A guide for First Nation Members

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R e a d i n g a n d U n d e r s t a n d i n g A n n u a l F i n a n c i a l S t a t e m e n t s

Sharing Financial

Information

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This booklet is the first in a series of resources that the Aboriginal Financial Officers’ Association of Canada will be developing to help First Nation members, Councils, Chiefs and other stakeholders with limitedfinancial knowledge to understand financial information and use it in their strategic planning and decision-making processes.

All rights reserved

Acknowledgements:AFOA wishes to acknowledge the contributions made to this project by: Robert E. Jenson, C.A., CAFM, CFE;Indian and Northern Affairs Canada; EPR Gordon C. Ferguson & Co., CGA’s and Holukoff Chiarella CharteredAccountants.

While great care has been taken to ensure the accuracy of the information in Reading and UnderstandingAnnual Financial Statements, the Aboriginal Financial Officers Association of Canada does not assume liabilityfor financial decisions based solely on it. Readers are advised to contact their auditor or other professionaladvisors with specific questions or concerns.

AFOA Canada The Aboriginal Financial Officers Association (AFOA) of Canada is the centre for excellence andinnovation in Aboriginal finance and management. AFOA leads the way in Aboriginal financialmanagement by developing quality standards, promoting best practices, building strategic partnerships, utilizing innovative technologies and providing certification and professional development to enhance the capacity of members and Aboriginal organizations.

As we move towards self-governance, the need for leadership in Aboriginal finance and managementhas never been greater. As the centre of excellence and innovation in Aboriginal financial management, the AFOA is one of the key building blocks of social and economic prosperity forAboriginal communities across the country. We are establishing the standards that will ensure ourcommunities and organizations step into the future on a firm footing.

Aboriginal Financial Officers Association (AFOA) of Canada

1066 Somerset Street West, Suite 301Ottawa, Ontario K1Y 4T3

Tel: 613-722-5543 l 1 866-722-2362 Fax: 613-722-3467 l E-mail: afoa@afoa.ca

www.afoa.caDisponible en français.

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Table of ContentsFinancial Statements – the key to understanding your First Nation’s financial health ............................ page 2

Part 1: Frequently Asked Questions ................................................................................................................... page 31. Who uses First Nation’s financial statements and why? ......................................................................... .page 32. What are accounting standards? .................................................................................................................. page 43. How do I know if the financial statements accurately reflect the financial state

of our First Nation? ........................................................................................................................................... page 44. When must our First Nation’s audited financial statements be completed? ......................................... page 55. How do I know whether our First Nation is well managed,

based on the audited financial statements? ............................................................................................... page 56. How do I know if our First Nation is able to pay its bills? ......................................................................... page 67. How do I know if our First Nation has a deficit or surplus, and where it is coming from? ................. page 78. How do I know where our First Nation got its cash and where it went to? .......................................... page 79. How much of our First Nation’s operation should be included in financial statements? .................... page 810. What if I want more detail? ............................................................................................................................ page 911. How can I improve my understanding of financial statements? ............................................................. page 9

Part 2: Sample Financial Statements ............................................................................................................... page 101. Auditors’ Report .............................................................................................................................................. page 112. Consolidated Statement of Financial Position ..................................................................................... page 12-133. Consolidated Statement of Operations ....................................................................................................... page 144. Consolidated Statement of Cash Flows ...................................................................................................... page 155. Notes to Consolidated Financial Statements ............................................................................................ page 16

Who uses First Nation’s financialstatements and why?

WHO? WHY?FIRST NATION MEMBERS 4Helps you understand what financial resources are available to your

community, how they have been used, and assists in planning for the future.

4Helps you assess the leadership and management of your government.

CHIEF AND COUNCIL 4Summarizes and verifies important information for planning the First Nation’s financial affairs and supports good decision making.

4Provides information, validated by a professional and independent auditor, which can boost members’ confidence and build positive business relationships.

FINANCIAL INSTITUTIONS 4Provides information on the financial health of a First Nation, its trackrecord in managing its affairs, and its capacity to carry debt.

4Provides information for assessing loan applications and for determiningthe cost of such loans.

4Required as part of trust agreements.

OTHER GOVERNMENTS 4Provides information on your First Nation’s financial health and its management, which is needed to assess possible impacts on funded services.

4Provides information on whether funds were used in accordance with Parliamentary authority, the funding arrangements and other legal requirements, such as trust funds.

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Indian and Northern Affairs Canada(INAC), Health Canada, HumanResources Development Canada

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Do you want to know where your First Nation’s money comes from? Are you curious about how it wasspent? Does your First Nation have the funds to support your organization’s latest initiative? The place tofind all this information is in your First Nation’s financial statements. Financial statements are the key tounderstanding the financial health of your First Nation.

The objective of financial statements is to communicate information to users. They provide users withinformation about the allocation and use of resources, the source and type of revenues and to what extentrevenues were sufficient to meet expenditures. They also provide a snapshot of how much money wasspent and for what purposes, and how cash needs were met. Financial statements assist communities,corporations, and governments in decision making.

First Nations, like all governments and businesses, prepare annual financial statements and have themaudited by an independent professional auditor. The auditing process ensures that standard methods areused in accounting for your First Nation’s revenues, expenditures, assets and liabilities.

First Nation financial statements provide important information to a variety of users:4 First Nation members4 Chief and Council 4 Financial institutions that do business with your First Nation 4 Federal government departments that fund First Nation programs, and4 Creditors and analysts.

To meet the needs of all these different users, First Nation financial statements are prepared in accordancewith a standard set of rules recommended by the Canadian Institute of Chartered Accountants (CICA).These rules are known as Generally Accepted Accounting Principles (GAAP).

In addition, governments, including First Nations, must comply with the recommendations of the PublicSector Accounting Board (PSAB) of the CICA, which details specific accounting policies and disclosure forgovernment entities. Thus, the financial statements prepared for a First Nation may not be the same asthose prepared under GAAP for its business enterprises or not-for-profit organizations.

First Nation governments, like all governments, must make their financial information publicly available.This is part of a long history of government accountability. Further, as governments cannot meet all theneeds of their citizens with available funds, the open sharing and discussion of financial information isimportant in setting community priorities.

First Nations members have a responsibility to inform themselves and support constructive discussionsabout the use of available funds. Part of this involves reading and understanding financial statements.

This booklet provides tips on reading and understanding financial statements. It is written to assist Chiefand Council to present financial information and to help community members understand financial statements. Part 1 of this booklet answers some of the questions most frequently asked about them. Part 2 describes what a standard set of financial statements usually look like.

We hope this booklet helps you become more knowledgeable about the financial affairs of your First Nation.

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Financial Statements – the key to understandingyour First Nation’s financial health

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What are accounting standards?While each First Nation is involved in different activities, their financial statements must followa set of common rules used by all levels of government, corporations, and other organizations.By using the rules consistently, it is much easier for you to follow the financial affairs of your First Nation fromone year to the next. Further, the use of these rules and standards helps First Nations conduct business with financial institutions and other governments.These rules are referred to as Generally Accepted Accounting Principles (GAAP), and they are prescribed by the CICA.The financial statements are audited annually in accordance with Generally Accepted Auditing Standards (GAAS)by an independent professional auditor to ensure that the financial statements are presented fairly in accordancewith GAAP.First Nations also refer to the recommendations of the Public Sector Accounting Board (PSAB). These recommenda-tions seek to strengthen accountability in the public sector through accounting and financial reporting standardsof good practice.Beyond the standard requirements, special audit requirements may exist. For example, Indian and NorthernAffairs Canada requires special reporting on the use of trust funds. Special reporting that is required in additionto the regular financial statements could be a separate audit engagement and could have a special audit report.

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How do I know if the financial statementsaccurately reflect the financial state of our First Nation?The audit opinion, which is near the front of the financial statements, advises readers whetherthe statements provide an accurate financial picture. Examples are shown in Part 2 (page 12).4 First Nation governments are responsible to have their financial staff prepare the annual financial statements.4 They then must hire an independent and professional auditor to review the financial systems and records.

To be qualified, an auditor must have completed special training and be a member in good standing of a professional accounting association recognized by the province or territory.

4 The auditor’s job is to determine the completeness and fairness of the financial statements, in all materialrespects. Obviously, the auditors cannot review each and every financial transaction. The auditors perform such tests of the financial records as they deem necessary in order for them to be able to provide a written professional opinion on the financial statements.

The auditor will provide either an unqualified opinion or a reserved opinion.An unqualified opinion means the financial statements are fairly presented in all material respects. ☺A reserved opinion is provided when the auditor:(a) forms a positive opinion on the financial statements as a whole, but qualifies that opinion with respect to a

departure from GAAP or a limitation in the scope of his examination (a qualified opinion). K(b) forms an opinion that the financial statements are not presented fairly in accordance with GAAP.

(an adverse opinion). Lcontinued......

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When must our First Nation’s audited financialstatements be completed?Your First Nation’s fiscal year is from April 1 of one calendar year to March 31 of the next. Thisis the same 12 month period used by the Government of Canada and many other organizations.Most First Nation audits are completed within 120 days after the year end – by the end of July. Community audit orinformation sharing meetings most often happen in the early fall.

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How do I know whether our First Nation iswell managed, based on the audited financial statements?An unqualified opinion by the auditor means that the financial statements are presented fairly, but is not, in itself, an indicator that the First Nation is well managed. This can only bedetermined by an analysis of the financial statements to determine what financial resourcesthe First Nation has, and how well they are being utilized. As discussed in the questions that follow, financial statements will indicate or provide:4 A surplus or deficit that is being carried from year to year and how it changes;4 Whether programs are being operated within budgets and/or funding levels; and4 Two years of information in order to compare changes from one year to the next.This is a good starting point. However, you will have to review and discuss your First Nation’s audited financialstatements in order to understand what the complete financial situation is, and how well your First Nation’sfinances are being managed.

(c) is unable to form an opinion on the financial statements because of a limitation in the scope of his examination (a denial of opinion). L

Auditors may also provide important information to the First Nation government in a separate ManagementLetter. This letter provides advice on issues that the Chief and Council should review in order to ensure soundfinancial management. This letter will not normally be publicly disclosed with the audit, however there are special circumstances where funding agencies will require this letter.

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How do I know if our First Nation has a deficit orsurplus; and where it is coming from?You will want to look at the Consolidated Statement of Operations (or ConsolidatedStatement of Revenues and Expenditures) (see Part 2 – page 14); and compare (by program): total revenues to total expendituresWhere revenues are greater than expenditures there is a surplus, if less than, a deficit. The accumulated total ofmore than one year will be either an accumulated surplus or an accumulated deficit. This amount will appear inthe Member’s Equity section of the Consolidated Statement of Financial Position.

How do I know where our First Nation got itscash and where it went to?You will want to look at the Statement of Cash Flows; (see Part 2 – page 15) and compare: sources of cash and uses of cashThis statement shows where all the cash received came from, and how it was spent. It also shows the changes inthe First Nation’s balance of cash since last year.

Sources of cash shown would include:4 Transfers from other governments;4 Net cash generated from operating the First Nation’s programs;4 Net cash generated from all other First Nation operations;4 Loans from banks and other financial institutions; and4 Sales of capital assets and investments.

Uses of cash shown would include:4 Delivery of programs and services;4 Repayment of loans;4 Purchase of capital assets; and4 Investments made.

For more details on the revenue making up the cash receipts and the expenditures, see the Statement ofOperations (page 14).

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How do I know if our First Nation is able topay its bills?

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To find out, look at the Consolidated Statement of Financial Position (or ConsolidatedBalance Sheet) (see Part 2 – page 13) and compare: Current Assets to Current LiabilitiesCurrent assets are those assets on hand (e.g. bank deposits, accounts receivable, etc.) which could provideresources to discharge existing liabilities or finance future operations. Current liabilities are debts of the First Nation which must be paid in the near future (e.g. One year or less).If the current assets are greater than liabilities, cash is likely to be available to pay bills. If current liabilities aregreater, there may be problems paying bills on time.You will also need to consider the longer term situation. To do so, look at total assets and total liabilities anddetermine if current assets plus those assets set aside for specific types of liabilities are sufficient to cover all of the liabilities. Sometimes total liabilities are growing due to loans for the construction of new homes or community facilities.Sometimes their growth is due to expenditures generally exceeding revenues and thus indicates a need toreview all expenditures.In both cases, the community needs a long-term financial plan to manage debt and plan for the future. This planneeds to be updated at least once each year.Important note: The Consolidated Statement of Financial Position or Balance Sheet is a statement detailing whatassets and debts the First Nation has on a particular date – ie at the end of the fiscal year to which the financialstatements refer. It is historical information, in that other transactions may have occurred between the time ofthe completion of the audit, and when the audit findings were released – transactions which may significantlyalter the financial situation of the First Nations and its ability to pay its bills.

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What if I want more detail?The financial statements will include a section of notes and related schedules which providea great deal of additional information.Since First Nations are required to prepare financial statements to standards and levels of detail generallyaccepted for government and business purposes, the first question to ask is whether the information you seekshould be part of the financial statements.

The community must weigh the benefits and costs associated with a more detailed level of financial reporting or audit.If additional audit work is involved, the auditor must be consulted to determine if and how the work could be donein accordance with professional standards. Finally, certain detailed personal information must be kept confidential(e.g. costs associated with medical treatments).

Some communities have had their auditor perform special audit work to help answer certain questions important to the community. The auditor would report in a separate opinion and not add additional items to thefinancial statements.

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How can I improve my understanding offinancial statements?Participate in and encourage open and positive discussion about your First Nation or organization’s financial statements; share ideas and information.First Nations are using various approaches to help interested members, including:

4 Holding annual audit meetings at which the Chief and Council present the audited financial statement, with the assistance of the auditor;

4 Developing a summary presentation, using graphs to help make the information easier to follow;4 Developing annual reports which bring together the audited financial information with reports on

community activities and plans; and4 Involving members in audit committees who study the financial statements and then help other

members understand them.

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How much of our First Nation’s operationshould be included in financial statements?

F R E Q U E N T L Y A S K E D Q U E S T I O N S

It is a generally accepted practice to consolidate financial statements to provide the totalfinancial picture of a government or business. This means that a First Nation’s statementsshould include the results of all operations or businesses which are (to a significantdegree) owned, controlled, or accountable to the First Nation government. Consolidation is required under GAAP. Failure to include all required operations would result in a qualifiedaudit opinion.

On the other hand, businesses operated independently from the First Nation would not be part of theseconsolidated financial statements.

Generally, summarized results of First Nation businesses are all that appear in the First Nation consolidatedfinancial statements and not all the detail of their operations. This is adequate information for understandingthe overall financial health of the First Nation and trends that may affect essential services.

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Consolidated Financial Statements

Operating FundFinancial

Statements

BandManagement

Social Services

CommunityDevelopment

DevelopmentTrust

First NationEnterprise A

First NationEnterprise B

Capital FundFinancial

Statements

Trust FundFinancial

Statements

Reserve FundFinancial

Statements

Enterprise FundFinancial

Statements

Auditor’s ReportThe covering report of the audited financial statements by the independent auditor includes important information. The report details the parameters of the audit—what the auditor examined, for what period, andin accordance with what standards. It also includes the auditor’s opinion on the accuracy of the financialstatements. The auditor will provide an unqualified, qualified or adverse opinion, or a denial of opinion.

An example of an Unqualified Opinion is shown below.

When the auditor has reservations, he will detail them in a separate paragraph before the opinion paragraph.

A Qualified Opinion would be indicated with wording similar to "…except for the effects of the adjustmentsreferred to in the preceding paragraph, these consolidated financial statements present fairly…"

An Adverse Opinion would be indicated with "…these consolidated financial statements do not present fairly…"

A Denial of Opinion would be indicated with "…we are unable to express an opinion whether these consolidatedfinancial statements are presented fairly…"

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XYZ Professional AccountantsSomewhere, Canada

AUDITORS’ REPORT

To Chief and Council of ABC First Nation

We have audited the consolidated statement of financial position of the ABC First Nation as at March 31,2003 and the consolidated statements of operations and cash flows for the year then ended. These financialstatements are the responsibility of the ABC First Nation’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standardsrequire that we plan and perform an audit to obtain reasonable assurance whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financialstatement presentation.

In our opinion, *these consolidated financial statements present fairly*, in all material respects, the financialposition of the ABC First Nation as at March 31, 2003 and the results of its operations and its cash flows forthe year then ended in accordance with Canadian generally accepted accounting principles.

Somewhere, Canada (signed) ––––––––––––––––––––––––––––––––––––––––Date ––––––––––––––––––––––––––––––

Professional Accountant

*emphasis added

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Sample Financial StatementsFinancial Statements include the following:

1. Auditors’ Report2. Consolidated Statement of Financial Position3. Consolidated Statement of Operations4. Consolidated Statement of Cash Flows5. Notes to Consolidated Financial Statements6. Supporting Schedules(examples are not included in this booklet)

In addition, many organizations require management to include a report statingthat they are responsible for the preparation of the financial statements. (A sample is not included in this booklet)

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Consolidated Statement of Financial Position(also referred to as Consolidated Statement of Financial Activities)

The Consolidated Statement of Financial Position provides a snapshot of your First Nation’s financialposition at the year-end. It gives indicators of financial health.

ASSETS are physical items and rights owned by a First Nation, separated into current and non-current assets.

Current Assets are assets that can be converted to cash or consumed in the ordinary course of operations, and include:• Cash: bills, coins, and cheques on hand or on deposit in a bank account• Accounts receivable: money owed to a First Nation. This may include money from government funding agencies or

repayable advances to First Nation members/employees.• Loans and advances.• Inventory: value of goods that have been purchased by the First Nation for resale.• Short-term investments.• Other current assets include such items as supplies on hand, prepaid expenses and other items which will be consumed

in the ordinary course of operations.Other Assets are non-current assets that will not ordinarily be converted to cash in the ordinary course of operations and include:

• Restricted cash: monies to be used for a specific purpose as a condition of receiving the money (e.g. Treaty Land Entitlement)• Long term investments

Tangible Capital Assets are items that have a useful life of more than one year, and which are not intended for resale and notreadily converted to cash. Examples are buildings and equipment. Initially they are recorded at cost. A portion of this cost isrecognized each year as an operating cost and deducted from the fixed asset value. This is called amortization.

LIABILITIES are monies owed by a First Nation and include:

Current Liabilities are debts which must be paid in the ordinary course of operations, and include:• Line of Credit: the outstanding bank loan balance and any cheques issued but not cashed.• Accounts Payable: monies owed by the First Nation for the purchase of supplies, services, and fixed assets.• Deferred Revenue: funding received by the First Nation for future program or service delivery.• Advances: monies from First Nation businesses/organizations which must be repaid to them.• Current portion of Long-Term Debt: the long-term debt payments due within one year.

Replacement reserve – CMHC: an allocation of funds for future house repairs, maintenance and replacements required by theCanada Mortgage and Housing Corporation Housing Program.Long-term Debt: includes amounts which are not due for at least one year, such as the long-term portion of mortgages, contracts, long term notes. These items are used to finance fixed assets and other operating requirements (e.g. debt consolidation loans).Members Position: is equal to the difference between Total Assets and Total Liabilities. It represents the value that members have in the First Nation’s operations. Equity in Capital Assets is the amount invested in capital assets by the First Nation and generally represents the book valueof capital assets less the debt related to the acquisition of those assets.Reserves are allocations made by Band Council Resolution to set aside portions of the surplus for specific future needs ofthe First Nation.Contingent liabilities are obligations which may arise in the future depending on the resolution of a contingency existing at thetime of the balance sheet that will ultimately be resolved when one or more future events occur or fail to occur. GAAP requiresthat these be disclosed in the financial statements, usually by a note.

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION As At March 31, 2003

Note* 2003 2002$ $

ASSETSCurrent AssetsCash and Temporary Investments 2 144,285 290,313Accounts Receivable and Advances 3 439,702 350,342Inventory 8,581 8,245Short-term Investments 4 35,000 35,000Other Current Assets 6 392,271 278,326

1,019,839 962,226

Other AssetsRestricted Cash 2 191,734 119,691Long-term Investments 4 400,138 319,420

591,872 439,111

Tangible Capital Assets 5 4,777,637 3,232,5766,389,348 4,633,913

LIABILITIESCurrent LiabilitiesLine of Credit 7 0 60,000Accounts Payable 497,552 249,767Deferred Revenue 8 15,570 0Advances from Commercial Operations 10 11,072 14,774Current Portion of Long Term Debt 11 141, 396 37,858

665,590 362,399

Replacement Reserve – CMHC 9 78,437 67,936

Long-Term Debt 11 1,000,000 700,0001,744,027 1,130,335

Members PositionOperating Fund 113,297 51,755Equity in Capital Assets 3,636,241 2,494,718Reserves 895,783 957,104

4,645,321 3,503,577

Contingent Liabilities 126,389,348 4,633,912

*See description of Notes on page 16

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Consolidated Statement of Operations (also referred to as Consolidated Statement of Revenues and Expenditures)

The Consolidated Statement of Operations reports the results of operations for a specifiedperiod of time and gives indicators of efficiency and profitability.

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The Consolidated Statement ofOperations presents informationon that year’s budget (to allowreaders to compare actual to planned revenue andexpenses), actual revenue andexpenditures for the currentfiscal year and the prior fiscalyear (in order to comparechanges from one year to thenext), and the surplus or deficitfor the year. Budgets must beset at the beginning of thereporting year. They allowfinancial statement readers tocompare actual to planned revenue and expenses.Revenue represents all themonies received or receivableby the First Nation during theyear from various sourcesincluding other governmentsand First Nation owned andoperated businesses.Expenditures represent all themonies spent by the FirstNation during the year. Theseexpenditures could be cash,liabilities, or other charges (e.g. depreciation).Surplus (deficit) indicates howmuch the First Nation saved(surplus) or overspent (deficit)during the reporting period.

ABC FIRST NATIONCONSOLIDATED STATEMENT OF OPERATIONS

Year Ended March 31, 2003

Budget 2003 2002$ $ $

REVENUESIndian and Northern Affairs Canada 1,674,800 1,575,696 1,547,180Health Canada 50,000 49,122 45,692Human Resources Development 40,000 12,777 24,982Canada Mortgage and Housing 120,000 293,075 94,475Interest Revenues 32,000 35,484 26,182Proceeds from Sales of Assets 0 1,000 4,400Land Claims Settlements 10,000 8,650 132,942Timber Sales 1,800,000 2,235,044 414,925Miscellaneous Revenues 580,400 607,212 673,378Share of Income (Loss) of First Nation Controlled Entities 120,000 35,758 45,464Total Revenues 4,427,200 4,853,818 3,009,620

EXPENDITURESAdministration 407,200 390,474 525,320Community Operations 186,000 191,376 188,366Education 669,840 637,676 739,291Social Development 389,280 368,662 398,231Canada Employment and Job Creation 60,800 55,554 92,616Social Housing 166,000 159,234 176,199Capital 347,200 592,730 324,115Businesses 1,644,480 1,824,508 382,654Total Expenditures 3,870,800 4,220,214 2,826,792

Surplus (Deficit) for The Year 556,400 633,604 182,828

Consolidated Statement of Cash Flows(also referred to as Consolidated Statement of Changes in Financial Position)

The Consolidated Statement of Cash Flows details sources and uses of cash over thereporting period.

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Operating Activities wouldinclude the excess of revenuesover expenditures, adjusted foritems not requiring a currentoutlay of cash, and the changesin the working capital balancesrelated to operations.

Financing Activities wouldinclude the receipt of loan proceeds, loan principal repayments, and any increaseor decrease in replacementreserves.

Investing Activities wouldinclude the purchase and saleof capital assets, the increaseor decrease in the amountsowing to and from relatedorganizations, or investmentsin outside businesses.

The Cash at End of Year detailsshould match the relatedAssets on the Statement ofFinancial Position.

ABC FIRST NATIONCONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended March 31, 2003

2003 2002$ $

Operating Activities:Excess of Revenue over Expenditure 633,604 182,828Non-operating items:*share of income (loss) of First Nation Controlled Enterprises (35,754) (45,464)*Amortization 14,427 0*principal repayments on long term debt, expensed in operating fund 42,873 41,412*capital assets acquired from operations 502,117 299,801Decrease (increase) in non-cash operating net assets 180,637 61,780

1,337,904 540,357

Financing Activities:Proceeds form Enterprise fund loans 500,000 194,921Repayment of Enterprise fund Long Term Debt (53,589) (95,297)

446,411 99,624

Investing Activities:Purchase of Capital Assets (1,605,150) (445,801)Investment in First Nation Controlled Entities (80,718) (37,906)Increase in Loan Receivable (113,946) (81,380)Proceeds from disposition of capital assets 1,515 0Timber sale deposit 0 (47,107)

(1,798,299) (612,194)

Increase (Decrease) in Cash During Year (13,984) 27,787Cash at Beginning of Year 350,003 322,216Cash at End of Year 336,019 350,003

Represented by:Cash 144,285 290,313Restricted Cash 191,734 119,691Bank Demand Loan 0 -60,000

336,019 350,003

Notes to Consolidated Financial Statements The Notes to Financial Statements are very important in understanding the financialstatements, and provide more information than what is shown in the financial numbersof the statements. Also, the Notes provide additional information on other matters thatwill affect the current and future financial affairs of your First Nation.

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The type and amount of information included in theNotes will vary from FirstNation to First Nation. At aminimum, the Notes shouldinclude useful details on:4 The accounting policies

used by the First Nation4 First Nation organizations

included in the Consolidated Financial Statements and the basis of consolidation

4 Accounts receivable4 Fixed assets4 Investments (if any)4 Bank loans4 Long term debts4 Contingent liabilities or

commitments

At right are some examples of explanatory notes to consolidated financial statements:

ABC FIRST NATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended March 31,2003

3. Accounts Receivable 2003 2002Indian and Northern Affairs 90,074 8,110Other Government Agencies 40,644 37,879ABC First Nation 102,350 79,114XYZ Corporation 220,283 222,710First Nation Members 47,107 47,107

500,458 394,920Less: Allowance for doubtful accounts 62,754 44,575Net Accounts Receivable 437,704 350,345

5. Tangible Capital Assets 2003 2002First Nation Housing 2,068,510 1,932,494Buildings 46,600 46,600Automotive, Fire and General Equipment 645,943 181,067Water and Sewer Systems 2,270,627 1,266,369

5,031,680 3,426,530Less: Accumulated amortization 256,041 195,951Net Tangible Capital Assets 4,775,639 3,230,579

12. Contingent LiabilitiesThe First Nation is contingently liable for a loan from the ZYX Bank to theABC First Nation Enterprise in the amount of $1,250,000 which is securedby a promissory note co-signed by the First Nation.

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part twoS A M P L E F I N A N C I A L S T A T E M E N T S

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