College of Physicians and Surgeons of British Columbia

The Watchman and the Healers James Michel February 28, 2013 February 29, 2012 March 1, 2011 Financial Statements College of Physicians and Surgeons of British Columbia

Transparent Objective Impartial Fair Serving the public through excellence and professionalism in medical practice College of Physicians and Surgeons of British columbia 300 669 Howe Street Vancouver, BC V6C 0B4 Telephone 604-733-7758 Facsimile 604-733-3503 Toll Free 1-800-461-3008 College Library 604-733-6671 cpsbc.ca 2013 Annual General Meeting Friday, September 20, 2013 Vancouver Convention Centre Vancouver, British Columbia COVER: James Michels is a highly accomplished Cree/ Metis artist whose bentwood boxes and stunning carved panels can be viewed in most of the major galleries of the Northwest coast. For more information on the artist and his work visit bentcedarbox.com.

College of Physicians and Surgeons of British Columbia February 28, 2013, February 29, 2012 and March 1, 2011 Table of contents Independent Auditor s Report... 1-2 Statements of operations... 3 Statements of changes in net assets... 4 Balance sheets... 5 Statements of cash flows... 6 Notes to the financial statements... 7-14

Deloitte LLP 2800-1055 Dunsmuir Street 4 Bentall Centre P.O. Box 49279 Vancouver BC V7X 1P4 Canada Tel: 604-669-4466 Fax: 778-374-0496 www.deloitte.ca Independent Auditor s Report To the Board of the College of Physicians and Surgeons of British Columbia We have audited the accompanying financial statements of the College of Physicians and Surgeons of British Columbia, which comprise the balance sheets as at February 28, 2013, February 29, 2012 and March 1, 2011, and the statements of operations, changes in net assets and cash flows for the years ended February 28, 2013 and February 29, 2012, and a summary of significant accounting policies and the notes to the financial statements. 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the College of Physicians and Surgeons of British Columbia as at February 28, 2013, February 29, 2012 and March 1, 2011, and the results of its operations, the changes in its net assets and its cash flows for the years ended February 28, 2013 and February 29, 2012 in accordance with Canadian accounting standards for not-for-profit organizations. Chartered Accountants May 29, 2013 Vancouver, British Columbia Page 2

College of Physicians and Surgeons of British Columbia Statements of operations years ended February 28, 2013 and February 29, 2012 2013 2012 (Restated - Note 2) $ $ Revenue Annual registrant and incorporation fees 16,901,553 15,361,076 Accreditation fees 3,849,877 3,278,838 Rental revenue (Note 9) 792,007 226,244 Application and incorporation setup fees 607,280 534,350 Investment income 486,597 518,637 Grants 462,665 436,333 Other income 390,006 324,644 Penalties, fines and costs 242,410 150,596 Preliminary assessment fees 120,025 187,950 Medical directory and provider registry 99,995 98,305 Assessment income 75,884 41,191 24,028,299 21,158,164 Expenditures Salaries and benefits (Note 7) 12,554,821 10,684,602 Assessments, accreditations and reviews 1,265,246 443,318 Board and committees 1,148,037 1,143,122 Rent and occupancy costs 1,135,335 1,957,697 Amortization, property and equipment 1,062,685 478,059 Professional fees 817,750 498,644 Information technology 766,106 855,551 Office 714,540 588,672 Miscellaneous 534,121 452,800 Bank charges and credit card fees 387,732 359,766 Travel and training 313,819 243,013 Library resources 309,725 329,067 Physician health program 300,000 300,000 Publications 169,368 149,231 Grants 163,000 150,754 Annual meeting and election 77,579 68,778 Scholarships 20,500 20,500 Federation membership dues 19,590 177,647 21,759,954 18,901,221 Excess of revenue over expenditures before undernoted 2,268,345 2,256,943 Realized gain (loss) on sale of investments 13,028 (89,537) Unrealized gain on investments 272,776 76,353 (Loss) gain on sale of property and equipment (Note 3(d)) (9,877) 1,366,493 Actuarial gains (losses) (Note 7) 128,700 (581,900) Excess of revenue over expenditures 2,672,972 3,028,352 The accompanying notes are an integral part of this financial statement. Page 3

College of Physicians and Surgeons of British Columbia Statements of changes in net assets years ended February 28, 2013 and February 29, 2012 2013 2012 (Restated - Note 2) Invested in property, equipment Internally and intangible restricted Unrestricted Total Total assets (Note 3 (g)) $ $ $ $ $ Fund balance, beginning of year 36,291,727 700,000 (5,492,691) 31,499,036 28,470,684 Transfers Database project - 2,436,000 (2,436,000) - - Excess of revenue over expenditures (1,072,562) - 3,745,534 2,672,972 3,028,352 Purchase of property, equipment and intangible assets, net of proceeds on sale 1,674,829 (273,392) (1,401,437) - - Fund balance, end of year 36,893,994 2,862,608 (5,584,594) 34,172,008 31,499,036 The accompanying notes are an integral part of this financial statement. Page 4

College of Physicians and Surgeons of British Columbia Balance sheets as at February 28, 2013, February 29, 2012 and March 1, 2011 February 28, February 29, March 1, 2013 2012 2011 (Restated - (Restated - Note 2) Note 2) $ $ $ Assets Current assets Cash 1,178,764 6,281,992 4,969,205 Short-term investments 15,096,892 9,965,525 27,866,340 Accounts receivable 399,948 96,390 432,002 Prepaid expenses 484,880 490,929 515,903 17,160,484 16,834,836 33,783,450 Deposit 203,481 296,040 1,627,961 Long-term investments 9,394,048 7,054,352 18,172,634 Intangible assets 346,970 - - Property and equipment (Note 4) 36,549,971 36,305,869 649,120 63,654,954 60,491,097 54,233,165 Liabilities Current liabilities Accounts payables and accrued liabilities 1,583,004 2,421,822 1,184,802 Government remittances payable 192,878 135,254 132,578 Unearned revenue 18,430,248 16,950,407 15,263,112 Current portion of capital lease liability (Note 5) 2,947 11,195 10,142 Current portion of lease termination costs (Note 6) - 55,467 334,838 Current portion of pension liabilities (Note 7) 575,700 575,700 603,600 20,784,777 20,149,845 17,529,072 Tenant Deposit (Note 9) 74,169 74,169 - Capital lease liability - 2,947 14,142 Lease termination costs (Note 6) - - 55,467 Pension liabilities (Note 7) 8,624,000 8,765,100 8,163,800 29,482,946 28,992,061 25,762,481 Net assets Invested in property, equipment and intangible assets 36,893,994 36,291,727 624,836 Internally restricted 2,862,608 700,000 23,767,400 Unrestricted (deficit) net assets (5,584,594) (5,492,691) 4,078,448 34,172,008 31,499,036 28,470,684 63,654,954 60,491,097 54,233,165 Contingent liabilities (Note 10) The accompanying notes are an integral part of this financial statement. Page 5

College of Physicians and Surgeons of British Columbia Statements of cash flows years ended February 28, 2013 and February 29, 2012 2013 2012 (Restated - Note 2) $ $ Operating activities Excess of revenue over expenditures 2,672,972 3,028,352 Non-cash items Amortization 1,062,685 478,059 Loss (gain) on sale of property and equipment 9,877 (1,366,493) Actuarial (gains) losses (128,700) 581,900 Provision for pension benefits 1,195,591 1,229,030 Unrealized gain on investments (272,776) (76,353) 4,539,649 3,874,495 Change in operating working capital (Note 8) 401,138 3,287,577 4,940,787 7,162,072 Investing activities Purchase of property and equipment (1,327,476) (36,168,315) Purchase of intangible assets (346,970) - Changes in deposits 92,559 1,406,090 Proceeds on sale of property and equipment 10,812 1,400,000 Pension benefit payments (1,207,991) (1,237,530) Net changes in long-term investments (2,148,770) 11,172,711 Net changes in short-term investments (5,049,517) 17,922,739 (9,977,353) (5,504,305) Financing activities Repayment of lease termination liability (55,467) (334,838) Repayment of capital lease liability (11,195) (10,142) (66,662) (344,980) Net (decrease) increase in cash and cash equivalents (5,103,228) 1,312,787 Cash, beginning of year 6,281,992 4,969,205 Cash, end of year 1,178,764 6,281,992 The accompanying notes are an integral part of this financial statement. Page 6

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 1. Purpose of the organization The purpose of the College of Physicians and Surgeons of British Columbia (the College ) is to set and enforce standards of practice and ethics within the medical profession in British Columbia. The College is continued under the Health Professionals Act (RSBC 1996) as a not-for-profit organization. As a not-for-profit organization, the College is not subject to income taxes. 2. Adoption of new accounting framework During the year ended February 28, 2013, the College adopted the new Canadian accounting standards for not-for-profit organizations (the new standards ) issued by the Accounting Standards Board of the Canadian Institute of Chartered Accountants ( CICA ) and set out in Part III of the CICA Handbook. In accordance with Section 1501 of Part III the CICA Handbook, First-time Adoption, ( Section 1501 ), the date of transition to the new standards is March 1, 2011 and the College has prepared and presented an opening balance sheet at the date of transition to the new standards. This opening balance sheet position is the starting point for the College s accounting under the new standards. In its opening balance sheet under the recommendations of Section 1501, the College: (a) recognized all assets and liabilities whose recognition is required by the new standards; (b) did not recognize items as assets or liabilities if the new standards do not permit such recognition; (c) reclassified items that it recognized previously as one type of asset, liability or component of fund balances, but are recognized as a different type of asset, liability or component of fund balances under the new standards; and (d) applied the new standards in measuring all recognized assets and liabilities. In accordance with the requirements of Section 1501, the accounting policies set out in Note 3 have been consistently applied to all years presented. Adjustments resulting from the adoption of the new standards have been applied retrospectively. Page 7

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 2. Adoption of new accounting framework (continued) The impact of the adoption of the new standards on the balance sheet as at March 1, 2011 is summarized as follows: Balance as previously Balance as reported adjusted as at February 28, March 1, 2011 Adjustment Reference 2011 $ $ $ Liabilities Accounts payable and accrued liabilities 1,317,380 (132,578) (a) 1,184,802 Government remittances payable - 132,578 (a) 132,578 Pension liabilities 7,584,100 579,700 (b) 8,163,800 Net assets Unrestricted net assets 4,658,148 (579,700) 4,078,448 Impact of adoption of the new standards on the statement of operations for the year ended February 29, 2012 is summarized as follows: Balance as previously Balance as reported adjusted 2012 Adjustment Reference 2012 $ $ $ Expenditures Salaries and benefits 10,800,502 (115,900) (b) 10,684,602 Actuarial losses - 581,900 (b) 581,900 Excess of revenue over expenditures 3,494,352 (466,000) (b) 3,028,352 Explanations of adjustments a) The new accounting standards require separate disclosure of the amount of government remittances (other than income taxes) payable. Accordingly, an amount of $132,578 as at March 1, 2011 has been reclassified from accounts payable and accrued liabilities. b) As allowed under Section 3261, the College has elected to use the immediate recognition approach for its defined benefit plans and to include all actuarial gains and losses and past service costs incurred in the cost of the plans for the year. The adjustment of $579,700 to pension liabilities and unrestricted net assets as at March 1, 2011 is to reflect the write off of previously deferred actuarial losses. The adjustment of $115,900 to salaries and benefits and $581,900 to actuarial losses for the year ended February 29, 2012 result from the retrospective application of this method. In addition, the Operating activities section of the cash flow statement for the year ended February 29, 2012 has been adjusted to reflect the above changes. Page 8

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 3. Summary of significant accounting policies These financial statements have been prepared in accordance with Canadian accounting standards for not-for-profit organizations ( ASNPO ) and include the following significant accounting policies: (a) Financial instruments The College initially measures its financial assets and financial liabilities at fair value when the College becomes a party to the contractual provisions of the financial instrument. Subsequently, all financial instruments, other than investments, are measured at amortized cost. Investments are measured at fair value and any changes in fair value are recognized in the statement of operations in the period incurred. Transaction costs related to financial instruments measured at fair value are expensed as incurred. Transaction costs related to the other financial instruments are added to the carrying value of the asset or netted against the carrying value of the liability and are then recognized over the expected life of the instrument using the straight-line method. Any premium or discount related to an instrument measured at amortized cost is amortized over the expected life of the item using the straight-line method and recognized in the statement of operations as interest income or expense. With respect to financial assets measured at cost or amortized cost, the College recognizes in the statement of operations an impairment loss, if any, when it determines that a significant adverse change has occurred during the period in the expected timing or amount of future cash flows. When the extent of impairment of a previously written-down asset decreases and the decrease can be related to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed in the statement of operations in the period the reversal occurs. (b) Property and equipment Property and equipment are recorded at cost and amortized on the straight-line method over the following estimated useful lives: Building 50 years Building improvements 25 years Furniture and equipment 8 years Computer equipment 4 years Equipment under capital lease 5.5 years Leasehold improvements Term of lease Amortization commences when the asset is placed in use. (c) Intangible assets The College s new database system and e-accreditation software are recorded at cost and will be amortized over their useful lives once placed in use. (d) Impairment of long-term assets Management reviews property, equipment and intangible assets for impairment when events or changes in circumstances indicate that the asset no longer has any long-term service potential to the College. When the asset no longer has any future value to the College, an impairment loss is recorded for the excess of the carrying value over the residual value. In the current, an impairment loss of $20,689 (2012 - $33,507) was included in loss on sale of property and equipment. Page 9

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 3. Summary of significant accounting policies (continued) (e) Pension plans Pension costs and obligations are accounted for as follows: (i) Defined benefit pension plan sponsored by the Canadian Medical Association - cost is recognized using defined contribution plan accounting. (ii) Supplementary defined benefit pension plan - cost is recognized based on an actuarial valuation using the projected benefit method, prorated on service and management s best estimate assumptions. Actuarial gains and losses are recognized in the statement of operations in the year incurred. (iii) Supplementary defined contribution pension plan - cost is recognized using defined contribution accounting based on the College s notional contribution obligations. (f) Revenue recognition The College follows the deferral method of accounting for revenue. Registrant fees, incorporation fess, accreditation fees, application and incorporation setup fees and grant revenue are recognized over the period of licensure, accreditation, or service provided and collection is reasonably assured. Rental and investment income are recorded as revenue when the service is provided or the investment income earned and reasonable assurance exists regarding measurement and collectability. Amounts received in advance of these periods are recorded as unearned revenue. Unrestricted revenue is recognized as revenue, when received or receivable, if the amount to be received can be reasonably estimated and collection is reasonably assured. (g) Internally restricted net assets The internally restricted net assets were established for the purpose of obtaining a Letter of Credit ( LOC ) to secure the College s supplementary pension benefits obligation (Note 6), and to fund the purchase of a building for use by the College. During the fiscal year 2012, management transferred $15,000,000 from internally restricted net assets to property and equipment for the purchase of the College s building, and internally restricted $700,000 to fund the development and implementation of a new database system. In fiscal 2013, the College transferred a further $2,436,000 from unrestricted fund deficiency to internally restricted net assets to fund the new database system. Investment income earned from the internally restricted net assets is unrestricted. (h) Use of estimates The preparation of financial statements in conformity with ASNPO requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the amortization period of the property and equipment and assumptions regarding the valuation of the defined benefit pension plan. (i) Comparative figures Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year. Page 10

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 4. Property and equipment February 28, February 29, March 1, 2013 2012 2011 Accumulated Net book Net book Net book Cost amortization value value value $ $ $ $ $ Land 8,301,000-8,301,000 8,301,000 - Building 22,444,765 598,613 21,846,152 22,295,048 - Building improvements 4,393,814 203,093 4,190,721 3,986,817 81,689 Furniture and equipment 2,054,775 359,574 1,695,201 1,212,707 230,823 Computer equipment 1,025,759 413,623 512,136 482,846 275,947 Equipment under capital lease 52,387 47,626 4,761 14,287 23,812 Leasehold improvements - - - 13,164 36,849 38,272,500 1,622,529 36,549,971 36,305,869 649,120 5. Capital lease obligation Future minimum payments under a capital lease of office equipment for the Diagnostic accreditation program, which expires in August 2014, are as follows: $ 2014 3,050 Total minimum lease payments 3,050 Less: amount representing imputed interest at approximately 10% (103) Balance of obligation 2,947 6. Lease termination costs In fiscal 2011, the College entered into an agreement to sublease its former premises to September 12, 2012 for less than the lease obligation. The termination costs which were recorded in fiscal 2011 totaled $462,306, of which $72,001 was paid in fiscal 2011, $334,838 was paid in fiscal 2012 and $55,467 was paid in fiscal 2013. 7. Pension plans Employees of the College participate in either a defined benefit pension plan or a group registered retirement savings plan. The defined benefit pension plan is the Canadian Medical Association ( CMA ) pension plan in which the College is a participating employer. This plan provides pension benefits based on length of service and the best three-year average salary. Pensions are periodically increased to offset a portion of increases in the cost-of-living after retirement. In addition, the College provides two supplementary plans for current and former senior staff as follows: (i) a defined benefit plan for current and former senior staff hired before 2004. This plan provides pension benefits, based on length of service and the best three-year average salary, that are in excess of those that can be funded under a registered pension plan. This plan also provides for periodic partial cost-of-living adjustments after retirement. Page 11

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 7. Pension plans (continued) (ii) a defined contribution plan for senior staff hired after 2003. Under this plan, contributions of a specified percentage of salary in excess of the College s contributions to the CMA pension plan are paid for by the College. An actuarial valuation to measure the College s accrued benefit obligation for its supplementary defined benefit pension plan is carried out as at the last day of February of each year. The following tables detail the status of the College s supplemental pension plans: February 28, February 29, March 1, 2013 2012 2011 (restated - (restated - Note 2) Note 2) $ $ $ Defined benefit accrued benefit obligation Balance at beginning of year 1 9,340,800 8,767,400 8,331,500 Service cost 194,700 191,800 311,000 Interest cost 368,600 400,100 463,000 Actuarial (gains) losses (128,700) 581,900 151,400 Benefits paid (575,700) (600,400) (489,500) Balance at end of year 9,199,700 9,340,800 8,767,400 Less current portion of pension liability (575,700) (575,700) (603,600) Long-term pension liability 8,624,000 8,765,100 8,163,800 1 Does not include obligations under the Canadian Medical Association pension plan. February 28, February 29, 2013 2012 (restated - Note 2) $ $ Net pension expense Current service cost CMA pension plan, accounted for based on contributions 632,291 637,130 Supplementary defined benefit plan 40,700 53,800 Supplementary defined contribution plan 154,000 138,000 Interest cost 368,600 400,100 Pension expense recognized for year 2 1,195,591 1,229,030 2 Amount included in "Salaries and benefits" on the statement of operations. Page 12

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 7. Pension plans (continued) February 28, February 29, 2013 2012 (restated - Note 2) $ $ College contributions CMA pension plan 632,291 637,130 Pensions paid under supplementary defined benefit pension plan 575,700 600,400 Total contributions 1,207,991 1,237,530 February 28, February 29, March 1, 2013 2012 2011 $ $ $ Significant assumptions 3 Discount rate 3.5% 3.8% 5.1% Rate of salary increase 2.0% 2.0% 2.0% Indexation of pensions 0.5% 1.0% 1.0% 3 Used to measure costs and obligations for the supplementary defined benefit pension plans. The discount rate is determined based on long-term corporate AA bond yields. The College has entered into a Letter of Credit agreement in the amount of $9,280,000 to secure the accrued pension benefits under the supplementary defined benefit plan. The Letter of Credit expires on August 31 of each year and is renewed to reflect new supplementary pension obligations. Collateral for this Letter of Credit is secured by the equity of the building. 8. Change in operating working capital 2013 2012 $ $ Accounts receivable (303,558) 335,612 Prepaid expenses 6,049 24,974 Accounts payable and accrued liabilities (838,818) 1,237,000 Government remittances payable 57,624 2,676 Unearned revenue 1,479,841 1,687,295 401,138 3,287,557 9. Rental revenue The College has signed a lease agreement to rent out 17,431 square feet on two floors of its building for a five year period ending August 31, 2016. Page 13

College of Physicians and Surgeons of British Columbia Notes to the financial statements February 28, 2013, February 29, 2012 and March 1, 2011 10. Contingent liabilities The College has been named as a defendant in certain lawsuits and has been advised by legal counsel that the claims are without substantial merit. In the event the College is unsuccessful in defending any one of these claims, for the majority of them the College has sufficient liability insurance to cover any legal obligation. However, when it is anticipated the College will ultimately incur a liability and the amount can be reasonably estimated, a provision is made in the financial statements. 11. Financial instruments (a) Credit risk Credit risk is the risk that a counterparty will fail to perform its obligations when they come due. The College is exposed to credit risk on its cash, investments and accounts receivable. However, the College does not have significant accounts receivable exposure to any individual member and cash and investments are held with well known, reputable Canadian financial institutions. (b) Interest rate risk Interest rate risk is the risk that the value of the College s financial instruments will vary due to fluctuations in interest rates and the degree of volatility of these rates. The College is exposed to interest rate risk on a portion of its investments. The College does not use derivative instruments to reduce its exposure to fluctuations in market interest rates. (c) Liquidity risk The College s objective is to have sufficient liquidity to meet its liabilities when due. The College monitors its cash balances and cash flows generated from operations to meet its requirements. As at February 28, 2013, the most significant financial liabilities are accounts payable and accrued liabilities and pension liabilities. Page 14

College of Physicians and Surgeons of British columbia 300 669 Howe Street Vancouver, BC V6C 0B4 Telephone 604-733-7758 Facsimile 604-733-3503 Toll Free 1-800-461-3008 College Library 604-733-6671 cpsbc.ca