Data quality, concepts and methodology: Concepts and methods
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This section outlines the basic concepts and methods needed to understand the data in this report.
Coverage
The data in this publication are compiled for statistical enterprises. An enterprise is a single corporation or a family of corporations under common ownership and/or control, for which consolidated financial statements are produced.
These enterprises are classified according to the 2012 North American Industry Classification System (NAICS). Each enterprise is assigned a six-digit NAICS code in two steps. First, a NAICS code is assigned to each establishment belonging to an enterprise. The enterprise is then assigned the NAICS code for the industry which accounts for the largest share of value-added across all the establishments that make up the enterprise. For publication purposes, enterprise data based on the six-digit NAICS codes have been aggregated into 21 industry groups such as mining and manufacturing (Text table 1).
The statistics in the report cover all incorporated enterprises in Canada including federal and provincial government business enterprises (GBEs) but excluding enterprises classified to Management of Companies and Enterprises (NAICS 55); Religious Organizations (NAICS 8131); Political Organizations (NAICS 81394); Public Administration (NAICS 91); as well as Funds and other Financial Vehicles (NAICS 526). GBEs are public sector enterprises engaged in operations of a commercial nature.
Data Sources
The Corporations Returns Act report focuses on the statistical enterprise. It is based on a dataset which links country of control information derived at the legal entity level, with financial data compiled at the enterprise level from Industrial Organization and Finance Division’s (IOFD) Financial and Taxation Statistics for Enterprises program.
Country of control data
The country of control data are derived from ownership schedules filed annually with Statistics Canada by corporations liable under the Corporations Returns Act, and information obtained from the Canada Revenue Agency’s administrative records.
Statistics Canada collects ownership information from incorporated businesses in Canada whose gross revenues exceed $80 million, whose assets exceed $200 million or whose long-term debt or equity owing to non-residents exceeds a book value of $1 million. This information is used to establish links between parent corporations and their subsidiaries, to define corporate ownership structures, and to determine the ultimate country of control for each corporate structure. The ownership information is supplemented by research based on other publicly available sources which include web sites, gazettes, press clippings, as well as federal and provincial business registries.
Statistics Canada relies on information from Canada Revenue Agency administrative records to determine the country of control for corporations whose assets, revenues and equity or debt are below the thresholds for collection of ownership data. These businesses tend to have a simple corporate structure and are, for the most part, Canadian-controlled. These administrative records are maintained on Statistics Canada’s Business Register.
Financial data
The IOFD Financial and Taxation Statistics for Enterprises combined three sources of financial data to form a census of the 1,363,316 enterprises in the target population for 2012 (Text table 2). Annualized data from IOFD’s Quarterly Survey of Financial Statements (QFS) provided consolidated data for 4,027 of the largest enterprises. Public Sector Statistics Division supplied data for 115 provincial and federal level government business enterprises. Administrative Data Division supplied financial information for the remaining enterprises from T2 Corporation Income Tax Returns and the General Index of Financial Information (GIFI).
Reference period
The series in this report are intended to cover business activity within a calendar reference period. Data derived from the QFS approximate the calendar period. The GBE data reflect fiscal periods which often are governed by the April to March fiscal year of governments. However, beginning with the 2002 reference year, the GBE data have been adjusted to reflect the calendar period. The administrative data obtained from the Canada Revenue Agency are based on the financial statements and income tax returns filed by corporations for fiscal periods which end in the calendar period. However, beginning with the release of the 2004 data, data from income tax returns for fiscal periods ending April to March have been included in order to better represent business activity in the calendar period.
Edit and imputation
At the record level, several checks are performed on the financial data to verify internal consistency and identify extreme values. Checks are also performed to ensure that financial data records have been assigned a country of control code and that this information is accurate.
Imputation of the financial data for complete non-response is performed by two methods. The preferred and most common method makes use of historical information about the non-responding unit and current trends in the principal characteristics of similar units. When historical information is not available, such as in the case of new units, a donor of similar size and industry is substituted for the missing unit.
Annual changes in the tabulated financial data are reviewed by industry and country of control. The largest changes are investigated and updates are made to the financial and country of control data as required. In addition, these data are analyzed for comparability with trends in related Statistics Canada data series and with general trends in the economy.
Estimation
As noted earlier, annual data are obtained from one of three sources for each enterprise in the population of interest. Estimates are derived by tabulating the enterprise data for this population. These estimates are produced and published by industry and country of control.
Due to certain financial reporting constraints, data for enterprises in the insurance industry could not be obtained through the administrative data source. As a result, estimates for this industry are derived using QFS weighted estimates.
Confidentiality
The confidentiality of the financial statistics is protected under the provisions of the Statistics Act.
For this reason, these data are released in aggregate form only and are subject to various confidentiality checks before they are released to prevent the publication or disclosure of any information deemed confidential. If necessary, data are suppressed to prevent direct or residual disclosure of identifiable data.
Direct disclosure could occur when the value in a tabulated cell is composed of only a few respondents or when the cell is dominated by a few companies. Residual disclosure could occur when confidential information can be derived indirectly by piecing together information from different sources or data series.
Data accuracy
While considerable effort is made to ensure high standards throughout all collection and processing operations, the resulting estimates are inevitably subject to a certain degree of error. There are two types of errors in statistical information: sampling and non-sampling. Non-sampling errors are the only type that applies to this program, given that the estimates are based on a census of the population, and not a sample (with the exception of the insurance industry).
Non-sampling errors can arise from a variety of sources and are difficult to measure. Among non-sampling errors are response errors, such as gaps in the information provided by corporations in their returns, and errors in processing, such as miscoding the industry of an enterprise.
Revisions
The most recent annual data in this report are subject to a one-year revision policy. These data may be revised to include amended information or reports from respondents that are received after the end of a collection cycle.
Key indicators
Total assets are the sum total of economic resources over which an enterprise exercises a certain control. They include cash and deposits; accounts receivable and accrued revenue; inventories; investments and accounts with parents, subsidiaries and affiliates; portfolio investments; loans given to other enterprises; and capital assets.
Operating revenues include revenues from the sales of goods and services; rental and operating lease revenues; and revenues from commissions, franchise fees, and royalties.
Operating expenses include the cost of goods and services used as inputs into production; wages and salaries; employer portion of employee benefits; indirect taxes; and depreciation, amortization and depletion of buildings, machinery and natural resources.
Operating profits are the difference between operating revenues and operating expenses.
Key concepts
Statistical Enterprise
An enterprise is a single corporation or a family of corporations under common ownership and/or control, for which consolidated financial statements are produced.
Controlling Interest
The controlling interest of an enterprise, referred to as the enterprise head, may be an individual, a related group, a corporation or a government. Controlled corporations are called subsidiaries. A multi-corporation enterprise contains one or more subsidiaries. A corporation that is not controlled by another corporation and that does not control another corporation is called a single-corporation enterprise.
Corporate control
Corporate control is the potential to affect the corporate strategic decision-making process of the board of directors of a corporation. In many cases where control is said to exist, corporations may still function with considerable autonomy in their financial, marketing, or operational activities. Majority control is exercised by a person, group or corporation if more than 50% of the voting equity of a corporation is held, directly or indirectly, other than by way of security only, by or for the benefit of that person, group or corporation. In the case of irrevocable options or the right to acquire shares, the calculation of the voting equity is made as if all options have been exercised.
Effective control of a corporation implies control of the corporation through methods other than ownership of the majority voting equity of the corporation. The assessment of effective control may be based on any of the following rules:
- If more than 50% of the directors of a corporation are also directors of a trust or an estate, or are also members of a related group, then the corporation is effectively controlled by that trust, estate or related group.
- If more than 50% of the directors of a corporation are also directors of another corporation, and if there is a significant voting ownership of the corporation by that other corporation, then the corporation is effectively controlled by that other corporation.
- If control is acknowledged by a corporation, then the acknowledgement is sufficient to assign effective control.
Country of control
In most cases of foreign control, the country of control is the country of residence of the ultimate foreign controlling parent corporation, family, trust, estate or related group. Each subsidiary within the global enterprise is assigned the same country of control as its parent. A company whose voting rights are equally owned by Canadian-controlled and foreign-controlled corporations, is Canadian-controlled. If two foreign-controlled corporations jointly own an equal amount of the voting rights of a Canadian resident company, the country of control is assigned according to an order of precedence based on their aggregate level of foreign control in Canada. For example, United States takes precedence over all other foreign countries because it has the highest level of aggregate foreign control in Canada.
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