In our last video, we covered the basics of the government’s financial statements and dug down into the notes and tables. That’s where we find important information to explain in more detail the contents of the financial statements.
In this video, we will cover contingent liabilities to explain how an amount of 2.3 trillion dollars in Note 6 of the government’s 2017 financial statements becomes a liability of 16.5 billion dollars in the Statement of Financial Position. Remember, liabilities is money the government owes. Contingent liabilities are potential amounts that the government may have to incur depending on the outcome of a future uncertain event.
Let’s use an example to explain how this works. Here’s a scenario for you: A snowstorm in July, in Ottawa. Is it possible? Yes. Is it likely? No.
In managing its programs and delivering services to Canadians, the government is exposed to a wide range of risks and uncertainties that could eventually materialize and have a negative impact on the government’s financial position. While there are hundreds of possible scenarios, not all are likely to occur.
It is however important to understand the nature and magnitude of these possible expenditures because if they do come to bear, they can substantially alter the government’s future financial position. When an uncertain event moves from being a possibility to being both likely to occur and measurable, it is recorded as a provision in the Statement of Financial Position.
Contingent liabilities are explained in a note within the financial statements and in additional tables found in other sections of the Public Accounts of Canada. If you want to see them for yourself, check out how this information was presented in the 2017 Public Accounts of Canada.