Financial Statements: Local Programming Improvement Fund, August 31, 2012

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of

Canadian Local Programming Improvement Fund

We have audited the accompanying financial statements of Local Programming Improvement Fund, which comprise the balance sheet as at August 31, 2012 and the statement of income and fund balance for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, 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.

Auditors' responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Except as explained below, we conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for qualified opinion

The Fund contributions are based on reports of prior-year gross revenues derived from broadcasting activities provided to the Canadian Radio-television and Telecommunications Commission by the licensed terrestrial Broadcasting Distribution Unit’s and Direct–to–Home undertakings. A summary of this information was supplied to us by the CRTC. We did not audit the reports submitted to the CRTC. Therefore, we are unable to determine whether any adjustments to the Fund contributions and Fund distributions might be necessary.

Qualified opinion

In our opinion, except for the possible effects of the matter described in the Basis for qualified opinion paragraph, the financial statements present fairly, in all material respects, the financial position of Local Programming Improvement Fund as at August 31, 2012 and the results of its operations for the year then ended in accordance with Canadian generally accepted accounting principles.

Ottawa, Canada,
December 18, 2012.

Ernst & Young L.L.P
Chartered Accountants
Licensed Public Accountants

BALANCE SHEET

As at August 31

	2012 $	2011 $
ASSETS
Cash	11,490,987	10,753,747
Contributions receivable	817,951	2,023,243
Total assets	12,308,938	12,776,990
LIABILITIES AND FUND BALANCE
Liabilities
Accounts payable and accrued liabilities	25,167	22,246
Distributions payable	12,283,771	12,754,744
Total liabilities	12,308,938	12,776,990
Fund balance	—	—
Total fund balance	12,308,938	12,776,990
See accompanying notes Commitment [note 6]
See accompanying notes Commitment [note 6]
On behalf of the Board:
Director	Director

STATEMENT OF INCOME AND FUND BALANCE

Year ended August 31

	2012 $	2011 $
REVENUE
Fund contributions	111,983,495	106,562,707
Interest	96,149	91,024
Total revenue	112,079,644	106,653,731
EXPENSES
Fund distributions [schedule 1]	111,524,090	106,099,825
Fund administration	452,000	440,700
Insurance	63,234	63,234
Audit	23,183	28,809
Legal	15,530	19,830
Bank charges	1,607	1,333
Total expenses	112,079,644	106,653,731
Net income for the year and fund balance	—	—
See accompanying notes

NOTES TO FINANCIAL STATEMENTS

August 31, 2012

1. PURPOSE OF THE FUND

The Local Programming Improvement Fund [the “Fund” or “LPIF”] is a fund created by the Canadian Radio-television and Telecommunications Commission [“CRTC”] in October 2008 pursuant to Broadcasting Public Notice CRTC 2008-100. The purpose of the Fund is to support local programming produced by conventional television stations operating in non-metropolitan markets. The objectives of the Fund are to ensure that viewers in smaller Canadian markets continue to receive a diversity of local programming, to improve the quality and diversity of local programming in these markets and to ensure that viewers in French-language markets are not disadvantaged by the smaller size of those markets.

2. FUTURE OPERATIONS

Pursuant to Broadcasting Regulatory Policy CRTC 2012-385, the CRTC will phase out the Fund over the next two broadcast years. The contribution rate will be reduced to 1.0% for the 2012-2013 broadcast year and to 0.5% for the 2013-2014 broadcast year. As of September 1, 2014, the operations of the LPIF will be discontinued.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The following significant accounting policies have been used in the preparation of these financial statements.

[a] Financial instruments

The Fund's financial instruments consist of cash, contributions receivable, accounts payable and accrued liabilities and distributions payable. The fair values of these financial instruments approximate their carrying values, unless otherwise stated. It is management's opinion that the Fund is not exposed to significant interest rate, currency or credit risks arising from these financial instruments.

[b] Fund contributions

The Fund is funded through contributions by licensed terrestrial Broadcasting Distribution Unit’s and Direct–to–Home undertakings. The contribution for the 2012 broadcast year is 1.5% of the prior broadcast year's gross revenue derived from the broadcasting activities of licensees. Any adjustments are accounted for in the year during which the change is communicated to the Fund Administrator by the CRTC.

[c] Fund distributions

LPIF funding is distributed to eligible stations as follows: one third of total funds are divided evenly among all eligible stations in anglophone and francophone markets and the remaining two thirds are divided so that 70% goes to anglophone markets, and 30% to francophone markets. These remaining two thirds are then allocated on the basis of average net spending on local programming over three years and are proportional to the percentage of LPIF funding available to eligible stations within a linguistic market. Eligibility for participation in LPIF funding is determined by the CRTC. Any adjustments are accounted for in the year during which the change is communicated to the Fund Administrator by the CRTC.

[d] Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

[e] Future Accounting Changes

The Accounting Standard Board of the CICA has announced that private sector not-for-profit organizations will have the choice between Canadian GAAP for not-for-profit organizations and International Financial Reporting Standards relating to fiscal years beginning on or after January 1, 2012. The Fund will adopt Canadian GAAP for not-for-profit organizations for its year ending August 31, 2013.

4. CANADIAN LOCAL PROGRAMMING IMPROVEMENT FUND

The Canadian Local Programming Improvement Fund [“CLPIF”] oversees the administration of the Fund and the Fund Administrator's performance of its duties. Any expenses of the CLPIF are paid for and considered an expense of the Fund.

5. CAPITAL MANAGEMENT

The Fund considers its capital to be the balance maintained in its bank account. The primary objective of the Fund is to invest its capital in a manner that will allow it to continue as a going concern and to comply with its stated objectives. Capital is invested under the direction of the Board of Directors of the CLPIF with the objective of providing a reasonable rate of return, minimizing risk and ensuring adequate liquid investments are on hand for current cash flow requirements. The Fund is not subject to any externally imposed requirements on its capital.

6. COMMITMENT

Fund administration agreement

The CLPIF has engaged the services of a company to administer the Fund at a fee of $360,000 plus applicable taxes for each of the broadcast years ending August 31, 2013 and August 31, 2014 plus an additional $100,000 plus applicable taxes for the five month wind-up period ending January 31, 2015.

7. STATEMENT OF CASH FLOWS

A statement of cash flows has not been prepared as all the relevant information is apparent from the other financial statements.

SCHEDULE OF FUND DISTRIBUTIONS