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HomeMy WebLinkAboutFIN 19-24 Report to Executive Committee Report Number: FIN 19-24 Date: October 7, 2024 From: Stan Karwowski Director, Finance & Treasurer Subject: 2023 Year End Audit and Financial Statements (Final) - File: F-3300-001 Recommendation: 1. That the Report FIN 19-24 regarding the results of the 2023 Audit, as submitted by Deloitte LLP, be received for information; and 2. That the 2023 draft Audited Consolidated Financial Statements for the City of Pickering be approved. Executive Summary: The purpose of this report is to present the financial results of the 2023 audit and present the draft Audited Consolidated Financial Statements for the year ended December 31, 2023. The auditor has provided an unmodified audit report on the financial statements. This means that the financial statements present fairly, in all material respects, the financial position of the City and its operations, changes in its net financial assets and its cash flows in accordance with Canadian public sector accounting standards. The auditor did not identify any significant deficiencies during the audit to formally report to Council. Relationship to the Pickering Strategic Plan: The recommendations in this report respond to the Pickering Strategic Plan Corporate Key to Deliver on Good Governance – Open & Transparent Decision-Making. Financial Implications: The City’s financial position is healthy and strong and the City is able to meet its current financial commitments and in the future. Discussion: The purpose of this report is to present the financial results of the 2023 audit and present the draft Audited Consolidated Financial Statements for the year ended December 31, 2023. The Public Sector Accounting Board (PSAB) introduced a new accounting standard, PS 3280 Asset Retirement Obligations (ARO), which was required to be adopted for the 2023 Financial Statement reporting. This delayed the timing of the 2023 year end audit and preparation of the FIN 19-24 October 7, 2024 Subject: 2023 Year End Audit and Financial Statements (Final) Page 2 financial statements as the City hired an external consultant to assist with implementing the standard which was approved in Report FIN 04-24. This ensured the City was compliant with the standard in the first year of reporting. The new standard requires the City to include the estimated future costs of retiring a capital asset on the Balance Sheet as a liability and as part of the capitalized cost of the asset. For 2023, an ARO liability of $6,793,775 is included on the Balance Sheet and represents the estimated future costs for retirement of City facilities and obligations for termination of leased spaces. This liability will fluctuate year over year due to inflationary increases of costs, new asset retirement obligations recognized or decreases upon disposal of City assets identified with an ARO. The audit for the year ended December 31, 2023 has now been completed. The auditor’s Report on the Results of the 2023 Audit is included as Attachment 1. This Report, prepared by Deloitte, summarizes its findings from the December 31, 2023 audit and comments on significant matters regarding the audit. Appendix 1 provides a summary of communication requirements which Deloitte is required to bring to Council’s attention. The independence letter in Appendix 2 confirms that Deloitte is independent from the City. Appendix 3 is the draft management representation letter which is provided by the City to the auditors. This letter indicates that the financial statements are management’s responsibility and that management has provided and disclosed all necessary information to ensure that the financial statements are not materially misstated. This letter will be signed by the appropriate authorities upon approval of the financial statements. The scope of the audit does not include an in-depth evaluation of all systems or internal controls, however, the auditors may report on matters that come to their attention during the course of their review. No significant matters came to their attention to report. The draft Audited Consolidated Financial Statements for the year ended December 31, 2023 are included as Attachment 2. These statements are the responsibility of management and have been prepared by City accounting staff under the direction of the Director, Finance & Treasurer. The auditors are responsible to express an opinion on these Consolidated Financial Statements based on their audit. An unmodified audit report has been issued which means the auditors have indicated that in their opinion, the consolidated financial statements are fairly presented, in all material respects. In other words the City has a clean report. The Consolidated Financial Statements include the activities of the City of Pickering Public Library Board. The City’s investment in Elexicon Corporation is accounted for on a modified equity basis, which means the City includes its share of Elexicon’s income or loss in the Consolidated Financial Statements. Attachments: 1. Report on the Results of the 2023 Audit 2. 2023 Draft Audited Consolidated Financial Statements FIN 19-24 October 7, 2024 Subject: 2023 Year End Audit and Financial Statements (Final) Page 3 Prepared By: Approved/Endorsed By: Original Signed By: Original Signed By: Susan Marsh Stan Karwowski Senior Accounting Analyst, Internal Audit Director, Finance & Treasurer Original Signed By: Kristine Senior Manager, Accounting Services Recommended for the consideration of Pickering City Council Original Signed By: Marisa Carpino, M.A. Chief Administrative Officer 00 The Corporation of the City of Pickering Report on the results of the 2023 audit To be presented on October 7, 2024 Attachment 1 to Report FIN 19-24 Dear Executive Committee Members: We are pleased to submit this report on the status of our audit of the consolidated financial statements (the “financial statements”)of the Corporation of the City of Pickering (the “City”)and the financial statements of the related City entities for the fiscal year ended December 31, 2023. This report summarizes the scope of our audit, our findings and reviews certain other matters that we believe to be of interest to you. As agreed in our Master Services Agreement dated April 16, 2023, we have performed an audit of the financial statements of the City, the City of Pickering Library Board (the “Library”)and the City of Pickering Trust Funds (the “Trust Funds”),as at, and for the year ended December 31, 2023, in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”)and expect to issue our Independent Auditor’s Report thereon upon completion of outstanding matters highlighted in this report, and upon approval of the financial statements by yourself. This report is intended solely for the information and use of the Executive Committee, management and others within the City and is not intended to be, and should not be, used by anyone other than these specified parties. Accordingly, we disclaim any responsibility to any other party who may rely on it. We would like to express our appreciation for the cooperation we received from employees of the City with whom we worked to discharge our responsibilities. We look forward to discussing this report summarizing the outcome of our audit with you and answering any questions you may have. Yours truly, Chartered Professional Accountants Licensed Public Accountants Deloitte LLP Bay Adelaide East 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada Tel: 416 601 6150 Fax: 416 601 6151 www.deloitte.ca September 19, 2024 Private and confidential To the Members of the Executive Committee The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Report on audited annual consolidated financial statements The Corporation of the City of Pickering | Table of contents i © Deloitte LLP and affiliated entities. Table of contents Executive summary 1 Significant audit risks, other audit risks and events 3 Significant accounting policies, judgments and estimates 6 Appendix 1 – Communication requirements and other reportable matters 7 Appendix 2 – Independence letter 9 Appendix 3 – Draft management representations letter 11 The Corporation of the City of Pickering | Executive summary 1 © Deloitte LLP and affiliated entities. Executive summary Audit scope and terms of engagement We have been engaged to perform the audits of the City’s, Library’s, and Trust Funds’ financial statements (the “financial statements”) prepared in accordance with Canadian Public Sector Accounting Standards for the City and the Library Board and Canadian Accounting Standards for Not-For-Profit Organizations for the Trust Funds as at and for the year ended December 31, 2023. Our audit was conducted in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). The terms and conditions of our engagement are described in the Master Services Agreement dated April 16, 2023. We have developed appropriate safeguards and procedures to eliminate threats to our independence or to reduce them to an acceptable level. Significant audit risks Uncorrected misstatements 1 Revenue recognition 2 Management override of controls 3 Management judgments and accounting estimates 4 Implementation of PS 3280 Asset Retirement Obligations and PS 3450 Financial Instruments accounting standards $175K $3.5 Mil Materiality Clearly trivial threshold We are required to communicate to those charged with governance any uncorrected misstatements identified during our audit exceeding the clearly trivial threshold. We do not have any uncorrected misstatements to report. The Corporation of the City of Pickering | Executive summary 2 © Deloitte LLP and affiliated entities. Outstanding matters & next steps Highlights Completion of minor audit documentation items Receipt of legal letters Receipt of signed management representations letter Management’s analysis for the impact of PS 3450 Completion of our subsequent events procedures No changes in the significant risks identified. There were no significant deficiencies identified as part of our audit. Going concern Results Management has completed its assessment of the ability of the City to continue as a going concern and in making its assessment did not identify any material uncertainties related to events or conditions that may cast significant doubt upon the City’s ability to continue as a going concern. We agree with management’s assessment. We intend to issue an unmodified audit report on the consolidated financial statements of the City, the Library Board and the Trust Funds, for the year ended December 31, 2023 once the outstanding items referred to above are completed satisfactorily and the financial statements are approved. The Corporation of the City of Pickering | Significant audit risks, other audit risks and events 3 © Deloitte LLP and affiliated entities. Significant audit risks, other audit risks and events The significant audit risks identified as part of our risk assessment, together with our audit responses and conclusions, are described below. Significant audit risks Revenue recognition* Analysis of risk Audit response and results Under Canadian GAAS, we are required to evaluate the risk of fraud in revenue recognition. We have pinpointed this inherent fraud risk to the following revenue streams: Government grants (Occurrence, Accuracy and Cut- off) User charges (manual entries only) Developer contributions and development charges (Occurrence and Accuracy) and the correspondingDeferred Revenue (Existence, Rights and Obligations, Completeness, and Valuation and Allocation) Contributed tangible capital assets (Occurrence and Accuracy) The following revenue streams are considered a significant risk but concluded no fraud risk: Penalties and interest on taxes (Occurrence and Cut-off) We tested the design and implementation of controls in the significant revenue streams and performed detailed testing in these areas. We performed substantive testing to determine if restricted grants/contributions (i.e., development charges, gas tax, etc.) and government transfers have been recognized appropriately (revenue vs. deferred revenue). We tested a sample of manual revenue entries. We performed substantive test of details over contributed tangible capital assets, including testing of their valuation. We obtained sufficient audit evidence to conclude that there were no material misstatements. Management override of controls* Analysis of risk Audit response and results Under Canadian Auditing Standards, it is the responsibility of the management, with the oversight of those charged with governance to place a strong emphasis on fraud prevention and detection. Oversight by those charged with governance includes considering the potential for override of controls or other inappropriate influence over the financial reporting process. Management override of controls is present in all entities. It is a risk of material misstatement resulting from fraud and therefore is considered as a significant risk. We engaged in periodic fraud discussions with certain members of senior management and others. We tested journal entries that exhibit characteristics of possible management override of controls, identified using manual techniques. We evaluated the business rationale for any significant unusual transactions. We considered the potential for bias in judgments and estimates, including performing retrospective analysis of significant accounting estimates. We evaluated the City’s fraud risk assessment and consider entity-level internal controls and internal controls over the closing and reporting process. We obtained sufficient audit evidence to conclude that there were no material misstatements. *These areas were identified as areas of significant risk, as required by Canadian Auditing Standards. The Corporation of the City of Pickering | Significant audit risks, other audit risks and events 4 © Deloitte LLP and affiliated entities. Management judgments and accounting estimates Analysis of risk Audit response and results Management judgments and accounting estimates may be subject to estimation uncertainty. Significant judgments and estimates Accounts involving significant estimates include allowance for doubtful accounts, certain accrued liabilities including payroll-related liabilities, post- employment benefits liability, WSIB liabilities, estimates relating to the useful lives of tangible capital assets, and estimates relating to asset retirement obligations. Judgments and estimates also include considerations made with respect to the capitalization of costs incurred for capital assets and assets under construction. Such capitalization should only occur if it is anticipated that these costs will give rise to future benefits. We obtained an understanding of how management makes the accounting estimates and the underlying data on which those estimates are based. We reviewed the support for significant assumptions made by management. We evaluated the significant assumptions made by management for accounting estimates. We assessed the reasonableness of the estimates made at year-end. We assessed the consistency of assumption made by management. We performed lookback testing on significant estimates from prior year to assess the reasonableness of actual outcomes compared to management’s prior period estimates and found no issues. We noted certain costs were written off in the current year relating to capital assets and assets under construction capitalized in prior years. We consider them to be appropriate given changes to circumstances around their expected future benefits that arose in the current year. We obtained sufficient audit evidence to conclude that there were no material misstatements. The Corporation of the City of Pickering | Significant audit risks, other audit risks and events 5 © Deloitte LLP and affiliated entities. Implementation of PS 3280 Asset Retirement Obligations and PS 3450 Financial Instrument accounting standards Analysis of risk Audit response and results In fiscal 2023, two new accounting standards, PS 3280 Asset Retirement Obligations (“ARO”), and PS 3450 Financial Instruments, came into effect. The City has been preparing for the adoption of both standards, including development of accounting policies, information gathering from various City departments, engagement of external consultants (where needed) to assist with valuation, and development of go-forward processes for policy maintenance. We held discussions with management on the implementation plan for the new standards. Through the implementation and information gathering process, we connected with management to monitor status and ensure implementation decisions are reasonable and judgements are properly documented and substantiated. We provided input as requested by management and did an initial review of management’s memo for each PS 3280 and PS 3450 implementation approach and process. We worked with management to review the disclosure of the first-time adoption in the financial statements, including introduction of new accounting policy notes and financial statements presentation. We performed audit procedures to test the completeness, existence, and accuracy of ARO liabilities recorded by testing a sample of inputs and assertions made my management and cross-referencing ARO liabilities to fixed asset registers. We will obtain management’s analysis for the impact of PS 3450 (noted as an outstanding item on the Executive Summary) and assess the assumptions made by management. We obtained sufficient audit evidence to conclude that there were no material misstatements. The Corporation of the City of Pickering | Significant accounting policies, judgments and estimates 6 © Deloitte LLP and affiliated entities. Significant accounting policies, judgments and estimates The accounting policies of the City, the Library Board and the Trust Funds are set out in Note 1 of their respective financial statements. In the course of our audits of the financial statements, we considered the qualitative aspects of the financial reporting process, including items that have a significant impact on the relevance, reliability, comparability and understandability of the information included in the financial statements. Significant accounting policies The City adopted two new accounting standards during 2023 prospectively, specifically PS 3450 Financial Instruments and PS 3280 Asset Retirement Obligations. The adoption of these accounting standards have been disclosed in Note 1 of the financial statements. There were no changes to previously adopted accounting policies or their application at the City, the Library Board or the Trust Funds. In our judgment, the significant accounting practices and policies, selected and applied by City management are, in all material respects, acceptable under PSAS for the City and the Library Board, under Accounting Standards for Not-For-Profit Organizations for the Trust Funds and are appropriate to the particular circumstances of the City, the Library Board and the Trust Funds. Accounting estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. These judgments are normally based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. During the year ended December 31, 2023, management advised us that there were no significant changes in accounting estimates or in judgments relating to the application of the accounting policies. The first time adoption of PS 3280 Asset Retirement Obligations required the use of new estimates and judgments, which we have assessed as part of our audit and determined to be appropriate. In our judgment, the significant accounting estimates made by management are, in all material respects, free of possible management bias and of material misstatement. The disclosure in the consolidated financial statements with respect to estimation uncertainty is in accordance with PSAS and is appropriate to the particular circumstances of the City. The Corporation of the City of Pickering | Appendix 1 – Communication requirements and other reportable matters 7 © Deloitte LLP and affiliated entities. Appendix 1 – Communication requirements and other reportable matters Required communication Refer to this report or document described below Audit service plan 1. Our responsibilities under Canadian GAAS,including forming and expressing an opinion on the financial statements Audit service plan dated October 10, 2023 2. An overview of the overall audit strategy, addressing: a. Timing of the audit b. Significant risks, including fraud risks c. Names, locations, and plannedresponsibilities of other independent public accounting firms or others that perform audit procedures in the audit Audit service plan dated October 10, 2023 3. Significant transactions outside of the normal course of business, including relatedparty transactions Audit service plan dated October 10, 2023 Year end communication 4. Fraud or possible fraud identified through theaudit process None noted 5. Significant accounting policies, practices, unusual transactions, and our related conclusions Significant accounting practices, judgments and estimates section 6. Alternative treatments for accounting policies and practices that have been discussedwith management during the current audit period None noted 7. Matters related to going concern Note noted – refer to Executive summary 8. Consultation with other accountants Management has informed us that the City, the Library Board and the Trust Funds have not consulted with other accountants about auditing or accounting matters. The City obtained the assistance of Deloitte’s Assurance team with respect to the adoption of PS 3280 Asset Retirement Obligations accounting standard. 9. Management judgments and accounting estimates Significant accounting practices, judgments and estimates section 10. Significant difficulties, if any, encountered during the audit None The Corporation of the City of Pickering | Appendix 1 – Communication requirements and other reportable matters 8 © Deloitte LLP and affiliated entities. Required communication Refer to this report or document described below 11. Material written communications betweenmanagement and us, including management representation letters Master service agreement dated April 16, 2023, Management representation letter – Appendix 3. 12. Circumstances that affect the form and the content of the auditor’s report Master service agreement dated April 16, 2023. 13. Other matters that are significant to the oversight of the financial reporting process No other matters to report. 14. Modifications to our opinion None. 15. Other significant matters discussed with management None. 16. Matters involving non-compliance with laws and regulations that come to our attention,unless prohibited by law or regulation, including Illegal or possibly illegal acts that come to our attention None. 17. Litigation No litigation matters to report. 18. Significant deficiencies in internal control, if any, identified by us in the conduct of theaudit of the financial statements No significant deficiencies to report. 19. Uncorrected misstatements and disclosure items In accordance with Canadian GAAS, we request that all misstatements be corrected. There were no uncorrected misstatements. Other reportable matters 20. Changes to the audit plan The audit was conducted in accordance with our audit plan dated October 10, 2023 which was presented to the Members of Council. We confirm that there have been no significant amendments to the audit scope and approach communicated in the audit plan. 21. Concerns regarding management competence and integrity We have not determined any concerns regarding management competence and integrity. 22. Disagreements with management In the course of our audit, we did not encounter any disagreements with management about matters that individually or in the aggregate could be significant to the financial statements. 23. Post-balance sheet events At the date of finalizing this report, we are not aware of any significant post-balance sheet events. 24. Reliance on service organizations The City makes use of ADP PayTech in the processing of payroll transactions. We obtained the CSAE 3416 service organization report on the operating effectiveness of internal controls adopted at ADP, and noted no issues which would impact our audit. 25. Other significant matters arising from theaudit None noted. The Corporation of the City of Pickering | Appendix 2 – Independence letter 9 © Deloitte LLP and affiliated entities. Deloitte LLP 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada Tel: 416 601 6150 Fax: 416 601 6610 www.deloitte.ca Appendix 2 – Independence letter September 19, 2024 Private and confidential The Members of Executive Committee The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Dear Executive Committee Members, We have been engaged to audit the consolidated financial statements of The Corporation of the City of Pickering (the “City”)for the year ended December 31, 2023. You have requested that we communicate in writing with you regarding our compliance with relevant ethical requirements regarding independence as well as all relationships and other matters between the City, our Firm and network firms that, in our professional judgment, may reasonably be thought to bear on our independence. You have also requested us to communicate the related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level. In determining which relationships to report, we have considered relevant rules and related interpretations prescribed by the appropriate provincial regulator/order and applicable legislation, covering such matters as: a. Holding a financial interest, either directly or indirectly, in a client. b. Holding a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of a client. c. Personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client. d. Economic dependence on a client. e. Provision of services in addition to the audit engagement. The Corporation of the City of Pickering | Appendix 2 – Independence letter 10 © Deloitte LLP and affiliated entities. We confirm to you that the engagement team and others in the firm as appropriate, the firm and, when applicable, network firms have complied with relevant ethical requirements regarding independence. We have prepared the following comments to facilitate our discussion with you regarding independence matters arising since September 7, 2023, the date of our last letter. We are not aware of any relationships between the Deloitte Entities and the City and its affiliates, or persons in financial reporting oversight roles at the City and its affiliates, that, in our professional judgment, may reasonably be thought to bear on independence, that have occurred from September 7, 2023 to September 19, 2024. We hereby confirm that we are independent with respect to the City in accordance with the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario as of September 19, 2024. This letter is intended solely for the information and use of the Executive Committee, management, and others within the City and is not intended to be and should not be used for any other purposes. Yours truly, Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering | Appendix 3 – Draft management representations letter 11 © Deloitte LLP and affiliated entities. Appendix 3 – Draft management representations letter Dear Ms. Lilian Cheung: This representation letter is provided in connection with the audit by Deloitte LLP (“Deloitte”or “you”)of the consolidated financial statements of The Corporation of the City of Pickering (the “City”or “we”or “us”)as of and for the year ended December 31, 2023, the notes to the consolidated financial statements and a summary of significant accounting policies (the “Financial Statements”)for the purpose of expressing an opinion as to whether the Financial Statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the City in accordance with Public Sector Accounting Standards (“PSAS”). Certain representations in this letter are described as being limited to matters that are material. Items are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We confirm that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves: Financial statements 1. We have fulfilled our responsibilities as set out in the terms of the engagement letter between the City and Deloitte dated April 16, 2023 and subsequent confirmation of changes letters for the preparation of the Financial Statements in accordance with PSAS. In particular, the Financial Statements are fairly presented, in all material respects, and present the financial position of the City as at December 31, 2023 and the results of its operations and cash flows for the year then ended in accordance with PSAS. [City letterhead] DATE Deloitte LLP 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Subject:Consolidated financial statements of The Corporation of the City of Pickering for the year ended December 31,2023 is providedprovided in connectionconnection withwith thethe statementsstatements of The CorporationCorporation of DecemberDecember 31,31,2023,thethe notes (the(the “Financial“Financial Statements”) presentpresent fairly,fairly, inin accordanceaccordance The Corppoorraattiioonn oof the CCiittyy oof Pic The Corporation of the City of Pickering | Appendix 4 – Draft management representations letter 12 © Deloitte LLP and affiliated entities. 2. Significant assumptions used in making estimates, including those measured at fair value, are reasonable. In preparing the Financial Statements in accordance with PSAS, management makes judgments and assumptions about the future and uses estimates. The completeness and appropriateness of the disclosures related to estimates are in accordance with PSAS. The City has appropriately disclosed in the Financial Statements the nature of measurement uncertainties that are material, including all estimates where it is reasonably possible that the estimate will change in the near term and the effect of the change could be material to the Financial Statements. The measurement methods, including the related assumptions and models, used in determining the estimates, including fair value, were appropriate, reasonable and consistently applied in accordance with PSAS and appropriately reflect management's intent and ability to carry out specific courses of action on behalf of the City. No events have occurred subsequent to December 31, 2023 that require adjustment to the estimates and disclosures included in the Financial Statements. There are no changes in management’s method of determining significant estimates in the current year. 3. We have determined that the Financial Statements are complete as of the date of this letter as this is the date when there are no changes to the Financial Statements (including disclosures) planned or expected. The Financial Statements have been approved in accordance with our process to finalize financial statements. 4. We have completed our review of events after December 31, 2023 and up to the date of this letter. 5. The Financial Statements are free of material errors and omissions. Internal Controls 6. We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud and error. 7. We have disclosed to you all known deficiencies in the design or operation of internal control over financial reporting identified as part of our evaluation, including separately disclosing to you all such deficiencies that we believe to be significant deficiencies in internal control over financial reporting. We have disclosed to you any change in the City’s internal control over financial reporting that occurred during the current year that has materially affected, or is reasonably likely to materially affect, the City’s internal control over financial reporting. Information provided 8. We have provided you with: a. Access to all information of which we are aware that is relevant to the preparation of the Financial Statements, such as records, documentation and other matters. b. All relevant information as well as additional information that you have requested from us for the purpose of the audit; c. Unrestricted access to persons within the City from whom you determined it necessary to obtain audit evidence; and, d. Unrestricted access to all minutes of the meetings of Council and committees of Council, or summaries of actions of recent meetings for which minutes have not yet been prepared. All significant Council and committee actions are included in the summaries. 9. We have disclosed to you the results of our assessment of the risk that the Financial Statements may be materially misstated as a result of fraud. Statements. determining significantsignificant completecomplete asas ofof thethe date StatementsStatements (including(including disclosures)disclosures) accordanceaccordance withwith our processprocess toto finalizefinalize after DecemberDecember 31,31,2023 andand upup to material errorserrors andand omissions.omissions. responsibility for thethe design,design,implementationimplementation andand error.error. youyou allall known deficienciesdeficiencies inin thethe partpart ofof our evaluation,evaluation,including significantsignificant deficienciesdeficiencies inin internalinternal internalinternal controlcontrol overover reasonablyreasonably likelylikely The Corporation of the City of Pickering | Appendix 4 – Draft management representations letter 13 © Deloitte LLP and affiliated entities. 10. We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the City and involves: a. Management; b. Employees who have significant roles in internal control; or c. Others where the fraud could have a material effect on the Financial Statements. 11. We have disclosed to you all information in relation to allegations of actual, suspected or alleged fraud, or illegal or suspected illegal acts affecting the City. 12. There have been no communications with regulatory agencies concerning actual or potential noncompliance with or deficiencies in financial reporting practices. There are also no known or possible instances of non compliance with the requirements of regulatory or governmental authorities. 13. We have disclosed to you the identities of the City’s related parties and all the related party relationships and transactions of which we are aware, including guarantees, non monetary transactions and transactions for no consideration. Independence matters For purposes of the following paragraphs,“Deloitte”shall mean Deloitte LLP and Deloitte Touche Tohmatsu Limited, including related member firms and affiliates. 14. Prior to the City having any substantive employment conversations with a former or current Deloitte engagement team member, the City has held discussions with Deloitte and obtained approval from the Executive Committee of City Council. 15. We have adhered to all regulatory requirements regarding the provision of non audit services by Deloitte to the City in accordance with applicable laws, regulations and rules that apply to the City, including pre approval requirements, as applicable. 16. We have ensured that all services performed by Deloitte with respect to this engagement have been pre approved by the Executive Committee of City Council in accordance with its established approval policies and procedures including the City’s procurement policies. Other matters 17. We have disclosed to you all the documents that we expect to issue that may comprise other information, in the context of CAS 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements. Immaterial matters less than $175,000 (representing the clearly trivial threshold for audit purposes) collectively are not considered to be exceptions that require disclosure for the purpose of representations #18 to #40. This amount is not necessarily indicative of amounts that would require adjustment to or disclosure in the Financial Statements. 18. All transactions have been properly recorded in the accounting records and are reflected in the Financial Statements. 19. The City has identified all related parties in accordance with Section PS 2200, Related Party Disclosures (“PS 2200”).Management has made the appropriate disclosures with respect to its related party transactions in accordance with PS 2200. This assessment is based on all relevant factors, including those listed in para. 16 of PS2200. 20. There are no instances of identified or suspected noncompliance with laws and regulations. authorities. partiesparties andand allall guarantees,guarantees,nonnon monetarymonetary “Deloitte”shall meanmean DeloitteDeloitte LLP and Deloitte affiliates. employmentemployment conversationsconversations with City has heldheld discussionsdiscussions with DeloitteDeloitte Council. regulatoryregulatory requirementsrequirements regarding the with applicableapplicable laws,laws,regulationsregulations and requirements,asas applicable.applicable. alalll seservicesrvices performedperformed by Deloitte CommitteeCommittee ofof CityCity Council City’sCity’s procurementprocurement The Corporation of the City of Pickering | Appendix 4 – Draft management representations letter 14 © Deloitte LLP and affiliated entities. 21. We have disclosed to you all known, actual or possible litigation and claims, whether or not they have been discussed with our lawyers, whose effects should be considered when preparing the Financial Statements. As appropriate, these items have been disclosed and accounted for in the Financial Statements in accordance with PSAS. 22. All events subsequent to the date of the Financial Statements and for which PSAS requires adjustment or disclosure have been adjusted or disclosed. Accounting estimates and disclosures included in the Financial Statements that are impacted by subsequent events have been appropriately adjusted. 23. We have disclosed to you all liabilities, provisions, contingent liabilities and contingent assets, including those associated with guarantees, whether written or oral, and they are appropriately reflected in the Financial Statements. 24. We have disclosed to you, and the City has complied with all aspects of contractual agreements that could have a material effect on the Financial Statements in the event of non compliance, including all covenants, conditions or other requirements of all outstanding debt. 25. The City has satisfactory title to and control over all assets, and there are no liens or encumbrances on such assets. We have disclosed to you and in the Financial Statements all assets that have been pledged as collateral. Communication with taxation and regulatory agencies 26. We have disclosed to you all communications from: a. Taxation authorities concerning assessments or reassessments that could have a material effect on the Financial Statements; and b. Regulatory agencies concerning noncompliance with or potential deficiencies in, financial reporting requirements. Work of Management’s Experts 27. We agree with the work of management’s experts in evaluating the valuation of post employment benefits liability and WSIB benefits liability and have adequately considered the capabilities of the experts in determining amounts and disclosures used in the Financial Statements and underlying accounting records. We did not give any, nor cause any, instructions to be given to management’s experts with respect to values or amounts derived in an attempt to bias their work, and we are not aware of any matters that have impacted the independence or objectivity of the experts. Loans and Receivables 28. The City is responsible for determining and maintaining the adequacy of the allowance for doubtful notes, loans, and accounts receivable, as well as estimates used to determine such amounts. Management believes the allowances are adequate to absorb currently estimated bad debts in the account balances. Employee future benefits 29. Employee future benefit costs, assets, and obligations have been properly recorded and adequately disclosed in the Financial Statements including those arising under defined benefit plans as well as termination arrangements. We believe that the actuarial assumptions and methods used to measure defined benefit plan assets, liabilities and costs for financial accounting purposes are appropriate in the circumstances. aspects of of non compliance,compliance, assets,assets,andand therethere areare no liens StatementsStatements alall assetsassets thatthat havehave regulatoryregulatory agenciesagencies communications from:from: assessmentsassessments or reassessmentsreassessments that concerningconcerning noncompliancenoncompliance with or Management’sManagement’s ExpertsExperts ofof management’smanagement’s expertsexperts liabilityliability andand havehave adequately disclosuresdisclosures usedused instructioinstructio The Corporation of the City of Pickering | Appendix 4 – Draft management representations letter 15 © Deloitte LLP and affiliated entities. Government transfers 30. We have disclosed to you all correspondence relating to government transfers that the City has had with the funding bodies. 31. We have assessed the eligibility criteria and determined that the City is an eligible recipient for the government transfers received. 32. We have assessed the stipulations attached with the funding and have recognized the revenue in accordance with meeting the stipulations required. 33. All government transfers that have been recorded as deferred revenue give rise to an obligation that meets the definition of a liability. Those liabilities have been properly recorded and presented in the Financial Statements. Tax Revenues 34. We have appropriately recorded tax assets and revenues when they meet the definition of an asset in accordance with Section PS 1000, Financial Statement Concepts, when they are authorized and when the taxable event occurs. These amounts have been appropriately measured in accordance with PS 3510, Tax Revenue, and have not been grossed up for any amount of tax concessions. Tangible Capital Assets 35. Tangible capital assets have been recorded properly and consistently according to the standards in Section PS 3150, Tangible Capital Assets. 36. Contributed tangible capital assets have been appropriately recorded at fair value, unless fair value is not reasonably determinable, and in such case, have been recorded at an appropriate nominal value. All contributed tangible capital assets have been appropriately disclosed. 37. We have assessed the useful lives of tangible capital assets and have determined all tangible capital assets contribute to the City’s ability to provide goods and services and therefore do not require a write down. 38. We have reviewed the assets under construction and believe that these costs recorded represent tangible capital assets of the City that will be completed in the future, and that any costs incurred which will not result in future tangible capital assets, or do not meet capitalization criteria, have been properly expensed. Environmental liabilities/contingencies 39. We have considered the effect of environmental matters on the City and have disclosed to you all liabilities, provisions or contingencies arising from environmental matters. All liabilities, provisions, contingencies and commitments arising from environmental matters, and the effect of environmental matters on the carrying values of the relevant assets are recognized, measured and disclosed, as appropriate, in the Financial Statements. Government Business Enterprises 40. The City has appropriately classified its investments in Elexicon as a Government Business Enterprise. 41. With regard to the City’s investment in Elexicon, we have disclosed to you any events that have occurred and facts that have been discovered with respect to such investment that would affect the investment’s value as reported in the financial statements. whenwhen theythey meetmeet the Concepts,Concepts,whenwhen theythey are authorizedauthorized appropriatelyappropriately measuredmeasured inin accordanceaccordance amount of taxtax concessions.concessions. recorded properlyproperly andand consistentlyconsistently according assets have beenbeen appropriatelyappropriately recordedrecorded and inin suchsuch case,case,havehave been recorded capitalcapital assetsassets havehave beenbeen appropriatelyappropriately usefuluseful lives of tangibletangible capitalcapital abilityability to provide goodsgoods and etsets uundernder constructionconstruction willwill bebe completedcompleted assets,assets, The Corporation of the City of Pickering | Appendix 4 – Draft management representations letter 16 © Deloitte LLP and affiliated entities. Liabilities for contaminated sites 42. We have evaluated all of our tangible capital assets that we have direct responsibility for or accept responsibility for, and have not identified any sites in which contamination exceeds an environmental standard. Asset retirement obligations 43. The City has made the accounting policy choice to apply CPA Canada Public Sector Accounting Handbook Section PS 3280, Asset Retirement Obligations using prospective application. We have applied Section PS 3280 to events and transactions from the date of origin of such items using current assumptions and discount rates. Financial instruments general including derivatives 44. The City has properly classified all financial instruments in accordance with CPA Canada Public Sector Accounting Handbook Section PS 3450,Financial Instruments (“Section PS 3450”).Specifically, all financial instruments are classified as fair value, cost or amortized cost. 45. The City has properly identified all financial contracts that meet the definition of a derivative in Section PS 3450. The City has also properly identified all embedded derivatives included in other non derivative contracts and determined whether these embedded derivatives need to be separately accounted for as described in Section PS 3450. accordanceaccordance withwith CPA InstrumentsInstruments (“Section(“Section PSPS 3450”). amortized cost.cost. contracts that meetmeet thethe definitiondefinition ofof all embeddedbedded derivativesderivatives included embeddedembedded derivativesderivatives needneed toto be The Corporation of the City of Pickering | Appendix 4 – Draft management representations letter 17 © Deloitte LLP and affiliated entities. Yours truly, The Corporation of the City of Pickering Stan Karwowski Director of Finance and Treasurer Marisa Carpino Chief Administrative Officer Consolidated financial statements of The Corporation of the City of Pickering December 31, 2023 Dra f t Attachment 2 to Report FIN 19-24 Independent Auditor’s Report 1–2 Consolidated statement of financial position 3 Consolidated statement of operations 4 Consolidated statement of change in net financial assets 5 Consolidated statement of cash flows 6 Notes to the consolidated financial statements 7–33 Dra f t Independent Auditor’s Report To the Members of Council of The Corporation of the City of Pickering Opinion We have audited the consolidated financial statements of The Corporation of the City of Pickering (the ”City”), which comprise the consolidated statement of financial position as at December 31, 2023, and the consolidated statements of operations, change in net financial assets and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the City as at December 31, 2023, and the results of its operations, change in net financial assets, and its cash flows for the year then ended in accordance with Canadian public sector accounting standards (“PSAS”). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of the City in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PSAS, 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. In preparing the financial statements, management is responsible for assessing the City’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the City or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the City’s financial reporting process. Deloitte LLP Bay Adelaide East 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Dra f t Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: •Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. •Obtain an understanding of internal control relevant to the audit 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 City’s internal control. •Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. •Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the City’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the City to cease to continue as a going concern. •Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. •Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the City to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Chartered Professional Accountants Licensed Public Accountants [DATE] Dra f t The Corporation of the City of Pickering Consolidated statement of financial position As at December 31, 2023 2023 2022 Notes $$ Financial assets Cash and cash equivalents 118,135,814 90,129,235 Investments 3 193,303,565 156,687,900 Taxes receivable 25,903,091 23,372,809 Accounts receivable 13,864,727 11,231,858 Note receivable 18 2,070,285 2,381,011 Investment in Elexicon Corporation 4(c)71,598,250 73,301,808 Promissory notes receivable 5 25,069,000 25,069,000 449,944,732 382,173,621 Liabilities Accounts payable and accrued liabilities 37,074,226 33,721,100 Other current liabilities 246,511 227,096 Deferred revenue 6 137,552,277 110,023,846 Long-term liabilities 10 38,996,663 42,704,260 Post-employment benefit liability 8(a)9,882,030 9,291,345 WSIB benefit liabilities 8(b)3,247,125 3,060,773 Asset retirement obligation 9 6,793,775 — 233,792,607 199,028,420 Net financial assets 216,152,125 183,145,201 Non-financial assets Tangible capital assets 11 333,295,623 319,085,606 Prepaid expenses and deposits 11(v)417,589 7,281,479 Inventory 443,062 538,091 334,156,274 326,905,176 Accumulated surplus 12 550,308,399 510,050,377 The accompanying notes to the consolidated financial statements are an integral part of the consolidated financial statements. Page 3 Dra f t The Corporation of the City of Pickering Consolidated statement of operations Year ended December 31, 2023 2023 2022 Budget Actual Actual Notes $$$ (Note 19) Revenue Residential and farm taxation 67,231,531 69,207,224 61,631,416 Commercial and industrial taxation 13,989,358 13,950,705 13,729,420 Taxation from other governments 8,422,332 8,617,409 8,497,858 User charges 17,292,835 21,657,426 15,743,433 Government grants and fees 25,188,900 8,676,700 9,114,226 Other contributions and donations 2,415,366 3,599,083 4,477,527 Development charges and developer contributions earned 8,929,364 7,731,580 11,350,537 Contributed tangible capital assets 11(i)— 4,959,496 348,530 Investment income 1,025,000 8,286,972 2,722,276 Penalties and interests on taxes 2,890,000 3,779,346 3,311,796 Fines 1,322,000 1,529,049 1,527,436 Interest on promissory notes 5(c)1,035,350 1,035,350 1,035,350 Casino revenue 16,000,000 18,460,408 14,678,604 Equity share of Elexicon Corporation earnings 4(b)— 1,394 5,906,099 Other 282,981 1,587,121 199,549 Gain on disposal of tangible capital assets — 56,741 191,284 166,025,017 173,136,004 154,465,341 Expenses 20 General government 29,524,606 36,158,223 26,313,997 Protection to persons and property 33,870,448 33,657,499 30,198,497 Transportation services 19,089,117 18,513,737 16,876,440 Environmental services 2,979,001 3,087,632 2,368,443 Social and family services 1,258,710 888,645 758,443 Recreational and cultural services 36,142,161 35,511,071 31,198,429 Planning and development 6,285,876 5,061,175 3,969,312 129,149,919 132,877,982 111,683,561 Annual surplus 36,875,098 40,258,022 42,781,780 Accumulated surplus, beginning of year 510,050,377 510,050,377 467,268,597 Accumulated surplus, end of year 546,925,475 550,308,399 510,050,377 The accompanying notes to the consolidated financial statements are an integral part of the consolidated financial statements. Page 4 Dra f t The Corporation of the City of Pickering Consolidated statement of change in net financial assets Year ended December 31, 2023 2023 2022 Budget Actual Actual $$$ (Note 19) Annual surplus 28,886,072 40,258,022 42,781,780 Acquisition of tangible capital assets (59,644,668) (50,806,266) (44,684,796) Amortization of tangible capital assets 11,870,171 13,847,864 12,092,563 (Gain) loss on disposal of tangible capital assets — (56,741) (191,284) Proceeds on disposal of tangible capital assets — 175,347 2,484,815 (18,888,425) 3,418,226 12,483,078 Transfer of assets under construction to tangible capital assets — 16,792,228 6,506,536 Assets under construction expensed — 5,837,551 3,345,441 — 22,629,779 9,851,977 Acquisition of inventory of supplies — (1,167,872) (1,379,533) Use of inventory of supplies — 1,262,901 1,385,957 Acquisition of prepaid expenses and deposits — (7,334,738) (7,151,099) Use of prepaid expenses and deposits — 14,198,628 1,615,164 — 6,958,919 (5,529,511) Change in net financial assets (18,888,425) 33,006,924 16,805,544 Net financial assets, beginning of year 183,145,201 183,145,201 166,339,657 Net financial assets, end of year 164,256,776 216,152,125 183,145,201 The accompanying notes to the consolidated financial statements are an integral part of the consolidated financial statements. Page 5 Dra f t The Corporation of the City of Pickering Consolidated statement of cash flows Year ended December 31, 2023 2023 2022 $$ Operating transactions Annual surplus 40,258,022 42,781,780 Non-cash items Amortization of tangible capital assets 13,847,864 12,092,563 Gain on disposal of tangible capital assets (56,741) (191,284) Equity share of Elexicon Corporation earnings (1,394) (5,906,099) Contributed tangible capital assets recorded in revenue (4,959,496) (348,530) Change in non-cash operating items Taxes receivable (2,530,282) (684,631) Accounts receivable (2,632,869) (3,866,054) Accounts payable and accrued liabilities 3,353,126 (3,752,587) Other current liabilities 19,415 9,138 Deferred revenue 27,528,431 4,928,287 Post-employment benefit liability 590,685 589,093 WSIB benefit liabilities 186,352 184,360 Asset retirement obligation 6,793,775 — Inventory 95,029 6,424 Prepaid expenses and deposits 6,863,890 (5,535,935) 89,355,807 40,306,525 Capital transactions Acquisition of tangible capital assets (net of transfers and contributions)(23,216,991) (34,484,289) Proceeds on disposal of tangible capital assets 175,347 2,484,815 (23,041,644) (31,999,474) Investing transactions Increase in investments (36,615,665) (16,432,090) Dividends received from Elexicon Corporation 1,704,952 2,626,694 (34,910,713) (13,805,396) Financing transactions Proceeds from debentures issued — 5,573,000 Principal repayment of debentures (3,707,597) (3,610,999) Decrease in note receivable 310,726 300,977 (3,396,871) 2,262,978 Increase (decrease) in cash and cash equivalents 28,006,579 (3,235,367) Cash and cash equivalents, beginning of year 90,129,235 93,364,602 Cash and cash equivalents, end of year 118,135,814 90,129,235 Cash and cash equivalents consists of Cash 118,135,814 59,634,018 Cash equivalents — 30,495,217 118,135,814 90,129,235 The accompanying notes to the consolidated financial statements are an integral part of the consolidated financial statements. Page 6 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 7 1. Significant accounting policies The consolidated financial statements (the “financial statements”) of The Corporation of the City of Pickering (the “City”) are the representations of management prepared in accordance with accounting standards established by the Public Sector Accounting Board (“PSAB”) of Chartered Professional Accountants of Canada (CPA Canada). Significant accounting policies adopted by the City are as follows: (a) Reporting entity (i) Consolidated financial statements The consolidated financial statements reflect the assets, liabilities, revenues and expenses of the reporting entity. The reporting entity is comprised of the activities of all committees of Council and the City of Pickering Public Library Board which is controlled by the City. All material inter-fund transactions and balances are eliminated on consolidation. (ii) Investment in government business enterprise The City’s investment in Elexicon Corporation is accounted for on a modified equity basis, consistent with Canadian public sector accounting standards for investments in government business enterprises. Under the modified equity basis, Elexicon Corporation’s accounting policies are not adjusted to conform to those of the City and inter-organizational transactions and balances are not eliminated. The City recognizes its equity interest in the annual earnings or loss of Elexicon Corporation in its Consolidated Statement of Operations with a corresponding increase or decrease in its investment asset account. Dividends that the City may receive from Elexicon Corporation and other capital transactions are reflected as adjustments in the investment asset account. (iii) Operations of School Boards and the Regional Municipality of Durham The taxation, other revenues, expenses, assets and liabilities with respect to the operations of the school boards and the Regional Municipality of Durham (the “Region”) are not reflected in these consolidated financial statements. (iv) Trust Funds Trust Funds and their related operations administered by the City are not consolidated but are reported separately on the Trust Funds financial statements. (b) Basis of accounting (i) Adoption of new PSAS Accounting Standards PS 3280 Asset Retirement Obligations PS 3280 Asset Retirement Obligations is a new standard establishing guidance on the accounting and reporting of legal obligations associated with the retirement of tangible capital assets controlled by a government or government organization. A liability for a retirement obligation can apply to tangible capital assets either in productive use or no longer in productive use. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 8 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (i) Adoption of new PSAS Accounting Standards (continued) PS 3280 Asset Retirement Obligations (continued) Effective January 1, 2023, the City adoption PS 3280 Asset Retirement Obligations. The City elected to adopt the standard prospectively, which requires that an asset retirement obligation is recognized where: - any event giving rise to the obligation occurred on or after January 1, 2023, - arose prior to January 1, 2023 and the obligation had not been previously recognized, and - arose prior to January 1, 2023 and the previously recognized obligation requirements adjustment. The City had not previously recognized any asset retirement obligations for its TCAs. The impact of the above has been recognized in the consolidated financial statements for the year ended December 31, 2023. The adoption of this standard has been applied on a prospective basis with no restatement of prior period comparative amounts. The adoption has impacted the City’s consolidated statement of financial position with an increase in Tangible Capital Assets by $6,595,899 (2022 – $nil) and an increase to Asset Retirement Obligation Liability of $6,595,899 (2022 – $nil). PS 1201 Financial Statement Presentation PS 1201 Financial Statement Presentation replaces PS 1200 Financial Statement Presentation. This standard establishes general reporting principles and standards for the disclosure of information in government financial statements. The standard introduces the consolidated statement of remeasurement gains separate from the consolidated statement of operations. Requirements in PS 2601 Foreign Currency Translation, PS 3450 Financial Instruments, and PS 3041 Portfolio Investments, which are required to be adopted at the same time, can give rise to the presentation of unrealized gains and losses. PS 2601 Foreign Currency Translation PS 2601 Foreign Currency Translation replaces PS 2600 Foreign Currency Translation. The standard requires monetary assets and liabilities denominated in a foreign currency and non-monetary items denominated in a foreign currency that are reported at fair value to be adjusted to reflect the exchange rates in effect at the financial statement date. Unrealized gains and losses arising from foreign currency changes are to be presented in the new consolidated statement of remeasurement gains. PS 3041 Portfolio Investments PS 3041 Portfolio Investments replaces PS 3040 Portfolio Investments. The standard provides revised guidance on accounting for, and presentation and disclosure of, portfolio investments to conform to PS 3450 Financial Instruments. The distinction between temporary and portfolio investments has been removed in the new standard, and upon adoption, PS 3030 Temporary Investments no longer applies. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 9 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (i) Adoption of new PSAS Accounting Standards (continued) PS 3450 Financial Instruments PS 3450 Financial Instruments establishes accounting and reporting requirements for all types of financial instruments, including derivatives. As a result of the standard, equity instruments and the interest rate swap are now measured at fair value on the consolidated statement of financial position and unrealized gains on equity instruments are recorded in the consolidated statement of remeasurement gains. Prior to 2023, equity instruments were recorded at cost. Recognition, derecognition and measurement policies followed in periods prior to the adoption date, including 2022 comparative figures, have not been restated as the standard is required to be adopted prospectively. (ii) Accrual basis of accounting Revenue and expenses are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they are earned, measurable, and collectibility is assured; expenses are recognized as they are incurred and measurable as a result of the receipt of goods and services and the creation of a obligation to pay. (iii) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash. Cash equivalents have a short-term maturity of three months or less from the date of acquisition. (iv) Financial Instruments The City initially recognizes financial instruments at fair value and subsequently measures them at each reporting date, as follows: Financial instrument Measurement method Cash and cash equivalents Amortized cost Accounts receivable Amortized cost Note receivable Amortized cost Promissory notes receivable Amortized cost Investments in fixed income instruments Amortized cost Investment in Elexicon Corporation Amortized cost Accounts payable and accrued liabilities Amortized cost Long-term debt Amortized cost Unrealized gains on financial instruments measured at fair value are recognized in the consolidated statement of remeasurement gains until they are realized upon derecognition, when they are transferred to the consolidated statement of operations. Transactions costs in the fair value category are expensed in the period they are incurred. Given that the City does not carry any financial instruments at fair value subsequent to initial recognition, no consolidated statement of remeasurement gains has been included in these consolidated financial statements. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 10 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (iv) Financial Instruments (continued) Financial instruments measured at amortized cost are amortized using the effective interest method. Transaction costs in the amortized cost category are added to the carrying value upon initial recognition. (v) Tangible capital assets Tangible capital assets are recorded at cost less accumulated amortization. Cost includes all costs directly related to the acquisition or construction of the tangible capital asset including transportation costs, installation costs, design and engineering fees, legal fees and site preparation costs. Amortization is recorded on the straight-line basis over the estimated useful life of the tangible capital asset commencing once the asset is available for use as follows: Buildings 5 to 50 years Machinery and equipment Various Vehicles 7 to 15 years Infrastructure – Roads 10 to 75 years Infrastructure - Storm sewers 50 to 100 years Infrastructure - Sidewalks 15 to 75 years Infrastructure - Parks 10 to 100 years Information technology hardware 4 to 10 years Library collection materials 4 to 7 years Furniture and fixtures various One half of the annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the tangible capital asset is available for productive use. Land is not amortized. Tangible capital assets received as contributions are recorded at their fair value at the date contributed, with the corresponding amount recorded as revenue. (vi) Accounting for Property Tax Capping Provisions resulting from the Ontario Fair Assessment System The net impact on property taxes as a result of the application of the capping provisions does not affect the consolidated statement of operations as the full amounts of the property taxes were levied. However, the capping adjustments are reported on the Consolidated Statement of Financial Position as a receivable/payable from/to the Region. (vii) Deferred revenue Deferred revenue represents contributions, user charges and fees which have been collected but for which the related services have yet to be performed. These amounts will be recognized as revenue in the fiscal year the services are performed. In addition, any contributions received with external restrictions are deferred until the related expenditures are made. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 11 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (viii) Post-employment benefits The present value of the cost of providing employees with future benefit programs is recognized as employees earn these entitlements through service. Actuarial gains and losses are amortized over the average remaining service period (“ARSP”). The City’s actuary determined the ARSP to be between 11 to 13 years, depending on the employee group. For WSIB benefit obligations that arise from specific events that occur from time to time, the cost is recognized immediately in the period the events occur. Actuarial gains and losses are amortized over the ARSP of 15 years. (ix) Inventory Inventory is valued at the lower of cost and replacement cost. Cost is determined on a weighted-average basis. (x) Government transfers Government transfers are recognized as revenue by the City in the period in which the transfers are authorized and any eligibility criteria are met, unless they are restricted through stipulations that require specific actions to be carried out in order to keep the transfer or discharge the liability. For such transfers, revenue is recognized when the stipulation has been met. (xi) Tax revenue Tax revenue is recognized on all taxable properties within the City that are included in the tax roll provided by the Municipal Property Assessment Corporation, using property tax values included in the tax roll or property tax values that can be reasonably estimated by the City as it relates to supplementary or omitted assessments, at tax rates authorized by Council for the City’s own purposes in the period for which the tax is levied. (xii) Casino revenue The City is a beneficiary of a contribution agreement with Ontario Lottery and Gaming Corporation (OLG) for hosting a casino within the municipality. Pickering is entitled to receive a share of the gaming revenue on a quarterly basis for hosting the Pickering Casino Resort which opened on July 26, 2021. Casino revenue is recognized as earned in line with the contribution agreement. (xiii) Intangible assets Intangible assets are not recognized as assets in the financial statements. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 12 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (xiv) Contaminated sites Contaminated sites are the result of contamination being introduced into air, soil, water or sediment of a chemical, organic, or radioactive material or live organism that exceeds an environmental standard. A liability for remediation of contaminated sites is recognized, net of any expected recoveries, when all of the following criteria are met: (a) an environmental standard exists; (b) contamination exceeds the environmental standard; (c) the City is directly responsible or accepts responsibility for the liability; (d) future economic benefits will be given up; and (e) a reasonable estimate of the liability can be made. A liability is recorded only for sites that are not in productive use or if there was an unexpected event that resulted in contamination. Changes in estimates are recorded in the City’s statement of operations. The City does not have any liability for contaminated sites recorded in the consolidated financial statements. (xv) Land held for resale Land permanently removed from service that meets the criteria for inventory held for resale are recorded as “land held for resale” on the Consolidated Statement of Financial Position and is recorded at the lower of cost and net realizable value. Those that do not meet these criteria continue to be recorded as part of tangible capital assets on the Consolidated Statement of Financial Position. (xvi) Use of estimates The preparation of financial statements in conformity with Canadian public sector accounting standards requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Accounts involving significant estimates include allowance for doubtful accounts, certain accrued liabilities, post-employment benefits liability, WSIB liabilities, estimates relating to the useful lives of tangible capital assets, and asset retirement obligations. Actual results could differ from these estimates. (xvii) Asset Retirement Obligations Asset Retirement Obligations represent the legal obligations associated with the retirement of a tangible capital asset that result from its acquisition, construction, development, or normal use. The tangible assets include but are not limited to assets in productive use, assets no longer in productive use, leased tangible capital assets. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 13 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (xvii)Asset Retirement Obligations The liability associated with an asset retirement obligation is measured with reference to the best estimate of the amount required to ultimately remediate the liability at the financial statement date to the extent that all recognition criteria are met. Asset retirement obligations are only recognized when there is a legal obligation for the City to incur costs in relation to a specific TCA, when the past transaction or event causing the liability has already occurred, when economic benefits will need to be given up in order to remediate the liability and when a reasonable estimate of such amount can be made. The best estimate of the liability includes all costs directly attributable to the remediation of the asset retirement obligation, based on the most reliable information that is available as at the applicable reporting date. Where cash flows are expected over future periods, the liability is recognized using a present value technique. When a liability for an asset retirement obligation is initially recognized, a corresponding adjustment to the related tangible capital asset is also recognized for underlying assets that have been recorded and reported within the TCA values presented in the financial statements. Through the passage of time in subsequent reporting periods, the carrying value of the liability is adjusted to reflect accretion expenses incurred in the current period. This expense ensures that the time value of money is considered when recognizing outstanding liabilities at each reporting date. The capitalized asset retirement cost within tangible capital assets is also simultaneously depreciated on the same basis as the underlying asset to which it relates. In circumstances when the underlying asset is fully depreciated, the ARO will be amortized over the estimated future life until the cash disbursement is made in the future to settle the obligation. At remediation, the City derecognizes the liability that was established. In some circumstances, gains or losses may be incurred upon settlement related to the ongoing measurement of the liability and corresponding estimates that were made and are recognized in the statement of operations 2. Operations of school boards and the Regional Municipality of Durham Further to Note 1(a)(iii), requisitions are made by the Regional Municipality of Durham and School Boards requiring the City to collect property taxes and payments in lieu of property taxes on their behalf. The amounts collected and remitted are summarized as follows: 2023 2022 Region School board Region School board$$$$ Taxation 148,258,136 51,552,669 137,349,789 51,905,608 Payments in lieu of taxes 6,636,281 469,978 6,565,748 725,439 154,894,417 52,022,647 143,915,537 52,631,047 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 14 3. Investments 2023 2022Amortized cost Market value Amortized cost Market value$$$$ Investments 193,303,565 193,337,289 156,687,900 156,541,957 4. Investment in government business enterprise (a) Elexicon Corporation was formed on April 1, 2019, in which the City holds a 27.88% interest in Elexicon Corporation. Elexicon Corporation, as a government business enterprise, is accounted for on the modified equity basis in these financial statements. Elexicon Corporation serves as the electrical distribution utility for a number of communities and conducts non-regulated utility service ventures through its subsidiaries. The following table provides condensed supplementary consolidated financial information for Elexicon Corporation and its subsidiaries as at and for the year ended December 31, 2023. The amounts are disclosed in thousands of dollars: 2023 2022 (000’s)(000’s) $$ Assets Current 116,654 106,273 Capital and intangibles 720,727 661,146 Other 708 1,505 Total assets 838,089 768,924 Regulatory balances 56,310 58,573 Total assets and regulatory balances 894,399 827,497 Liabilities Current 175,942 316,892 Long-term debt 253,465 89,209 Other 196,842 148,489 Total liabilities 626,249 554,590 Shareholders’ equityShare capital 97,692 97,692 Contributed capital 25 25 2019 Contributed Surplus 79,301 79,301 Accumulated other comprehensive loss 2,511 3,130 Retained earnings 77,239 82,730 Total equity 256,768 262,878 Regulatory balances 11,382 10,029 Total liabilities, equity and regulatory balances 894,399 827,497 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 15 4. Investment in government business enterprise (continued) (a) Elexicon Corporation was formed on April 1, 2019, in which the City holds a 27.88% interest in Elexicon Corporation. (continued) 2023 2022 (000’s)(000’s) $$ Comprehensive income Commodity revenue 421,522 430,139 Commodity expenses (412,905) (434,592) Distribution revenue 97,459 84,574 Operating expenses (82,206) (75,016) Other income (expense)(19,631) 909 Accumulated other comprehensive loss (619) 4,387 Net movements in regulatory balances, net of tax (3,615) 10,783 Total comprehensive income for the year 5 21,184 (b) Equity in Elexicon Corporation The City’s equity in Elexicon Corporation is as follows at the end of 2023: 2023 2022 $$ Balance, beginning of year 101,413,828 98,134,423 Equity share of net earnings from Elexicon Corporation 1,394 5,906,099 Dividend received (1,704,952) (2,626,694) Balance, end of year 99,710,270 101,413,828 (c) City of Pickering’s investment is represented by 2023 2022$$ Promissory notes receivable (Note 5)25,069,000 25,069,000 Investments in Elexicon Corporation Initial investment in shares of the Corporation 30,496,196 30,496,196 Amalgamation adjustments 12,849,416 12,849,416 Accumulated earnings 70,965,558 70,964,164 Accumulated dividends received (43,528,628) (41,823,676) Adjustment to value of investment 815,708 815,708 71,598,250 73,301,808 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 16 4. Investment in government business enterprise (continued) (d) Contingencies and guarantees of Elexicon Corporation (the “Corporation”) as disclosed in their consolidated financial statements are as follows (i) Insurance claims The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange (“MEARIE”) which was created on January 1, 1987. A reciprocal insurance exchange may be defined as a group of persons formed for the purpose of exchanging reciprocal contracts of indemnity or inter-insurance with each other. MEARIE provides general liability insurance to member electric utilities. MEARIE also provides vehicle and property insurance to the Corporation. Insurance premiums charged to each member utility consist of a levy per $1 of service revenue subject to a credit or surcharge based on each electric utility’s claims experience. (ii) Contractual obligation - Hydro One Networks Inc. The Corporation’s subsidiary, Elexicon Energy, is party to a connection and cost recovery agreement with Hydro One related to the construction by Hydro One of a transformer station designated to meet EE’s anticipated electricity load growth. Construction of the project was completed during 2007 and EE connected to the transformer station during 2008. To the extent that the cost of the project is not recoverable from future transformation connection revenues, EE is obligated to pay a capital contribution equal to the difference between these revenues and the construction costs allocated to EE. The construction costs allocated to EE for the project are $19,950,000. Hydro One has performed a true-up based on actual load at the end of the tenth anniversary of the in-service date and is expected to perform another true-up based on actual load at the end of the fifteenth anniversary of the in-service date. (iii) Prudential support Purchasers of electricity in Ontario, through the Independent Electricity System Operator (“IESO”), are required to provide security to mitigate the risk of default based on their expected activity in the market. The IESO could draw on this security if the Corporation fails to make the payment required on a default notice issued by the IESO. The Corporation has provided a $64,000,000 guarantee to the IESO on behalf of EE. (iv) General claims From time to time, the Corporation is involved in various lawsuits, claims and regulatory proceedings in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Corporation’s consolidated financial position and results of operations or cash flows. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 17 4. Investment in government business enterprise (continued) (e) Lease commitments Future minimum lease payment obligations under operating leases are as follows: $ 2024 124,000 2025 95,000 2026 71,000 2027 44,000 2028 — 334,000 5. Promissory notes receivable 2023 2022 $$ Elexicon Corporation 7,095,000 7,095,000 Elexicon Energy Inc.17,974,000 17,974,000 25,069,000 25,069,000 (a) Maturity The promissory notes were issued by the legacy Veridian Corporation and Veridian Connections Inc. and were assumed by Elexicon Corporation and Elexicon Energy Inc. upon amalgamation on April 1, 2019. The promissory notes under Elexicon Corporation and Elexicon Energy Inc. are due on demand. (b) Interest rate Commencing April 1, 2019 for a ten-year period, interest on the notes will be determined based on the deemed long-term interest rate prescribed by the Ontario Energy Board in its most recent cost of capital parameter update (“OEB rate”). As of April 1, 2019, the OEB rate was determined at 4.13%. On the tenth year anniversary of the note, the interest rate will be adjusted to the OEB rate in effect at that time. Thereafter, the interest rate will be adjusted to the OEB rate in effect at the earlier of: (i) The five year anniversary of the most recent interest rate adjustment of these notes, and (ii) The date on which Elexicon Energy Inc. files a cost of service application with the Ontario Energy Board. The City may demand full or partial repayment with sixty days’ notice of the principal and accrued interest. (c) Interest revenue Interest revenue earned from these notes receivable totaled $1,035,350 ($1,035,350 in 2022). Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 18 6. Deferred revenue 2023 2022 $$ Obligatory reserve fundsDevelopment charges 111,508,853 84,232,840 Parkland 5,888,286 5,850,226 Federal gas tax 9,711,426 10,530,599 Third party/Developer’s contributions reserve fund 4,210,199 3,416,197 Building permit 585,657 — 131,904,421 104,029,862 Other unearned revenues 5,647,856 5,993,984 137,552,277 110,023,846 Continuity of deferred revenue is as follows: 2023 2022 $$ Balance, beginning of year 110,023,846 105,095,559 Restricted funds received 35,110,751 17,139,625 General funds received 1,270,207 3,911,549 Interest earned (restricted funds)4,851,877 1,793,352 41,232,835 22,844,526 Earned restricted revenue transferred to operations 12,088,070 14,968,205 Earned revenue transferred to operations 1,616,334 2,948,034 13,704,404 17,916,239 Balance, end of year 137,552,277 110,023,846 7. Interfund loans As a means of funding various capital acquisitions, funds are borrowed by the Capital Fund from Development Charges deferred revenue (obligatory reserve funds). These funds are secured by promissory notes with interest rates ranging from 3.65% to 5.50% (0.50% to 2.50% in 2022) and various payment terms ranging from 5 years to 15 years (2 years to 10 years in 2022). The financing arrangements and ultimate repayment are approved by Council through the current budget process. Although these notes have payment terms as noted above, they are repayable on demand. The following is a summary of the related interfund loans: 2023 2022 $$ Roads 819,870 1,007,116 Fire Protection 1,390,000 — 2,209,870 1,007,116 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 19 8. Post-employment benefits liability (a) Post-employment benefits liability The City makes available to qualifying employees who retire before the age of 65, the opportunity to continue their coverage for benefits such as post-retirement extended healthcare benefits. Coverage ceases at the age of 65. The City also provides full time and permanent part-time employees a sick time entitlement and any unused entitlement is accumulated year to year. This accumulated entitlement is not vested and is forfeited at the time of retirement or termination. The most recent actuarial valuation of the post-employment benefits was performed at December 31, 2023. Information about the City’s benefits liability is as follows: 2023 2022 $$ Accrued benefits liability, beginning of year 9,291,345 8,702,252 Current service costs 740,513 704,848 Interest on accrued benefits 357,286 355,353 Amortization of actuarial losses 492,421 556,521 Benefits paid during the year (999,535) (1,027,629) Accrued benefits liability, end of year 9,882,030 9,291,345 Accrued benefit obligation 12,738,821 12,039,039 Unamortized actuarial losses (2,856,791) (2,747,694) Accrued benefits liability, end of year 9,882,030 9,291,345 The main actuarial assumptions employed in the actuarial valuations for the post-employment benefits are as follows: (i) Discount rate The present value as at December 31, 2023 of the future benefits was determined using a discount rate of 3.00% (3.00% in 2022). (ii) Dental costs The dental cost trend rate was 3.75% (3.75% in 2022) increase per annum. (iii) Health costs Health costs were assumed to increase at 5.08% (5.42% in 2022) and decrease by 0.33% (0.33% in 2022) increments per year to an ultimate rate of 3.75% per year in 2027 and thereafter. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 20 8. Post-employment benefits liability (continued) (b) Workplace Safety and Insurance Board (WSIB) benefit liabilities Effective January 1, 2001, the City became a Schedule II employer under the Workplace Safety & Insurance Act and follows a policy of self-insurance for the risk associated with paying benefits for workplace injuries for all its employees. The WSIB administers the claims related to workplace injuries and is reimbursed by the City. The most recent actuarial valuation of the WSIB benefits was performed at December 31, 2020, with projections for December 31, 2023. Information about the City’s WSIB benefit liability is as follows: 2023 2022 $$ Accrued WSIB liability, beginning of year 3,060,773 2,876,413 Current service cost 203,847 198,224 Interest on accrued benefits 101,265 96,719 Amortization of actuarial losses 31,561 31,561 Benefits paid during the year (150,321) (142,144) 3,247,125 3,060,773 Accrued benefit obligation 3,503,529 3,348,738 Unamortized actuarial losses (256,404) (287,965) Accrued benefits liability, end of year 3,247,125 3,060,773 The main actuarial assumptions employed in the actuarial valuations are as follows: (i) Discount rate The present value as at December 31, 2023 of the future benefits was determined using a discount rate of 3.00% (3.00% in 2022). (ii) Inflation rate The rate of inflation was assumed to be 2.50% (2.50% in 2022) per annum. (iii) WSIB Administration Rate Liabilities for WSIB benefits have been increased to 27% to reflect the administration rate charged by WSIB. A WSIB Reserve Fund was established in 2001. The Reserve Fund balance as at December 31, 2023 (Note 12) is $4,000,000 ($4,000,000 as at December 31, 2022). In 2021, the City established an Excess Indemnity Reserve Fund in lieu of purchasing an insurance policy for this type of coverage. The balance in that Reserve Fund as at December 31, 2023 (Note 12) is $2,147,196 ($1,336,742 in 2022). In addition, the City purchased an insurance policy to protect the City against significant claims. The occupational accident insurance pays loss claims up to $500,000 per work related accident. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 21 9. Asset Retirement Obligations (a) Hazardous materials: The City owns facilities which contain hazardous materials, and therefore, the City is legally required to perform abatement activities upon renovation or demolition of this asset. Abatement activities include handling and disposing of the asbestos in a prescribed manner when it is disturbed. Undiscounted future cash flows expected are an abatement cost of $3,287,598. The estimated total liability of $2,208,672 (nil in 2022) is based on the sum of discounted future cash flows for abatement activities using a discount rate of 3.00% and assuming annual inflation of 3.50% over an 8-15 year period. The City has not designated funds for settling the abatement activities. (b) Leased properties and land: The City leases properties and land which contain contractual obligations to remediate the leased property or land back to its original condition upon the end of the lease or the termination of the lease. There, the City is contractually required to perform remediation activities to restore the leased property or land back to its original condition. Remediation activities include removing any leasehold improvements to the properties or land and restoring any modifications made to its original condition. Undiscounted future cash flows expected are a remediation cost of $6,512,283. The estimated total liability of $4,585,104 (nil in 2022) is based on the sum of discounted future cash flows for abatement activities using a discount rate of 3.00% and assuming annual inflation of 3.50% over an 8-15 year period. The City has not designated funds for settling the abatement activities. Information about the City’s asset retirement obligation is as follows: 2023 2022 $$ Asset Retirement Obligation, beginning of year — — Adoption of PS 3280 6,595,898 — Liabilities settled — — Accretion expense 197,877 — Changes in estimated cash flow — — Asset Retirement Obligation, end of year 6,793,775 — 10. Long-term liabilities (a) The balance of long-term liabilities is made up of the following: 2023 2022 $$ The City is responsible for the payment of principal and interest charges on long-term liabilities issued by the Regional Municipality of Durham on the City’s behalf. At the end of the year the outstanding principal amount of this liability is 38,996,663 42,704,260 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 22 10. Long-term liabilities (b) The above long-term liabilities have maturity dates of July 2, 2029, October 17, 2026 and 2031, October 13, 2027, 2032 and 2037, September 14, 2028, 2033 and 2038, November 29, 2024, 2029 and 2039, October 2, 2030 and November 26, 2036 and 2041, July 5, 2033 and 2043 with various interest rates ranging from 0.45% to 4.75%. Principal repayments are summarized as follows: $ 2024 3,237,801 2025 3,233,889 2026 3,308,501 2027 2,966,323 2028 2,866,097 Thereafter 23,384,052 38,996,663 (c) Long-term liabilities include principal sums of $443,000 ($443,000 in 2022) which may be refinanced by the issuance of debentures over a further period not to exceed 5 years. (d) The above long-term liabilities have been approved by Council by-law. The annual principal and interest payments required to service these liabilities are within the annual debt repayment limit prescribed by the Ministry of Municipal Affairs and Housing. (e) Interest expense recorded in the year relating to these long-term liabilities is $1,199,305 ($1,157,439 in 2022). 11. Tangible capital assets Information relating to tangible capital assets is as follows: (i) Contributed tangible capital assets The City records tangible capital assets contributed by an external party at fair value on the date contributed. Typical examples are roads, storm sewers and sidewalks installed by a developer as part of a subdivision or development agreement. Contributions of tangible capital assets in 2023 amounted to $4,959,496 ($348,530 in 2022). (ii) Tangible capital assets recognized at nominal value Land under roads are assigned a nominal value of one Canadian dollar because this land only supports or is intended to support road infrastructure and the majority of land acquired to support road allowances was acquired at no cost. (iii) Works of art and historical treasures The City has a museum which holds various historical treasures and historical buildings pertaining to the heritage and history of the City of Pickering. These items are not recognized as tangible capital assets in the consolidated financial statements because a reasonable estimate of the future benefits associated with such property cannot be made. Any acquisition or betterment of these assets is recognized as an expense in the consolidated financial statements. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 23 11. Tangible capital assets (continued) (iv) Other The net book value of tangible capital assets not being amortized because they are under construction is $12,001,888 ($30,996,098 in 2022). During the year, there were nil write-downs of assets (nil in 2022) and nil interest was capitalized during the year (nil in 2022). Certain costs were written off in the current year relating to assets under construction due to changes in circumstances around their expected future use that arose in the current year. (v) Land held for resale As at December 31, 2023, a deposit of $134,142 ($7,087,701 in 2022) for one parcel of land (three in 2022) remains within prepaids and deposits. During the year, land transactions were completed with no financial impact on the financial position of the City. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 24 11. Tangible capital assets (continued) Machinery Information Library Furniture Assets and technology collection and underLand Buildings equipment Vehicles Infrastructure hardware materials fixtures construction 2023 $$$$$$$$$$ Cost Balance, beginning of year 76,797,840 120,021,423 12,966,083 19,191,883 317,904,231 2,501,920 1,876,689 1,421,045 30,996,097 583,677,211 Add Additions during the year 615,138 19,894,183 2,662,317 1,260,726 21,040,822 1,059,621 294,455 343,434 3,635,570 50,806,266 Less Disposals/transfers during the year — 276,280 998,610 558,697 1,030,352 646,071 367,916 6,584 22,629,779 26,514,289 Balance, end of year 77,412,978 139,639,326 14,629,790 19,893,912 337,914,701 2,915,470 1,803,228 1,757,895 12,001,888 607,969,188 Accumulatedamortization Balance, beginning of year — 58,675,102 7,443,196 10,671,721 184,398,237 1,773,822 963,099 666,428 — 264,591,605 Add Amortization — 5,128,087 1,112,649 1,484,911 5,374,044 338,723 298,629 110,821 — 13,847,864 Less Accumulated amortization on disposals — 220,839 994,881 558,697 973,154 646,071 367,916 4,346 — 3,765,904 Balance, end of year — 63,582,350 7,560,964 11,597,935 188,799,127 1,466,474 893,812 772,903 — 274,673,565 Net book value of tangible capital assets 77,412,978 76,056,976 7,068,826 8,295,977 149,115,574 1,448,996 909,416 984,992 12,001,888 333,295,623 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 25 11. Tangible capital assets (continued) Machinery Information Library Furniture Assets and technology collection and underLandBuildings equipment Vehicles Infrastructure hardware materials fixtures construction 2022$$$$$$$$$$ CostBalance, beginning of year 64,405,788 116,728,646 11,604,783 16,351,870 315,640,617 2,196,772 1,961,209 1,348,003 24,218,983 554,456,671 Add Additions during the year 12,479,055 7,611,999 1,502,759 2,875,631 2,812,552 365,091 298,447 110,171 16,629,091 44,684,796 Less Disposals/transfers during the year 87,003 4,319,222 141,459 35,618 548,938 59,943 382,967 37,129 9,851,977 15,464,256 Balance, end of year 76,797,840 120,021,423 12,966,083 19,191,883 317,904,231 2,501,920 1,876,689 1,421,045 30,996,097 583,677,211 Accumulated amortization Balance, beginning of year — 56,525,745 6,642,574 9,382,578 180,047,188 1,591,838 1,030,005 597,862 — 255,817,790 Add Amortization — 4,289,154 934,730 1,324,761 4,896,079 241,927 316,061 89,851 — 12,092,563 Less Accumulated amortization on disposals — 2,139,797 134,108 35,618 545,030 59,943 382,967 21,285 — 3,318,748 Balance, end of year — 58,675,102 7,443,196 10,671,721 184,398,237 1,773,822 963,099 666,428 — 264,591,605 Net book value of tangible capital assets 76,797,840 61,346,321 5,522,887 8,520,162 133,505,994 728,098 913,590 754,617 30,996,097 319,085,606 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 26 12. Accumulated surplus The City’s accumulated surplus is comprised of the following 2023 2022 $$ Capital Fund 38,513,382 27,153,889 Operating Fund 125,268 125,267 Equity in Veridian Corporation 99,710,270 101,413,828 Tangible capital assets 333,295,623 319,085,606 Post-employment benefits liability (9,703,030) (9,112,345) Asset Retirement Obligation (6,793,775) — Interfund loans (2,209,870) (1,007,116) Net long-term liabilities (38,996,663) (42,704,260) Note receivable soccer facility 2,070,285 2,381,011 WSIB benefit liabilities (3,247,125) (3,060,773) Reserves set aside for special purposes by Council Working capital 400,000 400,000 Self insurance 292,372 292,373 Replacement of capital equipment 98,207 509,295 Contingencies 1,488,935 1,118,063 Rate stabilization 21,941,760 25,088,740 City’s share for development charge 13,621,166 9,437,071 Continuing studies 798,297 595,327 Vehicle replacement 2,428,447 2,189,155 Land purchase — 14,403 Seaton development review 1,437,822 1,437,822 Financial systems 650,308 586,808 Senior centre 4,200,000 3,500,000 Winter control 700,000 700,000 Sustainability initiatives 308,278 410,576 Duffin Heights 1,744,131 1,744,131 Facilities 8,343,706 5,845,056 Fence 670,000 600,000 Tennis Courts 565,065 923,565 Major Equipment 130,894 1,497,695 Museum Collection 12,799 12,799 Recreation Complex 225,000 225,000 Library Building 370,000 380,000 Elected Officials Insurance 350,000 280,000 Casino 24,781,412 19,398,231 Public Art 962,533 508,539 Balloon Payment 273,572 273,572 Parks Infrastructure Replcmt Reserve 582,615 316,892 DC Shortfall Funding 3,738,095 — Reserve funds set aside for special purpose by Council WSIB 4,000,000 4,000,000 Animal shelter 2,057,750 1,645,589 Operations Centre 11,189,401 11,054,359 Roads & bridges 11,494,696 8,346,234 Stormwater management 5,052,701 4,874,289 Ontario Community Infrastructure Fund 5,479,632 3,073,973 Seaton infrastructure 356,048 266,744 Seaton Financial Impact Agreement 4,651,196 2,892,228 Excess Indemnity 2,147,196 1,336,741 550,308,399 510,050,377 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 27 13. Pension agreement The City makes contributions to the Ontario Municipal Employees Retirement Fund (OMERS), which is a multi-employer plan, on behalf of the members of its staff. The plan is a defined benefit plan which specifies the amount of the retirement benefit to be received by the employees based on the length of service and rates of pay. OMERS provide pension services to over 612,000 active and retired members and about 1,000 employers. Each year an independent actuary determines the funding status of OMERS Primary Pension (the “Plan”) by comparing the actuarial value of the invested assets to the estimated present value of all pension benefits that members have earned to-date. The most recent actuarial valuation of the Plan was conducted as at December 31, 2023. The results of this valuation disclosed total actuarial liabilities as at that date of $136,185 million in respect of benefits accrued for service with actuarial assets at that date of $131,983 million indicating an actuarial deficit of $4,202 million. Because OMERS is a multi-employer plan, any pension plan surpluses or deficits are a joint responsibility of Ontario municipal organizations and their employers. As a result, the City does not recognize any share of the OMERS pension surplus or deficit. Contributions made by the City to OMERS on account of current service for 2023 were $5,273,963 ($4,849,393 in 2022). 14. Trust Funds Trust Funds administered by the City amounting to $400,265 ($386,233 in 2022) have not been included in the consolidated statement of financial position nor have their operations been included in the consolidated statement of operations. 15. Related party transactions Elexicon Corporation The City of Pickering is a shareholder in Elexicon Corporation (Note 4). The City receives electricity and services from Elexicon Corporation and its subsidiary. 2023 2022 $$ TransactionsRevenue Interest on promissory notes (Note 5)1,035,350 1,035,350 Property taxes levied 35,549 35,549 Expenses Electrical energy and services 2,175,859 1,773,610 BalancesAccounts payable and accrued liabilities 455,803 338,872 Promissory notes receivable (Note 5)25,069,000 25,069,000 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 28 16. Guarantees In the normal course of business, the City enters into agreements which contain guarantees. The City’s primary guarantees are as follows: (i) The City has provided indemnities under lease agreements for the use of various facilities or land. Under the terms of these agreements the City agrees to indemnify the counterparties for various items including, but not limited to, all liabilities, loss, suits, and damages arising during, on or after the term of the agreement. The maximum amount of any potential future payment cannot be reasonably estimated. (ii) The City indemnifies all employees and elected officials including Library employees and board members for various items including, but not limited to, all costs to settle suits or actions due to association with the City, subject to certain restrictions. The City has purchased liability insurance to mitigate the cost of any potential future suits or actions. The term of the indemnification is not explicitly defined, but is limited to the period over which the indemnified party served as an employee or elected official of the City. The maximum amount of any potential future payment cannot be reasonably estimated. (iii) The City has entered into agreements that may include indemnities in favour of third parties, such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing contracts, information technology agreements and service agreements. These indemnification agreements may require the City to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and regulations or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnities are not explicitly defined and the maximum amount of any potential reimbursement cannot be reasonably estimated. The nature of these indemnification agreements prevents the City from making a reasonable estimate of the maximum exposure due to the difficulties in assessing the amount of liability which stems from the unpredictability of future events and the unlimited coverage offered to counterparties. Historically, the City has not made any significant payments under such or similar indemnification agreements and therefore no amount has been accrued in the balance sheet with respect to these agreements. 17. Contingent liabilities Litigation The City has been named as a defendant in certain legal actions in which damages have been sought. The outcome of these actions is not determinable as at the date of reporting and accordingly, no provision has been made in these consolidated financial statements for any liabilities which may result. 18. Contractual arrangement The City entered into a provisional license agreement with the Pickering Soccer Club (PSC) for the PSC to occupy and operate the Pickering Indoor Soccer Facility (the “Facility”). The term of the agreement is 15 years from November 5, 2014 to November 4, 2029. Under the terms of the agreement, the PSC will repay 52.25% of the City’s total cost of purchasing the land, constructing the Facility and the related improvements. In 2015, the City recorded a receivable from PSC in the amount of $4,550,000 based on preliminary project cost figures, with a 15 year repayment term at a variable interest rate ranging from 1.2% to 3.8%. This amount will be adjusted for the total project construction costs, once the agreement is finalized. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 29 18. Contractual arrangement (continued) PSC has commenced its soccer program operations and is operating the Facility at its own expense including all repairs and maintenance. Once a final form of agreement is executed the total amount of the PSC’s obligation will be re-calculated, as agreed, to reflect any adjustments to the total project construction costs. 19. Budget figures The 2023 Budget adopted by Council on March 1, 2023 was not prepared on a basis consistent with that used to report actual results. The budget was prepared on a modified accrual basis while Canadian Public Sector Accounting Standards require a full accrual basis of accounting. The budget figures treated all tangible capital asset acquisitions as expenditures and did not include amortization expense on tangible capital assets or post-employment benefits expenses on a full accrual basis. As a result, the budget figures presented in the consolidated statements of operations and change in net financial assets represent the budget adopted by Council on March 1, 2023 with adjustments as follows: 2023 Post-2022 Council Non TCA employment Budget approved expenditures benefits/presented in budget from capital amortization statements$$$$ RevenueTaxation 89,643,221 — — 89,643,221 Capital 29,596,890 — — 29,596,890 Other 46,784,906 — — 46,784,906 166,025,017 — — 166,025,017 ExpendituresGeneral government 25,961,140 2,355,000 1,208,466 29,524,606 Protection to persons and property 32,645,169 — 1,225,279 33,870,448 Transportation services 13,990,445 — 5,098,672 19,089,117 Environmental services 2,080,340 — 898,661 2,979,001 Social and family services 1,258,710 — — 1,258,710 Recreational and cultural services 31,408,031 518,000 4,216,130 36,142,161 Planning and development 6,285,876 — — 6,285,876 113,629,711 2,873,000 12,647,208 129,149,919 Annual surplus (deficit)52,395,306 (2,873,000) (12,647,208) 36,875,098 Capital expenditures (59,644,668) 1,387,000 — (58,257,668) Capital Sale of Land 3,500,000 Transfers from reserve andreserve funds 3,119,998 Dividend from Elexicon Corporation 1,720,000 Principal repayment of debt (2,802,960) Debt proceeds 737,324 Internal loan proceeds 850,000 Prior year operating fund surplus (125,000) Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 30 20. Segmented information The City of Pickering is a diversified municipal government that provides a wide range of services to its residents. Distinguishable functional segments have been separately disclosed in the segmented information. The nature of the segments and the activities they encompass are as follows: General government This item relates to revenues and expenses of the City itself and cannot be directly attributed to a specific segment. Protection to persons and property Protection includes fire services, animal control, bylaw services, building inspection and enforcement of the building code to ensure the safety and protection of all citizens and their property. Public works services Public works includes construction and maintenance of the City’s roadways, including snow removal, sidewalk repairs, street lighting and maintenance of the storm water system. Social and family services Social services for assistance or services for seniors. Recreation and culture services Recreation and cultural services include recreation programs, maintenance and rental of facilities and parks, operation of the City’s museum and library services. Planning and development Planning and development provides a number of services including municipal planning and review of all property development plans. Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 31 20. Segmented information (continued) Provided in the following pages. Protection Social and to persons Public works Recreational Planning and family General 2023and property services and cultural development services government Consolidated$$$$$$$ Revenue Grants 172,693 6,311,262 1,317,605 208,238 91,900 575,002 8,676,700 User charges 9,791,971 438,359 6,700,935 2,896,222 75,635 1,754,304 21,657,426 Tax related revenues — — — — — 95,554,684 95,554,684 Developer andother contributions 1,936,694 1,420,960 3,111,384 157,457 — 1,105,085 7,731,580 Contributed tangiblecapital assets — 4,568,953 — — — 390,543 4,959,496 Casino revenue — — — — — 18,460,408 18,460,408 Income from governmentbusiness enterprise — — — — — 1,394 1,394 Other revenues 2,407,882 630,107 2,734,796 242,650 5,650 10,016,490 16,037,575 14,309,240 13,369,641 13,864,720 3,504,567 173,185 127,857,910 173,079,263 ExpensesSalaries and wages 27,540,405 7,568,135 19,830,341 4,108,142 361,699 14,522,485 73,931,207 Materials and supplies 3,574,788 4,642,933 7,680,062 315,510 131,844 17,022,567 33,367,704 Contracted services 933,834 2,349,071 1,180,434 627,376 233,844 3,846,345 9,170,904 Amortization 1,283,885 6,473,205 5,033,452 — — 1,057,322 13,847,864 Other 324,587 568,025 1,786,782 10,147 161,258 (290,496) 2,560,303 (Gain) loss on disposal oftangible capital assets (4,009) (80,517) 34,251 — — (6,466) (56,741) 33,653,490 21,520,852 35,545,322 5,061,175 888,645 36,151,757 132,821,241 Annual (deficit) surplus (19,344,250) (8,151,211) (21,680,602) (1,556,608) (715,460) 91,706,153 40,258,022 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 32 20. Segmented information (continued) Protection Social and to persons Public works Recreational Planning and family General 2022 and property services and cultural development services government Consolidated $$$$$$$ Revenue Grants 17,585 4,607,514 1,880,385 91,079 168,128 2,349,535 9,114,226 User charges 6,865,904 493,704 4,795,066 2,331,554 45,009 1,212,196 15,743,433 Tax related revenues — — — — — 87,170,490 87,170,490 Developer and other contributions 333,584 5,565,455 3,818,402 86,856 — 1,546,240 11,350,537 Contributed tangible capital assets — 22,675 — — — 325,855 348,530 Casino revenue — — — — — 14,678,604 14,678,604 Inc ome from government business enterprise — — — — — 5,906,099 5,906,099 Other revenues 1,986,668 2,525,869 1,015,842 52,192 2,700 4,378,867 9,962,138 9,203,741 13,215,217 11,509,695 2,561,681 215,837 117,567,886 154,274,057 Expenses Salaries and wages 25,053,296 7,322,569 17,950,041 3,359,844 313,563 12,911,737 66,911,050 Materials and supplies 3,011,660 3,779,307 6,368,807 217,689 140,329 10,324,567 23,842,359 Contracted services 910,688 1,501,020 1,088,144 381,633 221,403 2,573,041 6,675,929 Amortization 890,786 6,138,941 4,254,770 — — 808,066 12,092,563 Other 332,067 503,046 1,536,667 10,146 83,148 (303,414) 2,161,660 (Gain) loss on disposal of tangible capital assets (13,393) (290,950) 2,127,664 — — (2,014,605) (191,284) 30,185,104 18,953,933 33,326,093 3,969,312 758,443 24,299,392 111,492,277 Annual (deficit) surplus (20,981,363) (5,738,716) (21,816,398) (1,407,631) (542,606) 93,268,494 42,781,780 Dra f t The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2023 Page 33 21. Comparative information Certain 2022 comparative information in Note 12 has been reclassified to conform with the financial statement presentation for 2023. Dra f t