Office of the Superintendent of Financial Institutions ... · Intangible Assets 10 13,219 9,266...

Office of the Superintendent of Financial Institutions

FINANCIAL STATEMENTS

March 31, 2014

Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying financial statements for the year ended March 31, 2014and all information contained in these statements rests with the management of the Office of the Superintendent of FinancialInstitutions (OSFI). These financial statements have been prepared by management in accordance with InternationalFinancial Reporting Standards.

Some of the information in the financial statements is based on management's best estimates and judgment, and gives dueconsideration to materiality. To fulfill its accounting and reporting responsibilities, management maintains a set of accountsthat provides a centralized record of OSFI’s financial transactions.

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

Management seeks to ensure the objectivity and integrity of data in its financial statements through careful selection,training, and development of qualified staff; through an organizational structure that provides appropriate divisions ofresponsibility; through communication programs aimed at ensuring that regulations, policies, standards, and managerialauthorities are understood throughout OSFI; and through conducting an annual assessment of the effectiveness of the systemof internal control over financial reporting.

Under the responsibility of the Chief Financial Officer, an assessment for the year ended March 31, 2014 was completed inaccordance with the Treasury Board Secretariat’s Policy on Internal Control and the results and action plan are summarizedin the annex.

The system of internal control over financial reporting is designed to mitigate risks to a reasonable level based on an on-going process to identify key risks, to assess effectiveness of associated key controls, and to make any necessaryadjustments.

The effectiveness and adequacy of OSFI’s system of internal control is reviewed by the risk based work of internal auditstaff, who conduct periodic risk based audits of different areas of OSFI’s operations, and by OSFI’s Audit Committee,which oversees management's responsibilities for maintaining adequate control systems and the quality of financialreporting, and which reviews and provides advice to the Superintendent on the audited financial statements.

Deloitte LLP has audited the financial statements of OSFI and reports on their audit to the Minister of Finance. This reportdoes not include an audit opinion on the annual assessment of the effectiveness of OSFI's internal controls over financialreporting.

Michele Bridges, CGAChief Financial Officer

Julie DicksonSuperintendent of Financial Institutions

Ottawa, CanadaJune 19 2014

Deloitte LLP 1600 - 100 Queen Street Ottawa ON K1P 5T8 Canada Tel: 613 236 2442 Fax: 613 236 2195 www.deloitte.ca

INDEPENDENT AUDITOR’S REPORT To the Minister of Finance We have audited the accompanying financial statements of the Office of the Superintendent of Financial Institutions, which comprise the statement of financial position as at March 31, 2014, and the statement of operations, the statement of other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Office of the Superintendent of Financial Institutions as at March 31, 2014, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Chartered Accountants Licensed Public Accountants June 19, 2014 Ottawa, ON

Office of the Superintendent of Financial InstitutionsSTATEMENT OF FINANCIAL POSITIONAs at March 31, (in thousands of Canadian dollars)

Note 2014 2013

ASSETS

Current AssetsCash Entitlement $ 30,819 $ 48,147Trade and Other Receivables, net 7, 8 8,793 6,827Accrued Base Assessments 7 2,984 -Prepaid Expenses 1,201 889

Non-Current AssetsProperty, Plant and Equipment 9 6,905 6,077Intangible Assets 10 13,219 9,266

TOTAL ASSETS $ 63,921 $ 71,206

LIABILITIES AND EQUITY OF CANADA

Current LiabilitiesAccrued Salaries and Benefits 16 $ 13,848 $ 14,692Trade and Other Payables 8,16 4,769 4,900Unearned Base Assessments 16 3,043 4,919Unearned Pension Plan Fees 16 4,403 4,757Deferred Revenue 268 226

Employee Benefits – Sick Leave 11 5,876 5,387

Employee Benefits – Severance 11 698 6,327

Non-Current LiabilitiesEmployee Benefits – Severance 11 6,028 5,010

38,933 46,218

Equity of Canada Contributed Surplus 17 28,327 28,327Accumulated Deficit 17 (3,339) (3,339)

24,988 24,988

TOTAL LIABILITIES AND EQUITY OF CANADA $ 63,921 $ 71,206

Operating lease arrangements 15

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

Michele Bridges, CGA Julie DicksonChief Financial Officer Superintendent of Financial Institutions

Office of the Superintendent of Financial InstitutionsSTATEMENT OF OPERATIONS For the year ended March 31, (in thousands of Canadian dollars)

Note 20142013

(Restated - Note 4)

Regulation and Supervision of Federally RegulatedFinancial Institutions

Revenue 12, 13 $ 127,070 $ 113,967

Expenses 13 127,077 112,810

Net Results before Administrative Monetary Penalties Revenue (7) 1,157

Administrative Monetary Penalties Revenue 14 177 287Administrative Monetary Penalties Revenue Earned on Behalf of theGovernment (177) (287)

Net Results (7) 1,157

Regulation and Supervision of Federally Regulated PrivatePension Plans

Revenue 12, 13 7,196 6,905

Expenses 13 7,145 6,887

Net Results 51 18

Actuarial Valuation and Advisory Services

Revenue 12, 13 6,651 5,953

Expenses 13 7,645 6,786

Net Results (994) (833)

NET RESULTS OF OPERATIONS BEFOREGOVERNMENT FUNDING (950) 342

Government Funding 8 945 909

NET RESULTS OF OPERATIONS $ (5) $ 1,251


Office of the Superintendent of Financial InstitutionsSTATEMENT OF OTHER COMPREHENSIVE INCOME For the year ended March 31, (in thousands of Canadian dollars)

20142013

(Restated - Note 4)

NET RESULTS OF OPERATIONS $ (5) $ 1,251

OTHER COMPREHENSIVE INCOME

Other Comprehensive Income

Remeasurement Gains (Losses) on Defined Benefit Plans

Regulation and Supervision of Federally Regulated Financial Institutions 7 (1,157)

Regulation and Supervision of Federally Regulated Private Pension Plans (51) (18)

Actuarial Valuation and Advisory Services 49 (76)

Other Comprehensive Income 5 (1,251)

TOTAL COMPREHENSIVE INCOME $ - $ -


Office of the Superintendent of Financial InstitutionsSTATEMENT OF CHANGES IN EQUITYFor the year ended March 31, (in thousands of Canadian dollars)

ContributedSurplus

AccumulatedDeficit Total

Equity of Canada at March 31, 2012 $ 28,327 $ (3,339) $ 24,988

Net Results of Operations (Restated - Note 4) - 1,251 1,251

Other Comprehensive Income (Restated - Note 4) - (1,251) (1,251)

Total Comprehensive Income for the year ended March 31, 2013 - - -

Equity of Canada at March 31, 2013 28,327 (3,339) 24,988

Net Results of Operations - (5) (5)

Other Comprehensive Income - 5 5

Total Comprehensive Income for the year ended March 31, 2014 - - -

Equity of Canada at March 31, 2014 $ 28,327 $ (3,339) $ 24,988


Office of the Superintendent of Financial InstitutionsSTATEMENT OF CASH FLOWSFor the year ended March 31, (in thousands of Canadian dollars)

Note 2014 2013

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Receipts from Financial Institutions, Pension Plans and Other

Government Entities $ 140,186 $ 134,431

Cash Paid to Suppliers and Employees (148,778) (126,959)

Administrative Monetary Penalties Revenue

Remitted to the Consolidated Revenue Fund 14 (177) (287)

Net Cash Provided by (Used in) Operating Activities (8,769) 7,185

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of Property, Plant and Equipment 9 (3,293) (2,888)

Acquisition of Intangible Assets 10 (5,266) (5,231)

Net Cash Used in Investing Activities (8,559) (8,119)

NET DECREASE IN CASH ENTITLEMENT (17,328) (934)

CASH ENTITLEMENT, BEGINNING OF THE YEAR 48,147 49,081

CASH ENTITLEMENT, END OF THE YEAR $ 30,819 $ 48,147



NOTES TO THE FINANCIAL STATEMENTS

For the year ended March 31, 2014 (in thousands of Canadian dollars)

1. AUTHORITY AND OBJECTIVES

Mandate

The Office of the Superintendent of Financial Institutions (OSFI) was established by the Office of the Superintendentof Financial Institutions Act (OSFI Act) in 1987. Pursuant to the Financial Administration Act (FAA), OSFI is adivision of the Government of Canada for the purposes of that Act and is listed in schedule I.1 of the Act. TheGovernment of Canada is OSFI’s parent and the ultimate controlling party of OSFI.

In 1996, OSFI subsequently received a legislated mandate that clarified its objectives in the regulation andsupervision of federal financial institutions and private pension plans. In support of a safe and sound Canadianfinancial system, OSFI’s mandate under the legislation is to:

• Supervise federally regulated financial institutions (FRFIs) and private pension plans to determine whether theyare in sound financial condition and meeting minimum plan funding requirements respectively, and arecomplying with their governing law and supervisory requirements;

• Promptly advise institutions and plans in the event there are material deficiencies and take, or requiremanagement, boards or plan administrators to take, necessary corrective measures expeditiously;

• Advance and administer a regulatory framework that promotes the adoption of policies and procedures designedto control and manage risk;

• Monitor and evaluate system-wide or sectoral issues that may impact institutions negatively.

The Office of the Chief Actuary provides a range of actuarial valuation and advisory services, under the CanadaPension Plan Act and the Public Pensions Reporting Act to the Canada Pension Plan (CPP) and some federalgovernment departments, including the provision of advice in the form of reports tabled in Parliament.

Revenue and spending authority

Pursuant to Section 17 of the OSFI Act, the Minister of Finance may spend any revenues collected under Sections 23and 23.1 of the OSFI Act to defray the expenses associated with the operation of OSFI. The Act also establishes aceiling for expenses at $40 million above the amount of revenue collected to be drawn from the ConsolidatedRevenue Fund of Canada (CRF).

OSFI’s revenues comprise assessments, service charges and fees. The expenses against which assessments may becharged include those in connection with the administration of the Bank Act, the Cooperative Credit AssociationsAct, the Green Shield Canada Act, the Insurance Companies Act, the Protection of Residential Mortgage orHypothecary Insurance Act and the Trust and Loan Companies Act. The formula for the calculation of assessmentsis included in regulations.

Section 23 (2) of the OSFI Act provides that assessments may be charged for the administration of the PensionBenefits Standards Act, 1985 (PBSA, 1985) and the Pooled Registered Pension Plans Act. The assessments are setannually by regulation pursuant to Section 23 (2) of the OSFI Act.

Section 23.1 of the OSFI Act provides that the Superintendent may assess against a person a prescribed charge(“service charge”) and applicable disbursements for any service provided by or on behalf of the Superintendent forthe person's benefit or the benefit of a group of persons of which the person is a member. “Person” includesindividuals, corporations, funds, unincorporated associations, Her Majesty in Right of Canada or of a province, and aforeign government. The service charges are detailed in the regulations.




1. AUTHORITY AND OBJECTIVES (continued)

Pursuant to Section 16 of the OSFI Act, Parliament has provided annual appropriations to support the operations ofthe Office of the Chief Actuary.

2. BACKGROUND INFORMATION

The financial statements for the year ended March 31, 2014 were authorized for issue by the Superintendent ofFinancial Institutions on June 19, 2014. The head office is located at 255 Albert Street in Ottawa, Ontario, Canada.OSFI’s principal activities are described in Note 1.

3. BASIS OF PREPARATION

The financial statements have been prepared on a historical cost basis, except for cash entitlement which has beenmeasured at fair value.

The financial statements are presented in Canadian dollars as this is the currency of the primary economicenvironment in which OSFI operates.

Statement of compliance

The financial statements of OSFI have been prepared in accordance with International Financial Reporting Standards(IFRS) as issued by the International Accounting Standards Board (IASB). The accounting policies used in thefinancial statements are based on the IFRS applicable as at March 31, 2014, and encompasses individual IFRS,International Accounting Standards (“IAS”), and interpretations made by the International Financial ReportingInterpretations Committee (“IFRIC”) and the Standing Interpretations Committee (“SIC”). The policies set outbelow are consistently applied to all periods presented.

4. NEW AND AMENDED STANDARDS AND DISCLOSURES

During the fiscal year ended March 31, 2014, OSFI adopted certain IASB standards and amendments that requirerestatement of previous financial statements. These include IAS 19 Employee Benefits (Revised 2011) andamendments to IAS 1 Presentation of Financial Statements. Several other amendments apply for the first time in2013. However, they do not impact the annual financial statements of OSFI and do not require any restatement.

The nature and the impact of each new standard and amendment are described below:

(i) Fair value measurement

IFRS 13 Fair Value Measurement (“IFRS 13”), a comprehensive standard for fair value measurement anddisclosure requirements for use across all IFRS standards, was issued by the IASB on May 12, 2011. IFRS 13 doesnot modify when an entity is required to use fair value, but rather provides guidance on how to measure fair valueunder IFRS. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid totransfer a liability in an orderly transaction between market participants, at the measurement date. It also establishesdisclosures about fair value measurement. Application of IFRS 13 has not had any material impact on the fair valuemeasurements of OSFI.




4. NEW AND AMENDED STANDARDS AND DISCLOSURES (continued)

(ii) Presentation of items of other comprehensive income amendments to IAS 1

The amendments to IAS 1 Presentation of Financial Statements (“IAS 1”) include a requirement for entities togroup items presented in other comprehensive income on the basis of whether they are potentially eligible to bereclassified to net results in a future period (e.g. net unrealized gain or loss on Available For Sale financial assets), oritems not eligible (e.g., actuarial revaluation gains or losses on Defined Benefit Plans). As a result of adopting thisamendment in conjunction with the changes to employee benefits discussed below, OSFI now presents a separateStatement of Operations and a separate Statement of Other Comprehensive Income. Previously only one Statementof Operations and Total Comprehensive Income was presented. The amendments affect presentation only and haveno impact on OSFI's financial position or performance. The specific changes are discussed further below.

(iii) Accounting for employee benefits

OSFI applied IAS 19 Employee Benefits (Revised 2011) (“IAS 19”) retrospectively in the current period inaccordance with the transitional provisions set out in the revised standard. These changes affect the recognition ofactuarial gains and losses by removing the option to use the corridor approach and requiring immediate recognitionin Other Comprehensive Income (OCI). These OCI amounts cannot be reclassified to the Statement of Operationswhen the liability is ultimately settled. There are also changes to the recognition, measurement and presentation ofpast service costs, cost of benefits and finance expense or income relating to employee benefits. Further, terminationbenefits are recognized as a liability at the earlier of when the entity can no longer withdraw the offer of thetermination benefit or when it recognizes any related restructuring costs. There are additional disclosurerequirements with the revised standard.

OSFI applied the revised standard retrospectively. The application of the revised standard in conjunction with thefinancial statement presentation changes arising from the adoption of the amendments to IAS 1 discussed above hadthe following impacts on OSFI's 2013 comparative annual results:

Net Results increased by $1,251 as a result of actuarial losses on defined benefit plans that are now

recognized in OCI.

OCI decreased by the actuarial losses of $1,251 now presented in the Statement of Other Comprehensive

Income.

As OSFI did not previously use the corridor approach, this change is a reclassification only. The sum of net

results now presented in the Statement of Operations and OCI presented in the Statement of Other

Comprehensive Income equals the Net Results and Total Comprehensive Income previously presented in

the combined Statement of Operations and Total Comprehensive Income.

Comparatives as at April 1, 2012 in the Statement of Financial Position are not presented as there is noimpact on this statement by the aforementioned.

There is no change in total equity however the Statement of Changes in Equity now presents the Results of

Operations and OCI separately.

Note 13 has been restated to remove actuarial losses on defined benefit plans of $1,251 from Human

Resource Costs, as they are no longer classified as expenses and rather as OCI.




4. NEW AND AMENDED STANDARDS AND DISCLOSURES (continued)

New standards and interpretations not yet adopted

(i) Financial Instruments

IFRS 9 Financial Instruments (“IFRS 9”) was issued by the IASB in November 2009 and revised on October 28,2010, and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a single approachto determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its businessmodel, and on the contractual cash flow characteristics of its financial assets. Two measurement categories continueto exist to account for financial liabilities in IFRS 9, "fair value through net results" (“FVTNR”) and amortized cost.Financial liabilities held for trading are measured at FVTNR, and all other financial liabilities are measured atamortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standardis consistent with IAS 39 and is applied to financial liabilities and non-derivative hosts not within the scope of thestandard. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted.At this time, management has determined that the impact of IFRS 9 on the financial statements of OSFI is notexpected to be significant.

(ii) Revenue

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 replacesIAS 18 Revenue, IAS 11 Construction Contracts and related Interpretations. The core principle of the guidance isthat an entity should recognize revenue to depict the transfer of promised goods or services to customers in anamount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices. IFRS 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that werenot previously addressed comprehensively (for example, service revenue and contract modifications) and improveguidance for multiple-element arrangements. This guidance is effective for reporting periods beginning on or afterJanuary 1, 2017 and early application is permitted. OSFI plans to adopt IFRS 15 beginning April 1, 2017, and iscurrently assessing the potential effects of these changes on its financial statements.

5. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of OSFI are set out below:

a) Cash entitlement (Cash overdraft)

OSFI does not have its own bank account. The financial transactions of OSFI are processed through the CRF. Cashentitlement represents the maximum amount OSFI is entitled to withdraw from the CRF without further authority.

OSFI has a statutory revolving expenditure authority pursuant to Section 17.4 of the OSFI Act. This authorityenables OSFI to draw up to $40 million from the CRF to ensure availability of funds prior to receipt of revenue.Drawings on this facility are presented as cash overdraft.

No interest is earned or charged on these amounts.




5. SIGNIFICANT ACCOUNTING POLICIES (continued)

b) Financial instruments

The classification of financial instruments is determined by OSFI at initial recognition and depends on the purposefor which the financial assets were acquired, or liabilities were incurred. All financial instruments are recognizedinitially at fair value. The fair value of financial instruments on initial recognition is based on the transaction price,which represents the fair value of the consideration given or received. Subsequent to initial recognition, financialinstruments are measured based on the accounting treatment corresponding to their classification.

Classification Accounting Treatment

Fair Value Through NetResults

Cash Entitlement is classified as “Fair Value Through Net results”.

Cash Entitlement is measured at fair value.

Loans and Receivables Trade and Other Receivables and Accrued Base Assessments are classified as“Loans and Receivables”.

Loans and Receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market.

Subsequent to initial recognition at fair value, Loans and Receivables are measuredat amortized cost using the effective interest method, less impairment, if any. Anygain, loss or interest income is recorded in revenues or expenses depending on thenature of the loan and receivable that gave rise to the gain, loss or income.

Financial LiabilitiesMeasured at Amortized Cost

Accrued Salaries and Benefits, Trade and Other Payables excluding employer’scontributions for employee benefit plans, Unearned Base Assessments, andUnearned Pension Plan Fees are classified as “Financial Liabilities Measured atAmortized Cost”.

Financial Liabilities Measured at Amortized Cost are non-derivative financialliabilities that have not been designated as Financial Liabilities at fair value throughnet results.

Subsequent to initial recognition at fair value, Financial Liabilities are measured atamortized cost using the effective interest method. Any gain, loss or interestexpense is recorded in revenues or expenses depending on the nature of thefinancial liability that gave rise to the gain, loss or expense.

Impairment of financial assets

OSFI assesses at each reporting date whether there is any objective evidence that a financial asset or a group offinancial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if,there is objective evidence of impairment as a result of one or more events that has occurred after the initialrecognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flowsof the financial asset or the group of financial assets that can be reliably estimated.

For financial assets carried at amortized cost, OSFI first assesses individually whether objective evidence ofimpairment exists individually for financial assets that are individually significant, or collectively for financial assetsthat are not individually significant. If OSFI determines that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, it includes the asset in a group of financial assetswith similar credit risk characteristics and collectively assesses them for impairment. Assets that are individuallyassessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a





collective assessment of impairment. If there is objective evidence that an impairment loss has occurred, the amountof the loss is measured as the difference between the asset’s carrying amount and the present value of estimatedfuture cash flows (excluding future expected credit losses that have not yet been incurred). The present value of theestimated future cash flows is discounted at the financial asset’s original effective interest rate.

If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an eventoccurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced byadjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the Statement ofOperations.

c) Property, plant and equipment

Property, plant and equipment are stated at historical cost, net of accumulated depreciation and/or accumulatedimpairment losses, if any. Historical cost includes the costs of replacing parts of property and equipment whenincurred, if the recognition criteria are met. Repair and maintenance costs are recognized in the Statement ofOperations as incurred.

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows:

Assets Useful Life

Leasehold improvements Lesser of useful life or remaining term of the leaseFurniture and fixtures 7 yearsOffice equipment 4 yearsInformatics hardware 3 or 5 yearsInformatics infrastructure (Networks) 4 or 5 yearsInformatics software 5 years

Software is capitalized as property, plant and equipment when the software is integral to the use of the relatedhardware.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end andadjusted prospectively if appropriate.





d) Intangible assets

Intangible assets consist of internally developed and externally purchased software that is not an integral part of therelated hardware.

Following initial recognition of the development expenditure as an asset, the historical cost model is appliedrequiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses, ifany. Intangible assets acquired separately are measured on initial recognition at cost. The cost of internallydeveloped software consists of directly attributable costs necessary to create, produce, and prepare the software to becapable of operating in the manner intended by OSFI.

OSFI holds intangible assets that have finite lives and are amortized over the useful economic life and assessed forimpairment whenever there is an indication that the intangible asset may be impaired. The amortization period andthe amortization method are reviewed at least at each financial year end. Amortization is calculated using thestraight-line method over their estimated useful lives of five years and is recorded in the relevant expense line itemdepending on the business activity to which the expense pertains.

Amortization of the assets begins when development is complete and the assets are available for use. They areamortized over the period of expected future benefit.

Costs incurred during the pre-development stage are expensed in the period incurred.

e) Impairment of non-financial assets

OSFI assesses at each reporting date whether there are any internal indicators that an asset may be impaired (e.g.damaged assets or assets no longer being used). If any indication exists, or when annual impairment testing for anasset is required, OSFI estimates the asset’s recoverable amount.

An asset's recoverable amount is the higher of an asset’s fair value less cost to sell and its value in use. Where thecarrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down toits recoverable amount. There is no risk of not recovering the carrying amount of the asset given OSFI’s ability torecover all costs from federally regulated financial institutions and federally regulated private pension plans.

OSFI assesses internally developed intangible assets not yet in use for impairment on an annual basis.

f) Employee benefits

i. Short term benefits

Short term benefits are recorded in the Statement of Operations when an employee has rendered the service. Unpaidshort-term compensated leave that has vested at the reporting date is accrued at year end and not discounted. Short-term compensated leave expected to occur within twelve months of the reporting date is classified as short-term

employee benefits. OSFI contributes to the Government of Canada sponsored Public Service Health Care Plan andDental Service Plan for employees. These contributions represent the total obligation of OSFI with respect to theseplans.





ii. Post employment benefits

Pension benefitsSubstantially all of the employees of OSFI are covered by the public service pension plan (the “Plan”), acontributory defined benefit plan established through legislation and sponsored by the Government of Canada.Contributions are required by both the employees and OSFI to cover current service cost. Pursuant to legislationcurrently in place, OSFI has no legal or constructive obligation to pay further contributions with respect to anypast service or funding deficiencies of the Plan. Consequently, contributions are recognized as an expense in theyear when employees have rendered service and represent the total pension obligation of OSFI.

Severance On termination of employment, employees are entitled to certain benefits provided for under their conditions ofemployment through a severance benefits plan. The cost of these benefits is accrued as the employees render theirservices necessary to earn severance benefits. The severance benefits are based upon the final salary of theemployee.

The cost of benefits is actuarially determined as at March 31 of each year using the projected benefit methodprorated on services. The obligation is unfunded. The calculation of the liability is based upon a current marketdiscount rate which is based on the market yields at the valuation date on high quality corporate bonds and otheractuarial assumptions, which represent management’s best long-term estimates of factors such as future wageincreases and employee departure rates. All actuarial gains (losses) are recognized in the Statement of OtherComprehensive Income in the period in which they arise.

Other benefitsThe Government of Canada sponsors a variety of other benefit plans from which former employees may benefit uponretirement. The Public Service Health Care Plan and the Pensioners’ Dental Service Plan are the two major plansavailable to OSFI retirees. These are defined benefit plans sponsored by the Government of Canada. Contributionsare required by OSFI to cover current service cost. Pursuant to legislation currently in place, OSFI has no legal orconstructive obligation to pay further contributions with respect to any past service or funding deficiencies of thePlan. Consequently, contributions are recognized as an expense in the year when employees have rendered serviceand represent the total obligation of OSFI with respect to these plans.

iii. Other long-term benefits

Sick leaveEmployees are eligible to accumulate sick leave until retirement or termination. Unused sick leave is not eligible forpayment on retirement or termination, nor can it be used as vacation. All sick leave is an accumulating non-vestingbenefit. A liability is recorded for sick leave balances expected to be taken in excess of future allotments.

The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. Anygains and losses are recognized in the Statement of Operations in the period in which they arise.





g) Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor areclassified as operating leases. Payments under operating leases (net of any incentives received from thelessor) are charged to the Statement of Operations on a straight-line basis over the period of the lease.

OSFI does not have borrowing authority and therefore cannot enter into lease agreements that are classified asfinance leases. OSFI has established procedures to review all lease agreements and identify if the proposed termsand conditions would result in a transfer to OSFI of substantially all the benefits and risks incidental to ownership.

OSFI records the costs associated with operating leases in the Statement of Operations in the period in which theyare incurred.

h) Statement of Operations

The format of the Statement of Operations has been designed to show the revenues and expenses by each of OSFI’sbusiness lines. It is considered that this format best represents the nature of the activities of OSFI. Expenses havebeen disclosed by nature in Note 13 of these financial statements.

i) Revenue recognition

OSFI recognizes revenue so as to recover its expenses. Any amounts that have been billed for which costs have notbeen incurred are classified as unearned on the statement of financial position. Revenue is recorded in theaccounting period in which it is earned (service provided) whether or not it has been billed or collected. At the endof the period, amounts may have been collected in advance of the incurrence of costs or provision of services, oralternatively, amounts may not have been collected and are owed to OSFI.

Base Assessments – Revenue from base assessments is recognized based on actual costs incurred as services arecharged based on cost recovery and all costs are considered recoverable. Base Assessments are billed annuallybased on an estimate of the current fiscal year’s operating costs (an interim assessment) together with a finalaccounting of the previous year’s assessment for actual costs incurred. Assessments are calculated prior toDecember 31 of each year, in accordance with Section 23(1) of the OSFI Act and the Assessment of FinancialInstitutions Regulations, 2001. Differences between billed estimates and actual cost incurred at the end of the periodare recorded as accrued base assessments or unearned base assessments.

Pension Plan Fees are earned from registered pension plans. Fee rates are set annually by regulation based onbudgeted expenses, pension plan membership and actual results from previous years. Pension plan fees are chargedin accordance with Section 23(2) of the OSFI Act. Revenue from pension plan fees is recognized based on actualcosts incurred as services are charged based on cost recovery and all costs are considered recoverable. Differencesbetween the amounts billed to industry and actual cost incurred at the end of the period are recorded as accruedpension plan fees or unearned pension plan fees.





User Fees and Charges include revenue earned pursuant to the Charges for Services Provided by the Office of theSuperintendent of Financial Institutions Regulations, 2002 – as amended from time to time – in respect of legislativeapprovals and approvals for supervisory purposes, and surcharges assessed to federally regulated financialinstitutions assigned a “stage” rating pursuant to the Guide to Intervention for Federal Financial Institutions.Assessment surcharges are charged in accordance with the Assessment of Financial Institutions Regulations, 2001.Revenue from user fees and charges is recognized by reference to the stage of completion of the service. Percentageof completion is measured based on actual services performed to date as a percentage of total services to becompleted.

Administrative Monetary Penalties are penalties levied to financial institutions when they contravene a provision of afinancial institutions Act and are charged in accordance with the Administrative Monetary Penalties (OSFI)Regulations. Penalties levied are not available to reduce the net costs that OSFI assesses the industry (i.e., they arenon-respendable) and are remitted to the CRF when collected. OSFI assesses its Administrative Monetary Penaltyrevenue against specific criteria in order to determine if it is acting as principal or agent. OSFI has concluded that itis acting as a principal for Administrative Monetary Penalty revenue.

Cost-Recovered Services represent revenue earned from sources other than those listed above. These services areprovided in accordance with the terms and conditions agreed to by the transacting parties. Revenue from cost-recovered services is recognized based on actual costs incurred and all costs are considered recoverable.Revenue and the matching expenses from cost recovered services not specifically related to the Regulation andSupervision of Federally Related Pension Plans or Actuarial Valuation and Advisory Services are grouped withthe Regulation and Supervision of Federally Regulated Financial Institutions on the Statement of Operations.This includes costs recovered from other government entities such as the Canada Mortgage and HousingCorporation for OSFI's supervisory oversight in accordance with the National Housing Act.

j) Provisions

Provisions are recognized when OSFI has a present obligation (legal or constructive) as a result of a past event, it isprobable that an outflow of resources embodying economic benefits will be required to settle the obligation and areliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented inthe Statement of Operations. If the effect of the time value of money is material, provisions are discounted using arate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in theprovision due to the passage of time is recognized in net results.

k) Government funding

Government funding, including parliamentary appropriations, is recognized when there is reasonable assurance thatthe funding will be received and all attached conditions will be complied with. When the funding relates to anexpense item, it is recognized in net results over the period necessary to match the funding on a systematic basis tothe costs that it is intended to compensate. The funding and the corresponding expense item are recognized at theirgross amounts.




6. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of OSFI’s financial statements requires management to make judgments, estimates and assumptionsthat affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingentliabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomesthat require a material adjustment to the carrying amount of the asset or liability, in which case the impact will berecognized in the financial statements of a future fiscal period.

Judgments

In the process of applying its accounting policies, management has made the following judgments that have the mostsignificant effect on the amounts recognized in the financial statements:

Recognition of Internally Developed Software

The accounting policy relating to OSFI’s intangible assets is described in Note 5 (d). In applying this policy,judgment is used in determining whether the internally developed software meets the criteria for recognition as anasset. If an asset has been developed, judgment is required to identify the point at which the asset is capable of beingused as intended and to identify the directly attributable costs to be included in the carrying value of the developedasset.

Operating lease commitments – OSFI as lessee

Public Works and Government Services Canada (PWGSC) enters into commercial property leases for OSFI's officespace and recovers such cost from OSFI. OSFI also enters into leases for certain office equipment. OSFI hasdetermined, based on an evaluation of the terms and conditions of the arrangements, that significantly all of the risksand rewards of ownership have not been transferred to OSFI and as such accounts for these contracts as operatingleases.

Administrative monetary penalty revenue – OSFI as principal

OSFI collects administrative monetary penalties from financial institutions when they contravene a provision of afinancial institutions Act. OSFI has determined that it is the principal in the arrangement and has recorded theadministrative monetary penalties as revenue.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty as at the Statement ofFinancial Position date that have a significant risk of causing a material adjustment to the carrying amounts of assetsand liabilities within the next financial year are discussed below:

Estimated useful lives of assets

The estimated useful lives of property, plant and equipment and intangible assets are based on management’sintentions with respect to the asset, historical experience with the asset, internal asset management plans and otherfactors as determined by management. The useful lives are reviewed on an annual basis and any revisions to theuseful lives are accounted for prospectively.




6. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS(continued)

Severance benefits

The cost of the defined benefit severance plan as well as the present value of the obligation is determined using anactuarial valuation. The actuarial valuation involves making assumptions about discount rates, future salaryincreases, and departure rates. All assumptions are reviewed annually as at March 31. In determining theappropriate discount rate, management considers the interest rates of corporate bonds in Canada with AAA or AAratings and with maturities matching the estimated cash flows of the severance payments. Departure rates are basedon experience from the public service of Canada and include mortality, disability, termination and retirement. Futuresalary increases are based on expected future inflation rates in Canada.

Further details about the assumptions used are given in Note 11 (a).

Sick leave

The cost of sick leave as well as the present value of the obligation is determined using an actuarial valuation. Theactuarial valuation involves making assumptions about discount rates, future salary increases, usage rates, anddeparture rates. All assumptions are reviewed annually as at March 31. In determining the appropriate discountrate, management considers the interest rates of corporate bonds in Canada with AAA or AA ratings and withmaturities matching the estimated sick leave usage. Departure rates are based on experience from the public serviceof Canada and include mortality, disability, termination and retirement. Future salary increases are based onexpected future inflation rates in Canada.

Discount Rates

Since the estimated future cash flows of severance payments and estimated sick leave usage are unrelated, thediscount rates determined above may differ.




7. TRADE AND OTHER RECEIVABLES

The breakdown of all amounts owing to OSFI, by type is as follows:

FederallyRegulatedFinancial

Institutions

FederallyRegulated

PrivatePension

Plans

ActuarialValuation

andAdvisoryServices Other

TotalMarch 31,

2014

Trade Receivables $ 118 $ 427 $ - $ 123 $ 668User Fees and Charges 3,757 - - - 3,757Cost Recovered Services

and Other 74 - - 103 177Related Parties - - 986 3,534 4,520

Trade and Other Receivables, gross 3,949 427 986 3,760 9,122Allowance for Doubtful Accounts (84) (245) - - (329)

Trade and Other Receivables, net 3,865 182 986 3,760 8,793Accrued Base Assessments 2,984 - - - 2,984

Total $ 6,849 $ 182 $ 986 $ 3,760 $ 11,777

% of Total Exposure %58.3 %1.5 %8.4 %31.9 %100.0

FederallyRegulatedFinancial

Institutions

FederallyRegulated

PrivatePension

Plans

ActuarialValuation

andAdvisoryServices Other

TotalMarch 31,

2013

Trade Receivables $ 57 $ 378 $ 51 $ 225 $ 711User Fees and Charges 3,892 - - - 3,892Cost Recovered Services

and Other 189 - - 381 570Related Parties - - 167 1,792 1,959

Trade and Other Receivables, gross 4,138 378 218 2,398 7,132Allowance for Doubtful Accounts (63) (242) - - (305)

Trade and Other Receivables, net $ 4,075 $ 136 $ 218 $ 2,398 $ 6,827

% of Total Exposure %59.7 %2.0 %3.2 %35.1 %100.0




7. TRADE AND OTHER RECEIVABLES (continued)

The majority of OSFI's revenue is comprised of assessments which are invoiced once a year, usually in the secondquarter. As a result, Trade Receivables balances will vary significantly during the year and may also vary from yearto year depending on the timing of the invoicing.

OSFI records an allowance for doubtful accounts considering the age of an outstanding receivable and the likelihoodof its collection. An allowance for doubtful accounts is also made where collection of the receivable is doubtfulbased on information gathered through collection efforts. An allowance is reversed once collection of the debt issuccessful or the amount is written off. Impairment losses on trade and other receivables recognized during the yearended March 31, 2014 were $93 (2013: $160). Recoveries during the same period totaled $69 (2013: $69).

A receivable will be considered to be impaired and written off when OSFI is certain that collection will not occurand all requirements of the OSFI Act or the Debt Write-Off Regulations, 1994 have been met. During the year, nointerest was earned on impaired assets and none of the past due amounts were renegotiated. Those that are neitherpast due nor provided for or impaired are considered to be fully collectible.

The aging of non-related party trade receivables was as follows (for terms and conditions relating to related partyreceivables, refer to Note 8:

Days outstanding Current 31-60 61-90 91-120 > 120 Total

March 31, 2014 $ 157 $ - $ 39 $ 47 $ 425 $ 668

March 31, 2013 $ 352 $ 26 $ 10 $ 29 $ 294 $ 711

Refer to Note 16 (b) for further information on credit risk applicable to OSFI.

8. RELATED PARTY TRANSACTIONS

a) The ultimate parent

The Government of Canada is the ultimate parent of OSFI, and has control over OSFI.




8. RELATED PARTY TRANSACTIONS (continued)

b) Compensation of Key Management Personnel

Key Management Personnel includes the following positions: the Superintendent, Deputy Superintendents, AssistantSuperintendent, the Chief Actuary and all Senior and Managing Directors or equivalent level positions at OSFI.Total compensation paid to key management personnel for the year ended March 31 is provided in the table below.

2014 2013

Short-term employee benefits (including salaries) $ 12,425 $ 12,586Post-employment benefits 4,626 4,807Other long-term benefits 181 193

Total $ 17,232 $ 17,586

Average Number of Employees 48 50

c) Government related entities

OSFI is related, in terms of common ownership, to all Government of Canada departments, agencies and crowncorporations. OSFI enters into transactions with these entities in the normal course of business and on normal tradeterms. These transactions are measured at the exchange amount, which is the amount of consideration establishedand agreed to by the related parties.

During the year ended March 31, 2014, OSFI purchased goods and services for $37,521 (2013 - $33,017) andearned revenue of $12,032 (2013 - $8,688) from transactions with other government entities. Although mosttransactions are not individually significant, OSFI did have the following individually significant transactions:

Entity Nature2014

Expenditure2014

Payable2013

Expenditure2013

Payable

Treasury BoardSecretariat

Pension contributions,other employee benefitsand other services $ 22,418 $ 1,625 $ 19,464 $ 1,056

Public Works andGovernment ServicesCanada Rent and other services $ 10,290 $ 312 $ 9,629 $ 25

Entity Nature2014

Revenue2014

Receivable2013

Revenue2013

Receivable

Canada Mortgage andHousing Corporation Cost recovered services $ 3,216 $ 3,216 $ 1,101 $ 1,101

Human Resources andSkills DevelopmentCanada

Actuarial valuation andadvisory services $ 3,741 $ - $ 3,083 $ -

As at March 31, 2014, the amounts of trade and other receivables and trade and other payables from these relatedparties are $4,520 (2013 - $1,959) and $3,031 (2013 - $1,819), respectively.




8. RELATED PARTY TRANSACTIONS (continued)

OSFI receives an annual parliamentary appropriation pursuant to Section 16 of the OSFI Act to support its mandaterelating to the OCA. In the year ended March 31, 2014 OSFI was granted $945 (2013 - $909) which was recognizedinto net results and shown on the Statement of Operations. There are no unfulfilled conditions or contingenciesattached to this appropriation.

9. PROPERTY, PLANT AND EQUIPMENT

CostLeasehold

improvementsFurniture

and fixturesOffice

equipmentInformatics

hardwareInformatics

infrastructure Total

Balance at March 31, 2012 $ 7,165 $ 4,823 $ 915 $ 1,652 $ 3,048 $ 17,603Additions 1,558 117 361 383 469 2,888Disposals - - (218) (58) (479) (755)

Balance at March 31, 2013 $ 8,723 $ 4,940 $ 1,058 $ 1,977 $ 3,038 $ 19,736Additions 1,782 469 257 617 168 3,293

Balance at March 31, 2014 $ 10,505 $ 5,409 $ 1,315 $ 2,594 $ 3,206 $ 23,029

Accumulated depreciation

Balance at March 31, 2012 $ 5,297 $ 3,788 $ 358 $ 1,415 $ 1,349 $ 12,207Disposals - - (218) (58) (479) (755)Depreciation expense 1,020 308 189 142 548 2,207

Balance at March 31, 2013 $ 6,317 $ 4,096 $ 329 $ 1,499 $ 1,418 $ 13,659

Depreciation expense 1,307 241 223 56 638 2,465

Balance at March 31, 2014 $ 7,624 $ 4,337 $ 552 $ 1,555 $ 2,056 $ 16,124

Net book value

Balance at March 31, 2013 $ 2,406 $ 844 $ 729 $ 478 $ 1,620 $ 6,077Balance at March 31, 2014 $ 2,881 $ 1,072 $ 763 $ 1,039 $ 1,150 $ 6,905

None of the assets held have any restriction on title and none of the assets have been pledged as security forliabilities. As at March 31, 2014 OSFI had $6,559 of property, plant and equipment at cost that were fullydepreciated and still in use. These assets are near the end of their useful life and are scheduled to be replaced. Theirfair value is insignificant.




10. INTANGIBLE ASSETS

Externallypurchased

software

Internallydeveloped

software

Internallydeveloped

software underdevelopment Total

Cost:Balance at March 31, 2012 $ 10,455 $ 1,756 $ 3,769 $ 15,980Additions 292 - 4,939 5,231Transfer to "in use" - 2,734 (2,734) -Disposals (20) (216) - (236)

Balance at March 31, 2013 $ 10,727 $ 4,274 $ 5,974 $ 20,975Additions 89 - 5,177 5,266Transfer to "in use" - 3,710 (3,710) -Disposals - (369) - (369)

Balance at March 31, 2014 $ 10,816 $ 7,615 $ 7,441 $ 25,872

Accumulated amortization:

Balance at March 31, 2012 $ 9,302 $ 1,458 $ - $ 10,760Amortization 705 480 - 1,185Disposals (20) (216) - (236)

Balance at March 31, 2013 $ 9,987 $ 1,722 $ - $ 11,709Amortization 248 1,065 - 1,313Disposals - (369) - (369)

Balance at March 31, 2014 $ 10,235 $ 2,418 $ - $ 12,653

Net book value:

Balance at March 31, 2013 $ 740 $ 2,552 $ 5,974 $ 9,266Balance at March 31, 2014 $ 581 $ 5,197 $ 7,441 $ 13,219

The internally developed software under development was assessed for impairment at March 31, 2014 and noimpairment was recognized. As at March 31, 2014 OSFI had $11,127 of intangible assets at cost that were fullyamortized and still in use. These assets are near the end of their useful life and are scheduled to be replaced. Theirfair value is insignificant.




11. EMPLOYEE BENEFITS

a) Post-employment benefits

i. Pension benefits

Substantially all of the employees of OSFI are covered by the public service pension plan (the “Plan”), acontributory defined benefit plan established through legislation and sponsored by the Government of Canada.Contributions are required by both the employees and OSFI. The President of the Treasury Board of Canada sets therequired employer contributions based on a multiple of the employees’ required contribution. The generalcontribution rate effective as at March 31, 2014 was 11.885 % (2013 - 12.062 %). Total contributions of $10,092(2013 - $9,074) were recognized as expense in the year ended March 31, 2014.

The Government of Canada holds a statutory obligation for the payment of benefits relating to the Plan. Pensionbenefits generally accrue up to a maximum period of 35 years at an annual rate of 2 percent of pensionable servicetimes the average of the best five consecutive years of earnings. The benefits are coordinated with Canada/QuébecPension Plan benefits and they are indexed to inflation.

ii. Severance benefits

Information about OSFI’s severance benefit plan is presented in the tables below.

March 31, 2014

March 31,2013

Accrued Benefit Obligation, beginning of the year $ 11,337 $ 9,487Current service cost 101 738Interest cost 314 374Curtailment loss - 396Benefits paid (5,021) (909)

Actuarial (gain) / loss (5) 1,251Accrued Benefit Obligation, end of the year1 6,726 11,337

Current Portion of Accrued Benefit Obligation, end of the year 698 6,327Long-term Portion of Accrued Benefit Obligation, end of the year 6,028 5,010

Accrued Benefit Obligation, end of the year1 6,726 11,337

1 The cost corresponding to annual changes in the accrued benefit liability is recovered from OSFI's various sources of revenue outlined inNote 5 (i) to the financial statements. Amounts collected in excess of benefits paid are presented on the statement of financial position under theheading of Cash Entitlement.




11. EMPLOYEE BENEFITS (continued)

Net Benefit Plan Cost - SeveranceMarch 31,

2014March 31,

2013

Current service cost $ 101 $ 738 Interest cost 314 374 Curtailment loss - 396

Actuarial (gain) / loss (5) 1,251

Benefit Cost $ 410 $ 2,759

Annually as at March 31, OSFI obtains an actuarial valuation of its accrued benefit obligation. Actuarialassumptions are reviewed at each valuation date. Cumulative actuarial losses recorded in net results since April 1,2010, the date of OSFI’s transition to IFRS, are $2,577 (2013 - $2,582).

The significant actuarial assumption adopted in measuring OSFI’s accrued benefit obligation is a discount rate of3.70% (2013 - 3.55%,). For measurement purposes, management’s best estimate for the general salary increases toestimate the current service cost and the accrued benefit obligation as at March 31, 2014 is an annual economicincrease of 1.0% for the plan year 2015 and 1.5% for 2016 (2013 - 2.0% for the plan year 2013 and 2014).Thereafter, an annual economic increase of 1.5% is assumed (2013 - 2.0%). The average remaining service periodof active employees covered by the benefit plan is 14 years (2013 - 14 years).

Amounts for the current and previous four periods are as follows:

Employee Benefits - Severance Accrued benefitobligation

Actuarial (gains)losses recognized during the period

March 31, 2014 $ 6,726 $ (5)March 31, 2013 11,337 1,251March 31, 2012 9,487 1,015March 31, 2011 9,210 316April 1, 2010 8,319 -

Curtailment

Effective September 30, 2011, OSFI modified its severance plan for executive level employees. All executive levelemployees ceased accumulating benefits under the severance plan. Employees were given three options with respectto the benefits accumulated under this plan. The choices were to take the severance earned to date immediately as acash payment, continue to defer payment until retirement or voluntary departure, or a combination of the latter twooptions.

Effective March 31, 2013, OSFI modified its severance plan. All employees represented by the ProfessionalInstitute of the Public Service of Canada (PIPSC) union ceased accumulating severance benefits for voluntarydeparture. Employees within this group were given the same three options with respect to the benefits accumulatedunder this plan. Current service cost for the period ending March 31, 2014 includes the severance costs forvoluntary departure for employees covered by the Public Sector Alliance of Canada union and severance costs forinvoluntary departure for all employees. The benefits paid during the year of $5,021 include payments to employeeswho chose an immediate settlement.





Sensitivity Analysis

The discount rate used to estimate the present value of the severance benefit obligation has a significant effect on theobligation at the end of the year, as well as on the current service and interest costs. A 1.0% change in the discountrate would have had the following effects for 2014.

Change in discount rate of 1.0% Increase Decrease

Accrued benefit obligation $ (447) $ 513

These sensitivities are hypothetical and should be used with caution. The relationship of a change in assumption tothe change in value may not be linear. Changes in one factor may result in changes in another which may magnify orcounteract the sensitivities.

b) Other long-term benefits

i. Sick leave

Information about OSFI’s sick leave plan is presented in the table below.

March 31, 2014

March 31,2013

Accrued Benefit Obligation, beginning of the year $ 5,387 $ 3,505Current service cost 649 415Interest cost 201 136Benefits used (560) (526)

Actuarial loss 199 1,857Accrued Benefit Obligation, end of the year1 5,876 5,387

1 The cost corresponding to annual changes in the accrued benefit liability is recovered from OSFI's various sources of revenue outlined inNote 5 (i) to the financial statements. Amounts collected in excess of benefits paid are presented on the statement of financial position under theheading of Cash Entitlement.

Net Benefit Plan Expense - Sick leave

March 31, 2014

March 31, 2013

Current service cost $ 649 $ 415 Interest cost 201 136

Actuarial loss 199 1,857

Benefit Cost $ 1,049 $ 2,408





Annually as at March 31, OSFI obtains an actuarial valuation of its accrued benefit obligation. Actuarialassumptions are reviewed at each valuation date. Cumulative actuarial (gains) losses recorded in net results sinceApril 1, 2010, the date of OSFI’s transition to IFRS is $2,415 (2013 - $2,216).

The significant actuarial assumption adopted in measuring OSFI’s accrued benefit obligation is a discount rate of3.99% (2013 - 3.73%). For measurement purposes, management’s best estimate for the general salary increases toestimate the current service cost and the accrued benefit obligation as at March 31, 2014 is an annual economicincrease of 1.0% for the plan year 2014 and 1.5% for 2015 (2013 - 2.0% for the plan year 2013 and 2014).Thereafter, an annual economic increase of 1.5% is assumed (2013 - 2.0%). The average remaining service periodof active employees covered by the benefit plan is 14 years (2013 - 14 years).

Amounts for the current and previous four periods are as follows:

Employee Benefits - Sick Leave Accrued benefitobligation

Actuarial losses(gains) recognizedduring the period

March 31, 2014 $ 5,876 $ 199March 31, 2013 5,387 1,857March 31, 2012 3,505 531March 31, 2011 2,768 (172)April 1, 2010 2,679 -

Sensitivity Analysis

The discount rate and sick leave usage rate used to estimate the present value of the sick leave obligation has asignificant effect on the obligation at the end of the year, as well as on the current service and interest costs. A 1.0%change in the discount rate or the sick leave usage rate would have had the following effects for 2014.

Change in discount rate of 1.0% Increase Decrease

Accrued benefit obligation $ (494) $ 579

Change in the sick leave usage rate of 1.0% Increase Decrease

Accrued benefit obligation $ 280 $ (280)

These sensitivities are hypothetical and should be used with caution. The relationship of a change in assumption tothe change in value may not be linear. Changes in one factor may result in changes in another which may magnify orcounteract the sensitivities.




12. REVENUE AND TOTAL COSTS BY BUSINESS ACTIVITY

Revenue by Business Activity

March 31, 2014Base

Assessments

Cost-Recovered

Services Pension

Plan Fees

User Feesand

Charges Total

Regulation and Supervision ofFederally Regulated FinancialInstitutions $ 118,549 $ 4,197 $ - $ 4,324 $ 127,070

Regulation and Supervision of FederallyRegulated Private Pension Plans - - 7,196 - 7,196

Actuarial Valuation and AdvisoryServices - 6,651 - - 6,651

TOTAL REVENUE EARNED FROMRESPENDABLE SOURCES $ 118,549 $ 10,848 $ 7,196 $ 4,324 $ 140,917

March 31, 2013Base

Assessments

Cost-Recovered

ServicesPension

Plan Fees

User Fees and

Charges Total

Regulation and Supervision ofFederally Regulated FinancialInstitutions $ 106,793 $ 2,550 $ - $ 4,624 $ 113,967

Regulation and Supervision of FederallyRegulated Private Pension Plans - - 6,905 - 6,905

Actuarial Valuation and AdvisoryServices - 5,953 - - 5,953

TOTAL REVENUE EARNED FROMRESPENDABLE SOURCES $ 106,793 $ 8,503 $ 6,905 $ 4,624 $ 126,825




12. REVENUE AND TOTAL COSTS BY BUSINESS ACTIVITY (continued)

Total Cost by Business Activity

March 31

2014March 31

2013

Regulation and Supervision of Federally Regulated Financial Institutions

Risk Assessment and Intervention $ 91,086 $ 80,279Regulation and Guidance 26,100 23,215Approvals and Precedents 9,884 10,473

Total 127,070 113,967

Regulation and Supervision of Federally Regulated Private Pension Plans

7,196 6,905

Actuarial Valuation and Advisory ServicesPublic Sector Pension and Insurance Programs 3,822 3,422Canada Pension Plan and Old Age Security Program 2,674 2,238Canada Student Loans Program 1,100 1,202

Total 7,596 6,862

TOTAL COSTS $ 141,862 $ 127,734

Total costs include both costs recorded in the Statement of Operations and any actuarial gains or losses recorded inthe Statement of Other Comprehensive Income.




13. REVENUE AND EXPENSES BY MAJOR CLASSIFICATION

March 31

2014March 31

2013(Restated - Note 4)

RevenueBase Assessments $ 118,549 $ 106,793Cost-Recovered Services 10,848 8,503Pension Plan Fees 7,196 6,905User Fees and Charges 4,324 4,624

Total Revenue Earned fromRespendable Sources 140,917 126,825

ExpensesHuman Resources 108,550 96,166Information Management/Technology 14,380 12,461Facilities 9,901 9,789Administration 3,678 3,257Travel 3,138 2,910Professional Development 1,477 1,448Professional Services 743 452

Total Expenses 141,867 126,483

Net Results of Operations before Government Fundingand Non-Respendable Administrative MonetaryPenalties Revenue (950) 342

Government Funding 945 909

Administrative Monetary Penalties Revenue 177 287

Administrative Monetary Penalties Earned on Behalf ofthe Government (177) (287)

Net Results of Operations $ (5) $ 1,251

Average Number of Employees 666 636




13. REVENUE AND EXPENSES BY MAJOR CLASSIFICATION (continued)

Human Resources Expenses

March 31

2014

March 31

2013(Restated - Note 4)

Wages and Salaries $ 81,477 $ 70,219Other Benefits 14,526 13,920Post-Employment Benefits other than Severance 10,170 9,151Other Personnel Costs 1,962 1,368Severance Benefits 415 1,508

Total Human Resources Expenses$ 108,550 $ 96,166

14. ADMINISTRATIVE MONETARY PENALTIES

Administrative monetary penalties levied by OSFI are remitted to the CRF. The funds are not available for use byOSFI and are not included in the balance of the Cash Entitlement. As a result, the penalties do not reduce theamount that OSFI assesses the industry in respect of its operating costs. Refer to Note 5 (i) for further information onOSFI's accounting policy as it relates to administrative monetary penalty revenue.

In the year ended March 31, 2014, OSFI levied $177 (2013 - $287) in administrative monetary penalties.

15. OPERATING LEASE ARRANGEMENTS

Minimum lease payments under operating leases recognized as an expense during the year ended March, 2014 were$7,267 (2013 - $7,656).

OSFI has entered into operating lease agreements for office space and office equipment in four locations acrossCanada, and contracts for services. These leases have an average remaining life of between one and eight years withno renewal option included in the contracts. There are no restrictions placed upon OSFI when entering into theseleases. The minimum aggregate annual payments for future fiscal years are as follows:

As at March 31,2014

As at March 31,2013

Within one year $ 6,359 $ 7,267After one year but not more than five years 10,176 10,373More than five years 384 552

Total $ 16,919 $ 18,192




16. FINANCIAL RISK MANAGEMENT

OSFI’s financial liabilities include Accrued Salaries and Benefits, Trade and Other Payables, Unearned BaseAssessments and Unearned Pension Plan Fees. The main purpose of these liabilities is to provide short-termfinancing for OSFI’s operations. Financial assets include Cash Entitlement, Trade and Other Receivables andAccrued Base Assessments.

OSFI is exposed to market risk, credit risk and liquidity risk, in connection with its financial instruments. OSFI's riskexposures and its processes to manage these risks did not change significantly during the year ended March 31,2014.

a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other pricerisk, such as equity risk. OSFI is exposed to currency risk on any amounts payable that are to be settled in acurrency other than the Canadian dollar but is not exposed to interest rate risk nor to other price risk.

Currency risk - Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuatebecause of changes in foreign exchange rates. OSFI’s exposure to the risk of changes in foreign exchange ratesrelates primarily to OSFI’s operating activities (when expenses are denominated in a currency other than theCanadian dollar).

OSFI manages its exposure to currency risk by structuring its contracts in Canadian dollars wherever possible. Themajority of OSFI’s transactions presented were denominated in Canadian dollars; as such, OSFI’s exposure tocurrency risk for all periods presented is insignificant.

There is no impact to revenues since all billings are done in Canadian dollars.

b) Credit risk

Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument, resulting in afinancial loss. The maximum exposure OSFI has to credit risk as at March 31, 2014 is $11,777(2013 - $6,827) which is equal to the carrying value of its Trade and Other Receivables and Accrued BaseAssessments.

All federally regulated financial institutions and federally regulated private pension plans are required to registerwith OSFI and pay the base assessments and fees as established by OSFI. Any loss incurred by OSFI as a result of acounterparty not meeting its obligations is recorded in the year incurred and collected in the following year throughassessments to the industry to which the balance pertains, as outlined in the OSFI Act. All remaining receivables arewith other Canadian federal and provincial government organizations, where there is minimal potential risk of loss.OSFI does not hold collateral as security.




16. FINANCIAL RISK MANAGEMENT (continued)

c) Liquidity risk

Liquidity risk is the risk that OSFI will encounter difficulty in meeting its obligations associated with current andfuture financial liabilities. OSFI’s objective is to maintain sufficient Cash Entitlement through its collection of baseassessments, fees, cost recovered services and other charges in order to meet its operating requirements. OSFImanages liquidity risk through detailed annual planning and billing processes that are structured to allow forsufficient liquidity from one billing period to the next. OSFI’s objective is to accurately estimate its operating costsand cash requirements for the current year and to recover these through its interim base assessments, fees and othersources of revenue.

OSFI’s policy is to satisfy liabilities by the following means (in decreasing order of priority):

• Disbursing payments from its Cash Entitlement account• Drawing on its revolving expenditure authority, pursuant to Section 17.4 of the OSFI Act.

Drawings on this facility were $Nil as at March 31, 2014 (2013 - $Nil).

Refer to Note 1 for further information on OSFI’s authority and Note 5 (a) for further information on the accountingpolicies for its revolving spending authority.




16. FINANCIAL RISK MANAGEMENT (continued)

The table below summarizes the maturity profile of OSFI’s financial liabilities as at March 31, 2014 and March 31, 2013 based on contractual undiscounted payments. When counterparty has a choice of when the amountis paid, the liability is allocated to the earliest period in which OSFI can be required to pay. When amounts are duein installments, each installment is allocated to the earliest period in which OSFI can be required to pay.

OnDemand

Less than3 months

3 to 12months

1 to 5years

Greaterthan 5years

March 31,2014Total

Accrued Salaries & Benefits $ 4,815 $ 2,713 $ 6,320 $ - $ - $ 13,848Trade and Other Payables - 4,769 - - - 4,769Unearned Base Assessments - - 3,043 - - 3,043Unearned Pension Plan Fees - - 1,226 3,069 108 4,403

Total $ 4,815 $ 7,482 $ 10,589 $ 3,069 $ 108 $ 26,063

OnDemand

Less than3 months

3 to 12months

1 to 5years

Greaterthan 5years

March 31,2013Total

Accrued Salaries & Benefits $ 4,458 $ 10,234 $ - $ - $ - $ 14,692Trade and Other Payables - 4,900 - - - 4,900Unearned Base Assessments - - 4,919 - - 4,919Unearned Pension Plan Fees - - 1,379 3,332 46 4,757

Total $ 4,458 $ 15,134 $ 6,298 $ 3,332 $ 46 $ 29,268

Unearned Pension Plan Fees represent the accumulation of in-year surplus or deficit against fees collected. Theseare in turn paid or collected over a period of five years commencing one year from the year in which they wereestablished. OSFI does not charge nor pay interest to the various pension plans over the five years.




17. EQUITY OF CANADA

Contributed Surplus - OSFI was established on July 2, 1987 by the OSFI Act. OSFI was created through themerger of its two predecessor agencies – the Department of Insurance and the Office of the Inspector General ofBanks. To help fund OSFI’s first year of operations and establish a pool of working capital necessary to support itsannual assessment and expenditure cycle, OSFI was credited with the assessments that recovered the costs of itspredecessors for the previous fiscal year. This amount is reflected as contributed surplus.

Accumulated Deficit - The accumulated deficit was created as part of OSFI’s transition to accrual accounting underCanadian generally accepted accounting principles in fiscal 2000-2001. The transition to Canadian generallyaccepted accounting principles (CGAAP) accounts for $789 of the balance. On April 1, 2010 OSFI transitioned toIFRS from CGAAP which increased the accumulated deficit by $2,170. The balance as at March 31, 2011 increasedby an additional $380 as a result of the operations for the year ended March 31, 2011 as determined under IFRS.The balance has not changed since March 31, 2011.

Capital Management - OSFI includes Contributed Surplus and Accumulated Deficit, collectively entitled “Equityof Canada”, in its definition of capital. OSFI operates on a cost recovery basis. Its objective when managing capitalis to closely manage actual costs to those estimated and communicated to its paying stakeholders. Any operatingshortfall or excess is factored into the assessments and fees charged to regulated entities in the following year. OSFIfully recovered all of its costs incurred in the year.

OSFI is not subject to any externally imposed capital requirement.

OSFI did not change its capital management objectives, policies or processes during the year ended March 31, 2014.

Office of the Superintendent of Financial Institutions ... · Intangible Assets 10 13,219 9,266...

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