Air Canada 2011 Annual Report Download - page 57

2011 Management’s Discussion and Analysis
57
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 to enhance the disclosures for all employee benefits. Actuarial gains and losses are renamed
“remeasurements” and will be recognized immediately in other comprehensive income (“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. 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. The
amendments to IAS 19 will also impact the presentation of pension expense as benefit cost will be split between (i) the cost
of benefits accrued in the current period (service cost) and benefit changes (past-service cost, settlements and curtailments);
and (ii) finance expense or income.
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 presentation of pension expense and 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.
Amendments to IAS 1 – Financial Statement Presentation
The amendments to IAS 1 require entities to separate items presented in OCI into two groups based on whether or not they
may be recycled to profit or loss in the future. Items that will not be recycled, such as remeasurements resulting from the
amendments to IAS 19, will be presented separately from items that may be recycled in the future, such as deferred gains and
losses on cash flow hedges. Entities that choose to present OCI items before tax will be required to show the amount of tax
related to the two groups separately.
Amendments to Other Standards
In addition, there have been amendments to existing standards, including IFRS 7 Financial Instruments: Disclosure, IAS 27,
Separate Financial Statements, IAS 28, Investments in Associates and Joint Ventures, and IAS 32, Financial Instruments:
Presentation. IFRS 7 amendments require disclosure about the effects of offsetting financial assets and financial liabilities and
related arrangements on an entity’s financial position. IAS 27 addresses accounting for subsidiaries, jointly controlled entities
and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and
to address the changes in IFRS 10 – 13. IAS 32 addresses inconsistencies when applying the offsetting requirements, and is
effective for annual periods beginning on or after January 1, 2014.
Carbon Emissions Accounting Policy
The European Union passed legislation for an Emissions Trading System which will include carbon emissions from aviation
commencing in January 2012, including for flights operated between Canada and countries within the European Union. The
legislation will require aircraft operators to monitor and report on fuel use and emissions data.
Air Canada will adopt the terms of the Emissions Trading Scheme (“ETS”) commencing in January 2012. Effective January 1,
2012 Air Canada intends to adopt a cost of settlement accounting model whereby emission allowances granted by the
European Union are recorded as an intangible asset and are measured at fair value at the date of initial recognition with an
offset to deferred income as a government grant. Purchased emission allowances will be recorded at cost and also recognized
as an intangible asset. The intangible assets will subsequently be measured using the cost model of IAS 38, Intangible Assets
and will be de-recognized at the end of each emission compliance period as an offset to the Corporation’s provision for
emission obligations. The intangible assets will be subject to Air Canada’s impairment of long-lived assets accounting policy.
The government grant, measured based on the fair value of emission allowances at the date of initial recognition, will be
amortized as an offset to other operating expenses over the emission compliance period based on volume of emissions
generated during the period compared to the expected volume of emissions during the emission compliance period.
A provision to deliver emissions allowances will be recognized, with an offset to other operating expense, as carbon emissions
are made using a weighted average cost model per unit of emission expected to be incurred for the emission compliance
period as a whole. This provision will be presented net of emission allowances on Air Canada’s consolidated statement of
financial position.
Based on current trading prices of European Union CO2 allowances (EUAs), Air Canada expects to incur operating costs of no more
than $4 million in 2012. This amount is subject to change based on the change in the market price of EUAs. Based on current
operating plans, no specific European Union ETS surcharges will be implemented, rather a fuel surcharge strategy will be employed.