MacKay Building st Street P.O. Box 727 Yellowknife, NT XIA 2N5 Tel: (867) Fax: (867)

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1 CHARTERED ACCOUNTANTS MacKayLLP MacKay Building st Street P.O. Box 727 Yellowknife, NT XIA 2N5 Tel: (867) Fax: (867) mackay.ca Independent Auditors Report To the Members of the Law Society of the Northwest Territories We have audited the accompanying financial statements of the Law Society of the Northwest Territories, which compose of the following for the year ended and as of December 31, 2012: Combined Statement of Operations and Changes in Fund Balances Combined Statement of Financial Position Combined Statement of Cash Flows General Fund Statement of Operations General Fund Statement of Changes ~n Fund Balance General Fund Statement of Financial Position Assurance Fund Statement of Operations and Changes in Fund Balance Assurance Fund Statement of Financial Position Liability Fund Statement of Operations and Changes in Fund Balance Liability Fund Statement of Financial Position Discipline Reserve Fund Statement of Operations and Changes in Fund Balance Discipline Reserve Fund Statement of Financial Position Unclaimed Trust Monies Fund Statement of Operations and Changes in Fund Balance Unclaimed Trust Monies Fund Statement of Financial Position Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessanj to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit, We conducted our audit in accordance with Canadian generally accepted auditing standards Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. mackay.ca refers to the Canadian firm MacKay LLP 3

2 Independent Auditors Report (Continue) Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Law Society of the Northwest Territories as at December 31, 2012 and its financial performance and its cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations. Yellowknife, Northwest Territories July 16, 2013 Chartered Accountants 4

3 Combined Statement of operations and Chan~es in Fund Balances For the year ended December 31, Revenue A, pplication and admission fees Canadian lawyer insurance rebate Continuing professional development revenue Discipline cost recovery Investment and interest income (Note 4) Levies Membership fees Miscellaneous (Note 5) N.W.T. law foundation grant Restricted appearance fees Unclaimed trust monies $ 16,575 $ 16, ,775 18,800 3,571 15,528 35,137 76, , , , ,250 33,674 43,955 14,474 23,624 27,275 35,225 2,531 5, , ,827 Expenses Administration Amortization Awards and grants Bad debts Claims paid Committees Discipline costs Donations Dues and fees FLSC assessment and contribution Insurance Lawyer assistance (net of recoveries) Miscellaneous Office, postage and telephone Printing and publications Professional development expense Professional fees Recruitment - court reporter/administration Rent Spot audit Volunteer recognition 260, ,553 3,79O 4,675 20,464 20, ,460 18,815 34,306 14,155 12, ,470 16, , ,290 1,438 7,623 66,235 61,497 25,521 25,785 3,396 7,089 16,850 49,324 16,751 20, ,760 76,760 12,745 16, , ,911 Excess revenue Net assets, beginning of year Net assets, end of },ear 35, ,916 2,612,341 2,401,425 $ 2,647,434 $ 2,612,341 5

4 Combined Statement of Financial Position Assets December 31, 2012 Current Cash $ 625,127 Restricted cash (Note 6) 12,283 Short-term investments (Note 7) 552,564 Accounts receivable and accrued interest 13,500 Prepaid expenses 12,827 1,216,301 December 31, 2011 $ 282,769 9, ,066 32,490 12,829 1,208,862 Janua~ 1, 2011 $ 134,555 5, ,819 9,055 14,974 1,033,376 Restricted investments (Note 8) 1,457,943 1,445,846 1,391,439 Furniture and equipment (Note 9) 11,099 12,761 16,061 $ 2,685,343 $ 2,667,469 $ 2,44O,876 Liabilities Current Accounts payable and accrued liabilities 50,734 $ 67,953 52,276 Net Assets General Fund 308, , ,666 Assurance Fund 1,890,825 1,821,245 1,717,429 Liability Fund 336, , ,465 Discipline Reserve Fund 75,000 75,000 75,000 Unclaimed Trust Monies Fund 23,979 23,938 18,020 2,634,609 2,599,516 2,388,600 $ 2,685,343 $ 2,667,469 $ 2,440,876 Contingencies (Note 13) Approved on behalf of the Executive Committee President Treasurer 6

5 Combined Statement of Cash Flows As at December 31, Operating activities Cash receipts from members Cash payments for operating expenses Cash payments for salaries and benefits 784,311 (488,614) (255,041) $ 976,693 (506,764) (260,951) Net cash flows from operatin~l activities 40,656 2O8,978 Investing activities Increase (decrease) in short term investments Increase in restricted investments Purchase of furniture and equipment 318,492 (12,097) (2,128) (2,236) (54,407) (376 / Net cash outflows from investing activities 304,267 Net change in cash flows 344,923 Opening cash balance 292,487 (57,019) 151, ,528,Ending cash balance $ 637,410 $ 292,487 Represented by: Cash Restricted Cash $ 625,127 12,283 $ 282,769 9,718 Total $ 637,410 $ 292,487 7

6 General Fund Statement of Operations For the year ended December 31, Budget Actual Actual Revenue Application and admission fees interest income Membership fees Miscetlaneous (Note 5) N.W.T. Law Foundation grant Restricted appearance fees $ 10,800 $ 16,575 $ 16, ,123 2, , , ,260 26,300 33,674 43,955 25,000 14,474 23,624 27,900 27,275 35, , , ,470 Expenses Administration Amortization Awards and grants Committees Donations Dues and fees FLSC assessments and contributions Lawyer Assistance Program (net of recoveries) Miscellaneous (Note 10) Office, postage and telephone (Note 11) Printing and publications Professional fees Recruitment Rent Volunteer recognition 250, , ,210 3,790 4,675 20,000 20,464 20~000 30,300 5OO 18,815 5OO 34,306 59O 10,425 10,200 9, ,500 1,438 7,623 51,958 47,439 44,003 33,000 25,521 25,785 5,680 3,396 7,089 15,000 16,751 10, ,760 76,760 76,760 1, , , ,578 Excess revenue $ 48,351 $ 87,095 $ 102,892 8

7 General Fund Statement of Chanties in Fund Balance For the year ended December 31, Net assets, beginning of year Transfer to Discipline Reserve Fund - current year (Note 12) Excess revenue Net assets, end of ~/ear 232,257 87, ,768 $ 140,666 (11,301) 102,892 $ 232,257 9

8 General Fund Statement of Financial Position Assets December 31, December 31, January 1, Current Cash $ 107,403 $ 30,462 $ 9,277 Short-term investments 253, , ,801 Accounts receivable and accrued interest 5,449 17,510 6,750 Due from Assurance Fund 23,475 Due from Liability Fund 30,257 17,747 Due from Unclaimed Trust Monies Fund 2,624 2,000 Prepaid expenses 12,827 12,829 14, , , ,549 Furniture and equipment (Note 9) 11,099 12,761 16,061 $ 392,651 $ 306,230 $ 242,610 Liabilities Current Accounts payable and accrued liabilities $ 50,731 $ 67,953 $ 52,272 Due to Assurance Fund 5,398 2,159 Due to Liability Fund 8,436 Due to Discipline Reserve Fund 19,318 6,020 47,513 83,883 73, ,944 Net assets 308, , ,666 $ 392,651 $ 306,230 $ 242,610 Approved on behalf of the Executive Committee President Treasurer 10

9 Assurance Fund Statement of Operations and Changes in Fund Balance For the year ended December 31, Revenue Assurance fundlevy $ 73,050 $ 74,700 Investmentincome 26,201 65,264 99, ,964 Expenses Lawye~ trust protection premium 9,656 12,090 Management fees 7,270 7,082 Spot audit 12,745 16,976 29,671 36,148 Excess revenue 69, ,816 Net assets, beginning ofyear 1,821,245 1,717,429 Net assets, end ofyear $ 1,890,825 $ 1,821,245 11

10 Assurance Fund Statement of Financial Position December 31, December 31, January 1, Assets Current Cash Short-term investments Accounts receivable and accrued interest Due from General Fund 137,122 $ 114,918 $ 43, , , ,978 5,363 6,052 1,622 5,398 2, , , ,990 Restricted investments (Note 8) 1,457,943 1,445,846 1,391,439 $ 1,890,825 $ 1,844,720 $ 1,717,429 Liabilities Current Due to General Fund $ $ 23,475 $ Net assets Net assets, end of }/ear 1,890,825 1,821,245 1,717,429 $ 1,890,825 $ 1,844,720 $ 1,717,429 Approved on behalf of the Executive Committee President Treasurer 12

11 Liability Fund Statement of Operations and Chanties in Fund Balance For the year ended December 31, Revenue Canadian Lawyers Insurance Association rebate Continuing Professional Development revenue Excess insurance levy Investment income Liability insurance levy $ 123,775 18,800 1,914 1,844 7,713 8,628 95,186 70, , ,947 Expenses Administration Claims administration Excess insurance premiums Liability insurance premium Miscellaneous expenses Professional development expenses 4,855 9, ,517 1,914 1, , ,450 9, ,850 49, , ,356 Excess revenues (expenses) (111,039) 9,591 Net assets, beginning of year 447, ,485 Net assets, end off/ear $ 336,037 $ 447,076 I3

12 Liability Fund Statement of Financial Position December 31, December 31, January 1, Assets Current Cash $ 324,918 $ 68,408 $ 54,557 Short-term investments 400, ,000 Accounts receivable and accrued interest 2,684 8, Due from General Fund 8,436 $ 336,037 $ 477,333 $ 455,232 Liabilities Current Due to General Fund $ $ 30,257 $ 17,747 Net assets 336, , ,485 $ 336,037 $ 477,333 $ 455,232 Contingencies (Note 13) Approved on behalf of the Executive Committee President Treasurer 14

13 Discipline Reserve Fund Statement of Operations and Chanties in Fund Balance For the year ended December 31, Revenue Discipline cost recovery $ 3,571 $ 15,528 Expenses Counsel 1,050 4,162 Inquiry 221 5,893 Interjurisdiction Miscellaneous 2,267 10,602 2,002 5,404 Professional 15 9,368 14,155 26,829 Excess expenses Net assets, beginning of year Transfer from General Fund (Note 12),Net assets, end of ~/ear (10,584) (11,301 ) 75,000 75,000 10,584 11,301 75,000 $ 75,000 15

14 Discipline Reserve Fund Statement of Financial Position December 31, 2012 December 31, 2011 Janua~ 1, 2011 Assets Current Cash Due from General Fund 55,682 19,318 $ 68,980 6,020 $ 27,487 47,513 $ 75,000 $ 75,000 $ 75,000 Net assets $ 75,000 $ 75,000 $ 75,000 Approved on behalf of the Executive Committee President Treasurer 16

15 Unclaimed Trust Monies Fund Statement of Operations and Changes in Fund Balance For the year ended December 31, Revenue Interest revenue $ 100 $ 172 Unclaimed trust monies 2,531 5,746 2,631 5,918 Expenses Administrative 129 Claims paid 2,460 2,569 Excess revenue 41 5,918 Net assets, beginning of year 23,938 18,020 Net assets, end of year $ 23,979 $ 23,938 17

16 Unclaimed Trust Monies Fund Statement of Financial Position December 31, December 31, January 1, Assets Current Restricted cash (Note 6) Short-term investments Accounts receivable and accrued interest 12,283 $ 9,718 $ 5,972 14,316 14,216 14, $ 26,603 $ 23,938 $ 20,020 Liabilities Current Due to General Fund $ 2,624 $ $ 2,000 Net assets 23,979 23,938 18,020 $ 26,603 $ 23,938 $ 20,020 Approved on behalf of the Executive Committee President Treasurer 18

17 Notes to Financial Statements December 31, Nature of Operations The Law Society of the Northwest Territories (the "Society") is the governing body for the legal profession in the Northwest Territories. The Society was established by, and operates pursuant to, the Legal Profession Act of the Northwest Territories. The Society is a non-profit organization, and accordingly Js exempt from income taxes under Section 149(1)(I) of the Income Tax Act. 2, Significant Accounting Policies These financial statements are prepared in accordance with Canadian accounting standards for not-forprofit organizations. The significant policies are detailed as follows:. (a) Financial instruments (i) Measurement of financial instruments The Society initially measures its financial assets and financial liabilities at fair value adjusted by, in the case of a financial instrument that will not be measured subsequently at fair value, the amount of transaction costs directly attributable to the instrument. The Society subsequently measures its financial assets and financial liabilities at amortized cost. Financial assets measured at amortized cost include cash and accounts receivable. Financial liabilities measured at amortized cost include accounts payable and accrued liabilities. Financial assets measured at fair value include a number of other investments, i.e. quoted shares. it) impairment Financial assets measured at amortized cost are tested for impairment when there are indicators of possible impairment. When a significant adverse change has occurred during the period in the expected timing or amount of future cash flows from the financial asset or group of assets, a writedown is recognized in net income. The write down reflects the difference between the carrying amount and the higher of: - the present value of the cash flows expected to be generated by the asset or group of assets; - the amount that could be realized by setting the assets or group of assets; - the net realizable value of any collateral held to secure repayment of the assets or group of assets. When the events occurring after the impairment confirm that a reversal is necessary, the reversal is recognized in net income up to the amount of the previously recognized impairment. 19

18 Notes to Financial Statements December 31, Significant Accounting Policies (continued) (b) (c) (d) Furniture and equipment Furniture and equipment are recorded at cost. Amortization is calculated by the declining balance and straight line methods at the annual rates set out in note 9. Short-term investments Short-term investments are valued at the lower of cost and market value. At December 31, 2012, cost approximated market value. Restricted investments Restricted investments are valued at market value. (e) Revenue recognition (~ Revenue from membership fees is recognized when received or receivable. Membership fees are due on March 31, 2012, for the membership year April 1, 2012, to March 31, Investment income is recognized when the income is earned. All other revenue such as levies, appearance fees, and grants are recognized when received or receivable if the amount receivable can be reasonably estimated and its collection is reasonably assured. Professional liability insurance levy The levy and premium expense for insurance coverage for the policy year July 1, 2012 to June 30, 2013 is recorded in the 2012 fiscal year. (g) Contributed services Volunteers contribute a significant number of hours to the Society in carrying out its service delivery activities. Because of the difficulty of determining their fair value, contributed services are not recognized in the financial statements. (h) Budget Budgets are not audited, and are prepared only for the General Fund. 20

19 Notes to Financial Statements December 31, Significant Accounting Policies (continued) (i) Fund accounting The Society follows the restricted fund method of accounting for contributions. The General Fund accounts for the Society s program delivery and administrative activities. This fund reports unrestricted resources and restricted operating grants. The Assurance Fund reports only restricted funds to be used in conjunction with any defalcation claims which may be made against a member and expenses related to the assurance of compliance. The Liability Fund reports only restricted funds to be used in conjunction with member liability insurance in relation to error or omission liability. The Discipline Reserve Fund reports only restricted funds to be used in conjunction with any complaints made against a member and expenses related to the investigations, resolution and decision of the complaint. The Unclaimed Trust Monies Fund reports only restricted funds held by the Society until claimed by one or more persons who are so entitled. Funds are transferred between the General Fund and the other funds as necessary. (j) Use of estimates The preparation of financial statements in conformity with Canadian accounting standards for not-forprofit organizations requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the period. Actual results could differ from those estimates. (k) Allocation of expenses The Society allocates expenditures according to the fund to which the expenditure relates. The expenditures are any direct cost related to the operation ef the particular fund. The costs are then allocated between the funds based on the actual amount of the expenditure. 3. impact of the change in the basis of accounting These are the Society s first financial statements prepared in accordance with Canadian accounting standards for not-for-profit organizations. The 2011 comparative financial statements include an opening balance sheet as at January 1,2011 that provides for the impact of the transition. There were no changes required to the comparative balances presented as a result of adoption of this new accounting framework. Elective exemptions The rules for transition to Canadian accounting standards for not-for-profit organizations normally require that the enterprise prepare its opening balance sheet using the standards that will be followed thereafter. However, certain elective exemptions are available, in preparing the opening balance sheet referred to above, the Society used none of the elective exemptions. 21

20 Notes to Financial Statements December 31, Investment and Interest Income Interest income Realized gain (loss) $ 52,748 $ 56,230 (17,611) 19,878 $ 35,137 $ 76, Miscellaneous Revenue Board room rental Canadian Bar Association administration contract Certificates of standing Change of status fees Liability fund administration fee LLP registration fee LLP renewal fee PC registration fee Miscellaneous revenues PC renewal fee Reinstatement fees ,660 $ 1,790 15,240 12,800 3,250 2,900 1, ,855 9, , ,119 9, O 1,500 $ 33,674 $ 43, Restricted Cash Restricted cash consists of unclaimed trust monies held by the Society. Legislation provides lawyers the option to forward money held in trust that has not been claimed to the Society to be held in trust until the amount is claimed or settled by legislative process, in accordance with policy. 22

21 Notes to Financial Statements December 31, Short-term Investments Guaranteed Investment Certificates Ro)/a[ Bank of Canada Cash Account (Assurance Fund) 2012 $ 547,975 4,589 $ ,152 2,904 $ 552,564 $ 871,056 Current year guaranteed investment certificates detailed breakdown: Interest Rate Maturity Date Value General/Liability Fund General/Liability Fund Assurance Fund Unclaimed Trust Monies 0.80% 0.70% 0.95% 0.80% 12/20/ /17/2013 7/25/ /17/ , , ,410 14, ,975 23

22 Notes to Financial Statements December 31, Restricted Investments The table below presents the fair value of the Society s restricted investments as at December 31, 2012 together with the change in fair value from their cost base. The fair value of the Society s investments were determined by reference to published price quotations in an active market. Bonds 4.00% Farm Credit Canada, due February 15, % Government of Canada, due March 1, Market Value Book Value 152, ,536 55,387 55, % Canadian Housing Trust No. 1, due December 15, ,955 60, % Canadian Housing Trust No. 1, due March 15, ,401 76, % Canadian Housing Trust No. 1, due September 15, , , % Province of Ontario, due March 8, , , % Canadian Housing Trust No. 1, due March 15, ,982 44, % Government of Canada, due June 1, ,854 56, % Government of Canada, due June 1, ,000 81, % Canada Housing Trust No. 1, due June 15, ,723 87, % Canadian Imperial Bank of Commerce, due November 8, ,376 62, % Bank of Montreal Fixed Rate, due August 1, ,987 34, % Province of Ontario, due March 8, ,145 34, % Government of Canada, due March 1, ,855 80, % Province of Alberta, due June 15, ,141 55,024 Mutual Funds RBC investment savings 2,000 2,000 1,310,273 1,270,225 Bond index fund 147, ,591 $ 1,457,943 $ 1,415,816 24

23 Notes to Financial Statements December 31, Restricted Investments (continued) Market Value Book Value Bonds 4.20% Farm Credit Canada, due February 15, % Government of Canada, due June 1, % Government of Canada, due June 1, % Government of Canada, due September 1, % Farm Credit Canada, due February 15, % Government of Canada, due March 1, % Canadian Housing Trust No. 1, due December 15, % Canadian Housing Trust No. 1, due March 15, % Canadian Housing Trust, due September 15, % Province of Ontario, due March 8, % Canadian Housing Trust No. 1, due March 15, % Government of Canada, due June 1, % Government of Canada, due June 1, % Canada Housing Trust No. 1, due June 15, % Canadian Imperial Bank of Commerce, due November 8, % Bank of Montreal Fixed Rate, due August 1, % Province of Ontario, due March 8, ,362 70,663 80,134 77,779 22,076 22,019 75,996 75, , ,536 35,512 35,158 61,936 60,684 36,063 35, , , , ,711 46,708 44,420 15,725 15,251 51,692 50,888 90,634 87,098 63,700 62,977 37,915 34,351 38,518 34,430 $ 1,306,323 $ 1,245,337 Bondindex ~nd 139, ,570 $ 1,445,846 $ 1,380,907 Investment funds are carried at fair market value together with the accrued interest earned. The following table presents the remaining terms to maturity at fair value, along with the average effective yields for each maturity for securities investments exposed to interest rate risk as at December 31, Within 1 yr 1-5 yrs Over 5 yrs Total 2012 Total 2011 Securities $ 269,076 $ 1,001,052 $ 38,145 $ 1,308,273 $ 1,306,323 Effective yields (3.190)% % % (0.360)% % 25

24 Notes to Financial Statements December 31, Furniture and Equipment Rate Accumulated Net Book Net Book Cost Amortization Value Value Furniture and equipment 20% $ 36,158 $ 25,985 $ 10,173 $ 11,976 Computer equipment 30% 11,233 10, Software 100% 3,881 3, $ 51,272 $ 40,173 $ 11,099 $ 12, Miscellaneous Expense (General Fund) AGM expenses Bank charges Canadian Centre for Professional Legal Education (CPLED) expenses CanLII expenses Federation activities Janitorial Other expenses Staff trainin $ 1,393 $ 1, ,643 14,474 13,624 27,916 13, ,243 1,432 2, $ 47,439 $ 44, Office, Postage and Telephone (General Fund) Equipment rental Internet Office equipment Office supplies Postage Sundry Telephone and fax $ 10,494 1,020 1,103 1,244 1,697 5,526 4, $ 10,048 1,163 1,784 1,251 1,093 6,351 4,095 $ 25,521 $ 25,785 26

25 Notes to Financial Statements December 31, Discipline Reserve Transfer (Due From General Fund) At year-end the Discipline Fund had a cash balance of $55,682 and a due from the General Fund balance of $19,318. The balance due from the General Fund includes a transfer of $10,584 ( $11,301 ) made at year-end from the General Fund to the Discipline Fund to bring the closing balance in the Discipline Fund up to the required amount of $75,000. The net affect of this transfer is shown in the financial statements. 13.Contingencies The Canadian Lawyers Insurance Association Js a reciprocal insurance exchange established to provide professional liability insurance for the legal profession. There have been retroassessment calls to subscribing law societies of $2,000,000 as at December 31, 1991, and $1,000,000 as at December 31, The Society s share of these retroassessments has been recorded in previous financial statements. The likelihood of a retroassessment call for other years is unknown. There are currently ongoing litigations, the costs of which cannot be estimated at this time. The related costs will be recorded in the period in which the expenses are incurred. 14.Financial Instruments The following sections describe the Society s financial risk management objectives and policies and the Society s financial risk exposures. The Society does not have formalized financial risk management objectives and policies. (a) Credit risk Credit risk is the risk that one party to a finandal instrument will fail to discharge an obligation and cause the other party to incur a financial loss, The Society is exposed to credit risk from its members. (b) Fair value The carrying values of the financial instruments noted above approximate their fair values. The Society has developed and implemented a set of polices to reduce their risk associated with the fluctuation in the bond markets. (c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Society s interest-bearing financial instruments include fixed rate bonds. The fair values of fixed rate financial instruments fluctuate as market rates of interest change. The Society does not use derivative instruments to reduce its exposure to interest rate risk. 27