2019–20 Agricultural Research Institute of Ontario financial statements

ARIO management's responsibility for financial reporting

The accompanying financial statements of ARIO have been prepared in accordance with Canadian generally accepted accounting principles.

Management is responsible for the accuracy, integrity and objectivity of the information contained in the financial statements.

The preparation of financial statements necessarily involves the use of estimates based on management's best judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods. These financial statements have been prepared within reasonable limits of materiality with information available up to and including March 31, 2020.

In discharging its responsibility for the integrity of the financial statements, management maintains financial and management control systems and practices designed to provide reasonable assurance that transactions are authorized, assets are safeguarded and proper records are maintained.

The financial statements have been examined by RLB LLP, independent external auditors appointed by the OMAFRA, on behalf of ARIO. The external auditors' responsibility is to express an opinion on whether the financial statements are presented fairly in accordance with generally accepted accounting principles. The auditors' report outlines the scope of their examination and opinion.

On behalf of management:

Lee‐Ann Walker
Director of Research

Sue Mihelchic
Comptroller

Independent auditor’s report

To the members of: Agricultural Research Institute of Ontario

Opinion

We have audited the accompanying financial statements of Agricultural Research Institute of Ontario, which comprise the statement of financial position as at March 31, 2020, and the statements of revenues and expenditures and changes in fund balances, remeasurement losses and cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, these financial statements present fairly, in all material respects, the financial position of Agricultural Research Institute of Ontario as at March 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Basis of opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. 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 Agricultural Research Institute of Ontario 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 Canadian public sector accounting standards 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 organization's ability to continue as a going concern, disclosing, as applicable, matters related to a going concern and using the going concern basis of accounting unless management either intends to liquidate the organization or to cease operations or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the organization's financial reporting process.

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 generally accepted auditing standards 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.

A further description of the auditor's responsibilities for the audit of the financial statements is located at RLB LLP’s website. This description forms part of our auditor's report.

Guelph, Ontario
Chartered Professional Accountants
July 16, 2020
Licensed Public Accountants

Statement of financial position as at March 31, 2020

Statement of revenues and expenditures and changes in fund balances for year ended March 31, 2020

Statement of cash flows for year ended March 31, 2020

Notes to the financial statements

Note 1: nature of organization

Under the province of Ontario Agencies and Appointments Directive, the Agricultural Research Institute of Ontario (ARIO) is classified as a Board Governed Operational Service Agency reporting to the Minister of Agriculture, Food and Rural Affairs. In addition, ARIO is a non‐profit organization within the meaning of the Income Tax Act (Canada) and is exempt from income taxes. It was created by the ARIO Act with specific responsibilities for the co‐ordination and direction of agri‐food research programs and research infrastructure in Ontario. These activities relate to a broad range of commodities and disciplines, covering all aspects of the agri‐food system.

Funding for programs supported by ARIO is available from various sources. The Ontario Government, through the Ministry of Agriculture, Food and Rural Affairs (OMAFRA), is the primary source of funding. The Ontario government also provides funding for open research programs. Under the ARIO Act, ARIO may accept grants and donations for research. Other funds usually come from commercial sources (such as agri‐business, marketing boards and producer associations) and can be either designated for specific projects or non‐designated. In addition, ARIO reinvests royalties earned from Ministry funded research.

All receipts are held in trust by the director of research and are allocated in accordance with the terms of the funds. Transactions between OMAFRA and the below programs are recorded at the exchange value.

The current research trust funds managed by the secretariat to ARIO are:

• Agricultural Research Institute of Ontario (ARIO)
• Open Competitive Research (includes New Directions, Food Safety, other)
• Infrastructure

COVID‑19 acknowledgment:

Due to restrictions under the Emergency Management and Civil Protection Act, R.S.O. 1990, and its regulations, put in place in response to an ongoing pandemic known as the COVID‑19 pandemic; there were and continue to be limitations on the activities permitted under law (the “Limitations”) which impacts or has impacted the ability of ARIO to carry out operational and major capital construction activities.

Should these Limitations result in a delay in completing the business of ARIO, that is, operating, reporting and capital activities, ARIO, in its capacity as a Board Governed Operational Service Agency reporting to the Minister of Agriculture, Food and Rural Affairs, will act in a timely manner to mitigate any delays so as to continue operations for which the agency is prescribed under the ARIO Act.

Note 2: summary of significant accounting policies

The financial statements have been prepared in accordance with Canadian public sector accounting standards for government not for profit organizations, including the 4200 series of standards, as issued by the Public Sector Accounting Board ("PSAB for Government NPOs") and include the following significant accounting policies:

Basis of accounting

ARIO follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue of the appropriate research trust fund in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue of the appropriate research trust fund when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured.

Financial instruments — Measurement of financial instruments

The organization initially measures its financial assets and liabilities at fair value, except for certain non‐arm’s length transactions.

The organization subsequently measures all its financial assets and financial liabilities at amortized cost, except for investments, which are measured at fair value. Changes in fair value are recognized in the statement of remeasurement losses.

Financial instruments — Impairment

Financial assets measured at amortized cost are tested for impairment when there are indicators of impairment. If an impairment has occurred, the carrying amount of financial assets measured at amortized cost is reduced to the greater of the discounted future cash flows expected or the proceeds that could be realized from the sale of the financial asset. The amount of the write down is recognized in the statement of revenues and expenditures. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in the statement of revenues and expenditures.

Financial instruments — Transaction costs

The organization recognizes its transaction costs in expenditures in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.

Financial instruments — Unclaimed expenditures

Unclaimed expenditures are defined as the total approved budget for open research projects less expenses incurred to date.

Financial instruments — Tangible capital assets

Tangible capital assets are recorded at cost and are amortized using the following annual rates and method:

• buildings and components 25 to 40 years straight line

Financial instruments — Impairment of long‐lived assets

Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when the carrying value exceeds the total undiscounted cash flows expected from their use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value.

Financial instruments — Deferred capital contributions

Deferred capital contributions are recognized in the same period as the related impairment and amortized at the same rate as the buildings to which they relate.

Financial instruments — Restrictions on the expenditure of funds

The purpose, funding, terms and conditions and duration of each research trust fund are stipulated in the relevant Order‐in‐Council, memorandum of understanding or Ministry correspondence.

Financial instruments — Use of estimates

The preparation of financial statements in accordance with PSAB for Government NPOs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year.

Significant areas requiring the use of management estimates and assumptions relate to the valuation of accounts payable and accruals and the useful life of capital assets. Actual results could differ from those estimates.

Note 3: financial instruments

Fair value

For certain of ARIO's financial instruments, the carrying amounts of cash, accounts receivable and accounts payable and accruals, approximate fair value due to the short-term maturity of these financial instruments.

PS3450, Financial Instruments Disclosures requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly.

Level 3: Inputs that are not based on observable market data.

ARIO’s financial instruments are classified as Level 2 except for cash which is classified as Level 1 as at March 31, 2020, and 2019.

There were no transfers in or out of Level 1 or Level 2 for the years ended March 31, 2020, and 2019.

Associated risks

Market price risk:

Market price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As all of ARIO’s financial instruments are carried at fair value with fair value changes recognized in the statement of remeasurement losses, all changes in market conditions will directly affect the increase (decrease) in accumulated remeasurement losses. Market price risk is managed by the Investment Manager through construction of a diversified portfolio of instruments traded on various markets and across various industries.

A 1% increase (decrease) in the value of the investments would increase (decrease) the asset value and the change in unrealized gains in investments by $287,220 (2019: $275,491). The price of the investments is affected by changes in market values, foreign exchange rates and interest rates impacting the underlying financial instruments held within the individual investments managed by the Investment Manager.

Interest rate risk:

Interest rate risk refers to the adverse consequences of interest rate changes on the Institute’s cash flows, financial position and income. Interest rate changes have an indirect impact on the investment assets in ARIO. ARIO uses investment diversification to manage this risk.

Liquidity risk:

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

All of ARIO’s fixed income securities are considered to be readily realizable as they can be quickly liquidated at amounts close to their fair value in order to meet liquidity requirements.

Foreign currency risk:

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. ARIO is not exposed to significant foreign currency risk.

Credit risk:

Credit risk is the risk that a customer or counterpart may be unable or unwilling to meet a commitment that it has entered into with ARIO. ARIO is not exposed to significant credit risk.

Note 4: contributed assets

Contributed assets of $11,681,691 (2019: $11,681,691) are recorded in the Infrastructure Fund and represent the cost of the land transferred to ARIO from the Government of Ontario. During the year, the fair value of the land in Alfred was adjusted by an impairment of $0 (2019: $0 due to a sale (see note 11)). Additionally, the land in Alfred was sold in 2019 for $1,010,000, which was the residual value of the Alfred land in contributed surplus, and part of the land in New Liskeard was sold for $25,000, with cost base of $473, reducing contributed surplus by the cost base in contributed surplus of $473.

Note 5: tangible capital assets

As at March 6, 2007, the titles for capital assets (land and buildings) with a carrying value of approximately $60.9 million were transferred to ARIO from the Government of Ontario.

Carrying value is being used as the transfer value since the transfer took place between non arm's length parties, is non‐monetary in nature and does not have commercial substance. As an agency of the Government of Ontario, ARIO reports these capital assets (and other assets and liabilities) in consolidation with OMAFRA on an annual basis.

Note 6: deferred capital funded contributions

Deferred capital contributions relating to construction of capital funded projects represents the amount of grants and other restricted funding received by ARIO for construction projects

Note 7: deferred capital contributions

Deferred capital contributions represent the unamortized amount of the net book value of the buildings transferred to ARIO from the Government of Ontario in 2007. The amortization of capital contributions is recorded as revenue in the statement of revenues and expenditures.

Note 8: ARIO research fund

During the prior year, University of Guelph began program administration for the above intellectual property fund.

Note 9: grants received from the provincial government

The following grants, recorded at the exchange value, have been received from the OMAFRA and successor ministries:

The following provincial government capital transfer payment grants have been partially capitalized as deferred capital funded contributions and partially recognized as revenues as follows:

Note 10: transfer payments to University of Guelph

During 2016, ARIO entered into a funding agreement with the University of Guelph to construct new turf grass facilities at the University of Guelph Arboretum. Under the agreement, ARIO would provide maximum funds of $12,000,000 to be combined with up to $3,000,000 in industry contributions to fund the construction of the new facility on Arboretum land. The project has experienced unforeseen delays and, as such, ARIO has approved the contribution of an additional $1,000,000 in funding towards the project in order to assist in bringing the project to completion. The University of Guelph is also contributing an additional $1,000,000 towards completion of the project. ARIO funds for this agreement come from major capital funding transfers which were previously received by ARIO from the OMAFRA and successor ministries. By March 31, 2019, funding milestones were met and ARIO had provided the University with $12,000,000 in funding.

During 2017, ARIO entered into a funding agreement with the University. Under the agreement, ARIO would provide maximum funds of $800,000 to fund equipment for the Guelph Food Innovation Centre. At March 31, 2019, funding milestones have been met and ARIO has provided the University with $800,000 in funding.

During 2018, ARIO entered into funding agreements with the University of Guelph for the construction of a new swine research facility at Elora and a new Agronomy Research Services Building at New Liskeard. ARIO will provide maximum funds of $12,000,000 to be combined with up to $3,000,000 in industry contributions to fund the construction of the new Swine Research facility. ARIO will provide up to $4,000,000 for the New Liskeard Agronomy building project. No industry contribution is anticipated for this project. ARIO provided the University with $0 for the new swine facility (2019: $3,000,000) and $0 (2019: $1,000,000) for the New Liskeard agronomy building. During the current year, ARIO has received $0 (2019: $100,000) in industry contributions for the new swine facility from Ontario Pork. ARIO funds for these agreements come from deferred capital funded contributions which were previously received by ARIO from the OMAFRA and successor ministries.

Note 11: gain on disposal of tangible capital asset

March 31, 2019 — Sale of Alfred and New Liskeard Land

During the prior year, the organization sold parcels of land in two locations, one in Alfred and one in New Liskeard. All parcels of land were originally transferred to the organization and capitalized to assets and contributed surplus.

During the 2019 fiscal year, the Municipality of North Grenville paid $4,000,000, satisfying the terms of their promissory note and closing the final payment on the sale of the property.

Note 12: funding agreements with third parties

The Agricultural Research Institute of Ontario (ARIO), Her Majesty the Queen in right of Ontario as represented by the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) and the Integrated Grain Processors Co‐operative Inc. (IGPC) have jointly signed an agreement whereby, pursuant to a Capital Grant Agreement effective June 2006, between OMAFRA and IGPC, IGPC agreed to contribute to a research and development fund in exchange for the capital grant support provided by OMAFRA through the Ontario Ethanol Growth Fund. IGPC has agreed to contribute $280,000 annually for 10 years (for a total of $2,800,000) starting in April 2012, and ending with the final payment in April 2021. These funds are being paid directly to ARIO to be used to support research priorities in the agri‐food sector in Ontario. Funds recognized to date are $2,240,000; however, funds received to date are $1,960,000 as the 2020 payment was deferred until fiscal 2021. See schedule 2.

Her Majesty the Queen in right of Ontario as represented by the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) and Kawartha Ethanol Inc. have signed a Capital Grant Agreement effective August 1, 2008, between OMAFRA and Kawartha Ethanol Inc. whereby Kawartha Ethanol Inc. agreed to contribute to a research and development fund in exchange for the capital grant support provided by OMAFRA through the Ontario Ethanol Growth Fund. Kawartha Ethanol Inc. has agreed to contribute $98,000 annually for 10 years (for a total of $980,000) starting April 2013, and ending with the final payment in April 2022.

These funds are to be paid directly to ARIO to be used to support research priorities in the agri‐food sector in Ontario. Funds recognized to date, being actual receipts to date are $686,000.

See schedule 2.

Note 13: Canadian Agricultural Partnership (CAP) funding

During the year, ARIO received funding for two research infrastructure projects from the CAP program:

• Elora Research Station Precision Feed Preparation Facility to support the expanded dairy and beef research herds at Elora.
• VRIC — Research Facility Upgrades to significantly modernize key aspects of several research platforms at VRIC by increasing the ability of the station to undertake a wider variety of research projects through modernization and enhanced program support.

These programs were both completed by March 31, 2020.

Schedule 1: research trust funds: financial position as at March 31, 2020

Schedule 2: research trust funds: revenues and expenditures and changes in fund balances for the year ended March 31, 2020