BRITISH COLUMBIA MEDICAL ASSOCIATION

Financial Statements of BRITISH COLUMBIA MEDICAL ASSOCIATION

ABCD KPMG LLP Chartered Accountants Box 10426, 777 Dunsmuir Street Vancouver BC V7Y 1K3 Telephone (604) 691-3000 Telefax (604) 691-3031 Internet www.kpmg.ca INDEPENDENT AUDITORS' REPORT To the Members of British Columbia Medical Association Report on the financial statements We have audited the accompanying financial statements of the British Columbia Medical Association, which comprise the statement of financial position as at December 31, 2013, the statements of operations, changes in net assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 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 our 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, we 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 in our audit is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the British Columbia Medical Association as at December 31, 2013 and its results of operations and its cash flows for the year then ended in accordance with Canadian accounting standards for not-forprofit organizations. Report on other legal and regulatory requirements As required by the Society Act (British Columbia), we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. Chartered Accountants May 2, 2014 Vancouver, Canada

Statement of Financial Position December 31, 2013, with comparative information for 2012 Assets Current assets: Cash $ 13,085,939 $ 11,209,551 Accounts receivable (note 3) 2,021,959 1,811,782 Prepaid expenses 308,737 273,633 Short-term investments (note 4) 3,524,859 3,332,987 18,941,494 16,627,953 Investments (note 4) 21,315,917 20,688,325 Investment in BCMA Agencies Limited (note 5) 51 51 Capital assets (note 6) 3,669,638 2,804,222 Cash held for designated holding accounts (note 7) 102,637 297,730 Liabilities and Net Assets $ 44,029,737 $ 40,418,281 Current liabilities: Accounts payable and accrued liabilities $ 1,933,959 $ 2,075,711 Prepaid membership dues 1,360,697 993,887 Group life premiums accounts 463,135 1,512,817 Group insurance accounts 1,400,866 1,247,119 5,158,657 5,829,534 Designated holding accounts (note 7) 102,637 297,730 Deferred contributions (note 8) 7,567,219 4,974,112 12,828,513 11,101,376 Net assets: Internally restricted (notes 2 and 9) 9,654,998 9,194,568 Investment in capital assets 3,669,638 2,804,222 Unrestricted 17,876,588 17,318,115 31,201,224 29,316,905 Commitments and contingencies (note 10) $ 44,029,737 $ 40,418,281 See accompanying notes to financial statements. 1

Statements of Operations, with comparative information for 2012 Revenue: Membership dues $ 17,477,031 $ 16,869,865 Less: dues collected for Canadian Medical Association (4,116,646) (3,800,060) Membership dues 13,360,385 13,069,805 Government contributions for designated programs (note 8) 1,175,726 1,579,968 Insurance administration fees 1,986,081 1,689,330 Management fees 2,483,000 2,330,500 Investment and miscellaneous income 1,725,249 1,750,330 Building rents 973,216 931,938 21,703,657 21,351,871 Expenses: Building - rented portion 569,669 546,052 Committee costs 2,375,788 1,785,350 Consulting and professional fees 998,010 1,723,789 Designated program expenses and contributions (note 8) 1,175,726 1,579,968 Marketing and communications 573,594 487,480 Occupancy 685,724 598,604 Office 1,823,846 1,953,079 Physician health program 300,000 300,000 Salaries and benefits 11,316,981 9,456,049 19,819,338 18,430,371 Excess of revenue over expenses $ 1,884,319 $ 2,921,500 See accompanying notes to financial statements. 2

Statement of Changes in Net Assets, with comparative information for 2012 Internally Restricted (note 2) Staff Capital Student reward and Professional IT Medical Negotiations asset Investment in bursary recognition development redevelopment care stabilization replacement capital fund fund fund fund fund fund fund Total assets Unrestricted Total Total Net assets, opening $ 2,000,000 $ 85,600 $ 105,384 $ 601 $ 3,000,000 $ - $ 4,002,983 $ 9,194,568 $ 2,804,222 $ 17,318,115 $ 29,316,905 $ 26,395,405 Interfund transfers (note 9) - - - 750,000-1,000,000 630,000 2,380,000 - (2,380,000) - - Excess (deficiency) of revenue over expenses - - - (500,601) - - - (500,601) (553,553) 2,938,473 1,884,319 2,921,500 Net change in investment in capital assets - - - - - - (1,418,969) (1,418,969) 1,418,969 - - - Net assets, ending $ 2,000,000 $ 85,600 $ 105,384 $ 250,000 $ 3,000,000 $ 1,000,000 $ 3,214,014 $ 9,654,998 $ 3,669,638 $ 17,876,588 $ 31,201,224 $ 29,316,905 See accompanying notes to financial statements. 3

Statements of Cash Flows, with comparative information for 2012 Cash provided by (used in): Operations: Excess of revenue over expenses $ 1,884,319 $ 2,921,500 Items not involving cash: Amortization 553,553 561,606 Amortization of bond premium 237,774 255,579 Change in accrued interest 27,743 35,693 2,703,389 3,774,378 Change in non-cash operating working capital: Accounts receivable (210,177) (231,219) Prepaid expenses (35,104) (133,772) Accounts payable and accrued liabilities (141,752) (787,937) Prepaid membership dues 366,810 (543,190) Group life premiums accounts (1,049,682) 90,927 Group insurance accounts 153,747 467,612 1,787,231 2,636,799 Investing: Purchase of investments (3,732,920) (5,425,587) Proceeds from sale of matured investments 2,647,939 8,901,627 Purchase of capital assets (1,418,969) (446,176) (2,503,950) 3,029,864 Financing: Increase in deferred contributions 2,593,107 1,715,761 Increase in cash 1,876,388 7,382,424 Cash, beginning of year 11,209,551 3,827,127 Cash, end of year $ 13,085,939 $ 11,209,551 See accompanying notes to financial statements. 4

Notes to Financial Statements The British Columbia Medical Association (the "Association") is a not-for-profit organization incorporated as a corporation without share capital under the Society Act of British Columbia. The Association promotes a social, economic and political climate in which its members may provide the highest standard of healthcare services. The Association assists all physicians practicing in the Province of British Columbia by negotiating fee schedules and benefits on behalf of those physicians who practice medicine on a fee-for-service, sessional basis or other alternative methods of payment. The Association is exempt from income taxes. 1. Significant accounting policies: The financial statements have been prepared by management in accordance with Canadian Accounting Standards for Not-For-Profit Organizations in Part III of the CICA Handbook. (a) Revenue recognition: The Association follows the deferral method of accounting for contributions. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Externally restricted contributions are recognized as revenue in the year in which the related expenses are recognized. Contributions restricted for the purchase of capital assets are deferred and amortized into revenue on a straight-line basis, at a rate corresponding with the amortization rate for the related capital assets. Investment income is recognized as revenue when earned. Membership of the Association is voluntary and therefore member dues are recorded when received. Revenue from insurance administration fees, management fees, and building rents is recognized when the services are provided. (b) Short-term investments and investments: In accordance with the Association s investment policy, investments and short-term investments consist of corporate and government bonds, and money market funds. Short-term investments are classified as such when they have a maturity date of less than one year. 5

Notes to Financial Statements (continued) 1. Significant accounting policies (continued): (c) Capital assets: Purchased capital assets are recorded at cost. Repairs and maintenance costs are charged to expense. Betterments which extend the estimated life of an asset are capitalized. When a capital asset no longer contributes to the Association s ability to provide services, its carrying amount is written down to its residual value. Capital assets are amortized on a straight-line basis over the assets estimated useful lives as follows: Years Building 30 Building improvements 10 Furniture and fixtures 10 Computer equipment 3 Office equipment 5 (d) Use of estimates: The preparation of the financial statements 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 reported amounts of revenue and expenses during the year. Significant items subject to such estimates and assumptions include the determination of useful lives for amortization of capital assets, carrying amount of capital assets, assets and obligations related to employee future benefits, and provisions for contingencies. Actual results could differ from those estimates. (e) Financial instruments: The Association s financial instruments include cash, accounts receivable, short-term investments, investments, and accounts payable and accrued liabilities. Short-term investments and investments are solely comprised of bonds and money market funds. Financial instruments are recorded at fair value on initial recognition and, other than investments in equity instruments that are quoted in an active market, are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. The Association has not elected to carry any such financial instruments at fair value. Financial assets are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. 6

Notes to Financial Statements (continued) 2. Internally restricted net assets: The Association has set up internally restricted funds which are approved by the board of directors to support the following activities: (a) Student bursary fund ensures that there will be adequate funding for the medical student bursary program. (b) Staff reward and recognition fund is established to reward and recognize employee contributions to the Association. (c) Professional development fund is designed to provide staff and officers with financial support when attaining graduate or post-graduate degrees. (d) IT redevelopment fund is utilized for the rewrite of the membership database and website. (e) Medical care fund is established to enhance the ability of physicians to provide quality medical care. These funds enable the Association to campaign for the economic rights of all physicians in the Province of British Columbia (the Province ). (f) Negotiations stabilization fund is utilized to offset the budgeting fluctuations for negotiations as the expenditures can vary significantly from year to year. (g) Capital asset replacement fund is set aside to fund additions to capital assets. The board of directors restricts the use of funds for operations by way of a resolution whereby only funds in excess of the internally restricted fund balances are available for the general operations of the Association. The internally restricted amounts may be used for special projects with the approval of the board of directors. 3. Accounts receivable: Accounts receivable includes allowance for doubtful accounts as at December 31, 2013 of $2,801 (2012 - $14,504). Accounts receivable also includes a balance of $287,785 (2012 - $239,284) owing from related parties (note 11). 4. Short-term investments and Investments: Short-term investments and investments are comprised of bonds and money market funds as follows: Greater than Less than Yield 1 year 1 year Bonds 4.72% $ 21,315,917 $ 3,524,859 $ 24,840,776 $ 24,021,312 The bonds mature between 2014 and 2019 (2012 - between 2013 and 2019). 7

Notes to Financial Statements (continued) 5. Investment in BCMA Agencies Limited: The Association owns 100% of the share capital of BCMA Agencies Limited ( Agencies ), and has accounted for its investment using the equity method. Included in investment and miscellaneous income is the Association s share of Agencies income in an amount of nil for the year ended December 31, 2013 (2012 - nil). As at December 31, 2013, Agencies had assets of $69,407 (2012 - $76,058), liabilities of $69,356 (2012 - $76,007) and retained earnings of $51 (2012 - $51). During the year ended December 31, 2013, Agencies earned revenue of $244,457 (2012 - $241,951) and had expenses of $244,457 (2012 - $241,951), with cash used for operations of $6,651 (2012 - $71,420 of cash provided for operations). 6. Capital assets: Accumulated Net book Net book Cost amortization value value Land $ 1,000,000 $ - $ 1,000,000 $ 1,000,000 Building 4,329,760 4,149,353 180,407 324,732 Building improvements 5,294,012 3,460,373 1,833,639 834,819 Furniture and fixtures 2,456,019 1,949,906 506,113 434,881 Computer equipment 152,955 143,041 9,914 156,736 Office equipment 1,489,610 1,350,045 139,565 32,368 Assets under development - - - 20,686 $ 14,722,356 $ 11,052,718 $ 3,669,638 $ 2,804,222 7. Designated holding accounts: The Association holds funds in cash that are designated for specific contracts that the Association administers. The activities of these accounts are not reflected on the Association s financial statements. The balance of these designated holding accounts is as follows: Benefit funds held in reserve $ 48,868 $ 199,656 Other holding accounts 53,769 98,074 $ 102,637 $ 297,730 8

Notes to Financial Statements (continued) 8. Deferred contributions: Deferred contributions represent unspent externally restricted contributions received by the Association from the government for the specific use for various purposes. Changes in deferred contributions are as follows: Balance, beginning of year $ 4,974,112 $ 3,258,351 Add amount received in the year related to future periods 3,768,833 3,295,729 Less amount recognized as revenue in the year (1,175,726) (1,579,968) Balance, end of year $ 7,567,219 $ 4,974,112 These deferred contributions consist of funds restricted for the following purposes: Government funded committees $ 233,013 $ 312,167 General practice services committee 6,396,785 4,007,657 Protocol steering committee 195,146 83,155 Shared care and scope of practice committee 555,836 101,838 Specialist services committee 186,439 469,295 $ 7,567,219 $ 4,974,112 9. Restrictions on net assets: During the year ended December 31, 2013, the board of directors internally restricted a total of $2,380,000 (2012 - nil) of its net assets to the IT redevelopment fund, negotiations stabilization, and capital asset replacement funds. Internally restricted amounts are not available for other purposes without approval by the board of directors. 9

Notes to Financial Statements (continued) 10. Commitments and contingencies: (a) The Association has committed to equipment leases until 2016. The minimum annual lease payments are as follows: 2014 $ 65,159 2015 53,829 2016 33,555 $ 152,543 (b) There are lawsuits pending in which the Association is involved. The potential amount of the claims against the Association is currently undeterminable and as a result, no amounts have been recorded as a liability on the Association s financial statements. 11. Related party transactions: As at December 31, 2013, the Association has balances due from and payable to programs that are funded by the Province and by which the Association exercises significant influence. Each of these programs is controlled by a committee, on which there is equal representation between representatives of the Province and members of the Association, as governed by the physician master agreement. The Association exercises significant influence over these programs by virtue of its equal representation on these committees. The activities of these programs are not reflected in the operations of the Association. The balances due from related parties included in accounts receivable are as follows: Collaboratives Program $ 166,059 $ 138,611 Physician Health Program 42,740 38,979 Physician Information Technology Office 78,986 61,694 $ 287,785 $ 239,284 10

Notes to Financial Statements (continued) 11. Related party transactions (continued): The balances due to related parties included in accounts payable and accrued liabilities are as follows: Shared Care Programs $ 29,308 $ 3,676 Specialist Services Programs 36,242 49,015 $ 65,550 $ 52,691 12. Financial risks: The Association manages its investment portfolio to earn investment income and invests according to a policy approved by the board of directors. The Association is not involved in any hedging relationships through its operations and does not hold or use any derivative financial instruments for trading purposes. The Association believes that it is not exposed to significant interest-rate, market, credit or cash flow risk arising from its financial instruments. Additionally, the Association believes it is not exposed to significant liquidity risk as all investments are held in instruments that are highly liquid and can be disposed of to settle commitments. 11