CONFIDENTIAL

IFRS TECHNICAL UPDATE February 2012

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New Consolidation Model – IFRS10 – Consolidation – IFRS11 – Joint Arrangements – IFRS12 – Disclosure of Interests in Other Entities

IFRS9 – Financial Instruments IFRS13 – Fair Value IAS19R – Employee Future Benefits Sector Updates

– Extractive Industries – Investment Funds

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TOPICS

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IAS1 amendment Upcoming 2012 Standards

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TOPICS

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3 related standards issued as part of the new model – IFRS 10 – Consolidation – IFRS 11 – Joint Arrangements – IFRS 12 – Disclosure of Interests in Other Entities

Establishes a new control model for all entities Accounting for entities with joint control is also defined (proportionate consolidation is eliminated) All disclosures relating to subsidiaries, joint arrangements, associates, and structured entities are centralized

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NEW CONSOLIDATION MODEL

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Significantly more judgement is required to apply the new standards IFRS 10 does not change how to consolidate an entity. It changes which entities need to be consolidated Control exists where an investor:

– has rights to variable returns – power over the investee – ability to use this power to impact returns

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IFRS 10 – CONSOLIDATION

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Variable returns are returns that are not fixed and have the potential to vary as a result of the performance of an investee

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IFRS 10 - VARIABLE RETURNS

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An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities Examples of relevant activities:

– Funding decisions – Establishing operating and capital policies – Appointment of key management – Management of assets – Development of new processes or assets

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IFRS 10 – POWER

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Purpose and design of the entity – Will help define the relevant activities – Evaluation of alternate arrangements that potentially supersede voting rights

Potential Voting Rights – Evaluation on a diluted and non-diluted basis – Investor must demonstrate the practical ability to exercise right

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IFRS 10 – ADDITIONAL FACTORS

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Special relationships between investor and investee

– economic dependence – guarantees – licensing arrangements – dependant on key management personnel of investor

– key management personnel are current or former employees of investor

– significant portion of investee’s activities are conducted on behalf of investor

– disproportionate relationship between voting rights and returns

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IFRS 10 – ADDITIONAL FACTORS

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Protective rights – Those that apply only in exceptional circumstances or relate to fundamental changes in the investee

Investors with decision making rights – Principal vs. Agent

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IFRS 10 – ADDITIONAL FACTORS

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A fund manager establishes, markets and manages a fund that provides investment opportunities to a number of investors. The fund manager has wide decision-making discretion. The fund manager receives a market-based fee for its services equal to 1 per cent of assets under management and 20 per cent of all the fund's profits if a specified profit level is achieved. The investors can remove the fund manager by a simple majority vote, but only for breach of contract. The fund manager owns 20% of the fund.

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IFRS 10 – CASE

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Scenario 1: Majority of the voting rights but no power – Investor owns 60% of ABC Co. – Company is in administration – Investor has no power of relevant activities

Scenario 2: Power without a majority of the voting rights

– Contractual arrangements with other investors – Large number of insignificant investors

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IFRS 10 – SCENARIOS UNDER VOTING RIGHT MODEL

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Uniform Accounting Policies – For consolidation purposes, all members of a group must have the same accounting policies for similar items

Reporting Periods – The reporting period of the parent and sub must be aligned

– If different, the sub must prepare stub period statements, unless impracticable

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IFRS 10 – OTHER CONSOLIDATION ISSUES

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Non-Controlling Interest – NCI is a separate component of equity –Profit and Loss as well as Other Comprehensive Income allocated to NCI

– If NCI includes cumulative preferred shares, such dividends need to be removed from the parent’s profit, even if undeclared

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IFRS 10 – OTHER CONSOLIDATION ISSUES

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Joint Arrangement – An arrangement of which two or more parties have joint control

Joint Control – contractually agreed sharing of control – decisions on relevant activities require unanimous consent

– not all investors in an arrangement need to indicate control

–there can only be one block of investors with joint control

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IFRS 11 – JOINT ARRANGEMENTS

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Types of Joint Arrangements – Joint Operations – Joint Venture

Joint Operations – Operators have rights to assets and obligations to liabilities

Joint Venture – Venturers have rights to net assets of the joint venture

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IFRS 11 – JOINT ARRANGEMENTS

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Structured without a separate vehicle – Joint operations

Structured using a separate vehicle

– Joint operations or Joint venture Legal form Contractual terms Other facts and circumstances

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IFRS 11 – JOINT OPERATIONS VS. JOINT VENTURE

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Joint Ventures – Equity method (IAS 28)

Joint Operations

– its assets and liabilities – its share of jointly owned assets and liabilities – its revenue and expenses – its share of joint revenues and expenses

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IFRS 11 – ACCOUNTING FOR JOINT ARRANGEMENTS

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Key objectives of the standard:

– To provide information to users of a company on the key judgements and assumptions made in arriving to conclusions on its interests in other entities

– To provide information on structured entities not consolidated

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IFRS 12 – DISCLOSURE OF INTERESTS IN OTHER ENTITIES

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Structured Entity

– An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.

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IFRS 12 – DISCLOSURE OF INTERESTS IN OTHER ENTITIES

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Information on key judgements and assumptions made in the determination of the following:

– determination of control, joint control or significant influence

– type of joint arrangement

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IFRS 12 – SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS

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Information to understand composition of the consolidated group If reporting dates are different between parent and sub:

– the different date for the sub – the rationale for using an alternate date

Significant restrictions on the ability to use the subsidiaries assets or settle liabilities

– include carrying amounts of any such assets or liabilities

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IFRS 12 – INTEREST IN SUBSIDIARIES

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If the subsidiary has NCI: – name of sub and principal place of business – ownership % held by NCI – any differences in voting % and ownership % – income allocated to NCI – cumulative equity allocated to NCI – dividends paid to NCI – summarized financial info the subsidiary’s assets, liabilities and income

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IFRS 12 – INTEREST IN SUBSIDIARIES

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Changes in ownership interest that results in a loss of control

– amount of gain or loss

Changes in ownership interest of a sub that does not result in a loss of control

– impact on equity due to ownership change

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IFRS 12 – INTEREST IN SUBSIDIARIES

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Name of each joint arrangement or associate Nature of activities Principal place of business Ownership interest % (and voting rights % if different) Summarized financial information Fair value, if there is a quoted price Any significant restrictions Commitments

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IFRS 12 – INTEREST IN JOINT ARRANGEMENTS AND ASSOCIATES

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Terms of any contractual arrangements that could result in the company providing additional financial support to the structured entity If financial support is provided during the amount and reasons for Any intention to provide financial support

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IFRS 12 – INTEREST IN CONSOLIDATED STRUCTURED ENTITIES

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Qualitative and quantitative information about its interests in unconsolidated structured entities Carrying amounts of the assets and liabilities recognized in its financial statements relating to its interests Maximum exposure to loss If support is provided beyond contractual amounts:

– reasons for support – type and amount

Current intentions to provide additional support

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IFRS 12 – INTEREST IN UNCONSOLIDATED STRUCTURED ENTITIES

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For entities where we have no interest, but are the sponsors of the entity, we can avoid the detailed risk disclosures, but need to disclose the following:

– how it has determined which structured entities it has sponsored

– income from these entities – carrying amount of any assets transferred to these entities

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IFRS 12 – INTEREST IN UNCONSOLIDATED STRUCTURED ENTITIES

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IFRS 10, 11 and 12 are one suite of standards Need to be adopted together Annual periods beginning on or after 1 January 2013 Early adoption permitted but all 3 standards need to be early adopted at the same time

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CONSOLIDATION MODEL - TRANSITION

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Initial measurement of financial instruments – at fair value with an adjustment for transaction costs

– for FI considered to be fair value through profit and loss (FVTPL), transaction costs are expensed

Subsequent measurement – financial assets: – amortized cost – fair value

Available for sale and Held to Maturity categories no longer exist

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IFRS 9 – FINANCIAL INSTRUMENTS

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Equity Investments – required to be at fair value – gains and losses through net income – can elect to record gains and losses through OCI – no exemption from fair value for unquoted investments

Debt Investments – Measured at FVTPL unless can indicate the following: Business Model Test Cash Flow Characteristics Test

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IFRS 9 – FINANCIAL ASSETS

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Business Model Test – objective of the entity’s business model is to hold the debt investments till contractual maturity for to collect cash flows

Cash Flow Characteristics Test

– contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding

Fair value option – even if the two tests above are met, the entity can elect (irrevocably) to measure at FV

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IFRS 9 – DEBT INVESTMENTS

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Subsequent measurement – amortized cost – fair value (if held for trading) – option to elect at fair value

Fair value option elected – requirement that fair value gains and losses that arise from changes in credit risk be split out from the rest of the fair value change

– the change relating to credit risk is recorded through OCI

– amounts presented in OCI are no longer transferred to profit or loss

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IFRS 9 – FINANCIAL LIABILITIES

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Derivatives – recorded at fair value

Embedded Derivatives – concept removed for financial assets – still applies for financial liabilities

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IFRS 9 – DERIVATIVES

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Definition of Fair Value – The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

Scoped out of IFRS 13 – share based payments – leases – inventory re net realizable value – asset impairments – only where “value in use” is measured

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IFRS 13 – FAIR VALUE

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First, observable market prices for similar items

If market prices are unavailable, move to usage of a valuation technique

– preference to use observable inputs – assumptions used should similar to those used by a market participant if they were valuing the item

Usage of the principal and most advantageous market Highest and best use

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IFRS 13 – FAIR VALUE HIERARCHY

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Characteristics of Market Participants – Independent – Knowledgeable – Able and willing to transact with entity

Entity is not required to identify specific market participants Price used is the exit price

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IFRS 13 – FAIR VALUE

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Bid and Ask Prices – elimination of requirement to use bid prices for assets and ask prices for liabilities

– new requirement is to use the best estimate of market value within the bid-ask spread

Valuation discounts or premiums – blockage discounts are prohibited – control premiums are accepted

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IFRS 13 – FAIR VALUE

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Valuation techniques and inputs used to measure assets and liabilities (both recurring and non-recurring) Effect on income of using Level 3 inputs (for recurring FV measurements only) Fair value hierarchy disclosures (Level 1, 2, 3) carried forward from previous guidance

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IFRS 13 – DISCLOSURES

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Effective for annual periods beginning on or after January 1, 2013

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IFRS 13 – FAIR VALUE

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4 categories of employee future benefits – Short-term employee benefits – Post-employment benefits – Other long-term employee benefits – Termination benefits

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IAS19R – EMPLOYEE FUTURE BENEFITS

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Elimination of deferral approaches on the following: – elimination of the corridor approach for actuarial gains

– elimination of the amortization of past service costs over the average vesting period

Therefore, immediate recognition is now required All actuarial gains or losses will be recorded through OCI All past service costs will be recorded through P&L

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IAS19R – EMPLOYEE FUTURE BENEFITS

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Eliminates the concept of rate of expected return Introduction of the net interest concept

– all interest calculations are made using the same discount rate

– the financing cost will not use the expected return and will flow through the PL

– the return on plan assets will use the interest income based on the discount rate and flow through OCI

Administrative costs – only those that impact plan asset management should be netted against income in OCI

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IAS19R – EMPLOYEE FUTURE BENEFITS

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Pension expense is replaced by Defined Benefit Cost Defined Benefit Cost is comprised of:

– Service costs (current service cost, past service cost, curtailment and settlement amounts)

– Net interest – Remeasurement amounts (actuarial gains and losses)

Service costs and Net Interest = PL Remeasurement amounts = OCI

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IAS19R – EMPLOYEE FUTURE BENEFITS

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Defined Contribution Plans – Clarification that where the employee bears the investment and actuarial risk, the plans would be considered a DC plan

– Liability ceiling

Future Employee Contributions – If mandatory, the present value of future contributions will need to be incorporated into the DBO calculation

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IAS19R – EMPLOYEE FUTURE BENEFITS

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Classification of short-term benefits – IAS19: benefits due to be settled within 12 months

– IAS19R: benefits expected to be wholly settled within 12 months

Termination benefits – must result from an offer from the employer – liability is recognized when can no longer withdraw the offer

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IAS19R – EMPLOYEE FUTURE BENEFITS

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Description of risks the plan exposes the entity to Sensitivity analysis on certain pension assumptions Maturity profile of pension liabilities Funding arrangements

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IAS19R – DISCLOSURES

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No current project update IFRIC 20 issued (Stripping costs in the production phase of a surface mine) Stripping costs can lead to 2 potential benefits:

– removal of waste can provide improved access to reserves or uncover new reserves

– the waste itself may contain a % of ore Effective Date

– annual periods beginning on or after 1 January 2013 (early adoption permitted)

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EXTRACTIVE INDUSTRIES

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If the overburden is itself processed – some of the stripping costs can be allocated to inventory

If the stripping costs lead to additional future benefits from a reserves standpoint

– the stripping costs can be allocated to a non-current asset (“stripping activity asset”)

– will form part of the existing asset – amortized over the life of the specific component of the ore body it relates to

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EXTRACTIVE INDUSTRIES

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OCI – group items that are reclassifiable into income versus those that are not

– applicable to annual periods beginning on or after 1 July 2012

– early adoption permitted

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IAS1 AMENDMENTS

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Canadian adoption deferred to January 1, 2013 IASB has an ongoing project on investment companies

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INVESTMENT COMPANIES AND FUNDS UPDATE

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Conceptual Framework Financial Instruments (2012 ED) Leases (2012 – Re-exposure) Revenue (2012 final) Insurance Contracts (2012 Re-exposure) Investment Entities (2012 ED)

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UPCOMING PROJECTS

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Maruf Raza Collins Barrow Toronto mraza@collinsbarrow.com (647) 727-3685

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CONTACT INFO

IFRS 11 Joint Arrangements | May 2011 | 3

yes

yes

yes

Joint operation

no

no

no

Joint venture

Define type of joint arrangement

in accordance with IFRS 11

Disclosures in accordance with IFRS 12

Disclosures in accordance with IFRS 12

Disclosures in accordance with IFRS 12

Interaction between IFRSs 10, 11, 12 and IAS 28

Control alone?

Consolidation in accordance with IFRS 10

Account for assets, liabilities, revenues and expenses

Account for an investment in accordance with IAS 28

Joint control?

Significant influence?

IFRS 9

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Clarity Defined. TM