Report to: General Committee Report
Date: May 17, 2010
SUBJECT: Draft
2009 Consolidated Financial Statements
PREPARED BY: Raj
Raman, Acting Director Financial Reporting, Ext. 2013
Kishor
Soneji, Senior Accountant, Ext. 2681
RECOMMENDATION:
- That
the report “Draft 2009
Consolidated Financial Statements be received;
- And
That Council approve the Corporation of the Town of Markham’s Draft Consolidated Financial
Statements including Markham
Enterprises Corporation (MEC) for the fiscal year ended December 31, 2009;
- And That Council authorize Staff to issue the Financial Statements
(including MEC) for the fiscal year ended December 31, 2009 upon receiving the auditors’
report;
- And that Staff be authorized and directed to do all
things necessary to give effect to this resolution.
EXECUTIVE SUMMARY:
The Town of Markham’s (Town) external auditors,
KPMG, have completed the examination of the consolidated financial statements
of the Town for the year ending December 31, 2009. Attached are the draft
consolidated financial statements for Council’s consideration.
Effective January 2009, the Public Sector
Accounting Board (PSAB) implemented
changes to municipal reporting requirements through sections PS3150, PS1100
& PS1200. Section PS3150
requires governments to record and amortize their tangible capital assets (TCA)
in their financial statements. Sections
PS1100 & PS1200 on financial reporting requires public sector organizations
to account and report annually on an accrual basis. The statements were prepared in accordance with “Generally Accepted
Accounting Principles” and are compliant with the new guideline established by PSAB.
The audit was performed in accordance with
“Generally Accepted Auditing Standards”, and KPMG is expected to express an
unqualified or “clean” opinion that the consolidated financial statements
present fairly the financial position of the Town. These statements indicate how the Town
financed its activities and met its cash requirements. Additionally, the statements confirm that the
resources were obtained and used in accordance with the operating and capital
budgets as approved by Council.
At the time of this report KPMG has completed
the field audit of MEC and are in the process of finalizing the audit report.
The enclosed 2009 Draft Consolidated Financial Statements includes the Town’s
Equity in MEC that includes MEC’s shareholdings in Powerstream Inc. and Markham
District Energy Inc. The Town’s 2009 financial statements will be consolidated
upon receipt of MEC’s audited financial statements and published accordingly.
Copies of the 2009 Annual Report will be distributed to Council when available.
As in previous years, the 2009
statements were prepared in accordance with Public Sector Accounting Board
(PSAB) guidelines. PSAB issues
recommendations and reporting requirements that serve the public’s interest by
strengthening accountability in the public sector by developing, recommending
and gaining acceptance of accounting and financial reporting standards.
Under the changed PSAB, municipal
reporting requirements have been changed and should include as a minimum as per
details below per new reporting requirements:
|
Prior to 2009
|
Post - 2009
|
|
Consolidated Statement of Financial Position
|
Consolidated Statement of Financial Position
|
|
Consolidated Statement of
Financial Activities
|
Consolidated Statement of
Operations and Accumulated Surplus
|
|
Consolidated Statement of Changes in Financial Position
|
Consolidated Statement of Changes in Net Financial Assets
|
|
Schedule of Operating Fund Activities
|
Consolidated Statement of Cash Flows
|
|
Schedule of Capital Fund Activities
|
Not Applicable
|
|
Schedule of Reserves and Reserve
Funds
|
Not Applicable
|
Comments and a brief explanation for each of
the above statements are outlined under the Options/Discussion section of this
report.
To obtain
Council’s approval of the Town of Markham’s
December 31, 2009
draft Consolidated Financial Statements, and to seek authorization from Council
to publish the Town’s financial information as required by the Municipal Act
upon finalization of all consolidated amounts.
The Town of
Markham’s external auditors, KPMG, have completed the examination of the
consolidated financial statements of the Town (including MEC) for the year
ending December 31, 2009 and staff has prepared draft
financial statements for Council’s consideration.
In order to
comply with the regulations of the Public Sector Accounting Board, the Town’s
2008 audited financial statements were restated to enable a year over year
comparison. The 2008 audited financial statements included financial activities
classified into three funds, Operating, Capital and Reserve and Reserve Funds
and also included the Town’s equity in Markham Enterprises Corporation
(MEC). The 2008 audited fund statements
at a high level were:
Exhibit - 1
2008 Audited Consolidated Statement of Financial Activities
($ in
thousands)
The major revenues
include taxation, user charges, federal and provincial grants, investment
income, tax penalties, developers’ revenue, equity pick up in Markham
Enterprises Corporation.
Expenses
include the Town’s wide range of services to its citizens including general
government, protection, parks, recreation & culture, transportation,
environmental, planning and development services.
The Operating
Fund closing fund balance ($3,208K) represents the deficit in operating
activities during the year. The Capital Fund closing fund balance ($51,053K) represents
the unspent capital at the end of the year and the Reserve Fund closing fund
balance ($126,860K) represents the amount of reserves at the end of the year.
The three closing
fund balances noted above and the equity in Markham Enterprises (MEC)
represents the municipal position at the end of 2008. The new PSAB requirement necessitates the
addition of Tangible Capital Assets (TCA) to the municipal position resulting
in what is now called an accumulated surplus. The 2008 accumulated surplus was
$3,356,962K.
The steps to
arrive at the 2008 year end accumulated surplus are shown as Exhibit - 2:
Exhibit -2
2008 Audited Consolidated Statement of Financial
Position
Municipal Position
($ in thousands)
2008 year end Accumulated Surplus
The 2009
financial statements were prepared in same fashion as in 2008, in that TCA
transactions were recorded and the fund balances were consolidated to reflect
the Accumulated Surplus in 2009.
This
statement describes the financial position of the Corporation in terms of
assets and liabilities. This allows the
reader to determine whether the financial position has improved or
deteriorated.
Financial Assets
are the resources controlled by the organization as a result of past events and
from which future economic benefits are expected to flow to the organization.
Current assets are cash and other assets expected to be converted to cash, sold
or consumed either in a year or in the operating cycle. These assets are
continually turned over in the course of a business during normal business
activity.
Financial
Liabilities are financial obligations to outside organizations or individuals
that are the result of transactions or events that occurred on or before the
end of the accounting period.
Non-Financial Assets
are assets with physical value such as land and property. It includes tangible
capital assets, inventories of supplies (i.e. salt and sand).
Both Financial
Assets and Liabilities are estimated as accurately as possible in order that
the readers of the statements are provided with a complete picture of the
organization’s financial position.
Consolidated
Statement of Operations and Accumulated Surplus (Appendix A - page 2)
This
statement accounts for the difference between a local government’s revenue and
expenditures including all TCA transactions adjusted for amortization in the
accounting period.
For the
purpose of this report Exhibit 3 provides details of the 2009 Draft Financial
statements that have been broken down into several components that follow a similar
process as explained in Exhibits 1 and 2.
Exhibit - 3
Draft 2009 Consolidated Statement of Financial Activities
($ in
thousands)
Consolidated
Statement of Change in Net-Financial Assets (Appendix A - page 3)
This
statement presents changes in net-financial assets such as tangible capital
assets, inventories of supplies, heritage estates. The statement indicates how the Town’s
non-financial assets changed from previous year.
Consolidated
Statement of Cash Flows (Appendix A - page 4)
This
statement presents changes in cash and cash equivalents by highlighting the
sources and uses of cash. The statement
indicates how the Town’s activities were financed and how cash requirements
were met.
Communication
The Municipal
Act 2001, Section 295 (1) requires municipalities to annually communicate to
its ratepayers, the results of the municipality’s year end. Section 295 (1) reads as follows:
Within 60
days after receiving the audited financial statements of the municipality for
the previous year, the treasurer of the municipality,
a) shall
publish in a newspaper having general circulation in the municipality, a copy
of the audited financial statements, the notes to the financial statements, the
auditor’s report and the tax rate information for the current year as contained
in the financial review or a notice that the information contained in (i) above
will be made available at no cost to any tax payer or resident of the
municipality upon request; and
b) may provide the information described in sub clause (a) (i)
or (ii) to such persons and in such other manner as the treasurer considers
appropriate.
Publication
of the Town’s statements will occur after consolidation of MEC’s 2009 results
and receipt of the Town’s audited financial statements.
FINANCIAL
CONSIDERATIONS:
The Town
transferred $18.7 million (net) in 2009 from the operating budget to fund capital
projects from the life cycle reserve. Due to the PSAB requirements, assets must
now be capitalized and amortized.
The 2009
amortization expense was $37.2 million (excluding waterworks of $13.9M). The
difference of $18.5 million is due to amortization of assets which have a life cycle
greater than 25 years and assets which are not yet fully included in reserve
study.
The assets
that are included in the financial statements are recorded at historical cost
and are amortized over the life of the asset whereas the reserve study
identifies funding for the major repair and replacement of assets for the next
25 years at replacement cost.
The reserve
fund studies are updated on an annual basis the goal of which is to ensure
sufficient funds are available for the major repair and replacement of
assets. Staff will communicate to
Council through the reserve study updates on the adequacy of the reserve balance.
RECOMMENDED
BY: ________________________ ________________________
Joel Lustig, Treasurer Andy
Taylor, Commissioner,
Corporate
Services
Appendix A - Corporation of the Town of Markham
Draft Consolidated
Financial Statements, December 31, 2009
