Air Canada 2012 Annual Report Download - page 61

2012 Management’s Discussion and Analysis
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IFRS 11 – Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures
will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share
of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to
proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint
Ventures, and SIC-13, Jointly Controlled Entities-Non-monetary Contributions by Venturers.
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special
purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces
significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in
other entities.
IFRS 13 – Fair Value Measurement
Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair
value measurements. IFRS 13 is a more comprehensive standard for fair value measurement and disclosure requirements for
use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or
paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes
disclosures about fair value measurement.
Amendments to IAS 19 – Employee Benefits
The amendments to IAS 19 make significant changes to the recognition and measurement of defined benefit pension expense
and termination benefits, and enhance the disclosures for employee benefits. Actuarial gains and losses are renamed
‘remeasurements’ and will be recognized immediately in OCI. Remeasurements recognized in OCI will not be recycled through
profit or loss in subsequent periods. The amendments also accelerate the recognition of past service costs whereby they are
recognized in the period of a plan amendment, irrespective of whether the benefits have vested. The annual expense for a
funded benefit plan will be computed based on the application of the discount rate to the net defined benefit asset or liability,
including interest on any liability in respect of minimum funding requirements.
A number of other amendments have been made to recognition, measurement and classification including
those re-defining short-term and other long-term benefits guidance on the treatment of taxes related to benefit plans,
guidance on risk/cost sharing factors and expanded disclosures.
Air Canada’s current accounting policy for employee benefits for the immediate recognition of actuarial gains and losses in
OCI is consistent with the requirements in the new standard, however, additional disclosures and the computation of annual
expense based on the application of the discount rate to the net defined benefit asset or liability will be required in relation to
the revised standard, including interest on any liability in respect of minimum funding requirements.
Upon retrospective application of the new standard on January 1, 2013, Air Canada expects restated net income for 2012 to
be lower than originally reported under the current accounting standard. The decrease is expected to arise from net financing
expense relating to the pension benefit liability which will be calculated using the discount rate used to value the benefit
obligation. As the discount rate is lower than the expected rate of return on plan assets, consistent with Air Canada’s current
view and long-term historical experience, financing expense will increase as the interest attributable to plan assets will decline.
The difference, if any, between the actual rate of return on plan assets and the discount rate, would be included in OCI as a
remeasurement. Under the new standard, the interest cost on the additional minimum funding liability will be recorded in Air
Canada’s consolidation statement of operations, whereas it is reported in OCI under the current standard. The impact of this
change is estimated to decrease restated net income for 2012 in the amount of $102 million and increase OCI in the same
amount, with no net impact on comprehensive income. This element, which was identified upon further evaluation of the
standard, was not included in the expected impact previously provided in section 11 of Air Canada’s Third Quarter 2012
MD&A.
This impact is not expected to be indicative of 2013 expense as the additional minimum liability, which forms the basis of this
element of interest cost, has been reduced from $1,965 million at December 31, 2011 to $335 million at December 31, 2012.