Chapter 2 32 standards (PSAS) asfollows: to comply Canadianpublicsector accounting with Province’s financial statements intwothe key areas government changes to madeappropriate current 31,ended March 2018. the Province’s financialpositionand results year for dated financial statements accuratelythe present theconsoli that An unqualified opinionconfirms the previousissued qualified two opinionsin years. that the fact we opinion issignificantinlightof errors. material fiscal year are fairly presented andfree from 2017/18 statements for the the concluded that or “clean.” Basedonourauditwork, we have consolidated financial statements isunqualified, This year, Province’s auditopiniononthe the Summary 1.0 Chapter 2 Chapter • • This year’s unqualified opinion came after the unqualified opinioncameafter This year’s year ofanunqualifiedThe issuancethis audit the government inappropriate reversedthe the 2016/17 balances.In addition, in2016/17 in 2017/18 comparative and restated the Province’s consolidated financialposition the tem Operator (IESO)market accountsfrom Sys IndependentElectricity It excluded the assets 31, asatMarch on the 2018. to draw that ithasnolegal authority reflect Employees’Service Union Pension Planto Teachers’ Public Ontario Pension Planandthe net pensionassets Ontario relating to the It recorded afullvaluationallowance onthe of theProvince Public Accounts - - dards for the Provincedards for the itscon to useinpreparing ommended that ourOfficeconduct anattest audit ommended that accountingadviceandauditingservices. both for sameprivate-sector accounting firm retain the agency ororganization plansto engage and/or uswhenagovernment consultwith Secretariat the government,accounting adviceto andthat the provideswhen aprivate-sector accountingfirm notifySecretariat ourOfficeand request ourinput future years. the Province and financial statements of incurrent on atimely consolidated basiswhen it impacts the isbrought toadvisors ourattention anddiscussed work whenthe are ofexternal General best served the Auditor ofFinanceOffice andthe Ministry interests ofTreasurythe the Board Secretariat, Weadvice andinterpretation. alsohighlighted that to advisors provideexternal accountinganalysis, Reports ment management ofpublicfinances. publicto betterlegislators andthe assessgovern ous years andfrom peergovernments. Thisallows fair, consistent, andcomparable to from previ data deficitis andthe surplus aboutthe information that theysolidated ensure financial statements because Canadian PSAS are the most appropriate stan Canadian PSAS most appropriate are the In We Treasury continueto recommend that Board In Chapter 2 Chapter 2 rate reduction. electricity Ontario’s IESO inconnectionwith balancesrecorded by the certain tion with use ofrate-regulated accountinginconnec , we discussed the government’s useof , we government’s discussedthe of our of our

2017 AnnualReport 2016 and 2017 Annual , we rec ------co-operation of staff at the Ministry ofFinance and Ministry atthe ofstaff co-operation date. OurOfficecompletedthe our review with fixed andthe election Pre-Election Report of the reduce by 17 timebetween issuance weeks the the tion dates. amendmentwas Theimpact to ofthis would not overlap municipalelec Ontario’s with years, fixed to ensure the provincial electiondate Thursdaytion datefour first inJune, toevery the passed inDecember 2016 to move fixed the elec the Thursday inOctober, four years. every However, 2016, fixed the electiondate the first was set as and 2011). two first (the were issuedin2007issued inOntario third Act. was the ThePre-Election Report the Finances ofthe 2018Review onOntario’s Pre-Election Report requires ourOffice that report. to review finances aheadofaprovincial election,andit province’s onthe to issueapre-election report 2004 to the Province’s consolidated financial statements.the that couldpotentiallyfinancial statements impact the IESO’s we highlighted significantissueswith 20, 2018,lic Accounts onMarch 11, andApril 2018, required by CanadianAuditing Standards. refusals, wethese issuedadisclaimerofopinionas financial statements. Asa result of may the affect that had provided allrelevant information uswith they that sign arepresentation letter confirming respect to ouraudit;with norwould management acknowledgement roles andresponsibilities oftheir consistently refused to provide written uswith onallofourattestinformation audits.TheIESO IESOBoard. from the our auditinquiries we on encountered ofatypicalpushback apattern pleted IESO.Unfortunately, aspecialauditofthe IESO.Inearlythe 2018, we andcom undertook December 31,of the 2017, financial statements of Between Act was passed,and when the 2004, 2018,In April titled we ourreport tabled responsibilities relates ofourstatutory Another In ourletters Standing to Committee the onPub ourwork,In order to we perform require certain Election Statute Amendment Act,2016 Law (Act). TheAct requires government the Fiscal Transparency andAccountability Act, (Pre-Election Report) in accordance with inaccordance(Pre-Election with Report) was - - - - observations. our observations. tions, consisting offour actions,to address andprojected debt. current Ontario’s targets long-term for publicwith addressing the debt. TheProvince shouldprovide legislators and growingthe Province’s financesof cations for the 2011. Thisyear, we impli critical again focus onthe year,the issuein asithasbeensinceweraised first plans to manage this it)alsoremains aconcern ministries. other Treasury various alongwith Board Secretariat, are included in the Province’s Annual Report. Province’s AnnualReport. are includedinthe Auditor Report, IndependentAuditor’s General’s the consolidated financial statements, alongwith oromissions.The is,free ofsignificant errors that statements are misstatements— free ofmaterial the audit isto reasonable that assurance obtain dated financial statements. Theobjective ofour consoli annualauditofthese responsible for the proper records.tain safeguard transactions, assets andmain authorize procedures, isin placeto supporting controls, with aneffective system ofinternal that for ensuring presented fairly. Thegovernment isalsoresponsible many amountsbasedonestimates andjudgment,is including information, this that and for ensuring consolidatedthe Province, financial statements for financial information. volumes ofadditional supplementary and three consolidated financial statements, ing Ontario’s includ Province’s AnnualReport, consist ofthe Treasurydent ofthe Board. ThePublicAccounts by the Minister ofFinance,direction ofthe asrequired 31,ing March 2018, were prepared underthe PublicAccounts fiscal foryear end the Ontario’s 2.0 Background This chapter contains three recommenda three This chapter contains The Province’s growing debtburden (without Our Office, under the Our Office,under The government isresponsible the for preparing Financial Administration Act Public Accountsof the Province Auditor General Act , and the Presi , andthe - , is ------33

Chapter 2 Chapter 2 34 the timeitresumes sitting. the lay 10 Assembly itbeforethen within the days of public and is not information insession,make the Legislativebefore Assembly the or, Assembly ifthe Lieutenant Governorthe inCouncilmust lay them fiscal year.of the these documents, Upon receiving end 240ant Governor days ofthe inCouncilwithin volumes must besubmitted Lieuten to the mentary year was September 27, 2018. supple Thethree fiscal year.the the 2017/18 The deadline for fiscal 180Governor inCouncilwithin end of days ofthe Lieutenantment deliver to itsAnnualReport the govern the circumstances, except inextraordinary financial statements. Province’stion presented consolidated inthe informa Accounts, for the consistency with andinVolumesFSD&A, Public 1and2ofthe following:Accounts consist ofthe public. the Legislativegovernment to Assembly the and both the of intended fiscalaccountability to enhancethe is and fiscal results. Thisadditionalinformation Province’stion regarding financialcondition the provides(FSD&A) sectionthat additionalinforma a Financial Statement DiscussionandAnalysis • • • The the in the information Our Office reviews Public volumes ofthe supplementary The three alsocontains The Province’s AnnualReport transfer-payment recipients. payments to vendorsof ministry and Volume 3—detailed unaudited schedules laneous audited financial statements; and financial statements, as miscel well as other Province’s consolidatedare includedinthe boards andcommissionswhoseactivities of significantprovincial corporations, Volume 2—audited financial statements financial information; ities, itsloansandinvestments, andother liabil itsdebtsandother and expenses, providing Province’s revenue details ofthe andanumberofschedules all ministries Volume 1—unaudited statements from Financial Administration Act requires that, ------errors. Theunqualified audit opinion isdiscussedin errors. dated financial statements are free from material rate reduction). the electricity of adjustment refinancing portion improper global the accountingdesignofthe and surpluses pensionplans’ treatment ofcertain incorrect were (the issues that ofpast concern accounting government the corrected current the three because years timein unqualifiedthe first for Province’s consolidated financial statements was ber 21, 2018, legislated meeting deadline. the volumes, onSeptemAccounts supplementary Public Financial three Statements, the alongwith 2017/18ince’s andConsolidated AnnualReport the financial statements are free ofmaterial the evidence andevaluates itto determine whether audit ion, ourOfficecollectssufficient appropriate financial statements. the Province’s consolidated confidencein with provides toGeneral issueanopinionthat users requirements, allows Auditorevant ethical that the CanadianAuditingestablished Standards andrel professional obligation to the complywith with Province. independence,combined of the Itisthis financialposition and results and fairview ofthe give they atrue CanadianPSAS sothat ance with misstatements andarematerial prepared inaccord financial statements are free of the on whether Auditor objective General’s isto anopinion express Province’sthe consolidated financial statements, independentauditor legislature’s ofthe As the Section 3.0 3.1 Responsibilities Auditor’s Financial Statements 2017/18 Consolidated 3.0 The Province’s An unqualified opinion means that the consoli that An unqualified opinionmeans The Auditor auditopiniononthe General’s This year, Prov government released the the To Auditor enablethe to General heropin form below. ------and having the relevant internal controls, relevant manageand having internal the report. auditor’s stone ofthe independence,acorner auditor’s the preserves auditormanagement and isfundamental andthe adian PSAS. Thedivisionofresponsibility between havethey Can beenprepared inaccordance with ments inorder to anopinionasto express whether PSAS. financial state Theauditor the examines Canadian financial statements inaccordance with preparation ofthe Division) isresponsible for the the Provincial Officeof Controller from the support ofFinance, with Ministry andthe Board Secretariat Management Province, is,Treasury (for the that respect toitor afinancial-statement with audit. responsibilities aud ofmanagement andofthe distinguishes between report The auditor’s the These responsibilities are discussedbelow. CanadianAuditingin accordance Standards. with audit conductofthe are essentialto the ities that management has acknowledged responsibil certain year.the ofgovernment greater orrevenue expenses the for wecial jurisdictions, at0.5%of set ourthreshold auditors most inprovin other and consistent with Thisyear, threshold. a materiality asinpast years error, misstatement oromissionasmaterial. answer wements?” Ifthe isyes, then considerthe Province’s consolidated financial state ofthe users decisionsmadeby itcouldaffect enough that error,“Is this misstatement oromissionsignificant ment, we seekto answer following the question: assess our professional judgment.Inmakingthis on (insignificant)isbasedprimarily and immaterial treatments underCanadianPSAS.those of appropriateness andanalyzingtransactions, the preferredaccountingtreatment over ment’s certain governmisstatements. Thisincludesassessingthe Responsibilities 3.2 Management’s In addition to preparing the financial statements the In additionto preparing premise that Our auditisconducted onthe To assessment,we helpusmake this determine (significant) An assessmentofwhatismaterial ------present the transaction in accordance with the the inaccordance transaction with present the financial statements the policy andensure that decideonanaccounting transaction, dards onthe stan implicationsstandards, determine ofthe the applicableaccounting responsibility to identifythe audit. end ofthe a signedmanagement-representation letter atthe of mally form communicated auditor to inthe the these is for requirements, fulfillmentof andthe Canadian Auditing Standards are clearonthese to auditevidence. obtain determines are necessary auditor entitywhothe the to individualswithin auditor maythe request, andunrestricted access that financial statements, additionalinformation relevant preparation ofthe toall information the ment isalsorequired to provide auditor with the ing treatments of certain transactions. In such Insuch transactions. ing treatments ofcertain government may advice onaccount seekexternal statements.responsibility Similarly, for the the doesnot change management’s ments butthis suggestions consolidated financial state aboutthe qualification. the basisfor except inthe items fordescribed the statements are fairly the concludes that presented the auditor result inaqualified opinioninwhich itwould issueismaterial, audit opinion.Ifthe overalltothe the financial statements in forming the issue orsignificanceof materiality assess the auditoradequacy must ofaccounting policies,the auditor applicationor andmanagement onthe handsofmanagement.decisions are inthe organization. These forbookkeeping the entries auditor doesnot selectanaccountingpolicyorthe However,transaction. unlike management, the accounting standardsimplications onthe ofthe the applicablestandards andunderstanding the similarprocedures inidentifying and may perform financial statements, independent opiniononthe frameworkfinancial reporting inorder an to form the applicable auditor must alsobeproficient in example, CanadianPSAS for governments). The frameworkapplicable financial reporting (for When a transaction occurs, it is management’s itismanagement’s occurs, When atransaction The Office of the AuditorThe Officeof may General make between are disagreements When there an Public Accountsof the Province - - - - 35

Chapter 2 Chapter 2 36 communicates their opinion to users of the finan opinionto ofthe communicates users their ishow auditor report the The independentauditor’s sion ofanauditengagement, comprises: conclu isissuedatthe which report, The auditor’s financial statements. Province’s consolidated preparer ofthe the as accountability government’s or replace the doesnot advisors diminish,change of external use decisionsmade,andthe responsibility for the ultimate government still hasthe situations, the Unqualified Audit OpinionUnqualified 3.4 The Significance of an Auditor’s 3.3 The Independent • • • • • • The auditor’s report may further include: may further report The auditor’s responsibilities or the auditor’s report. auditor’s responsibilities orthe auditor’s audit, the ofthe understanding judgment,isrelevant to auditor’s users’ the that, in financial statements disclosed inthe presented or those a matter than other refers to that Matter paragraph an Other financial statements; and of the understanding to itisfundamental users’ that importance judgment,isofsuch auditor’s the that, in financial statements closed inthe to amatter appropriately presented ordis refers an Emphasis that ofMatter paragraph financial statements. frameworkreporting usedto prepare the and areference applicablefinancial to the financial statements sion ofopiniononthe anexpres containing an opinionparagraph audit; and scopeofthe ments andthe financial state to anopinion onthe express responsibility auditor’s ofthe a description framework;applicable financial reporting the financial statements inaccordance with agement proper preparation ofthe for the responsibility ofman ofthe a description financial statements audited; the identifies that paragraph an introductory Report Report ------sign oneoffour possibleopinions: financial statements iscompleted,the auditor can entity are presented fairly. auditofthe the After statements ofan cial statements asto the whether reproduced on the followingreproduced onthe page. year 31,statements for endedMarch the 2018, is Province’s consolidatedAssembly financial onthe Legislative to Report the Independent Auditor’s Province’s consolidated financial statements. The ofthe results ofourexamination annually onthe The respects. material year 31,results for endedMarch the 2018, inall fairly andaccurately Province’s fiscal present the solidated financial statements canbe relied on to CanadianPSAS.in fullcompliance Thecon with government isnow itmade,the corrections the consolidated financial statements. Asa result of the Province’s has issuedanunqualified opinionon the Auditor Officeof General years, the in three financial statements are reliable. time the first For 3.5 The 2017/18 Opinion Audit • • • • An Auditor General Act No opinionordisclaimer ofopinion: accounting principles. ition, asperCanadiangenerally accepted andchangesof operations infinancialpos fairly financialposition, results present the Adverse opinion: or omissions. misstatements oneormore material tain Qualified opinion: entity.the financialpositionand results of respects, the cial statements present fairly, inallmaterial Unqualified, orclean,opinion: able for examination. entitywerethe destroyed unavail andthus ments because,for example, key records of not possibleto state give anopiniononthe unqualified audit opinion indicates that the the auditopinionindicates that requires we that report The statements donot The statements con The finan It is ------S a I O M A T Ma I To I T e o f c a A e c c c I a c p s s r o a the e f NDEP r i n

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Chapter 2 Chapter 2 38 further in further to CanadianPSAS. beinaccordance with consolidated financial statements bilities from the market IESOelectricity the accountassets andlia government removed the Commission’s report, the Commission’s report. recommendations inthe the and consistent with CanadianPSAS statements inaccordance with the wereaccounting changes that required to present government appropriately madesignificant year 31,ments for endedMarch the 2018, the government.recommendations to the on August 30,2018, Commissionmadeseveral the government to the Initsreport tions goingforward. new adviceandrecommenda government with andprovide accountingpractices government’s the Commission’s mandate was to former lookinto the (Commission).The cial CommissionofInquiry creation ofanIndependentFinanannounced the In July 2018, newly the elected government Commission of Inquiry 3.6 Independent Financial • • • The impact of the aboveThe impact ofthe changes are discussed not includedasarecommendation in Although The accountingchanges included: Province’s consolidated financial stateIn the Hydro Plan. the fullfinancialimpactrecording of the Fair rate reduction; and tricity elec Ontario’s accounting inconnectionwith useofrate-regulateddiscontinuation ofthe Pension Plan; Employees’ PublicService UnionOntario Teachers’Ontario Pension Planandthe pensionassetsagainst for the the both recognition ofafullvaluationallowance Section 3.7 below. - - - - - employeesthe shouldberecordedthat to reflect its government with co-sponsors sion plansthe valuation allowance assets against inpen these (2016/17 –$12.429 billion). – $0.918 billion), for atotal of$14.649 billion Pension Plan (OPSEUPP)of$1.014 billion (2016/17 Employees’ PublicService Union Ontario from the of $13.635 billion (2016/17 –$11.511 billion) and Teachers’ Ontario from the Pension Plan(OTPP) pension assets before any valuationallowance 31,As atMarch 2018, government reported the PSAS, the prior year’s comparative year’s prior figuresPSAS, the were Commission’s recommendation andCanadian the Province 31, asatMarch 2018. Inaccordance with the consolidated financial statements of in the pensionassetsagainst ofOTPP the andOPSEUPP Commission’s recommendation. The government accepted andimplemented the figures for comparative year’s prior purposes.” the 2017/18,of Ontario includedrestatement of this Auditorand the For General. PublicAccounts the between isreached governmentagreement the Pension Planonaprovisional basis,untilan Employees’ PublicService Unionand Ontario Teachers’ Ontario sion assets ofthe Pension Plan proposed accountingtreatment for any net pen government Auditor “[a]dopt the General’s clusion in2016/17 and2017/18. in2015/16.obtained We samecon atthe arrived were jointsponsors other not the with agreements the pensionassets to because benefitfrom right government didnotthe have alegally enforceable We jointsponsors. other plans’ concludedthat the with agreement aformal reaching without surplus orwithdraw reduce itsminimumcontributions government doesnot have to unilateral right the Consolidated Financial Statements Consolidated 3.7.1 andthePension Assets Net Financial Statements the Consolidated3.7 Changes to In order to comply CanadianPSAS, afull with As aresult, afullvaluationallowance was taken recommended the The Commission’s report - - - Sources of data: March31,Sources ofdata: ofOntario the AuditorGeneral 2018, Officeof andthe Statements ConsolidatedFinancial ProvinceofOntario 31,Figure 1:Pension (Liability) asatMarch Asset 2018 Province).the IESOor not the assets andliabilitiesofeither market are accountassets andliabilities(which Provincebecause the inappropriately recorded consolidated financial statementsince’s in2016/17 Wethe Prov alsoqualified ourauditopinionon (2016/17 billion). –$1.444 annual deficit for 2017/18 by $2.220 billion wasoperations Province’s to reported increase the consolidated statement of OPSEUPPonthe the pensionassets OTPP and ance against for the the fullvaluationallow ofrecordingThe effect the the Province.consolidated financial statements of and disclosedinNotes 6and19A 2017/18 to the Thisisillustratedlion) beingreported. in liability of$0.855 billion(2016/17 –$1.396 bil – $12.429 billion), resulting inanet pension ition for 2017/18 by $14.649 billion (2016/17 consolidated statement offinancialpos on the net pensionassetsplans reduced the reported two respect tocial statements the pension with in 2016/17. also restated to take afullvaluationallowance Valuation plans allowance –allother * Net pensionasset(liability)* Valuation allowance –OPSEUPP Valuation allowance –OTPP Accrued pensionasset actuarialgains Unamortized Obligation over/(under) planassets Less: planfundassets Obligation forbenefits Financial the Consolidated Accounts from 3.7.2 Exclusion of IESO’s Market

As presented in the March31,As presentedinthe 2018, Statements. ConsolidatedFinancial ProvinceofOntario The adjustments to the consolidatedThe adjustments to finan the Statements Figure 1 - - - - -

with Canadian PSAS, even though this was CanadianPSAS, not even this with though solidated financial statements to beinaccordance market con accountassets andliabilitiesfrom the financial statements. Province’s consolidatedassets andliabilitiesinthe for recognition as accounts donot criteria meet the marketdefault by market the Assuch, participants. marketsettle the event accountliabilitiesinthe of the Provincebenefit; nordoes have anobligation to power market to usethe accountassets for itsown generators, respectively. companieslocal distribution andpays to power IESOcollectsfrom bilities cover amountsthe the market, market andthe accountassets andlia prior year restatementprior was disclosedinNote 19B to same.Thechange inaccountingand for the period in 2017/18 comparative andrestated the 2016/17 consolidated statementince’s offinancialposition IESOmarketexcluded the Prov accountsfrom the Fairponent ofthe Hydro Plan.” Thegovernment isamajoradjustment refinancing, which com proposedGeneral’s accountingtreatment for global government Auditor “[a]doptmended the the Commissionrecom issue,the Onthis report. Commission’s included asarecommendation inthe The government removed IESOelectricity the The Province hasnoaccessordiscretionary Province’s electricity The IESOoperates the Public Accountsof the Province ($ million) (162,600) 133,854 Pensions (28,746) (13,635) 14,039 14,707 (1,014) (855) (245) 2018 ($ million) (149,851) 124,700 Pensions (25,151) (11,511) 11,047 (1,396) - 14,104 - - (918) 2017 (14) - - 39

Chapter 2 Chapter 2 40 reflect fullvaluation allowancesthe OTPP and for the Province’s FSD&A figuresto and historical in In 2017/18, government adjusted the allcurrent 2016/17, were which not yet material. lated accountingbalances recorded IESOin by the adjustment refinancing, and reversedrate-regu all balancesrelated global toin connectionwith the useofrate-regulateddiscontinued the accounting government accepted recommendation and the Fairaccounting treatment for the Hydro Plan.The government Auditor adopt the proposed General’s Canadian PSAS. presents itsfinancial statements inaccordance with a government oragovernment-controlled OGO Rate-regulated accountingisnot when permitted Province’s consolidated financial statements.in the toconformed to CanadianPSAS consolidation prior financial PSAS,results ofanOGOmust be the Organization (OGO).Under provisions ofCanadian Plan Act,2017 underthe accounting prescribed legislatedmisstated infuture asaresult ofthe statements couldbecomematerially ments, the Province’s 2016/17 consolidated financial state level didnot misstatement result inthe inmaterial consolidatedregulated provincial accountingatthe adoption ofrate-We the although noted that then retroactive adoption ofrate-regulated accounting. IESO’s to the inourauditopinionreferring graph In 2016/17, we Matter para includedanOther Province.the 2017/18the consolidated financial statements of Analysis Discussion and Financial Statement 3.7.4 theProvince’s Changes to Government Regulated Other Accounting for 3.7.3 Discontinued Useof Rate- As noted, the Commission recommended the As noted, Commissionrecommended the the Government The IESOisclassifiedasanOther (FSD&A) . Organizations Ontario FairOntario Hydro - - - 2017/18 auditopinion. was required Matter paragraph inour no Other Commission.Asaresult, recommendations ofthe the CanadianPSAS andalignedwith ance with wouldstatements that now inaccord bereported consolidated corrected financial the ment with provisions of the ofthe ces recognized in2016/17 recorded inanticipation reversal of rate-regulatedand the accounting balan OPSEUPP, exclusion ofIESOmarket the accounts, relating to the design and implementation of the designandimplementationrelating to ofthe the cial statements andto provide accountingadvice finan the IESO’s the auditof both to perform firm IESO Board accounting engaged sameprivate the in2017/18, IESOthat cial statements ofthe the Province.engagement the with their alsonotify advisors ourOfficeof external the aprovision advisors that external with contracts Treasury inits that incorporate Board Secretariat annualaudit.Weimpact onthe alsorecommended andcanassessthe workscope ofthe perform, they we sothat are advisors aware external ofthe with provide copiesofallcontracts ourOfficewith Treasury the Boardrecommended Secretariat that Province’s consolidated financial statements. We auditofthe ofthe as soonpossible,part ourOffice shouldbeshared with advisors external Foradvisors. reason, any this work by performed useofexternal isfulldisclosure onthe when there the Auditor Officeof are General best served the ofFinance and Ministry the Board Secretariat, and interpretation. to accountinganalysis,advisors advice obtain Province’swe useofexternal onthe reported In External Consultants Use of4.0 The Province’s Chapter 2 These changes were madeto ensure align We noted 2017 inourSpecial Audit ofthe finan We interests ofTreasury the highlighted that of our 2016 Fair Hydro Plan Act,2017 and 2017 AnnualReports - . - - , - - consult ourOfficebefore approving retentionthe of Province the recommends that report addition, the to advisors provideexternal accountingadvice. In andagencieswhen ministries propose to engage the Auditor Officeof General comment from the government notify the andseek recommended that which noted initsreport, similarconcerns Inquiry independence. their adviceandimpair the panelmember’s influence additionalwork this could that an inherent risk work isstill Panel. clause, there for Despite the the completionwould the not of begin untilafter participation panelmember’s the that stating aclause government. contained Theagreement to the to provide consultingservices actuarial entered panelmembers into of the anagreement 2017, in Panel’s first report of the February one OPSEUPP.OTPP andthe release Just before the on how to net accountfor pensionassets the ofthe providingand tasked itwith independentadvice Panel (Panel) Pension Advisory Assetthe Expert November 2016, government former created the independentadvice.Forpublic with example, in of interest inproviding government andthe the canhave advisors external a potential conflict high-quality audit. and professional skepticism a neededto perform independence,objectivity be ableto the maintain may not accountingfirms private that isarisk there fee (see for itsannualauditing for accountingadvicethan the IESOsignificantly more billed accounting firm private we the found that services, ing advisory being engaged to provide auditandaccount both best interestsin the ofmanagement. Inadditionto publicinterest, whereas the anadvisoracts serving workagement. their Anauditor needsto perform ofanadvisortoitor man that isincompatible with inherentthe conflictofinterest,roleanaud as this can sufficientsafeguards,represent an Without Fair government’s former IESO. Hydro Planatthe The IndependentFinancial Commissionof Similarly, may where there alsobeinstances Section 5.0 below). Insituationslike this, - - - and auditingservices. accountingadvice for both same private-sector firm • • Board Secretariat: Province,of the we Treasury recommend that auditor consolidated for financial the statements appointed underthe Auditor the is General Recognizing that accounting advice. propose to engage advisorfor anexternal agencies andCrown-controlled corporations consolidated Officewhenministries, the with proactive notificationthe andconsultation willevaluateSecretariat options to support advisors. intent anduseofexternal sure onthe isfulldisclo whenthere areGeneral best served the Auditor Officeof andthe iat (Secretariat) analysis. supplement internal ally engaged to provide adviceandguidanceto are gener advisors External and interpretation. include providing accountinganalysis, advice capacitiesthat year invarious the throughout The government engages advisors external To promote fulldisclosure, the further TreasuryThe interests ofthe Board Secretar consult the Officewhenagovernment consult the accounting advice;and to engage advisorto provide anexternal financialthe Provincestatements of proposes consolidated intocontrolled the corporation ministry, government agency orCrown- (Office) and request itscommentwhena the Auditor Officeof General notify the RECOMMENDATION 1 RESPONSE TREASURY BOARD SECRETARIAT and auditingservices. advisorfor accountingadvice both external plans to engage same and/orretain the agency orCrown-controlled corporation Auditor General Act Public Accountsof the Province as the asthe - - - 41

Chapter 2 Chapter 2 42 our work separately butsimultaneously with KPMG.Therefore, wejoint auditwith conducted a auditor) orthrough incumbentexternal (their instead ofKPMGLLP period ment auditfor this financial state ourconductingthe not support completelywas lessthan openandtransparent. clearlybehaviour that suggested IESO the to usthat several key ofunusualandunco-operative instances werefully ourspecialaudit,there co-operate with IESOBoard. from the onourinquiries pushback by ofatypical apattern The auditwas characterized yearstatements for endedDecember 31, the 2017. and completed IESOfinancial aspecialauditofthe Act General Act In early 2018, to pursuant section9ofthe ter 2 2018. We willprovide anupdated in status yearcial statements for endedDecember 31, the auditofitsfinan the IESOduring agement ofthe December 31, 2015. auditedthe financial statements year ended for were to policies willrevertwhatthey back inthe use ofrate-regulated accounting.Itsaccounting to remove market the accountsandto reverse the adjusting its2016 and2017 financial statements December 31, 2018, itwillberetroactively andthat attest year auditors forappoint usasthe ended the The IESOrecently communicated itwill to usthat of Conducting the SpecialAudit 5.2 Challenges Encountered in Year 5.1 Fiscal of the IESO for Audit Operator System 5.0 Independent Electricity and the above andthe recommendation, we undertook At the start of the audit, the IESOBoard did audit,the ofthe start At the itwould IESOstated that complyWhile the and We to lookforward working seniorman with

IESO ofour 2018 and subsection 25.2(2) of the andsubsection25.2(2)ofthe 2019 AnnualReport . Electricity Electricity Auditor Chap - - - - the appropriate contacts within the organization, the within contacts appropriate the an auditco-ordinator isto provide auditors with the auditco-ordinator. the through role of Thenormal established byIESO. All requeststhe were funnelled ectly to protocol ourauditors basedonaninternal were notstaff instructed to sendauditrequests dir IESOemployee,another we becameaware that Human Resources records). Inadiscussionwith example, executive compensation or employee the topics (for sensitivityorconfidentialityof the comments, andallauditrequests, regardless of andourauditors to recordstaff conversations, individual was to attend allmeetings between IESO auditco-ordinator. IESO’s individual asthe This financial statements. December 31, auditofIESO’s KPMG’s 2017, Board didnot allow usto meeting attend where the yearfor ended December 31, the 2017. the Ineffect, statements financialfied (clean)opiniononIESO’s had taken place—andKPMGhadissuedanunquali Board meeting the date untilafter usofthe inform requests received noresponses. TheIESOdidnot meeting would beheld.Oursubsequent repeated didnot know they IESOindicated whenthe that the Board meeting to approve financial statements, the numerous requests from ouroffice the to attend ledgements to KPMG. audit. TheIESOprovided standard acknow these respect to afinancial with statement information have they provided allrelevantand that uswith rolesand managementresponsibilities, oftheir acknowledgmentare aformal IESOBoard by the andaletteraudit planningreport ofrepresentation, iting Standards. Thesedocuments,includingthe plete CanadianAud ourauditinaccordance with would not sign key documentswe neededto com would they they co-operate, that whilemaintaining wrote usseveral letters conveying message that the being provided inatimely fashion. down isnot requests information information ifthe andtrack contacts set those upinitialmeetings with During the audit, the IESOdesignated an audit,the the During Towardthe audit,anddespite finalization of the Board andAudit ofthe committees The chairs - - - - - statements underprofessional auditingstandards. provide financial IESO’s anauditopinion onthe financial statements. may the affect that all relevant information they hadprovided that uswith letter confirming nor would management signarepresentation were they co-operating); that in correspondence whileinsisting respect to ouraudit(allthe with acknowledgement roles andresponsibilities oftheir consistently refused to provide written uswith as noted in onallofouraudits.However, information certain CanadianAuditing Standards,ance with we require followingreproduced onthe pages. Standing Committee IESOandthe is toReport the 11,and April 2018. Ourfinal Independent Auditor’s mittee onPublicAccounts inletters 20 dated March ended December 31, 2017, Standing to Com the the the IESO year for financial statements of the We results ofourspecialaudit onthe reported and employees. PowerOntario itsdirectors, Generation, officers ment related Fair to the Hydro Planwas signedfor We asimilarindemnityagree that later learned onany specificaccountingissue. agreements other are not aware comprehensive ofprior indemnity Fair Hydro Plan.Thiswas highly unusual,andwe the specifically inconnectionwith against them, from acomprehensive list ofpossibleactions the IESO,itsdirectors, and officers fied employees Province,and the effective June1, 2017, indemni Ministersigned by ofEnergy between the IESO the Anagreement forsought andobtained itsstaff. comprehensivewas the legal protection IESO that IESO accounting andauditingsituationatthe KPMG, however, was inattendance. it approvedthe IESO. financial statements of the IESO for the Fiscal YearIESO for 2017 5.3 Results of of the Special Audit As a result of these refusals, weAs aresult ofthese were unableto In order ourwork for usto perform inaccord unprecedentedAn additionalaspectofthe Section 5.1 of this report, the IESO the report, ofthis - - - - dated financial statements. Theseissuesincluded: potentialhad the to Province’s impact consoli the that items financial IESO’s statements and other the lic Accounts, we highlighted significantissueswith Report. our IndependentAuditor’s We did,however, provide adisclaimerofopinionin • • • • • In ourletters Standing to Committee the onPub use of inappropriate discountrates;use ofinappropriate the unfunded benefit-planliabilitiesdue to IESO’s ofthe understatement material the upon consolidation; annual deficitandnet debtifnot reversed Province’s ofthe in anunderstatement that financial statements would result assets andmarket IESO’s accountsonthe inclusionofrate-regulated inappropriate the ofco-operation; a lack Province.the consolidated financial statements of on the aggregate, constituted anaccountingopinion individually work orin firms, of the ofthe Fairrespect to the Hydro Plan,becausenone Deloitte LLP, &Young andErnst LLPwith the roles ofKPMGLLP, of a clarification before power generators canbepaid);and LDCsmust beusedto Trust paythrough the Trust, money itreceives the from ratepayers Fair costs to the payments Hydro ofcarrying Trust IESOdefaultsonits ifthe (meaningthat collateral for debtinvestors Fair ofthe Hydro companiesfrom localdistribution (LDCs)as andfuture receivables current pledge ofthe statement revision, ofaDecember 2017 disclosure only inasubsequent financial initialfailure IESO’s to disclose,andits the Public Accountsof the Province - - 43

Chapter 2 Chapter 2 44 Public Accountsof the Province 45

Chapter 2 Chapter 2 46 do so before the deadline established by the regula by deadlineestablished do sobefore the the finances inafixed electionOntario’s year, andshall about shall release aPre-Election Report (Ministry) ofFinance Ministry by regulation,be prescribed the and Fiscal the Transparency inaccordance with Report) Finances onOntario’s Election Report titled itsreport tabled 2018,In April the Auditor Officeof General the chapter stated: 2016. Inparticular, year IESOfor endedDecember 31,made by the the aboutaccountingchanges concerns lined serious In Pre‑Election Report 6.0 Review of 2018 Report 5.4 Chapter 2 of our of the IESO.” General auditthe accounts andtransactions may Subsection 25.2(2), which states: Auditor “The underthe IESO aspermitted December 31, 2017, financial statements of the General willconductanattest auditofthe with the CanadianPSAS, Officeof the Auditor operations ofthe IESOprepared inaccordance receiveon Assembly the financialinformation • • of itsfinancial statements. Specifically, itshould: Accounting Standards inthe (PSAS) preparation organization,” usethe CanadianPublicSector System Operator (IESO),an“other government We recommend that the IndependentElectricity Chapter 2 The Act states that in such circumstances asmay circumstances insuch The Act states that

Accountability Act,2004 To ensure that the membersofthe Legislative discontinue the inappropriate useofrate-discontinue the inappropriate remove market accountsrecorded onitsfinan financial statements. regulated accountinginthe preparation ofits cial statements; and —IESO Reference of our Recommendation 5 2017 AnnualReport Review ofthe 2018Review Pre- (Act). Electricity Act Electricity 2017 Annual Annual 2017 (Pre-Election , we out of that of that , - - - Report were 2018Report inthe identicalto those Budget. fiscal forecaststhe Pre-Election presentedthe in 2018presented inthe Budget. Ontario Accordingly, this case was in most recentto fiscalplan,which the shouldprovide Pre-Election Report anupdatethe sameday. the Election Report that TheAct specifies 28, 2018,bill onMarch Pre- andreleased the Budget bill.Thegovernment introduced itsBudget the 2018 introduction andfirst reading of of the seven bereleased within daysElection Report Regulation 41/18, Pre- required the which that projections are reasonable. fiscal government’s her own the outliningwhether andpromptlyElection Report of release areport regulation, passage to Pre- reviewafter ofthe the tion. ThesameAct requires Auditor the General, cial statements for the year 31,cial statements for endedMarch the 2018. erlythe Province’s reflectedconsolidated finan in annual deficit items and the on expenses were prop itemsexpense are: $6.5 billion).Thetwo reported understated the and $12.5 billion for 2020/21 (or92%more than $6.6 billion) reported the (or 85%more than $6.7 billion),$12.2reported billion for 2019/20 be $11.7 billion for 2018/19 (or75% the more than annualdeficit items,adjusting the would for these expense estimatesdeficit and for two items. After was not reasonable, Ontario’s asitunderstated Province’s finances ofthe presentation Report’s • • In February 2018,In February government filedOntario the As noted in Pre-Election Our review the highlighted that ment with the plans’ other sponsors. sponsors. other plans’ the ment with agree a formal first reaching plans without pension tounilateral usefundsinthese right government didnot the have though the Employees’Service Union Pension Plan,even Public Ontario forpension expenses the to future andunderstated reduce expenses, Teachers’ Ontario relating to the Pension Plan The government forecast pensionrevenues rate reduction initsestimates.electricity financial impact ofits true Fair Hydro Plan’s The government failedto properlythe reflect Section 3.7 Public Accountsof the Province , the effects of these two ofthese effects , the - - - 47

Chapter 2 Chapter 2 48 Sources of data: March31,Sources ofdata: 2018, 2018 Statements; ofOntario the AuditorGeneral ConsolidatedFinancial Office of ProvinceofOntario Budget;andthe Ontario Figure 2:Total Deficit,2012/13–2020/21 DebtandAccumulated Debt,Net Faircosts ofthe Hydro Plan. OPSEUPP,and the projected and accountingfor the net OTPPaccounting for pensionassets the ofthe inmore detail in issues (described to CanadianPSAS beinaccordance for with two 2017/18in the consolidated financial statements debtfigures government restatedcurrent Ontario’s andwe year. asinfrastructure, dosoagain this such large deficitsanditsinvestments assets incapital to growing its debtburden, attributable Ontario’s We commented on inprevious annual reports ministries. other alongwith Board Secretariat, ofFinance andTreasury Ministry atthe of staff Office completed the co-operation our review with fixed andthe election dateReport by 17 Our weeks. Pre-Electiontime between issuanceofthe the municipal electiondate. Thischange reduced the fixed electiondate would not overlap Ontario’s with provincialfour years, Ontario to helpensure the Thursdayelection date first inJune, toevery the Amendment Act,2016 Thursday first inOctober,the four every years. until2016,2004 fixed the electiondate was set as 2011). Act was passedin the Fromtimethat the two first (the were issuedin2007in Ontario and * deficit* accumulated Restated net debt* Restated Total debt 7.0 Debt Burden Ontario’s Restated for the net pension assets and the FairHydroPlan. netpensionassets andthe forthe Restated In reporting on the Province’s debt burden, the Province’s debtburden, the onthe In reporting In December 2016, the issued third was the The Pre-Election Report 2012/13 259,947 281,065 174,256 was passedto move fixed the Election Statute Law 2013/14 184,835 295,758 276,169 Section 3.7 2014/15 196,665 294,557 314,960 Actual ($million) ): 2015/16 306,357 203,014 327,413 are definedbelow: illustrated in or accumulatedgrow, deficit,hascontinued to as measured astotalitself, whether debt,net debt costs relatively debt butthe stable, debt-servicing relied onhistorically low interest rates to keep its debt.We Provinceof Ontario’s noted the has that 2016/17 205,939 • • • 333,102 As a result, Ontarians nowAs aresult, have Ontarians picture atruer 314,077 ernment’s total liabilitiesanditsfinancial ernment’s Net debt debt load. broadest measure ofagovernment’s the U.S. commercial paper. Total debtprovides markets,capital non-publicdebt,T-bills and ties, andconsists ofbondsissuedinpublic governmentmoney owes the par to external Total debt ernment. It can also be derived by Itcanalsobederived deducting ernment. the gov of past annualdeficitsandsurpluses Accumulated deficit and events. to pay for past government transactions amountoffuture revenuesof the required Net debtprovidesness enterprises. ameasure ments andinvestments ingovernment busi investcash, accountsreceivable, temporary or financefuture andinclude operations, theoretically canbeusedto liabilities pay off obligations. Financial that assets are those retirement obligations, andtransfer-payment ing total debt,accountspayable, pensionand government owes includ parties, to external assets. Liabilitiesconsist ofallamountsthe 2017/18 209,023 323,834 348,660 Figure 2 is the difference between difference govis the the is the total amountofborrowedis the . The three measures ofdebt . Thethree 2018/19 220,640 346,528 358,837 represents the sumofall represents the Estimate ($million) Estimate 2019/20 369,000 232,911 369,911 2020/21 384,400 245,474 393,274 ------Sources of data: March31,Sources ofdata: 2018, 2018 Statements; ofOntario the AuditorGeneral ConsolidatedFinancial Officeof ProvinceofOntario Budget;andthe Ontario 2011/12–2020/21 Factors, DebtGrowth Figure 3:Net ($million) government borrows to financeitsoperations. years, andnet asthe three debtwillcontinueto rise is projected to have annualdeficits the next over Fairexpected costs ofthe Province Hydro Plan,the OPSEUPPandthe OTPPassets andthe ofthe Power (OPG). Generation asOntario such government businessenterprises, asillustratedpublic hospitals, in oritsconsolidated as organizations, such ernment ships. Thisextends to assets acquired gov for the acquired partner public-private directly orthrough andequipment, whether infrastructure and other for expenditures asbuildings capital assets such its its large deficits,alongwith annualoperating toThe Province’s growing net debtisattributable 3. 2. 1. Total over 10 years 2020/21 2019/20 2018/19 Estimated 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 Actual 7.1 NetDebt to Main Contributors

Unrealized Fair Value Losses/(Gains) on the Ontario NuclearFundsAgreement(ONFA) Unrealized FairValue Inc.andaccountingchanges. Ontario PowerGeneration Fundsheldby Losses/(Gains)onthe Ontario assets. capital andbroader-public-sector tangible onsaleofgovernment-owned andnetgainsreported year,the lessannualamortization during assetscapitalized andequipment,infrastructure andbroader-public-sectorland,buildings, machinery ingovernment-owned Includes investments FairHydro Plan. netpensionassetsandthe forthe Restated After properlyAfter net accountingfor pension the its net debt. assets, capital from asitstangible assets, such non-financial government’s valueofthe the Debt Beginning Restated Net Restated 346,528 323,834 259,947 306,357 294,557 369,911 241,912 276,169 314,077 217,754 of Year — 1 Figure 3 (Surplus) Deficit/ 12,969 10,453 74,210 10,315 6,500 6,600 2,435 5,346 9,220 6,700 3,672 , butnot - Capital Assets Capital Net Investment - in Tangible Ontario was $22,529. Ontario amountofnet debtowedthe resident by of each Province’s neteliminate debtin2021. the In2018, words, $26,865to itwould Ontarian cost every to in2021. about$26,865perperson Inother to increase from about$16,943 in2011 perperson government isexpected onbehalfofthe Ontario debt owed of resident by (includingchildren) each billion bywill be$384.4 2020/21. As illustrated in from $217.8 billion to approximately $393.3 billion. 10-yearthe between period 2011/12 and2020/21, of goods and services produced by aneconomy (the of goodsandservices economy. ofnet Theratio market debtto the value level its debtisthe ofrelative sizeofthe to the A key abilityto government’s carry indicator ofthe 89,745 15,800 15,700 14,200 to 7.2 Ratio of Net Debt Ontario’s 5,450 6,509 5,600 4,795 6,673 7,234 7,784 To amountofnet inperspective, the putthis net debtmay increaseOntario’s by 80%over GDP 2 Miscellaneous Adjustments Figure 2 11,565 3,955 1,063 1,083 1,004 1,564 1,031 1,749 (588) 490 169 Public Accountsof the Province 3 , we estimate total debt End ofYear Restated Net Debt 346,528 323,834 244,912 306,357 294,557 259,947 393,279 369,911 276,169 314,077 — 1 (Decrease) Increase/ 175,520 23,363 23,383 22,694 18,388 18,035 16,222 24,158 11,800 9,757 7,720 49

Chapter 2 Chapter 2 50 Note: Net debt restated for the net pension assets and the FairHydroPlan. netpensionassets andthe forthe Note: Netdebtrestated 10% 15% 20% 25% 30% 35% 40% 45% ofOntario the Auditor General Officeof and the DiscussionandAnalysis;2018 Statement Financial Budget; Ontario March31,Source ofdata: 2018, AnnualReports— ProvinceofOntario (GDP), 2002/03–2020/21 Product Domestic Gross Debtto Figure 4:RatioofNet toto-GDP 42.1%. rising ratio net years, debt- over resulting inthe three next the net debtwillincrease by $69.4 billion Ontario’s to approximately 39.0%in2017/18. We project 2008/09recessionmately to the 26.6%prior net debt-to-GDP rose ratio from approxiOntario’s spending. fund annualdeficitsandinfrastructure assignificantlytors increased such borrowing to reflectingbeen trending fac upward sincethen, 2002/2003 to 26.6%in2007/08. However, ithas to-GDP remainedfrom ratio 26.8%in constant, economy, andisbecomingagrowing burden. provincial the faster net than debtisrising ment’s govern meansthe words, isrising—it ratio the other GDPisrising—in tive valueofthe to the economy.the burdenis anindicatorofgovernment ofthe debton fundsneededto It capacity to meet the raise them. tionship between obligations andits agovernment’s rela domestic product, orGDP)measures the gross 0% 5% Figure 4 must berepaid rela amountofdebtthat If the 2002/03 2003/04

2004/05 Province’s net debt- shows the that 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Actual 2014/15 Projected 2015/16 2016/17 2017/18

2018/19

-

2019/20 - -

2020/21 - - ratio of39.1%.ratio to 63%byrise 2050/51, significantly above today’s net debt-to-GDPprojected would ratio Ontario’s Budget Outlook2017 the on Accountability Officeinits report the Ofsignificance, Financial economic shocks. to andisvulnerable unexpected isatrisk cal health fis aboveto-GDP jurisdiction’s rises ratio 60%,that believe netmany debt- whenajurisdiction’s experts 2018 Budget. 2023/24—but commitmentfrom its excluded this net aninterim debt-to-GDP of35%by ratio with recession level of27% by 2029/30,together net debt-to-GDPreducing the to ratio itspre- tor ofhow time itwould much take to eliminate the ofnetratio debtto total annualrevenues, anindica usefulmeasure ofgovernmentAnother debtisthe Ontario. than ratio Atlantic provinces,and the andQuebec hasahigher nificantly lower netthan Ontario debt-to-GDPratio to GDP. Generally, western provinces the have asig respective ofnet their ratios debt ment, alongwith pared to provinces federal other govern andthe direct netgovernment’s debt. provincial ouranalysis only onthe throughout weologies usedby most jurisdictions, have focused ever, debt-measurement method consistent with net debtwouldthe beconsiderably higher. How debts was includedinitsindebtedness calculations, Province’s share ofthose municipal debts.Ifthe share offederaltake and into accountOntario’s rowing capacity, measure doesnot becausethat on just onemeasure to bor assessagovernment’s Annual Revenues 7.3.1 Total Debt to Ratio of Net Government Debt Levels 7.3 Assess Other Measures to We alsonoted itisanoversimplification to rely We noted that inourprevious AnnualReports The previous government committed to Figure 5 shows the net debt of Ontario com shows net debtofOntario the , released October 19, 2017, Long-Term ------spending in other areas. spending inother lower availableborrowings, for the proportion the ment revenues goingto pay interest costs onpast ofgovern proportion can provide; higher the the government that andservices quality ofprograms quantity and candirectlyest expense), the affect total debt (inter cost ofservicing Increases inthe burden hasrelatively lessrevenue it. to support Province’s netincreasing indicates ratio debt the by 2020/21. sitsat215%. currently Theratio This since 2007/08, andwas expected to 240% reach revenue. However, hasincreased ratio steadily the ataslowerdebt grew annualprovincial pacethan the Province’s net that 2007/08,the fact reflecting about 177% in2002/2003to about154% in exclusively to it. provincialthe debtifallrevenues were devoted itwouldindicates that take 2.5years to eliminate on debtrepayment. For of250% aratio instance, Provincedebt ifthe spentallofitsrevenues only ofOntario the AuditorGeneral Officeof provincial jurisdictions;andthe budgetsandbudgetupdates;of provincialjurisdictions;federal other of Statements andConsolidatedFinancial AnnualReports cial Statements; and AnnualReport ProvinceofOntario Sources ofdata: Canadian Jurisdictions,2016/17 Ratiosof DebtandtheNet-Debt-to-GDP Figure 5:Net NL NL QC NB ON Federal NS MB PEI BC SK AB 7.3.2 Revenue Expense to Ratio of Interest As shown in Figure 6 ($ million) , this ratio declinedfrom ratio , this Net Debt 323,834 758,763 181,141 24,365 13,926 19,344 14,959 11,288 41,869 14,674 2,208 Net Debt to GDP Net Debtto Consolidated Finan 43.9 39.2 39.0 35.4 34.6 34.6 33.1 45.2 14.9 14.3 (%) 6.0 - - - 100% 150% 200% 250% 300% of Ontario 2018Statements; the AuditorGeneral Officeof Budget;andthe Ontario March31,Sources ofdata: 2018, ConsolidatedFinancial ProvinceofOntario Revenue, 2002/03–2020/21 ofTotal Annual DebtasPercentage Figure 6:Net ment to keep itsannualinterest relatively expense have beenatrecord low levels,govern enablingthe As noted above, interest past few rates inthe years most significant beinginterest-rate risk. the risks, toward paying interest ondebtby 2020/21. government collectswillgo in revenue the that This meansapproximately dollar 8.4centsofevery 2017/18 andisprojected to be8.4%in2020/21. to 8.5%in2015/16. stood Theratio at7.9% in broader publicsector,the hasdecreased ratio the statements beginningin2015/16. By including Province’s consolidated financial inthe reported interest increased both andrevenue expense which broader publicsector onaline-by-linethe basis, 2014/15. In2016/17, government consolidated the heldsteadyratio ataround 9.0%from 2010/11 to actualinterest-expense-to-total-revenuesand the decade, lows beginningofthis historic sincethe orlessersharea greater oftotal revenues. past borrowings takes extent servicing to which the FairHydroPlan. netpensionassetsandthe forthe Note: Netdebtrestated 50% 0% The Province’s debt also exposes it to further The Province’s itto debtalsoexposes further As The interest-expense-to-revenue illustrates ratio

Figure 7 2002/03 2003/04 2004/05

shows, interest rates have beenat 2005/06 2006/07 2007/08 2008/09 Public Accountsof the Province 2009/10 2010/11 2011/12 2012/13 2013/14 Projected Actual 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

- 2020/21 51

Chapter 2 Chapter 2 52 to respond economiccircumstances. to changing government willhavemeaning the lessflexibility more accumulated interest debt, will bepaidonthe near future as expected to inthe continueto rise annualdeficit. increasingtherefore the means more money will go toward interest expense, interest on Provincial This expense debtwillrise. average the debt,then paidonmaturing that than Province refinances debtatahigherinterestrate 1,April 2017, andOctober 24, 2018. When the itskeyada raised lendingrate five timesbetween low current rates. However,the BankofCan the its annualborrowings inorder to take advantage of extent weighted by increasing the average of term Province hasmitigated itsinterest-rate to some risk debt. outstanding will berequired to pay Province’s interest onthe ofrevenueseducation, becauseahigherproportion care and ashealth such to provide public services government willhave considerably lessflexibility in 2017/18 the that isanincreasing risk andthere significantly. However, interestrates beganrise to steady even asitstotal borrowing hasincreased 10% 12% 14% 2018Statements; ofOntario OfficeofAuditorGeneral Budget;andthe Ontario March31,Sources ofdata: 2018, ConsolidatedFinancial ProvinceofOntario 2002/03–2020/21 Figure 7: Revenue, Expenseto RatioofInterest 0% 2% 4% 6% 8% The ratio ofinterestThe ratio to expense revenue is As we noted the inprevious AnnualReports, 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Projected Actual 2014/15 2015/16 2016/17 2017/18 2018/19

- 2019/20 2020/21 to spend on other things. Toto things. spendonother “crowding- putthis ofgovernment isless resources,proportion there est costs. Asinterest costs consumeagreater programs: other year.this following: They includethe remain relevant sameobservations load—and the alarge debt quences Province for the ofcarrying last year conse highlighted the Our commentary government programs. will not andfuture beavailable for current other ofrevenuesdecisions meanagrowing portion Past governments’ borrowing anddebt-servicing health, andsusceptibility to health, major risks. financial andinstitutional strengths, industrial economicresourcesgovernment’s andprospects, agenciesassign arating, factors asa considersuch (Fitch). To (S&P),DBRSandFitch Ratings Ratings Standard (Moody’s), Global andPoor’s Service ors four main credit-rating agencies are Moody’s Invest capacity to generate itsdebt.The revenue to service basedlargely creditworthiness onits ernment’s specialized agencies, credit assessagov ratings costs: lead to higherborrowing enue to interest payments. will have to devote ofitsrev ahigherproportion becauseit less flexibility to provide publicservices government again, willhave the rise considerably 3.6% in2017/18. However, ifinterest to rates start about 8.4%in1999/2000, dropped to butthat it was paying anaverage effective interest rate of borrowing hasincreased significantly. example,For interest relatively expense steady, even asitstotal increases: education. post-secondary spendsmore on ondebtinterestcurrently than into governmentout” effect perspective, the High 7.4 Consequences of Debt-servicing costs cutinto costs fundingfor Debt-servicing Potential could downgrades credit-rating Greater to vulnerability interest-rate Indebtedness Ontario hasbeenableto keepOntario itsannual As debtgrows, sodointer Prepared by - - - - - a reasonable timeframe. debtburden andto setOntario’s afeasible target in some timeto determine itsstrategy for addressing ment hasonly recently taken officeandwillneed incial debt.We acknowledge new govern the that itmakes around choices prov the issue andclarify mation to promote ofthe understanding agreater not prevent government from providing the infor government. the soleprerogative the government of policyandthus strategies to pay down debt,are questions that of Province how debtthe shouldcarry, andthe much We ultimately, recognize that, decisionsabout rating. below acertain debt, becausesomeinvestors willnot holddebt potential the marketalso shrink for agovernment’s of higherinterest rates. downgrade Arating could form premium, inthe forin return risk agreater ingly, investors government willlendto only that agovernment willdefaultonitsdebt.Accordthat agency believes isarelatively there higherrisk rowing, alower with an indicatingthat rating ofafuture economicdownturn. risk the projection ofongoingdeficits,and debt burden, the Province’s highandrising includingthe outlook, credit cited regarding several Ontario’s concerns four mainagencies remainedrating unchanged, the credit WhileOntario’s increased credit risk. ince’s the Provnegative,their assessmentof reflecting to debtfrom stable outlookforrating Ontario’s Debt Burden 7.5 Final Thoughts on Ontario’s government work toward development the ofa Province’s growing total debtburden, the We inorder to recommend that address the However, aswe last year, observed should this cost offuture bor the A credit affects rating In 2018, andFitch Moody’s revised both their RECOMMENDATION 2 ------given the WSIB’sgiven the significantunfunded liability however,results because itisclassifiedasa“trust”; government previously excluded WSIB’s financial WSIBfunding to ensure the remained viable.The Province the might have that toany provide risks there financial statements, particularly if were the Province’s consolidatedfinancial results from ment reconsider itsdecisionto WSIB’s exclude the worker benefits. andfutureits existing commitmentsto provide WSIB ofthe beingunableto ultimate meet risk the WSIB’sposed to the financialviability, including unfundedliability andmagnitudeofthe growth the Our ers. financial obligations to pay benefits toinjured work WSIB’s valueofthe assets anditsestimatedthe unfunded liability, between difference isthe which the growth in WSIB’s aboutsignificant concerns premiums onemployerthrough payrolls. receives nofundingfrom government; itisfinanced toassistance workers job.TheWSIB injured onthe isto andmedical providepurpose incomesupport Safety andInsurance Act,1997 created by corporation the is astatutory The Workplace Safety Board and Insurance (WSIB) 8.0 Update on WSIB fiscal health. debt reduction strategy to improve Ontario’s development ofthe ofa to-GDP aspart ratio, target net-debt- andtimelineto reduce the ment willdetermine andset anappropriate Financial CommissionofInquiry, govern the Independent debt. Asrecommended by the The government steps istaking to address public target net-debt-to-GDP for the ratio. total-debtlong-term reduction plan,includinga We govern previously the recommended that past decade,weOver the anumber of raised MINISTRY OF FINANCE RESPONSE OF FINANCE MINISTRY 2009 AnnualReport Public Accountsof the Province discussed the risk that that risk discussedthe (Act). Its primary (Act). Itsprimary Workplace - - - 53

Chapter 2 Chapter 2 54 ers. AsofDecember 31,ers. 2017, underRegulation and anannualEconomicStatement to stakehold amendment. this with concurred used to valueitsassets andliabilities.OurOffice the method changing Ratio by funding Sufficiency 2014, way WSIB andchanged the the calculates the tion 338/13 in2013. 1, Itcameinto force January by specifieddates:Ratios followingensure itmeets the fundingSufficiency 1,Effective January 2013, itrequired WSIB the to Regulation 141/12 Act inJune2012. underthe government passed the report, mendations ofthe followingWSIB the key with elements: ticular callingfor anew fundingstrategy for the anumberofrecommendations, inpar contained safety system. andinsurance TheMay 2012 report workplace financialviabilityofOntario’s long-term review to adviceonhow obtain to best ensure the 2010, WSIB the announcedanindependentfunding ity hadgrown to almost $13 billion. InSeptember fiscalperformance. government’s statements would havethe asignificantimpact on consolidatedWSIB government’s financial inthe WSIB Includingthe the operates trust. like atrue factors, we other and various questioned whether • • • • • • The WSIB issues quarterly Sufficiency Reports RegulaThe government alsopassedOntario recom andtoIn response to the ourconcerns As ofJune30,2010, WSIB’s the unfundedliabil 100% onorbefore December 31, 2027. 80% onorbefore December 31, 2022;and 60% onorbefore December 31, 2017; 20 years. 90%–110% Ratio within fundingSufficiency WSIB toputting the oncourse achieve a measures); and areasonable timeandby reasonablewithin sufficient funds to pay workers’ benefits WSIB the couldnot generate inwhich crisis Ratio (atippingpointisa ing Sufficiency beyond a“tippingpoint”of60%fund WSIBmoving the asquickly asfeasible advice; best actuarial rate basedonthe realistic assumptions, includingadiscount ------with no wage loss within 12 months, which results nowage 12 which with losswithin months, work outcomes(91% ofworkers to returned work ance in2017 resulted from improved return-to- results andunfundedliabilitycompared to 2016. WSIB’s ofthe operating provideswhich asummary ance was strong in2017, asillustrated in WSIBrecent planisavailable onthe website. improveRatio. Themost itsfundingSufficiency measures taken to the itdescribes ment, inwhich the economic state SufficiencyPlanwithin of the its December 31, 2022,fundingrequirement. in 2016).This WSIB meansthe hasalready achieved WSIBRatio of95.8%(87.4% aSufficiency reported 141/12 asamendedby Regulation 338/13, the Ontario Placeinto apublicparkOntario andtrail. to remediate contaminated landownedistry) by ofTourism, Ministry the (Min Culture andSport treatment ofabout$3 millionby ofan expenditure auditevidence appropriate topriate determine the due to sufficientandappro difficultyin obtaining tion’s December 31, 2017, financial statements was annual financial statements. ment agencies consolidated Province by the inits significant financial statements ofall govern other Public Accounts 2017/18: Volume 2alongsidethe to have its2017 financial statements included in deadlineset bythe Treasury Board Secretariat This year, didnot meet PlaceCorporation Ontario Ratio liability andhasaSufficiency over 100%. unfunded iteliminatedter the that Results Report (10.7%returns in2017, compared to 6.3%in2016). growthone year)ininvestment and significant in fewer benefitspaidout than longerover periods 2017 Financial Statements Place Corporation 9.0 Ontario The WSIB’s continuedstrong perform operating The WSIB’s andfinancialperform operational The WSIB now itsannualupdate incorporates The delay in finalizing Ontario PlaceCorpora The delay infinalizingOntario The WSIB announcedinits2018 SecondQuar Figure 8 ------, - - itors to provide more information in their report on itors to report provide in their more information December 15,after 2016. Thechanges require aud endedonor on financial statements for periods standards for audit reports current changes to the dards Board (IAASB)implemented significant AuditingThe International Stan andAssurance Auditor ofOntario. General opinion onSeptember 5,2018,the Officeof by the werePlace Corporation issuedanunqualified audit standards. The2017 financial statements ofOntario Canadianpublicsectoraccordance accounting with ofapproximatelyremediation expense $3 millionin asrevenue andacorresponding Place Corporation Thistransferporation. was recorded by Ontario Place Cor to Ontario Ministry transfer from the asaninter-entity expenditures treating the ported Statements WSIBFinancial Source ofdata: Results and Unfunded Liability, (WSIB) Operating Board and 2017Insurance Figure 8: Safety Workplace and2016 Unfunded Liability Total Stakeholders WSIB to IncomeAttributable Comprehensive Less: Non-controllingInterests Total Income Comprehensive Remeasurement ofemployee definedbenefitplans Legislated obligationsandcommitments expenses andother Administration Loss ofRetirement IncomeFundcontributions Benefit costs Expenses income Net investment Premiums Revenue Auditor’s 10.0 the Changes to Evidence that was ultimatelyEvidence that sup obtained Report - - - - include, butare not limited following: to, the report independentauditor’s changes to the willfollowreport Thesignificant anew format. the Province,the auditor’s financial statements of auditor.the management responsibilities ofboth and and the auditworkstatements audited, the performed, financial the describes that standardized report is financial statement auditgenerallyreport ashort, December 15, 2018. is applicablefor allauditsending onorafter auditing standards for financial statements, and Standards sets Board Canadian (AASB),which have Audit by andAssurance beenendorsed the auditwork Thechanges nature ofthe performed. the organization, itsfinancial statements, and the • 31, March the with Starting 2019, consolidated As shown in as is currently the case. the as iscurrently end, instead ofatthe report beginning ofthe opinionwillappearatthe The auditor’s Section 3 Public Accountsof the Province above, the current above, current the ($ million) 3,556 7,693 4,137 3,247 4,779 2,914 3,147 (309) 2017 252 409 710 273 56 ($ million) 2,854 3,925 2,682 3,458 6,312 4,808 1,504 2,747 (172) 2016 244 376 35 56 55

Chapter 2 Chapter 2 56 These couldinclude: statements.the financial the audit of significance to professional judgmentwere auditor’s in the ofmost new sectionto communicate key auditmatters that organizations, to for includea certain report itor’s • • • • • • • One of the IAASB’s key IAASB’s aud changesOne ofthe callsfor the the auditor’s planned audit approach, includ planned audit approach, auditor’s the required that circumstances amodification to evidence; and audit sufficientandappropriate obtaining significant difficulty, in forinstance auditor encountered the areas inwhich auditor judgment; involving significantmanagement or or risks areas identifiedassignificant • • • that: annual report) (for example, information” pares “other an responsibilities. their of adescription ing process, alongwith oversight financial report with ofthe relevant responsibilities. ethical other the auditor’s entity andhasfulfilled auditor isindependentofthe the ment that • • • respect to: ticular with responsibilities, inpar auditor’s tion ofthe A new section will be added if the entitypre A new sectionwillbeaddedifthe charged willidentifythose The report willincludeanew state explicit The report anenhanceddescrip willcontain The report audit. the knowledgestatements orthe in obtained financial the materially consistent with is information other the about whether conclusion auditor’s includes the auditor; and ofmanagementinformation andthe other responsibilities for the the explains report; independentauditor’s the contains financial statements. audit group basis ofaccounting;and going-concern useofthe management’s of appropriateness concluding onthe oversight;with charged those communications with ------during the auditprocess. the during Annual Report chapterthis dated ofour financial statements in Province’s consoli from ourauditofthe arising ever, we communicate currently key auditmatters How report. matters inourindependentauditor’s by law orregulation to key communicate the audit ters by law orregulation. OurOfficeisnot required itor isrequired to key communicate the auditmat discretionary,matters iscurrently aud unlessthe lished accountingstandards. Examples include: wholesaleapplicationofindependently estab the than tions for specificaccountingtreatmentsrather 2011 and2012 abilityto make givingitthe regula vious government passedlegislationin2008,2009, volatility results. inannual reported generate extentto they to adopt potential the them ornet debt,governmentssurplus may bereluctant annualdeficit/ urement affecting oftransactions the accounting significant impactfor andmeas on changesfinancial issues.When to standards have a increasingly complex andemerging transactions financial statements. basisforgovernments preparation oftheir asthe andlocal Canadian federal, provincial, territorial Canadian PSAS have beenwidely adopted by Accounting Standards 11.0 Use of Legislated • The new standard on communicatingkey audit As discussedinour Over time,standards were developed to address control. internal ing asaresult ofasignificantdeficiencyin January 1,January 2012. Subsequently, changes were (GAAP), effective accounting principles U.S.accordance with generally accepted ment, to prepare itsfinancial statements in governtime wholly owned Ontario by the Administration Act In 2011, aregulation underthe and to those charged with oversight charged with andto those 2017 AnnualReport directed Hydro One, at the directed Hydro One,atthe Financial , the pre , the ------• • use U.S. GAAP to results ofHydro record the U.S. GAAP. government to chose Whenthe its financial statements inaccordance with PowerOntario (OPG),to Generation prepare owned government businessenterprise, government alsorequired wholly another Torontoon the Stock Exchange in2015. The Hydro Onefollowing itsinitialpublicoffering regulation nolonger this appliedto that such made to the effect. in effect. CanadianPSAS,in accordance while with jointly was sponsored pensionplans,which a fullvaluationallowance to berecorded for time-limited regulation was passedrequiring 2015/16 consolidated financial statements. A preparation ofthe the in connectionwith statements. This legislated provision was used ces usedto prepare itsconsolidated financial accountingpoliciesandpracti regarding the to make regulations fullauthority ment with cial Administration Act The 2012 amendedthe Budget further PSAS.treatment isinaccordance with related accounting assets.the Thisprescribed on expense recognize amortization as they enue by samerate transfer recipients atthe amountsaredeferred to bebrought into rev The recipients contributions.” as“deferred assets capital toof tangible beaccounted by transfers for acquisitions capital andtransfers government regulations requireOntario ments asrequired by CanadianPSAS. 31,March 2017, consolidated financial state Province’s of OPGandHydro Oneinthe results ofrecording the purposes IFRS for the annual deficit.Thegovernment adopted Province’s onthe effect had nomaterial U.S. GAAP, differences andconcludedthese between differences the examined IFRSand Financial Standards Reporting (IFRS),we than International financial statementsrather Province’s consolidated One andOPGinthe Financial Administration Act to provide govern the Finan

- - - - - to includeaqualification inherauditopinion. AuditorCanadian PSAS, the iscompelled General whatitwould than beusing materially different is under legislated accountingstandards that ability andtransparency. credibility, itsfinancial reporting maintain account those ofCanadianPSAS,specifically inorder to generallywith accepted accountingstandards, to prepare itsfinancial statements inaccordance continue Ontario that Itiscritical Annual Reports. treatment onanumberofoccasionsinourprevious potential useoflegislated accounting ernment’s Accounting Board. PublicSector bying standards established the Province the follows account factthat the of the provisions need for these inlight reconsider the tomethods befollowed Province, by the and accounting prescribe tion andregulations that We government revisit recommend the legisla • If the government reports a deficit or surplus adeficitorsurplus government reports If the govWe ofthe risk have issueofthe the raised RECOMMENDATION 3 than as an asset in the Province’s consolidated asanasset inthe than ence would berecorded rather asanexpense differ legislated accounting,the the Without rate reduction. electricity as aresult ofthe ratepayersbeing collected from electricity generators are owed lesseramount andthe between difference the whatelectricity legislation.This“asset” representsthrough government assetto creating aregulatory the net debt.The“legislated accounting”refers showing anannualdeficitandincreases in to improperlying/financing structure avoid government legislatingacomplex account Money for Fiscal Transparency, Accountability andValue titled Most recently, asnoted inourSpecialReport tion 3 in financial statements. Asdescribed the transactions to transactions complythe PSAS. with The Fair about Hydro Plan:Concerns above, government hasadjusted the , we expressed concerns about the , we aboutthe concerns expressed Public Accountsof the Province Sec ------57

Chapter 2 Chapter 2 58 ince’s reported financial results. reported ince’s and would havethe Prov asignificantimpact on way Province items the the accountsforaffect these Their finalaccounting-standard determination will challengenificant to PSAB the past overfew years. have that posedasig ment businessenterprises) and useofRate-Regulated Accounting ingovern publicsector (use ofFinancial inthe Instruments public sector. accounting standards are for most appropriate the statement preparers andauditors, onwhat stakeholders, includingfinancial- among itsvarious (PSAB) aconsensus faceschallenges inreaching same basisasitsconsolidated financial statements. provincial budgetOntario’s isalsoprepared onthe publicpurse. managementgovernment’s ofthe allowing publicto assessthe legislators andthe fair, consistent andcomparable to previous years, is annualdeficitorsurplus government aboutthe providedPSAS information by ensures that the its consolidated financial statements. Following ate Province standards for the to useinpreparing Canadian PSAS most appropri continueto bethe Standards Ongoing Accounting- 12.0 the public, the Legislature and other users. Legislature andother public,the the to inreporting transparency andaccountability that support vide high-quality financial reports accepted inorder to accountingprinciples pro generallycial statements inaccordance with The Province iscommitted to prepare itsfinan We discusstwo significant accountingissues However, PublicSector Accounting the Board RESPONSE TREASURY BOARD SECRETARIAT Matters ------new standard provides treatment guidanceonthe 1, April beginningonorafter 2015.periods The was slated toments that becomeeffective for fiscal sector accountingstandard onfinancialinstru annual deficitorsurplus. agovernment’s changes shouldaffect such whether financial statements and,inparticular,in their heldbycontracts governments shouldbereflected fairvalueofderivative changes inthe whether akey began in2005,with issuebeing instruments develop anew financial standard for reporting exchange PSAB’s contracts. forward project to swaps andforeign- ascurrency such derivatives Financial includeprovincial instruments debt,and derivatives werederivatives acquired to avoid. This,intheir the volatility that very to the inappropriately report yeargains would andlosses each Province force the real government. economicimpact onthe arederivatives would held,andtherefore have no such over other that total each period the offset underlying andtheir derivatives debtwouldon the mature. them debtsassociated with untilthe derivatives these intention andabilityto the hold ithasboth that related to holdings,and itslong-term-debt risks solely to manage andinterest-rate foreign currency itusesderivatives view isthat losses. Ontario’s recognition ofunrealized gains and ments andthe fair-value introduction ofthese the remeasure donot support includingOntario, jurisdictions, and losses. a new financial statement of remeasurement gains recorded annually instruments in losses onthese anyrecorded unrealized atfairvalue,with gains or includingderivatives, to be financial instruments, to comparable private-sector standards. andissimilar of government financialinstruments, 12.1 Financial Instruments 2011,In March PSAB approved anew public- Ontario preparers argue that recording paper preparers argue that Ontario Accordingly, remeasurement gains andlosses Some financial-statement preparers inCanadian One ofitsmainrequirements isfor certain - - exclude hedge aformal accountingstandard from accounting.” PSAB itsdecision to reconfirmed doesnotto includehedge that adopt anapproach on ahedge accountingmodel,PSAB hasdecided ofconsensusinternationally lack project, andthe financialinstruments the ments issuedduring givenstated “responses that to dueprocess docu Conclusions — Basisfor Inits transactions. underlying isunrepresentative ofthe a mannerthat ordeficitin impact annualsurplus agovernment’s that may standard new financial-instruments the timingissuesin stakeholders, hasidentifiedcertain with incollaboration PSAB noted itsstaff, that consultations. these accounting standard during needforcommunity hascommunicatedahedge the standard. Theseniorgovernment cial instruments finan stakeholders onimplementation issuesofthe government andnot-for-profit the consulting with process. consultation the non-hedgeother during accounting issuesraised provisions transitional the andpotentially address to improve draft and willbeissuinganexposure effective datenew 1, standard to for the April 2021, In2018,instruments. extended the PSAB further options complex for financial of reporting these 2019, for seniorgovernments study to allow further effective date new 1, standard to forthe the April 1,April 2016. In2015, however, PSAB extended standards to fiscal beginningonorafter years underlying new standard.principles the 2014in February the the soundnessof confirmed and of dard by December 2013. PSAB completed itsreview stan to new reviewing financialinstruments the government finances. on transparent information provide publicwith the government and financingtransactions would not view, would of the economicsubstance not reflect Section PS2601, Foreign Translation Currency Since February 2016,Since February PSAB have with staff been effective date newPSAB for the deferred these PSAB committedIn response concerns, to such Section PS3450, Financial Instruments Foreign Translation Currency (Section PS2601), PSAB , and , - - - Rate-regulated accountingisacommonly accepted ent regulator frameworks. undermost regulatory utilities whoserates are regulated by anindepend unique aselectric nature ofentitiessuch nize the Rate-regulated accountingwas developed to recog 1,April 2021. standard inpreparation for implementing iton PSAB reassessesController Divisionasthe the Provincialbetweenthe Officeof ourOfficeand 2018.in March Board PS3450 suite meeting ofstandards atthe the sector accountingstandards. underCanadianpublic and inturn ing principles, underCanadiangenerallyprises accepted account allowablecurrently for government businessenter regulator. Rate-regulated accounting treatment is Energy Board, agovernment Ontario by the Hydro One,whoserates to customers are approved Power Ontario prises, Inc.(OPG)and Generation Province’s government-controlled business enter year incurred. costs would inthe these beexpensed principles, of financialposition. accounting Under normal lated statement entity’s accountingasassets onthe costs aredeferred typically set upunderrate-regu ratepayerfrom the infuture years, andthese owned entityto recover costs current-year certain government regulator allows privately often the eventualthe recovery oftoday’s outlays. capital The government-approved rate increases willallow for future that reasonable expectation based onthe ofanew powerstruction plant—over alonger term out large expenditures—for capital example, con privately ownedis usedby these utilitiesto spread many rate-regulated prescriptive rules, accounting owned, government-regulated utilities.Subjectto U.S., inthe practice especially amongprivately Business Accounting in Government Use of Rate-Regulated12.2 We continueto recommend ongoingdialogue Rate-regulated accounting isusedby two ofthe Enterprises Public Accountsof the Province ------59

Chapter 2 Chapter 2 60 continue to deferred apply policiesfor existing their for rate-regulated entitiesby allowing to them 2014 asanattempt adoption to ofIFRS easethe entities followed over few next years. the year extensions to defer adoption ofIFRSby these qualifying rate-regulated activities.Multipleone- IFRS changeovermandatory date for entitieswith aone-year 2012granted extension inMarch to the discussionswere AcSBthese place,Canada’s taking U.S. to harmonize GAAP andIFRS.As efforts the of regulated accounting hasbeendiscussedaspart regulated ofrate- accounting. Theappropriateness GAAP allowed for, andcontinuesto allow for, rate- ada converted to IFRSin2012. time,U.S. At that policies (U.S. GAAP) and IFRSwere inplaceasCan U.S.to harmonize generally accepted accounting scape hascontinuedto evolve Efforts sincethen. rate-regulated accounting. and so,by default,IFRSstandards didnot permit provisions addressed rate-regulated that activities time, IFRSstandards didnot includeaccounting 1, January 2012.beginning onorafter At that IFRSforstatements fiscal inaccordance with years financial shouldprepare their business enterprises that allgovernment Board (AcSB) reaffirmed 2012,in January Accounting Canada’s Standards in 2012. Ourcommentswere factthat, basedonthe AccountingInternational Standards Board (IASB), StandardsReporting (IFRS),developed by the werethey converting to Financial International to like beendingfor Canadabecause jurisdictions ofrate-regulated era the accountingappeared that government.by the reported annualdeficitorsurplus city rates andthe given year. Thiscouldultimately electri both affect costs Hydro OneandOPGwillrecognize ina which regulated entities,ithassignificantinfluenceon regulatorgovernment andthe the controls both bodyto setregulatory rates. We note sincethe that, provisions needfor anindependent outlinethe An interim IFRS standard was issued in January IFRSstandard wasAn interim issuedinJanuary However, rate-regulated the accounting land weIn ourprevious annualreports, outlined As noted above, rate-regulated accounting - - - rate-regulated assets 31, asofMarch 2018. Future For example, OPGrecognized $7.2 billion innet financial statements. government’s impact onthe (OPG)andHydroGeneration One,hasasignificant Power asOntario such ment businessenterprises, time. atthis basis,isuncertain interim asopposedto an government businessenterprises, accounting willbeallowed onanongoingbasisin rate-regulated determination ofwhether and the reviewassets andliabilities.Theresult ofthis comprehensive review onaccountingfor such IASBcompletesassets andliabilitiesuntilthe its relief from having to derecognize itsrate-regulated standard provides adopter afirst-time ofIFRSwith 1, onJanuary 2015.starting Essentially, interim the rate-regulated balancesuponadoption ofIFRS ciples that support the development the ofconsistent support ciples that interrelated objectives prin and fundamental PSAB’s conceptual existing framework isaset of the future.solidated financial statements in Province’s con preparation ofthe the might affect PSAB hasbeenstudying over past year that the This sectionoutlinessomeadditionalitems that accounting ingovernment businessenterprises. of standards useofrate-regulated impacting the revenue andspendingdecisions. ernment’s andmaythe gov impactannual deficitorsurplus wouldin turn leadto Province’s volatility inthe results. annualoperating One andOPG’s This would volatility ofHydro increase the enterprise rate-regulated accountinginagovernment business doesnot accommodate underIFRSthat reporting Financial Performance 13.1 Concepts Underlying Initiatives Accounting Board 13.0 Public Sector The useofrate-regulated accountingingovern We willcontinueto development monitor the - - - - Sector Accounting Standards (IPSAS) set outby the intent to review to Public itsapproach International In itsmost recent strategic plan,PSAB signalledits standard.presentation framework andarevised financial statement for arevisedto conceptual drafts issueexposure will take into accountinput received andhasplans by Novemberprinciples 28,2018. force Thetask statement ofconcepts andstatementon the of PS 1100, Financial Statement Objectives tions: framework would that replace two sec existing ment ofconcepts proposes arevised conceptual Thestateconcepts andastatement ofprinciples. Model and the Reporting (2012) and inPublicSector Financial StatementsPerformance Public Sector Entities papers: consultation issued three of financialperformance. task the force this end, To concepts existing underlying measurementthe the basisfor evaluatingtual framework; the form these concep ofthe buildingblocks stakeholders onthe publicsector.the conceptual existing framework inthe principles for concepts and ofthe appropriateness review the objective force’s comparisons. Thetask was to budget-to-actual results anddistort ity inreported contend causevolatil they proposed standards that by several governments regarding and current work Task Force raised inresponse to concerns publicinterest. the serves an objective, credible andconsistent mannerthat accountingstandards are developedensure that in standard-settingdiscipline into process to the isto instill accounting standards. Itspurpose International 13.2 Review of PSAB asked stakeholders to submitcomments In May 2018, force task issuedastatement of the step first force’s The task was to seekinput from In 2011, Conceptual Frame PSAB the formed PS 1000, Financial Statement Concepts Conceptual Framework Fundamentals (2011), Strategy (2015). Measuring Financial Measuring Characteristics of . and - - - - - tion paperin2019. received, PSAB intends to issueasecondconsulta until September 28,2018. feedback Basedonthe of adaptation ofIPSAS. would that seesomeform intermediate approaches and issuingstandards. PSAB alsoproposed two IPSASBof IPSAS, responsible with for developing end,fulladoption other Canadian standards; atthe role insettingend, PSAB itscurrent maintains of fourstrategy international alternatives. At one strategy.international PSAB presented acontinuum PSAB shouldapply that indeveloping criteria its the papertosultation solicitinput from stakeholders on Board (IPSASB). 2018, InMarch PSAB issuedacon PublicSectorInternational Accounting Standards that aretirementthat obligation berecognized when: adoption Thenew section requires ispermitted. 1, April beginning onorafter 2021, earlier although landfill sites. no longer inproductive assolid-waste use,such of anuclearreactor, assets capital andtangible decommissioning in productive asthe use,such assets capital currently The scopeincludestangible (for example, retirement). assetsital from service removal cap permanent oftangible the ated with oflegal obligations associ reporting addresses the 2018,In March PSAB approved anew standard that 13.3 AssetRetirement Obligations • • • • PSAB proposals accepted onthese feedback The new standard iseffective for fiscalperiods estimate of the liabilityincludescosts directlyestimate ofthe A reasonable estimate canbe made.The benefits willbegiven up. future economic that There isanexpectation use,hasalready occurred. ment ornormal ity, develop as acquisition, construction, such liabil to the The past givingrise transaction estoppel. promissory from and legislation,contracts tions canarise Legal obliga assetgible capital from service. remove retirement costs inrelation to atan There isalegal obligation to permanently Public Accountsof the Province ------61

Chapter 2 Chapter 2 62 obligations. Bycontrast, unilateral transactions, by oneormore performance are characterized to apayor.good orservice Exchange transactions obligations are enforceable promises to provide a exchange andunilateral Performance transactions. obligation distinguishes ence ofaperformance unilateral (non-exchange) Theexist transactions. main areas ofrevenue: exchange and transactions is permitted. 1, earlier April or after adoption 2022,although beginningon tion iseffective for fiscalperiods Transfers scopeof but falloutsidethe publicsector inthe addresses revenues arise that of revenues. Thenew standard recognition, measurement andpresentation the In June2018, PSAB approved anew standard on would berecorded asanexpense. related retirement the costs accounting purposes, related assetuse, orifthe is not recognized for is recognized asanexpense. liabilitydueto timing,amountordiscountratethe date. Anyreporting subsequent remeasurement of ment obligation must bereviewed financial ateach component thereof. related asset, capital ful life ora tangible ofthe over remaining use include amortization the andsystematica rational manner. Thiscould assetcapital shouldbeallocated to in expense tangible amountofthe carrying included inthe liability.asset sameamountasthe by the Thecost related capital tangible amountofthe carrying the 13.4 Revenue The new standard distinguishes between two related assetIf the isnolonger inproductive liabilityfor aretire amountofthe The carrying Upon entitywould recognition, the increase which to liability. estimatewhich the with best method the technique isoften tenance Apresent-value andmonitoring. including post-retirement main operation, retirement to the activities, attributable and PS 3510, Tax Revenues PS 3410, Government PS 3400, Revenue . Thesec - - - , - - Benefits project to improveexisting PSASthe sec In December 2014, PSAB approved anEmployment claim ofeconomicresources. andapast to event gives a rise that authority is the payor.the to transfer orgoodsservices best depictsthe over method oftime,dependingonwhich aperiod obligations may besatisfiedatapointintimeor obligation. Performance the performance satisfies public-sector entity recognized asorwhenthe obligation. a performance asfinesandpenalties,are not such associated with ment benefits. A small change in the discount ratethe discount change ment benefits.Asmall in a key economicassumption employ inmeasuring to commentondiscountrates. Thediscountrate is public sector. inthe choice isstill anappropriate deferral whether to commentsought input from stakeholders asto immediate-recognition Theinvitation approach. ing frameworks inCanadahave moved toward an iod. However, over account past decade,other the to gains defer andlossesover such anextended per past, itwas inCanada commonaccountingpractice ence, plusany updates assumptions. to the Inthe between experi assumptions plans’ these and the differences gains andlossesmeasureActuarial the valuing pensionplanobligations andplan assets. ties needto make significantassumptions when losses. Governments public-sector andother enti gains and ofactuarial deferral to commentonthe and Terminationpensated Absences Benefits Benefits sections, existing review the tions were issueddecadesago.Theproject aimsto wereplans that sec developed existing sincethe accounting concepts andnew typesofpension tions by related into taking accountchanges inthe 13.5 Employment 13.5 Employment Benefits Unilateral revenues are recognized whenthere Revenue from anexchange is transaction In November 2017, PSAB issuedaninvitation In December 2016, PSAB issuedaninvitation and PS 3255Postemployment Benefits,Com PS 3250Retirement . ------voted on. The estimates of those ministries that are voted that ministries on.Theestimates ofthose lature for amaximumoftwo before hours being Committee, Legis by are debated the inthe report estimates selected Committee, by following the a ofthe forlature. Orders for each Concurrence review Legis to onthis the and presents areport (Committee) estimates reviews selected ministry spending. TheStanding Committee onEstimates program-by-program Legislative Assemblyin the outlining, ona detailed Expenditurement tabled Estimates presenting itsbudget, govern after Shortly the Assembly.of the samevote Office Estimates the ofthe inthe within onanyreport transfers ofmoney between items Act Assembly year.the Inaddition,section91 ofthe Warrants andTreasury Board Ordersissuedduring Auditor isrequired General onany to report Special Under section12 ofthe plans. asshared-risk pension planssuch willfocustion to onnon-traditional commentthat 9, 2018.March PSAB planstoinvita publishathird date. settlement reporting rate atthe effective expected onplanassets return andthe the cost entity’s ofborrowing, discussed includethe by many alternatives standard-setters. other Other used anapproach high-quality debtinstruments, market discountrate, includingthe the yieldof to alternativeexplored approaches determining range Theinvitation ofpractices. to comment ance isnot prescriptive andcanresult inawide guid obligation andrelated Thecurrent expenses. the benefit can significantlythe valueof impact of 14.1 Legislative Approval Matters 14.0 Statutory PSAB accepted from stakeholders feedback until

Expenditures requires that the Auditor requires the General that basis, each ministry’s planned ministry’s basis,each Auditor General Act Legislative , the , the - - - - - times even after the related fiscal times even the year is after over—so fiscal year—and some ofthe start the until after 7,March 2018. 31,ended March 2018, received Royal Assenton Act,2018ply considered to beVoted The Appropriations. are is approved, itauthorizes expenditures the Supply estimates. Act Oncethe as detailed inthe andlegislativecan bespentby ministries offices, a Supply amountsthat stipulates Act, the which byapproval approving for legal spendingauthority Legislature still needstothe provide itsfinal Legislature. by the Legislature,mittee, andapproved to reported the not selected are deemedto Com bepassedby the $219.5 million to $251.8 million. legislative officesfrom ofthe expenditures to $5.3 billion,andincreased total authorized ininvestmentsized expenditures from $4.6 billion The when the intended to betemporary, were both repealed Act was Supplementary Act Interim andthe the received Royal 7, AssentonMarch 2018. 1,from April 2017, to whenthe to allow it sufficient authority expenditures to incur 1,April 2017, andprovided government with the actswere Both expenditures. madeeffective asof ments, and$219.5 million inlegislative office $4.6 billionininvest expenditures, public-service government tothe incurup to $133.6 billion in December 14, 2017, respectively, andauthorized received Royal AssentonDecember 8,2016, and Act, 2017 2017–2018 for Appropriation Interim Supplementary 2017–2018for Act,2016 appropriations—the interim cal year, Legislature passedtwo the actsallowing to itspassage. prior For 2017/18authority the fis government usuallythe requires spending interim The are approved, Ordersfor Concurrence the After Because the legal spending authority under legal spendingauthority Because the Supply Act,2018Supply Supply Act Supply (Supplementary Act). Thesetwo acts (Supplementary Supply Act,2018Supply , which pertained to the fiscal toyear the pertained , which does not receive Royal Assent alsoincreased total author Public Accountsof the Province (Interim Act) and the Act)(Interim andthe received Royal Assent. Interim Appropriation Appropriation Interim Supply Act,2018Supply Sup ------63

Chapter 2 Chapter 2 64 transfers between programs within their ministries, ministries, transfers between their within programs issuing Treasury Board Orders to ministers to make Treasury forthe Board hasdelegated itsauthority until replaced by anew delegation. Since2006, 2006 employed underthe Executivethe Councilorto any publicservant any ofitsdutiesorfunctionsto any memberof provision allows Treasury the Board to delegate repealed actwas retained.tion 5(4) ofthe This Administration Act was the repealed andre-enacted within Legislature. inthe published andtabled have PublicAccounts have beenmadeandthe been when any from ouraudit finaladjustments arising to beclosed books The government the considers fiscal foryear. the books government closesthe the year. Theorder may bemadeatany timebefore voted not fiscal fully appropriations spentinthe reduction from other to ofexpenditures beincurred by increase acorresponding isoffset amount ofthe it was made.Theorder may bemadeonly ifthe for which the purpose out insufficient to carry any votedisexpected to be that appropriation amountof toizing expenditures supplementthe allows Treasury the Board to make anorder author Section 1.0.8 ofthe year 31, endedMarch 2018. government. the Lieutenant recommendation of Governorthe onthe by authorized isinsufficient.Special appropriation are Warrants the Legislature orfor by which the appropriation isno there for ofexpenditures which incurring the issuance ofSpecialWarrants authorizing of the Legislature isnot insession,section1.0.7If the 14.3 Treasury Board Orders Orders 14.3 Board Treasury 14.2 Special Warrants Even though the the Even though No SpecialWarrants were fiscal issuedfor the . Such delegations continue to . Such beineffect Financial Administration Act Orders-in-Council in December 2009,subsec Financial Administration Act Treasury Board Act,1991 Public Service of Ontario Act, ofOntario Public Service andapproved by allows for the Financial - - Source of data: Treasury Board Source ofdata: 2013/14–2017/18 ($million) Figure 9:Total Orders, Value Board ofTreasury of issue. fiscal 31,foryear endedMarch the 2018, by month and pastBoard five Orders issuedfor fiscal the years, contingency fund. centrally government’s controlled able underthe by amountavail areductiontion isoffset to the amountofanappropria the Board Orders inwhich are Treasury appropriations funds. Supplementary from contingency appropriations supplementary transfers betweenprogram andmaking ministries Treasury Chairofthe and to Board for the making Source of data: Treasury Board Source ofdata: Month Relating the2017/18 to FiscalYear Figure 10: by Total Orders Value Board ofTreasury $11,000 $10,000 Total September 2018 July 2018–August 2018 May 2018–June 2018 April 2018 March 2018 April 2017–February 2018 Month ofIssue $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 Figure 9 Figure 10 $0 2013/14 $4,332 summarizes the total valueofTreasury the summarizes summarizes Treasury summarizes Board Orders 2014/15 $4,291 2015/16 $3,963

168 118 33 2016/1 4 5 0 8 # $4,318 72

($million) Authorized $9,588 017/1 1,251 5,278 9,588 1,921 1,007 - 131 — 8

- 2017/18 fiscal year relatedthe following:to inthe organizations were Thewrite-offs off. written Crownthe from individualsandnon-government $353 million ($267 million in2016/17) dueto fiscal the Public year areAccounts. in to be reported anyThe amountsdeleted accountsduring from the subjectofasettlement ordeemeduncollectible. the accounts any Crown are amountsdueto the that an authorize Minister ofFinance,recommendation ofthe may Act Under section5ofthe 2017/18 Estimates. Votefers madewithin 201 respect to the with transfer(s) inour of the Act Assembly samevote, the section91within ofthe the Assembly item Officeof to another mates ofthe transfer Esti ofmoney from oneitemthe ofthe Economy Board ofInternal authorizes When the in isincluded andexpended, amountsauthorized the listing of2017/18 Treasury Board Orders, showing Gazette The Ontario 2017/18 fiscal expectedyear are to bepublishedin Orders issuedfor the information. explanatory in be printed lative Assembly, Treasury Board Orders are to 14.5 Uncollectible Accounts of Internal Economy Board 14.4 Transfers by the Authorized Exhibit 4 , the Lieutenant Governor, the inCouncil,onthe In the 2017/18In the fiscal year, receivables of Accordingly, According Legis Standing to Ordersofthe the requires we that make specialmention of this report. of this Order-in-Council The Ontario Gazette The Ontario Figure 11 in December 2018. Adetailed Financial Administration Annual Report shows trans the to delete from the , together with . Legislative - - - Source of data: Board of Internal Economy BoardofInternal Source ofdata: of theAssembly, 2017/18 FiscalYear Figure 11: Relating theOffice AuthorizedTransfers to Order-in-Council approval. ever, accountsrequired inthe actual write-off the Province’s consolidated financial statements. How inthe hadalready beenexpensed write-offs the against accountsreceivable balances.Most of a provision for doubtfulaccountsisrecorded Province’s consolidated financial statements,the accounting policiesfollowed preparation of inthe by ministry. write-offs Under the the summarizes Item 11 Item 6 Item 5 To: Item 4 Item 3 From: • • • • • • • Volume 2017/18 2ofthe PublicAccounts under the Student Support Program Program Studentunder the Support $45.8 million for uncollectiblereceivables decision; court U.S. Steel Canada(Stelco) to comply a with $150 million for aloanto extinguishing receivables ($39.2 millionin2016/17). andnon-tax $38.0 million for tax other ($27.3 tax health million in2016/17); and $17.1 million for uncollectibleemployer ($40.3 million in2016/17); $25.4 million for uncollectibleretail salestax ($45.9 millionin2016/17);gram Pro DisabilitySupport Ontario under the $34.4 million for uncollectiblereceivables million in2016/17);($64.4 tax $42.3 million for uncollectiblecorporate ($49.9 million in2016/17); Ontario Legislative Internship Program LegislativeInternship Ontario andPrecinctProperties atArms Sergeant Services Administrative andTechnologyInformation Services Legislative Services Public Accountsof the Province (274,800) (227,900) 284,800 189,900 28,000 - - $ 65

Chapter 2