Air Canada 2010 Annual Report Download - page 67
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2010 Management’s Discussion and Analysis
67
Accounting Policy Significant Accounting Policy Changes under IFRS and Expected Impact
Provisions and contingent liabilities
(including Asset Retirement Obligations)
Provisions
IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, requires a provision to be recognized
when: there is a present obligation as a result of a past transaction or event; it is probable that an
outflow of resources will be required to settle the obligation; and a reliable estimate can be made of
the obligation. “Probable” in this context means more likely than not. Under IAS 37, there are a number
of different estimation techniques to arrive at the best estimate, including the single most likely
outcome, the weighted average of all possible outcomes or the midpoint where there is a range of
equally possible outcomes.
Asset Retirement Obligations
Measurement of Asset Retirement Obligations under IFRS is based on management’s best estimate of
future cash flows, discounted to present value using a discount rate specific to the liability.
Lease return conditions
Under IFRS, it is expected that a provision will be recorded over the term of the lease for the end of
lease maintenance return condition obligations within the Corporation’s operating leases, offset by
a prepaid maintenance asset to the extent of any related power by the hour maintenance service
agreements or any recoveries under aircraft subleasing arrangements. The provision is recorded using a
discount rate specific to the liability, which approximates the risk free rate over the remaining term of
the lease. Interest accretion on the provision is recorded in other non-operating expense. For aircraft
under operating leases which are subleased to third parties, the provision expense on the income
statement is recorded net of the recovery under the sublease, as applicable.
Policy choices: There are no policy choices available under IFRS.
Differences from existing Canadian GAAP:
Provisions
Under Canadian GAAP, the criterion for recognition in the financial statements is “likely”, which is a
higher threshold than “probable”. Where there is a range of equally possible outcomes, the provision is
recorded at the low point of the range.
Asset Retirement Obligations
Measurement of an Asset Retirement Obligation under Canadian GAAP is based on the fair value of
the obligation (which takes market assumptions into account). Cash flow estimates are discounted to
present value using a credit adjusted discount rate.
Lease return conditions
Maintenance costs for lease return conditions are booked only for short term leases under the
Corporation’s accounting policies under existing Canadian GAAP.