Management Discussion and Analysis

This past fiscal year saw CPA Ontario complete operational integration of the three legacy organizations. The final step in unification of the accounting profession in Ontario will be completed with the proclamation of a new legislative Act. While the transition to integration has been a challenging one, it has also presented opportunities to build a new organization that will deliver tangible benefits of unification to our members and stakeholders.

Throughout the year, CPA Ontario focused on building brand awareness, attracting new students to the CPA program, and enhancing programs to meet the needs of our growing and diversified membership. We made good progress toward pursuing key objectives and priorities that have built the foundation for a sustainable organization, capable of serving the public trust while delivering superior service to members, students and stakeholders.

The following notes should be read in conjunction with the summarized audited financial statements for the year ended March 31, 2016. As Fiscal 2016 represents CPA Ontario’s first full fiscal year, the financial statements reflect the operations of CPA Ontario for the twelve months ended March 31, 2016. The comparative 2015 figures reflect the unified operations of CGA Ontario, CMA Ontario and CPA Ontario for the nine months from July 2, 2014 — the effective date of a fully unified CPA Ontario — to March 31, 2015, the end of the fiscal year.

Financial Position

CPA Ontario completed Fiscal 2016 with a strong net asset position of $44.7 million (2015 - $49.3 million). In spite of a $4.4 million deficit, CPA Ontario remains in a strong financial position to meet unforeseen contingencies, and to invest in the advancement of the profession.

Results from Operations

In Fiscal 2016, CPA Ontario operations resulted in a $4.4 million deficit, net of integration costs, compared to a $4.8M surplus for the nine months ended March 31, 2015. The Fiscal 2016 operating surplus, prior to integration costs, decreased by $8.7 million from the prior year, primarily due to a decrease in the student education contribution margin from the conclusion of legacy programs that had higher contribution margins than the CPA program.

Total revenue of $91.8 million in Fiscal 2016 (2015 - $88.4 million) was derived from three main sources: member dues and fees, education, and professional development. These three revenue sources represent 95 per cent of total revenue in Fiscal 2016 (2015 - 95 per cent).

Member dues and fees.

CPA Ontario collected $39.9 million in dues and fees in Fiscal 2016 (2015 - $30.3 million), which provided funding for regulatory functions related to serving the public trust, such as practice inspections, investigation and responses to complaints, and activities related to the Public Accountants Council. In addition to our regulatory role, CPA Ontario delivers a wide range of member services, including ethics counselling, career services, networking opportunities and affinity programs. Member dues and fees collected in the year have also enabled CPA Ontario to invest in technology and process improvements to enhance the member and student experience, and deliver economies of scale in the years ahead.

Education programs.

Revenue and fees totalled $37.2 million (2015 - $46.5 million): $12.9 million (2015 - $5.2 million) from the CPA preparatory courses and the professional education program; $17.1 million (2015 - $37.9 million) from legacy education programs; and $7.2 million (2015 - $3.5 million) from student fees. The decline in education program revenue was expected in Fiscal 2016 as the phase-out of legacy programs was completed. Students entering the CPA program increased significantly during the year.

Professional development.

In Fiscal 2016, there were 31,000 registrations (2015 - 24,000) in the professional development program, generating revenue of $10.1 million (2015 - $7.6 million). As Chartered Professional Accountants, members are committed to continually enhance and renew their skills, which is supported by CPA Ontario through continuing professional development opportunities. These include district/chapter events and seminars, conferences and webinars on topics ranging from assurance to taxation to strategy and governance.

Expenditures.

Total expenses for Fiscal 2016 were $96.3 million vs. $83.6 million for the prior nine-month period in Fiscal 2015. Two categories of expenses characterized Fiscal 2016 costs: those associated with completing transition and integration, and those associated with ongoing CPA Ontario operations.

During Fiscal 2016, one-time integration-related expenses totalled $14.4 million vs. $13.9 million in Fiscal 2015. As CPA Ontario completed operational integration, costs were incurred relating to severances of $1.9 million (2015 - $7.9 million), as well as consulting services and information technology expenses that will enable the organization to enhance the quality of service to members and students.

Expenses of $81.9 million related to operations for the twelve months ended March 31, 2016, as compared to $69.8 million for the nine months ended March 31, 2015, included costs associated with completing the three legacy education programs, as well as building the capacity of and attracting students to the CPA program. Moving forward into Fiscal 2017, with integration completed, the transitioning student population settling into the CPA program, and technology investments better enabling the organization, we foresee economies of scale.

Risk and Risk Management

CPA Ontario is exposed to a variety of risks in the course of normal operations. These risks may be strategic or financial in nature and stem from the complex and rapidly changing environment in which the organization operates. CPA Ontario regularly identifies and assesses risks to ensure they are effectively managed. Risks that management monitors and mitigates include changes in regulations, funding, human resources, education, standards, and systems and procedures. We believe our risk management strategies and strong capital resources and liquidity will enable CPA Ontario to mitigate economic contingencies.

We anticipated the shift in transitioning student enrolment by promoting the CPA brand and proactively marketing to future students. We also mitigated this risk by adjusting the mix of revenue sources. Key risks affecting the organization as a whole are identified and addressed though CPA Ontario’s strategic planning process and the execution of strategic initiatives.

Financial Risks

In the normal course of business, CPA Ontario is exposed to financial risks that have the potential to adversely affect its operating and financial performance. The risks associated with CPA Ontario’s financial instruments are: credit, liquidity and market (i.e., currency, interest rate and other price risk). Refer to the audited financial statements for the year ended March 31, 2016, for an explanation of CPA Ontario’s exposure to these financial risks.

CPA Ontario manages these risks in accordance with its investment policy. The objective of the policy is to reduce volatility in cash flow and earnings and safeguard assets by setting the parameters for the asset quality and proportion of fixed income and equity securities in which it invests. Based on the nature of the investments and the constraints imposed by the organization’s investment policy, it is management’s opinion that CPA Ontario is not exposed to significant risk in respect of financial instruments.