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IFRS Adoption Done! What Accounting Issues Should Oil & Gas Companies Focus on Now?

Mark Walsh FCAPrincipal, AcSB Staff

The views expressed in this presentation are those of the presenter,

not necessarily those of the AcSB.

PASC – March 14, 2012

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Objectives

• Understand the new standard setting world

• Are we just “takers” of standards or can we have a significant influence

• How to keep up-to-date

• Overview of changes to IFRSs that companies should be planning to adopt in the next few years

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Some basics about IFRSs in Canada

IFRSs as issued by the IASB

• No modifications or carve-outs

Annual Improvements

• ED issued June 2011, final to be issued Q2, 2012

• ED for next cycle to be issued Q1, 2012

Interpretations – IFRS Interpretations Committee

• No Canadian interpretations

• Don’t forget the NIFRICs

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Standard-setting Process

• Canadian participation• Trustee, Interpretations Committee, IFRS Advisory

Council, Working Groups on leases and employee benefits

• IASB has open process• Board and Interpretations Committee papers on

website• Board and Interpretations Committee meetings

webcast• Public consultations on process and governance, future

work plan and specific projects

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AcSB Interface with IASB

• AcSB staff member assigned for each IASB project• Active interface with IASB project manager• Outreach to Canadian stakeholders

• Respond to all documents for comment

• Facilitate input from Canadian constituents to IASB•User Advisory Council•Round tables (with IASB staff present)•Assist industry groups and others in their communications with IASB• National standard setters meetings

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AcSB Interface with IASB

• Requests for changes made to IASB

• IFRS 1 amendments for oil & gas• Investment companies• Rate regulated entities• IFRIC e.g. deferred stripping, ARO discount rate

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IFRSs - What’s happening?

• Several IFRSs recently issued with effective dates 2013

• Remaining joint projects with FASB

• Revenue, leases, financial instruments, insurance

• Agenda Consultation

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New IFRSs Issued in 2011

• Consolidated financial statements • Joint arrangements• Disclosures of interests in other entities

• Fair value measurement• Post-employment benefits• FSP: Other comprehensive income

• IFRIC 20 – Stripping costs

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Consolidated Financial Statements

Objective: Define a single control model to determine what is consolidated

Control of an entity requires:• Power over the entity• Exposure to variable returns from involvement• Ability to use its power to affect returns

Principles-based:• Numerous factors to consider besides voting rights• Some situations will requires judgment

Effective annual periods beginning on/ after Jan 1 2013

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Joint Arrangements

Objective: Accounting for arrangements controlled jointly should reflect rights and obligations

Joint operation – joint control of assets & liabilities • Include share of assets & liabilities

Joint venture – joint control of net assets• Most jointly controlled enterprises – but not all! • Use equity method

Think about how you structure a joint arrangement

Effective annual periods beginning on/ after Jan 1 2013

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Disclosures of Interests in Other Entities

Objective: Provide information for users to evaluate:• Nature and risks of interests in other entities• Effect on financial position, performance, cash flow

Disclosures are extensive e.g.

• Details of subsidiaries, joint arrangements, significantly influenced investees incl. summarized financial information for material entities

• Restrictions on access to cash

Effective annual periods beginning on/ after Jan 1 2013

Adopt when adopt IFRS 10 and IFRS 11

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Fair Value Measurement

Objective: Guidance on HOW to measure fair value• Does not affect when FV is used• 3 level hierarchy consistent with Section 3862• More extensive guidance• More disclosure

Effective annual periods beginning on/ after Jan 1 2013

Early adopt?

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Employee Benefits – defined benefit plans

Objective: Get the balance sheet right!• Full obligation on balance sheet• Defer and amortize eliminated• Expense consists of service cost, financing and

remeasurement• Remeasurement in OCI - without recycling• Disclosures

Effective annual periods beginning on/after Jan 1, 2013

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Stripping Costs: IFRIC20

• Scope is a surface mine•Capitalize stripping costs that benefit future periods as a cost of the portion of the ore that the stripping activity helps access•Stripping costs that benefit current production are an inventory cost• Largely consistent with EIC-160

Effective annual periods beginning on/after Jan 1, 2013

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Revenue

Exposure Draft • Single approach to be applied across industries• Recognize revenue

• When each performance obligation is satisfied• At amount of consideration received or expected to be

received

Implications• Delay revenue recognition for many arrangements

• Service and construction contracts, multideliverables?• More estimates• Disclosures

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Revenue

How will this affect you? •Implications for oil & gas companies of new IFRS not expected to be large• Effective date not set – no earlier than Jan 1 2015• Re-exposure draft comment deadline March 13, 2012• Look at it to make sure no surprises!

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Leases

Exposure Draft • Recognize all assets and liability under lease• Measure at PV of lease payments

Post ED redeliberations• Proposals significantly modified

• Lease period• Contingent rents• Short term leases• Transition

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Financial Instruments

• IFRS 9 contains recognition and measurement of financial assets and liabilities

• Coming soon – additional sections of IFRS 9 on:• Classification and measurement – ED Q3• Impairment – re-expose Q3• Hedge accounting – review draft Q1• Macro hedging – exposure draft

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IASB’s Future Agenda

• IASB issued a request for input on post 2011 IASB work plan

• 247 written responses received

• Round tables in Toronto, London and Norwalk in March 2012

• Agenda consultation is input to IASB

• IASB will make final decisions

• Likely not until later this year

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IASB’s Future Agenda

• What did the IASB hear?

• Finish 4 outstanding projects

• Zero to very few new standards projects in next few years

• Rate regulated?

• Conceptual Framework is high priority

• Focus on maintaining existing standards – interpretations and post-implementation reviews

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Whither extractive?

• Remains a “hole” in IFRSs- Will this be an issue for US adoption?

• Would an extractive project be joint with FASB?

• Should it be part of an intangible assets project?- DP respondents queried why different to R&D- Would an Intangibles IFRS address extractive issues?- Would an intangibles IFRS require expensing of research costs? Exploration costs?

• Part of post 2011 agenda consultation

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Oil & Gas Task Force on IFRSs

• Created by CAPP, SEPAC and CICA

• Objective: share views on IFRS issues relevant to junior oil & gas companies• Output is non-authoritative – not authorized by AcSB

• Viewpoints issued on• Significant IFRS Application Issues• Functional Currency• Flow-through Shares• Farm-out Arrangements

• http://www.cica.ca/ifrs/ifrs-transition-resources/item2492.aspx#oil

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Key Messages

• Adopting IFRSs is not the end of change

• Be aware of implications for your company of new IFRSs

• Importance of understanding the new standard-setting process and participating in it

• AcSB is actively engaged in working with the IASB so that IFRSs meet Canadian financial reporting needs

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Mark.Walsh@cica.ca