Sun Life 2015 Annual Report Download - page 106

In determining the impact of taxes, we are required to comply with Canadian accepted actuarial practice and IFRS. CALM requires that
all projected cash flows associated with insurance contract liabilities, including income taxes, be included in the determination of
insurance contract liabilities. The insurance contract liabilities are therefore determined including all policy-related income tax effects on
a discounted basis, and then adjusted for any related deferred income tax assets and liabilities held in accordance with IFRS. The net
result of this adjustment is to leave the discounting effect of the deferred income taxes associated with temporary differences on policy-
related tax items in the insurance contract liabilities.
Pension Plans and Other Post-Retirement Benefits
For defined benefit plans, the present value of the defined benefit obligation is calculated by independent actuaries using the projected
unit credit method, and actuarial assumptions that represent best estimates of future variables that will affect the ultimate cost of these
obligations. The discount rate used is based on market yields of high-quality corporate bonds that are denominated in the same
currency in which the benefits will be paid, and that have terms to maturity approximating the terms of obligations. Plan assets are
measured at fair value and are held in separate trustee administered funds. The difference between the fair value of the plan assets
and the present value of the defined benefit obligation is recognized on the Consolidated Statements of Financial Position as an asset
or liability.
Costs charged to our Consolidated Statements of Operations include current service cost, any past service costs, any gains or losses
from curtailments or settlements, and interest on the net defined benefit liability (asset). Remeasurement of the net defined benefit
liability (asset) includes the impact of changes to the actuarial assumption underlying the liability calculations, liability experience gains
or losses, the difference between the return on plan assets and the amount included in the interest on the net defined benefit liability
(asset), is reflected immediately in OCI. The calculation of the defined benefit expenses and obligations requires judgment as the
recognition is dependent on various actuarial assumptions such as discount rates, health care cost trend rates and projected
compensation increases. These key assumptions are discussed in Note 26.
Dividends
Dividends payable to holders of shares of SLF Inc. are recognized in the period in which they are authorized or approved. Dividends
that have been reinvested in additional common shares under the Dividend Reinvestment and Share Purchase Plan (“DRIP”) are also
reflected as dividends within retained earnings. Where SLF Inc. has issued common shares from treasury under the DRIP, the
additional shares have been reflected in common shares.
Premium and Fee Income Recognition
Gross premiums for all types of insurance contracts excluding segregated fund contracts are generally recognized as revenue when
due.
Fee income includes fund management and other asset-based fees, commissions from intermediary activities, and fees on service
contracts and is recognized when services are rendered.
Share-Based Payments
Stock options of SLF Inc. granted to employees are accounted for as equity-settled share-based payment transactions. The total
compensation expense for stock options is computed based on the fair value of the stock option at the date of grant and the estimated
number of options expected to vest at the end of the vesting period. The expense is recognized over the vesting period as
compensation expense in Operating expenses in our Consolidated Statements of Operations, with an offset to contributed surplus in
our Consolidated Statements of Changes in Equity. When options are exercised, new common shares are issued, contributed surplus
is reversed and the common shares issued are credited to common shares in our Consolidated Statements of Changes in Equity.
Other share-based payment plans based on the value of SLF Inc.’s common shares are accounted for as cash-settled share-based
payment transactions. The total liabilities for these plans are computed based on the estimated number of awards expected to vest at
the end of the vesting period. The liabilities are recomputed at the end of each reporting period and are measured at the fair value of
the award at that reporting date. The liabilities are accrued and expensed on a straight-line basis over the vesting periods. The
liabilities are settled in cash at the end of the vesting period.
Share-based payment awards within MFS Investment Management (“MFS”) which are based on their own shares, are accounted for as
cash-settled share-based payment awards. The vested and unvested awards, as well as the shares that have been issued under these
plans, are recognized as liabilities because the subsidiary has a practice of purchasing the issued shares from employees after a
specified holding period. The total liabilities for these plans are computed based on the estimated number of awards expected to vest
at the end of the vesting period. The liabilities are accrued over the vesting period and are measured at fair value at each reporting
period with the change in fair value recognized as compensation expense in Operating expenses in our Consolidated Statements of
Operations. The liabilities are settled in cash when the shares are purchased from the employees.
Basic and Diluted Earnings Per Share (“EPS”)
Basic EPS is calculated by dividing the common shareholders’ net income by the weighted average number of common shares issued
and outstanding.
Diluted EPS adjusts common shareholders’ net income and the weighted average number of common shares for the effects of all
dilutive potential common shares under the assumption that convertible instruments are converted and that outstanding options are
exercised. Diluted EPS is calculated by dividing the adjusted common shareholders’ net income by the adjusted weighted average
number of common shares outstanding. For convertible instruments, common shareholders’ net income is increased by the after-tax
expense on the convertible instrument while the weighted average common shares are increased by the number of common shares
that would be issued at conversion. For stock options, it is assumed that the proceeds from the exercise of options whose exercise
price is less than the average market price of common shares during the period are used to repurchase common shares at the average
market price for the period. The difference between the number of common shares issued for the exercise of the dilutive options and
the number of common shares that would have been repurchased at the average market price of the common shares during the period
is adjusted to the weighted average number of common shares outstanding.
104 Sun Life Financial Inc. Annual Report 2015 Notes to Consolidated Financial Statements