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Management’s Discussion and Analysis of Financial Results 2011
│
Transition to IFRS
We transitioned to IFRS effective January 1, 2011 with the 2010 comparable information restated for IFRS. The adoption of
IFRS has not changed our strategy nor has it impacted our underlying business activities. The following discussion describes
the principal adjustments we made in restating our Canadian GAAP consolidated financial statements to IFRS for the year
ended December 31, 2010 as well as the opening statement of financial position as at January 1, 2010.
Exemptions applied
IFRS 1 contains mandatory and optional exemptions required by publicly accountable enterprises adopting IFRS for the first
time. We assessed each of the mandatory and optional exemptions in detail and concluded there was no impact to the
recognition, measurement, presentation or disclosure of past transactions related to these exemptions.
We applied the optional transitional exemption under IFRS 1 – First-time Adoption of International Financial Reporting
Standards in the preparation of these consolidated financial statements. IFRS 1 provides the option to apply International
Financial Reporting Interpretations Committee (IFRIC) 4 – Determining Whether an Arrangement Contains a Lease, to
arrangements existing at the transition date on the basis of facts and circumstances at that date. The result of this election
allows us to determine whether an arrangement contains a lease at the date of transition based on the facts and
circumstances existing at that date instead of making this determination at the original inception of the arrangement. Based
on the analysis performed, there are no effects to our accounts from the adoption of IFRIC 4.
Transition impacts
IFRS employs a conceptual framework that is similar to Canadian GAAP; however, significant differences exist in certain
matters of recognition, measurement and disclosure. While adoption of IFRS has not changed our actual cash flows, it has
resulted in changes to our reported financial position and results of operations.
Recast information
Since the first IFRS interim condensed consolidated financial statements were reported as at and for the periods ending March
31, 2011 and 2010, we have amended our opening statement of financial position balance for maintenance provisions to
reflect an adjustment to the pre-tax, risk-free discount rate as at January 1, 2010. This adjustment reflects a discount rate
equal to the remaining term until cash flow instead of the full term of the aircraft lease. The resulting effect is an adjustment
of $6.5 million to the opening statement of financial position balances for long-term maintenance provisions, $1.7 million to
deferred income tax and $4.8 million to retained earnings from those amounts reported at March 31, 2011.
Significant IFRS accounting policy differences
IAS 16 – Property, Plant and Equipment
Aircraft are required to have periodic maintenance performed at predetermined time intervals to maintain the integrity and
efficiency of the aircraft and its major components, including the airframe, landing gear, and engines.
(i) Componentization
Canadian GAAP: Maintenance and repair costs for owned aircraft and aircraft under operating leases, including major
overhauls, were charged to expense at the time maintenance was performed.
IFRS: For owned aircraft, each item of property and equipment with a significant cost in relation to the total cost and/or a
different useful life is required to be depreciated separately. The costs of activities that restore the service potential of
airframes, engines and landing gear are considered components of the aircraft and are separately capitalized and amortized
over the period until the next overhaul.
For aircraft under operating leases, where we are required to return the aircraft to the lessor in a specified condition, a
provision is recorded. See discussion under section IAS 37 – Provisions, contingent liabilities and contingent assets for more
information.
Impact: More aircraft components with different useful lives were recognized under IFRS. This resulted in increased
depreciation expense, as certain components have a shorter useful life than under Canadian GAAP. However, this increase is
offset by a decrease in maintenance expense, as the costs to perform major maintenance are now capitalized whereas they
WestJet Annual Report 2011 51