Air Canada 2011 Annual Report Download - page 146

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2011 Air Canada Annual Report
146
vi) Provisions and contingent liabilities (including Asset Retirement Provisions)
Provisions
Accounting policy differences
IFRS 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 IFRS, 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.
Under Canadian GAAP, the criterion for recognition of a provision 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 Provisions
Accounting policy differences
Measurement of Asset Retirement Provisions under IFRS is based on the best estimate of the expenditure required to settle
the present obligation at each reporting period discounted to present value using a discount rate specific to the liability.
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 risk adjusted
discount rate.
Lease return conditions
Maintenance costs for lease return conditions are recorded only for short term operating leases under the Corporation’s
accounting policies under Canadian GAAP.
Under IFRS, 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. 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.
Maintenance expense will include the accrual for maintenance provisions associated with lease return conditions, while other
non-operating expense will include the accretion of the obligation over the life of the lease. Actual maintenance costs related
to the end of lease return conditions will be charged against the provision. Any difference in the actual maintenance cost
incurred and the amount of the provision is recorded in maintenance expense in the period.
Impact
The impact arising from the change is summarized as follows:
Consolidated Statement of Financial Position
– At January 1, 2010, Property & Equipment increased by $7, Other long-term liabilities increased by $12 and the Deficit
was increased by $5 relating to asset retirement provisions associated with the various property leases and the fuel
facilities arrangements.
– At January 1, 2010, Deposits and other assets increased by $77 relating to prepayments under power by the hour
arrangements, Other long-term liabilities increased by $447 relating to provisions for lease return conditions and the
deficit is increased by $370.