Air Canada 2013 Annual Report Download - page 91

2013 Consolidated Financial Statements and Notes
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2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Corporation prepares its financial statements in accordance with generally accepted accounting principles in Canada
(“GAAP”) as set out in the CPA Canada Handbook – Accounting (“CPA Handbook”) which incorporates International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These financial statements were approved for issue by the Board of Directors of the Corporation on February 11, 2014.
These financial statements are based on the accounting policies as described below. These policies have been consistently
applied to all the periods presented, unless otherwise stated.
A) BASIS OF MEASUREMENT
These financial statements have been prepared under the historical cost convention, except for the revaluation of cash, cash
equivalents and short-term investments, restricted cash and derivative instruments which are measured at fair value.
B) PRINCIPLES OF CONSOLIDATION
These financial statements include the accounts of Air Canada and its subsidiaries. Subsidiaries are all entities (including
structured entities) which Air Canada controls. For accounting purposes, control is established by an investor when it is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. All inter-company balances and transactions are eliminated.
Non-controlling interests represent equity interests in subsidiaries owned by outside parties. The share of net assets of
subsidiaries attributable to non-controlling interests is presented as a component of equity.
Structured Entities
The Corporation has aircraft leasing and other agreements with a number of structured entities. Under IFRS 10 Consolidated
Financial Statements, the Corporation controls and consolidates leasing entities covering aircraft (23 as at December 31,
2013), including the structured entity created for the benefit of the Enhanced Equipment Trust Certificates (“EETC”) financing
structure undertaken by Air Canada in 2013 in relation to the acquisition of five Boeing 777 aircraft, four of which were
delivered in 2013. The Corporation has concluded that it controls these entities because the lease or other agreements with
these structured entities give Air Canada the power to control the principal economic decision on lease expiry of whether to
purchase the aircraft and thereby collapse the structured entity.
The Corporation also leases certain aircraft from structured entities where it does not guarantee any portion of the residual
value of the aircraft on lease expiry. In the absence of residual value guarantees, the Corporation’s maximum exposure to loss
from its involvement with these structured entities is limited principally to its lease payments. These entities are not
controlled and are not consolidated by the Corporation.
Impact upon adoption of IFRS 10 – Consolidated Financial Statements
The Corporation adopted IFRS 10 effective January 1, 2013, in accordance with the applicable transitional provisions. IFRS 10
requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. Under previous IFRS, consolidation
was required when an entity had the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. IFRS 10 replaces SIC-12 Consolidation—Special Purpose Entities and parts of IAS 27 Consolidated and
Separate Financial Statements.
The Corporation participates in fuel facilities arrangements operated through fuel facility corporations (the "Fuel Facility
Corporations"), along with other airlines to contract for fuel services at various major Canadian airports. The Fuel Facility
Corporations are entities incorporated under federal or provincial statutes in order to acquire, finance and lease assets used in
connection with the fuelling of aircraft and ground support equipment. The Fuel Facility Corporations operate on a cost
recovery basis.
Under the guidance of SIC Interpretation 12 – Consolidation of Special Purpose Entities which was applicable to periods prior
to January 1, 2013, the Corporation consolidated three of the Fuel Facility Corporations located in Canada. The Corporation
assessed its consolidation conclusions at January 1, 2013 under IFRS 10 and determined that it does not have control over and
should not, consolidate the three Fuel Facility Corporations that were previously consolidated following the guidance in
SIC-12.