Real Estate Council of Ontario Notes to Financial Statements Year ended December 31, 2017 The Real Estate Council of Ontario (“RECO”) is a not- for-profit organization, incorporated by letters patent under the Canada Corporations Act on January 24, 1997. On July 8, 2014, a Certificate of Continuance under the Canada Not-for-Profit Corporations Act was issued to RECO. RECO is exempt from tax under the Income Tax Act (Canada). On May 5, 1997, RECO received delegated responsibility to administer the Real Estate and Business Brokers Act (the “Act”). RECO’s mandate is to protect consumers and to administer the regulatory requirements of Ontario’s real estate profession. On March 31, 2006, the Real Estate and Business Brokers Act, 2002 (“REBBA 2002”) was proclaimed. Consumer deposit insurance, errors and omissions insurance and commission protection insurance are mandatory under REBBA 2002. Payments required under REBBA 2002 are designated to three funds: the Insurance Premium Fund, the Program Stability Fund and the Insurance Administration Fund. The Insurance Premium Fund is a restricted fund that is used to hold the insurance premiums that will be remitted to the insurer. The Program Stability Fund is a restricted fund that may be used to offset future increases in the premiums charged by the insurer. This fund may also be used to reduce the present level of premiums. The Insurance Administration Fund is a fund used to pay the administrative costs associated with the operation of the program. On May 19, 2016, the Board of Directors approved the creation of an internally restricted operating reserve through an initial transfer of $2 million from the Unrestricted Accumulated Fund Balance. The purpose of the Internally Restricted Operating Reserve Fund is to cover unforeseen operating shortfalls. Additions to or drawings from the Internally Restricted Operating Reserve are at the discretion of the Board. 1/ Significant accounting policies A/ BASIS OF PREPARATION The financial statements have been prepared in accordance with Canadian accounting standards for not-for-profit organizations (“ASNPO”) as issued by the Canadian Accounting Standards Board. B/ REVENUE RECOGNITION RECO follows the deferral method of accounting for revenue. RECO derives its revenue primarily from the fees charged to register as a real estate salesperson, a real estate broker, and a real estate brokerage, fees charged to review applications, fees charged for Mandatory Continuing Education, amounts receivable under the Education Services Agreement with the Ontario Real Estate Association (“OREA”), and fees charged for the administration of the insurance program. Registration proceeds are for a two-year period. Revenue is recognized evenly over this two-year period to match the period in which services are to be rendered. Amounts related to future years are recorded as deferred revenue. Fees charged to review applications and for Mandatory Continuing Education are recognized as they are earned. Amounts received under the amended Education Services Agreement are recognized as they are earned. One-time amounts received under the preceding Education Services Agreement were recognized evenly over the period of the agreement. Details related to the amended and preceding agreements are set out in note 8. Insurance proceeds are for the one-year period of the insurance policy, which runs from September 1 of the current year to August 31 of the following year. Amounts related to the following year are recorded as deferred revenue. Other amounts receivable are recognized in the year received. C/ FINANCIAL INSTRUMENTS Financial instruments are recorded at fair value on initial recognition. Freestanding derivative instruments that are not in a qualifying hedging relationship and equity instruments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. RECO has not elected to carry any such financial instruments at fair value. 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. INDEPENDENT AUDITORS' REPORT/RECO 2017 ANNUAL REPORT /57