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65
2014 Management’s Discussion and Analysis
14. ACCOUNTING POLICIES
The following is an overview of accounting standard
changes that Air Canada will be required to adopt
in future years. Air Canada continues to evaluate
the impact of these standards on its consolidated
financial statements.
IFRS 15 – REVENUE FROM CONTRACTS
WITH CUSTOMERS
IFRS 15 replaces IAS 18 Revenue and related
interpretations. The core principle of the new standard
is to recognize revenue to depict the transfer of goods
or services to customers in amounts that reflect the
consideration to which the company expects to be
entitled in exchange for those goods or services. The
new standard is intended to enhance disclosures
about revenue, provide more comprehensive
guidance for transactions that were not previously
addressed and improve guidance for multiple-element
arrangements. IFRS 15 is effective for annual periods
beginning on January 1, 2017, with early adoption
permitted.
IFRS 9 – FINANCIAL INSTRUMENTS
IFRS 9 introduces new requirements for the
classification and measurement of financial assets.
IFRS 9 requires all recognized financial assets that
are within the scope of IAS 39 Financial Instruments:
Recognition and Measurement to be measured at
amortized cost or fair value in subsequent accounting
periods following initial recognition. Specifically,
financial assets that are held within a business model
whose objective is to collect the contractual cash
flows, and that have contractual cash flows that
are solely payments of principal and interest on the
principal outstanding are generally measured at
amortized cost at the end of subsequent accounting
periods. All other financial assets including equity
investments are measured at their fair values at the
end of subsequent accounting periods.
Requirements for classification and measurement of
financial liabilities were added in October 2010 and
they largely carried forward existing requirements
in IAS 39, Financial Instruments – Recognition and
Measurement, except that fair value changes due
to credit risk for liabilities designated at fair value
through profit and loss would generally be recorded in
other comprehensive income.
IFRS 9 was amended in November 2013, to (i) include
guidance on hedge accounting, and (ii) allow entities
to early adopt the requirement to recognize changes
in fair value attributable to changes in an entity’s own
credit risk, from financial liabilities designated under
the fair value option, in Other comprehensive income,
without having to adopt the remainder of IFRS 9.
The final version of IFRS 9 was issued in July 2014 and
includes (i) a third measurement category for financial
assets – fair value through other comprehensive
income; (ii) a single, forward-looking expected loss
impairment model, and (iii) a mandatory effective
date for IFRS 9 of annual periods beginning on or after
January 1, 2018, with early adoption permitted.
GUARANTEES
Performance Obligations Relating to Aircraft
Leasing Agreements
With respect to 12 aircraft leases, the difference
between the reduced rents as a result of the
implementation of the Plan of Reorganization,
Compromise and Arrangement under the
Companies’ Creditors Arrangement Act (“CCAA”) on
September 30, 2004 and amounts which would have
been due under the original lease contracts will be
forgiven at the expiry date of the leases if no material
default has occurred by such date. In the event of a
material default which does not include any cross
defaults to other unrelated agreements (including
unrelated agreements with the counterparties to
these aircraft leases), this difference plus interest
will become due and payable and all future rent
will be based on the original contracted rates. Rent
expense is being recorded on the renegotiated lease
agreements and any additional liability would be
recorded only at the time management believes the
amount is likely to be incurred.
Guarantees in Fuel Facilities Arrangements
Air Canada participates in fuel facility arrangements
operated through eight Fuel Facility Corporations,
along with other airlines that contract for fuel services
at various major airports in Canada. The Fuel Facility
Corporations operate on a cost recovery basis. The
purpose of the Fuel Facility Corporations is to own
and finance the system that distributes the fuel to
the contracting airlines, including leasing the land
rights under the land leases. The aggregate debt of
15. OFF-BALANCE SHEET ARRANGEMENTS