Canadian Internet Registration Authority
Notes to Financial Statements
Year ended March 31, 2020
1. Purpose of the Organization:
The Canadian Internet Registration Authority (“CIRA”) is a not-for-profit entity incorporated on December 30, 1998, under the Canada Corporations Act. On October 3, 2012, CIRA received its Certificate of Continuance from Industry Canada to continue under the Canada Not-for-profit Corporations Act as required by the legislation. CIRA is responsible for operating the .CA Internet country code Top Level Domain (“ccTLD”) as a key public resource for all Canadians in an innovative, open and efficient manner. CIRA may carry out other Internet-related activities for the Canadian Internet community in a similar manner.
CIRA is registered as a not-for-profit entity under the Income Tax Act (Canada) and accordingly is exempt from income taxes.
2. Significant accounting policies:
The financial statements have been prepared by management in accordance with Canadian accounting standards for not-for-profit organizations in Part III of the CPA Canada Handbook – Accounting. Outlined below are those policies considered particularly significant.
(a) Financial instruments:
Financial instruments are recorded at fair value on initial recognition. Restricted investments are subsequently measured at fair value. All other financial instruments are subsequently measured at cost or amortized cost.
Transaction costs incurred on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method.
Financial assets are assessed for impairment on an annual basis at the end of the fiscal year. If there is an indicator of impairment, CIRA determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount CIRA expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value.
(b) Property and equipment:
Property and equipment are recorded at acquisition cost. Contributed equipment is recorded at the fair market value at the date of the contribution. Amortization is provided on the straight-line method over their estimated useful lives as follows:
Table 20: A table reporting Asset useful life
|Furniture and fixtures
||Shorter of useful life or term of the lease
(c) Intangible assets:
Intangible assets consist of acquired software and internally generated software and are accounted for at cost. Acquired software and internally generated software are amortized on a straight-line basis over their estimated useful lives of 3 and 5 years respectively.
(d) Customer deposits:
Certain third party Registrars maintain a cash balance with CIRA to fund new and renewed .CA domain name registration fees. CIRA accounts for these deposits as current liabilities. When registration fees are charged, the funds are withdrawn from the deposit account and are recognized as revenue and deferred revenue in accordance with the revenue recognition policy.
(e) Lease inducement:
The lease inducement received is deferred and amortized on a straight-line basis over the term of the lease.
(f) Impairment of long-lived assets:
Long-lived assets comprised of property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In this event, recoverability of assets held and used is measured by reviewing the estimated fair market value of the asset. If the carrying amount of an asset exceeds its estimated fair market value, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. As at March 31, 2020, there were no known circumstances that would indicate that the carrying value of long-lived assets may not be recoverable.
(g) Revenue recognition:
Registration fees are fixed fees charged for registration and renewal of .CA domain names and are non-refundable five days after execution of the Registrant Agreement.
Registration fee revenue is recognized when pervasive evidence of an arrangement exists, services have been rendered, the fee is fixed or determinable and collection is reasonably assured.
Registration fees are deferred and recognized rateably over the registration term which ranges from 1 to 10 years.
Domain name system (“DNS”), registry and other service revenue are fixed fees. DNS, registry and other service revenue is recognized when pervasive evidence of an arrangement exists, services have been rendered, the fee is fixed or determinable and collection is reasonably assured.
Certification fees are recognized as revenue when the registrar is certified by CIRA.
Application fees are recognized as revenue when received.
Investment income is recognized as revenue when earned.
(h) Use of estimates:
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Significant items subject to such estimates and assumptions include the carrying amount of capital assets. Actual results could differ from those estimates.
3. Accounts receivable:
Table 21: A table reporting Accounts receivable
|Total accounts receivable
|Investment and interest receivable
4. Restricted investments:
Investments are restricted by the Board of Directors to fund ongoing and future operations in accordance with the Restricted Investments Policy, as approved by the Board.
Table 22: A table reporting Restricted investments
||Fair market value
||2020 Unrealized gain (loss)
||2019 Fair market value
|Guaranteed investment certificates
|PH&N Enhanced Total Return Bond Fund
|PH&N Short Term Bond and Mortgage Fund
|PH&N Canadian Equity Value Fund Series
|PH&N Mortgage Pension Trust
|RBC Global Equity Focus
|RBC QUBE Low Volatility Global Equity Fund
PH&N Strategic Mortgage Fund
Cost and unrealized gain as at and for the period ending March 31, 2019, amounted to $25,028,863 and $1,147,579, respectively.
Income from investments measured at fair value as recorded on the statement of operations is the net change in the closing unrealized gain balance from the prior year to the current year.
CIRA will invest its restricted investments and any funds in excess of normal daily operating requirements in vehicles that management believes will maximize yield while minimizing exposure to undue risk (note 14). The Board of Directors approves the investment objectives and guidelines of the organization under the Statement of Investment Policy and Procedures (SIPP) and evaluates the results of the investment activities.
Following the limitations and restrictions defined within the SIPP, CIRA may invest in a mixed asset portfolio of pooled funds including Canadian Fixed Income and Mortgages, and Canadian and Global Equities under a discretionary investment management mandate. Under a non-discretionary mandate, CIRA may also invest in government-backed securities, Canada Deposit Insurance Corporation (CDIC) secured investments and what management believes are high quality corporate bonds. Fair value is determined primarily by quoted market prices. Cost is determined based on the amortized cost using the effective interest rate method.
5. Property and equipment:
Table 23: A table reporting Property and equipment
||2020 Net book value
||2019 Net book value
|Furniture and fixtures
Cost and accumulated amortization at March 31, 2019, amounted to $17,921,459 and $13,771,169, respectively.
6. Intangible assets:
Table 24: A table reporting Intangible assets
||2020 Net book value
||2019 Net book value
Cost and accumulated amortization at March 31, 2019, amounted to $5,358,297 and $4,909,947, respectively. During the year, CIRA ceased to use $1,338,357 in fully amortized assets (2019 – $nil).
7. Accounts payable and accrued liabilities:
Included in accounts payable and accrued liabilities are government remittances payable of $209,611 (2019 – $35,190), which includes amounts payable for harmonized sales tax and payroll-related remittances.
8. Lease inducement:
Under its current office lease agreement CIRA was paid $661,500 as a lease inducement; this will be amortized over the term of the lease. Lease inducements recorded as a reduction of rent expense during the year totalled $33,075 (2019 – $33,075).
9. Net assets:
(a) Internally restricted net assets:
Internally restricted net assets are accumulated for the purposes as identified by the Board. The level of accumulated funds is reviewed annually by the Board against ongoing and future requirements. Any unrestricted net assets are to be allocated to the internally restricted net assets.
(b) Invested in capital assets:
The amount invested in capital assets represents that portion of net assets that is not available to the organization for other purposes.
10. Investment income (loss), net:
Investment income, net earned and recorded in the statement of operations is calculated as follows:
Table 25: A table reporting Investment income, net
|Total Investment income (loss), net
|Income earned on restricted investments
|Income earned on cash
|Change in fair value of restricted investments
11. Related party transactions:
The financial statements include Directors’ fees paid to CIRA’s 12 Directors of $269,082 (2019 – $249,665). These services were provided in the normal course of business and have been recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
In the normal course of operations, CIRA interacts with Registrars whose principal shareholders, directors or executive members may also be Directors of CIRA. In 2020, CIRA provided services to such Registrars at the normal exchange amount for such registration fees of $1,875,949 (2019 – $1,960,720). Included in accounts receivable are balances from these Registrars for $113,561 (2019 – $118,609).
Included in accounts payable are amounts owed to executive members and Directors of CIRA for re-imbursement of expenses that total $566 (2019 – $3,379).
CIRA is committed to minimum payments under an operating lease related to the rental of its premises, as discussed in note 8.
Minimum lease commitments for the successive five fiscal years and thereafter are as follows:
Table 26: A table reporting lease commitments
CIRA is also responsible for its share of operating costs, which are estimated by the landlord to be $369,174 per annum.
13. Contingencies and subsequent events:
In the normal course of business, it is common for CIRA to be involved in claims regarding domain name registrations. Though the outcome of these claims is uncertain, management believes they will not materially affect the financial position of the organization.
Subsequent to year end, CIRA received a formal notice of application with respect to governance matters and the disclosure of various information; CIRA has sought outside legal counsel to defend this action. No claim of damages has been received.
As the financial impact cannot currently be estimated, no provision has been made in the accounts for any claims.
14. Financial instruments and related risks:
(a) Fair value of financial instruments:
CIRA’s financial instruments consist of cash, accounts receivable, restricted investments, and accounts payable and accrued liabilities. The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximates fair value as a result of the relatively short-term nature of these instruments. The fair value of restricted investments is determined primarily by quoted market prices.
(b) Credit risk:
CIRA is subject to credit risk on the value of its accounts receivable and on its investments. The credit risk on the accounts receivable is minimal due to their nature. The SIPP defines the pooled fund asset class portfolio holding percentage benchmarks as follows: Canadian Fixed Income and Mortgages 70% (2019 – 70%), Canadian Equities 15% (2019 – 15%) and Global Equities 15% (2019 – 15%). Under a non-discretionary mandate CIRA limits its investments to government-backed securities, high quality corporate bonds and CDIC secured investments.
(c) Liquidity risk:
CIRA is subject to minimal liquidity risk. Liquidity risk is the risk that CIRA will not be able to meet its financial obligations as they fall due. CIRA’s approach to managing liquidity is to evaluate current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash and restricted investments. To minimize these risks, CIRA has invested in liquid fixed income securities, cash equivalents, and equities that if necessary can be sold to generate cash flow.
(d) Interest rate risk:
CIRA is subject to interest rate risk on its cash and cash equivalents and investments. Cash and cash equivalents and investments earn interest at prevailing market rates.
(e) Currency risk:
CIRA primarily operates in Canadian dollars and as such is not significantly exposed to currency risk.
There has been no change to CIRA’s risk exposures from prior year.
In the normal course of business, CIRA entered into an insurance agreement that meets the definition of a guarantee.
An indemnity has been provided to all directors and/or officers of CIRA for various items including, but not limited to, all costs to settle suits or actions due to their involvement with CIRA, subject to certain restrictions. CIRA has purchased directors’ and officers’ 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 a trustee, director or officer of CIRA. The maximum amount of any potential future payment cannot be reasonably estimated.
16. Capital management:
CIRA defines capital as net assets.
CIRA’s objective with respect to internally restricted net assets is to safeguard CIRA’s financial position and ensure the capability of operations in the event of unexpected circumstances.
CIRA manages its net assets in a way to meet its objectives to maintain funds for operating purposes and to finance the acquisition of property and equipment and intangible assets as operationally required. The objectives are set by the Board of Directors during its annual corporate plan and budget review.
CIRA is not subject to any externally imposed requirements on capital and there has been no change in capital management practices from the previous year.
17. Impact of COVID-19 Pandemic:
In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization and has had a significant financial, market and social dislocating impact. At the time of approval of these financial statements, CIRA has experienced the following indicators of financial implications and undertaken the following activities in relation to the COVID- 19 pandemic:
- Experienced temporary declines in the fair value of investments and investment income;
- Closure of their offices from March 13, 2020 to the date of the auditors’ report based on public health recommendations;
- Mandatory working from home requirements for those able to do so.
The ultimate duration and magnitude of the COVID-19 pandemic’s impact on the CIRA’s operations and financial position is not known at this time. These impacts could include a decline in future cash flows, changes to the value of assets and liabilities, and the use of accumulated net assets to sustain operations. An estimate of the financial effect of the pandemic on CIRA is not practicable at this time.