INDEPENDENT AUDITOR'S REPORT

To the Council Members of District of Sparwood

Report on the Financial Statements

Opinion

We have audited the financial statements of District of Sparwood (the District), which comprise thestatement of financial position as at December 31, 2019, and the statements of operations andaccumulated surplus, changes in net financial assets and cash flows for the year then ended, and notesto the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financialposition of the District as at December 31, 2019, and the results of its operations and cash flows for theyear then ended in accordance with Canadian public sector accounting standards (PSAS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Ourresponsibilities under those standards are further described in the Auditor's Responsibilities for the Auditof the Financial Statements section of our report. We are independent of the District in accordance withethical requirements that are relevant to our audit of the financial statements in Canada, and we havefulfilled our other ethical responsibilities in accordance with these requirements. We believe that the auditevidence 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 inaccordance with PSAS, and for such internal control as management determines is necessary to enablethe preparation of financial statements that are free from material misstatement, whether due to fraud orerror.

In preparing the financial statements, management is responsible for assessing the District's ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the District or to ceaseoperations, or has no realistic alternative but to do so.

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

(continues)

824 - 1st Street South, Cranbrook, BC V1C 7H5Phone 250-426-8277 Fax 250-426-4109Email mail@cgafirm.com Web www.cgafirm.com

David M.W. Adams, BSc, CPA, CGA, CFP*James R. Wooley, BPE, CPA, CGA*

Brian F. Adams, FCPA, FCGA* (Associate)

*Denotes Professional Corporation

Independent Auditor's Report to the Council Members of District of Sparwood (continued)

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 arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit conducted in accordance with Canadian generally accepted auditing standards will always detect amaterial misstatement when it exists. Misstatements can arise from fraud or error and are consideredmaterial if, individually or in the aggregate, they could reasonably be expected to influence the economicdecisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due tofraud or error, design and perform audit procedures responsive to those risks, and obtain auditevidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detectinga material misstatement resulting from fraud is higher than for one resulting from error, as fraud mayinvolve collusion, forgery, intentional omissions, misrepresentations, or the override of internalcontrol.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the District’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accountingand, based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the District’s ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause the District to cease to continue asa going concern.

Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures, and whether the financial statements represent the underlying transactions and eventsin a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.

Cranbrook, BC Adams WooleyFebruary 27, 2020 Chartered Professional Accountants

3

Budget Total Total

2019 2019 2018

Revenues

Net taxation and grants-in-lieu (Note 13) 7,689,658$ 7,695,125$ 7,379,438$

Sale of services, user rates, rentals (Note 14) 2,896,120 3,042,872 2,948,925

Interest 454,395 507,199 436,115

Government transfers (Note 15) 754,973 1,101,343 5,831,239

Donations and other revenue 28,000 4,281,756 1,303,005

11,823,146 16,628,295 17,898,722

- 0 (0)

Expenses

General government 1,815,596 1,490,393 1,379,249

Protective services 1,137,081 909,893 921,174

Transportation 2,070,086 1,926,772 1,829,102

Solid waste management 308,930 317,365 659,500

Public health 124,802 68,503 99,057

Environmental development 1,327,389 844,172 872,143

Recreation and cultural services 2,709,026 2,667,656 2,406,356

Water services 779,854 615,515 578,501

Sewer services 664,219 753,956 620,770

Loss (gain) on sale of resale land - (55,461) (11,201)

Loss (gain) on disposal of tangible capital assets (Note 12) - 22,972 (24,830)

Amortization 2,500,000 2,382,080 2,433,294

13,436,983 11,943,816 11,763,115

Annual Surplus (deficit) (1,613,837) 4,684,479 6,135,607

Accumulated Surplus, beginning of year 93,651,184 93,651,184 87,515,577

Accumulated Surplus, end of year (Note 10) 92,037,347$ 98,335,663$ 93,651,184$

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District of Sparwood

Statement of Operations and Accumulated Surplus

Year Ended December 31, 2019

The accompanying notes are an integral part of these financial statements 5

$6.7 M $7.3 M $7.4 M $7.7 M

$145.0 K $426.0 K $1.3 M

$4.3 M

$3.2 M $3.0 M

$2.9 M

$3.0 M

$1.1 M

$1.7 M

$5.8 M

$1.1 M

$237.3 K

$230.6 K

$436.1 K

$507.2 K Return on investments

Transfers from othergovernments

Sale of services

Other revenue

Net taxation and grants-in-lieu

$(2,000,000)

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

2016 2017 2018 2019

$2.4 M $2.4 M $2.4 M $2.7 M

$2.5 M $2.5 M $2.4 M $2.4 M

$1.5 M $1.6 M $1.8 M $1.9 M $1.3 M $1.2 M $1.4 M $1.5 M $791.1 K $847.6 K $921.2 K

$909.9 K $1.1 M $857.3 K $872.1 K

$844.2 K $622.2 K $578.8 K $620.8 K

$754.0 K $619.9 K $686.1 K $578.5 K

$615.5 K $391.3 K $402.8 K $659.5 K

$317.4 K $101.2 K

$98.1 K

$99.1 K $68.5 K

OPERATING EXPENSESLoss on write down of mortgage

Gain / (loss) on sale of resale land

Gain / (loss) on disposal of capital assets

Public health

Solid waste management

Water services

Sewer services

Environmental development

Protective services

General government

Transportation

Amortization

Recreation and cultural

2019 2018

Financial Assets

Cash and cash equivalents (Note 2) 19,187,924$ 18,492,751$

Accounts receivable (Note 3) 951,783 2,331,502

Loans receivable (Note 4) 157,036 242,289

Land held for resale 1,233,398 1,292,198

Municipal Finance Authority debt reserve deposits (Note 5) 60,210 57,587

21,590,351 22,416,327

Liabilities

Accounts payable and accrued liabilities (Note 6) 1,469,685 2,271,652

Municipal Finance Authority debt reserve deposits (Note 5) 60,210 57,587

Deferred revenue (Note 7) 1,631,409 1,969,366

Callable debt (Note 8) 138,965 234,463

Long term debt (Note 9) 4,203,646 4,349,717

7,503,915 8,882,785

Net Financial Assets 14,086,436 13,533,542

Non-Financial Assets

Prepaid expenses 144,796 162,145

Tangible capital assets (Schedule 1) 84,104,431 79,955,497

84,249,227 80,117,642

Accumulated Surplus (Note 10) 98,335,663$ 93,651,184$

0.45 -

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Councillor

Councillor

District of Sparwood

Statement of Financial Position

Year Ended December 31, 2019

The accompanying notes are an integral part of these financial statements 4

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

2016 2017 2018 2019

$19.5 M $23.1 M

$18.5 M $19.2 M

$1.3 M

$1.3 M

$1.3 M $1.2 M $744.2 K

$1.3 M

$2.3 M $951.8 K $426.8 K

$337.5 K

$242.3 K $157.0 K

ASSETS

Other financial assets

Loans receivable

Accounts receivable

Land for resale

Cash and short-terminvestments

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

2016 2017 2018 2019

$13.0 M $14.8 M

$12.0 M $12.4 M

$6.5 M

$8.3 M

$6.5 M $6.8 M

CASH

Unrestricted

Restricted

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

2016 2017 2018 2019

$4.2 M $4.9 M $5.0 M $4.2 M

$1.2 M $1.7 M $2.0 M

$2.5 M $1.0 M

$1.2 M $1.4 M $1.7 M $1.5 M

$1.7 M $1.5 M $1.5 M

$3.9 M

$4.3 M

$1.1 M $1.1 M

$367.1 K

$415.0 K

$469.3 K $531.1 K $160.3 K $352.4 K

RESERVE FUNDS

Parks acquisition

Recreation and Cultural

Michel Creek Road

Land sales

Sewer system

Waterworks

Repaving

Capital works, Machinery andEquip.

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

2016 2017 2018 2019

$127.6 K

$724.3 K

$1.9 M

$536.6 K $334.6 K

$308.3 K

$171.6 K

$172.7 K $249.5 K

$256.7 K

$164.0 K

$154.2 K $32.5 K

$38.5 K

$107.9 K

$88.2 K

ACCOUNTS RECEIVABLE

Other governments

Utilities

Taxes

Trade receivables andother

$60,000,000

$65,000,000

$70,000,000

$75,000,000

$80,000,000

$85,000,000

2016 2017 2018 2019

$73.3 M $70.9 M

$80.0 M

$84.1 M $332.9 K

$338.2 K

$162.1 K

$144.8 K

NON-FINANCIAL ASSETS

Prepaid expenses

Tangible capital assets

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

$90,000,000

2016 2017 2018 2019

$48.8 M $49.1 M $46.7 M

$60.6 M

$12.3 M $12.0 M $12.1 M

$11.8 M $5.9 M $3.8 M

$15.1 M

$4.4 M

$3.2 M $3.0 M

$2.9 M $4.2 M

$3.2 M $3.1 M

$3.1 M $3.1 M

PHYSICAL ASSETS

Land

Equipment

Capital work-in-progress

Buildings

Engineeringstructures

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

2016 2017 2018 2019

$5.0 M $4.8 M $4.6 M $4.3 M

$1.7 M

$3.6 M

$2.0 M $1.6 M

$1.6 M

$1.4 M

$2.3 M

$1.5 M

LIABILITIES

Accounts payable andaccrued liabilities

Deferred revenue

Borrowing

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

2016 2017 2018 2019

$68.2 M $66.1 M $75.4 M $79.8 M

$13.1 M $14.8 M

$12.1 M $12.4 M $4.5 M $5.1 M

$4.8 M $4.8 M

$1.6 M $1.5 M

$1.4 M $1.3 M

FUND BALANCES AND EQUITY IN TANGIBLE CAPITAL ASSETS

Equity in financialassets

Operating fundsurplus

Statutory reservefund

Equity in tangiblecapital assets