Air Canada 2013 Annual Report Download - page 59
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2013 Management’s Discussion and Analysis
59
13. CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that are most important to the portrayal of Air Canada’s financial condition and
results of operations. They require management's most difficult, subjective or complex judgments, often because of the need
to make estimates about the effect of matters that are inherently uncertain. Actual results could differ from those estimates
under different assumptions or conditions.
Air Canada has identified the following areas that contain critical accounting estimates utilized in the preparation of its
consolidated financial statements.
Employee Future Benefits
Air Canada maintains several defined benefit plans providing pension, other retirement and post-employment benefits to its
employees. The cost and related liabilities of Air Canada’s pensions, other post-retirement and post-employment benefit
programs are determined using actuarial valuations. The actuarial valuations involve assumptions, including discount rates,
future salary increases, mortality rates and future benefit increases. Also, due to the long-term nature of these programs, such
estimates are subject to significant uncertainty.
Assumptions
Management is required to make significant estimates about actuarial and financial assumptions to determine the cost and
related liabilities of Air Canada’s employee future benefits.
Financial Assumptions
Discount Rate
The discount rate used to determine the pension obligation was determined by reference to market interest rates on
corporate bonds rated "AA" or better with cash flows that approximate the timing and amount of expected benefit payments.
Future increases in compensation are based upon the current compensation policies, labour agreements and economic
forecasts.
The significant weighted average assumptions used to determine Air Canada’s accrued benefit obligations and cost are as
follows:
Pension Benefits Other Employee Future Benefits
2013 2012 2013 2012
Discount rate used to determine:
Accrued benefit cost for the year ended December 31 4.30% 5.20% 4.17% 4.90%
Accrued benefit liability as at December 31 4.90% 4.30% 4.80% 4.17%
Rate of future increases in compensation used to
determine:
Accrued benefit cost for the year ended December 31 2.50% 2.50% not applicable not applicable
Accrued benefit obligation as at December 31 2.50% 2.50% not applicable not applicable