Chapter 2 Public Accounts of the Province use of rate-regulated accounting in connec- 1.0 Summary tion with certain balances recorded by the IESO in connection with Ontario’s electricity rate reduction. This year, the audit opinion on the Province’s Canadian PSAS are the most appropriate stan- consolidated financial statements is unqualified, dards for the Province to use in preparing its con- Chapter 2 or “clean.” Based on our audit work, we have solidated financial statements because they ensure concluded that the statements for the 2017/18 that information about the surplus and the deficit is fiscal year are fairly presented and free from fair, consistent, and comparable to data from previ- material errors. ous years and from peer governments. This allows The issuance this year of an unqualified audit legislators and the public to better assess govern- opinion is significant in light of the fact that we ment management of public finances. issued qualified opinions in the previous two years. In Chapter 2 of our 2016 and 2017 Annual An unqualified opinion confirms that the consoli- Reports, we discussed the government’s use of dated financial statements accurately present the external advisors to provide accounting analysis, Province’s financial position and results for the year advice and interpretation. We also highlighted that ended March 31, 2018. the interests of Treasury Board Secretariat, the This year’s unqualified opinion came after the Ministry of Finance and the Office of the Auditor current government made appropriate changes to General are best served when the work of external the Province’s financial statements in two key areas advisors is brought to our attention and discussed to comply with Canadian public sector accounting on a timely basis when it impacts the consolidated standards (PSAS) as follows: financial statements of the Province in current and It recorded a full valuation allowance on the • future years. net pension assets relating to the Ontario We continue to recommend that Treasury Board Teachers’ Pension Plan and the Ontario Public Secretariat notify our Office and request our input Service Employees’ Union Pension Plan to when a private-sector accounting firm provides reflect that it has no legal authority to draw accounting advice to the government, and that the on the assets as at March 31, 2018. Secretariat consult with us when a government It excluded the Independent Electricity Sys- • agency or organization plans to engage and/or tem Operator (IESO) market accounts from retain the same private-sector accounting firm for the Province’s consolidated financial position both accounting advice and auditing services. in 2017/18 and restated the comparative In Chapter 2 of our 2017 Annual Report, we rec- 2016/17 balances. In addition, in 2016/17 ommended that our Office conduct an attest audit the government reversed the inappropriate 32 Public Accounts of the Province 33 of the December 31, 2017, financial statements of Treasury Board Secretariat, along with various the IESO. In early 2018, we undertook and com- other ministries. pleted a special audit of the IESO. Unfortunately, The Province’s growing debt burden (without we encountered a pattern of atypical pushback on plans to manage it) also remains a concern this our audit inquiries from the IESO Board. year, as it has been since we first raised the issue in In order to perform our work, we require certain 2011. This year, we again focus on the critical impli- information on all of our attest audits. The IESO cations for the Province’s finances of the growing consistently refused to provide us with written debt. The Province should provide legislators and acknowledgement of their roles and responsibilities the public with long-term targets for addressing with respect to our audit; nor would management Ontario’s current and projected debt. sign a representation letter confirming that they This chapter contains three recommenda- had provided us with all relevant information that tions, consisting of four actions, to address may affect the financial statements. As a result of our observations. these refusals, we issued a disclaimer of opinion as required by Canadian Auditing Standards. In our letters to the Standing Committee on Pub- lic Accounts on March 20, 2018, and April 11, 2018, 2.0 Background we highlighted significant issues with the IESO’s Chapter 2 financial statements that could potentially impact Ontario’s Public Accounts for the fiscal year end- the Province’s consolidated financial statements. ing March 31, 2018, were prepared under the Another of our statutory responsibilities relates direction of the Minister of Finance, as required to the Fiscal Transparency and Accountability Act, by the Financial Administration Act, and the Presi- 2004 (Act). The Act requires the government dent of the Treasury Board. The Public Accounts to issue a pre-election report on the province’s consist of the Province’s Annual Report, includ- finances ahead of a provincial election, and it ing Ontario’s consolidated financial statements, requires our Office to review that report. and three supplementary volumes of additional In April 2018, we tabled our report titled financial information. Review of the 2018 Pre-Election Report on Ontario’s The government is responsible for preparing the Finances (Pre-Election Report) in accordance with consolidated financial statements for the Province, the Act. The Pre-Election Report was the third and for ensuring that this information, including issued in Ontario (the first two were issued in 2007 many amounts based on estimates and judgment, is and 2011). presented fairly. The government is also responsible Between 2004, when the Act was passed, and for ensuring that an effective system of internal 2016, the fixed election date was set as the first controls, with supporting procedures, is in place to Thursday in October, every four years. However, authorize transactions, safeguard assets and main- the Election Statute Law Amendment Act, 2016 was tain proper records. passed in December 2016 to move the fixed elec- Our Office, under the Auditor General Act, is tion date to the first Thursday in June, every four responsible for the annual audit of these consoli- years, to ensure the fixed provincial election date dated financial statements. The objective of our would not overlap with Ontario’s municipal elec- audit is to obtain reasonable assurance that the tion dates. The impact of this amendment was to statements are free of material misstatements— reduce by 17 weeks the time between the issuance that is, free of significant errors or omissions. The of the Pre-Election Report and the fixed election consolidated financial statements, along with the date. Our Office completed our review with the Auditor General’s Independent Auditor’s Report, co-operation of staff at the Ministry of Finance and are included in the Province’s Annual Report. 34 The Province’s Annual Report also contains This year, the government released the Prov- a Financial Statement Discussion and Analysis ince’s 2017/18 Annual Report and Consolidated (FSD&A) section that provides additional informa- Financial Statements, along with the three Public tion regarding the Province’s financial condition Accounts supplementary volumes, on Septem- and fiscal results. This additional information is ber 21, 2018, meeting the legislated deadline. intended to enhance the fiscal accountability of the The Auditor General’s audit opinion on the government to both the Legislative Assembly and Province’s consolidated financial statements was the public. unqualified for the first time in three years because The three supplementary volumes of the Public the current government corrected the accounting Accounts consist of the following: issues that were of past concern (the incorrect • Volume 1—unaudited statements from treatment of certain pension plans’ surpluses and all ministries and a number of schedules the improper accounting design of the global providing details of the Province’s revenue adjustment refinancing portion of the electricity and expenses, its debts and other liabil- rate reduction). ities, its loans and investments, and other An unqualified opinion means that the consoli- financial information; dated financial statements are free from material • Volume 2—audited financial statements errors. The unqualified audit opinion is discussed in Chapter 2 of significant provincial corporations, Section 3.0 below. boards and commissions whose activities are included in the Province’s consolidated financial statements, as well as other miscel- laneous audited financial statements; and 3.0 The Province’s • Volume 3—detailed unaudited schedules 2017/18 Consolidated of ministry payments to vendors and Financial Statements transfer-payment recipients. Our Office reviews the information in the FSD&A, and in Volumes 1 and 2 of the Public 3.1 Auditor’s Responsibilities Accounts, for consistency with the informa- As the legislature’s independent auditor of the tion presented in the Province’s consolidated Province’s consolidated financial statements, the financial statements. Auditor General’s objective is to express an opinion The Financial Administration Act requires that, on whether the financial statements are free of except in extraordinary circumstances, the govern- material misstatements and are prepared in accord- ment deliver its Annual Report to the Lieutenant ance with Canadian PSAS so that they give a true Governor in Council within 180 days of