model financial statements

Model Financial Statements

16th Edition

2009 Printing

Authored by George Fisher

Certified General Accountants Association of Canada 100 — 4200 North Fraser Way Burnaby, British Columbia Canada V5J 5K7 www.cga.org/canada © CGA-Canada, 2009, 2008, 2007, 2006, 2005, 2004, 2002, 2001, 2000, 1999,

1998, 1997, 1994, 1993, 1992, 1987

All rights reserved. These materials or parts thereof may not be reproduced or used in any manner without the prior written permission of the Certified General Accountants Association of Canada. Printed in Canada Every reasonable effort has been made to obtain permissions for all articles and data used in this edition. If errors or omissions have occurred, they will be corrected in future editions, provided written notification has been received by the publisher.

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About CGA-Canada _________________________________________ CGA-Canada today

CGA is the fastest-growing accounting designation in Canada. The CGA designation focuses on integrity, ethics and the highest education requirements. Recognized as the country’s accounting business leaders, CGAs provide strategic counsel, financial leadership, and overall direction to all sectors of the Canadian economy. The Certified General Accountants Association of Canada — CGA-Canada — sets standards, develops education programs, publishes professional materials, advocates on public policy issues, and represents CGAs nationally and internationally. The Association represents 71,000 CGAs and students in Canada, Bermuda, the Caribbean, Hong Kong and China.

Mission CGA-Canada advances the interests of its members and the public through national and international representation and the establishment of professional standards, practices, and services.

A proud history CGA-Canada was founded in Montréal in 1908 under the leadership of John Leslie, vice-president of the Canadian Pacific Railway. From the beginning, its objective was to encourage improvement in skills and job performance — a goal the Association holds to this day. On April 14, 1913, Canada's Parliament passed the Act that incorporated CGA-Canada as a self-regulating professional Association. Over the decades that followed, branches became associations in their own right, affiliated with the national body. A revised Act of Incorporation, passed in 1999, updated CGA-Canada's powers and reflected the Association's objectives and initiatives for the next millennium. The Act also established a French name for CGA-Canada — Association des comptables généraux accrédités du Canada.

Structure and roles CGA-Canada is governed by a Board of Directors that represents regional representation as well as a public representative. An Affiliation Council, comprised of representatives of each CGA affiliate, sets the strategic plan of CGA-Canada and approves national policy. Individual CGAs are represented nationally through CGA-Canada, and regionally through their provincial/territorial/regional associations and local chapters. The Association • ensures national recognition for the profession and advocates on policy issues of

concern to the profession • raises the profile of the CGA designation and represents members internationally • sets national educational standards, and develops and maintains an internationally

competitive program of professional studies and examinations to certify CGAs in Canada and overseas

• provides a range of services to affiliates and members • contributes to the profession's body of knowledge through research and participation in

international accounting organizations, particularly the International Federation of Accountants (IFAC)

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Nationally and internationally, CGA-Canada contributes to accounting standard-setting by sharing its research findings and views. The Association also represents its members in debates of public policy. As a self-regulating organization, CGA-Canada also sets high standards of professionalism through its own Code of Ethical Principles and Rules of Conduct for members. This comprehensive set of rules and guidelines protects the public interest and ensures that CGAs maintain the highest ethical standards.

Education and professional development CGA-Canada's competency-based education program has long been acknowledged as a leader among distance learning education programs. Innovative technology is used not only in the delivery of the program, but is incorporated into the curriculum content as well. Similarly, ethical principles are also integrated throughout the curriculum. Education partnerships with Laurentian University and the Southern Alberta Institute of Technology offer students a range of options for meeting the mandatory degree requirement.

Mandatory continuing professional education ensures that CGAs maintain their professional competence. CGA-Canada provides professional development opportunities in public practice, ethics, accounting and auditing standards, business valuation, taxation, and other topics. The Professional Development Network — PD Network — developed collaboratively with CGA Affiliates, is an extensive and powerful online information resource for members.

For more information More information about CGA-Canada is available on its Web site at www.cga.org/canada.

http://www.cga.org/canada

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Contents: Model Financial Statements

About CGA-Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Introduction to Model Financial Statements . . . . . . . . . . . . . . . . . . . . . . vii

CGA-Canada Financial Statements Guideline — Format and presentation . . . . . . . . . . . . . . . . . . 1 Guideline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Appendix A: Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Appendix B: Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Appendix C: Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . 33 Appendix D: Statement of Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . 35 Appendix E: Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Appendix F: Additional Sample Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Sample Proprietorship (Compilation, transportation business) . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Notice to Reader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Statement of Owner’s Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Sample Partnership (Compilation, professional services) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Notice to Reader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Statement of Partners’ Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Sample Compilation Ltd. (Compilation, small wholesale company) . . . . . . . . . . . . . . . . . . . . . . . . 73 Notice to Reader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Statement of Income and Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . 77 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Sample Review Ltd. (Review, small wholesale company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Review Engagement Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Statement of Income and Comprehensive Income . . . . . . . . . . . . . . . . . . . . 83 Statement of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Sample Manufacturing Review Ltd. (Review, mid-sized manufacturing company) . . . . . . . . . . . . 93 Review Engagement Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Statement of Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Cash Flow Statement (Indirect method) . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Cash Flow Statement (Direct method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Schedule of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Schedule of Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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Sample Audit Inc. (Audit, large corporation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Consolidated Statement of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . 115 Consolidated Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 117

Sample Not-for-Profit Association (Audit, NFPO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 Statement of Operations and Changes in Fund Balances . . . . . . . . . . . . . . 141 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

International Financial Reporting Standards: A Resource Guide . . . . . . . . . . . . . . . . . . . . . . . . . 149

Suggested company financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Suggested company annual reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

Suggested public sector annual reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

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Introduction to Model Financial Statements The objectives of these model financial statements, accompanied by the Financial Statements Guideline from the CGA-Canada Public Practice Manual, are to

• show the preferred method of presentation of financial information • indicate the disclosure requirements for the presentation of financial information • indicate acceptable alternatives in financial statement style Both CICA Handbook recommendations and actual financial statements were reviewed to ensure that current Canadian practice is reflected in these model financial statements. The result is seven sets of financial statements. The first four sets are for small businesses and are based on the general ledger accounts that a small business is likely to maintain. The next two sets are for a non-consolidated company and a consolidated company respectively and are based on general ledger accounts that a large company is likely to maintain. The last set covers a not-for-profit association and the particular requirements of this type of entity. All financial statements, except the consolidated ones, provide account balances to show the relationships between the different statements. The consolidated financial statements are intended simply as a format guide. Therefore, the consolidated balance sheet and statements of income, shareholders’ equity and cash flow, as well as the notes to the financial statements, do not provide account balances. The consolidated financial statements are more complex than many actual company statements; accounts are many and diverse. An attempt has been made to include the most commonly used and most important types of accounts reported in financial statements. However, the model statements do not contain examples of every type of account that may be presented in financial statements. The models have been prepared using various formats, orders of presentation, and types of entities to provide a broad view of the possible presentation alternatives. Because of the complexities, not all issues can be covered. These models cannot replace professional judgment and should be used as guidelines, keeping in mind current practices and CICA Handbook updates. Although statement style is a matter of preference, financial disclosure is dictated by the Handbook. These model financial statements are updated to CICA Accounting Handbook Release 53.

International Financial Reporting Standards As you are no doubt aware, the Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) has agreed to adopt International Financial Reporting Standards (IFRS) for publicly accountable entities (PAE) for fiscal years beginning on or after January 1, 2011. Although a separate set of standards is currently being developed for non-publicly accountable enterprises (NPAE), they will have the option of adopting IFRS. The statements in this edition of the Model Financial Statements reflect current Canadian GAAP to CICA Handbook Release 53. Given the impending adoption of IFRS, this year’s MFS has a new section on IFRS with links to various websites that include illustrated model financial statements prepared under IFRS, and other information.

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Disclosure Financial statement disclosure refers to the content of the statements and the specific items of information that are to be separately reported. Financial disclosure in the model financial statements is based on the accounting recommendations in the CICA Handbook. References to the applicable sections of the Handbook are given in the appendices to the CGA-Canada Financial Statements Guideline.

Statement style Statement style refers to the format or arrangement of the information. While the CICA Handbook (section 1400) sets out the general standards for financial statement presentation, the accountant still has considerable discretion in this area. The model financial statements display the most prevalent style used by Canadian corporations listed on stock exchanges. Depending on the magnitude of the account balances, they can be disclosed to the nearest dollar, the nearest thousand dollars, or even the nearest million dollars.

Note: Although the model financial statements display the current style of underlining used by a number of Canadian corporations, you are not required to follow this style when completing assignments or writing examinations. Simple underlining (single or double) or boldfacing of column totals, as used in the Module Notes, is satisfactory.

Differential reporting CICA Handbook section 1300, Differential Reporting permits “qualifying enterprises,” as defined in the section, to elect not to apply some of the reporting provisions of specified sections of the Handbook but to provide alternative disclosure instead. Sections with alternative disclosure provisions are section 1590, Subsidiaries; section 3051, Investments; section 3055, Interests in Joint Ventures; section 3064, Goodwill and other intangible assets; section 3240, Share Capital; section 3465, Income Taxes; section 3855, Financial Instruments — Recognition and Measurement; section 3861, Financial Instruments — Disclosure and Presentation; section 3862, Financial Instruments — Disclosures; and section 3863, Financial Instruments — Presentation. A qualifying enterprise is one that is not publicly accountable and whose owners (including those not normally entitled to vote) approve by vote, reporting in accordance with the alternative provision of a specified section. The qualifying enterprise’s reporting may follow the standard Handbook recommendations for some sections and use the alternative disclosure provisions of other sections. These model financial statements illustrate situations where all of the standard Handbook provisions have been applied. However, one possible note for a differential reporting situation is included in Appendix F, Additional Sample Notes, for illustrative purposes. If an eligible company does adopt any differential reporting options, the introductory paragraph in the auditor's report/public accountant’s report on the financial statements should: (a) indicate that the financial statements have been prepared in accordance with Canadian generally accepted accounting principles using differential reporting options available to non-publicly accountable enterprises; and (b) refer to the summary of accounting policies in the financial statements that describes each differential reporting option applied. [CICA 5400.33/CICA 8200.51]

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The required modification for a Review Engagement is illustrated in the “Other Considerations That Would Affect Disclosure” section at the end of the Sample Review Ltd. Financial Statements.

Notes to financial statements Canadian financial statements make extensive use of “notes” to disclose detailed information that otherwise could be reported in the body of the financial statements. The main statements are thus kept to a concise format, while the notes are considered an integral part of the financial statements. The model financial statements provide some specific notes as examples, while indications of other typical notes are shown in Appendix F. The notes provided are examples only; they are not the only notes that might be issued by the type of organization illustrated. In some cases, only indications are given for notes because there is no standard; you are encouraged to carefully match the words to the particular circumstances. Furthermore, it can be a matter of judgment as to whether or not a note is necessary.

Order of presentation The order provided in most of the model financial statements is that which auditors and accountants normally use when providing financial statements to their clients and when the financial statements are published as part of an annual report:

• Auditors’ Report • Balance Sheet • Statement of Income • Statement of Comprehensive Income • Statement of Retained Earnings • Cash Flow Statement • Notes to Financial Statements Although the order of presentation is largely governed by convention, in practice, a certain amount of variation is found in the order in which the components of the financial statements are presented. The provisions of IAS 1, paragraph 10 are much the same, providing that A complete set of financial statements comprises: (a) a statement of financial position as at the end of the period; (b) a statement of comprehensive income for the period; (c) a statement of changes in equity for the period; (d) a statement of cash flows for the period; (e) notes, comprising a summary of significant accounting policies and other explanatory information; and (f) a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. An entity may use titles for the statements other than those used in this Standard.

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Under Canadian GAAP, financial statements for small businesses sometimes do not have a separate statement of retained earnings. In this case, the statements of income and retained earnings are combined in one statement. Also, while the Statement of Comprehensive Income must be presented with the same prominence as other statements, a specific format is not yet mandated. This will soon change with the impending mandatory adoption of International Financial Reporting Standards by PAEs, however. Specifically, IAS 1, paragraph 81 requires that An entity shall present all items of income and expense recognised in a period: (a) in a single statement of comprehensive income, or (b) in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).

Model Financial Statements 1

1. Purpose and application 1.1 This Financial Statements Guideline provides format and presentation recommendations for

financial statements in audit, review, and compilation engagements. Audit and review engagement financial statements are presented in accordance with Canadian generally accepted accounting principles (GAAP), with all required disclosures. Compilation engagement financial statements are not required to be presented in accordance with Canadian GAAP. The standard for compiled financial statements is that they not be false or misleading.

1.2 The preparation of financial statements is both an art and a science. Financial statements should be presented using a format that is professional, understandable, and that provides the user with meaningful financial information. The preparation of financial statements also requires an understanding of complex standards and practices for measurement, presentation, and disclosure.

1.3 As described in paragraph 1400.03, financial statements should be presented fairly in accordance with Canadian GAAP the financial position, results of operations, and cash flows of an entity that represent faithfully the substance of transactions and other events in accordance with the elements of financial statements, and the recognition and measurement criteria set out in section 1000 of the CICA Handbook.

1.4 The following main components of the financial statements will be explained and illustrated:

• title page • table of contents • practitioner’s communication (Auditor’s Report, Review Engagement Report, or Notice to

Reader) • basic financial statements • notes to financial statements • supplementary or other information

1.5 These model financial statements portray the requirements of the Accounting Standards Board of the Canadian Institute of Chartered Accountants, rather than those mandated by International Financial Reporting Standards. A section on IFRS-related resources is provided on page 137.

2. Title page 2.1 The title page should contain the name of the entity, the title of the financial statement, and the

date or period covered. In the case of a review engagement, the word “Unaudited” is inserted in parentheses below “Financial Statements” or the date, to indicate the level of service provided:

SAMPLE CORPORATION

Financial Statements (Unaudited)

Month, Day, Year

In the case of a compilation engagement, the words “Unaudited — See Notice to Reader” should be inserted in parentheses below “Financial Statements” or the date.

CGA-Canada Financial Statements Guideline

Format and presentation

2 Model Financial Statements

2.2 The name of the entity should be disclosed exactly as it appears within the articles of incorporation, partnership registration, or other legal document. Where appropriate, presentation of the name of the entity may be amended to reflect the entity’s trading name, as illustrated next:

SAMPLE CORPORATION

(Operating as: Sample Distributors)

Financial Statements

Month, Day, Year

2.3 The title should communicate to the reader what is included in the presentation. The following examples indicate the circumstances when they should be used.

• Financial Statements

Used when more than one type of financial statement is presented (balance sheet, statement of income, comprehensive income, retained earnings, and cash flow statement).

• Consolidated Financial Statements

Used when the financial statements of two or more entities are merged into one set of statements for presentation.

• Balance Sheet

The exact title of the financial statement is used when only one statement is presented.

• Financial Information

Used in the context of reporting on financial information other than financial statements; examples of such financial information include:

° specific financial statement items, such as sales at a particular location ° grant application data ° information about the effects of changing prices ° amounts calculated for insurance or trust deed purposes

2.4 The date should be the last date of the current year; in the case of a period covered, its end date should be the last date of the current period.

3. Table of contents 3.1 Within the table of contents, the title of each statement or schedule should be disclosed as it

appears on the statement or schedule itself, i.e.:

Report identification: Auditor’s Report, Review Engagement Report, or Notice to Reader

Balance Sheet Statement 1 Statement of Income Statement 2 Statement of Comprehensive Income Statement 3 Statement of Retained Earnings Statement 4 Cash Flow Statement Statement 5

Notes to Financial Statements Supporting schedules to which the financial statements are cross-referenced

4. Practitioner’s communication 4.1 The heading used should be “Auditor’s Report,” “Review Engagement Report,” or “Notice to

Reader” and should be presented on the CGA firm’s letterhead.

4.2 The Auditor’s Report and Review Engagement Report should be addressed to the person(s) engaging the practitioner. The inclusion of the city and province with the addressee is optional. The following are some examples of addressing:


Corporations To the Board of Directors Sample Corporation Ltd. To the shareholders Sample Corporation Ltd. Anywhere, Anyplace

Closely held companies Mr. John Small, President Small Corporation Ltd.

Personal financial statements Mrs. Jane Doe Montreal, Quebec

Partnerships To the Partners Sample Partnership Vancouver, British Columbia

Proprietorship Mr. John Smith Smith Services

Trust financial statements Mr. John Doe Trustee Jane Doe Testamentary Trust Ottawa, Ontario

Estate financial statements Ms. Alice Stewart Executor Estate of John Smith

Not-for-profit associations To the members of Not-for-Profit Association

No address is required for the Notice to Reader report.

4.3 The practitioner’s communication is closed or signed off using the firm’s name rather than an individual signature, unless it is a sole practitioner.

The following is an example of the firm’s signature and title:

[Signed] Certified General Accountants

4.4 The date of the report is the date when work has been substantially completed. The location of the practitioner’s office is included with the report date, at the bottom-left corner of the report as per example.

[City, date]


5. Basic financial statements 5.1 Financial statements typically consist of:

• Balance Sheet • Statement of Income • Statement of Comprehensive Income • Statement of Retained Earnings • Cash Flow Statement

5.2 Financial statements for an audit or review engagement are presented in accordance with Canadian GAAP and require note disclosure relating to accounting policies and significant information.

5.3 Compilation engagement financial statements may range in format and presentation from those that are prepared in accordance with Canadian GAAP to financial statements that do not meet Canadian GAAP. Statements which are missing one or more of the required elements (i.e., no comparative figures, no cash flow statement, or sparse or non-existent financial statement notes) are considered not prepared in accordance with Canadian GAAP.

5.4 Comparative figures are normally presented with current year figures, per CICA Handbook paragraph 1400.12: “Financial statements should be prepared on a comparative basis, unless the comparative information is not meaningful or generally accepted accounting principles (as described in generally accepted accounting principles, Section 1100) permit otherwise.” For an audit or review engagement, note disclosure is required to provide the reason for not reporting comparative figures in the financial statements. Furthermore, if the level of service of the accountant for the preceding year is less than that of the current year, note disclosure is required to inform the reader that the prior year’s comparative figures were prepared on a review or compilation basis. Comparative figures note disclosure is included with note 1 — Summary of significant accounting policies. The following are examples of comparative figures note disclosure:

• Certain balances of the preceding period have been reclassified to conform to the current year’s financial statement presentation.

• Comparative financial statements showing the figures for the corresponding preceding year were compiled without audit or review.

• The comparative figures shown on the financial statements have been prepared by another accounting firm.

5.5 Each financial statement should have a heading that consists of the name of the entity, the statement title, and the date or period covered. Additionally, the CICA Handbook recommends that “Each page of the information … be conspicuously marked as being unaudited” for review engagement reports or “Unaudited — See Notice to Reader” for compilation engagement reports (CICA Handbook paragraphs 8100.27 and 9200.14f).

Examples of the two types of headings follow:


Review engagement:

SAMPLE CORPORATION

Balance Sheet (Unaudited)

As At Month, Day, Year

Compilation engagement:

SAMPLE CORPORATION

Balance Sheet (Unaudited — See Notice to Reader)


5.6 If the audit or review engagement has been qualified, the header should refer the reader to the appropriate report:

Audit engagement:

SAMPLE CORPORATION

Balance Sheet (See Audit Report)


Review engagement:

SAMPLE CORPORATION

Balance Sheet (Unaudited — See Review Engagement Report)


6. Balance sheet 6.1 See Appendix A for acceptable terminology and a list of items that appear in this statement. 7. Statement of income 7.1 See Appendix B for acceptable terminology and a list of items that appear in this statement. 8. Statement of Comprehensive Income 8.1 See Appendix C for acceptable terminology and a list of items that appear in this statement. 9. Statement of retained earnings 9.1 See Appendix D for acceptable terminology and a list of items that appear in this statement. 10. Cash flow statement 10.1 See Appendix E for acceptable terminology and a list of items that appear in this statement. 11. Notes to financial statements 11.1 Notes are presented on a separate page or pages after the basic financial statements. Individual

notes to the financial statements are arranged in the same order as the specific items referred to


in the financial statements, and the heading should match the wording in the financial statements. The referencing is usually limited to balance sheet items, retained earnings changes, and large and unusual items in the statement of income. The order of the notes is generally as follows:

• general (notes about the nature of the entity’s operations or other important matters affecting the basis of presentation)

• summary of significant accounting policies

• other notes to the financial statements

11.2 Each page of the notes to the financial statements should have a heading that consists of the name of the entity, the title, and the date or period covered. In the case of review or compilation engagements, the term “Unaudited” or “Unaudited — See Notice to Reader” is inserted in parentheses after the heading of each page of the notes to the financial statements.

11.3 Paragraph 1505.09 of the CICA Handbook requires that all significant accounting policies followed by an entity be stated as an integral part of its financial statements. The disclosure of accounting policies should describe accounting principles and methods that involve:

• a selection from existing alternatives, or

• accounting principles and methods used which are peculiar to an industry in which an enterprise operates

11.4 Paragraph 1300.21 of the CICA Handbook requires that a qualifying enterprise opting to use differential reporting should:

(a) disclose in its summary of accounting policies the fact that, with the unanimous consent of its owners, its financial statements have been prepared in accordance with differential reporting requirements available to non-publicly accountable enterprises; and

(b) identify in the financial statements the differential reporting options it has applied.

11.5 The notes to the financial statements are designed to present disclosures required by Canadian GAAP regarding information not included in the financial statements. Notes usually pertain to current-year figures unless prior-year disclosure continues to be significant. Reference to “we,” “us,” “client,” and “our” should be avoided in the notes. Instead, reference should be made to “the company,” “the corporation,” and “management” to reflect that the notes belong to the client.

11.6 Policy notes should not be included in a compilation engagement.

11.7 The notes should be cross-referenced to the financial statement item to which they relate. Also, it may be desirable to add a footer to the bottom of the balance sheet and statements of income, retained earnings, and cash flow, such as

• The accompanying notes are an integral part of these financial statements. • See the accompanying notes to the financial statements. • The attached notes are an integral part of these financial statements.

11.8 Some common sample notes are provided in Appendix F, in addition to those included in the model financial statements.

12. Supplementary or other information 12.1 Supplementary or other information may be included to provide detailed schedules of revenues,

expenses, or other information that is not part of the basic financial statements. This information can be useful to the owner or management. Schedules should not present information required by Canadian GAAP, which is part of the financial statements.

12.2 The information contained in supplementary schedules should be meaningful to the user. The following are examples of items that may require a supplementary schedule:


• cost of goods sold • department earnings statements • details of consolidation • comparative financial statements expressed in percentages • details of sales by product line • budgets for an expired period • rental schedule

12.3 Schedule headings should not use the term “statements.” They are separate from the basic financial statements; therefore, the term “schedule” is more appropriate. For example:

SAMPLE CORPORATION

Schedule of Cost of Goods Sold (Unaudited)

For The Year Ended Month, Day, Year

12.4 The reference to the practitioner’s report provides the degree of responsibility taken in regard to the supplementary schedules.


Appendix A1

BALANCE SHEET

Term Handbook

CURRENT ASSETS 1510.01–.02

Cash 3000

Acceptable alternatives:

Cash and short-term investments

Cash and cash equivalents

Includes:

Cash

Petty cash Cash in transit Cash in current bank accounts

Excludes: 3000.01

Cash subject to restrictions that prevent its use for current purposes

Cash appropriated for other than current purposes unless such cash offsets a current liability

Financial assets held for trading* BUS: XFI 3010, 3860 or 3855, 3862, 3863

NPO: 3855, 3861 or 3855, 3862, 3863

Acceptable alternative:

Marketable securities (market value)

Held for trading investments (market value)

(Paragraph 3855.35 of the Handbook indicates that an entity may appropriately use labels other than held for trading as long as they are informative to readers of the financial statements.)

Includes:

Investment certificates

Marketable securities

Time deposits

Treasury bills

Derivative financial instruments

Notes:

The basis of valuation should be disclosed.

1 Some of the material found in these appendices is taken directly from sections of the Handbook.


Term Handbook

* This category only applies when an entity adopts Handbook s. 3855, s. 3862, and s. 3863 (or s. 3855 and s. 3861). Private enterprises may choose to continue to apply the financial instrument requirements in Handbook - Accounting XFI instead of the above-noted sections. Not-for-profit entities may defer adoption of sections 3862 and 3863 until fiscal years beginning October 1, 2008 or later, and would continue to apply section 3861 for years beginning October 1, 2006 or later.

Accounts receivable 3020.01–.02


Receivables

Trade accounts receivable

Related party receivables 3020.01, 3840, 4460


Due from shareholders

Officer notes receivable

Notes:

Refers to disclosure of amounts due from related parties. See Related Party Transactions, section 3840 or Disclosure of Related Party Transactions by Not-for-Profit Organizations, section 4460. Details concerning the nature of the relationship with related parties must be provided in a note as well as the terms and conditions.

Disclosure of amounts due from employees in respect of stock-based employee compensation awards that are reflected as assets.

3870.68 (h)

Other receivables


Receivables

Includes:

Advances

Allowance for doubtful debts

Allowance for cash discounts

Current portion of long-term receivables

Debit balances in suppliers’ accounts

Instalment accounts receivable2

Note(s) receivable

Receivables from employees

Subscriptions receivable — trade

Subscriptions receivable — share capital

Trade receivables

Transfer of receivables3

2 Handbook section 3020.02. The amounts and, where practicable, the maturity dates of instalments receivable

beyond one year should be disclosed. 3 The disclosure requirements are given in AcG.12.63.


Term Handbook

Note:

It is not necessary to refer to allowance for doubtful debts. Note(s) receivable and the current portion of long-term receivables may be shown separately, in addition to or instead of “other.”

Inventories 3031.36


Inventory

Work in progress (for example, in the case of professional service firms)

Includes:

Inventories on hand

Merchandise

Production supplies

Materials (including supplies to be consumed in the production process or in the rendering of services)

Work in process

Finished goods

Inventories in transit

Inventories on consignment

Allowance to reduce inventory from cost to net realizable value

Notes:

A common practice is to show the inventory as one figure called “Inventories” on the balance sheet and to disclose the carrying amounts by classification (such as production supplies, materials, work in process, and finished goods) in the notes.

In addition to the breakdown of the individual components of inventory, the disclosure should include:

the carrying value of inventories carried at:

net realizable value held by producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products,

fair value less costs to sell held by commodity broker-traders,

amounts other than lower of cost and net realizable value of living animals and plants,

harvested agricultural products, or products that are the result of processing after harvest such as processed foods, thread and lumber

the amount of inventories recognized as an expense

the amount of any write-down of inventories

the amount of any reversal of write-down

the circumstances or events that led to the reversal of a write-down

the carrying amount of inventories pledged as security

the accounting policies adopted in measuring inventories, including the cost formula used


Term Handbook

Section 3031, Inventories, is effective for interim and annual financial statements beginning on or after January 1, 2008. Earlier application is encouraged.

Prepaid expenses 3040.01

Includes:

Prepaid expenses

Prepayments

Payments in advance such as rent and property taxes

Supplies not included in inventory (such as office and selling supplies)

Note:

Prepaid deposits of a material nature should be disclosed as long-term if not expected to be recovered in the current year. Income tax prepayments may be included in either prepaid expenses or in receivables.

Future income tax asset 3465.86–.89

Note:

Current income tax assets should be shown separately from future income tax assets.

Other current assets

Includes:

Lease residual values

Net investment in direct finance leases

Note:

Other current assets are usually explained in the form of a note to the financial statements if the amounts are material.

LOANS AND RECEIVABLES* BUS: XFI 3010, 3860 or 3855, 3862, 3863

NPO: 3855, 3861 or 3855, 3862, 3863


Paragraph 3855.35 of the Handbook indicates that an entity may appropriately use labels other than loans and receivables as long as they are informative to readers of the financial statements.

Notes:

The loans and receivables category may be used for all loan assets and receivables. Debt securities are not eligible for this category. Loans and receivables are carried at amortized cost using the effective interest method. Interest income or expense is included in net income over the expected life of the loans and receivables. When there is a write-down of the assets, it should be recognized immediately in the net income.


Term Handbook

* This category only applies when an entity adopts Handbook s. 3855, s. 3862 and s. 3863 (or s. 3855 and s. 3861). Private enterprises may choose to continue to apply the financial instrument requirements in Handbook – Accounting XFI instead of the above-noted sections. Not-for-profit entities may defer adoption of sections 3862 and 3863 until fiscal years beginning October 1, 2008 or later, and would continue to apply section 3861 for years beginning October 1, 2006 or later.

Disclosure related to long-term note(s) receivable must follow the requirements of the appropriate Handbook section (XFI 3860, 3861, or 3862).

HELD-TO-MATURITY INVESTMENTS* BUS: XFI 3010, 3860 or 3855, 3862, 3863

NPO: 3855, 3861 or 3855, 3862, 3863


Paragraph 3855.35 of the Handbook indicates that an entity may appropriately use labels other than held-to-maturity as long as they are informative to readers of the financial statements.

Note:

The held-to-maturity category is for fixed maturity financial assets which the management intends to and has the financial capacity to hold to maturity. Held-to-maturity investments are carried at amortized cost using the effective interest method. When there is objective evidence that a held-to-maturity investment is impaired permanently, it should be recognized immediately in the net income.

* This category only applies when an entity adopts Handbook s. 3855, s. 3862, and s. 3863 (or s. 3855 and s. 3861). Private enterprises may choose to continue to apply the financial instrument requirements in Handbook – Accounting XFI instead of the above-noted sections. Not-for-profit entities may defer adoption of sections 3862 and 3863 until fiscal years beginning October 1, 2008 or later, and would continue to apply section 3861 for years beginning October 1, 2006 or later.

AVAILABLE FOR SALE INVESTMENTS* BUS: XFI 3010, 3860 or 3855, 3862, 3863

NPO: 3855, 3861 or 3855, 3862, 3863


Paragraph 3855.35 of the Handbook indicates that an entity may appropriately use labels other than available for sale as long as they are informative to readers of the financial statements.


Term Handbook

Note:

Non-derivative financial instruments that are not classified as held for trading, loans and receivables or held-to-maturity belong to this category. Available-for-sale investments are recorded at fair value at each balance sheet date and any change in fair value is recognized in other comprehensive income. When there is objective evidence that an available for sale investment is impaired permanently, it should be recognized immediately in the net income.

* This category only applies when an entity adopts Handbook s. 3855, s. 3862, and s. 3863 (or s. 3855 and s. 3861). Private enterprises may choose to continue to apply the financial instrument requirements in Handbook – Accounting XFI instead of the above-noted sections. Not-for-profit entities may defer adoption of sections 3862 and 3863 until fiscal years beginning October 1, 2008 or later, and would continue to apply section 3861 for years beginning October 1, 2006 or later.

INVESTMENTS XFI 3050* or 3051


Non-financial instrument investments

Notes:

Investments are usually covered by a note to the financial statements giving details of the major holdings. The basis of valuation of long-term investments should be disclosed.

XFI 3050.29* or 3051.25

Each investment in a company subject to significant influence, other than affiliated companies, should be shown separately using the equity method.

XFI 3050.30* or 3051.26

Note disclosure should include the amount of any difference between cost and the underlying net book value of the investee assets at purchase date when the equity method is used.

XFI 3050.32* or 3051.28

Under differential reporting, the cost method of accounting for investments in a company subject to significant influence may be adopted.

XFI 3050.39* or 3051.32

* Private enterprises may choose to continue to apply the former financial instrument requirements in Handbook – Accounting XFI instead of the new Handbook sections.

PROPERTY, PLANT AND EQUIPMENT 3061.04–.15, .38

Includes:

Land

Buildings

Computer equipment

Equipment

Leasehold improvements


Term Handbook

Machinery and equipment

Mining properties

Software Oil and gas properties

Vehicles

Landfill sites and improvements

Timberlands and logging roads

Assets under capital leases 3065.21

Assets held for sale 3475.08

Accumulated amortization

Notes: 3061.38

Disclosure should be by each major category and include cost, accumulated amortization, the amount of any write-downs and the amortization method used, as well as the amortization rate or period. When items are recorded at an appraised value (applies to certain transactions pre-dating December 1990), refer to 3061.44 for further disclosure requirements.

Cost includes any retirement costs accounted for in accordance with Asset Retirement Obligations, Section 3110.

3061.05

The gross amount(s) of any assets under capital leases and related accumulated amortization should be disclosed.

3065

With regard to assets held for sale, the description of the facts and circumstances leading to the expected disposal, including the expected manner and timing, as well as the carrying amounts of major classes of assets and liabilities, should be disclosed (3475.37). Where a change in the plans to sell a long-lived asset has an effect on the results of the current or any prior period, the effects and a description of the facts and circumstances leading to the change in plan must be disclosed (3475.38).

Property, plant, and equipment are often shown as a net amount on the balance sheet and are detailed in the notes.

INTANGIBLE ASSETS 3064*

Includes:

Franchises 3064 Appendix

Patents 3064 Appendix

Copyrights 3064 Appendix

Trademarks 3064 Appendix

Waterpower rights

Notes:

Intangible assets subject to amortization should be tested for impairment in accordance with Handbook s. 3063.

3064.63

Intangible assets not subject to amortization should be tested for impairment no less frequently than annually.

3064.64


Term Handbook

Intangible assets subject to amortization should be disclosed separately from intangible assets that are not being amortized.

3064.96

For each major class of intangibles subject to amortization, disclosure should be made of the gross carrying amount and the accumulated amortization, the amount of intangibles acquired during the period, amortization expense for the period, as well as the amortization method, rate, and period.

3064.96 (b)

For each major class of intangibles that is not amortized, disclosure should be made of the carrying amount and the total carrying amount for all classes. The amount of acquisitions during the period should be disclosed.

3064.96 (c)

For each recognized impairment loss related to an intangible asset, disclosure should be made of the facts and circumstances leading to the impairment, the amount of the loss, and the income statement item in which the impairment loss is recorded.

3064.99

Under differential reporting an enterprise may elect to test intangible assets not subject to amortization for impairment, only when events or changes in circumstances indicate that the carrying amount may not be recoverable.

3064.104

GOODWILL 3064.96, 1581.56

Notes:

Goodwill should be shown separately on the balance sheet at the amount initially recognized, less any write-down for impairment.

3064.67

The total amount of goodwill acquired during the period, goodwill impairment losses recognized, and goodwill included in the gain or loss on disposal of a reporting unit, or portion thereof, should be disclosed.

3064.96

When the fair value of a reporting unit is less than its carrying value, and prior to the completion of the second step of the impairment test a reasonable estimate of the impairment loss cannot be made, this fact and the reasons for it should be disclosed.

3064.98

Under differential reporting an enterprise may elect to test goodwill only when events or changes in circumstances indicate that the carrying amount may be less than carrying value.

3064.100

* As part of Handbook Release 48, section 3064 supersedes section 3062, Goodwill and Other Intangible Assets, and section 3450, Research and Development Costs. The new standards apply to interim and annual financial statements for fiscal years beginning on or after October 1, 2008.


Term Handbook

CURRENT LIABILITIES 1510.05–.11

Bank indebtedness 1510.09


Bank loans

Includes:

Bank loans

Overdrafts

Short-term borrowings

Demand loans

Line of credit

Note:

A note should be included to disclose the established and available line(s) of credit and the nature of the indebtedness. Refer to EIC-122, Balance Sheet Classification of Callable Debt Obligations and debt obligations expected to be refinanced.

Note(s) payable, secured 1510.10

Includes:

Note(s) payable other than to banks or related parties

Accounts payable and accrued liabilities 1510.07


Accounts payable

Includes:

Accrued trade liabilities

Coupons and premiums

Credit balances in customers’ accounts

Estimated liability for product warranties

Trade creditors

Due to government agencies (if not significant)

Wages payable (if not significant)

Note:

Non-trade payables such as shareholders’ loans, amounts owing to related parties, and loans from directors or officers should be shown separately on the balance sheet.

1510.09

Due to government agencies

Includes:

Goods and services tax

Harmonized sales tax

Provincial sales tax

Workers’ compensation levies

Payroll taxes (including employer contributions)


Term Handbook

Note:

Amounts due to government agencies may be included with accounts payable and accrued liabilities, if not significant.

Accrued wages payable


Wages payable

Includes:

Wages payable

Salaries payable

Vacation pay provision

Employee bonuses payable

Note:

Deferred management remuneration and bonuses payable to management should be shown separately on the balance sheet.

Amounts owing to related parties 1510.09


Due to related parties

Note: 3840

Amounts owing to parent or other affiliates should be shown separately. Disclosure of amounts due to related parties must follow the requirements of Related Party Transactions Handbook section 3840 or Disclosure of Related Party Transactions by Not-for-Profit Organizations, section 4460.

Income and other taxes payable 1510.09

Includes:

Income taxes payable

Resource taxes payable

Excise taxes payable

Foreign taxes payable

Corporation capital tax payable

Excludes:

Payroll-related taxes

Dividends payable 1510.09

Deferred revenue 1510.05 1510.09


Revenue received in advance


Term Handbook

Includes:

Unearned income

Unearned instalment sales

Unearned deposits on royalties

Unearned revenue

Current portion of long-term debt 1510.05–.06 3210.04


Long-term debt due within one year

Current maturities of long-term debt

Includes:

Current portion of loans payable

Current portion of mortgages payable

Current portion of sinking fund requirement 1510.06

Current obligations under capital lease 3065.23

LONG-TERM DEBT 3210.01–.07

Includes:

Bonds payable

Long-term loans less current portion

Mortgages less current portion

Convertible debentures

Note:

Disclosure of long-term debt must follow the requirements of Handbook section 3210. Refer to EIC-122, Balance Sheet Classification of Callable Debt Obligations and debt obligations expected to be refinanced.

OBLIGATIONS UNDER CAPITAL LEASE 3065.21–.24

Note:

The amounts of lease payments, in aggregate and for the next five years, should be disclosed in a note to the financial statements.

ACCRUED EMPLOYEE FUTURE BENEFITS OBLIGATION 3461.150–.163


Employee future benefit obligation

Pension obligations

Note:

Disclosure requirements for employee future benefits, including pension plans, detailed in Handbook paragraphs 3461.150 to 3461.163.


Term Handbook

FUTURE INCOME TAXES 3465.86–.88

Note:

Under differential reporting an enterprise may elect to account for income taxes on the taxes payable basis and thereby not report future income taxes otherwise recognized. Under this option, the financial statements should disclose the following:

3465.106

a) income tax expense (benefit) included in the determination of income or loss before discontinued operations and extraordinary items;

b) income tax expense (benefit) related to discontinued operations;

c) income tax expense (benefit) related to extraordinary items;

d) a reconciliation of the income tax rate or expense related to income or loss for the period before discontinued operations and extraordinary items to the statutory income tax rate or the dollar amount that would result from its application, including the nature and amount of each significant reconciling item;

e) the amount and timing of capital gain reserves and similar reserves to be included in taxable income within five years;

f) the amount and expiry date of unused income tax losses carried forward and unused income tax credits; and

g) the portion of income tax expense (benefit) related to capital transactions that is charged (or credited) to equity.

OTHER LIABILITIES

Includes:

Asset retirement obligations 3110

Rationalization costs

Deferred profit on sale of investments

Notes:

An entity should disclose the following information about its asset retirement obligations:

a) a general description of the asset retirement obligations and the associated long-lived assets;

b) the fair value of assets that is legally restricted for purposes of settling asset retirement obligations;

c) a reconciliation of the beginning and ending aggregate carrying amount of asset retirement obligations showing separately the changes attributable to: i) liabilities incurred in the current period; ii) liabilities settled in the current period; iii) accretion expense; and iv) revisions in estimated cash flows; whenever one or more of these four components is significant during the reporting period; and


Term Handbook

d) the key assumptions on which the carrying amount of the asset retirement obligations are based, including: i) the total undiscounted amount of the estimated cash flow

required to settle the obligations or a range of amounts when there is uncertainty as to the amount required;

ii) the expected timing of payment of the cash flow required to settle the obligations or a range when there is uncertainty as to the timing of settlement; and

iii) the credit-adjusted risk-free rate or rates at which the estimated cash flow has been discounted.

When the fair value of an asset retirement obligation cannot be reasonably estimated, that fact and the reasons therefore should be disclosed.

3110.21

NON-CONTROLLING INTEREST 1600.15 1600.69


Non-controlling interest in subsidiaries

Equity of non-controlling shareholders

Note:

The non-controlling interest in the subsidiary’s assets and liabilities should be reflected in terms of carrying values recorded in the accounting records of the subsidiary company.

1600.15

Where losses applicable to the non-controlling interest in a subsidiary exceed the non-controlling interest in the common shares of the subsidiary, the excess and any further losses applicable to the non-controlling interest should be allocated only to the parent’s interest. Subsequent earnings should be allocated entirely to the parent’s interest until such previously absorbed losses are recovered.

1600.58

Where non-controlling interest is represented by preferred shares with cumulative dividends in arrears, income of the subsidiary company should be allocated to such non-controlling interest to the extent that provision has not been made for such arrears.

1600.60

SHAREHOLDERS’ EQUITY


Owners’ equity

Shareholders’ deficit (if current year’s total is a debit)

Owners’ deficit

Note:

Owners’ equity is a generic term and encompasses shareholders’ equity (for a limited company), partners’ capital (for a partnership), and owner’s capital (for an unincorporated business).


Term Handbook

Convertible securities 3500.35

Notes:

The dilutive effect of convertible securities should be reflected in diluted earnings per share by application of the “if-converted” method.

Under this method:

a) returns on convertible senior equity instruments should be added back to the numerator (or deducted if applicable);

b) income charges applicable to convertible financial liabilities should be added back to the numerator;

c) the numerator should be adjusted for any non-discretionary changes in income or loss that would result from the assumed conversion of the dilutive convertible securities referred to in a) and b), such as profit-sharing expenses or royalty agreement’s expenses;

d) the numerator should be adjusted for the income tax effect of items a), b), and c); and

e) the convertible securities should be assumed to have been converted at the beginning of the period (or at time of issuance, if later), and the resulting common shares should be included in the denominator.

Equity component of convertible debentures XFI 3860.18 – .24* or 3863.09

Notes:

Derivative financial instruments include interest-rate swaps, currency or market-index futures, and options that transfer one or more of the risks of the underlying, primary instrument. Section 3860 excludes commodity options.

Section 3860 indicates that minimum disclosures include the following: Extent and nature; amount, timing, and risk of cash flows; exposure to interest-rate risk; exposure to credit risk; fair value and basis of valuation; and accounting policy.

Section 3863 requires the issuer of a financial instrument to classify each financial instrument, or its component parts, as a liability or as equity in accordance with the substance of the contractual arrangement on initial recognition and the definitions of a financial liability and an equity instrument.



Term Handbook

Share capital 3240

Notes:

It is common practice to present the details of share capital in a note to the financial statements.

Disclosure is required of amounts credited to share capital in respect of stock-based employee compensation awards.

3870.68 (g)

Authorized 3240.02

Issued and outstanding 3240.03

Notes:

In the case of proprietorships or partnerships, the heading would become owner’s or partners’ capital, and share capital becomes simply capital. If a company purchases shares of its own capital (subject to legal restrictions), these should be shown as “Treasury shares” and appear in the shareholders’ equity section of the balance sheet.

Since this often requires a detailed presentation, it is generally only shown in full in the notes. Pay particular attention to the extensive disclosures specified in Handbook section 3240.

Under differential reporting an enterprise may elect to disclose information only for classes of shares that have been issued.

3240.24

Contributed surplus XFI 3250.05* or 3251.03

Includes:

Contributed capital in excess of par value (or share premium), any portion of the proceeds of issue of shares without par value not allocated to share capital, gain on forfeited shares, proceeds arising from shares donated by equity holders, credits resulting from redemption or conversion of shares at less than the amount set up as share capital, and any other contribution by equity holders in excess of amounts allocated to share capital.

Notes:


A note disclosing the nature and source of the amount and any changes during the period should be given.

Disclosure is required of amounts charged or credited to contributed surplus in respect of stock-based employee compensation awards.

3870.68 (f)


Term Handbook

Common shares owned by subsidiary, at cost 1600.71

Note:

This reduction in equity represents ownership of a portion of the company’s common shares by a subsidiary company.

Retained earnings XFI 3250.06* or 3251.03

Notes:

Where this is a negative figure, the single word “deficit” is suitable.

When there is a condition restricting or affecting the distribution of retained earnings, the nature and extent thereof should be disclosed.

XFI 3250.10* or 3251.11



Appendix B

STATEMENT OF INCOME

Term Handbook

STATEMENT OF INCOME 1520


Income statement

Note:

When the company incurs a loss, the statement may be titled “Statement of Loss” (optional).

Revenue 1520.03(a)

3400.19


Sales

Net sales

Professional fees

Commissions

Rental income

Contract payments

Includes:

Cash sales

Credit sales

Discount on note(s) receivable (sales related)

Fees and commissions

Interest and dividends

Instalment sales

Royalties

Sales of products or services

Sales returns

These can be itemized on the statement of income itself or on a separate schedule of revenue.

Notes:

Refer to Section 3400 for revenue definition, timing of recognition, and effect of uncertainties. In addition, refer to EIC-141 Revenue Recognition for enterprise guidance on the application of Section 3400.

Government grants and assistance confer a benefit on the business; accordingly they should be reflected in income sooner or later. It is the economic substance associated with government grants and assistance that determines appropriate accounting treatment.


Term Handbook

Government grants and assistance related to non-capital items should be included in the determination of net income for the period. Their presentation in the statement of income, depending on the circumstances, would be to disclose expenses net of grants and assistance, or to disclose grants and assistance as a deduction from aggregate expenses, or as revenue. Where government grants and assistance relate to future periods, the appropriate amounts should be deferred and amortized to income as the related expenses are incurred.

Amounts deferred, period of amortization, and the basis of amortization should be disclosed. Government grants and assistance provided for the acquisition of property, plant, and equipment should be either deducted from the related property, plant, and equipment with any amortization calculated on the net amount or deferred and amortized to income on the same basis as the related property, plant, and equipment are being amortized.

3800.05–.26

Cost of sales 1520.03(r)


Cost of goods sold

Includes:

Purchases

Freight in

Duty on purchases

Taxes on purchases

Brokerage on purchases

Direct labour

Manufacturing overhead

Provision to reduce inventories from cost to market

Purchase returns

Purchase discounts

Sales of scrap

Warranty expense

The amount of inventories recognized as an expense during the period in accordance with Section 3031 — Inventories.

Note:

Can be itemized on the statement of income itself or on a separate schedule of cost of sales.

Gross profit


Gross margin (This term is often used to refer to the percentage of gross profit to sales.)

Note:

It is acceptable to report the subtotal for gross profit or margin and leave the line unnamed.


Term Handbook

Expenses 1520.04(d)


General and administrative expenses

Administrative expenses

Selling expenses

Note:

Expenses other than those applicable to cost of sales may be grouped under selling (marketing) expenses and/or general and administrative expenses. Expenses are usually listed by category in alphabetical order (or in descending order by dollar value) on the statement of income, unless there is insufficient space, in which case a separate schedule of expenses is required for management and income tax purposes. Immaterial and insignificant items can be grouped together.

Categories:

Advertising and promotion (includes donations, meals, and entertainment)

Bad debts

Bank charges and interest (includes penalties and interest on taxes)

Cash over and short (if amount significant)

Dues and subscriptions

Equipment rental (lease)

Freight (courier)

Insurance

Licences and fees

Management wages and benefits (executive salaries)

Office (includes miscellaneous if amount insignificant)

Professional fees (includes accounting and legal fees)

Property taxes

Rent

Repairs and maintenance

Shop supplies

Telephone (may be combined with utilities, depending on amount)

Utilities

Vehicle operating (automotive)

Wages and benefits (usually office salaries)


Term Handbook

Note:

For stock-based employee compensation awards, disclosure is required of the total compensation cost recognized in income. A description of each stock-based compensation plan should be provided, including the general terms of award, such as vesting requirements, the maximum term of options granted, and the number of shares authorized for grants of options or other equity instruments. Similar disclosures are also required where goods and services are acquired with equity instruments. The number and weighted-average exercise price of options should be disclosed for each group of options, including those outstanding, exercisable, granted, exercised, forfeited, and expired.

3870.66–.71

Amortization 1520.03(f), (g), (i)

Note:

The amount of amortization expense for property, plant and equipment and for intangible assets should be disclosed separately. Amortization of assets under capital lease may be disclosed separately.

3061.40 3064.96(b)(iii)

Interest on long-term debt 1520.03(m)–(n)

Includes:

Interest on debt due after one year

Interest on capital leases

Amortization of debt discount

Amortization of premium and issue expense on debt

Note:

If the amounts are significant, amortization of debt discount and premium, and issue expense on debt should be shown separately in the notes.

Other interest 1520.03(m)–(n)

Note:

Interest expense related to capital lease obligations may be disclosed separately or as part of interest on long-term debt.

3065.26

Research expense 3064.37–.39

Note:

In addition to expenses incurred during the research phase of a project, expenses incurred during the development phase must also be recognized as expenses on the income statement if any of the criteria for recognition as an intangible asset are not met.

3064.40–.45


Term Handbook

Taxes other than income

Note:

For certain industries, it may be desirable to show items such as resource taxes.

Loss on foreign currency translation XFI 1650.44*

1651.20, .24, .31, .37

1520.03(l)


Exchange (gain) or loss

Notes:

*Private enterprises may choose to continue to apply the former financial instrument requirements in Handbook – Accounting XFI instead of the new Handbook sections.

The amount of exchange gains or losses included in the net income should be disclosed. An entity may exclude from this amount exchange gain or losses on financial instruments classified as held-for-trading, available for sale, and cash flow hedges (s.1651.37)

Income from operations

Note:

The practice of labelling this line is optional. If it will make clearer disclosure, a title may be applied to this subtotal. Current practice seems to be divided on the need for a title.

Investment income 1520.03(b)


Other income

Includes:

Interest

Dividends

Gain (loss) on sale of temporary investments

Gain (loss) on disposal of property, plant, and equipment

Gain (loss) on disposal of intangibles

Rental income

Note:

Income derived from sources other than the main line(s) of business should be shown under other income.


Term Handbook

Equity income XFI 3050.31* or 3051.08

Notes:

This represents income from partially owned companies and is covered in depth in sections 1581, 1600, XFI 3050, 3051, and 3055 of the Handbook.

*Private enterprises may choose to continue to apply the former financial instrument requirements in Handbook – Accounting XFI instead of the new Handbook sections.

Goodwill impairment loss 1520.03(h)

3064.84–.88

Notes:

The aggregate of goodwill impairment losses should be reported as a separate item in the income statement. Impairment losses associated with a discontinued operation should be reported net of tax within the results of discontinued operations.

3064.94

For each recognized goodwill impairment loss, disclosure should be made of the facts and circumstances leading to the impairment, the amount of the loss, and the details of any estimates or changes to estimates in subsequent periods.

3064.98

Under differential reporting, an enterprise may elect to test an intangible asset not subject to amortization for impairment only when events or changes in circumstances indicate that its carrying amount may not be recoverable, rather than testing for impairment annually. When initially electing under differential reporting refer to Handbook Sections 3064.102 and .103.

3064.100

Loss on impairment of long-lived assets 3063.04

Note:

Financial statements should disclose the description of the impaired long-lived asset and the facts and circumstances leading to the impairment. Disclosure should also be made of the method used in determining fair value of the impaired asset. The affected operating segment should also be disclosed.

3063.24

Income before taxes, non-controlling interest, discontinued operations, and extraordinary items

Note:

The practice of labelling this line is optional. If it will make clearer disclosure, a title may be applied to this subtotal. Current practice seems to be divided on the need for a title.


Term Handbook

Income taxes — current 3465

Note:

Under differential reporting, an enterprise may elect to account for income taxes on the taxes payable basis and thereby not report future income taxes otherwise recognized in accordance with Section 3465.

Income taxes — future 3465

Income before non-controlling interest, discontinued operations, and extraordinary items — (consolidated income statement only)

1520.02–.03

Non-controlling interest — (consolidated income statement) 1600.67

Disposal of long-lived assets and discontinued operations 1520.02(b)

3475.27–.38

3465.91(c)

Notes:

Discontinued operations are the operations of a business segment that has been sold, abandoned, shut down, or otherwise disposed of. It also applies to the operations of a business segment that is subject to a formal disposal plan.

To be classified as discontinued operations, both conditions set out in 3475.27 must be met.

Required disclosures are set out in 3475.36–.38.

Net income 1520.02(e)

Extraordinary items 1520.02(d)

3480.02, .07–.09 Notes:

Extraordinary items are the result of activities that are not typical to the business, are not expected to be recurring, and do not depend primarily on decisions of management. Income taxes attributable to the item should be disclosed.

3465.91(d)

The disposition of a component of an entity is accounted for and presented in the income statement in accordance with the disposal of long-lived assets and discontinued operations (3475), even though the circumstances of the disposal have the characteristics of an extraordinary item (3480).

Reportable segments 1701

Definition of segment:

An operating segment is a component of an enterprise:


Term Handbook

a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise),

b) whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

c) for which discrete financial information is available.

An enterprise should disclose separately information about each operating segment that has been identified in accordance with 1701.10–.15 or that results from aggregating two or more of those segments in accordance with paragraph 1701.18, and exceeds the quantitative thresholds in paragraph 1701.19. Paragraphs 1701.22–.25 specify other situations in which separate information about an operating segment should be disclosed.

Entities other than public enterprises, co-operative business enterprises, deposit-taking institutions, and life insurance enterprises are encouraged, but not required, to provide the disclosures described in Section 1701.


Appendix C

STATEMENT OF COMPREHENSIVE INCOME

Term Handbook

STATEMENT OF COMPREHENSIVE INCOME 1530


Comprehensive Income statement

Notes:

This does not apply to not-for-profit organizations.

Effective for fiscal years beginning on or after October 1, 2006, enterprises are required to include a Statement of Comprehensive Income as part of their financial statements, or alternatively, to report on the Statement of Income or the Statement of Retained Earnings, the information otherwise reported on the Statement of Comprehensive Income.

Private enterprises may choose to continue to apply Handbook – Accounting XFI, and therefore do not need to prepare the statement of comprehensive income.

Examples of this new statement appear in the May 2007 CGA Practice Alert issued with the Public Practice Manual.

NET INCOME

OTHER COMPREHENSIVE INCOME, NET OF TAX

Includes:

Unrealized foreign currency translation gains and losses, net of hedging activities:

Unrealized gains and losses on translating financial statements of self-sustaining foreign operations

1651.29

Reclassification adjustment for gains and losses included in net Income

1651.31

Gains and losses on hedges of unrealized foreign currency translation losses and gains

3865.58

Change in unrealized gains and losses on available-for-sale financial assets:

Unrealized gains and losses on available-for-sale financial assets arising during the period

3855.76

Reclassification adjustment for gains and losses included in net income

3855.76


Term Handbook

Change in gains and losses on derivatives designated as cash flow hedges:

Gains and losses on derivatives designated as cash flow hedges

3865.52

Gains and losses on derivatives designated as cash flow hedges in prior period transferred to net income in the current period

3865.55-.57

Note:

Other comprehensive income comprises revenues, expenses, gains and losses that, in accordance with primary sources of Canadian GAAP, are recognized in comprehensive income, but excluded from net income.

1530.03(b)

COMPREHENSIVE INCOME

Includes:

Total of Net Income for the period plus all items contained in Other Comprehensive Income

Refer to the Handbook 1530.12 for an illustrative example.


Appendix D

STATEMENT OF RETAINED EARNINGS

Term Handbook

Notes: Retained earnings is comprised of the accumulated balance of

income less losses arising from the operations of the enterprise, after taking into account dividends, refundable taxes, and other amounts that may be properly charged or credited to retained earnings.

3250.06* or 3251.03(c)

Effective for fiscal years beginning on or after October 1, 2006, enterprises are required to adopt the new Handbook section 3251, and include the effects of accumulated comprehensive income on equity.

Current practice is divided between preparing a separate statement of retained earnings and combining the statement of retained earnings with the statement of income. In all cases, the statement should show, by major category, the progression from opening balance through to the closing balance at the end of the period.

If the ending balance of retained earnings is a deficit, the statement may be titled “Statement of Deficit” or “Statement of Income and Deficit.”


RETAINED EARNINGS

Prior period adjustments (net of applicable taxes) 1506

Includes:

Changes in accounting policies

Corrections of prior period errors

Notes:

A settlement of a claim resulting from litigation or a non-recurring adjustment or settlement of income taxes relating to prior period(s) should be reported as a prior period adjustment if it meets the definition of a prior period error in Handbook s. 1506.05(c).


Term Handbook

Dividends 3610.01, .02(f)

Notes:

A company classified as a private corporation under the Income Tax Act can receive a refund of a portion of the income taxes it has paid at a rate of $1 for each $3 of taxable dividends paid if the company is still a private corporation at the end of the year in which dividends are paid. Since the payment and refund of these taxes relate to the payment of dividends which are usually charged to retained earnings, refundable taxes should be charged to retained earnings when it is more likely than not that they will be recovered in the foreseeable future. The recovery of such taxes should be credited to retained earnings. Charges and recoveries of refundable taxes should be disclosed separately. While there is not requirement to disclose the accumulated amount of refundable taxes, it may be disclosed in the notes to the financial statements.

3465.71-.73

An enterprise should present earnings per share information when it has:

a) issued common shares or potential common shares that are traded in a public market (a domestic or a foreign stock exchange or in an over-the-counter market, including local and regional markets); or

b) made a filing or is in the process of filing with a securities commission in preparation for the sale of those securities in a public market.

Any enterprise that is not required by Handbook section 3500 to present earnings per share information in its financial statements but chooses to do so should apply all of the recommendations of section 3500.

3500.02–.04

ACCUMULATED OTHER COMPREHENSIVE INCOME*

Upon adoption of Handbook section 3251, an enterprise also presents accumulated other comprehensive income as a component of equity, showing the balance of each component of revenue, expense, gain or loss that is recognized in other comprehensive income at the end of the period, as well as the total of all such components, including accumulated unrealized gains or losses from:

3251.05

a) changes in fair value of available-for-sale financial assets,

b) translation of financial statements of self-sustaining foreign operations,

c) changes in fair values of effective cash flow hedging instruments, and

d) appraisal increase credits.

The combined total of retained earnings and accumulated other comprehensive income must also be presented.

3251.05


Term Handbook

Similar to the existing requirement to present changes in retained earnings, Handbook section 3251 also requires presentation of the changes in accumulated other comprehensive income.

3251.04

Examples of such presentation appear in the May 2007 CGA Practice Alert issued with the Public Practice Manual.

* Private enterprises may choose to continue to apply the former financial instrument requirements in Handbook – Accounting XFI instead of adopting comprehensive income and the new Handbook sections.


Appendix E

CASH FLOW STATEMENT

Term Handbook

CASH FLOW STATEMENT 1540


Statement of cash flow

Notes:

A cash flow statement should be presented as an integral part of the financial statements for each period for which financial statements are presented, unless the reporting enterprise is not a public enterprise and the required cash flow information is readily apparent from the other financial statements or is adequately disclosed in the notes to the financial statements. When a cash flow statement is not presented, the reason should be disclosed.

1540.03

The cash flow statement should report cash flows during the period classified by operating, investing and financing activities.

1540.12

Two methods may be used to report cash flows from operating activities — the indirect or direct method. Although the “preferred” method is the direct method, many companies continue to use the indirect. The model financial statements therefore demonstrate both.

1540.20

An enterprise should present separately, major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that cash flows described in paragraphs 1540.25 and 1540.27 are presented on a net basis.

1540.23

Cash flows arising from each of the following operating, investing or financing activities may be reported on a net basis:

1540.25

a) cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise; and

b) cash receipts and payments for items in which the turnover is quick, the amounts are large and the maturities are short.

Cash flows arising from transactions in a foreign currency should be recorded in an enterprise's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow.

1540.28


Term Handbook

The cash flows of integrated foreign operations as well as those arising from the investing and financing activities of self-sustaining foreign operations should be translated at the exchange rates between the reporting currency and the foreign currency at the dates of the cash flows. Cash flows from the operating activities of self-sustaining foreign operations should be translated at the exchange rates at which the respective items are translated for income statement purposes.

1540.29

Cash flow amounts per share (or per unit) should not be disclosed in financial statements, except that an enterprise may disclose per-share (or per-unit) amounts payable to owners.

1540.53

When an enterprise makes a cash distribution on a financial instrument classified as equity, and the distribution is determined in accordance with a contractual agreement or relevant constating documents (for example, a distribution clause in an income trust or real estate trust deed or declaration), the following disclosure is required:

1540.55

a) the terms and conditions that apply to the determination of the cash distribution;

b) the total cash distribution; and

c) the extent to which the distribution is non-discretionary.

The cash flows associated with extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately presented on a before-tax basis.

1540.32

Cash flows from interest and dividends received and paid and included in the determination of net income should be classified as cash flows from operating activities. Cash flows from interest and dividends paid and included in the determination of net income should be disclosed separately. Interest and dividends not included in the determination of net income should be classified according to their nature. Dividends and interest paid and charged to retained earnings should be presented separately as cash flows used in financing activities. Cash flows from dividends paid by subsidiaries to non-controlling interests should be presented separately as cash flows used in financing activities.

1540.34 – 35

Cash flows arising from income taxes should be separately disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities, in which case they may be classified accordingly.

1540.38


Term Handbook

When using the indirect method of reporting cash flows from operating activities, supplementary disclosure is required for cash flows from interest received and paid and for cash flows from income taxes. When using the direct method, these amounts are separately disclosed as required without the need for supplementary disclosure.

1540.34, .38

The aggregate cash flows arising from each business combination accounted for using the purchase method and disposals of business units should be presented separately and classified as cash flows from investing activities. An enterprise should disclose, in aggregate, in respect of business combinations accounted for using the purchase method and disposals of business units during the period, each of the following:

a) the total purchase or disposal consideration; 1540.42 – 43

b) the portion of the purchase or disposal consideration composed of cash and cash equivalents;

c) the amount of cash and cash equivalents acquired or disposed of; and

d) the total assets, other than cash or cash equivalents and total liabilities acquired or disposed of.

Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement. Such transactions should be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.

1540.46

An enterprise should disclose the components of cash and cash equivalents and should present a reconciliation of the amounts in its cash flow statement with the equivalent items presented in the balance sheet, as well as the policy which it adopts in determining the composition of cash and cash equivalents. The amount of cash and cash equivalents for which use is restricted should also be disclosed.

1540.48 – 50

Operating activities 1540.15–.17

Examples of cash flows from operating activities are:

a) cash receipts from the sale of goods and the rendering of services;

b) cash receipts from royalties, fees, commissions and other revenue;

c) cash payments to suppliers for goods and services;

d) cash payments to and on behalf of employees;

e) cash receipts and payments of interest and dividends included in the determination of net income;

f) cash receipts and payments of an insurance enterprise for premiums and claims, annuities and other policy benefits;

g) cash payments and refunds of income and other taxes; and


Term Handbook

h) cash receipts and payments from contracts held for trading purposes.

Investing activities 1540.18

Examples of cash flows arising from investing activities are:

a) cash payments to acquire property, plant and equipment and other long-term assets. These payments include those relating to capitalized development costs and self-constructed property, plant and equipment including interest paid and capitalized before the assets are substantially complete and ready for productive use;

b) cash receipts from sales of property, plant and equipment and other long-term assets;

c) cash payments to acquire equity or debt instruments of other enterprises and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for trading purposes);

d) cash receipts from sales of equity or debt instruments of other enterprises and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for trading purposes);

e) cash advances and loans made to other parties;

f) cash receipts from the repayment of advances and loans made to other parties;

g) cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for trading purposes, or the payments are classified as financing activities; and

h) cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for trading purposes, or the receipts are classified as financing activities.

Financing activities 1540.19

Examples of cash flows arising from financing activities are:

a) cash proceeds from issuing equity instruments;

b) cash payments to owners to acquire or redeem the enterprise's shares;

c) cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings including deposits accepted by a financial institution;

d) cash repayments of amounts borrowed;

e) cash payments by a lessee for the reduction of the outstanding liability relating to a capital lease; and

f) cash payments of dividends and interest charged to retained earnings.


Term Handbook

Increase in cash and cash equivalents


Change in cash during the year


Appendix F

SAMPLE NOTES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements of the company have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) on a going-concern basis which assumes that the company will be able to realize its assets and discharge its liabilities in the normal course of business. If the going-concern assumption were not appropriate for these financial statements, then adjustments may be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. (Provide an explanation of any material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If the statements are not prepared on a going concern basis, disclose that fact and the reason why the entity is not regarded as a going concern.) Going-concern (when going-concern problems exist)

These financial statements have been prepared in accordance with Canadian generally accepted accounting principles that are applicable to a company that will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations (a “going concern”). However, the use of generally accepted accounting principles that are applicable to a going concern is potentially inappropriate as there is significant doubt concerning the company’s ability to continue as a going concern. Considering the operating losses accumulated in the last five years and the deficiency of working capital, the company’s ability to realize its assets and discharge its liabilities depends on the continued support of the shareholders and the refinancing of long-term debt which amounts to $ XXX, maturing on [insert month, day, and year]. Management has adopted a plan to rationalize its expenses to face these circumstances and is confident that the necessary financing can be obtained from shareholders and a lending institution. The financial statements do not reflect adjustments that would be necessary if the going-concern assumption were not appropriate, as management believes that the measures described above will mitigate the effect of the conditions that raise doubt about the appropriateness of this assumption. Use of estimates

When preparing financial statements according to Canadian GAAP, we make estimates and assumptions relating to:

• Reported amounts of revenue and expenses • Reported amounts of assets and liabilities • Disclosure of contingent assets and liabilities We base our assumptions on a number of factors including historical experience, current events, actions that the company may undertake in the future, and other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates under different conditions and assumptions. We use estimates when accounting for certain items such as useful lives of capital assets, impairment of long-lived assets, goodwill, employee future benefits allowance for doubtful accounts, and provision for slow-moving inventories and income taxes. Employee future benefits

The Company maintains a defined benefit plan that provides pension benefits for almost all of its employees. Benefits are based on length of service and average rate of pay during the last five years of service. Employees are not required to contribute to the plan. The plan provides increasing pension benefits to protect against inflation. The Company is responsible for adequately funding the pension plan. Contributions are made based on various actuarial


cost methods that are permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections, and future service benefits. The Company accrues its obligation under the employee benefit plan and related costs, net of the fair value of plan assets. Actuaries determine pension costs using:

• the projected benefit method, prorated on years of service, which takes into account future salary levels; • a discount rate based on market interest rates on high-quality bonds with maturities that match the timing and

benefits expected to be paid by the plan; and • management’s best estimate of the plan’s expected investment performance, salary increases and retirement ages

of employees. Pension plan assets are valued at fair value, which is determined using current market values. A market-related value is used to calculate the expected return on plan assets. This value is based on a four-year weighted average of the fair value of plan assets. Past service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees who are active on the day of the amendment but not fully eligible to receive benefits. This represents the time period over which economic benefits are expected from the amendments. The corridor approach is used to recognize actuarial gains and losses into earnings. First, 10 years of the benefit obligation or market-related value of plan assets, whichever is greater, is deducted from the unamortized net actuarial gain or loss. Then the excess is amortized over the average remaining service period of active employees. This ranged from 11 to 18 years, with a weighted average of 15 years at the end of 20XX. December 31 is the measurement date of the benefits plan. Actuaries perform a valuation at least every three years to determine the actuarial present value of the accrued pension benefits. The last actuarial valuation was performed on January 1, 20XX. Differential reporting

a) Subsidiaries The Company has elected to account for subsidiaries using the cost method. Accordingly, these financial statements have been prepared on a non-consolidated basis.

b) Investments subject to significant influence The Company has elected to use the cost method to account for investments subject to significant influence that would otherwise be accounted for by the equity method.

c) Interest in joint ventures The Company has elected to account for interests in joint ventures using the cost method. Accordingly, these interests are not proportionately consolidated.

d) Goodwill The Company has elected to test goodwill for impairment only when an event or circumstance occurs that indicates that the fair value may be less than its carrying amount, rather than testing for impairment annually.

e) Intangible assets The Company has elected to test intangible assets not subject to amortization for impairment only when events or changes in circumstances indicate that its carrying amount may not be recoverable, rather than testing for impairment annually.

f) Share capital The Company has elected to disclose information only for classes of shares that have been issued. Information is not provided where no shares of an authorized class have been issued.

g) Income taxes The Company has elected to use the tax payable method to record income taxes.


h) Financial instruments The Company has elected to account for its redeemable preferred shares, issued under sections 51, 85, 85.1, 86, 87, and 88 of the Income Tax Act as equity.

i) Financial assets and liabilities The Company has elected to disclose fair value of financial assets and liabilities only for those financial assets and liabilities for which fair value is readily obtainable.

j) Financial assets With respect to financial assets carried at an amount in excess of their fair value, the Company has elected to disclose information about fair value and the reasons for not reducing the carrying amount only for financial assets for which fair value is readily obtainable.

k) Financial instruments The Company has elected to measure at cost the available-for-sale financial instruments that would otherwise be measured at fair value, do not have a quoted market price in an active market, and are not designated and effective hedging instruments. or The Company has elected to measure at amortized cost the available-for-sale financial instruments that would otherwise be measured at fair value, do not have a quoted market price in an active market, and are not designated and effective hedging instruments.

Financial instruments

The Company recognizes and reports financial instruments in accordance with the standards in the Handbook – Accounting XFI, and has chosen not to adopt the new standards for recognizing fair value and reporting comprehensive income, which are optional for private companies. Foreign currency

Foreign currency denominated monetary assets and liabilities are translated to Canadian dollars at the exchange rate in effect at the balance sheet date. Foreign currency denominated non-monetary assets and liabilities are translated to Canadian dollars at the exchange rate in effect on the transaction date. Revenue and expense items are translated at the exchange rate in effect at the time of the transaction. Amortization and property write-downs are translated at the same exchange rate as the assets to which they relate. Foreign exchange gains or losses are included in the determination of net earnings for the year. Revenue recognition

We recognize revenue when earned, specifically when all the following conditions are met:

• Services are provided or products are delivered to customers. • There is clear evidence that an arrangement exists. • Amounts are fixed or can be determined. • Our ability to collect is reasonably assured. • There is no significant obligation for future performance. • The amount of future returns can be reasonably estimated. We record payments received in advance including upfront non-refundable payments as deferred revenues until we provide the service or deliver the product to customers. Cash and cash equivalents

We classify highly liquid investments with maturity of three months or less from the date of purchase as cash and cash equivalents.


INVESTMENTS

Equity Method

We use the equity method to record investments in entities subject to significant influence. We use the cost method for our investment in all other companies. The investment is initially recorded at cost and adjustments are made to include our share of the investee’s net earnings or losses. These adjustments are included in our net earnings. The amount of our investment is reduced by any dividends received or receivable from the investment. Cost Method

The investment is recorded at cost. Dividends received or receivable from the investment are included in the net earnings with no adjustment to the carrying amount of the investment. Held-for-trading financial assets

We value these investments at market value. The resulting gain and loss is taken to the income statement. Held-to-maturity financial assets

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity. We have the positive intention and ability to hold to maturity. These are measured at amortized cost using the effective interest rate method less any impairment loss. A gain or loss is recognized in net income when the financial asset or liability is derecognized or impaired, and through the amortization process. Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale, or that are not classified loans and receivables, held-to-maturity investments and held-for-trading. They are measured at fair value, which is determined based on market prices. Gains or losses are recognized directly in other comprehensive income until the financial asset is derecognized, at which time the cumulative gain or loss previously recognized in the accumulated other comprehensive income should be recognized in net income for the period. Inventory

Raw materials and supplies are valued at the lower of weighted average cost and replacement cost. Work in process and finished goods are valued at the lower of weighted average variable costs and net realizable value. Loans receivable and allowance for loan losses

Loans receivable are stated at unpaid principal balances, less an allowance for loan losses. Interest on loans is recognized over the term of the loan and is calculated using the simple-interest method on outstanding principal amounts. Allowance for loan losses is increased by charges to income and decreased by charge-offs (net recoveries). Our periodic evaluation of the adequacy of the allowance is based on past loan-loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and current economic conditions. Accrual of interest on a loan is discounted when management believes, after considering economics, business conditions, and collection efforts that the borrower’s financial condition is such that collection of interest is doubtful. Uncollectible interest previously accrued is charged off, or an allowance is established by means of a charge to interest income. Income is subsequently recognized to the extent cash payments are received until, in our judgment, the borrower’s ability to make periodic interest and principal payments is back to normal, in which case the loan is returned to the accrual status.


Property, plant and equipment

We have recorded property, plant and equipment at cost. Amortization is provided annually at rates and methods over their estimated useful lives as follows, except in the year of acquisition when one half of the rate is used. We review the estimates of useful lives of the assets every year and adjust them on prospective basis, if needed.

Building 5% straight line Machinery and equipment 20% declining balance Machinery under capital lease 20% declining balance We record machinery under capital leases and related obligation of future lease payments initially at an amount equal to the lesser of fair value of the machinery and the present value of those lease payments. We classify major spare parts and standby equipment as property, plant and equipment when we expect to use them during more than one period. Similarly, if the spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment1. We review for impairment of property, plant and equipment whenever events or changes in the circumstances indicate that the carrying value may not be recoverable. If the total of the estimated undiscounted future cash flows is less than the carrying value of the asset, an impairment loss is recognized for the excess of the carrying value over the fair value of the asset during the year no impairment occurred. Intangible assets

We record intangible assets at cost. Amortization is provided annually at rates calculated to write off the assets over their estimated useful lives as follows:

Patents 17 years straight line Copyrights 15 years straight line Finite life intangibles noted as above are tested for impairment when the events or changes in the circumstances indicate the carrying values will not be recoverable. Indefinite life intangibles are not amortized and tested for annual impairment. Goodwill

Goodwill is reported at cost less the amortization that was recorded prior to adoption in 2003 of the policy to discontinue amortizing goodwill. In accordance with the differential reporting option for goodwill, the company did not test goodwill for impairment in 2003 or at any time since that date. Income taxes (Where the differential reporting option for income taxes is not used)

We have adopted the future taxes method of reporting income taxes in accordance with the Canadian generally accepted accounting principles in the Handbook – Accounting, and no longer report income taxes using the differential reporting option. This change in accounting policy has been applied retroactively and the comparative statements have been restated accordingly. CAPITAL DISCLOSURES

1. For Publicly Accountable Enterprise (PAE)

For its own purposes, the company defines capital as the sum of mortgages and loans payable, and shareholders’ equity including share capital, contributed surplus, and accumulated other comprehensive income.

1 Handbook s. 3061.04, accounting revision release no. 45, June 2007


2XX9 2XX8

Mortgages and loans payable $ xxx $ xxx Share capital xxx xxx Contributed surplus xxx xxx Accumulated other comprehensive income xxx xxx

Total capital $ xxx $ xxx The company’s objectives when managing capital are to continue as a going concern to protect its ability to meet its ongoing liabilities, and to maximize returns for shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, and following internally determined capital guidelines based on risk management policies. The capital for the company's current expansion plan has been raised primarily from net proceeds from the recent issuance of common shares. The net proceeds raised will only be sufficient to identify and evaluate a limited number of exploration assets and businesses for the process of identifying and completing a transaction. The company is subject to the following financial covenants in its mortgage and loans payable:

• Debt service coverage — calculated as net earnings before interest, taxes, and amortization divided by the sum of interest expense and principal repayments; according to the covenant, the minimum debt service coverage is xx.

• Interest coverage — calculated as net earnings before interest, taxes, and amortization divided by interest expense; according to the covenant, the minimum interest coverage is xx.

• Debt to equity ratio — calculated as the total debt divided by total shareholders’ equity. According to the covenant, the maximum debt to equity ratio is xx%.

As of (financial statement date), the company complied with all financial covenants and externally imposed capital requirements.

2. For Non-Publicly Accountable Enterprise (NPAE) — not in compliance with covenants

The loan covenants covering our line of credit and long-term bank loan require that we maintain a total debt to equity ratio of no more than xx%. Debt includes any outstanding amount on the line of credit, plus the amount of principal outstanding (including current portion) on the term loan. At year end, the company total debt to equity ratio, calculated in accordance with the covenant, was xx%. Therefore, the company was not in compliance with the restriction. The covenant provides that, at the banks discretion, the full amount of the debt becomes due and payable on demand. Therefore, we have classified the full amount of the bank loan as a current liability. At the date these financial statements were issued, the bank has not demanded repayment. The company is in continuing discussion with the bank.

3. For Non-Publicly Accountable Enterprise (NPAE) — in compliance with covenants

The loan covenants covering our line of credit and long-term bank loan require that we maintain a total debt to equity ratio of no more than xx%. Debt includes any outstanding amount on the line of credit, plus the amount of principal outstanding (including current portion) on the term loan. At year end, the company total debt to equity ratio, calculated in accordance with the covenant, was xx%. Therefore, the company was in compliance with the restriction.


INVENTORY

Year (Restated)

Prior

Finished goods $ xxxx $ xxxx Work in process xxxx xxxx Raw materials xxxx xxxx

$ xxxx $ xxxx Separate disclosure for inventories carried at net realizable value or fair value less costs to sell If applicable, should also disclose the following:

Amount of inventory write-down in the period Amount of reversal of write-down in the period Circumstances leading to reversal Carrying amount of inventories pledged as security PROPERTY, PLANT AND EQUIPMENT

Year Prior

Cost Accumulated Amortization Net Book Value

Land $ xxxx $ xxxx $ xxxx $ xxxx Buildings xxxx xxxx xxxx xxxx Machinery and equipment xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx

Machinery under capital lease xxxx xxxx xxxx xxxx

$ xxxx $ xxxx $ xxxx $ xxxx INTANGIBLE ASSETS

Year Prior

Cost Accumulated Amortization Net Book Value

Patents $ xxxx $ xxxx $ xxxx $ xxxx Franchise 1 xxxx xxxx xxxx xxxx

$ xxxx $ xxxx $ xxxx $ xxxx BANK INDEBTEDNESS

The Company has a revolving line of credit of $xxx, secured by a charge under the Personal Property Security Act granting a security interest in its accounts receivable and inventories. Interest is payable each month at the bank’s prime plus x%. The amount is payable on demand. NOTE PAYABLE

The note is payable on demand and is secured by a charge under the Personal Property Security Act granting a security interest in a new machine that cost $x. Interest is payable each month at prime plus x%.


LONG-TERM DEBT

Year Prior

Bank term loan due in Year 6 $ xxxx $ xxxx

Debt component of $xxx. Series X convertible debentures xxxx xxxx

xxxx xxxx

Current portion xxxx xxxx

$ xxxx $ xxxx These are secured by way of a first floating charge on the undertaking and on all the assets of the Company. In the event of default of either the payment of annual interest or payment of principal, the convertible debentures become due on demand. The interest is payable at the bank’s prime plus 2% per annum. The aggregate amount of payments required in each of the next five years on the above indebtedness is as follows:

Year Term loan Debt component of convertible debentures

1 $ xxxx $ xxxx 2 xxxx xxxx 3 xxxx xxxx 4 xxxx xxxx 5 xxxx xxxx

$ xxxx $ xxxx OBLIGATIONS UNDER CAPITAL LEASE

Year Prior

Machinery lease contracts, repayable in monthly instalments totalling $xxx, including interest calculated at x%, and maturing on Month, Day, Year and Month, Day, Year. $ xxxx $ xxxx Less current portion xxxx xxxx

$ xxxx $ xxxx Minimum payments under capital leases for machinery are:

Year 1 $ xxxx Year 2 xxxx Year 3 xxxx Year 4 xxxx Year 5 xxxx

xxxx

Less imputed interest xxxx

$ xxxx FUTURE INCOME TAXES

Year 2 Year 1 Property, plant and equipment $xx $xx Deferred revenue xx xx Other temporary differences xx xx Future income tax liabilities (net) $xx $xx


INCOME TAXES

The provision for income taxes recorded on the financial statements differs from the amounts that would be obtained by applying the statutory rate to income before taxes as follows:

Earnings (loss) before income taxes $ xxx $ xxx Applicable corporate tax rate x% x% Expected income tax provision (recovery) xxx xxx

(Decrease) Increase in taxes resulting from: Losses for which no tax benefit recognized xxx xxx Large corporations tax xxx xxx

Income taxes per financial statements $ xxx $ xxx The Company has non-capital losses carried forward from prior years that can be used to offset future taxable income. The losses expire as follows:

20XX $ xxxx 20XX xxxx 20XX xxxx 20XX xxxx 20XX xxxx

$ xxxx The tax benefits of these losses are not recognized in these financial statements. The Company has allowable capital losses of $xxxx carried forward from prior years, with no expiry date, that can be used to offset future capital gains. The Company has approximately $xxx in unused tax pools, with no expiry date, that are available to offset future taxable income subject to certain provisions of the Income Tax Act. RELATED PARTIES

Related parties consist of commonly controlled corporations as follows:

Year Prior

Due from ABC Ltd. Amount is non-interest-bearing and repayable on demand. $ xxxx $ xxxx

Sales to ABC xxxx xxxx

Purchases from XYZ xxxx xxxx These transactions occurred in the normal course of operations and are measured at an exchange amount, which is the amount of consideration established and agreed to by the related parties. DUE TO SHAREHOLDERS

Due to shareholders is non-interest bearing and payable on demand. BUSINESS COMBINATION

On January 31, 20XX, the Company acquired the existing law practice of Smith and Smith. At the date of acquisition, the Company acquired the following assets:


Cash $ 65,000 Loan receivable 122,452 Prepaid expenses 10,000 Accounts receivable 570,475 Furniture and equipment 67,509 Computer equipment 10,952 Leasehold improvements 50,000 Goodwill 1 Work in progress 1

$ 896,390 Consideration given by the Company for the acquired assets was as follows:

1,000 common shares $ 1,000Loans payable 425,000Assumption of accounts payable 470,390

$ 896,390 DISCONTINUED OPERATIONS

On July 31, 20XX, management adopted a formal plan to dispose of the Company’s manufacturing division. Management is currently negotiating the sale and expects to complete the transaction by May 15, 20XX. The results of operations for this division for the period August 1, 20XX to July 31, 20XX are included in discontinued operations — operating net income (loss). Comparative figures have been restated to conform to this basis of presentation. The 20XX operating income is net of a tax recovery of $ X,XXX (20XX tax provision — $X,XXX). Revenue for the year amounted to $XX,XXX (20XX — $ XX,XXX). The net loss from discontinued operations includes a tax recovery in the amount $ X,XXX. Net loss from discontinued operations is comprised of:

Loss from operations for the period August 1, 20XX to December 31, 20XX (net of income taxes of $ X,XXX) $ X,XXX Write-down of assets held for sale to net realizable value (gross proceeds of $ XXX net of income taxes of $ XXX) X,XXX

$ X,XXX The carrying value of the manufacturing division’s underlying assets

As At December 31, 20XX are:

Accounts receivable $ XXX Inventories XXX Property, plant and equipment XXX Accounts payable and accrued liabilities (XXX)

$ XXX CORRECTION OF PRIOR YEAR FINANCIAL STATEMENTS

The investment in SubCo Ltd., a 100% owned subsidiary, is reported by the equity method. The net income of SubCo Ltd. Using the equity method has been overstated in prior years. The result of this correction to the prior years is as follows;


20XY 20XX

Investment in SubCo Ltd. ($xxxx) ($xxxx) Income of subsidiary ($xxxx) ($xxxx) Net income ($xxxx) ($xxxx) Retained earnings, opening balance ($xxxx) ($xxxx) Retained earnings, ending balance ($xxxx) ($xxxx) FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of marketable securities, receivables, short-term indebtedness, payables, long-term debt, and related-party loans. Unless otherwise noted, it is our opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial instruments. The fair value of the instruments approximates their carrying values, unless otherwise noted. The Company is exposed to financial risk that arises from the fluctuation in interest rates and in the credit quality of its customers. Credit risk

Our credit risk consists principally of cash and cash equivalents, short-term and other investments, and accounts receivable. We maintained cash and cash equivalents with reputable and major financial institutions. The investments include commercial papers and investments issued by high-credit quality corporations and financial institutions. We consider the risk of non-performance of these instruments to be remote. There is no customer comprising more than xx% of the total trade account receivable. There is no particular concentration of credit risk. We perform an ongoing credit review of all our customers and establish allowance for doubtful debts when the amounts are not collectible. In addition, we have entered into an agreement with Export Development Corporation where it has assumed the risk credit loss in case of bankruptcy for up to xx% of the accounts receivable from certain foreign and domestic customers to a maximum of $xxx in a given year. As of month, day, year accounts receivable (before allowance) include accounts totalling $xxxx, that were pre-approved for coverage subject to above-noted maximum, under the agreement. We have also entered into derivative contracts to mitigate the credit risk, described in detail in note 28. Currency risk

We are exposed to currency risk as a certain portion of our sales and expenses are incurred in U.S. dollars resulting in U.S.-denominated accounts receivable and accounts payable. In addition, certain cash and cash equivalents are denominated in U.S. dollars. These balances are therefore subject to gain or losses due to fluctuations in that currency. We have entered into foreign exchange derivative contracts, described in note 28, to mitigate these risks. Interest rate risk

We are exposed to interest risk with respect to the following financial instruments:

Cash and cash equivalents Held-for-trading Bank indebtedness Obligations under capital lease We have entered into interest rate derivative contracts to mitigate this risk. Fair value

Our cash and cash equivalents, short-term and other investments accounts receivable, and accounts payable, and accrued liabilities are short-term financial instruments whose fair value approximates their carrying values.


The fair value of long-term debt (except notes payable), obligations under capital lease, and other long-term liabilities was determined by discounting future cash flows using interest rates which we could obtain for loans and with similar terms, conditions, and maturity dates. There are no significant differences between fair value and carrying value of long-term debt (other than note payable) and obligation under capital lease as at month/day/year. The fair value of note payable and due to related party is not readily obtainable. CONTINGENT LIABILITIES

The Company has been named as defendant in a number of lawsuits. Claims in excess of $x and with an unfavorable outcome in one or more of these actions could have a material effect on these financial statements and impact the Company’s ability to continue as a going concern. Legal counsel to the Company is unable to assess its potential liability, if any, resulting from the lawsuits. No provision for possible loss has been included in these financial statements. COMMITMENTS

As at December 29, 20XX, the Company had commitments of $ XX,XXX,XXX (20XX — $ XX,XXX,XXX) for the acquisition of property, plant and equipment, and the expansion of retail store facilities. Also, the Company has spent $ X,XXX,XXX and expects to spend an additional amount of approximately $ X,XXX,XXX with respect to the completion of a new warehouse. COMPARATIVE FIGURES

Some of the prior year’s figures have been restated for comparative purposes and to conform to current year presentation. FUTURE CHANGE IN ACCOUNTING STANDARDS

Management of capital

For fiscal years beginning on or after October 1, 2007, required disclosure includes information that will enable users to evaluate the entity’s objectives, policies, and processes for managing capital. (Handbook s. 1535) This disclosure should include at least:

• a description of the items managed by the entity as its capital (e.g., shareholders’ equity or shareholders’ equity plus subordinated debt, etc.),

• the nature of any external capital requirements (e.g., a maximum debt-to-equity ratio required by a financial institution to support outstanding debt) and how those requirements are incorporated into its capital management,

• a description of the entity’s capital management objectives (e.g., to safeguard the entity’s ability to continue as a going concern, to provide a return on investment to shareholders, etc.) and how it meets those objectives (e.g., by pricing its products or services competitively, by adjusting dividends paid to shareholders, by selling assets to reduce debt, etc.),

• any changes in the above since the previous financial statements, • whether externally imposed requirements, if any, were met during the year, and • if any externally imposed requirements were not met, a description of the consequences. The effect of adopting this new standard will not be significant.


Sample Proprietorship


(Unaudited — See Notice to Reader)

Month, Day, Year


Table of Contents

Notice to Reader

Balance Sheet Statement 1

Statement of Income Statement 2

Statement of Owner’s Capital Statement 3

Notes to Financial Statements


Notice to Reader

On the basis of information provided by the proprietor, we have compiled the balance sheet of Sample Proprietorship as at [Month, Day, Year] and the statements of income and owner’s capital for the (period) then ended.

We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon.

Readers are cautioned that these statements may not be appropriate for their purposes.


[City, date]


Sample Proprietorship BALANCE SHEET STATEMENT 1 (Unaudited — See Notice to Reader) As At Month, Day, Year Year

ASSETS

Current assets Accounts receivable $ 9,867 Due from government agencies 104 9,971 Property, plant and equipment (Note 1) 222,724 $ 232,695

LIABILITIES AND OWNER’S CAPITAL

Current liabilities Bank indebtedness $ 13,106 Accounts payable and accrued liabilities 1,002 Current portion of long-term debt 13,500 27,608 Long-term debt 53,424 81,032 Owner’s capital 151,663 $ 232,695


Sample Proprietorship STATEMENT OF INCOME STATEMENT 2 (Unaudited — See Notice to Reader) For The Year Ended Month, Day, Year Year

Revenue $ 213,471 Expenses Advertising and promotion 4,099 Amortization 33,818 Bad debts 1,151 Bank charges 6,272 Fuel 18,178 Insurance 15,468 Licenses and fees 183 Materials 3,442 Office 3,131 Professional fees 3,000 Property taxes 2,674 Rent 8,950 Repairs and maintenance 38,069 Subcontracts 23,747 Supplies 12,477 Telecommunications 1,833 Utilities 2,543 Vehicle 1,781 180,816 Net income from operations 32,655 Loss on disposal of property, plant and equipment 1,471 Net income $ 31,184


Sample Proprietorship STATEMENT OF OWNER’S CAPITAL STATEMENT 3 (Unaudited — See Notice to Reader) For The Year Ended Month, Day, Year Year

Owner’s capital, beginning of year $ 114,072 Net earnings for year 31,184 Owner’s contributions 9,977 155,233 Owner’s drawings 3,570 Owner’s capital, end of year $ 151,663


Sample Proprietorship NOTES TO FINANCIAL STATEMENTS (Unaudited — See Notice to Reader) Month, Day, Year These financial statements reflect the assets, liabilities, revenues, and expenses of the Proprietorship. They do not include any other assets, liabilities, revenues, or expenses of the owner or the liability of the owner for taxes on earnings of the Proprietorship, nor do they include any provisions for owner’s salary or interest on invested capital. Sample Proprietorship operates a transportation business. 1. PROPERTY, PLANT AND EQUIPMENT

Cost Accumulated Net Book Value

Amortization Buildings $ 129,715 $ 7,679 $ 122,036 Tools 40,872 39,989 883

Vehicles 281,717 181,912 99,805

$ 452,304 $ 229,580 $ 222,724


Sample Partnership



Month, Day, Year


Table of Contents

Notice to Reader



Statement of Partners’ Capital Statement 3



Notice to Reader

On the basis of information provided by the partners, we have compiled the balance sheet of Sample Partnership as at [Month, Day, Year] and the statements of income and partners’ capital for the (period) then ended.




[City, date]


Sample Partnership BALANCE SHEET STATEMENT 1 (Unaudited — See Notice to Reader) As At Month, Day, Year Year

ASSETS

Current assets Cash $ 8,151 Accounts receivable 132,774 Work in progress 130,550 271,475 Held to maturity financial asset 5,094 Property, plant and equipment (Note 1) 143,991 $ 420,560

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities Operating loan $ 145,000 Accounts payable and accrued liabilities 20,090 165,090 Partners’ capital 255,470 $ 420,560


Sample Partnership STATEMENT OF INCOME STATEMENT 2 (Unaudited — See Notice to Reader) For The Year Ended Month, Day, Year Year

Revenue $ 278,771 Expenses Amortization 6,838 Bank charges 1,724 Insurance 2,800 Library 2,395 Office 3,171 Professional fees 2,400 Property taxes 2,983 Repairs and maintenance 7,900 Salaries 164,442 194,653 Net income $ 84,118


Sample Partnership STATEMENT OF PARTNERS’ CAPITAL STATEMENT 3 (Unaudited — See Notice to Reader) For The Year Ended Month, Day, Year Partner 1 Partner 2 Total Partners’ capital, beginning of year $ 182,700 $ 59,852 $ 242,552 Net earnings for year 42,059 42,059 84,118 Partners’ contributions 10,000 10,000 224,759 111,911 336,670 Partners’ drawings 35,600 45,600 81,200 Partners’ capital, end of year $ 189,159 $ 66,311 $ 255,470


Sample Partnership NOTES TO FINANCIAL STATEMENTS (Unaudited — See Notice to Reader) Month, Day, Year These financial statements reflect the assets, liabilities, revenues, and expenses of the Partnership and do not include any other assets, liabilities, revenues, or expenses of the Partners or the liability of the Partners for taxes on earnings of the Partnership, nor do they include any provision for the Partners’ salaries or interest on invested capital. Sample Partnership’s main business activity is management consulting. 1. PROPERTY, PLANT AND EQUIPMENT

Cost Accumulated Net Book Value

Amortization Land $ 25,000 $ 25,000 Building 130,000 24,002 105,998

Office equipment 21,723 8,730 12,993

$ 176,723 $ 32,732 $ 143,991


Sample Compilation Ltd.



Month, Day, Year


Table of Contents

Notice to Reader


Statement of Income and Retained Earnings Statement 2



Notice to Reader

On the basis of information provided by management, we have compiled the balance sheet of Sample Compilation Ltd. as at [Month, Day, Year] and the statements of income and retained earnings for the (period) then ended.




[City, date]


Sample Compilation Ltd. BALANCE SHEET STATEMENT 1 (Unaudited — See Notice to Reader) As At Month, Day, Year Year Prior

ASSETS

Current assets Cash $ 35,484 $ 22,525 Accounts receivable 32,121 22,060 Loan receivable 1,000 1,000 Inventory 23,220 11,568 Prepaid expenses 5,021 4,251 96,846 61,404 Due from related parties 15,400 15,400 Property, plant, and equipment (Note 1) 52,961 65,604 $ 165,207 $ 142,408

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities Bank indebtedness $ 20,500 $ 30,000 Accounts payable and accrued liabilities 22,424 2,061 Dividends payable 44,000 Income taxes payable 3,003 6,332 Current portion of long-term debt 11,578 10,654 101,505 49,047 Long-term debt 27,768 39,346 Due to related parties 13,500 25,000 Due to shareholders 6,505 22,000 149,278 135,393 Shareholders’ equity Share capital (Note 2) 100 100 Retained earnings 15,829 6,915 $ 165,207 $ 142,408 On behalf of the Board Director


Sample Compilation Ltd. STATEMENT OF INCOME AND RETAINED EARNINGS STATEMENT 2 (Unaudited — See Notice to Reader) For The Year Ended Month, Day, Year Year Prior Revenue $ 227,291 $ 187,182 Cost of goods sold 60,936 50,186 Gross margin 166,355 136,996 Expenses Advertising 3,381 3,181 Amortization 12,643 16,599 Automotive 6,200 5,100 Bad debts 1,300 1,905 Bank charges 1,542 1,245 Insurance 4,125 3,750 Interest on long-term debt 3,731 3,655 Management bonus 44,000 36,000 Office 2,773 2,288 Professional fees 5,000 5,000 Rent and maintenance 4,500 4,500 Salaries 29,730 24,486 Telecommunications 5,364 4,422 Travel 2,114 1,037 Utilities 1,400 1,275 127,803 114,443 Income before income taxes 38,552 22,553 Income taxes 9,638 5,638 Net income 28,914 16,915 Retained earnings, beginning of year 6,915 Less dividends (20,000) (10,000) Retained earnings, end of year $ 15,829 $ 6,915


Sample Compilation Ltd. NOTES TO FINANCIAL STATEMENTS (Unaudited — See Notice to Reader) Month, Day, Year

The Company was incorporated under the laws of the Province of [province] on [Month, Day, Year]. Its main business activity is selling widgets. 1. PROPERTY, PLANT, AND EQUIPMENT

Year Prior Cost Accumulated Net Book Value

Amortization Automotive $ 41,789 $ 11,112 $ 30,677 $ 35,252 Computer equipment 19,813 10,104 9,709 13,870 Office equipment 5,323 1,916 3,407 4,259

Leasehold improvements 15,278 6,110 9,168 12,223

$ 82,203 $ 29,242 $ 52,961 $ 65,604 2. SHARE CAPITAL Authorized:

100,000 class “A” voting shares without par value Year Prior

Issued: 100 class “A” shares $ 100 $ 100


Sample Review Ltd.


(Unaudited)

Month, Day, Year


Table of Contents

Review Engagement Report


Statement of Income and Comprehensive Income Statement 2

Statement of Shareholders’ Equity Statement 3

Cash Flow Statement Statement 4




To the Board of Directors

Sample Review Ltd.

We have reviewed the balance sheet of Sample Review Ltd. as at [Month, Day, Year] and the statements of

income and comprehensive income, shareholders’ equity, and cash flow for the year then ended. Our review

was made in accordance with Canadian generally accepted standards for review engagements and, accordingly,

consisted primarily of enquiry, analytical procedures, and discussion related to information supplied to us by

the Company.

A review does not constitute an audit, and consequently, we do not express an audit opinion on these financial

statements.

Based on our review, nothing has come to our attention that causes us to believe that these financial statements

are not, in all material respects, in accordance with Canadian generally accepted accounting principles.

[Signed]

Certified General Accountants [City, date]


Sample Review Ltd. BALANCE SHEET STATEMENT 1 (Unaudited) As At Month, Day, Year Year Prior

ASSETS

Current assets Cash $ 31,984 $ 27,525 Investments—held-for-trading (Notes 1 and 2) 15,000 10,000 Accounts receivable 32,121 22,060 Loan receivable 1,000 1,000 Inventory (Note 1) 23,220 11,568 Prepaid expenses 5,021 4,251

108,346 76,404 Investments—available-for-sale (Notes 1 and 2) 18,500 15,000 Due from related parties (Note 6) 5,400 5,400 Property, plant and equipment (Notes 1 and 3) 32,961 45,604

$ 165,207 $ 142,408


Current liabilities Bank indebtedness (Note 4) $ 20,500 $ 30,000 Accounts payable and accrued liabilities 22,424 5,061 Management bonus payable 44,000 0 Income taxes payable 3,003 3,332 Current portion of long-term debt 11,578 10,654

101,505 49,047 Long-term debt (Note 5) 27,768 39,346 Due to related parties (Note 6) 13,500 25,000 Due to shareholders (Note 7) 6,505 22,000 149,278 135,393

Shareholders’ equity (Note 11) Share capital (Note 8) 100 100 Retained earnings 16,579 6,915 Accumulated other comprehensive income (750) 0 15,829 6,915

$ 165,207 $ 142,408

On behalf of the Board

Director

The attached notes are an integral part of these financial statements.


Sample Review Ltd. STATEMENT OF INCOME AND COMPREHENSIVE INCOME STATEMENT 2 (Unaudited) For The Year Ended Month, Day, Year Year Prior Revenue $ 227,291 $ 187,182 Cost of goods sold 60,936 50,186 Gross margin 166,355 136,996 Expenses Advertising 3,381 3,181 Amortization 12,643 16,599 Automotive 6,200 5,100 Bad debts 1,300 1,905 Bank charges and interest 1,542 1,245 Insurance 4,125 3,750 Interest on long-term debt 3,731 3,655 Management bonus 44,000 36,000 Office 2,773 2,288 Professional fees 5,000 5,000 Rent and maintenance 4,500 4,500 Salaries 29,730 24,486 Telecommunications 5,364 4,422 Travel 2,114 1,037 Utilities 1,400 1,275 127,803 114,443 Income from operations 38,552 22,553 Investment income Holding gain on held-for-trading investments (Note 9) 1,000 0 Income before income taxes 39,552 22,553 Income taxes—current 9,888 5,638 Net income 29,664 16,915 Other comprehensive income: Change in unrealized loss on available-for-sale

financial assets net of applicable taxes (250) (750) 0 Comprehensive income $28,914 $16,915 The attached notes are an integral part of these financial statements.


Sample Review Ltd. STATEMENT OF SHAREHOLDERS’ EQUITY STATEMENT 3 (Unaudited) For The Year Ended Month, Day, Year Class “A”

Shares Retained Earnings

Accumulated Other Comprehensive Income

(Available-for-sale financial assets)

Total Shareholders’

Equity

Balances, beginning year, prior

$100 $0 $0 $100

Net Income $16,915 $16,915 Dividends Declared (10,000) (10,000)

Balances, end year, prior

100 6,915 0 7,015

Net Income 29,664 29,664 Other Comprehensive Income

(750) (750)

Dividends Declared (20,000) (20,000)

Balances, end year, year

$100 $16,579 ($750) $15,929



Sample Review Ltd. CASH FLOW STATEMENT STATEMENT 4 (Unaudited) For The Year Ended Month, Day, Year Year Prior

Operating activities Net income $ 29,664 $ 16,915 Other Comprehensive income (loss) (750) 0 Comprehensive income 28,914 16,915 Sale of held for trading investments 10,000 Purchase of held for trading investments (14,000) (10,000) Items not requiring an outlay of funds Amortization 12,643 16,599 Unrealized holding loss on available-for-sale investments 1,000 0

Changes in non-cash working capital Investments—held for trading (1,000) 0 Accounts receivable (10,061) (22,060) Loan receivable 0 (1,000) Inventory (11,652) (11,568) Prepaid expenses (770) (4,251) Accounts payable and accrued liabilities 17,363 5,061 Bonus payable 44,000 0 Income taxes payable (329) 3,332

76,108 (6,972)

Investing activities

Acquisition of property, plant and equipment 0 (62,203) Purchase of available for sale investments (4,500) (15,000) Loans to (from) related companies 0 (5,400) (4,500) (82,603)

Financing activities Dividends paid (20,000) (10,000) Proceeds from (repayment of) long-term debt (10,654) 50,000 Proceeds from (repayment of) related-party loans (11,500) 25,000 Proceeds from (repayment of) shareholder loans (15,495) 22,000 Proceeds from issuing share capital 0 100

(57,649) 87,100

Increase (decrease) in cash and cash equivalents 13,959 (2,475)

Cash and cash equivalents, beginning of year (2,475) 0

Cash and cash equivalents, end of year $ 11,484 $ (2,475)

Cash and cash equivalents consist of Cash $ 31,984 $ 27,525 Bank indebtedness (20,500) (30,000)

$ 11,484 $ (2,475)


Sample Review Ltd. CASH FLOW STATEMENT STATEMENT 4 (Unaudited) For The Year Ended Month, Day, Year Year Prior

Supplemental information Interest paid $5.273 $4,900 Income taxes paid $10,217 $2,306 The attached notes are an integral part of these financial statements.


Sample Review Ltd. NOTES TO FINANCIAL STATEMENTS (Unaudited) Month, Day, Year

The Company was incorporated under the laws of the Province of [province] on [Month, Day, Year]. Its main business activity is selling widgets. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income tax

The Company follows the asset and liability method of accounting for income taxes. Under this method, temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount are used to calculate future income tax assets or liabilities, and are measured using substantively enacted income tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled.

Inventory

Inventory is recorded at the lower of cost and net realizable value using FIFO. Investments in Financial Instruments Qualifying financial instruments that the Company initially intends to hold for: 1) less than one year are

designated as held-for-trading; 2) one year or more are designated as available-for-sale. Transaction costs are expensed when incurred.

Income from held-for-trading securities and gains and losses whether realized or unrealized are reported in net income. Income from available-for-sale securities and realized gains and losses are reported in net income. Unrealized gains and losses are reported in other comprehensive income unless there is an impairment in value that is judged to be other than temporary in nature. Impairment losses are reported in net income. Financial Liabilities Financial liabilities are measured at amortized cost. They are not designated as held-for-trading.

Property, plant and equipment

Property, plant and equipment are recorded at cost. Amortization is provided annually at rates calculated to write off the assets over their estimated useful lives as follows, except in the year of acquisition when one half of the rate is used. Automotive 30% declining balance Computer equipment 30% declining balance Office equipment 20% declining balance Leasehold improvements 20% straight line



2. INVESTMENTS IN FINANCIAL INSTRUMENTS Year Year Prior Prior Fair value Cost Fair value Cost Held-for-trading

Shares in XYZ Ltd. $15,000 $14,000 $ 0 $ 0 Shares in PQR Ltd. 0 0 10,000 10,000 $15,000 $14,000 $10,000 $10,000 Available-for-sale

Shares in ABC Life $18,500 $19,500 $15,000 $15,000 3. PROPERTY, PLANT AND EQUIPMENT


Amortization Automotive $ 21,789 $ 11,112 $ 10,677 $ 15,252 Computer equipment 19,813 10,104 9,709 13,870 Office equipment 5,323 1,916 3,407 4,259

Leasehold improvements 15,278 6,110 9,168 12,223

$ 62,203 $ 29,242 $ 32,961 $ 45,604 4. BANK INDEBTEDNESS

Bank indebtedness is secured by a general assignment of accounts receivable, a general security agreement, a postponement of claim from all shareholders, and is due on demand bearing interest at 1% over the bank prime rate.

5. LONG-TERM DEBT

Year Prior Bank loan, repayable in blended monthly instalments of $1,197, including interest at 8.5%, maturing Month, Year, $ 39,346 $ 50,000 secured by a lien on automotive and computer equipment.

Less current portion 11,578 10,654

$ 27,768 $ 39,346



5. LONG-TERM DEBT (cont’d) The aggregate amount of payments required in each of the next four years on the above long-term debt is as follows:

Year 1 $ 11,578 Year 2 $ 12,602

Year 3 $ 12,820 Year 4 $ 2,346 Year 5 $ 0

$ 39,346 6. DUE FROM/TO RELATED PARTIES Amounts due from/to related parties represent intercompany advances from and to companies related through common shareholders and directors. These amounts are non-interest-bearing and have no fixed terms of repayment and all parties have waived the right to demand payment

for more than one year.

Year Prior Due from XXX Inc. $ 5,400 $ 5,400 Due to YYY Co. $ 13,500 $ 25,000

7. DUE TO SHAREHOLDERS

Amounts due to shareholders are non interest-bearing with no fixed terms of repayment. The balance is not expected to be reduced materially over the next year. The shareholders have postponed their claim on these funds in favour of the Bank.

8. SHARE CAPITAL Authorized:

100,000 class “A” voting shares without par value 100,000 class “B” voting shares with a par value of $1 each 100,000 class “C” non-voting shares with a par value of $1 each 100,000 class “D” non-voting shares with a par value of $1 each 600,000 redeemable non-cumulative preference shares with a par value of $1 each 500,000 special redeemable non-cumulative preference shares with a par value of $1 each

Year Prior

Issued:

100 class “A” shares $ 100 $ 100



9. FINANCIAL INSTRUMENTS Year Prior

Supplemental Disclosure for Financial Instruments:

Net gain (loss) on held-for-trading financial assets originally designated as such upon initial recognition $ 1,000 Nil Total interest income using the effective interest method on financial assets not classified as held-for trading Nil Nil Total interest expense using the effective interest method on financial liabilities $ 5,273 $ 4,900 Fair value The fair value of cash, accounts receivables, loan receivable, bank indebtedness, accounts payable and accruals approximate their carrying amount because of the short-term nature of these instruments. The fair value of long-term debt, which currently approximates the amortized cost, is estimated based on current rates offered to the Company for debt for the same maturity. The fair value of held-for-trading and available-for-sale financial instruments is determined by referring to published market prices in active markets. Nature and extent of risks arising from financial instruments Our maximum credit risk for Year was $80,105 (Prior $60,585), which is the total of our cash on deposit, investments, loan receivable, and accounts receivable at the respective year ends. This is a very unlikely, worst case scenario that assumes that all creditors default on their obligations and that we are unable to recover any funds through legal action or other collection activity. Company’s management has determined that, in light of the straight-forward nature of our operations, and the policies to mange risk that are in place, our exposure to these various risks is not material. Accordingly, we have not provided the supplemental disclosure that would otherwise be required by virtue of CICA 3862.36-.42.

10. COMMITMENTS

The company leases its premises at 111 – 49th St. for $ 4,500 per annum. The lease expires in Year 3. Future minimum lease payments are as follows:

Year 1 $ 4,500 Year 2 4,500

Year 3 4,500 $ 13,500


NOTES TO FINANCIAL STATEMENTS (Unaudited) Month, Day, Year

11. CAPITAL

Pursuant to an agreement dated January 1, Year, with the Company’s Bank, the Company must maintain its capital at a minimum of $20,000 at all times with capital defined as the sum of share capital, retained earnings, accumulated other comprehensive income, and postponed shareholders’ loans.

The Company was in compliance with the Bank’s stipulated minimum capital requirements at all times during the year. Capital, as defined by the Bank at Year end and Prior was as follows: Year Prior Share capital $ 100 $ 100 Retained earnings 16,579 6,915 Accumulated other comprehensive income (750) 0 Postponed shareholders’ loans 6,505 22,000 Total capital $ 22,434 $ 29,015



OTHER CONSIDERATIONS THAT WOULD AFFECT DISCLOSURE: In accordance with the CICA Handbook Abstract EIC-122, if the related-party loans and shareholder loans were secured by demand notes, the debt obligation would be considered a current liability unless the creditor has waived the right to demand payment for more than one year (or operating cycle, if longer) from the balance sheet date. If the Company had adopted differential reporting for share capital, the following modifications would have been required: 1. Modification to the first paragraph of Review Engagement Report: We have reviewed the balance sheet of Sample Review Ltd. as at [Month, Day, Year] and the statements of

income and comprehensive income, shareholders’ equity, and cash flow for the year then ended. These

financial statements have been prepared in accordance with Canadian generally accepted accounting principles

using differential reporting options available to non-publicly accountable enterprises, as described in Note 1 to

the financial statements. Our review was made in accordance with Canadian generally accepted standards for

review engagements and, accordingly, consisted primarily of enquiry, analytical procedures, and discussion

related to information supplied to us by the Company.

2. Addition to Note 1, Summary of Significant Accounting Policies: Share capital The Company has elected to apply the differential disclosure option allowed for share capital and, accordingly, to disclose information only for classes of shares that have been issued. Information is not provided when shares of an authorized class have not been issued.

3. Modification to Note 8, Share Capital: SHARE CAPITAL Authorized:

100,000 class “A” voting shares without par value

Year Prior Issued:

100 class “A” shares $ 100 $ 100


Sample Manufacturing Review Ltd.


(Unaudited)

Month, Day, Year


Table of Contents




Statement of Retained Earnings Statement 3

Cash Flow Statement (Indirect method) Statement 4a

Cash Flow Statement (Direct method) Statement 4b


Schedule of Sales Schedule 1

Schedule of Cost of Sales Schedule 2



To the Board of Directors

Sample Manufacturing Review Ltd.

We have reviewed the balance sheet of Sample Manufacturing Review Ltd. as at [Month, Day, Year] and the

statements of income, retained earnings, and cash flow for the year then ended. Our review was made in

accordance with Canadian generally accepted standards for review engagements and, accordingly, consisted

primarily of enquiry, analytical procedures, and discussion related to information supplied to us by the

company.

A review does not constitute an audit, and consequently, we do not express an audit opinion on these financial

statements.

Based on our review, nothing has come to our attention that causes us to believe that these financial statements

are not, in all material respects, in accordance with Canadian generally accepted accounting principles.

[Signed]



Sample Manufacturing Review Ltd. BALANCE SHEET STATEMENT 1 (Unaudited) As At Month, Day, Year Year Prior ($ 000s) ($ 000s)

ASSETS

Current assets Cash $ 82 $ 83 Accounts receivable 1,385 1,326 Refundable tax credits 357 175 Inventory (Note 1) 1,829 1,765 Prepaid expenses 7 1 3,660 3,350 Property, plant and equipment (Notes 1 and 2) 1,585 716 $ 5,245 $ 4,066

LIABILITIES AND SHAREHOLDER’S EQUITY Current liabilities Bank indebtedness (Note 3) $ 1,056 $ 812 Accounts payable and accrued liabilities 676 636 Salaries and bonus payable 426 68 Directors’ fees payable 24 24 Deferred revenue 27 27 Future income tax (Note 1) 50 41 Current portion of long-term debt (Note 4) 231 139 2,490 1,747 Long-term debt (Note 4) 1,330 155 Due to shareholder (Note 5) 326 504 Future income tax (Note 1) 58 37 4,204 2,443 Shareholder’s equity (Note 8) Share capital (Note 6) 1 1 Contributed surplus 33 33 Retained earnings 1,007 1,589 1,041 1,623 $ 5,245 $ 4,066

On behalf of the Board Director



Sample Manufacturing Review Ltd. STATEMENT OF INCOME STATEMENT 2 (Unaudited) For The Year Ended Month, Day, Year Year Prior ($ 000s) ($ 000s) Sales (Schedule 1) $ 8,273 $ 6,043 Cost of sales (Schedule 2) 5,149 3,937 Gross margin 3,124 2,106 Expenses Administrative and marketing 1,369 1,264 Amortization 184 118 Bad debts 350 50 Current research and development 540 355 Interest on long-term debt 75 22 Management bonuses 426 68 2,944 1,877 Income before income taxes 180 229 Income taxes Current 39 43 Future 45 9 Net income $ 96 $ 177 The attached notes are an integral part of these financial statements.


Sample Manufacturing Review Ltd. STATEMENT OF RETAINED EARNINGS STATEMENT 3 (Unaudited) For The Year Ended Month, Day, Year Year Prior ($ 000s) ($ 000s) Retained earnings, beginning of year $ 1,589 $ 1,538 Net income for year 96 177 Dividends paid (678) (126) Retained earnings, end of year $ 1,007 $ 1,589 The attached notes are an integral part of these financial statements.


Sample Manufacturing Review Ltd. (Indirect method) CASH FLOW STATEMENT STATEMENT 4a (Unaudited) For The Year Ended Month, Day, Year Year Prior ($ 000s) ($ 000s)

Operating activities Net income $ 96 $ 177 Items not requiring an outlay of funds Amortization 184 118 280 295

Changes in non-cash working capital Accounts receivable (59) (313) Refundable investment tax credit (182) (9) Inventory (64) (55) Prepaid expenses (6) (1) Accounts payable and accrued liabilities 40 79 Salaries and bonuses payable 358 (43) Deferred revenue — (28)

Future income tax payable 30 7 397 (68)

Investing activities Acquisition of property, plant and equipment (1,053) (134)

Financing activities Dividends paid (678) (126) Proceeds from (repayment of) long-term debt 1,267 41 Proceeds from (repayment of) shareholder loans (178)

(32) 411 (117) Decrease in cash and cash equivalents (245) (319) Cash and cash equivalents, beginning of year (729) (410) Cash and cash equivalents, end of year $ (974) $ (729) Cash and cash equivalents consist of Cash $ 82 $ 83 Bank indebtedness (1,056) (812) $ (974) $ (729) Supplemental information Interest paid $ 75 $ 22 Income taxes paid $ 54 $ 43 The attached notes are an integral part of these financial statements.


Sample Manufacturing Review Ltd. (Direct method) CASH FLOW STATEMENT STATEMENT 4b (Unaudited) For The Year Ended Month, Day, Year Year Prior ($ 000s) ($ 000s)

Operating activities Cash receipts from customers $ 8,214 $ 5,816 Cash paid to suppliers, employees, and directors (7,688) (5,819) Interest paid (75) (22) Income taxes paid (54) (43) 397 (68)

Investing activities Acquisition of property, plant and equipment (1,053) (134)

Financing activities Dividends paid (678) (126) Proceeds from (repayment of) long-term debt 1,267 41 Proceeds from (repayment of) shareholder loans (178) (32) 411 (117) Decrease in cash and cash equivalents (245) (319) Cash and cash equivalents, beginning of year (729) (410) Cash and cash equivalents, end of year $ (974) $ (729) Cash and cash equivalents consist of Cash $ 82 $ 83 Bank indebtedness (1,056) (812) $ (974) $ (729) The attached notes are an integral part of these financial statements.


Sample Manufacturing Review Ltd. NOTES TO FINANCIAL STATEMENTS (Unaudited) Month, Day, Year ($ 000s) The Company was incorporated under the laws of Canada on [Month, Day, Year]. Its main business activity is the manufacture and sale of travel accessories. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventory Inventory is recorded at the lower of cost and net realizable value using FIFO. Property, plant and equipment Property, plant and equipment are recorded at cost. Amortization is provided annually at rates calculated to write off the assets over their estimated useful lives as follows, except in the year of acquisition when one half of the rate is used. Automotive 30% declining balance Building 5% declining balance Office equipment 20% declining balance Financial Liabilities Financial liabilities are measured at amortized cost. They are not designated as held-for-trading. Income tax Future income tax reflects the tax consequences of temporary differences between the balance sheet carrying amounts and the tax assets and liabilities. These temporary differences are determined in accordance with Handbook section 3465. Research and development Research costs are expensed as incurred and are reduced by related tax incentives when earned. Unless criteria for deferral under Canadian generally accepted accounting principles are met, development costs are expensed as incurred.

2. PROPERTY, PLANT AND EQUIPMENT Year Prior

Cost Accumulated Net Book Value Amortization

Land $ 100 $ — $ 100 $ 100 Automotive 448 120 328 85 Building 700 236 464 482

Office equipment 900 207 693 49 $ 2,148 $ 563 $ 1,585 $ 716


Sample Manufacturing Review Ltd. NOTES TO FINANCIAL STATEMENTS (Unaudited) Month, Day, Year ($ 000s)

3. BANK INDEBTEDNESS

Bank indebtedness is secured by a general assignment of book debts, a general security agreement, a personal guarantee in the amount of $100,000 from the sole shareholder, and is due on demand bearing interest at 2% over the bank prime rate.

4. LONG-TERM DEBT Year Prior Mortgage, repayable in monthly instalments of $8,500, including interest at 8.5%, maturing Month, Year 5, secured by land and building included on the balance sheet. $ 1,200 $ — Chattel repayable in monthly instalments of $6,000, plus interest at prime plus 3%, maturing Month, Year 6, secured by rolling equipment included on the balance sheet. 361 294

1,561 294 Less current portion 231 139

$ 1,330 $ 155 The aggregate amount of payments required in each of the next five years on the above indebtedness is as follows:

Year 1 $ 231 Year 2 253 Year 3 296 Year 4 328 Year 5 349 thereafter 104

$ 1,561

5. DUE TO SHAREHOLDER Amounts due to the shareholder are non interest-bearing and have no fixed terms of repayment. The balance is not expected to be reduced materially over the next year.

6. SHARE CAPITAL Authorized:

100,000 class “A” voting shares without par value 100,000 class “B” voting shares with a par value of $1 each 100,000 class “C” non-voting shares with a par value of $1 each 100,000 class “D” non-voting shares with a par value of $1 each 600,000 redeemable non-cumulative preference shares with a par value of $1 each 500,000 special redeemable non-cumulative preference shares with a par value of $1 each


Sample Manufacturing Review Ltd. NOTES TO FINANCIAL STATEMENTS (Unaudited) Month, Day, Year ($ 000s) 6. SHARE CAPITAL (cont’d)

Year Prior

Issued: 100 class “A” shares $ 1 $ 1

7. FINANCIAL INSTRUMENTS

Fair value The Company’s financial instruments consist of cash, accounts receivable, bank indebtedness, accounts and salaries and bonus payable, long-term debt, and shareholder loans. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency, or credit risk arising from these financial instruments. The fair value of the instruments approximates their carrying values, unless otherwise noted. The fair value of long-term debt, which currently approximates the amortized cost, is estimated based on current rates offered to the Company for debt for the same maturity. Nature and extent of risks arising from financial instruments The Company is exposed to financial risk that arises from the fluctuation in interest rates and in the credit quality of its customers. Interest rate risk is minimized through management’s constant review of demand and maturing debt. The Company structures its finances so as to stagger the maturities of debt, thereby minimizing exposure to interest rate fluctuations. Credit risk exists in that a significant majority of the Company’s receivables is held by one department franchise and is concentrated in the retail industry. The Company mitigates this risk through diversification of its customer base, limiting its exposure to any one customer and maintaining strict collection procedures. The Company’s maximum credit risk for Year was $1,467 (Prior $1,409) which is the total of the Company’s cash on deposit and accounts receivable at the respective year ends. The Company’s management has determined that, in light of the straightforward nature of its operations, and the policies to manage risk that are in place, the Company’s exposure to these various risks is not material. Accordingly, the supplemental disclosure that would otherwise be required by virtue of CICA 3862.36-.42 has not been provided.

8. CAPITAL

Pursuant to an agreement dated January 1, Prior, with the Company’s Bank, the Company must maintain its capital at a minimum of $1,000,000 at all times with capital defined as the sum of share capital, contributed surplus, and retained earnings. The Company was in compliance with the Bank’s stipulated minimum capital requirements at all times during the year.


Sample Manufacturing Review Ltd. NOTES TO FINANCIAL STATEMENTS (Unaudited) Month, Day, Year ($ 000s) 8. CAPITAL (cont’d)

Capital, as defined by the Bank at Year end and Prior was as follows: Year Prior Share capital $ 1,000 $ 1,000 Contributed Surplus 33,000 33,000 Retained earnings 1,007,000 1,589,000 Total capital $1,041,000 $1,623,000


Sample Manufacturing Review Ltd. SCHEDULE OF SALES Schedule 1 (Unaudited) For The Year Ended Month, Day, Year Year Prior ($ 000s) ($ 000s)

Sales Suitcases $ 4,500 $ 2,750 Duffel bags 2,495 2,225 Accessories 1,278 1,068 $ 8,273 $ 6,043 SCHEDULE OF COST OF SALES Schedule 2 Year Prior ($ 000s) ($ 000s)

Cost of sales Opening inventory $ 1,765 $ 1,710 Raw material 1,957 1,329 Salaries and benefits 1,978 1,450 Overhead 1,200 1,150 Freight 78 63 6,978 5,702 Less ending inventory 1,829 1,765 $ 5,149 $ 3,937


Sample Audit Inc.

Consolidated Financial Statements

Month, Day, Year


Table of Contents

Auditors’ Report

Consolidated Balance Sheet Statement 1

Consolidated Statement of Income Statement 2

Consolidated Statement of Shareholders’ Equity Statement 3

Consolidated Cash Flow Statement Statement 4

Notes to Consolidated Financial Statements


Auditors’ Report

To the Shareholders of

Sample Audit Inc.

We have audited the consolidated balance sheet of Sample Audit Inc. as at [Month, Day, Year] and the

statements of consolidated income, shareholders’ equity, and cash flow for the year then ended. These

financial statements are the responsibility of the company’s management. Our responsibility is to express an

opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards

require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are

free from material misstatement. An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles

used and significant estimates made by management, as well as evaluating the overall financial statement

presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial

position of the company as at [Month, Day, Year] and the results of its operations and its cash flow for the year

then ended in accordance with Canadian generally accepted accounting principles.

[Signed]

Certified General Accountants

[City, date]


Sample Audit Inc. CONSOLIDATED BALANCE SHEET STATEMENT 1 As At Month, Day, Year (Restated) Year Prior

ASSETS

Current assets Cash $ xxxx $ xxxx Investments (Notes 1, 6, and 26) xxxx xxxx Accounts receivable (Note 2) xxxx xxxx Due from related party (Note 3) xxxx xxxx Inventory (Notes 1 and 4) xxxx xxxx Income taxes recoverable xxxx xxxx Derivative instruments (Notes 1 and 26) xxxx xxxx Prepaid expenses xxxx xxxx Future income taxes (Note 1 or 28) xxxx xxxx

xxxx xxxx Long-lived assets held for sale (Note 5) xxxx xxxx Investments (Notes 1, 6, and 26) xxxx xxxx Property, plant and equipment (Notes 1 and 7) xxxx xxxx Derivative instruments (Notes 1 and 26) xxxx xxxx Future income taxes (Note 1 or 28) xxxx xxxx Intangible assets (Notes 1 and 8) xxxx xxxx Goodwill (Note 9) xxxx xxxx $ xxxx $ xxxx The accompanying notes are an integral part of these financial statements.


Sample Audit Inc. CONSOLIDATED BALANCE SHEET STATEMENT 1 As At Month, Day, Year (Restated) Year Prior


Current liabilities Bank indebtedness (Note 10) $ xxxx $ xxxx Note payable (Note 11) xxxx xxxx Accounts payable and accrued liabilities xxxx xxxx Due to related party (Note 3) xxxx xxxx Income tax payable xxxx xxxx Dividends payable xxxx xxxx Derivative instruments (Notes 1 and 26) xxxx xxxx Deferred revenue xxxx xxxx Current portion of long-term debt (Note 12) xxxx xxxx Current portion of sinking fund requirement (Note 12) xxxx xxxx Current obligations under capital lease (Note 13) xxxx xxxx

xxxx xxxx

Long-term liabilities Long-term debt (Note 12) xxxx xxxx Obligations under capital lease (Note 13) xxxx xxxx Derivative instruments (Notes 1 and 26) xxxx xxxx Asset retirement obligation (Note 14) xxxx xxxx Accrued pension obligation (Note 15) xxxx xxxx Future income taxes (Note 1 or 28) xxxx xxxx

xxxx xxxx

Contingent liability (Note 25) Shareholders’ equity

Share capital (Note 16) xxxx xxxx

Contributed Surplus — Debenture conversion feature (Note 18) xxxx xxxx Contributed Surplus — Stock Options xxxx xxxx

Contributed Surplus — Expired Stock Options xxxx xxxx xxxx xxxx Retained earnings xxxx xxxx

Accumulated other comprehensive income xxxx xxxx xxxx xxxx

Non-controlling interest (Note 17) xxxx xxxx1 Total equity (Note 27) xxxx xxxx

$ xxxx $ xxxx Sample Audit Inc. 1 This presentation is consistent with section 1602 Non-controlling interests, which is effective for the first annual reporting period beginning on or after 1 January 2011 with earlier application permitted.


CONSOLIDATED BALANCE SHEET STATEMENT 1 As At Month, Day, Year (Restated) Year Prior On behalf of the Board Director

The accompanying notes are an integral part of these financial statements.


Sample Audit Inc. CONSOLIDATED STATEMENT OF INCOME STATEMENT 2 For The Year Ended Month, Day, Year (Restated) Year Prior

Sales (Note 19) $ xxxx $ xxxx Cost of sales xxxx xxxx

xxxx xxxx

Expenses Selling, general and administrative xxxx xxxx Amortization xxxx xxxx Asset retirement obligations (Note 14) xxxx xxxx Research and development xxxx xxxx Interest on long-term debt xxxx xxxx Other interest (Note 23) xxxx xxxx Taxes other than income xxxx xxxx

Loss on foreign currency translation (Note 1) xxxx xxxx

xxxx xxxx Income from operations xxxx xxxx

Other income (expenses) Investment income (Note 26) xxxx xxxx Equity income (Note 1) xxxx xxxx Goodwill impairment loss (Note 9) (xxxx) (xxxx) Loss on impairment of long-lived asset (Note 5) (xxxx) (xxxx) Income before taxes, discontinued operations, and extraordinary item xxxx xxxx

Income taxes (Note 1 or 28, and 22) Current xxxx xxxx Future xxxx xxxx

xxxx xxxx

Discontinued operations (Note 20) xxxx xxxx Extraordinary item (Note 21) xxxx xxxx Net income $ xxxx $ xxxx Attributable to: Equity holders of Sample Audit Inc. $ xxxx $ xxxx Non-controlling interests xxxx xxxx Net income1 $ xxxx $ xxxx Basic earnings per share for income before discontinued operations and extraordinary item (Note 16) $ xxxx $ xxxx2 Sample Audit Inc. 1 This presentation is consistent with section 1602 Non-controlling interests, which is effective for the first annual reporting period beginning on or after 1 January 2011 with earlier application permitted. 2 Earnings per share is based only on the Parent’s share of consolidated net income.


CONSOLIDATED STATEMENT OF INCOME STATEMENT 2 For The Year Ended Month, Day, Year (Restated) Year Prior

Basic earnings per share for net income (Note 16) $ xxxx $ xxxx Diluted earnings per share for income before discontinued operations and extraordinary item (Note 16) $ xxxx $ xxxx Diluted earnings per share for net income (Note 16) $ xxxx $ xxxx



Sample Audit Inc. CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY STATEMENT 3 For The Year Ended Month, Day, Year Share Capital Contributed

Surplus Retained Earnings

Accumulated Other

Comprehensive Income

Total equity attributable

to the shareholders of the parent

Non-controlling

interests

Total equity

Common Shares

Preferred Shares

Balances, beginning year, prior (as previously stated)

xxx xxx xxx xxx xxx xxx xxx xxx

Correction of error (Note 22)

xxx xxx xxx

Change in accounting policy (Note 23)

xxx xxx xxx

As restated xxx xxx xxx xxx xxx xxx xxx Net Income xxx xxx xxx xxx Exercise of stock options

xxx xxx xxx xxx

Dividends Declared

xxx xxx xxx xxx

Balances, end year, prior


Comprehensive Income:

Net Income xxx xxx xxx xxx Other

Comprehensive Income

Change in value of available-for-sale financial instruments

xxx xxx xxx xxx

Tax effect xxx xxx xxx xxx Change in

value of derivatives accounted for as hedges

xxx xxx xxx xxx

Tax effect xxx xxx xxx xxx Total other

comprehensive income

xxx xxx xxx

Comprehensive income

xxx xxx xxx

Exercise of stock options

xxx xxx xxx xxx

Dividends Declared

xxx xxx xxx xxx

Balances, end year, year




Sample Audit Inc. CONSOLIDATED CASH FLOW STATEMENT STATEMENT 4 For The Year Ended Month, Day, Year (Restated) Year Prior Operating activities

Cash receipts from customers $ xxxx $ xxxx Cash receipts from sale of held-for trading financial instruments xxxx xxxx Cash payments for merchandise (xxxx) (xxxx) Cash payments for other operating expense (xxxx) (xxxx) Interest paid (xxxx) (xxxx) Income taxes paid (xxxx) (xxxx)

xxxx xxxx

Investing activities

Payments for government bonds (xxxx) (xxxx) Acquisition of property, plant, and equipment (xxxx) (xxxx) Proceeds from disposition of property, plant, and equipment xxxx xxxx Payments for franchises (xxxx) (xxxx) Proceeds from notes receivable xxxx xxxx

(xxxx) (xxxx) Financing activities

Proceeds from issuing long-term debt xxxx xxxx Payments on capital lease (xxxx) (xxxx) Proceeds for issuing common shares xxxx xxxx Cash dividends paid (xxxx) (xxxx)

xxxx xxxx Increase (decrease) in cash and cash equivalents xxxx xxxx Cash and cash equivalents, beginning of year xxxx xxxx Cash and cash equivalents, end of year $ xxxx $ xxxx Cash and cash equivalents consist of

Cash $ xxxx $ xxxx Cash equivalents xxxx xxxx Bank indebtedness (xxxx) (xxxx)

$ xxxx $ xxxx The accompanying notes are an integral part of these financial statements.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year

The Company was incorporated under the laws of Canada on [Month, Day, Year]. Its main business activities are the development of software and the processing of non-marketable lumber into woodchips.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation The consolidated financial statements include the financial statements of the company and all its subsidiaries. On consolidation, all intercompany transactions and balances have been eliminated. Investments in entities subject to significant influence are accounted for using the equity method. Cash and cash equivalents Cash equivalents include demand deposits with banks and highly liquid investments with original maturities of three months or less. Foreign currency translation of integrated foreign operations Using the temporal method, foreign monetary assets and liabilities are translated into Canadian dollars at the rates of exchange in effect at the balance sheet date. Non-monetary items are translated at historical rates unless they are carried at “market” in which case the rates at the balance sheet date are used. Revenue and expense items are translated using the rate in effect on the date of the transaction, except for amortization, which is translated at the same rate as the asset to which it applies. Hedging instruments1 Derivative financial instruments are recorded at fair value on the consolidated balance sheet. For fair value hedges, where the Company is hedging changes in the fair value of assets, liabilities or firm commitments, the change in the value of derivatives and hedged items is recorded in the consolidated statement of income. For cash flow hedges where the Company is hedging the variability in cash flows related to, liabilities or forecasted transactions, the effective portion of the changes in the fair values of the derivative instruments is recorded in other comprehensive income until the hedged items are recognized in the consolidated statement of income. Inventory Raw materials, supplies, work in process and finished goods are valued at the lower of average cost and net realizable value. Investments Qualifying financial instruments are accounted for as follows: • Equity securities of a speculative nature are classified as held-for-trading and reported at fair value.

Income and gains and losses, both realized and unrealized, are reported in net income.

1 Source: Template from TD Bank. Reproduced with permission.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

• Equity securities of well-established firms are classified as available-for-sale and reported at fair value. Income and realized gains and losses are reported in net income. Unrealized gains and losses are reported in other comprehensive income unless there is an impairment in value that is judged to be other than temporary in nature. Impairment losses are reported in net income.

• Debt securities are classified as held-to-maturity and reported at amortized cost. Unrealized gains and

losses are ignored unless there is an impairment in value that is judged to be of other than a temporary nature. Impairment losses are reported in net income.

• Transaction costs are expensed as incurred. Investments in companies subject to significant influence are accounted for using the equity method. A proportionate share of their gain or loss is reported in net income. Financial Liabilities Financial liabilities are measured at amortized cost. None have been designated as held-for-trading. Property, plant and equipment Property, plant and equipment are recorded at cost. Amortization is provided annually at rates calculated to write off the assets over their estimated useful lives as follows: Natural resource basis of resources used per year Building 5% straight line Machinery and equipment 20% declining balance Machinery under capital lease 20% declining balance Intangible assets Intangible assets are recorded at cost. Amortization is provided annually at rates calculated to write off the assets over their estimated useful lives as follows: Patents 17 years straight line Franchise 1 15 years straight line Franchise 2 20 years straight line Income taxes [Guidance (see also note 28): You would use one or the other, depending on the nature of the enterprise.] The asset and liability method of tax allocation is used in accounting for income taxes. Under this method, temporary differences arising from the difference between the tax basis of an asset and a liability and its carrying amount on the balance sheet are used to calculate future income tax assets or liabilities. Future income tax assets or liabilities are calculated using tax rates anticipated to be in effect in the periods that the temporary differences are expected to reverse. The effect of a change in income tax rates on future income tax assets and liabilities is recognized in income in the period that the change occurs.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Impairment of long-lived assets Long-lived assets are reviewed for impairment when events and circumstances indicate that cost may not be recoverable. Impairment exists when the carrying value of an asset is greater than the undiscounted future cash flows expected to be provided by the asset. The amount of impairment loss, if any, is the excess of the carrying value over its fair value. Use of estimates The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses for the reporting period. Significant areas requiring the use of management estimates are: useful lives of plant and equipment, impairment of long-lived assets and goodwill, employee future benefits, and income taxes. Actual results could differ from those estimated.

2. ACCOUNTS RECEIVABLE Year Prior Trade $ xxxx $ xxxx Other xxxx xxxx

3. RELATED PARTIES Related parties consist of commonly controlled corporations as follows: Year Prior Due from XXX Ltd. Amount is non-interest-bearing and repayable on demand. $ xxxx $ xxxx Due to YYY Ltd. Amount is unsecured, bears interest at 6%, and is repayable within six months. $ (xxxx) $ (xxxx)

4. INVENTORY

(Restated) Year Prior Finished goods $ xxxx $ xxxx Work in process xxxx xxxx Raw materials and supplies xxxx xxxx $ xxxx $ xxxx


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 5. LONG-LIVED ASSETS HELD FOR SALE

Long-lived assets held for sale or disposal is shown at Future value less selling cost $xxxxx. The company has a building that is used for software development, and it is no longer needed as development has been consolidated in the Eastern premises. A buyer has already been located for the building. This is part of the operating segment software programs.

Year Prior $ xxxx $ xxxx

6. INVESTMENTS

CURRENT

Category Valuation basis Cost (Year) Fair Value (Year)

Cost (Prior) Fair Value (Prior)

Held-for-trading Shares in ZLT. Co Fair value xxx xxx xxx xxx Shares in ARF. Ltd. Fair value xxx xxx xxx xxx Shares in ZNT. Inc. Fair value xxx xxx xxx xxx Total xxx xxx xxx xxx

Category Valuation basis Amortized cost (Year)

Fair Value (Year)

Amortized Cost (Prior)

Fair Value (Prior)

Held-to-maturity Treasury bill 1 Amortized Cost xxx xxx nil nil Total xxx xxx nil nil

LONG-TERM

Category Valuation basis

Cost (Year) Fair Value (Year)

Cost (Prior) Fair Value (Prior)

Available-for-sale Shares in ADB Ltd. Fair value xxx xxx xxx xxx Shares in TRD. Inc. Fair value xxx xxx xxx xxx Total xxx xxx xxx xxx

Category Valuation basis

Amortized cost (Year)

Fair Value (Year)

Amortized Cost (Prior)

Fair Value (Prior)

Held-to-maturity Bond 1 Amortized Cost xxx xxx xxx xxx Bond 2 Amortized Cost xxx xxx xxx xxx Total xxx xxx xxx xxx Investments Year Prior Investment 1 Equity method xxx xxx Total xxx xxx

Treasury bill 1 — Government of Canada treasury bill with a face value of $xx, maturing on [Month, Day, Year].


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 6. INVESTMENTS (cont’d)

Bond 1 — Government of Canada Bonds series 6, with a face value of $xx. The coupon interest rate is y%. The bonds mature in Year 10 Bond 2 — Province of BC Bonds, series 8A, with a face value of $xx. The coupon interest is y%. The bonds mature in year 8. Investment 1 — investment in ZDE Corp. is subject to significant influence (xx% of voting shares).

7. PROPERTY, PLANT AND EQUIPMENT Year Prior

Cost Accumulated Net Book Value Amortization Land $ xxxx $ xxxx $ xxxx $ xxxx Natural resources (Note 14) xxxx xxxx xxxx xxxx Buildings xxxx xxxx xxxx xxxx Machinery and equipment xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx Machinery under capital lease xxxx xxxx xxxx xxxx $ xxxx $ xxxx $ xxxx $ xxxx

8. INTANGIBLE ASSETS


Amortization Patents $ xxxx $ xxxx $ xxxx $ xxxx Franchise 1 xxxx xxxx xxxx xxxx Franchise 2 xxxx xxxx xxxx xxxx $ xxxx $ xxxx $ xxxx $ xxxx

9. GOODWILL

Goodwill representing the excess of the cost of net identifiable assets of subsidiaries over their fair value as of the date of acquisition is tested annually for impairment. The test is performed more frequently if events or changes in circumstances indicate that goodwill might be impaired. On Month, Day, Year (end of year), a test for impairment revealed that an impairment loss of $xx had occurred. On Month, Day, Year (end of year), a test for impairment was conducted. The increasing availability of satellite technology in rural service areas, Sample Audit Inc.’s market, and restrictions on mineral extraction, have led to reduced demand and increasing production costs for after-market software. Quarterly profits in this segment declined throughout the year; this trend is expected to continue. The impairment test confirmed that an impairment loss of $xx had occurred.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 9. GOODWILL (cont’d)

Changes in the carrying amount of goodwill for the year ended Month, Day, Year, are as follows:

Total Balance as of Month, Day, Year (beginning of year) $ xxxx Impairment loss (xx) Balance as of Month, Day, Year (end of year) $ xxxx

10. BANK INDEBTEDNESS The Company has a revolving line of credit of $xxx, secured by a charge under the Personal Property Security Act granting a security interest in the Company’s accounts receivable and inventories. Interest is payable each month at prime plus x%.

11. NOTE PAYABLE The note is payable on demand and is secured by a charge under the Personal Property Security Act granting a security interest in a new machine that cost $x. Interest is payable each month at prime plus x%.

12. LONG-TERM DEBT Year Prior Series 1 bonds, x%, due in Year 4 $ xxxx $ xxxx X% sinking fund bonds due in Year 10 xxxx xxxx xxxx xxxx Debt component of $xxxx Series 2 convertible debentures due in year 5. xxxx xxxx Interest is payable annually at x%. At [Month, Day, Year], the lender may elect to convert each $1,000 of bonds into 20 common shares. (Note 18) xxxx xxxx Current portion xxxx xxxx $ xxxx $ xxxx The aggregate amount of payments required in each of the next five years on the above indebtedness is as follows: Debt component of Year Series 1 bonds Sinking fund bonds convertible debentures 1 $ nil $ xxxx $ nil 2 nil xxxx nil 3 nil xxxx nil 4 xxxx xxxx nil 5 nil xxxx xxxx $ xxxx $ xxxx $ xxxx


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 13. OBLIGATIONS UNDER CAPITAL LEASE

Year Prior Machinery lease contracts, repayable in monthly instalments totaling $xxx, including interest calculated at x%, and maturing on Month, Day Year and Month, Day, Year. Each lease is secured by the related equipment. $ xxxx $ xxxx Less current portion xxxx xxxx $ xxxx $ xxxx Minimum payments under capital leases for machinery are: Year 1 $ xxxx Year 2 xxxx Year 3 xxxx Year 4 xxxx Year 5 xxxx

$ xxxx

14. ASSET RETIREMENT OBLIGATIONS The Company is required by statute to remove all structures on its resource property at xxxx when production is complete. The fair value of the assets that are legally restricted for this purpose is $xxxx. The carrying amount of the asset retirement obligation is based on an undiscounted amount of $xxxx being due in xxxx years time and the use of a credit-adjusted risk-free rate of x.x% to discount the cash flows.

15. ACCRUED PENSION OBLIGATION The Company maintains a non-contributory defined benefit pension plan. The cost is accrued as determined by independent actuaries on assumptions determined by the Company. The net periodic benefit cost includes:

• The cost of pension benefits provided in exchange of employees’ services rendered during the year;

• The interest cost of pension obligations; • The expected long-term return on pension fund assets, which is based on market-related value

determined using a five-year moving average market value for equity securities and fair value for other asset classes;

• Gains or losses on settlements, curtailments and special early retirement; • The straight-line amortization of past service costs and plan amendments over the average

remaining service period of the active employee group covered by the plan (approximately 11 years); and

• The amortization of cumulative unrecognized net actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or market-related values of plan assets, at the beginning of the year, over the average remaining service period of the active employee group covered by the plan.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 15. ACCRUED PENSION OBLIGATION (cont’d)

Based on an actuarial valuation as of Month, Day, Year, the actuarial present value of the accrued pension benefits as at Month, Day, Year amounts to $xxxx (prior, $xxxx), and the net assets of the plan are valued at $xxxx (prior, $xxxx). The pension expense for the year amounts to $xxxx (prior, $xxxx). During the year, contributions amounted to $xxxx (prior, $xxxx), benefits paid amounted to $xxxx (prior, $xxxx), and the plan surplus (or deficit) at Month, Day, Year was $xxxx (prior, $xxxx).

16. SHARE CAPITAL Year Prior (a) Authorized:

250,000 6% cumulative, redeemable preferred shares 100,000 common shares without par value

(b) Issued: 50,000 preferred shares $ xxxx $ xxxx 40,000 common shares (prior, 30,000) $ xxxx $ xxxx (c) Earnings per share have been calculated using the weighted-average number of shares outstanding. Complete earnings per share information: (Restated) Year Prior Basic earnings per share Income before discontinued operations and extraordinary item $ xxxx $ xxxx Discontinued operations xxxx xxxx Extraordinary item xxxx xxxx Basic earnings per share for net income xxxx xxxx


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 16. SHARE CAPITAL (cont’d)

Diluted earnings per share Income before discontinued operations and extraordinary item xxxx xxxx Discontinued operations xxxx xxxx Extraordinary item xxxx xxxx Diluted earnings per share for net income $ xxxx $ xxxx

(d) Stock Option Plan:1 The Company has reserved xxxx Common Shares for issuance under its Stock Option Plan. The granting of options and the related vesting periods are at the discretion of the Board of Directors and have a maximum term of 10 years. The fair value of each option is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in YEAR: xxxx dividend yield; expected volatility of xx%; risk-free rate of x.x%; and expected life of xxxx years. The weighted average fair value of stock options granted during the year was $x.xx per option. A summary of the status of the Company’s Stock Option Plan as of Year and Prior and changes during the year ending on those dates is presented below:

Year Prior

Stock Options Shares Weighted-

average exercise price

Shares Weighted-

average exercise price

Outstanding at beginning of year xxxx $xxxx xxxx $xxxx

Granted xxxx $xxxx xxxx $xxxx

Exercised (xxxx) $xxxx (xxxx) $xxxx

Forfeited (xxxx) $xxxx (xxxx) $xxxx

Outstanding at end of year xxxx $xxxx xxxx $xxxx

Options exercisable at end of year xxxx $xxxx xxxx $xxxx

1 Information in this section is supplemented by excerpts adapted from page 85 of the CIBC Annual Report, 2003. Adapted and used with permission from CIBC.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 16. SHARE CAPITAL (cont’d)

The following table summarizes information about stock options outstanding as at Year:

Options Outstanding Options Exercisable

Exercise prices

# Outstanding

Weighted Average Remaining

Contractual Life

Weighted Average

Exercise Price

# of Shares Exercisable

Weighted Average

Exercise Price $xxxx xxxx x.x years $xxxx xxxx $xxxx

$xxxx xxxx x.x years $xxxx xxxx $xxxx

$xxxx xxxx x.x years $xxxx xxxx $xxxx$xxxx xxxx x.x years $xxxx xxxx $xxxx

$xxxx xxxx x.x years $xxxx xxxx $xxxx

xxxx x.x years $xxxx xxxx $xxxx

17. NON-CONTROLLING INTEREST

Year Prior Preferred shareholders $ xxxx $ xxxx Common shareholders xxxx xxxx $ xxxx $ xxxx

18. CONVERTIBLE DEBENTURES

The sales proceeds of the convertible debentures were allocated on a pro-rata basis to debt and equity. The distribution was based on the relative market values of similar bonds without a conversion feature and a call option value determined using a form of the Black-Scholes option pricing model (Note 12).

19. SEGMENTED DISCLOSURES

The Company’s operations consist of two activities: the development of software programs and the processing of woodchips. The profits of these products are determined using the accounting policies outlined in Note 1. Sales of software programs to the woodchip segment are charged at current market prices. Year Operating segments Software Woodchips Totals programs Revenues from external customers $ xxxx $ xxxx $ xxxx Intersegment revenues (xxxx) (xxxx) (xxxx) Interest revenue xxxx xxxx xxxx Interest expense (xxxx) (xxxx) (xxxx) Amortization of property, plant, and equipment (xxxx) (xxxx) (xxxx) Equity income xxxx xxxx xxxx Income tax expense (xxxx) (xxxx) (xxxx) Segment profit xxxx xxxx xxxx Segment assets xxxx xxxx xxxx


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 19. SEGMENTED DISCLOSURES (cont’d)

Investment in investees xxxx xxxx xxxx Expenditures for property, plant; and equipment and goodwill (xxxx) (xxxx) (xxxx) Impairment loss (xxxx) — (xxxx) Reconciliation to company totals (Restated) Year Prior Sales Total revenues for operating segments $ xxxx $ xxxx Elimination of intersegment revenues (xxxx) (xxxx) Total sales $ xxxx $ xxxx Profits Total profits for operating segments $ xxxx $ xxxx Elimination of intersegment profits (xxxx) (xxxx)

Income before income taxes, discontinued operations, and

extraordinary item $ xxxx $ xxxx Assets Total assets for operating segments $ xxxx $ xxxx Other assets xxxx xxxx Total assets $ xxxx $ xxxx

Geographic information Year Prior Sales Canada $ xxxx $ xxxx United States xxxx xxxx Europe xxxx xxxx Total sales $ xxxx $ xxxx Property, plant and equipment, goodwill and other intangible assets Canada $ xxxx $ xxxx United States xxxx xxxx Europe xxxx xxxx Total property, plant, and equipment; goodwill and

other intangible assets $ xxxx $ xxxx



20. DISCONTINUED OPERATIONS

The Company sold its operation in Westville on Month, Day, Year. The Westville plant processed non-marketable lumber into woodchips for sale to pulp producers. Operating loss to the date of disposal (net of income tax recoveries of $xxxx) $ (xxxx) Gain from disposal of assets (net of applicable taxes of $xxxx) xxxx Net gain/ (loss) $ xxxx

21. EXTRAORDINARY ITEM The extraordinary item was due to settlement of expropriation of land for a hydro project. Amount awarded $ xxxx Cost (xxxx) Gain xxxx Less applicable taxes (xxxx) $ xxxx

22. CORRECTION OF ERROR Income tax expense was incorrectly calculated in Prior. The financial statements of Prior have been restated to correct this error. The effect of the restatement is that the balance of retained earnings at the beginning of Year has been reduced by $xxxx, which is the amount by which income taxes as at that date have been increased. There is no effect on this year’s income.

23. CHANGE IN ACCOUNTING POLICY

Effective the beginning of Year, the Company changed its accounting policy for the treatment of borrowing costs related to a plant under construction for use by the Company. Previously, the Company capitalized such costs. They are now written off as expenses as incurred. Management judges that this policy provides reliable and more relevant information because it results in a more transparent treatment of finance costs and is consistent with local industry practice, making the Company’s financial statements more comparable. This change in accounting policy has been accounted for retrospectively, and the comparative statements for Prior have been restated. The effect of the change on Prior is tabulated below. Opening retained earnings for Prior have been reduced by $xxx, which is the amount of the adjustment relating to periods before Prior.



23. CHANGE IN ACCOUNTING POLICY (cont’d)

($) Effect on Prior (Increase) in interest expense (xxx) Decrease in income tax expense xxx (Decrease) in net income (xxx) Effect on periods before Prior (Decrease) in net income ($xxx interest (xxx) Expense less tax of $xxx) (Decrease) in assets in the course of construction (xxx) And in retained earnings at 31 December Prior

24. SUBSEQUENT EVENTS On Month, Day, Year, the Company made an offer to purchase a new production machine valued at $xxxx.

25. CONTINGENT LIABILITY A contingent liability exists because of a pending lawsuit relating to product performance. The potential amount of the damages cannot be estimated at this time due to the complexities of the case.



26. FINANCIAL INSTRUMENTS

Supplemental disclosure for financial instruments Year Prior re: Income statemetn and other comprehensive income Net gain (loss) on held for trading financial assets $ xxxx xxxx Net gain (loss) on available-for-sale financial assets recognized directly in other $ xxxx xxxx comprehensive income Amount removed from accumulated other comprehensive income and $ xxxx (xxxx) recognized in net income pertaining to available-for-sale financial assets Net gain (loss) on held-to-maturity investments $ xxxx xxxx Total interest income using the effective interest method on financial assets $ xxxx xxxx not classified as held-for-trading Total interest expense using the effective interest method on financial liabilities $ xxxx xxxx not classified as held-for-trading

Fair value

The fair value of cash, accounts receivables, loan receivable, bank indebtedness, accounts payable, and accruals approximates their carrying amount because of the short-term nature of these instruments. The fair value of long-term debt, which currently approximates the amortized cost, is estimated based on current rates offered to the Company for debt for the same maturity. The fair value of held-for-trading, available-for-sale, and held-to-maturity financial instruments, including derivatives, is determined by referring to published market prices in active markets. Nature and extent of risks arising from financial instruments The Company is exposed to a variety of financial risks that arise from owning financial instruments. These risks include credit risk; currency risk; interest rate risk; liquidity risk; market risk; and other price risks as described below. Unless otherwise noted, it is management’s opinion that the Company is not exposed to material credit, currency, interest, liquidity, market, or other price risks arising from these financial instruments. The Company’s objectives towards managing risk arising from financial instruments is to minimize it to the greatest extent possible giving due consideration for cost benefit considerations. A general description of the processes used follows. The Company’s objectives, policies, and processes, for managing and measuring the various risks arising from the financial instruments have not changed from the previous period.



26. FINANCIAL INSTRUMENTS (cont’d)

Credit risk (default risk) is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company mitigates credit risk on its receivables through diversification of its customer base and limiting its exposure to any one customer. The Company minimizes its credit exposure on derivative contracts by entering into transactions only with counterparties that are major investment-grade international financial institutions. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The company manages this risk through the use of derivative financial instruments. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. For liabilities, interest rate risk is minimized through management’s constant review of demand and maturing debt. The Company structures its finances so as to stagger the maturities of debt, thereby minimizing exposure to interest rate fluctuations. For assets, this risk is reduced by diversifying the durations of the fixed-income investments that are held at a given time. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company obviates liquidity risk by closely monitoring its working capital position, ensuring sufficient cash, cash equivalents, or readily marketable securities, are available to meet all liabilities when due. Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk, and other price risk. The Company manages these individual risks as described elsewhere in this section. Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Company manages other price risk through asset allocation and maintaining a portfolio that is well diversified on both a geographic and industry sector basis.

Derivative financial instruments1 Company’s subsidiaries operate in North America and Europe, with manufacturing and sales facilities in various locations on these continents. Company and its subsidiaries utilize certain derivative financial instruments to manage its foreign currency and commodity exposure.

Derivative financial instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates, commodity prices, or other financial measures. Such instruments include interest rate, foreign exchange, and commodity contracts. The Company uses these instruments to manage the risks associated with its funding and investing strategies or for trading purposes. The primary currencies to which Company is exposed include the U.S. Dollar and the Euro. At Year End and Prior, Company had foreign exchange forward and option agreements with notional amounts of $xxx and $xxx, respectively.

1 Source: Template from TD Bank. Reproduced with permission.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month 26. FINANCIAL INSTRUMENTS (cont’d)

Hedging relationships The CICA requirements for accounting for hedging relationships set out the criteria that must be met in order to apply hedge accounting for derivatives. The rules provide detailed guidance on hedging forecast transactions and the identification, designation, documentation, and testing of the effectiveness of hedging relationships, for purposes of applying or discontinuing hedge accounting. The Company’s non-trading derivatives that have been designated in a hedging relationship and meet the effectiveness test are considered effective under the guideline. The effective portion of unrealized gains and losses associated with forward and option contracts are deferred as a component of accumulated other comprehensive income until the underlying hedged transactions are reported on the Company’s consolidated statement of income. Derivatives held for non-trading purposes Derivatives used for risk management purposes are generally classified by the Company as non-trading derivatives and receive hedge accounting treatment. For non-trading derivatives to receive hedge accounting treatment, the hedging relationship must be documented at inception and the non-trading derivative and the hedged exposure must be highly and inversely correlated such that changes in the value of the non-trading derivative will substantially offset the effects of the hedged exposure to the Company throughout the term of the hedging relationship. If these criteria are not met, the resulting gains and losses are reported on the Company’s consolidated statement of income. A hedging relationship is terminated if the hedging relationship ceases to be highly effective; if the underlying asset or liability is liquidated or terminated or it is no longer probable that the anticipated transaction will occur and the derivative is still outstanding; or if the hedging instrument is no longer designated as a hedging instrument. Non-trading derivative financial instruments are recorded at fair value on the consolidated balance sheet. For fair value hedges, where the Company is hedging changes in the fair value of assets, liabilities, or firm commitments, the change in the value of derivatives and hedged items is recorded in the consolidated statement of income. For cash flow hedges where the Company is hedging the variability in cash flows related to liabilities or forecasted transactions, the effective portion of the changes in the fair values of the derivative instruments is recorded in other comprehensive income until the hedged items are recognized in the consolidated statement of income. At Year End and Prior, deferred net gains (losses) on derivative instruments of $(xx) and $xx respectively included in other comprehensive income are expected to be reclassified to earnings during the next fiscal year. Cash flow hedges also include hedges of certain forecasted transactions up to a maximum of 24 years, although a substantial majority is less than three years. The ineffective portion of hedging derivative instruments’ changes in fair values are immediately recognized in income. For Year End, Company recognized pre-tax gains (losses) of nil (Prior — nil) for the ineffective portion of cash flow hedges. Derivatives held for trading purposes The Company enters into trading derivative contracts to meet the needs of its customers and to enter into trading positions, and in certain cases for risk management purposes. Trading derivatives are recorded at fair value with the resulting realized and unrealized gains or losses reported on the Company’s consolidated statement of income. Changes in fair value of derivative liabilities held for trading purposes The change in the fair value of derivative financial liabilities that is attributable to changes in the liability's credit risk totaled $xxx for Year and $xxx cumulatively.



These amounts have been determined as the amount of change in the liability’s fair value that is not attributable to changes in market conditions that give rise to market risk estimated as follows: (a) The Company computes the liability’s internal rate of return at the start of the period using the observed market price of the liability and the liability’s contractual cash flows at the start of the period. Company then deducts from this rate of return the observed (benchmark) interest rate at the start of the period, to arrive at an instrument-specific component of the internal rate of return. (b) The Company calculates the present value of the cash flows associated with the liability using the liability’s contractual cash flows at the end of the period and a discount rate equal to the sum of (i) the observed (benchmark) interest rate at the end of the period and (ii) the instrument-specific component of the internal rate of return as determined in (a). (c) The difference between the observed market price of the liability at the end of the period and the amount determined in (b) is the change in fair value that is not attributable to changes in the observed (benchmark) interest rate. This is the amount disclosed above. Management considers that changes in fair value arising from factors other than changes in the instrument’s credit risk or changes in interest rates are insignificant. Quantitative disclosures of risks arising from financial instruments Credit Risk The maximum of our credit risk is as described below:

Category Carrying value Carrying value Credit risk Credit Risk (By type) Year $ Prior $ Year $ Prior $

Financial assets xxxx xxxx xxxx xxxx measured at fair value Financial assets xxxx xxxx xxxx xxxx measured at amortized cost

Total xxxx xxxx xxxx xxxx

The maximum credit risk assumes an extremely unlikely worst case scenario where all customers defaulted on their contractual obligations and the Company was unable to recover any monies through legal action or other collection methods. The credit quality of our financial assets is considered to be excellent. As previously discussed, the Company mitigates credit risk on its receivables through diversification of its customer base and limiting its exposure to any one customer. The Company minimizes its credit exposure on derivative contracts by entering into transactions only with counterparties that are major investment-grade international financial institutions. The Company restricts investments in debt instruments to those whose credit are independently rated to be of Investment Grade.



Category Carrying value Carrying value Credit risk Credit Risk (By concentration) Year $ Prior $ Year $ Prior $

Canada xxxx xxxx xxxx xxxx US xxxx xxxx xxxx xxxx Europe xxxx xxxx xxxx xxxx Other xxxx xxxx xxxx xxxx

Total xxxx xxxx xxxx xxxx The Company determines concentrations based on the geographical distribution of our investment in financial assets. Liquidity risk

Maturity analysis of financial liabilities $

Financial liabilities that mature within 30 days from balance sheet date xxxx Financial liabilities that mature between 31-90 days from balance sheet date xxxx Financial liabilities that mature between 91 days and one year from balance sheet date xxxx Financial liabilities that mature in more than one year, but not later than five years from xxxx balance sheet date

Total xxxx

Market risk

Value at risk Potential Impact Year $ Prior $ Net Income Other comprehensive Net Income Other comprehensive income income Held-for-trading xxxx to xxxx xxxx to xxxx xxxx to xxxx xxxx to xxxx Other financial xxxx to xxxx xxxx to xxxx xxxx to xxxx xxxx to xxxx instruments

Value at risk is a technique that uses the statistical analysis of historical market trends and volatilities to estimate the likelihood that losses to the Company’s portfolio will exceed a certain amount. This measurement captures the interdependency of the three components of market risk: currency risk, interest rate risk, and other price risk. The use of this method assumes that historical results can be used to forecast future outcomes within a range of possibilities. The primary limitation of this method is that catastrophic events that cannot be reasonably predicted, such as 9/11, may result in an actual drop in value greater than the forecast maximum.



27. CAPITAL The Company’s objectives when managing capital are:

• to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders;

• to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Consistent with others in the industry, the Company monitors capital on the basis of the debt-to-capital ratio. This ratio is calculated as net debt ÷ capital. Net debt is calculated as total debt (as shown in the balance sheet) less cash and cash equivalents. Capital comprises all components of equity. During Year, the Company's strategy, which was unchanged from Prior, was to maintain the debt-to- capital ratio at the lower end of the range 1.0:1 to 1.5:1, in order to secure access to financing at a reasonable cost by maintaining a BB credit rating. The debt-to-capital ratios at Year and at Prior were as follows:

Year Prior

Total debt xxx xxx

Less: cash and cash equivalents (xxx) (xxx)

Net debt xxx xxx

Capital Debt-to-capital ratio

xxx x.x:1

xxxx.x:1

The decrease in the debt-to-capital ratio during Year resulted primarily from the reduction in net debt that occurred on the sale of subsidiary Z.


Sample Audit Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Month, Day, Year 28. INCOME TAXES1 [Guidance (see also note 1): More extensive disclosure is required for public

enterprises, life insurance enterprises, deposit taking institutions, and co-operative businesses as per 3465.92. For these types of enterprises a note of the type that follows would be used instead of that included in note 1.]

A reconciliation of the statutory income tax rate to the effective income tax rate is as follows:

YEAR PRIOR Combined basic federal and provincial statutory income tax rate xx% xx% Large corporations tax xx% xx% Other items xx% xx% YYY gain and equity losses subject to capital gains rates — (xx%) Change in substantially enacted tax rates xx% — Effective tax rate xx% xx%

The balances of future income taxes as at YEAR and PRIOR represent the future benefit of unused tax losses and temporary differences between the tax and accounting bases of assets and liabilities. The major items giving rise to future income tax assets and liabilities are presented below:

YEAR PRIOR Non-capital loss carryforwards xx xx Property plant and equipment xx xx Other xx xx Total future income tax asset xx xx Valuation allowance (xx) (xx) Net future income tax asset xx xx

Future income taxes comprise the following:

YEAR PRIOR Current future income tax asset xx xx Long-term future income tax asset xx xx Long-term future income tax liability (xx) (xx) Net future income tax asset xx xx

During YEAR Company paid $xxx of income taxes (PRIOR $xxx). As at YEAR Company had non-capital loss carryforwards available to reduce future years’ taxable income which expire as follows:

YEAR plus two xx YEAR plus three xx YEAR plus four xx YEAR plus five and beyond xx Totals xx

1 Source: Adapted with permission of Manitoba Telecom Services Inc.


Sample Not-for-Profit Association


Month, Day, Year


Table of Contents

Auditor’s Report

Statement of Financial Position Statement 1

Statement of Operations and Changes in Fund Balances Statement 2

Statement of Cash Flows Statement 3



Auditor’s Report

To the Members of

Sample Not-for-Profit Association

We have audited the statement of financial position of the Sample Not-for-Profit Association as at

[Month, Day, Year] and the statements of operations and changes in fund balances and of cash flow for the

year then ended. These financial statements are the responsibility of the association’s management. Our

responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards

require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are

free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the

Association as at [Month, Day, Year] and the results of its operations, changes in fund balances, and cash flow

for the year then ended in accordance with Canadian generally accepted accounting principles.

[Signed]



Sample Not-for-Profit Association STATEMENT OF FINANCIAL POSITION STATEMENT 1 As At Month, Day, Year ($ 000s)

Capital Assets General Endowment Total

fund fund fund Year Prior

Current assets Cash and term deposits $ 177 $ — $ — $ 177 $ 240

Accounts receivable 30 — — 30 15 Grant receivable — — — — 38

207 207 293

Held to maturity investments (fair value $358 — prior $153) (Note 2) — 120 240 360 150 Capital assets (Notes 2 and 3) — 941 941 203 $ 207 $ 1,061 $ 240 $ 1,508 $ 646

Current liabilities Accounts payable and accrued liabilities $ 36 $ — $ — $ 36 $ 30

Current portion of mortgage payable (Note 4) — 9 — 9 — 36 9 — 45 30

Mortgage payable (Note 4) — 662 — 662 — Deferred operating grant (Note 5) 165 — — 165 158 201 671 — 872 188

Fund balances (Note 11) Invested in capital assets1 — 270 — 270 203 Externally restricted (Note 6) — 120 225 345 150 Internally restricted (Note 7) — — 15 15 —

Unrestricted 6 — — 6 105

6 390 240 636 458

$ 207 $ 1,061 $ 240 $ 1,508 $ 646


1 Note that reporting net assets invested in capital assets on the Statement of Financial Position is no longer mandatory. Not-for-profit organizations may now choose to present such an amount as a category of internally restricted net assets.


Sample Not-for-Profit Association STATEMENT OF OPERATIONS AND CHANGES IN FUND BALANCES STATEMENT 2 For The Year Ended Month, Day, Year ($ 000s) Capital General Assets Endowment

fund fund fund Year Prior Year Prior Year Prior

REVENUES Provincial government grants $ 158 $ 150 $ — $ 38 $ — $ — Contributions (Note 8) 83 98 124 — 75 — Membership fees 120 113 — — — —

Investment income (Note 9) 12 7 3 15 — —

373 368 127 53 75 —

EXPENSES Salaries and benefits 300 260 — 41 — — Purchased materials and services 35 33 — 5 — — Amortization of capital assets — — 35 18 — —

Mortgage interest (Note 4) — — 27 — — —

335 293 62 64 — —

Excess (deficiency) of revenues over expenses 38 75 65 (11) 75 — Fund balances, beginning of year 105 30 203 214 150 150

Interfund transfers (137) — 122 — 15 —

Fund balances, end of year $ 6 $ 105 $ 390 $ 203 $ 240 $ 150



Sample Not-for-Profit Association STATEMENT OF CASH FLOWS STATEMENT 3 For The Year Ended Month, Day, Year ($ 000s) Cash flows from operating activities Cash received from the Provincial government for operations $ 165 $ 187 Cash received from general contributions 83 45 Cash received from the ABC Foundation 38 31 Cash received from membership fees 105 105 Investment income received for operating purposes 12 22 Cash paid for salaries and benefits ( 300) ( 337) Cash paid for materials and services ( 28) ( 23) Mortgage interest paid ( 27) 0 Net cash generated through operating activities 48 30

Cash flows from financing activities Mortgage financing 675 0 Contributions of cash for capital assets 125 0 Contributions of cash for endowment 75 0 Income received on capital asset investments 3 0 Net cash generated through financing activities 878 0

Cash flows from investing activities Purchase of capital assets ( 765) 0 Purchase of investments (capital asset fund) ( 120) 0 Purchase of investments (endowment fund) ( 90) 0 Contributed equipment put in service ( 8) 0 Mortgage principal repayment ( 6) 0 Net cash used in investing activities ( 989) 0

Net (decrease) increase in cash and term deposits ( 63) 30 Cash and term deposits, beginning of year 240 210 Cash and term deposits, end of year $ 177 $ 240



Sample Not-for-Profit Association NOTES TO FINANCIAL STATEMENTS Month, Day, Year ($ 000s)

1. PURPOSE OF THE ORGANIZATION

The Sample Not-for-Profit Association is an organization operating programs aimed at helping families in need of counseling. The Sample Not-for-Profit Association is incorporated under the Provincial Society’s Act as a not-for-profit organization and is a registered charity under the Income Tax Act.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fund accounting The Sample Not-for-Profit Association follows the restricted fund method of accounting for contributions. The General Fund accounts for the organization’s program delivery and administrative activities. This fund reports unrestricted resources and restricted operating grants. The Capital Assets Fund reports the assets, liabilities, revenues, and expenses related to the Sample Not-for-Profit Association’s capital asset expansion campaign. The Endowment Fund reports resources contributed for endowment. Investment income earned on resources of the Endowment Fund is reported in the General Fund unless otherwise restricted by contributors of funds for endowment. Capital assets

Purchased capital assets are recorded at cost. Contributed capital assets are recorded at fair value at the date of contribution. Amortization is provided on a straight-line basis over the assets’ estimated useful lives, which for buildings is 20 years and for equipment is 5 years. Amortization expense is reported in the Capital Assets Fund. Investments

The Sample Not-for-Profit Association invests only in debt instruments. These are classified as held-to-maturity and reported at amortized cost. Unrealized gains and losses are ignored unless there is an impairment in value that is judged to be of other than a temporary nature. Transaction costs are expensed when incurred. Financial liabilities Financial liabilities are measured at amortized cost. They are not designated as held-for-trading.

Revenue recognition

Restricted contributions related to general operations are recognized as revenue of the General Fund in the year in which the related expenses are incurred. All other restricted contributions are recognized as revenue of the appropriate restricted fund.



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d) Unrestricted contributions are recognized as revenue of the General Fund in the year received or receivable if the amount to be recorded can be reasonably estimated and collection is reasonably assumed. Contributions for endowment are recognized as revenue in the Endowment Fund.

Unrestricted investment income earned on Endowment Fund resources is recognized as revenue of the General Fund. Investment income earned on building campaign resources is recognized as revenue of the Capital Assets Fund. Other investment income is recognized as revenue of the General Fund when earned.

Membership fees are recognized as revenue of the General Fund when collected.

Contributed services

Volunteers contribute about 1,200 hours per year to assist the Sample Not-for-Profit Association in carrying out its service delivery activities. Because of the difficulty of determining their fair value, contributed services are not recognized in the financial statements.

3. CAPITAL ASSETS Cost Accumulated Net Book Value Amortization

Year Prior Year Prior Year Prior

Land $ 225 $ 75 $ — $ — $ 225 $ 75 Buildings 810 210 130 105 680 105

Equipment 60 38 24 15 36 23 $ 1,095 $ 323 $ 154 $ 120 $ 941 $ 203

4. MORTGAGE PAYABLE

Year Prior

Mortgage, repayable in blended monthly instalments of $ 671 $ — $3,500, including interest at 5%, maturing Month, Year, secured by building.

Less current portion 9 —

$ 662 $ —



4. MORTGAGE PAYABLE (Cont’d) The aggregate amount of payments required in each of the next five years on the above indebtedness is as follows:

Year 1 $ 9 Year 2 9 Year 3 9 Year 4 10 Year 5 10 $ 47 5. DEFERRED OPERATING GRANT

The deferred operating grant reported in the General Fund represents restricted operating funding received in the current period that is related to the subsequent period. Changes in the deferred operating grant balance are as follows: Year Prior

Beginning balance $ 158 $ 150 Less amount recognized as revenue in the year (158) (150)

Add amounts received related to next year 165 158

Ending balance $ 165 $ 158 6. EXTERNALLY RESTRICTED NET ASSETS Major categories of externally imposed restrictions on net assets are as follows:

Year Prior

Restricted, related to building campaign $ 120 $ — Endowments, the income from which must be used for special needs families 150 150

Endowments, the income from which is unrestricted 75 —

$ 345 $ 150

In Year, the Sample Not-for-Profit Association launched a building campaign to raise $750 over three years for a major expansion to its existing building. The campaign has raised contributions of $117 to date, which have been invested in marketable securities. Related investment income of $3, restricted for the building expansion, is also reported in the Capital Assets Fund.



7. INTERFUND TRANSFERS AND INTERNALLY RESTRICTED NET ASSETS

In Year, the Sample Not-for-Profit Association’s board of directors internally restricted $15 to be held for endowment purposes. Transfers of this amount were made from the General Fund to the Endowment Fund. These internally restricted amounts are not available for unrestricted purposes without approval of the board of directors. In addition, $122 was transferred from the General Fund to the Capital Assets Fund in order to fund the cash outlays for capital asset acquisitions and mortgage principal and interest payments.

8. DONATED CAPITAL ASSETS

Contributions recognized in the Capital Assets Fund include contributed equipment received in Year having a fair value of $8.

9. INVESTMENT INCOME Capital Assets General fund fund

Year Prior Year Prior Investment income earned on: Endowment fund resources $ 6 $ — $ — $ — Building campaign resources — — 3 15

Other investments 6 7 — —

$ 12 $ 7 $ 3 $ 15 10. FINANCIAL INSTRUMENTS

Fair Value The fair value of cash, accounts receivables, grant receivable, and accounts payable and accruals approximate their carrying amount because of the short-term nature of these instruments. The fair value of the mortgage payable that currently approximates the amortized cost is estimated based on current rates offered to the Company for mortgages for the same maturity. The fair value of held-to-maturity financial instruments is determined by referring to published market prices in active markets.

Nature and extent of risks arising from financial instruments The Sample Not-for-Profit Company’s maximum credit risk for Year was $567,000 (Prior $443,000), which is the total of its cash on deposit, accounts receivable, grant receivable, and investments at the respective year ends. This is a very unlikely, worst case scenario that assumes that all creditors default on their obligations and that Sample Not-for-Profit is unable to recover any funds through legal action or other collection activity.



10. FINANCIAL INSTRUMENTS (Cont’d)

Unless noted elsewhere, it is management’s opinion that in light of the straightforward nature of the company’s operations, and the policies to manage risk that are in place, Sample Not-for-Profit’s exposure to credit, currency, interest, liquidity, market, and other price risks arising from these financial instruments is immaterial. Accordingly, the supplemental disclosure that would otherwise be required by virtue of CICA 3862.26-.42 has not been provided.

11. CAPITAL

The Sample Not-for-Profit’s objectives when managing capital are to ensure that sufficient capital is retained to ensure the entity remains solvent so that it can fulfill its stated goals.

The Sample Not-for-Profit manages its capital structure by preparing a balanced budget on an annual basis. If it becomes apparent that revenues will fall short of those budgeted, discretionary expenses are curtailed so as to ensure that adequate capital is maintained. The Sample Not-for-Profit monitors capital on the basis of its total non-externally restricted Fund balances. During Year, the Sample Not-for-Profit's strategy, which was unchanged from Prior, was to maintain the total Funds not subject to external restrictions at a minimum of $250,000. Funds not subject to external restrictions at Year and at Prior were as follows:

Year ($000s) Prior ($000s)

Invested in capital assets 270 203

Internally restricted 15 0

Unrestricted 6 105

Total Funds not subject to external restrictions 291 308

The changes in Funds not subject to external restrictions are minor in nature; the resultant balance remains in excess of the targeted minimum.


International Financial Reporting Standards: A Resource Guide The Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) has mandated that Canadian GAAP for Publicly Accountable Enterprises (PAEs) will be replaced with International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. IFRS, like Canadian GAAP for PAEs, is continuously changing. As such, IFRS at the required date of adoption will likely be slightly different than IFRS as we know it today. It is important that you keep this in mind as you review the various materials referenced here. The differences highlighted in the different adopted formats may have been modified since the publication of this guide. Accounting associations, practitioners, and text book publishers have all developed IFRS-related materials. The links provided below are not meant to be an exhaustive list. Rather, they are designed to give you a flavour for some of the resources available to you. AcSB Comparison of IFRSs and Canadian GAAP The first link to the Accounting Standards Board’s webpage includes a detailed comparison of the remaining differences between IFRSs and Canadian GAAP. The second is a link to their less comprehensive guide. Both comparisons are as at July 31, 2008. AcSB Comparison of IFRSs and Canadian GAAP AcSB Summary Comparison of IFRSs and Canadian GAAP AcSB International Activities Home Page The link that follows is to the AcSB International home page, which provides a wealth of information pertaining to the impending adoption of IFRS in Canada. AcSB International Activities Home Page IASB Home Page The link that follows is to the IASB home page where you can access details of IFRS updates and the status of other standards-related projects currently underway. IASB Home Page Deloitte The link to Deloitte’s IFRS webpage includes the presentation of various financial statements prepared in accordance with IFRS. IFRS, however, like Canadian GAAP, gives little direction with respect to the formatting of the financial statements. Historically when countries have adopted IFRS, the affected companies have maintained their traditional form of statement presentation. Thus, while the balance sheet of HKFRS as at December 31, 2008 lists non-current assets before current assets and equity before liabilities, it is probable that Canadian companies will continue to present current assets first. Deloitte

http://www.acsbcanada.org/download.cfm?ci_id=41263&la_id=1&re_id=0

http://www.acsbcanada.org/download.cfm?ci_id=49159&la_id=1&re_id=0

http://www.acsbcanada.org/index.cfm/ci_id/193/la_id/1.htm

http://www.iasb.org/Home.htm

http://www.iasplus.com/index.htm


Ernst and Young The link to E&Y’s IFRS webpage includes the presentation of various financial statements prepared in accordance with IFRS. Again, be aware that IFRS gives little direction with respect to the formatting of the financial statements, and companies may have maintained their traditional form of statement presentation. Ernst & Young KPMG The link to KPMG’s webpage includes the presentation of various financial statements prepared in accordance with IFRS. (Keep in mind that IFRS gives little direction with respect to the formatting of the financial statements, and companies may have maintained their traditional form of statement presentation.) KPMG PriceWaterhouseCoopers The link to PWC’s IFRS webpage includes the presentation of various financial statements prepared in accordance with IFRS. (Keep in mind that IFRS gives little direction with respect to the formatting of the financial statements, and companies may have maintained their traditional form of statement presentation.) PriceWaterhouseCoopers

http://www.ey.com/global/content.nsf/International/Assurance_-_IFRS_-_Publications

http://www.kpmg.ca/en/ms/ifrs/tools.html

http://www.pwc.com/extweb/pwcpublications.nsf/docid/c2a82df2f68d262f802569a1004f6835


Suggested company financial statements (available at www.sedar.com)

You are encouraged to study the published financial statements of a variety of companies and to evaluate them critically in terms of disclosure and style. In particular, observe the heavy reliance of many companies on the use of notes to provide adequate disclosure.

The following companies offer industry-specific examples. To access these companies’ public documents, including their financial reports, click on the embedded link. Alternatively, go to http://www.sedar.com, click English, Company Profiles, and then click on a letter of the alphabet to view the list of Public Company names beginning with that letter. Angiotech Pharmaceuticals, Inc. — Pharmaceuticals • Examples of disclosures, including research and development costs, change in accounting policy,

discontinued operations, revenue recognition, and contingent payments BCE Inc. — Communications • Examples of collapsed privatization bid, restructuring costs, discontinued operations, stock based

compensation, financial and capital management, commitments and contingencies, multiple-element arrangements, securitization of accounts receivable, integrated and self-sustaining foreign operations, and hedging items

Canada Bread Company, Limited — Food processing • Examples of restructuring costs, hedging arrangements, derivative financial instruments and risk

management, pensions and other post-retirement benefits and acquisitions Daimler Canada Finance Inc. — All • Examples of derivative financial instruments and other complex financial instruments disclosures. Also

examples of risk disclosures including discussion as to the possible impact of the global recession. Danier Leather Inc. — Merchandising; clothing stores • Example of a company with a floating year-end, complex stock transactions, litigation, and contingencies Lake Louise Limited Partnership — Hospitality • Examples of replacement and renewal reserves and accounting for joint ventures. Also refer to the MD&A

posted October 29, 2008 that records that the Company’s auditors are not in a position to provide an audit opinion

Maple Leaf Foods Inc. — Food processing • Examples of product recall, restructuring costs, acquisitions, and divestitures. Also refer to the amended

filing of the financial statements for the year ended December 31, 2007 for an example of restated financial statements.

http://www.sedar.com/

http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00009314






http://www.sedar.com/FindCompanyDocuments.do


Nortel Networks Inc. — Technology • Example of a Canadian company in bankruptcy protection that is dually listed on the NYSE and TSX.

Nortel chooses to present its financial statements denominated in US dollars and in accordance with US GAAP. Includes s contingency with respect to class action lawsuits stemming from violation of federal and provincial securities regulations

Premium Brands Income Fund — Food processing • Examples of unit-based compensation, acquisitions, floating year-end, and non-auditor reviewed interim

statements. See for example the interim statement posted to SEDAR on Nov 5, 2008.




Suggested company annual reports (available at www.sedar.com)

Each year, the Corporate Reporting Awards (CRAs) are held to recognize excellence in financial and corporate reporting in Canada. The following companies were recognized as leaders within their industry sectors and for their overall excellence in 2008. To access copies of the companies’ annual reports, click on the embedded link. Alternatively, go to http://www.sedar.com, click English, Company Profiles, and then click on a letter of the alphabet to view the list of Public Company names beginning with that letter. Corporate Reporting Overall Award of Excellence TELUS Corporation Communications and Media TELUS Corporation Consumer Products Canadian Tire Corporation Limited Diversified Industries Bombardier Inc. Financial Services Royal Bank of Canada Forest Products Catalyst Paper Corporation Industrials and Energy SNC-Lavalin Group Inc. Life Sciences/Technology MDS Inc. Mining Potash Corporation of Saskatchewan Inc. Oil and Gas Nexen Inc. Real Estate Brookfield Properties Corporation Utilities and Pipelines TransAlta Corporation Financial Reporting Award of Excellence TELUS Corporation Corporate Governance Disclosure Award of Excellence Nexen Inc. Honourable Mention TELUS Corporation Electronic Disclosure Award of Excellence Potash Corporation of Saskatchewan Inc. Honourable Mention Petro-Canada Sustainable Development Reporting Award of Excellence Potash Corporation of Saskatchewan Inc. Honourable Mention TELUS Corporation

http://www.sedar.com/




















Suggested public sector annual reports You are encouraged to study the published financial statements of a variety of public sector entities and to evaluate them critically in terms of disclosure and style. In particular, observe the heavy reliance on the use of notes to provide adequate disclosure. The following public sector links offer examples. Government of Canada - 2008 Province of Alberta - 2008 Province of British Columbia - 2008 Province of Manitoba - 2008 Province of New Brunswick – 2008 Province of Newfoundland and Labrador – 2008: Volume 1 — Volume 2 Province of Nova Scotia – 2008 Province of Ontario - 2008 Province of Prince Edward Island - 2008 Province of Quebec – 2008: Volume 1 — Volume 2 Province of Saskatchewan - 2008 Canadian Award for Financial Reporting The Canadian Award for Financial Reporting program was established to encourage municipal governments throughout Canada to publish high quality financial reports and to provide peer recognition and technical guidance for officials preparing these reports. Click on the link below to find out the award winners for Fiscal Periods Ending in 2007. Canadian Award for Financial Reporting winners Cautionary note: The standards issued in Revision Release No. 23 to the CICA Public Sector Accounting Handbook require the adoption of the full accrual basis of accounting for local governments. As these new standards are effective for fiscal years beginning on or after January 1, 2009, the referenced statements do not fully reflect the adoption of the new standards. Nevertheless, these reports remain a valuable resource as they clearly demonstrate the form that well constructed financial statements and notes can take.

http://www.fin.gc.ca/afr-rfa/2008/afr2008_e.pdf

http://www.finance.alberta.ca/publications/annual_repts/finance/annrep08/annual_report.pdf

http://www.fin.gov.bc.ca/OCG/pa/07_08/PA_2008_Summary.pdf

http://www.oag.mb.ca/reports/public_accounts_2009.pdf

http://www.gnb.ca/0158/reports/annrep/0708/Annual_Report_07_08.pdf

http://www.fin.gov.nl.ca/comptrollergeneral/pubaccounts/2008/VolumeI-2007-08.pdf

http://www.fin.gov.nl.ca/comptrollergeneral/pubaccounts/2008/VolumeII-2007-08.pdf

http://www.gov.ns.ca/finance/site-finance/media/finance/2008vol1.pdf

http://www.fin.gov.on.ca/english/budget/paccts/2008/08_ar.html

http://www.gov.pe.ca/photos/original/pa_vol1_2008.pdf

http://www.finances.gouv.qc.ca/documents/Comptespublics/en/CPTEN_vol1-2007-2008.pdf

http://www.finances.gouv.qc.ca/documents/Comptespublics/en/CPTEN_vol2-2007-2008.pdf

http://finance.gov.sk.ca/annreport/2008FinanceAnnualReport.pdf

http://www.gfoa.org/index.php?option=com_content&task=view&id=36&Itemid=59

model financial statements

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