 million in 2022). TIO's condensed financial information for the year ended December 31 is as follows.

Table 28 (in thousands of dollars)
  December 31, 2023 December 31, 2022
Total assets 291,778 212,209
Total liabilities 20,594 27,039
Total unrestricted net assets 271,184 185,170
Total revenues 76,671 32,042
Total expenses 18,273 19,126
Net operating results 58,398 12,916

The NRC's future contractual obligations to TIO are based on parliamentary authorities granted in 2015. NRC is aware of delays in the project, but no impact to future obligations has been identified at the completion date of these consolidated financial statements. These contractual obligations for TIO are not included in the transfer payment contractual obligations (note 13) and are as follows:

Table 29 (in thousands of dollars)
  2024 2025 2026 2027 2028 and thereafter Total
TIO 134,677 - - - - 134,677

17. Transfers from/to OGDs

Transfers of tangible capital assets between OGDs and NRC have occurred in 2022 and 2023.

The transactions are as follows:

Table 30 (in thousands of dollars)
  2023 2022
Net tangible capital asset transfers 2,451 885
Total 2,451 885

18. Segmented information

Presentation by segment is based on the NRC's core responsibility. The presentation by segment is based on the same accounting policies as described in the Summary of Significant Accounting Policies in (note 2). The following table presents the expenses incurred and revenues generated for the main core responsibilities, by major object of expense and by major type of revenues. The segment results for the year are as follows.

Table 31 (in thousands of dollars)
  Science and Innovation Internal Services 2023
Total
2022
Total
Restated
(note 4)
Transfer payments
Grants and contributions
595,341 - 595,341 576,405
Total transfer payments 595,341 - 595,341 576,405
Operating expenses
Salaries and employee benefits 459,342 125,294 584,636 566,408
Utilities, material and supplies 78,899 7,565 86,464 81,252
Amortization of tangible capital assets 63,938 2,569 66,507 57,374
Professional services 58,532 23,111 81,643 69,187
Repair and maintenance 18,787 3,548 22,335 19,370
Payment in lieu of taxes 12,707 1,351 14,058 15,402
Transportation and communication 8,746 1,522 10,268 2,647
Rentals 11,779 2,241 14,020 10,823
Awards 936 57 993 413
Loss (gain) on disposal of tangible capital assets 161 - 161 206
Costs of goods sold 950 - 950 616
Information 818 359 1,177 992
Bad debts - 67 67 135
Other 1,152 145 1,297 1,602
Total operating expenses 716,747 167,829 884,576 826,427
Total expenses 1,312,088 167,829 1,479,917 1,402,832
Revenues
Research services 73,329 - 73,329 68,141
Technical services 81,026 2,278 83,304 78,558
Intellectual property, royalties and fees 5,900 - 5,900 5,668
Sales of goods and information products 3,368 8 3,376 3,406
Rentals 20 5,450 5,470 5,608
Grants and contributions 7,469 1,739 9,208 2,723
Lease inducement revenue - 2,348 2,348 2,548
Other 5,349 1,047 6,396 1,805
Revenues earned on behalf of Government - (77) (77) (40)
Total revenues 176,461 12,793 189,254 168,417
Net cost of operations before government funding and transfers 1,135,627 155,036 1,290,663 1,234,415

19. Financial instruments

The NRC's financial instruments consist of due from CRF, accounts receivable, investments and accounts payable and accrued liabilities. Unless otherwise noted, it is management's assessment that the NRC is not exposed to significant interest rate risk, currency risk or credit risk arising from these financial instruments. Unless otherwise disclosed in these consolidated financial statements, management estimates that the carrying value of the financial instruments approximates their fair value due to their short-term nature.

20. Comparative information

Comparative figures have been reclassified to conform to the current year's presentation.

21. Additional information

On February 16, 2023, the Government of Canada announced that the NRC Industrial Research Assistance Program (IRAP) will be integrated into the new Canada Innovation Corporation (CIC). This will include the transfer of all IRAP transfer payments and the employees administering the transfer payment program. The transition will take place over the next 24 months, during which IRAP will remain part of the NRC and IRAP activities will continue as usual until the transfer.

On April 1, 2023 the NRC transferred the maintenance and operational activities of the Biologics Manufacturing Centre to the not-for-profit entity Biologics Manufacturing Centre Inc. (BMC Inc.). The NRC maintains the ownership of the facility, which is being leased to BMC Inc. In addition, the NRC signed a 10-year contribution agreement totalling $171.7 million to support general operations, which is already included in (note 13) on contractual obligations.

Annex to the Statement of management responsibility including internal control over financial reporting (unaudited)

For the year ended March 31, 2023

1. Introduction

This document provides summary information on the measures taken by the NRC to maintain an effective system of internal control over financial reporting, including information on internal control management, assessment results and related action plans.

Detailed information on the NRC's authority, mandate and program activities can be found in the 2023-24 Departmental Plan and the 2022-23 Departmental Results Report.

2. Departmental system of internal control over financial reporting

2.1 Internal control management

The NRC has a well-established governance and accountability structure to support departmental assessment efforts and oversight of its system of internal control. A departmental financial management framework is in place, which includes:

  • organizational accountability structures as they relate to internal control management to support sound financial management, including roles and responsibilities of senior departmental managers for control management in their areas of responsibility
  • values and ethics
  • ongoing communication and training on statutory requirements, policies and procedures for sound financial management and control
  • monitoring of regular updates to internal control management, as well as the provision of related assessment results and action plans to the deputy head and senior departmental management and, as applicable, the Departmental Audit Committee

The Departmental Audit Committee provides advice to the deputy head on the adequacy and the functioning of the NRC's risk management, control and governance frameworks and processes.

2.2 Service arrangements relevant to consolidated financial statements

The NRC relies on other organizations for processing certain transactions that are recorded in its consolidated financial statements, as follows:

Common service arrangements
  • Public Services and Procurement Canada (PSPC), which administers the payments of salaries and the procurement of goods and services in accordance with the NRC's Delegation of Authority and provides some accommodation services on behalf of the NRC
  • Shared Services Canada (SSC), which provides IT infrastructure services
  • The Department of Justice Canada, which provides legal services
  • The Treasury Board of Canada Secretariat, which provides information on public service insurance and centrally administers payment of the employer's share of contributions toward statutory employee benefit plans

Readers of this annex may refer to the annexes of the above-noted departments for a greater understanding of the system of internal control over financial reporting related to these specific services.

3. Departmental assessment results for the 2022-23 fiscal year

The following table summarizes the status of the ongoing monitoring activities conducted during the fiscal year:

Table 32
Rotational ongoing monitoring plan for current fiscal year Status
Transfer payments—IRAP Table note * Completed as planned, with no issues noted
Planning, budgeting and forecasting Completed as planned, with a minor opportunity for improvement
Investment planning Completed as planned, with no issues noted
Capital assets Completed as planned, with an opportunity for improvement
Revenues, receipts and receivables Completed as planned, with an opportunity for improvement

In 2022-23, the NRC also followed up on the status of remedial plans from previous years.

The key findings and significant adjustments required from the current fiscal year's assessment activities are summarized in section 3.2.

3.1 New or significantly amended key controls

Changes impacting the NRC's key financial controls during 2022-23 included:

  • Implementation of the updated processes and controls for inventories
  • Implementation in SAP of changes to the Financial Signing Authorities and the Revenue Agreements and Related Arrangements Authority Charts
  • In September 2022, the Office of the Facilities Renewal Management (OFRM) was created. The OFRM will lead the prioritization of future NRC facility recapitalization projects, while working with its research centres, branches and IRAP through the 2024-2029 strategic planning process to ensure they are transformative and advance the NRC's digitalization of research ambitions.
  • In February 2023, the Government of Canada announced that NRC IRAP will be integrated into the new Canada Innovation Corporation (CIC). This includes the transfer of all IRAP employees to the CIC. The transition will take place over a period of 24 months subsequent to the announcement, during which IRAP will remain part of the NRC and IRAP business will continue as usual.
  • In March 2023, the NRC obtained increased contracting delegations for goods from the Minister of Public Service and Procurement Canada (PSPC).
  • During the year, the NRC was preparing for the transfer of the Biologics Manufacturing Centre (BMC) operations to a non-profit organization, which occurred on April 1, 2023.

3.2 Ongoing monitoring program

The NRC's rotational risk-based monitoring plan had been updated to reflect a refreshed risk assessment for all business processes impacting financial reporting and financial management. The plan covers a five-year period (2020-21 to 2024-25). The NRC completed its planned annual assessment of controls that included planning, budgeting and forecasting, investment planning, transfer payments—IRAP, capital assets and revenues, receipts and receivables. Overall, the key controls tested are working as intended, with opportunities for improvement noted.

Details of the assessment and the results are as follows.

  • Planning, budgeting and forecasting: The assessment determined that overall, the controls are working as intended. A minor opportunity for improvement was noted with respect to internal guidance documentation.
  • Investment planning: The assessment determined that overall, the process provides effective controls.
  • Transfer payments—IRAP: The assessment determined that overall, the process provides effective controls.
  • Capital assets: The assessment determined that overall, the controls are working as intended. An opportunity for improvement was noted relating to access and segregation of duties associated with certain system roles. However, mitigating controls and testing performed provided support to conclude that the controls are working as intended.
  • Revenues, receipts and receivables: The assessment determined that overall, the controls are working as intended. An opportunity for improvement was noted relating to access and segregation of duties associated with certain system roles. However, mitigating controls and testing performed provided support to conclude that the controls are working as intended.

4. Departmental action plan for the next fiscal year and subsequent years

During fiscal year 2020-21, the NRC reviewed its approach and developed an updated assessment plan covering internal controls over financial reporting and internal controls over financial management for fiscal years 2020-21 to 2024-25. The plan was updated to optimize on availability to work with a consultant for process reviews and that of other parties who will be documenting information technology general controls (ITGC) systems assessments.

Entity level controls Annex 4, table 1
Process / system Inherent risk ranking 2020-21 2021-22 2022-23 2023-24 Table note 1 2024-25
Entity level controls Low - - - OER -
IT general controls Annex 4, table 2
Process / system Inherent risk ranking 2020-21 2021-22 2022-23 2023-24 Table note 1 2024-25
SAP ECC High RA / OP - - OP -
SONAR Moderate RA - - OP -
Financial management business processes Annex 4, table 3
Process / system Inherent risk ranking 2020-21 2021-22 2022-23 2023-24 Table note 1 2024-25
Planning, budgeting and forecasting Moderate RA - DE / OER - OE
Investment planning Moderate RA - DE / OER - OE
Costing High RA DE / OER - OE -
Salary forecasting Moderate RA / DE / OER - - OE -
CFO attestation Low RA - - DE / OER -
Financial reporting business processes Annex 4, table 4
Process / system Inherent risk ranking 2020-21 2021-22 2022-23 2023-24 Table note 1 2024-25
Procurement, expenses and payments Moderate RA DE / OER - OE -
Transfer payments—IRAP High RA / DE / OER - OE - OE
Transfer payments—non-IRAP Low RA - - DE / OER -
Capital assets Moderate RA - DE / OER - OE
Inventory Low RA - - DE / OER -
Payroll administration Moderate RA DE / OER - - OE
Revenues, receivables and receipts Moderate RA - DE / OER - OE
Financial close and reporting High RA DE / OE - - OE