First-time Adoption of IFRSs

Transcription

1 Chapter 20 First-time Adptin f IFRSs TABLE OF CONTENTS Standards Update 20-6 Overview f Key Requirements 20-8 Impact n Financial Statements Analysis f Relevant Issues Objective Scpe Amendment t IFRS Definitins First IFRSs Financial Statements Opening IFRSs Statement f Financial Psitin Accunting Plicies Mandatry Exceptins t Retrspective Applicatin and Optinal Exemptins frm the Requirements f IFRSs Mandatry Exceptins Estimates Derecgnitin f Financial Assets and Financial Liabilities Hedge Accunting Nn-Cntrlling Interests Classificatin and Measurement f Financial Assets Embedded Derivatives Gvernment Lans Optinal Exemptins Business Cmbinatins Share-Based Payment Transactins Insurance Cntracts Fair Value r Revaluatin as Deemed Cst Deemed Cst f Oil and Gas Assets Financial Reprting in Canada under IFRSs 20-1

2 CHAPTER 20 Deemed Cst fr Operatins Subject t Rate Regulatin Leases Cumulative Translatin Differences Investments in Subsidiaries, Jint Ventures and Assciates Assets and Liabilities f Subsidiaries, Assciates and Jint Ventures Cmpund Financial Instruments Designatin f Previusly Recgnized Financial Instruments Fair Value Measurement f Financial Assets r Financial Liabilities at Initial Recgnitin Decmmissining Liabilities Included in the Cst f Prperty, Plant and Equipment Financial Assets r Intangible Assets frm Service Cncessin Arrangements Brrwing Csts Transfers f Assets frm Custmers Extinguishing Financial Liabilities with Equity Instruments Severe Hyperinflatin Jint Arrangements Stripping Csts in the Prductin Phase f a Surface Mine Shrt-Term Optinal Exemptins Exemptin frm the Requirement t Restate Cmparative Infrmatin fr IFRS Emplyee Benefits Disclsure Interim Financial Reprts First Quarter Secnd Quarter Third Quarter Furth Quarter Amendments Effective after Adptin Future Develpments Cmprehensive Examples Cmprehensive Example 20(A) BPO Prperties Ltd Cmprehensive Example 20(B) Canadian Tire Crpratin, Limited Planning fr Implementatin Adapting Infrmatin Systems Canadian Securities Administratrs Interim Financial Reprts MD&A Disclsures befre Changever Financial Reprting in Canada under IFRSs

3 FIRST-TIME ADOPTION OF IFRSs LIST OF EXAMPLES Example 20(1) Applicatin f Mandatry Exceptin fr Estimates Example 20(2) Applicatin f Mandatry Exceptin fr Derecgnitin f Financial Assets and Financial Liabilities Example 20(3) Applicatin f Mandatry Exceptin fr Hedge Accunting Example 20(4) Applicatin f Optinal Exemptin fr Business Cmbinatins Example 20(5) Applicatin f Optinal Exemptin fr Share-Based Payment Transactins Example 20(6) Applicatin f Optinal Exemptin t Use Fair Value as Deemed Cst Example 20(7) Assets and Liabilities f Subsidiaries Example 20(8) Applicatin f Optinal Exemptin fr Cmpund Financial Instruments Example 20(9) Applicatin f Optinal Exemptin fr Decmmissining Liabilities LIST OF EXTRACTS Extract 20(1) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs Extract 20(2) Recnciliatin f equity (cmparative year) Extract 20(3) Recnciliatin f equity (date f transitin t IFRSs) Extract 20(4) Recnciliatin f ttal cmprehensive lss (cmparative year) Extract 20(5) Explanatin f adjustments t cash flws (cmparative year) Extract 20(6) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs Extract 20(7) Recnciliatin f equity (cmparative interim perid) Extract 20(8) Recnciliatin f equity (cmparative year) Extract 20(9) Recnciliatin f equity (date f transitin t IFRSs) Extract 20(10) Recnciliatin f ttal cmprehensive incme (cmparative interim perid and cmparative year) Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs Extract 20(12) Recnciliatin f equity (cmparative interim perid) Financial Reprting in Canada under IFRSs 20-3

4 CHAPTER 20 Extract 20(13) Recnciliatin f ttal cmprehensive incme (cmparative current perid and cmparative year-t-date perid) Extract 20(14) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs Extract 20(15) Recnciliatin f equity (cmparative interim perid) Extract 20(16) Recnciliatin f ttal cmprehensive lss (cmparative current perid and cmparative year-t-date perid) Extract 20(17) Annual MD&A disclsures (ne year befre changever) Extract 20(18) Interim MD&A disclsures (after changever) Extracts 20(A1 A15) Cmprehensive Example BPO Prperties Ltd Extracts 20(B1 B14) Cmprehensive Example Canadian Tire Crpratin, Limited LIST OF FIGURES Figure 20(1) Cmplexities f Applying IFRS Figure 20(2) Key Requirements f IFRS Figure 20(3) Date f Transitin t IFRSs Figure 20(4) Mandatry Exceptin fr Estimates Figure 20(5) Mandatry Exceptin fr Hedge Accunting LIST OF TABLES Table 20(1) Overview f Key Requirements f IFRS Table 20(2) Mandatry Exceptins and Optinal Exemptins Table 20(3) Mandatry Exceptin fr Estimates Table 20(4) Mandatry Exceptin fr Derecgnitin f Financial Assets and Financial Liabilities Table 20(5) Mandatry Exceptin fr Hedge Accunting Table 20(6) Mandatry Exceptins t the Requirements Applicable t Nn-Cntrlling Interests Table 20(7) Cnsequences f Nt Applying IFRS 3 t a Pre-Transitin Date Business Cmbinatin Table 20(8) Optinal Exemptins fr Share-Based Payment Transactins Financial Reprting in Canada under IFRSs

5 FIRST-TIME ADOPTION OF IFRSs Table 20(9) Optinal Exemptin fr Insurance Cntracts Table 20(10) Optinal Exemptins t Use Fair Value r Revaluatin as Deemed Cst Table 20(11) Optinal Exemptins fr Oil and Gas Assets Table 20(12) Optinal Exemptin fr Operatins Subject t Rate Regulatin Table 20(13) Optinal Exemptins fr Leases Table 20(14) Optinal Exemptins fr Cumulative Translatin Differences Table 20(15) Optinal Exemptin fr Investments in Subsidiaries, Jint Ventures and Assciates Table 20(16) Optinal Exemptin fr a Subsidiary That Becmes a First-Time Adpter Later Than Its Parent Table 20(17) Optinal Exemptin fr Cmpund Financial Instruments Table 20(18) Optinal Exemptins fr the Designatin f Previusly Recgnized Financial Instruments Table 20(19) Optinal Exemptin fr Decmmissining Liabilities Table 20(20) Optinal Exemptin fr Brrwing Csts Table 20(21) Optinal Exemptin fr Transfers f Assets frm Custmers Table 20(22) Optinal Exemptin fr Debt fr Equity Swaps Financial Reprting in Canada under IFRSs 20-5

6 CHAPTER 20 STANDARDS DISCUSSED IN THIS CHAPTER IFRS 1 First-Time Adptin f Internatinal Financial Reprting Standards IFRS 2 Share-Based Payment IFRS 3 Business Cmbinatins IFRS 4 Insurance Cntracts IFRS 6 Explratin fr and Evaluatin f Mineral Resurces IFRS 9 Financial Instruments IFRS 10 Cnslidated Financial Statements IFRS 11 Jint Arrangements IFRS 13 Fair Value Measurement IAS 16 Prperty, Plant and Equipment IAS 19 Emplyee Benefits IAS 23 Brrwing Csts IAS 27 Cnslidated and Separate Financial Statements IAS 27 (Amended) Separate Financial Statements IAS 34 Interim Financial Reprting IAS 36 Impairment f Assets IAS 37 Prvisins, Cntingent Liabilities and Cntingent Assets IAS 39 Financial Instruments: Recgnitin and Measurement IFRIC 4 Determining Whether an Arrangement Cntains a Lease IFRIC 12 Service Cncessin Arrangements IFRIC 18 Transfers f Assets frm Custmers IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 20 Stripping Csts in the Prductin Phase f a Surface Mine STANDARDS UPDATE As we g t press, IFRSs cntinue t change and evlve. The 2013 editin f Financial Reprting in Canada under IFRSs reflects amendments, including thse that affect ther IFRSs, revisins and new IFRSs effective January 1, 2013, as they were issued n r befre June 1, This publicatin des nt reflect amendments, revisins and new IFRSs with an effective date after January 1, 2013, except fr IFRS 9 Financial Instruments, which has an applicatin date f January 1, The fllwing standards, as available at June 1, 2012, have been integrated int the chapter cntent as summarized belw: 1. IFRS 1 Amendment: Severe Hyperinflatin Optinal Exemptin In December 2010, the IASB issued an amendment t IFRS 1, adding an ptinal exemptin fr entities whse functinal currency was, r is, that f a hyperinflatinary ecnmy. The amendment utlines the characteristics f severe hyperinflatin and hw t determine the functinal currency nrmalizatin date. Where the transitin date t IFRSs is n r after this nrmalizatin date, the entity may elect t measure all assets and liabilities held befre the functinal currency nrmalizatin date at fair value n the date f transitin t IFRSs. This will then becme the assets and liabilities deemed cst n transitin. The amendment is effective fr annual perids beginning n r after July 1, 2011, with earlier applicatin permitted, alng with disclsure f this fact. 2. IFRS 1 and IFRS 13 Fair Value Measurement In May 2011, the IASB issued IFRS 13 Fair Value Measurement. The definitin f fair value was replaced in IFRS 1 t that included in IFRS 13: Fair value is the price that wuld be expected t be received r paid t transfer a liability in an rderly transactin between market participants at the measurement date. As a result, any references t fair value used in IFRS 1, which Financial Reprting in Canada under IFRSs

7 FIRST-TIME ADOPTION OF IFRSs are numerus, were als amended. These amendments are t be applied fr annual perids beginning n r after January 1, 2013, with earlier applicatin permitted, alng with disclsure f this fact. 3. IFRS 1 and IFRS 11 Jint Arrangements In May 2011, the IASB issued IFRS 11 Jint Arrangements, amending the definitins f jint arrangements and their accunting treatment. Again, this affects many references in IFRS 1 related t reprting and measuring investments in jint arrangements. One new ptinal exemptin is t allw entities t use the transitin prvisins f IFRS 11 n transitin t IFRSs, except that any investment must als be tested fr impairment n transitin when the entity is changing frm prprtinate cnslidatin t the equity methd fr investments in jint ventures. These amendments must be applied fr annual perids beginning n r after January 1, 2013, althugh earlier adptin is permitted. If an entity adpts IFRS 11 early, it must disclse this fact and als apply IFRS 10 Cnslidated Financial Statements and IFRS 12 Disclsure f Interests in Other Entities at the same time. 4. IFRS 1 and IFRS 10 Cnslidated Financial Statements In May 2011, the IASB issued IFRS 10 Cnslidated Financial Statements, which affects references t business cmbinatins and cnslidated statements in IFRS 1. These amendments must be applied fr annual perids beginning n r after January 1, 2013, with earlier adptin permitted. If an entity adpts IFRS 10 early, disclsure f this fact is required, and it must als apply IFRS 11, IFRS 12 Disclsure f Interests in Other Entities and IAS 27 Separate Financial Statements and IAS 28 (as amended in 2011) at the same time. 5. IFRS 1 and IAS 1 Amendment In June 2011, the IASB issued an amendment t IAS 1 Presentatin f Financial Statements, revising the presentatin f items in ther cmprehensive incme (OCI). This requires entities t categrize the items in OCI t be either items that will be reclassified t prfit r lss r items that will nt be reclassified t prfit r lss. This amendment is effective fr annual perids beginning n r after July 1, 2012, with earlier applicatin permitted, alng with nte disclsure f this fact. 6. IFRS 1 and IAS 19 (Revised) Emplyee Benefits In June 2011, the IASB amended the reprting and measuring f defined benefit plans under IAS 19 (Revised) Emplyee Benefits. This resulted in deleting a previus ptinal exemptin that dealt with the treatment f accumulated actuarial gains and lsses at the date f transitin. These amendments g int effect when the amended IAS 19 is applied fr annual perids beginning n r after January 1, 2013, with earlier applicatin permitted. If an entity applies this amendment earlier, this fact is disclsed. In additin, Appendix E f IFRS 1, which deals with shrt-term ptinal exemptins, was changed t allw entities t use the riginal transitinal prvisins f IAS 19 fr a limited time. 7. IFRS 1 and IFRIC 20 Stripping Csts in the Prductin Phase f a Surface Mine In Octber 2011, the IASB issued IFRIC 20 Stripping Csts in the Prductin Phase f a Surface Mine, which amended IFRS 1. A new ptinal exemptin was added that allws a firsttime adpter t apply the transitinal prvisins set ut in IFRIC 20 t the later date f January 1, 2013 r the entity s transitin date t IFRSs. 8. IFRS 1 and Gvernment Lans In March 2012, the IASB issued an amendment t IFRS 1 that added a new exceptin t retrspective applicatin f IFRSs. This amendment requires entities t classify all gvernment lans received as a financial liability r an equity instrument in accrdance with IAS 32 Financial Instruments: Presentatin and a first-time adpter must als apply the requirements f IFRS 9 Financial Instruments and IAS 20 Accunting fr Gvernment Grants and Disclsure f Gvernment Assistance prspectively t gvernment lans existing at the date f 2013 Financial Reprting in Canada under IFRSs 20-7

8 CHAPTER 20 transitin t IFRSs. IFRS 9 and IAS 20 may, hwever, be applied retrspectively prir t the date f transitin, prvided all f the infrmatin is available at the time the lan was initially reprted. 9. IFRS 1 Amendments Annual Imprvements t IFRSs Cycle In May 2012, the IASB clarified that in cases where an entity had applied IFRSs in a previus reprting perid, but nt in the mst recent financial statements, the entity must either apply IFRS 1 r apply all IFRSs retrspectively in accrdance with IAS 8 as if the entity had never stpped applying IFRSs. In this case, additinal disclsure is required detailing the reasn fr stpping and the reasn fr resuming the applicatin f IFRSs. If the entity decides nt t apply IFRS 1, an explanatin fr the reasns fr electing t apply IFRSs as if it had never stpped applying IFRSs is als required. The IASB als clarified that when an entity chses t apply the exemptin with respect t brrwing csts, the brrwing csts that were capitalized in accrdance with the previus GAAP are carried frward t the pening statement n transitin. Brrwing csts incurred after the date f transitin that relate t qualifying assets under cnstructin at the date f transitin are accunted fr in accrdance with IAS 23 Brrwing Csts. An entity may als chse t apply IAS 23 frm a date earlier than its transitin date. Bth f these amendments are effective fr annual perids beginning n r after January 1, 2013 and earlier adptin is permitted with disclsure f this fact. It shuld be nted that extracts included in this chapter were selected frm varius financial reprts that were available prir t April 1, 2012, and therefre d nt reflect current standards if they have changed. OVERVIEW OF KEY REQUIREMENTS The IASB develped IFRS 1 t prvide guidance fr entities adpting IFRSs fr the first time by an explicit and unreserved statement f cmpliance with IFRSs. IFRS 1 requires entities preparing their first IFRS financial statements t present an pening IFRS statement f financial psitin as at the transitin date t IFRSs (i.e., the starting pint fr their accunting in accrdance with IFRSs). In general, IFRS 1 requires entities t apply, retrspectively, all IFRS standards effective at the end f their first IFRS reprting perid. This means that the pening IFRS statement f financial psitin and the cmparative financial statements must be prepared in accrdance with the recgnitin, measurement, presentatin and disclsure requirements f these standards. IFRS 1 des, hwever, grant limited exemptins frm these requirements in specified areas where the cst f cmplying with the standards wuld likely exceed the benefits t users f financial statements. Fr example, entities may elect: nt t apply IFRS 3 retrspectively t pre-transitin date business cmbinatins because the retrspective applicatin f IFRS 3 culd mean having t recreate data that was nt captured at the date f a past business cmbinatin Financial Reprting in Canada under IFRSs

9 FIRST-TIME ADOPTION OF IFRSs The fllwing table summarizes the key requirements f IFRS 1. TABLE 20(1) OVERVIEW OF KEY REQUIREMENTS OF IFRS 1 KEY REQUIREMENTS OF IFRS 1 Objective The bjective f IFRS 1 is t ensure that an entity s first IFRSs financial statements, and its interim financial reprts fr part f the perid cvered by thse financial statements, cntain high quality infrmatin that: is transparent fr users and cmparable ver all perids presented; prvides a suitable starting pint fr accunting in accrdance with IFRSs; and can be generated at a cst that des nt exceed the benefits. First IFRS Financial Statements The first IFRS financial statements must include at least: fr the reprting year and the cmparative year: a statement f financial psitin; a statement f prfit r lss and ther cmprehensive incme; separate statements f prfit r lss, if presented; a statement f cash flws; a statement f changes in equity; ntes t the financial statements; at the date f transitin t IFRSs: an pening IFRS statement f financial psitin; ntes t the financial statements. Accunting Plicies An entity must retrspectively apply each IFRS effective at the end f its first IFRSs reprting perid, unless there is a mandatry exceptin r an ptinal exemptin. Mandatry Exceptins Mandatry exceptins prhibit the retrspective applicatin f sme aspects f IFRSs related t: estimates; derecgnitin f financial assets and financial liabilities; hedge accunting; nn-cntrlling interests (NCI); classificatin and measurement f financial assets; embedded derivatives; and gvernment lans. Fr example, an entity is prhibited frm applying hindsight t estimates in accrdance with IFRSs at the date f transitin t IFRSs (r at the end f a cmparative perid presented in its first IFRS financial statements) Financial Reprting in Canada under IFRSs 20-9

10 CHAPTER 20 KEY REQUIREMENTS OF IFRS 1 Optinal Exemptins Optinal exemptins grant relief frm sme requirements f IFRSs related t: business cmbinatins; share-based payment transactins; insurance cntracts; deemed cst f PPE, using fair value r previus revaluatin; deemed cst, using fair value r previus revaluatin, fr investment prperty and sme intangible assets; deemed cst f il and gas assets; deemed cst fr peratins subject t rate regulatin; leases; cumulative translatin differences; investments in subsidiaries, jint ventures and assciates; assets and liabilities f subsidiaries, jint ventures and assciates; cmpund financial instruments; designatin f previusly recgnized financial instruments; fair value measurement f financial assets r financial liabilities at initial recgnitin; decmmissining liabilities included in the cst f prperty, plant and equipment; financial assets r intangible assets frm service cncessin arrangements; brrwing csts; transfers f assets frm custmers; extinguishing financial liabilities with equity instruments; severe hyperinflatin; jint arrangements; and stripping csts in the prductin phase f a surface mine. Fr example, an entity may elect: nt t apply IFRS 3 retrspectively t pre-transitin date business cmbinatins; t measure an item f prperty, plant and equipment at the date f transitin t IFRSs at its fair value and use that fair value as its deemed cst at that date; and nt t reassess a determinatin f whether an arrangement cntained a lease when certain criteria are met. Optinal Exemptins Shrt-Term Exemptins These shrt-term ptinal exemptins grant relief frm sme cmparative disclsure requirements f IFRSs as fllws: When an entity adpts IFRS 9 befre January 1, 2012, there is relief frm sme f the cmparative disclsures required under IFRS 7. When an entity adpts the amendments t IAS 19 (Revised) befre January 1, 2014, there is sme relief frm the cmparative disclsures required fr the sensitivity f the defined benefit bligatin. Optinal exemptins are prhibited frm being applied by analgy t ther items Financial Reprting in Canada under IFRSs

11 FIRST-TIME ADOPTION OF IFRSs KEY REQUIREMENTS OF IFRS 1 Disclsure in First IFRS Financial Statements An entity must explain hw the transitin frm previus GAAP t IFRSs affected its reprted financial psitin, financial perfrmance and cash flws. Therefre, an entity s first IFRS financial statements must include: recnciliatins f equity in accrdance with previus GAAP t equity in accrdance with IFRSs as at: the date f transitin t IFRSs, and the end f the latest perid presented in the entity s mst recent annual financial statements in accrdance with previus GAAP; a recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs fr the latest perid in the entity s mst recent annual financial statements (if the entity did nt reprt ttal cmprehensive incme, the recnciliatin wuld start with prfit r lss under the previus GAAP); disclsures n: the designatin f financial assets r financial liabilities, the use f fair value as deemed cst, the use f deemed cst fr investments in subsidiaries, jint ventures and assciates, the use f deemed cst fr il and gas assets, the use f deemed cst fr peratins subject t rate regulatin, and use f deemed cst after severe hyperinflatin. Interim Financial Reprts An interim financial reprt prepared in accrdance with IAS 34 fr part f the perid cvered by an entity s first IFRSs financial statements must include at least: fr the reprting quarter: a statement f financial psitin, a statement f prfit r lss and ther cmprehensive incme (fr the current perid and the year-t-date perid) and a separate statement f prfit r lss if using the tw-statement frmat, a statement f changes in equity (fr the year-t-date perid), a statement f cash flws (fr the year-t-date perid), ntes t the financial statements; fr the cmparative quarter: a statement f prfit r lss and ther cmprehensive incme (fr the current perid and the year-t-date perid) and a separate statement f prfit r lss if using the tw-statement frmat (fr the current perid and the year-t-date perid), a statement f changes in equity (fr the year-t-date perid), a statement f cash flws (fr the year-t-date perid), ntes t the financial statements; fr the cmparative year: a statement f financial psitin, ntes t the financial statements Financial Reprting in Canada under IFRSs 20-11

12 CHAPTER 20 KEY REQUIREMENTS OF IFRS 1 Disclsure in Interim Financial Reprts An entity must explain hw the transitin frm previus GAAP t IFRSs affected its reprted financial psitin, financial perfrmance and cash flws. Therefre, an entity s interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include: a recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs as at the end f the cmparable interim perid f the immediately preceding financial year; a recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme (r prfit r lss, if ttal cmprehensive was nt reprted) in accrdance with IFRSs fr the cmparable interim perid (i.e., the cmparable current perid and the cmparable year-t-date perid) f the immediately preceding financial year. When the interim financial reprt is fr the first quarter, it must als include: recnciliatins f equity in accrdance with previus GAAP t equity in accrdance with IFRSs as at: the date f transitin t IFRSs, and the end f the latest perid presented in the entity s mst recent annual financial statements in accrdance with previus GAAP; a recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme (r if nt prvided, the prfit r lss) in accrdance with IFRSs fr the latest perid in the entity s mst recent annual financial statements. The fllwing figure presents the cmplexities f applying IFRS 1. FIGURE 20(1) COMPLEXITIES OF APPLYING IFRS 1 Why is IFRS 1 Difficult t Apply? Unlike mst IFRSs, IFRS 1 is a rules-based standard as it is intended t be applied specifically as written, withut analgy t ther areas r circumstances. IFRS 1 is cntinuusly amended fr: new standards and interpretatins; and amendments t existing standards and interpretatins. The transitinal prvisins in these standards and interpretatins apply t changes in accunting plicies made by a cmpany that already uses IFRSs; they d nt apply t a first-time adpter s transitin t IFRSs Financial Reprting in Canada under IFRSs

13 FIRST-TIME ADOPTION OF IFRSs The fllwing figure presents a summary f the key requirements f IFRS 1. FIGURE 20(2) KEY REQUIREMENTS OF IFRS 1 Nature f Requirements Mandatry Exceptins Optinal Exemptins Disclsure Descriptin f Requirements Mandatry exceptins prhibit retrspective applicatin f IFRSs in sme areas, particularly where retrspective applicatin wuld require judgments by management abut past cnditins after the utcme f a particular transactin is already knwn. Optinal exemptins grant relief frm requirements f IFRSs in specified areas where the cst f cmplying with them is likely t exceed the benefits t users f financial statements. The transitinal prvisins in IFRSs d nt apply t a first-time adpter s transitin t IFRSs, except as specified. Disclsures include recnciliatins between previus GAAP and IFRSs fr certain amunts. IMPACT ON FINANCIAL STATEMENTS On changever t IFRSs, an entity must restate its transitin date statement f financial psitin under IFRSs. As a result, the entity must: recgnize all assets and liabilities required by IFRSs; derecgnize all assets and liabilities nt permitted by IFRSs; classify all assets, liabilities and cmpnents f equity in accrdance with IFRSs; and measure all assets and liabilities in accrdance with IFRSs. Any adjustments resulting frm applying IFRSs instead f previus GAAP in the pening IFRS statement f financial psitin are recgnized directly in retained earnings (r, if apprpriate, anther categry f equity) at the date f transitin t IFRSs. Furthermre, a cmpany adpting IFRSs fr the first time will be required t: explain hw the transitin frm previus GAAP t IFRSs affected its reprted financial psitin, financial perfrmance and cash flws; and present a number f recnciliatins between previus GAAP and IFRSs Financial Reprting in Canada under IFRSs 20-13

14 CHAPTER 20 ANALYSIS OF RELEVANT ISSUES This sectin analyzes all significant issues related t IFRS 1. Issues that are likely t have a significant impact n the majrity f entities adpting IFRSs are cvered in depth. Issues that are less likely t have a significant impact n mst entities are cvered briefly. OBJECTIVE [IFRS 1, para 1] The bjective f IFRS 1 is t ensure that an entity s first IFRSs financial statements, and its interim financial reprts fr part f the perid cvered by thse financial statements, cntain high quality infrmatin that: is transparent fr users and cmparable ver all perids presented; prvides a suitable starting pint fr accunting in accrdance with IFRSs; and can be generated at a cst that des nt exceed the benefits. SCOPE [IFRS 1, paras 2 3] An entity must apply IFRS 1 in: its first IFRS financial statements; and each interim financial reprt that it presents in accrdance with IAS 34 fr part f the perid cvered by its first IFRS financial statements. The first IFRSs financial statements are the first annual financial statements fr the year in which an entity adpts IFRSs, by an explicit and unreserved statement f cmpliance with IFRSs. Financial statements are an entity s first IFRS financial statements if, fr example, the entity presented its mst recent previus financial statements in accrdance with a previus GAAP r prepared a reprting package in accrdance with IFRSs fr cnslidatin purpses withut preparing a cmplete set f financial statements. Amendment t IFRS 1 [IFRS 1, paras 4A 4B, 23A 23B, 39P] In May 2012, the IASB issued an amendment t IFRS 1, clarifying the guidance in situatins where IFRSs have been applied in the past but nt in the mst recent financial statements. Prir t this amendment, IFRS 1 generally prescribed that it can be applied nly nce. Because there may be instances, hwever, where an entity may transitin t IFRSs mre than nce, this amendment pints ut that an entity may chse t apply IFRS 1 when it re-adpts IFRSs. The amendment states that, if the mst recent previus annual financial statements did nt cntain an explicit and unreserved statement f cmpliance with IFRSs, the entity must either apply IFRS 1, r apply all IFRSs retrspectively in accrdance with IAS 8 as if the entity had never stpped applying IFRSs. This amendment must be applied retrspectively in accrdance with IAS 8 fr annual perids beginning n r after January 1, 2013, but earlier applicatin is permitted. If an entity applies that amendment fr an earlier perid, this fact must be disclsed. If an entity des nt elect t apply IFRS 1, it must nevertheless apply sme f the disclsure requirements in IFRS 1 (i.e., paras 23A 23B, see belw) in additin t the disclsure requirements in IAS Financial Reprting in Canada under IFRSs

15 FIRST-TIME ADOPTION OF IFRSs Presentatin and Disclsure [IFRS 1, paras 23A 23B] An entity that applied IFRSs in a previus perid but nt in the mst recent financial statements and is cmpleting a new transitin t IFRSs must disclse the fllwing: the reasn it stpped applying IFRSs; the reasn it is resuming the applicatin f IFRSs; and if it des nt elect t apply IFRS 1, it must explain the reasns fr electing t apply IFRSs as if it had never stpped applying IFRSs. An entity must apply the amendments issued in May 2012 retrspectively in accrdance with IAS 8 fr annual perids beginning n r after January 1, 2013, with earlier applicatin permitted, alng with disclsure f this fact. DEFINITIONS [IFRS 1, Appendix A] Term Date f transitin t IFRSs Opening IFRS statement f financial psitin First IFRS financial statements First IFRS reprting perid First-time adpter Deemed cst Fair value Definitin The beginning f the earliest perid fr which an entity presents full cmparative infrmatin under IFRSs in its first IFRS financial statements. An entity s statement f financial psitin at the date f transitin t IFRSs. This is the starting pint fr its accunting in accrdance with IFRSs. The first annual financial statements in which an entity adpts IFRSs, by an explicit and unreserved statement f cmpliance with IFRSs. The latest reprting perid cvered by an entity s first IFRS financial statements. An entity that presents its first IFRS financial statements. An amunt used as a surrgate fr cst r depreciated cst at a given date. Subsequent depreciatin r amrtizatin assumes that the entity had initially recgnized the asset r liability at the given date and that its cst was equal t the deemed cst. The price that wuld be received t sell an asset r paid t transfer a liability in an rderly transactin between market participants at the measurement date. The definitin f fair value is set ut in IFRS 13 Fair Value Measurement, which is discussed in detail in Chapter 3, Fair Value Measurements and Disclsures Financial Reprting in Canada under IFRSs 20-15

16 CHAPTER 20 FIRST IFRS FINANCIAL STATEMENTS [IFRS 1, paras 21 22] An entity s first IFRSs financial statements must include at least the fllwing (assuming that the cmpany is adpting IFRSs in the fiscal year ended December 31, 20X3 and has a transitin date f January 1, 20X2): Reprting Year Ending December 31, 20X3 Cmparative Year Ending December 31, 20X2 Opening as at January 1, 20X2 Statement f financial psitin Statement f financial psitin Statement f financial psitin Statement f cmprehensive incme Statement f cmprehensive incme Statement f cash flws Statement f cash flws Statement f changes in equity Statement f changes in equity Ntes t the financial statements Ntes t the financial statements Ntes t the financial statements Nte that the dates presented are examples fr an entity with a calendar year end that presents nly ne cmparative perid. An entity that chses t present financial statements cntaining histrical summaries r cmparative infrmatin in accrdance with previus GAAP must: label the previus GAAP infrmatin prminently as nt being prepared in accrdance with IFRSs; and disclse the nature f the main adjustments that wuld make it cmply with IFRSs; these adjustments need nt be quantified. Opening IFRS Statement f Financial Psitin [IFRS 1, paras 6, 10 11] An entity must prepare and present an pening IFRSs statement f financial psitin at the date f transitin t IFRSs, which is the starting pint fr the entity s accunting in accrdance with IFRSs. Therefre, the entity must, in its pening IFRSs statement f financial psitin: recgnize all assets and liabilities required by IFRSs; derecgnize all assets and liabilities nt permitted by IFRSs; classify all assets, liabilities and cmpnents f equity in accrdance with IFRSs; and measure all assets and liabilities in accrdance with IFRSs. Any adjustments resulting frm applying IFRSs instead f previus GAAP in the pening IFRS statement f financial psitin are recgnized directly in retained earnings (r, if apprpriate, anther categry f equity) at the date f transitin t IFRSs Financial Reprting in Canada under IFRSs

17 FIRST-TIME ADOPTION OF IFRSs Date f Transitin t IFRSs [IFRS 1, Appendix A] The date f transitin t IFRSs is the beginning f the earliest perid fr which an entity presents full cmparative infrmatin under IFRSs in its first IFRS financial statements. 1 FIGURE 20(3) DATE OF TRANSITION TO IFRSs Last Canadian GAAP Financial Statements January 1, 2009 December 31, 2009 December 31, January 1, 2010 Date f Transitin t IFRSs Opening IFRS Statement f Financial Psitin December 31, 2010 December 31, 2011 Cmparative Perid (Restated under IFRSs) First IFRS Reprting Perid First IFRS Financial Statements Accunting Plicies [IFRS 1, paras 7 9] An entity must use the same accunting plicies in its pening IFRS statement f financial psitin and thrughut all perids presented in its first IFRS financial statements. 2 Thse accunting plicies must cmply with each IFRSs effective at the end f its first IFRS reprting perid, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Nte that: An entity may apply a new IFRS that is nt yet mandatry if that IFRSs permits early applicatin. The transitinal prvisins in IFRSs d nt apply t a first-time adpter s transitin t IFRSs. 1 The first IFRS financial statements are annual financial statements, nt interim financial reprts. 2 Ibid Financial Reprting in Canada under IFRSs 20-17

18 CHAPTER 20 Mandatry Exceptins t Retrspective Applicatin and Optinal Exemptins frm the Requirements f IFRSs [IFRS 1, para IN5] Mandatry exceptins prhibit the retrspective applicatin f IFRSs in sme areas, particularly where retrspective applicatin culd invlve the use f hindsight. Optinal exemptins grant relief frm the requirements f IFRSs in specified areas where the cst f cmplying with IFRSs wuld likely exceed the benefits t users f financial statements. The fllwing table prvides a summary f mandatry exceptins and ptinal exemptins. TABLE 20(2) MANDATORY EXCEPTIONS AND OPTIONAL EXEMPTIONS Mandatry Exceptins Estimates Derecgnitin f financial assets and financial liabilities Hedge accunting Nn-cntrlling interests Classificatin and measurement f financial assets Embedded derivatives Gvernment lans Optinal Exemptins Business cmbinatins Share-based payment transactins Insurance cntracts Fair value r revaluatin as deemed cst Deemed cst f il and gas assets Deemed cst fr peratins subject t rate regulatin Leases Cumulative translatin differences Investments in subsidiaries, jint ventures and assciates Assets and liabilities f subsidiaries, assciates and jint ventures Cmpund financial instruments Designatin f previusly recgnized financial instruments Fair value measurement f financial assets r financial liabilities at initial recgnitin Decmmissining liabilities included in the cst f prperty, plant and equipment Financial assets r intangible assets frm service cncessin arrangements Brrwing csts Transfers f assets frm custmers Extinguishing financial liabilities with equity instruments Severe hyperinflatin Jint arrangements Stripping csts in the prductin phase fr a surface mine Financial Reprting in Canada under IFRSs

19 FIRST-TIME ADOPTION OF IFRSs In additin, there are tw shrt-term ptinal exemptins related t disclsure f cmparative infrmatin if a first-time adpter adpts IFRS 9 r the amendments f IAS 19 early. If an entity adpted IFRS 9 befre January 1, 2012, there is sme relief frm the requirements f cmparative disclsures required under IFRS 7. If an entity adpted amendments t IAS 19 befre January 1, 2014, the entity des nt have t prvide cmparative disclsures required fr the sensitivity f the defined benefit bligatin. MANDATORY EXCEPTIONS [IFRS 1, para 13] The retrspective applicatin f the fllwing aspects f IFRSs is prhibited. Estimates [IFRS 1, paras 14, 16 17] The fllwing table describes the mandatry exceptin fr estimates and discusses the implicatins f this exceptin. TABLE 20(3) MANDATORY EXCEPTION FOR ESTIMATES Mandatry Exceptin t Retrspective Applicatin An entity is prhibited frm applying hindsight t estimates in accrdance with IFRSs at the date f transitin t IFRSs (r at the end f a cmparative perid presented in its first IFRS financial statements). Therefre, these estimates must: be cnsistent with estimates made fr the same date in accrdance with previus GAAP (after adjustments t reflect any difference in accunting plicies), unless there is bjective evidence that thse estimates were in errr; r reflect cnditins that existed at the date f transitin t IFRSs, if previus GAAP did nt require such estimates at that date. Implicatins Fr example, fr an entity with a calendar year end that presents nly ne cmparative perid and has adpted IFRSs fr 20X3 with a transitin date f January 1, 20X2, this means that: estimates in accrdance with IFRSs at the transitin date must: be cnsistent with estimates made at December 31, 20X1 in accrdance with previus GAAP, r reflect cnditins that existed at December 31, 20X1 if previus GAAP did nt require such estimates at that date; estimates in accrdance with IFRSs at December 31, 20X2 must: be cnsistent with estimates made at December 31, 20X2 in accrdance with previus GAAP, r reflect cnditins that existed at December 31, 20X2 if previus GAAP did nt require such estimates at that date Financial Reprting in Canada under IFRSs 20-19

20 CHAPTER 20 The fllwing diagram illustrates the applicatin f the mandatry exceptin fr estimates. FIGURE 20(4) MANDATORY EXCEPTION FOR ESTIMATES Was the estimate required under Canadian GAAP? [IFRS 1, para 16] Yes N Make an estimate in accrdance with IFRSs that reflects cnditins that existed (at the date t which the estimate relates). [IFRS 1, para 16] Is there bjective evidence that the estimate was in errr? [IFRS 1, para 14] Yes N Is the estimate in accrdance with IFRSs? [IFRS 1, para 14] N Adjust the estimate required under Canadian GAAP t cmply with IFRSs. [IFRS 1, para 14] Yes Use the estimate required under Canadian GAAP. [IFRS 1, para 14] EXAMPLE 20(1) APPLICATION OF MANDATORY EXCEPTION FOR ESTIMATES ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that: ABC Ltd. has recgnized a liability fr litigatin, measured in accrdance with previus GAAP, in its previus GAAP statement f financial psitin as at January 1, 20X2 and December 31, 20X2. ABC Ltd. received new infrmatin abut the litigatin n March 15, 20X3. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2 and in its cmparative statement f financial psitin as at December 31, 20X2, ABC Ltd. must apply the mandatry exceptin fr estimates. Analysis: ABC Ltd. must nt reflect this new infrmatin in its: pening IFRS statement f financial psitin as at January 1, 20X2; and cmparative statement f financial psitin as at December 31, 20X2. Estimates in accrdance with IFRSs at the date f transitin t IFRSs (r at the end f a cmparative perid presented in the first IFRS financial statements) must be cnsistent with estimates made fr the same date in accrdance with previus GAAP, unless there is bjective evidence that thse estimates were in errr Financial Reprting in Canada under IFRSs

21 FIRST-TIME ADOPTION OF IFRSs Derecgnitin f Financial Assets and Financial Liabilities [IFRS 1, paras B2 B3] The fllwing table describes the mandatry exceptin fr the derecgnitin f financial assets and financial liabilities and discusses the implicatins f this exceptin. TABLE 20(4) MANDATORY EXCEPTION FOR DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Mandatry Exceptin t Retrspective Applicatin A first-time adpter must apply the derecgnitin requirements in IAS 39 (r IFRS 9 if adpted) prspectively fr transactins ccurring n r after the date f transitin. Implicatins If a first-time adpter derecgnized nn-derivative financial assets r nn-derivative financial liabilities in accrdance with previus GAAP as a result f a transactin that ccurred befre the date f transitin, it cannt recgnize thse assets and liabilities in accrdance with IFRSs (unless they qualify fr recgnitin as a result f a later transactin r event). Despite this mandatry exceptin, an entity may chse t apply the derecgnitin requirements in IAS 39 (r IFRS 9 if adpted) retrspectively frm a designated date, prvided that the infrmatin needed t apply IAS 39 (r IFRS 9 if adpted) t financial assets and financial liabilities derecgnized as a result f past transactins was btained at the time f initially accunting fr thse transactins. The requirements t derecgnize financial assets and financial liabilities in accrdance with IAS 39 (r IFRS 9 if adpted) are discussed in Chapter 9, Financial Instruments and Hedge Accunting. EXAMPLE 20(2) APPLICATION OF MANDATORY EXCEPTION FOR DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that ABC Ltd. derecgnized a financial asset in accrdance with its previus GAAP n Nvember 23, 20X1 and anther n January 30, 20X2. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. must apply the mandatry exceptin fr the derecgnitin f financial assets and financial liabilities. Analysis: ABC Ltd. des nt recgnize the financial asset that was derecgnized n Nvember 23, 20X1. Hwever, the ther financial asset qualifies fr derecgnitin nly if it meets the derecgnitin criteria f IAS 39 (r IFRS 9 if adpted), since the derecgnitin ccurred after the date f transitin f January 1, 20X2. The derecgnitin requirements in IAS 39 (r IFRS 9 if adpted) must be applied prspectively fr transactins ccurring n r after the date f transitin. Hwever, the derecgnitin requirements in IAS 39 (r IFRS 9 if adpted) may be applied retrspectively frm a designated date, prvided that the infrmatin needed t apply IAS 39 (r IFRS 9 if adpted) t financial assets and financial liabilities derecgnized as a result f past transactins was btained at the time f initially accunting fr thse transactins Financial Reprting in Canada under IFRSs 20-21

22 CHAPTER 20 Hedge Accunting [IFRS 1, paras B4 B6, IG60] The fllwing table describes the mandatry exceptin fr hedge accunting and discusses the implicatins f this exceptin. TABLE 20(5) MANDATORY EXCEPTION FOR HEDGE ACCOUNTING Mandatry Exceptin t Retrspective Applicatin Transactins entered int befre the date f transitin t IFRSs are prhibited frm being retrspectively designated as hedges. Implicatins If, befre the date f transitin t IFRSs, an entity had designated a transactin as a hedge, but the hedge des nt meet the cnditins fr hedge accunting in IAS 39, the entity must apply the requirements f IAS 39 t discntinue hedge accunting. Therefre, the designatin and dcumentatin f a hedge relatinship must be cmpleted n r befre the date f transitin t IFRSs if the hedge relatinship is t qualify fr hedge accunting frm that date. Hedge accunting can be applied prspectively nly frm the date that the hedge relatinship is fully designated and dcumented. Nte that: an entity must nt reflect in its pening IFRS statement f financial psitin a hedging relatinship f a type that des nt qualify fr hedge accunting in accrdance with IAS 39; and at the date f transitin t IFRSs, an entity must measure all derivatives at fair value. The requirements fr hedge accunting in accrdance with IAS 39 are discussed in Chapter 9, Financial Instruments and Hedge Accunting Financial Reprting in Canada under IFRSs

23 FIRST-TIME ADOPTION OF IFRSs The fllwing diagram illustrates the applicatin f the mandatry exceptin fr hedge accunting. FIGURE 20(5) MANDATORY EXCEPTION FOR HEDGE ACCOUNTING Befre the date f transitin t IFRSs, was the transactin designated as a hedge under previus GAAP? [IFRS 1, para B6] Yes Is the hedging relatinship f a type that qualifies fr hedge accunting in accrdance with IAS 39 (r IFRS 9 if adpted)? [IFRS 1, para B5] N N In the pening IFRSs statement f financial psitin: recgnize all assets and liabilities required by IFRSs; derecgnize all assets and liabilities nt permitted by IFRSs; classify all assets, liabilities and cmpnents f equity in accrdance with IFRSs; and measure all assets and liabilities in accrdance with IFRSs (e.g., measure all derivatives at fair value). [IFRS 1, paras 10, B4] Yes Des the hedge meet the cnditins fr hedge accunting in IAS 39 (r IFRS 9 if adpted)? [IFRS 1, para B6] N Apply the requirements t discntinue hedge accunting. [IFRS 1, para B6] Yes Apply hedge accunting prspectively frm the date that the hedge relatinship is fully designated and dcumented. [IFRS 1, para IG60] 2013 Financial Reprting in Canada under IFRSs 20-23

24 CHAPTER 20 Hedge Accunting frm the Date f Transitin t IFRSs An entity with significant hedging activities shuld assess whether its hedges meet the cnditins fr hedge accunting in IAS 39 (r IFRS 9 if adpted) and ensure that the designatin and dcumentatin f hedging relatinships are cmpleted befre the date f transitin t IFRSs if they are t qualify fr hedge accunting frm that date. EXAMPLE 20(3) APPLICATION OF MANDATORY EXCEPTION FOR HEDGE ACCOUNTING ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that: ABC Ltd. did nt designate a transactin entered int n January 16, 20X1 as a hedge. ABC Ltd. designated anther transactin entered int n Nvember 23, 20X1 as a hedge that was allwed under previus GAAP, but will nt be allwed under IFRS. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. must apply the mandatry exceptin fr hedge accunting. Analysis: ABC Ltd. cannt retrspectively designate the transactin entered int n January 16, 20X1 as a hedge because transactins entered int befre the date f transitin t IFRSs must nt be retrspectively designated as hedges. Fr the transactin entered int n Nvember 23, 20X1, ABC Ltd. must cmplete the designatin and dcumentatin f the hedge relatinship n r befre January 1, 20X2 if the hedge relatinship is t qualify fr hedge accunting frm that date. Nn-Cntrlling Interests [IFRS 1, para B7] IAS 27 (r IFRS 10 if adpted) requires that NCI be presented in the cnslidated statement f financial psitin within equity. The requirements f IAS 27 and IFRS 10 applicable t NCI are discussed in Chapter 6, Cnslidated and Separate Financial Statements. The fllwing table describes the mandatry exceptins t the requirements applicable t NCI. TABLE 20(6) MANDATORY EXCEPTIONS TO THE REQUIREMENTS APPLICABLE TO NON-CONTROLLING INTERESTS Mandatry Exceptins t Retrspective Applicatin A first-time adpter must apply the fllwing requirements in IAS 27 (r IFRS 10 if adpted) prspectively frm the date f transitin t IFRSs: the requirement that ttal cmprehensive incme is attributed t the wners f the parent and t the NCI even if this results in the NCI having a deficit balance; the requirements fr accunting fr changes in the parent s wnership interest in a subsidiary that d nt result in a lss f cntrl; and the requirements fr accunting fr a lss f cntrl ver a subsidiary, and the related requirement in IFRS 5 Nn-Current Assets Held fr Sale and Discntinued Operatins, t classify all the assets and liabilities f a subsidiary as held fr sale when an entity is cmmitted t a sale plan invlving lss f cntrl f that subsidiary (and certain ther criteria are met) Financial Reprting in Canada under IFRSs

25 FIRST-TIME ADOPTION OF IFRSs If, hwever, a first-time adpter elects t restate in accrdance with IFRS 3 all pre-transitin date business cmbinatins after a designated date (befre the date f transitin t IFRSs), it must als apply IAS 27 (r IFRS 10, if adpted) frm that date. Classificatin and Measurement f Financial Assets [IFRS 1, para B8] At the date f transitin, an entity will assess if a financial asset meets the criteria in IFRS 9, if adpted, t be classified and measured as amrtized cst based n the facts and circumstances that exist at the date f transitin. (Chapter 9, Financial Instruments and Hedge Accunting, utlines these criteria.) Embedded Derivatives [IFRS 1, para B9] An entity will assess whether an embedded derivative needs t be separated frm its hst by examining the facts and circumstances at the later date f when the entity became party t the cntract and the date f reassessment required under IFRS 9. Gvernment Lans [IFRS 1, paras B10 B12] All gvernment lans will be classified as either financial liabilities r an equity instrument fllwing the requirements f IAS 32 Financial Instruments Presentatin. An entity will fllw the guidance under IFRS 9 and IAS 20 Accunting fr Gvernment Grants and Disclsure f Gvernment Assistance prspectively frm the date f transitin fr gvernment lans existing at the date f transitin and shall nt recgnize the crrespnding benefit f the gvernment lan at a belw-market rate f interest as a gvernment grant. If a first-time adpter did nt, under its previus GAAP, recgnize and measure a gvernment lan at a belw-market rate f interest n a basis cnsistent with IFRS requirements, it shall use its previus GAAP carrying amunt f the lan at the date f transitin t IFRSs as the carrying amunt f the lan in the pening IFRS statement f financial psitin. An entity shall apply IFRS 9 t the measurement f such lans after the date f transitin t IFRSs. An entity may, hwever, apply IFRS 9 and IAS 20 retrspectively t gvernment lans riginating prir t the date f transitin, prvided the infrmatin is available t d s at the time f initially recgnizing the lan. Chapter 9, Financial Instruments and Hedge Accunting, utlines the requirements under IFRS 9 and Chapter 19, Other Specific Tpics, summarizes the requirements under IAS 20. OPTIONAL EXEMPTIONS [IFRS 1, para 18] An entity may elect t use (in any rder) ne r mre f the fllwing ptinal exemptins; it must nt, hwever, apply these ptinal exemptins by analgy t ther items. Business Cmbinatins Optinal Exemptins fr Business Cmbinatins [IFRS 1, paras C1 C5] A first-time adpter may elect: nt t apply IFRS 3 retrspectively t pre-transitin date business cmbinatins; r t restate, in accrdance with IFRS 3, all pre-transitin date business cmbinatins after a designated date (befre the date f transitin t IFRSs) and als apply IAS 27 (r IFRS 10 if adpted) frm that date Financial Reprting in Canada under IFRSs 20-25

26 CHAPTER 20 These ptinal exemptins als apply t pre-transitin date acquisitins f investments in assciates and f interests in jint ventures. If a first-time adpter elects t restate, in accrdance with IFRS 3, all pre-transitin date business cmbinatins after a designated date (befre the date f transitin t IFRSs), it must als restate all pre-transitin date acquisitins f investments in assciates and f interests in jint ventures frm that date. The cnsequences f nt applying IFRS 3 t a pre-transitin date business cmbinatin are as fllws fr that business cmbinatin: TABLE 20(7) CONSEQUENCES OF NOT APPLYING IFRS 3 TO A PRE-TRANSITION DATE BUSINESS COMBINATION Area Affected Classificatin f pretransitin date business cmbinatins Recgnitin f assets acquired and liabilities assumed in pre-transitin date business cmbinatins Measurement f assets acquired and liabilities assumed in pre-transitin date business cmbinatins Implicatins The first-time adpter keeps the same classificatin (i.e., as an acquisitin by the legal acquirer, a reverse acquisitin by the legal acquiree r a pling f interests) fr a pre-transitin date business cmbinatin as in its previus GAAP financial statements. Included in the Opening IFRS Statement f Financial Psitin The first-time adpter recgnizes all its assets and liabilities at the date f transitin t IFRSs that were acquired r assumed in a pre-transitin date business cmbinatin, ther than: sme financial assets and financial liabilities derecgnized in accrdance with previus GAAP (see previus sectin n derecgnitin f financial assets and financial liabilities); and assets (including gdwill) and liabilities that: were nt recgnized in the acquirer s cnslidated statement f financial psitin in accrdance with previus GAAP, and wuld nt qualify fr recgnitin in accrdance with IFRSs in the separate statement f financial psitin f the acquiree. When an asset acquired, r liability assumed, in a pre-transitin date business cmbinatin was nt recgnized in accrdance with previus GAAP, the acquirer recgnizes and measures it in its cnslidated statement f financial psitin n the basis that IFRSs wuld require in the statement f financial psitin f the acquiree. Excluded frm the Opening IFRS Statement f Financial Psitin The first-time adpter excludes frm its pening IFRS statement f financial psitin any item recgnized in accrdance with previus GAAP that des nt qualify fr recgnitin as an asset r liability under IFRSs. Immediately after the business cmbinatin, the carrying amunt in accrdance with previus GAAP f assets acquired and liabilities assumed in that business cmbinatin is their deemed cst in accrdance with IFRSs at that date. When IFRSs require thse assets and liabilities t be subsequently measured: using a cst-based measurement, the abvementined deemed cst is the basis fr cst-based depreciatin r amrtizatin frm the date f the business cmbinatin; n a basis that is nt based n riginal cst (e.g., fair value), the first-time adpter measures these assets and liabilities n that basis in its pening IFRSs statement f financial psitin Financial Reprting in Canada under IFRSs

27 FIRST-TIME ADOPTION OF IFRSs Area Affected Gdwill Subsidiaries nt previusly cnslidated Implicatins Gdwill in the Opening IFRS Statement f Financial Psitin The carrying amunt f gdwill in the pening IFRSs statement f financial psitin is its carrying amunt in accrdance with previus GAAP at the date f transitin t IFRSs, after adjustments fr the effect f changes that result frm: the reclassificatin f an item recgnized as an intangible asset acquired in a pre-transitin date business cmbinatin in accrdance with previus GAAP that des nt qualify fr recgnitin as an asset in accrdance with IAS 38 Intangible Assets; and the recgnitin f an intangible asset in accrdance with IAS 38 that was previusly subsumed within gdwill in accrdance with previus GAAP. Testing Gdwill fr Impairment Regardless f whether there is any indicatin that the gdwill may be impaired, the first-time adpter must apply IAS 36 in testing the gdwill fr impairment at the date f transitin t IFRSs and in recgnizing any resulting impairment lss in retained earnings (r, if s required by IAS 36, in revaluatin surplus). The impairment test must be based n cnditins at the date f transitin t IFRSs. In accrdance with previus GAAP, the first-time adpter may nt have cnslidated a subsidiary acquired in a pre-transitin date business cmbinatin. Therefre, the first-time adpter adjusts the carrying amunts f the subsidiary s assets and liabilities t the amunts that IFRSs wuld require in the subsidiary s statement f financial psitin. The deemed cst f gdwill equals the difference at the date f transitin t IFRSs between: the parent s interest in thse adjusted carrying amunts; and the cst in the parent s separate financial statements f its investment in the subsidiary. Nte that the measurement f NCI and deferred tax fllws frm the measurement f ther assets and liabilities. Therefre, the abve adjustments t recgnize assets and liabilities affect NCI and deferred tax. An entity may als elect: nt t apply IAS 21 The Effects f Changes in Freign Exchange Rates, retrspectively t fair value adjustments and gdwill arising in pre-transitin date business cmbinatins; r t apply IAS 21 retrspectively t fair value adjustments and gdwill arising in all pre-transitin date business cmbinatins that it elected t restate in accrdance with IFRS 3. When an entity des nt apply IAS 21 retrspectively t fair value adjustments and gdwill arising in a pre-transitin date business cmbinatin, it treats them as its wn assets and liabilities rather than as thse f the acquiree. Therefre, thse gdwill and fair value adjustments either are already expressed in the entity s functinal currency r are nn-mnetary freign currency items, which are reprted using the exchange rate applied in accrdance with previus GAAP Financial Reprting in Canada under IFRSs 20-27

28 CHAPTER 20 In deciding whether t elect t use the ptinal exemptins fr business cmbinatins, an entity shuld cnsider: the csts and effrt t: recreate data that was nt captured at the date f a pre-transitin date business cmbinatin, make subjective estimates abut cnditins that existed at the date f a pre-transitin date business cmbinatin (i.e., withut applying hindsight in accrdance with the mandatry exceptin fr estimates, which was previusly discussed), accunt fr the cnsequences f nt applying IFRS 3 t a pre-transitin date business cmbinatin (which were previusly discussed); the strategic benefits f retrspective applicatin. EXAMPLE 20(4) APPLICATION OF OPTIONAL EXEMPTION FOR BUSINESS COMBINATIONS ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that ABC Ltd. acquired 100% f the shares f XYZ Ltd. n January 31, 20X0: The business cmbinatin was classified as an acquisitin by ABC Ltd. in accrdance with previus GAAP. All assets acquired and liabilities assumed were recgnized in accrdance with previus GAAP. These assets and liabilities als qualify fr recgnitin in accrdance with IFRSs. Furthermre, IFRSs require a cst-based measurement f these assets and liabilities at a date after the business cmbinatin. Gdwill was recgnized in accrdance with previus GAAP. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. has elected nt t apply IFRS 3 retrspectively t pre-transitin date business cmbinatins. Analysis: The mst significant cnsequences f nt applying IFRS 3 t the pre-transitin date business cmbinatin are as fllws fr that business cmbinatin: The business cmbinatin remains classified as an acquisitin by ABC Ltd. Immediately after the business cmbinatin, the carrying amunt in accrdance with previus GAAP f assets acquired and liabilities assumed in that business cmbinatin is their deemed cst in accrdance with IFRSs at that date. That deemed cst is the basis fr cst-based depreciatin r amrtizatin frm the date f the business cmbinatin. The carrying amunt f gdwill in the pening IFRS statement f financial psitin is its carrying amunt in accrdance with previus GAAP at January 1, 20X2; hwever, regardless f whether there is any indicatin that gdwill may be impaired, it is tested fr impairment in accrdance with IAS 36, based n cnditins that existed at January 1, 20X Financial Reprting in Canada under IFRSs

29 FIRST-TIME ADOPTION OF IFRSs Share-Based Payment Transactins [IFRS 1, paras D2 D3; IFRS 2, paras 44 45] The requirements t accunt fr share-based payment transactins in accrdance with IFRS 2 are discussed in Chapter 16, Emplyee Benefits and Share-Based Payment. The fllwing table describes the ptinal exemptins fr share-based payment transactins and discusses the implicatins f these exemptins. TABLE 20(8) OPTIONAL EXEMPTIONS FOR SHARE-BASED PAYMENT TRANSACTIONS Optinal Exemptins frm Requirements f IFRSs A first-time adpter may elect nt t apply IFRS 2 t liabilities arising frm share-based payment transactins that were settled befre: the date f transitin t IFRSs; r January 1, A first-time adpter may elect nt t apply IFRS 2 t equity instruments that were granted: n r befre Nvember 7, 2002; and after Nvember 7, 2002 and vested befre the date f transitin t IFRSs. Implicatins An entity must apply IFRS 2 t liabilities arising frm share-based payment transactins that were utstanding at the date f transitin t IFRSs. Fr liabilities t which IFRS 2 is applied, a firsttime adpter is nt required t restate cmparative infrmatin related t a perid r date that is earlier than Nvember 7, Fr all grants f equity instruments t which IFRS 2 has nt been applied, a first-time adpter must nevertheless disclse infrmatin that enables users f the financial statements t understand the nature and extent f share-based payment arrangements that existed during the perid, which cnsists f at least the fllwing: a descriptin f each type f share-based payment arrangement that existed at any time during the perid; the number and weighted average exercise prices f share ptins fr each f the fllwing grups f ptins: utstanding at the beginning f the perid, granted during the perid, frfeited during the perid, exercised during the perid, expired during the perid, utstanding at the end f the perid, and exercisable at the end f the perid; fr share ptins exercised during the perid, the weighted average share price at the date f exercise; and fr share ptins utstanding at the end f the perid, the range f exercise prices and weighted average remaining cntractual life. If a first-time adpter mdifies the terms r cnditins f a grant f equity instruments t which IFRS 2 has nt been applied, the entity is nt required t apply the requirements in IFRS 2 fr mdificatins if the mdificatin ccurred befre the date f transitin t IFRSs. An entity must apply IFRS 2 t equity instruments that were granted after Nvember 7, 2002, but have nt vested as f the date f transitin t IFRSs Financial Reprting in Canada under IFRSs 20-29

30 CHAPTER 20 Nte that a first-time adpter may apply IFRS 2 t equity instruments that were granted after Nvember 7, 2002 and vested befre the date f transitin t IFRSs nly if the entity has disclsed publicly the fair value f thse equity instruments, determined at the measurement date. EXAMPLE 20(5) APPLICATION OF OPTIONAL EXEMPTION FOR SHARE-BASED PAYMENT TRANSACTIONS ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. has elected nt t apply IFRS 2 t liabilities arising frm share-based payment transactins that were settled befre January 1, 20X2. Analysis: ABC Ltd. must apply IFRS 2 t liabilities arising frm share-based payment transactins that were utstanding at January 1, 20X2. Adjustments may result frm applying IFRS 2 instead f previus GAAP in the pening IFRS statement f financial psitin. Insurance Cntracts [IFRS 1, para D4; IFRS 4, para 44] The requirements t accunt fr insurance cntracts in accrdance with IFRS 4 are discussed in Chapter 19, Other Specific Tpics. The fllwing table describes the ptinal exemptin fr insurance cntracts and discusses the implicatins f this exemptin. TABLE 20(9) OPTIONAL EXEMPTION FOR INSURANCE CONTRACTS Optinal Exemptin frm Requirements f IFRSs A first-time adpter may elect t apply the transitinal prvisins in IFRS 4. Implicatins An entity need nt disclse infrmatin abut claims develpment that ccurred earlier than five years befre the end f the first financial year in which it applies IFRS 4. Nte that, if it is impracticable, when first applying IFRS 4, t prepare infrmatin abut claims develpment that ccurred befre the beginning f the earliest perid fr which an entity presents full cmparative infrmatin that cmplies with this IFRSs, the entity must disclse that fact. Fair Value r Revaluatin as Deemed Cst [IFRS 1, paras D5 D8, IG9; IAS 16, para 43] IAS 16 requires that an item f prperty, plant and equipment (PPE) be accunted fr using cmpnent accunting (i.e., each part f an item f PPE with a cst that is significant in relatin t the ttal cst f the item must be depreciated separately). The requirements t accunt fr PPE in accrdance with IAS 16 are discussed in Chapter 12, Prperty, Plant and Equipment Financial Reprting in Canada under IFRSs

31 FIRST-TIME ADOPTION OF IFRSs The fllwing table describes the ptinal exemptins t use fair value r revaluatin as deemed cst and discusses the implicatins f these exemptins. Nte that the use f fair value as deemed cst is nt restricted t entire classes f assets (i.e., the ptinal exemptin may be applied n an item-by-item basis). TABLE 20(10) OPTIONAL EXEMPTIONS TO USE FAIR VALUE OR REVALUATION AS DEEMED COST Optinal Exemptins frm Requirements f IFRSs An entity may elect t either: measure an item f PPE at the date f transitin t IFRSs at its fair value and use that fair value as its deemed cst at that date; use a previus GAAP revaluatin f an item f PPE at, r befre, the date f transitin t IFRSs as deemed cst at the date f the revaluatin, if the revaluatin was, at the date f the revaluatin, bradly cmparable t: fair value, r cst r depreciated cst in accrdance with IFRSs, adjusted t reflect changes in a price index. These ptinal exemptins are als available fr: investment prperty, if an entity chses t use the cst mdel in IAS 40 Investment Prperty; and intangible assets that meet: the recgnitin criteria in IAS 38 (including reliable measurement f riginal cst), and the criteria in IAS 38 fr revaluatin (including the existence f an active market). Implicatins Subsequent depreciatin is based n that deemed cst and starts frm the date fr which the entity established the deemed cst. If the measurement date f event-driven fair value measurements is at r befre the date f transitin t IFRSs, an entity may elect t use the event-driven fair value measurements as deemed cst fr IFRSs at the date f that measurement. The event may be, fr example, a privatizatin r initial public ffering. If the measurement date f event-driven fair value measurements is after the date f transitin t IFRSs (but during the perid cvered by the first IFRSs financial statements), an entity may elect t use the event-driven fair value measurements as deemed cst when the event ccurs. Nte that, at the date f transitin t IFRSs, the entity must either: establish the deemed cst by electing t use the abvementined ptinal exemptins; r measure assets and liabilities in accrdance with IFRSs. An entity must recgnize the resulting adjustments directly in retained earnings (r if apprpriate, anther categry f equity) at the measurement date. Subsequent depreciatin is based n that deemed cst and starts frm the date fr which the entity established the deemed cst Financial Reprting in Canada under IFRSs 20-31

32 CHAPTER 20 In deciding whether t elect t use the ptinal exemptins t use fair value r revaluatin as deemed cst, an entity shuld cnsider: the csts and effrt t: recnstruct carrying amunts in accrdance with IFRSs, determine fair value; the impact n the financial statements n and after transitin (e.g., increased depreciatin expense in subsequent perids). EXAMPLE 20(6) APPLICATION OF OPTIONAL EXEMPTION TO USE FAIR VALUE AS DEEMED COST ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that: ABC Ltd. chse the cst mdel in IAS 16 as its accunting plicy fr all classes f PPE. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. has elected t measure all items f PPE at January 1, 20X2 at their fair value and use that fair value as their deemed cst at that date. Analysis: ABC Ltd. measures all items f PPE at January 1, 20X2 at their fair value and translates them int its functinal currency using the exchange rates at that date (i.e., the date when the fair value was determined). Subsequent depreciatin is based n that deemed cst and starts frm January 1, 20X2. Deemed Cst f Oil and Gas Assets [IFRS 1, paras D8A, D21A] The requirements t accunt fr impairment in accrdance with IAS 36 are discussed in Chapter 4, Impairment f Assets. The fllwing table describes the ptinal exemptins fr il and gas assets and discusses the implicatins f these exemptins Financial Reprting in Canada under IFRSs

33 FIRST-TIME ADOPTION OF IFRSs TABLE 20(11) OPTIONAL EXEMPTIONS FOR OIL AND GAS ASSETS Optinal Exemptins frm Requirements f IFRSs When explratin and develpment csts fr il and gas prperties in the develpment r prductin phases are accunted fr using the full cst accunting methd in accrdance with previus GAAP, a first-time adpter may elect t measure il and gas assets at the date f transitin t IFRSs n the fllwing basis: explratin and evaluatin assets at the amunt determined under previus GAAP; and assets in the develpment r prductin phases at the amunt determined fr the cst centre under previus GAAP. Oil and gas assets cmprise nly thse assets used in the explratin, evaluatin, develpment r prductin f il and gas. Implicatins If an entity uses the ptinal exemptin t measure assets in the develpment r prductin phases at the amunt determined fr the cst centre under previus GAAP, it must: allcate this amunt t the cst centre s underlying assets pr rata using reserve vlumes r reserve values as f the date f transitin t IFRSs; and instead f applying the ptinal exemptin fr decmmissining liabilities included in the cst f PPE (discussed belw) r IFRIC 1 Changes in Existing Decmmissining, Restratin and Similar Liabilities: measure decmmissining, restratin and similar liabilities as at the date f transitin t IFRSs in accrdance with IAS 37, and recgnize directly in retained earnings any differences between that amunt and the carrying amunt f thse liabilities at the date f transitin t IFRSs determined under previus GAAP. The entity must test explratin and evaluatin assets and assets in the develpment and prductin phases fr impairment at the date f transitin t IFRSs in accrdance with IFRS 6 r IAS 36, respectively. Deemed Cst fr Operatins Subject t Rate Regulatin [IFRS 1, para D8B] Sme entities hld items f PPE r intangible assets that are used (r were previusly used) in peratins subject t rate regulatin. The carrying amunt f such items might include amunts that were determined under previus GAAP but d nt qualify fr capitalizatin in accrdance with IFRSs. The fllwing table describes the ptinal exemptin fr peratins subject t rate regulatin and discusses the implicatins f this exemptin. Nte that, if an entity applies this exemptin t an item, it need nt apply it t all items Financial Reprting in Canada under IFRSs 20-33

34 CHAPTER 20 TABLE 20(12) OPTIONAL EXEMPTION FOR OPERATIONS SUBJECT TO RATE REGULATION Optinal Exemptin frm Requirements f IFRSs When items f PPE r intangible assets are used (r were previusly used) in peratins subject t rate regulatin, a first-time adpter may elect t use the previus GAAP carrying amunt f such an item at the date f transitin t IFRSs as deemed cst. Operatins are subject t rate regulatin if they prvide gds r services t custmers at prices (i.e., rates) established by an authrized bdy empwered t establish rates that bind the custmers and that are designed t recver the specific csts the entity incurs in prviding the regulated gds r services and t earn a specified return. The specified return culd be a minimum r range and need nt be fixed r guaranteed. Implicatins At the date f transitin t IFRSs, an entity must test each item fr which this exemptin is used fr impairment in accrdance with IAS 36. Leases [IFRS 1, paras D9 D9A; IFRIC 4, para 5] IFRIC 4 addresses hw t determine whether an arrangement is (r cntains) a lease as defined in IAS 17 Leases. The requirements in IFRIC 4 are discussed in Chapter 13, Leases. The fllwing table describes the ptinal exemptins fr leases and discusses the implicatins f these exemptins. TABLE 20(13) OPTIONAL EXEMPTIONS FOR LEASES Optinal Exemptins frm Requirements f IFRSs If a first-time adpter made the same determinatin f whether an arrangement cntained a lease in accrdance with previus GAAP as that required by IFRIC 4, but at a date ther than that required by IFRIC 4, the first-time adpter may elect t nt reassess that determinatin when it adpts IFRSs. A first-time adpter may elect t apply the transitinal prvisins in IFRIC 4. Implicatins An entity that previusly made a determinatin under previus GAAP wuld nt reassess that determinatin when it adpts IFRSs if that determinatin wuld be the same as that required by IFRIC 4. If an arrangement cntains a lease, that lease must be classified as an perating lease r a finance lease (n the basis f circumstances existing at the inceptin f the lease) in accrdance with IAS 17. A first-time adpter may determine whether an arrangement existing at the date f transitin t IFRSs cntains a lease n the basis f facts and circumstances existing at that date Financial Reprting in Canada under IFRSs

35 FIRST-TIME ADOPTION OF IFRSs Cumulative Translatin Differences [IFRS 1, paras D12 D13] The requirements t accunt fr cumulative translatin differences in accrdance with IAS 21 are discussed in Chapter 10, Freign Currency Translatin. The fllwing table describes the ptinal exemptins fr cumulative translatin differences and discusses the implicatins f these exemptins. TABLE 20(14) OPTIONAL EXEMPTIONS FOR CUMULATIVE TRANSLATION DIFFERENCES Optinal Exemptins frm Requirements f IFRSs Fr cumulative translatin differences that existed at the date f transitin t IFRSs, a first-time adpter may elect nt t cmply with requirements in IAS 21: t recgnize sme translatin differences in OCI and accumulate these in a separate cmpnent f equity; and n dispsal f a freign peratin, t reclassify the cumulative translatin difference fr that freign peratin (including gains and lsses n related hedges) frm equity t prfit r lss as part f the gain r lss n dispsal. Implicatins The cumulative translatin differences fr all freign peratins are deemed t be zer at the date f transitin t IFRSs. The gain r lss n a subsequent dispsal f any freign peratin must exclude translatin differences that arse befre the date f transitin t IFRSs and must include later translatin differences. Investments in Subsidiaries, Jint Ventures and Assciates [IFRS 1, paras D14 D15] The requirements t accunt fr investments in subsidiaries, jint ventures and assciates in separate financial statements in accrdance with IAS 27 are discussed in Chapter 6, Cnslidated and Separate Financial Statements. The fllwing table describes the ptinal exemptin fr investments in subsidiaries, jint ventures and assciates and discusses the implicatins f this exemptin. TABLE 20(15) OPTIONAL EXEMPTION FOR INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Optinal Exemptin frm Requirements f IFRSs If a first-time adpter chses t measure an investment in a subsidiary, jint venture r assciate at cst in its separate financial statements in accrdance with IAS 27, the first-time adpter may elect t measure that investment in its separate pening IFRS statement f financial psitin at deemed cst, which represents the investment s: fair value at the entity s date f transitin t IFRSs in its separate financial statements; r previus GAAP carrying amunt at that date. Implicatins If this ptinal exemptin is used, a first-time adpter chsing t measure an investment in a subsidiary, venture r assciate at cst in its separate financial statements in accrdance with IAS 27 wuld measure that investment in its separate pening IFRS statement f financial psitin at deemed cst instead f cst determined in accrdance with IAS Financial Reprting in Canada under IFRSs 20-35

36 CHAPTER 20 Assets and Liabilities f Subsidiaries, Assciates and Jint Ventures [IFRS 1, paras D16 D17] The fllwing table describes the ptinal exemptin fr a subsidiary that becmes a first-time adpter later than its parent and discusses the implicatins f this exemptin. TABLE 20(16) OPTIONAL EXEMPTION FOR A SUBSIDIARY THAT BECOMES A FIRST-TIME ADOPTER LATER THAN ITS PARENT Optinal Exemptin frm Requirements f IFRSs A subsidiary that becmes a first-time adpter later than its parent may elect t measure its assets and liabilities in its financial statements at the carrying amunts that wuld be included in the parent s cnslidated financial statements, based n the parent s date f transitin t IFRSs, if n adjustments were made fr: cnslidatin prcedures; and the effects f the business cmbinatin in which the parent acquired the subsidiary. A similar ptinal exemptin is available t an assciate r jint venture that becmes a firsttime adpter later than an entity that has significant influence r jint cntrl ver it. Implicatins If this ptinal exemptin is nt used, a subsidiary wuld measure its assets and liabilities in its financial statements at the carrying amunts required by IFRS 1, based n the subsidiary s date f transitin t IFRSs. Nte that: an entity that becmes a first-time adpter at a later date than its subsidiary (r assciate r jint venture) measures the assets and liabilities f the subsidiary (r assciate r jint venture) in its cnslidated financial statements at the same carrying amunts as in the financial statements f the subsidiary (r assciate r jint venture), after adjusting fr: cnslidatin and equity accunting adjustments, and the effects f the business cmbinatin in which the entity acquired the subsidiary; a parent that becmes a first-time adpter fr its separate financial statements at an earlier r later date than fr its cnslidated financial statements measures its assets and liabilities at the same amunts in bth financial statements, except fr cnslidatin adjustments Financial Reprting in Canada under IFRSs

37 FIRST-TIME ADOPTION OF IFRSs EXAMPLE 20(7) ASSETS AND LIABILITIES OF SUBSIDIARIES ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that ABC Ltd. is the parent f the fllwing tw subsidiaries, which it created fur years earlier: SB Ltd., a Canadian cmpany in Ontari with a calendar year end that presents nly ne cmparative perid. SB Ltd. adpted IFRSs early with January 1, 20X0 as its date f transitin t IFRSs. LH Ltd., a Canadian private cmpany in Manitba with a calendar year end that presents nly ne cmparative perid. LH Ltd. adpted the Canadian Accunting Standards fr Private Enterprises (ASPE). In preparing its cnslidated pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. must include all its subsidiaries. Analysis: ABC Ltd. became a first-time adpter later than SB Ltd. and must, therefre, measure the assets and liabilities f SB Ltd. in its cnslidated financial statements at the same carrying amunts as in the financial statements f SB Ltd., after adjusting fr cnslidatin adjustments. ABC Ltd. became a first-time adpter earlier than LH Ltd. and must adjust the carrying amunts f the assets and liabilities f LH Ltd. t the amunts that IFRSs wuld require in the statement f financial psitin f LH Ltd. Nte that if LH Ltd. becmes a first-time adpter at a later date (i.e., later than ABC Ltd.), it may elect t measure its assets and liabilities in its financial statements at the carrying amunts that wuld be included in the cnslidated financial statements f ABC Ltd. (based n the date f transitin t IFRSs fr ABC Ltd.) if n adjustments were made fr cnslidatin prcedures; therefre, LH Ltd. wuld nt measure its assets and liabilities in its financial statements at the carrying amunts required by IFRS 1, based n its wn date f transitin t IFRSs. Cmpund Financial Instruments [IFRS 1, para D18] IAS 32 Financial Instruments: Presentatin, requires that the equity cmpnent f a cmpund financial instrument be assigned the residual amunt after deducting frm the fair value f the cmpund financial instrument as a whle the amunt separately determined fr the liability cmpnent. The requirements t accunt fr cmpund financial instruments in accrdance with IAS 32 are discussed in Chapter 9, Financial Instruments and Hedge Accunting. The fllwing table describes the ptinal exemptin fr cmpund financial instruments and discusses the implicatins f this exemptin. TABLE 20(17) OPTIONAL EXEMPTION FOR COMPOUND FINANCIAL INSTRUMENTS Optinal Exemptin frm Requirements f IFRSs When the liability cmpnent f a cmpund financial instrument is n lnger utstanding at the date f transitin t IFRSs, a first-time adpter may elect nt t separate the initial equity cmpnent f the instrument frm the cumulative interest accreted n the liability cmpnent. Implicatins Fr cmpund financial instruments with liability cmpnents that are n lnger utstanding at the date f transitin t IFRSs, an entity wuld nt retrspectively apply the allcatin methd prescribed in IAS 32. Fr cmpund financial instruments with liability cmpnents that remain utstanding at the date f transitin t IFRSs, an entity must retrspectively apply the allcatin methd prescribed in IAS Financial Reprting in Canada under IFRSs 20-37

38 CHAPTER 20 EXAMPLE 20(8) APPLICATION OF OPTIONAL EXEMPTION FOR COMPOUND FINANCIAL INSTRUMENTS ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X2; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X3. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X2 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X3. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X3, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that: ABC Ltd. issued a cmpund financial instrument n Nvember 24, 20X0. The liability cmpnent f that instrument is n lnger utstanding at January 1, 20X2. ABC Ltd. issued anther cmpund financial instrument n June 14, 20X1. The liability cmpnent f that instrument remains utstanding at January 1, 20X2. In preparing its pening IFRS statement f financial psitin as at January 1, 20X2, ABC Ltd. has elected nt t separate the initial equity cmpnent f the instrument frm the cumulative interest accreted n the liability cmpnent if the liability cmpnent is n lnger utstanding at January 1, 20X2. Analysis: ABC Ltd. wuld nt retrspectively apply the allcatin methd prescribed in IAS 32 t the cmpund financial instrument issued n Nvember 24, 20X0 because the liability cmpnent f that instrument is n lnger utstanding at January 1, 20X2. ABC Ltd. must, hwever, retrspectively apply the allcatin methd prescribed in IAS 32 t the cmpund financial instrument issued n June 14, 20X1 because the liability cmpnent f that instrument remains utstanding at January 1, 20X2. Designatin f Previusly Recgnized Financial Instruments [IFRS 1, para D19] The requirements t designate financial assets and financial liabilities in accrdance with IAS 39 (r IFRS 9 if adpted) are discussed in Chapter 9, Financial Instruments and Hedge Accunting. The fllwing table describes the ptinal exemptins fr the designatin f previusly recgnized financial instruments and discusses the implicatins f these exemptins. TABLE 20(18) OPTIONAL EXEMPTIONS FOR THE DESIGNATION OF PREVIOUSLY RECOGNIZED FINANCIAL INSTRUMENTS Optinal Exemptins frm Requirements f IFRSs An entity may elect t designate, at the date f transitin t IFRSs, a financial asset as AFS if adpting IAS 39. Implicatins After the date f transitin t IFRSs, any gain r lss arising frm a change in fair value f a financial asset classified as AFS is recgnized in OCI, except fr impairment lsses and freign exchange gains and lsses. The cumulative gain and lss recgnized in OCI is recycled thrugh prfit r lss when the financial asset is derecgnized Financial Reprting in Canada under IFRSs

39 FIRST-TIME ADOPTION OF IFRSs Optinal Exemptins frm Requirements f IFRSs If adpting IFRS 9, an entity may elect t designate an investment in an equity instrument as fair value thrugh OCI. An entity may elect t designate, at the date f transitin t IFRSs, any financial asset r financial liability as Fair Value Thrugh Prfit and Lss (FVTPL) prvided the asset r liability meets certain criteria in IAS 39 (r IFRS 9 if adpted) at that date. Implicatins After the date f transitin t IFRSs, any gain r lss arising frm a change in fair value f a financial asset classified as Fair Value Thrugh Other Cmprehensive Incme (FVTOCI), is recgnized in OCI and nt recycled t prfit r lss when the financial asset is derecgnized. After the date f transitin t IFRSs, any gain r lss arising frm a change in fair value f a financial asset r financial liability classified as FVTPL is recgnized in prfit r lss. If IFRS 9 is adpted after the date f transitin t IFRSs, any gain r lss arising frm a change in fair value f a financial liability classified as FVTPL is recgnized in OCI fr the change in fair value attributable t a change in the credit risk, and the remaining amunt t prfit r lss. If this results in an accunting mismatch, all f the gain r lss (including the effects f changes in the credit risk) will be reprted in prfit r lss. If it is impracticable fr an entity t apply retrspectively the effective interest methd r the impairment requirements in IAS 39, the fair value f the financial asset at the date f transitin t IFRSs must be the new amrtized cst f that financial asset at the date f transitin t IFRSs. The abve-mentined ptinal exemptins give entities the pprtunity t revise the designatin f financial assets and financial liabilities at the date f transitin t IFRSs. Fair Value Measurement f Financial Assets r Financial Liabilities at Initial Recgnitin [IFRS 1, para D20] The guidance in IAS 39 and IFRS 9 are discussed in Chapter 9, Financial Instruments and Hedge Accunting. An entity may elect t apply the Day 1 gain r lss recgnitin requirements and the transitin guidance under IAS 39 (r IFRS 9 if adpted) prspectively t transactins entered int n r after the date f transitin. Decmmissining Liabilities Included in the Cst f Prperty, Plant and Equipment [IFRS 1, paras D21 and D21A] These requirements fr decmmissining liabilities and PPE are discussed in Chapter 12, Prperty, Plant and Equipment, and Chapter 15, Prvisins, Cntingent Liabilities and Cntingent Assets. The fllwing table describes the ptinal exemptin fr decmmissining liabilities and discusses the implicatins f this exemptin Financial Reprting in Canada under IFRSs 20-39

40 CHAPTER 20 TABLE 20(19) OPTIONAL EXEMPTION FOR DECOMMISSIONING LIABILITIES Optinal Exemptin frm Requirements f IFRSs IFRIC 1 requires specified changes in a decmmissining, restratin r similar liability t be added t r deducted frm the cst f the asset t which it relates; the adjusted depreciable amunt f the asset is then depreciated prspectively ver its remaining useful life. A firsttime adpter may elect t nt t cmply with the requirements in IFRIC 1 fr changes in decmmissining, restratin and similar liabilities that ccurred befre the date f transitin t IFRSs. Implicatins If a first-time adpter uses this ptinal exemptin, it must: measure the liability as at the date f transitin t IFRSs in accrdance with IAS 37; t the extent that the liability is within the scpe f IFRIC 1, estimate the amunt that wuld have been included in the cst f the related asset when the liability first arse, by discunting the liability t that date using its best estimate f the histrical risk-adjusted discunt rate(s) that wuld have applied fr that liability ver the intervening perid; and calculate the accumulated depreciatin n that amunt, as at the date f transitin t IFRSs, n the basis f the current estimate f the useful life f the asset, using the depreciatin plicy adpted by the entity in accrdance with IFRSs. Nte that a first-time adpter may nt use this ptinal exemptin if it elects t measure assets in the develpment r prductin phases at the amunt determined fr the cst centre under previus GAAP (see previus sectin n deemed cst f il and gas assets). EXAMPLE 20(9) APPLICATION OF OPTIONAL EXEMPTION FOR DECOMMISSIONING LIABILITIES ABC Ltd. is a Canadian cmpany with a calendar year end that presents nly ne cmparative perid. In accrdance with IFRS 1, its: date f transitin t IFRSs is January 1, 20X5; and first IFRS reprting perid is fr the annual reprting perid ending December 31, 20X6. ABC Ltd. must use the same accunting plicies in its pening IFRS statement f financial psitin as at January 1, 20X5 and thrughut all perids presented in its first IFRS financial statements fr the annual reprting perid ending December 31, 20X6. Thse accunting plicies must cmply with each IFRS effective at December 31, 20X6, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. Assume that: ABC Ltd. bradcasts educatinal televisin prgrams ver the air. On January 1, 20X0 ABC Ltd. acquired a transmitter site in Ottawa with a life f 25 years. ABC Ltd. is legally required t decmmissin the transmitter site after 25 years. As at January 1, 20X5, the management at ABC Ltd. estimates: decmmissining csts in 20 years time will be $1,083; and the apprpriate risk-adjusted discunt rate fr the liability is 10%, which has nt changed since the transmitter site was acquired. In preparing its pening IFRS statement f financial psitin as at January 1, 20X5, ABC Ltd. has elected nt t cmply with the requirements in IFRIC 1 fr changes in decmmissining, restratin and similar liabilities that ccurred befre that date Financial Reprting in Canada under IFRSs

41 FIRST-TIME ADOPTION OF IFRSs Analysis: The decmmissining liability is calculated by discunting the estimated decmmissining csts fr 20 years at 10%: $1,083 / ( ) = $161 The capitalized decmmissining cst as at January 1, 20X0 (i.e., the date f acquisitin) is calculated by discunting the decmmissining liability fr 5 years at 10%: $161 / ( ) = $100 The accumulated depreciatin n the capitalized decmmissining cst is calculated fr 5 years: $100 5/25 = $20 Therefre, in its pening IFRS statement f financial psitin, ABC Ltd. will: derecgnize the asset retirement cst and asset retirement bligatin recgnized in accrdance with previus GAAP; and recgnize: a decmmissining liability f $161, a capitalized decmmissining cst f $100, accumulated depreciatin n the capitalized decmmissining cst f $20, and a debit adjustment t retained earnings f $81. Financial Assets r Intangible Assets frm Service Cncessin Arrangements [IFRS 1, para D22; IFRIC 12, paras 29 and 30] IFRIC 12 prvides guidance n the accunting by peratrs fr public-t-private service cncessin arrangements. In such arrangements, the gvernment (i.e., the grantr) cntracts a private sectr entity (i.e., the peratr) t cnstruct r upgrade and then perate and maintain infrastructure fr public services (e.g., rads, energy distributin facilities, prisns r hspitals). The requirements t accunt fr service cncessin arrangements in accrdance with IFRIC 12 are discussed in Chapter 11, Revenues and Inventries. IFRS 1 allws a first-time adpter t apply the transitinal prvisins in IFRIC 12, which require that the guidance be applied retrspectively. As utlined belw, hwever, when it is impracticable fr a first-time adpter (i.e., an peratr) t apply IFRIC 12 t a particular service arrangement retrspectively at the start f the earliest perid presented, it must: recgnize financial assets and intangible assets that existed at the start f the earliest perid presented; use the previus carrying amunts f thse financial and intangible assets (hwever previusly classified) as their carrying amunts as at that date; and test financial and intangible assets recgnized at that date fr impairment, unless this is nt practicable, in which case the amunts are tested fr impairment as at the start f the current perid. Brrwing Csts [IFRS 1, para D23; IAS 23, paras 5, 8, 27 28] IAS 23 requires an entity t capitalize brrwing csts that are directly attributable t the acquisitin, cnstructin r prductin f a qualifying asset as part f the cst f that asset. A qualifying asset is an asset that necessarily takes a substantial perid f time t get ready fr its intended use r sale. The requirements in IAS 23 are discussed in Chapter 19, Other Specific Tpics Financial Reprting in Canada under IFRSs 20-41

42 CHAPTER 20 Amendment t Appendix D f IFRS 1 The implicatins fr first-time adpters f IFRSs f the general requirement t capitalize brrwing csts, and the transitinal guidance in IAS 23, was clarified with an amendment t Appendix D f IFRS 1 in May A first-time adpter may apply the transitinal prvisins, but the references t the effective date are t be interpreted as January 1, 2009, r the date f transitin t IFRSs, whichever is later. A first-time adpter can elect t apply the IAS 23 requirements either as at the date f transitin r an earlier date. Frm the date n which an entity taking advantage f this exemptin begins t apply IAS 23, the entity: must nt restate the brrwing cst cmpnent that was capitalized under previus GAAP and that was included in the carrying amunt f assets at that date; and must accunt fr brrwing csts incurred n r after that date in accrdance with IAS 23, including thse brrwing csts incurred n r after that date n qualifying assets already under cnstructin. The fllwing table describes the ptinal exemptin fr brrwing csts and discusses the implicatins f this exemptin. TABLE 20(20) OPTIONAL EXEMPTION FOR BORROWING COSTS Optinal Exemptin frm Requirements f IFRSs A first-time adpter may elect t apply the transitinal prvisins in IAS 23. References t the effective date in the transitinal prvisins shuld be interpreted as January 1, 2009, r the date f transitin t IFRSs, whichever is later. Implicatins An entity applies IAS 23 t brrwing csts relating t qualifying assets fr which the cmmencement date fr capitalizatin is n r after: the date f transitin t IFRSs (r January 1, 2009, whichever is later); r a designated date (befre the date f transitin t IFRSs). Transfers f Assets frm Custmers [IFRS 1, para D24; IFRIC 18, paras 4 6, 11, 18, 22] IFRIC 18 prvides guidance n the accunting by an entity fr agreements in which the entity receives frm a custmer an item f PPE (r cash that must be used nly t cnstruct r acquire an item f PPE) that the entity must then use t either cnnect the custmer t a netwrk r prvide the custmer with nging access t a supply f gds r services, r t d bth. IFRIC 18 requires that an entity measure the transferred item f PPE n initial recgnitin at its fair value in accrdance with IAS 16. The resulting credit is recgnized as revenue when services are perfrmed. The requirements t accunt fr transfers f assets frm custmers in accrdance with IFRIC 18 are discussed in Chapter 11, Revenues and Inventries. The fllwing table describes the ptinal exemptin fr transfers f assets frm custmers and discusses the implicatins f this exemptin Financial Reprting in Canada under IFRSs

43 FIRST-TIME ADOPTION OF IFRSs TABLE 20(21) OPTIONAL EXEMPTION FOR TRANSFERS OF ASSETS FROM CUSTOMERS Optinal Exemptin frm Requirements f IFRSs A first-time adpter may elect t apply the transitinal prvisins in IFRIC 18. References t the effective date in the transitinal prvisins shuld be interpreted as the date f transitin t IFRSs. Alternatively, a first-time adpter may designate any date befre the date f transitin t IFRSs and apply IFRIC 18 t all transfers f assets frm custmers received n r after that date. Implicatins An entity applies IFRIC 18 prspectively t transfers f assets frm custmers received n r after: the date f transitin t IFRSs; r a designated date (befre the date f transitin t IFRSs). Extinguishing Financial Liabilities with Equity Instruments [IFRS 1, para D25; IFRIC 19, paras 2, 6, 9, 13] IFRIC 19 addresses the accunting by a debtr in a debt fr equity swap (i.e., a renegtiatin f the terms f a financial liability with the result that the debtr extinguishes the liability by issuing equity instruments t the creditr). IFRIC 19 requires that a debtr initially measure equity instruments issued in a debt fr equity swap at the fair value f the equity instruments issued. The difference between that amunt and the carrying amunt f the financial liability extinguished is recgnized in prfit r lss. The requirements t accunt fr debt fr equity swaps in accrdance with IFRIC 19 are discussed in Chapter 9, Financial Instruments and Hedge Accunting. The fllwing table describes the ptinal exemptin fr debt fr equity swaps and discusses the implicatins f this exemptin. TABLE 20(22) OPTIONAL EXEMPTION FOR DEBT FOR EQUITY SWAPS Optinal Exemptin frm Requirements f IFRSs A first-time adpter may elect t apply the transitinal prvisins in IFRIC 19. Implicatins An entity applies IFRIC 19 frm the date f transitin t IFRSs. Severe Hyperinflatin [IFRS 1, paras D26 30] IAS 29 Financial Reprting in Hyperinflatinary Ecnmies prvides guidance n accunting and presenting financial results fr functinal currencies in hyperinflatinary ecnmies. The applicatin f IAS 29 is utlined in Chapter 10, Freign Currency Translatin. If an entity has a functinal currency that was r is a currency f a hyperinflatinary ecnmy, it must determine if it was subject t severe hyperinflatin befre the date f transitin. Severe hyperinflatin is indicated by: a general price index nt available t all entities with transactins and balances f currencies; and n existence f an exchange between the currency and a relatively stable freign currency Financial Reprting in Canada under IFRSs 20-43

44 CHAPTER 20 The date f functinal currency nrmalizatin is when the freign currency ceases t be subject t either r bth f the characteristics f severe hyperinflatin nted abve. If the functinal currency nrmalizatin date falls n r befre the date f transitin, the entity may elect t measure all assets and liabilities befre the functinal currency nrmalizatin date at fair value at the date f transitin. This fair value may be used as the deemed cst n the pening statement f financial psitin. If the functinal currency nrmalizatin date falls within the 12-mnth cmparative perid, a shrter perid than 12 mnths may be used fr this cmparative perid as lng as a full set f financial statements is prepared. Jint Arrangements [IFRS 1, para D31] The requirements f IFRS 11 Jint Arrangements are discussed in Chapter 7, Investments in Assciates and Interests in Jint Ventures. An entity may fllw the transitin prvisins f IFRS 11. When changing frm prprtinate cnslidatin t the equity methd, hwever, a first-time adpter must test the investment fr impairment accrding t the guidance in IAS 36, as at the beginning f the earliest perid presented, regardless f whether there are any indicatins f impairment. If there is any impairment, this will be recgnized as an adjustment t the retained earnings f the earliest perid reprted. Stripping Csts in the Prductin Phase f a Surface Mine [IFRS 1, para D32; IFRIC 20, paras A1 A4] IFRIC 20 is t be applied t prductin stripping csts incurred n r after the earliest perid presented. Previusly recgnized assets related t the stripping activities undertaken during the prductin phase ( predecessr stripping assets ) must be reclassified as a part f an existing asset invlved in the stripping activity, t the extent that there remains an identifiable cmpnent f the re bdy with which the predecessr stripping asset can be assciated and depreciated ver the remaining life f that identified cmpnent f the re bdy. If there is n identifiable re bdy, the previus assets will be adjusted t the pening retained earnings at the beginning f the earliest perid presented. A first time adpter may apply the transitin guidance f IFRIC 20 as f the later f either the effective date f January 1, 2013 and the transitin date. SHORT-TERM OPTIONAL EXEMPTIONS [IFRS 1, para 18, Appendix E] Shrt-term exemptins were prvided t allw first-time adpters t use similar transitin guidance t that which existing preparers were permitted t use n adpting the new disclsure requirements under IFRS 9 and IAS 19. Exemptin frm the Requirement t Restate Cmparative Infrmatin fr IFRS 9 [IFRS 1, Appendix E, paras E1 E2] The disclsures required under IFRS 9 and IFRS 7 are explained in Chapter 9, Financial Instruments and Hedge Accunting. A first-time adpter wh adpts IFRSs befre January 1, 2012 and applies IFRS 9 must prvide ne year f cmparative infrmatin, but this disclsure need nt cmply with IFRS 7 fr items within the scpe f IFRS 9. Fr such entities, references t the date f transitin t IFRSs will mean, in the case f IFRS 7 and IFRS 9 nly, the beginning f the first IFRSs reprting perid Financial Reprting in Canada under IFRSs

45 FIRST-TIME ADOPTION OF IFRSs An entity that chses t present cmparative infrmatin that des nt cmply with IFRS 7 and IFRS 9 in its first year f transitin must: apply the recgnitin and measurement requirements f its previus GAAP fr items within the scpe f IFRS 9 and disclse this fact alng with the basis used; treat any adjustments between the statement f financial psitin at the cmparative perid s reprting date and the first date that the entity applies IFRS 9 and IFRS 7 as a change in accunting plicy, with related disclsures; and prvide any additinal disclsures required when the infrmatin is insufficient t enable users t understand the impact f the abve treatment. Emplyee Benefits [IFRS 1, Appendix E, para E5; IAS 19, para 173(b)] IAS 19 is explained in detail in Chapter 16, Emplyee Benefits and Share-Based Payments. A first-time adpter may apply the transitin guidance prvided by IAS 19 fr perids beginning befre January 1, Fr these perids, the cmparative infrmatin fr the disclsures required abut the sensitivity f the defined benefit bligatin need nt be disclsed. DISCLOSURE [IFRS 1, paras 20, 23 27A, 29 31B] A first-time adpter must apply all f the presentatin and disclsure requirements in IFRSs. The first-time adpter must als explain hw the transitin frm previus GAAP t IFRSs affected its reprted financial psitin, financial perfrmance and cash flws. As a result, an entity s first IFRS financial statements 3 must include the fllwing recnciliatins: Nte that the dates presented are examples fr an entity with a calendar year end (adpting IFRS in 20X3) that presents nly ne cmparative perid. Nature f Infrmatin Cmparative Year Ending December 31, 20X0 Opening as at January 1, 20X2 Recnciliatin f equity as at: the date f transitin t IFRSs; and the end f the latest perid presented in the entity s mst recent annual financial statements in accrdance with previus GAAP A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. The recnciliatin must give sufficient detail t enable users t understand the material adjustments t the statement f financial psitin. If an entity becmes aware f errrs made under previus GAAP, the recnciliatin must distinguish the crrectin f thse errrs frm changes in accunting plicies. A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. The recnciliatin must give sufficient detail t enable users t understand the material adjustments t the statement f financial psitin. If an entity becmes aware f errrs made under previus GAAP, the recnciliatin must distinguish the crrectin f thse errrs frm changes in accunting plicies. 3 The first IFRSs financial statements are annual financial statements, nt interim financial reprts Financial Reprting in Canada under IFRSs 20-45

46 CHAPTER 20 Nature f Infrmatin Cmparative Year Ending December 31, 20X0 Opening as at January 1, 20X2 Recnciliatin f ttal cmprehensive incme fr the latest perid in the entity s mst recent annual financial statements A recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs. The starting pint fr this recnciliatin will be ttal cmprehensive incme in accrdance with the previus GAAP r, if this was nt reprted, the prfit r lss under previus GAAP. The recnciliatin must give sufficient detail t enable users t understand the material adjustments t the statement f cmprehensive incme. If an entity becmes aware f errrs made under previus GAAP, the recnciliatin must distinguish the crrectin f thse errrs frm changes in accunting plicies. Recnciliatin f cash flws An explanatin f material adjustments t the statement f cash flws if such a statement was presented under previus GAAP. IAS 8 des nt apply t the changes in accunting plicies an entity makes when it adpts IFRSs r t changes in thse plicies until after it presents its first IFRS financial statements. Therefre, the requirements in IAS 8 abut changes in accunting plicies d nt apply t an entity s first IFRS financial statements. If, during the perid cvered by its first IFRS financial statements, an entity changes its accunting plicies r its use f ptinal exemptins, it must: explain the changes between its first IFRSs interim financial reprt and its first IFRS financial statements; and update the abvementined recnciliatins Financial Reprting in Canada under IFRSs

47 FIRST-TIME ADOPTION OF IFRSs ILLUSTRATIVE DISCLOSURES: In reviewing the fllwing illustrative disclsures, keep in mind that sme f the specific IFRSs may have changed since the cmpany cited adpted IFRSs fr the first time. The extracts are prvided t give examples f the details f the disclsures and the type f recnciliatins required under IFRS 1. In additin, all f these extracts are taken frm cmpanies that reprted accrding t pre-changever Part V Canadian GAAP prir t adpting IFRSs. A use f anther type f previus GAAP wuld require ther types f disclsures. EXTRACT 20(1) EXPLANATION OF EFFECT OF TRANSITION FROM PRE-CHANGEOVER PART V CANADIAN GAAP TO IFRSs Nrthern Dynasty Minerals Ltd. (Cnslidated Financial Statements 2009) pages TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (in part) Ntes trecnciliatins Basis f Cnslidatin Business Cmbinatins Cnslidated and Separate Financial Statements 2013 Financial Reprting in Canada under IFRSs 20-47

48 CHAPTER 20 Extract 20(1) Explanatin f effect f transitin frm Canadian GAAP t IFRSs (cntinued) Cumulative translatin differences Sharehlders Equity Nn current Assets Share based Payment Financial Reprting in Canada under IFRSs

49 FIRST-TIME ADOPTION OF IFRSs Extract 20(1) Explanatin f effect f transitin frm Canadian GAAP t IFRSs (cntinued) Defe ferr ed Tax n Mine nera ral Prp per ties Incme Taxes Deferred Tax n Equity Investment in the Pebble Partnership Sharehlders equity Nn current liabilities COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was fr the annual reprting perid ending December 31, In this extract frm the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany explains the effect f the transitin frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs 20-49

50 CHAPTER 20 EXTRACT 20(2) RECONCILIATION OF EQUITY (COMPARATIVE YEAR) Nrthern Dynasty Minerals Ltd. (Cnslidated Financial Statements 2009) page TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (in part) Recnciliatin f Assets, Liabilities & Equity (in part) As at December As at GAAP December 31 as previusly Effect f transitin tifrs 2008 reprted Nte (a) (b) (c) (d) (e) IFRS ASSETS Nn current assets Ttal nn current assets Current assets Ttal current assets Ttal assets EQUITY Ttal equity LIABILITIES Current liabilities Ttal current liabilities Ttal liabilities Ttal equity and liabilities COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the latest perid presented in the mst recent annual financial statements prepared in accrdance with pre-changever Part V Canadian GAAP. Althugh IFRS 1 requires nly a recnciliatin f equity, the cmpany has als presented a recnciliatin f line items in the cnslidated statements f financial psitin frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs

51 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(3) RECONCILIATION OF EQUITY (DATE OF TRANSITION TO IFRSs) Nrthern Dynasty Minerals Ltd. (Cnslidated Financial Statements 2009) page TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (in part) Recnciliatin f Assets, Liabilities & Equity (in part) As at January As at GAAP January 1 as previusly Effect f transitin tifrs 2008 reprted Nte (a) (b) (c) (d) (e) IFRS ASSETS Nn current assets Ttal nn current assets Current assets Ttal current assets Ttal assets EQUITY Ttal equity LIABILITIES Current liabilities Ttal current liabilities Ttal liabilities Ttal equity and liabilities COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the date f transitin t IFRSs. Althugh IFRS 1 requires nly a recnciliatin f equity, the cmpany has als presented a recnciliatin f line items in the cnslidated statements f financial psitin frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs 20-51

52 CHAPTER 20 EXTRACT 20(4) RECONCILIATION OF TOTAL COMPREHENSIVE LOSS (COMPARATIVE YEAR) Nrthern Dynasty Minerals Ltd. (Cnslidated Financial Statements 2009) page TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (in part) Recnciliatin f Lss (Incme) and Cmprehensive Lss (Incme) ( ) p ( ) Year Ended December 31, 2008 GAAP as previusly Effect f transitin t IFRS reprted Nte (a) (b) (c) (d) (e) IFRS Lss fr the year $ 149,906 $ (151,080) $ $ 2,291 $ 33 $ $ 1,150 Other cmprehensive lss (incme) Tta l cmprehensive lss (inc me) $ 150,853 $ (152,016 ) $ (22,,635) $ 2,29 1 $ 33 $ 827 $(20,647 ) COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f ttal cmprehensive lss frm pre-changever Part V Canadian GAAP t IFRSs fr the latest perid in the mst recent annual financial statements. Althugh IFRS 1 requires nly a recnciliatin f ttal cmprehensive lss, the cmpany has als presented a recnciliatin f line items in the cnslidated statements f cmprehensive incme frm prechangever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs

53 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(5) EXPLANATION OF ADJUSTMENTS TO CASH FLOWS (COMPARATIVE YEAR) Nrthern Dynasty Minerals Ltd. (Cnslidated Financial Statements 2009) page TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (in part) Recnciliatin f Cash Flws Year Ended December 31, 2008 GAAP as previusly Reclassificatins Ttal Effect f transitin t IFRS reprted under GAAP GAAP Nte (a) (b) (c) (d) IFRS Operating activities Cash used in perating activities Investing activities Cash generated by investing activities Financing activities Cash prvided frm financing activities Cash and cash equi valents, end f year $ 59,201 $ $ 59,201 $ (13, 235) $ $ $ $ 45,966 COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f cash flws frm pre-changever Part V Canadian GAAP t IFRSs fr the latest perid in the mst recent annual financial statements even thugh IFRS 1 requires nly an explanatin f material adjustments t the statement f cash flws. In additin t the requirements in IFRSs, entities must disclse the fllwing in their first IFRS financial statements: [IFRS 1, paras 24(c), 29 31C] Nature f Infrmatin Impairments f assets Designatin f financial assets r financial liabilities Disclsure If an entity recgnized r reversed any impairment lsses fr the first time in preparing its pening IFRS statement f financial psitin, an entity s first IFRS financial statements must include the disclsures that IAS 36 wuld have required if the entity had recgnized thse impairment lsses r reversals in the perid beginning with the date f transitin t IFRSs. If an entity has adpted IAS 39, it must disclse the fair value f financial assets r financial liabilities designated int FVTPL and AFS at the date f designatin and their classificatin and carrying amunt in the previus financial statements. If the entity adpted IFRS 9, disclsure is required f the fair value f financial assets and financial liabilities designated as FVTPL at the date f designatin and their classificatin and carrying amunt in the previus statements Financial Reprting in Canada under IFRSs 20-53

54 CHAPTER 20 Nature f Infrmatin Use f fair value as deemed cst Use f deemed cst fr investments in subsidiaries, jint ventures and assciates Use f ptinal exemptin fr il and gas assets in the develpment and prductin phases Disclsure If an entity used fair value in its pening IFRS statement f financial psitin as deemed cst fr an item f PPE, an investment prperty r an intangible asset, the entity s first IFRS financial statements must disclse, fr each line item in the pening IFRS statement f financial psitin: the aggregate f thse fair values; and the aggregate adjustment t the carrying amunts reprted under previus GAAP. If an entity used a deemed cst in its pening IFRSs statement f financial psitin fr an investment in a subsidiary, jint venture r assciate in its separate financial statements, the entity s first IFRS separate financial statements must disclse: the aggregate deemed cst f thse investments fr which deemed cst is their previus GAAP carrying amunt; the aggregate deemed cst f thse investments fr which deemed cst is fair value; and the aggregate adjustment t the carrying amunts reprted under previus GAAP. If an entity used the ptinal exemptin fr il and gas assets in the develpment and prductin phases, it must disclse that fact and the basis n which carrying amunts determined under previus GAAP were allcated. Use f deemed cst fr peratins subject t rate regulatin Use f deemed cst after severe hyperinflatin If an entity used the ptinal exemptin fr peratins subject t rate regulatin, it must disclse that fact and the basis n which carrying amunts were determined under Canadian GAAP. If an entity used the ptinal exemptin t measure assets and liabilities at fair value and t use that fair value as deemed cst in its pening IFRS statement, it must explain hw, and why, it had, and then ceased t have, a functinal currency that had bth f the characteristics indicating it was subject t severe hyperinflatin. INTERIM FINANCIAL REPORTS [IFRS 1, paras 32 33; IAS 34, para 1] IAS 34 must be applied when an entity is required r elects t publish an interim financial reprt in accrdance with IFRSs. IAS 34 requires minimum disclsures, which are based n the assumptin that users f the interim financial reprt als have access t the mst recent annual financial statements. If, hwever, a first-time adpter did nt, in its mst recent annual financial statements in accrdance with previus GAAP, disclse infrmatin material t an understanding f the current interim perid, its interim financial reprt must: disclse that infrmatin; r include a crss-reference t anther published dcument that includes it. The significant requirements fr an interim financial reprt prepared in accrdance with IAS 34 fr part f the perid cvered by an entity s first IFRS financial statements are discussed belw Financial Reprting in Canada under IFRSs

55 FIRST-TIME ADOPTION OF IFRSs First Quarter [IAS 34, para 20] An entity s first quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include at least the fllwing: (Assuming adptin f IFRSs in 20X2.) Reprting First Quarter Ending March 31, 20X2 Cmparative First Quarter Ending March 31, 20X1 Cmparative Year Ending December 31, 20X1 Opening as at January 1, 20X1 Statement f financial psitin Statement f financial psitin Statement f financial psitin 4 Statement f prfit r lss and ther cmprehensive incme fr the interim perid Statement f prfit r lss and ther cmprehensive incme fr the interim perid Statement f changes in equity fr the yeart-date perid Statement f changes in equity fr the yeart-date perid Statement f cash flws fr the year-t-date perid Statement f cash flws fr the year-t-date perid Ntes t the financial statements Ntes t the financial statements Ntes t the financial statements Nte that the dates presented are examples fr an entity with a calendar year end that presents nly ne cmparative perid. 4 The Canadian Securities Administratrs (CSA) published amendments t NI that require the presentatin f an pening IFRS statement f financial psitin in the first IFRS interim financial reprt. This measurement is beynd the current requirements f IFRS 1 and IAS Financial Reprting in Canada under IFRSs 20-55

56 CHAPTER 20 Disclsure fr First Quarter [IFRS 1, para 32] In additin t the requirements in IAS 34, an entity s first quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include the fllwing recnciliatins: Nature f Infrmatin Cmparative First Quarter Ending March 31, 20X1 Cmparative Year Ending December 31, 20X1 Opening as at January 1, 20X1 Recnciliatin f equity as at: the date f transitin t IFRSs; the end f the latest perid presented in the entity s mst recent annual financial statements in accrdance with previus GAAP; and the end f the cmparable interim perid f the immediately preceding financial year. A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. The recnciliatin must give sufficient detail t enable users t understand the material adjustments t the statement f financial psitin. If an entity becmes aware f errrs made under previus GAAP, the recnciliatin must distinguish the crrectin f thse errrs frm changes in accunting plicies. Nte that a crssreference may instead be made t anther published dcument that includes this recnciliatin. A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. The recnciliatin must give sufficient detail t enable users t understand the material adjustments t the statement f financial psitin. If an entity becmes aware f errrs made under previus GAAP, the recnciliatin must distinguish the crrectin f thse errrs frm changes in accunting plicies. Nte that a crssreference may instead be made t anther published dcument that includes this recnciliatin Financial Reprting in Canada under IFRSs

57 FIRST-TIME ADOPTION OF IFRSs Nature f Infrmatin Cmparative First Quarter Ending March 31, 20X1 Cmparative Year Ending December 31, 20X1 Opening as at January 1, 20X1 Recnciliatin f ttal cmprehensive incme fr: the latest perid in the entity s mst recent annual financial statements; and the cmparable interim perid f the immediately preceding financial year. A recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs fr the cmparable interim perid. If ttal cmprehensive incme was nt reprted under previus GAAP, the starting pint fr this recnciliatin will be the prfit r lss in accrdance with previus GAAP. A recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs. If ttal cmprehensive incme was nt reprted under previus GAAP, the starting pint fr this recnciliatin will be the prfit r lss in accrdance with previus GAAP. The recnciliatin must give sufficient detail t enable users t understand the material adjustments t the statement f cmprehensive incme. If an entity becmes aware f errrs made under previus GAAP, the recnciliatin must distinguish the crrectin f thse errrs frm changes in accunting plicies. Nte that a crssreference may instead be made t anther published dcument that includes this recnciliatin. Recnciliatin f cash flws An explanatin f material adjustments t the statement f cash flws if such a statement was presented under previus GAAP. Nte that a crssreference may instead be made t anther published dcument that includes this explanatin. Nte that the dates presented are examples fr an entity with a calendar year end that presents nly ne cmparative perid Financial Reprting in Canada under IFRSs 20-57

58 CHAPTER 20 ILLUSTRATIVE DISCLOSURES: In reviewing the fllwing illustrative disclsures, keep in mind that sme f the specific IFRSs may have changed since the cmpany cited adpted IFRSs fr the first time. The extracts are prvided t give examples f the details f the disclsures and the type f recnciliatins required under IFRS 1. A use f anther type f previus GAAP wuld require ther types f disclsures. EXTRACT 20(6) EXPLANATION OF EFFECT OF TRANSITION FROM PRE-CHANGEOVER PART V CANADIAN GAAP TO IFRSs Brkfield Renewable Pwer Inc. (Cnslidated Financial Statements March 31, 2010) pages TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) d) Recnciliatin f net incme as reprted under Canadian GAAP t IFRS (in part) Financial Reprting in Canada under IFRSs

59 FIRST-TIME ADOPTION OF IFRSs Extract 20(6) Explanatin f effect f transitin frm Canadian GAAP t IFRSs (cntinued) (e) Recnciliatin f cmprehensive incme as reprted under Canadian GAAP and IFRS (in part) COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2009 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first quarter interim financial reprt (fr the quarter ended March 31, 2010) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2010), the cmpany explains the effect f the transitin frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs 20-59

60 CHAPTER 20 EXTRACT 20(7) RECONCILIATION OF EQUITY (COMPARATIVE INTERIM PERIOD) Brkfield Renewable Pwer Inc. (Cnslidated Financial Statements March 31, 2010) page TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2009 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first quarter interim financial reprt (fr the quarter ended March 31, 2010) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2010), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the cmparable interim perid f the immediately preceding financial year. EXTRACT 20(8) RECONCILIATION OF EQUITY (COMPARATIVE YEAR) Brkfield Renewable Pwer Inc. (Cnslidated Financial Statements March 31, 2010) page TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) Financial Reprting in Canada under IFRSs

61 FIRST-TIME ADOPTION OF IFRSs COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2009 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first quarter interim financial reprt (fr the quarter ended March 31, 2010) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2010), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the latest perid presented in the mst recent annual financial statements in accrdance with pre-changever Part V Canadian GAAP. EXTRACT 20(9) RECONCILIATION OF EQUITY (DATE OF TRANSITION TO IFRSs) Brkfield Renewable Pwer Inc. (Cnslidated Financial Statements March 31, 2010) page TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2009 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first quarter interim financial reprt (fr the quarter ended March 31, 2010) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2010), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the date f transitin t IFRSs Financial Reprting in Canada under IFRSs 20-61

62 CHAPTER 20 EXTRACT 20(10) RECONCILIATION OF TOTAL COMPREHENSIVE INCOME (COMPARATIVE INTERIM PERIOD AND COMPARATIVE YEAR) Brkfield Renewable Pwer Inc. (Cnslidated Financial Statements March 31, 2010) pages TRANSITION TO IFRS (in part) (d) Recnciliatin f net incme as reprted under Canadian GAAP t IFRS (in part) (e) Recnciliatin f cmprehensive incme as reprted under Canadian GAAP and IFRS (in part) COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2009 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the first quarter interim financial reprt (fr the quarter ended March 31, 2010) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2010), the cmpany presents a recnciliatin f ttal cmprehensive incme frm pre-changever Part V Canadian GAAP t IFRSs fr: the cmparable interim perid f the immediately preceding financial year; and the latest perid in the mst recent annual financial statements. Althugh IFRS 1 requires nly a recnciliatin f ttal cmprehensive incme, the cmpany has als presented a recnciliatin f prfit r lss frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs

63 FIRST-TIME ADOPTION OF IFRSs Secnd Quarter [IAS 34, para 20] An entity s secnd quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include at least the fllwing: Reprting Secnd Quarter Ending June 30, 20X1 Cmparative Secnd Quarter Ending June 30, 20X1 Cmparative Year Ending December 31, 20X1 Statement f financial psitin Statement f financial psitin Statement f prfit r lss and ther cmprehensive incme fr: the current perid; and the year-t-date perid Statement f prfit r lss and ther cmprehensive incme fr: the current perid; and the year-t-date perid Statement f changes in equity fr the year-t-date perid Statement f changes in equity fr the year-t-date perid Statement f cash flws fr the year-t-date perid Statement f cash flws fr the year-t-date perid Ntes t the financial statements Ntes t the financial statements Ntes t the financial statements Nte that the dates presented are examples fr an entity with a calendar year end that presents nly ne cmparative perid. Disclsure fr Secnd Quarter [IFRS 1, para 32] In additin t the requirements in IAS 34, an entity s secnd quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include the fllwing recnciliatins: Nature f Infrmatin Recnciliatin f equity as at the end f the cmparable interim perid f the immediately preceding financial year. Cmparative Secnd Quarter Ending June 30, 20X1 A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. Recnciliatin f ttal cmprehensive incme fr the cmparable interim perid f the immediately preceding financial year. If the entity did nt reprt ttal cmprehensive incme under previus GAAP, the starting pint fr this recnciliatin is the prfit r lss in accrdance with pervius GAAP. A recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs fr: the cmparable current perid; and the cmparable year-t-date perid. Nte that the date presented is an example fr an entity with a calendar year end that presents nly ne cmparative perid Financial Reprting in Canada under IFRSs 20-63

64 CHAPTER 20 If an entity changes its accunting plicies r its use f ptinal exemptins, it must: explain the changes in the interim financial reprt; and update the recnciliatins disclsed in the previus interim financial reprt. ILLUSTRATIVE DISCLOSURES: In reviewing the fllwing illustrative disclsures, keep in mind that sme f the specific IFRSs may have changed since the cmpany cited adpted IFRSs fr the first time. The extracts are prvided t give examples f the details f the disclsures and the type f recnciliatins required under IFRS 1. A use f anther type f previus GAAP wuld require ther types f disclsures. EXTRACT 20(11) EXPLANATION OF EFFECT OF TRANSITION FROM PRE-CHANGEOVER PART V CANADIAN GAAP TO IFRSs Thmsn Reuters Crpratin (Secnd Quarter Reprt June 30, 2009) pages Nte 27: Transitin t IFRS (in part) Changes in accunting plicies In additin t the exemptins and exceptins discussed abve, the fllwing narratives explain the significant differences between the previus histrical Canadian GAAP accunting plicies and the current IFRS plicies applied by the Cmpany. 1. BUSINESS COMBINATIONS As stated in the sectin entitled IFRS Exemptin Optins, the Cmpany applied the exemptin in IFRS 1 fr business cmbinatins. Cnsequently, business cmbinatins cncluded prir t January 1, 2008 have nt been restated and the carrying amunt f gdwill under IFRS as f January 1, 2008 is equal t the carrying amunt under Canadian GAAP as f that date. The IFRS adjustments belw relate t acquisitins ccurring n r after January 1, Measurement f Purchase Price Canadian GAAP - Shares issued as cnsideratin are measured at their market price a few days befre and after the date the parties reached an agreement n the purchase price and the prpsed transactin was annunced. IFRS - Shares issued as cnsideratin are measured at their market value at the acquisitin clsing date. As a result, gdwill and equity were reduced relative t the re-measurement f the shares issued as cnsideratin fr the Reuters acquisitin. Acquisitin-related csts Canadian GAAP If certain cnditins are met, the csts f a plan (1) t exit an activity f an acquired cmpany, (2) t invluntarily terminate emplyees f an acquired cmpany, r (3) t relcate emplyees f an acquired cmpany are liabilities assumed in the purchase and are included in the allcatin f the acquisitin cst. IFRS - Restructuring prvisins are nly included as part f the acquired liabilities when the acquiree has recgnized an existing liability fr restructuring in accrdance with applicable IFRS standards. As a result, restructuring prvisins recrded as part f the purchase price allcatin under Canadian GAAP are charged t earnings under IFRS. Adjustment t Purchase Price Allcatin Canadian GAAP - Initial purchase price allcatins are subsequently adjusted thrugh gdwill prspectively as changes in estimates. Further, while Canadian GAAP des nt impse a time limit fr the cmpletin f the allcatin prcess, in practice the prcess is cnsidered final by the end f the fiscal year in which the acquisitin ccurred. IFRS - If the initial accunting fr a business cmbinatin can nly be determined prvisinally, subsequent adjustments t the allcatin may be recgnized if they ccur within 12 mnths f the acquisitin date. After 12 mnths, adjustments are recgnized thrugh incme. The adjustments made as a result f finalizing the prvisinal accunting are retrspectively recgnized frm the acquisitin date. As a result, adjustments t depreciatin and amrtizatin are retrspectively recrded t reflect the final purchase accunting Financial Reprting in Canada under IFRSs

65 FIRST-TIME ADOPTION OF IFRSs Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs (cntinued) See als the discussin belw fr differences in accunting fr incme taxes in business cmbinatins affecting gdwill and intangible assets. 2. EMPLOYEE FUTURE BENEFITS As stated in the sectin entitled IFRS Exemptin Optins, the Cmpany elected t recgnize all cumulative actuarial gains and lsses that existed at the Transitin Date in pening retained earnings fr all f its emplyee benefit plans. Actuarial Gains and Lsses Canadian GAAP - Actuarial gains and lsses that arise in calculating the present value f the defined benefit bligatin and the fair value f plan assets are recgnized n a systematic and cnsistent basis, subject t a minimum required amrtizatin based n a crridr apprach. The crridr was 10% f the greater f the accrued benefit bligatin at the beginning f the year and the fair value f plan assets at the beginning f the year. This excess f 10% is amrtized as a cmpnent f pensin expense n a straight-line basis ver the expected average service life f active participants. Actuarial gains and lsses belw the 10% crridr are deferred. IFRS - The Cmpany elected t recgnize all actuarial gains and lsses immediately in a separate statement f cmprehensive incme withut recycling t the incme statement in subsequent perids. As a result, actuarial gains and lsses are nt amrtized t the incme statement but rather are recrded directly t cmprehensive incme at the end f each perid. As a result, the Cmpany adjusted its pensin expense t remve the amrtizatin f actuarial gains and lsses. Measurement Date Canadian GAAP - The measurement date f the defined benefit bligatin and plan assets can be a date up t three mnths prir t the date f the financial statements, prvided the entity adpted this practice cnsistently frm year t year. The Cmpany measured the defined benefit bligatin and plan assets fr certain plans as f September 30. IFRS - An entity is required t determine the present value f the defined benefit bligatin and the fair value f plan assets with sufficient regularity such that the amunts recgnized in the financial statements d nt differ materially frm the amunts that wuld be determined at the balance sheet date. As a result, n transitin t IFRS, the Cmpany re-measured its defined benefit bligatins and plan assets as f the end date f each perid, which impacted the calculatin f pensin expense. Fair Value f and Expected Return n Plan Assets Canadian GAAP The expected return n plan assets is the prduct f the expected lng-term rate f return n plan assets and a market-related fair value f plan assets. The market-related fair value recgnized changes in the fair value f plan assets ver a five year perid. IFRS - The expected return n plan assets is prduct f the expected lng-term rate f return n plan assets and a fair value f plan assets n the balance sheet date. As a result, the Cmpany adjusted its pensin expense t reflect an expected return n plan assets using the fair value f its plan assets at the end f each perid. Accrued Benefit Asset Canadian GAAP - When a defined benefit plan gives rise t an accrued benefit asset, a valuatin allwance is recgnized fr any excess f the accrued benefit asset ver the expected future benefit. The accrued benefit asset is presented in the statement f financial psitin net f the valuatin allwance. A change in the valuatin allwance is recgnized in earnings fr the perid in which the change ccurs. IFRS - Similar t Canadian GAAP, IFRS limits the recgnitin f the net benefit asset under certain circumstances t the amunt that is recverable. Since the Cmpany has elected t recgnize all actuarial gains and lss in ther cmprehensive incme, changes in valuatin allwance are recgnized in ther cmprehensive incme in the perid in which the changes ccurred. As a result, the Cmpany adjusted its pensin expense t reflect this treatment Financial Reprting in Canada under IFRSs 20-65

66 CHAPTER 20 Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs (cntinued) 3. SHARE BASED COMPENSATION IFRS 2 is effective fr the Cmpany as f January 1, 2008 and is applicable t stck ptins and grants that are unvested at that date. The transitin rules in IFRS 1 and IFRS 2 as applied by the Cmpany result in the fllwing: Stck ptins and share grants prir t Nvember 7, 2002 are nt taken int accunt fr IFRS 2; Stck ptins and share grants subsequent t Nvember 7, 2002 are nly taken int accunt if they have nt vested as at January 1, 2008; and, Frm January 1, 2008, all stck ptins, share grants and ther share-based payments will be expensed in accrdance with the plicy stated in nte 1. Recgnitin f Expense Canadian GAAP - Fr grants f share-based awards with graded vesting, the ttal fair value f the award is recgnized n a straight-line basis ver the emplyment perid necessary t vest the award. IFRS - Each tranche in an award with graded vesting is cnsidered a separate grant with a different vesting date and fair value. Each grant is accunted fr n that basis. As a result, the Cmpany adjusted its expense fr share-based awards t reflect this difference in recgnitin. Frfeitures Canadian GAAP - Frfeitures f awards are recgnized as they ccur. IFRS An estimate is required f the number f awards expected t vest, which is revised if subsequent infrmatin indicates that actual frfeitures are likely t differ frm the estimate. As a result, the Cmpany adjusted its expense t reflect this difference. Cash-Settled Share Based Payments Canadian GAAP A liability fr stck appreciatin rights is accrued based upn the intrinsic value f the award with changes recgnized in the incme statement each perid. IFRS - An entity must measure the liability incurred at fair value by applying an ptin pricing mdel. Until the liability is settled, the fair value f the liability is re-measured at each reprting date, with changes in fair value recgnized as the awards vest. Changes in fair value f vested awards are recgnized immediately in earnings. As a result, the Cmpany adjusted expenses assciated with stck appreciatin rights t reflect the changes f the fair values f these awards. Measurement f Deferred Tax Assets Canadian GAAP - A deferred tax asset is recgnized fr share-based awards based upn the cumulative amunt f cmpensatin cst recgnized fr an award. IFRS - The deferred tax asset fr a deductible temprary r difference is based n an estimate f the future tax deductin. Fr share-based payment awards, future tax deductins are generally measured by reference t the intrinsic value f the vested award at the balance sheet date. If the estimated future tax deductin exceeds the amunt f the related cumulative cmpensatin expense, the excess f the assciated deferred tax is recgnized directly in equity. If n r a reduced tax deductin is anticipated because the fair value f the shares has declined, the deferred tax asset is whlly r partly reversed t incme r equity as apprpriate depending n hw the asset was riginally recrded. As a result, the Cmpany adjusted the deferred tax assciated with share-based awards t reflect changes in the stck price. 4. REVENUE Multi-cmpnent Arrangements Canadian GAAP - Vendr specific bjective evidence ( VSOE ) fr the undelivered element in a multi-cmpnent arrangement has t exist in rder t recgnize revenue fr the delivered elements Financial Reprting in Canada under IFRSs

67 FIRST-TIME ADOPTION OF IFRSs Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs (cntinued) IFRS - Revenue is allcated and recgnized fr each element if fair value can be reliably measured, prvided that stand alne value exists frm a custmer perspective. As a result, the Cmpany recgnized revenue earlier than under Canadian GAAP in certain instances. Cmpleted Cntract Accunting Canadian GAAP In certain circumstances, revenue fr varius arrangements is recgnized n a cmpleted cntract basis. IFRS - The cmpleted cntract basis f accunting is nt permitted. The percentage f cmpletin basis is used unless ne specific act is much mre significant than any ther, in which case the recgnitin f revenue is pstpned until the significant act has been cmpleted. As a result, fr arrangements which did nt have a significant act, the Cmpany recgnized revenue n a percentage f cmpletin basis under IFRS. 5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Cmpany has prspectively applied hedge accunting t thse hedging relatinships that satisfied the hedge accunting criteria f IAS 39 at its Transitin Date in accrdance with the transitin requirement f IFRS. Hedge Accunting Canadian GAAP - If certain cnditins are met, the shrt cut methd and the critical terms match methd can be used fr the assessment and measurement f ineffectiveness and, fr certain hedges, an assumptin f n ineffectiveness can be made. IFRS - IFRS des nt permit the use f the shrt cut methd nr the critical terms match methd fr the assessment and measurement f effectiveness in a hedging relatinship. Ineffectiveness must be measured at each reprting perid thrughut the life f the hedging relatinship. As a result, the Cmpany measured ineffectiveness at each reprting perid and recgnized related amunts in earnings. Credit Risk Canadian GAAP - Prir t 2009, there was n explicit guidance related t incrprating credit risk int the fair values f derivatives. On January 20, 2009, the Emerging Issues Cmmittee ( EIC ) issued Abstract 173, Credit Risk and the Fair Value f Financial Assets and Financial Liabilities ( EIC 173 ), which clarified that an entity s wn credit risk and the credit risk f the cunterparty shuld be taken int accunt when determining the fair value f financial assets and financial liabilities, including derivative instruments. This Abstract is t be applied retrspectively, withut restatement f prir perids, t all financial assets and liabilities measured at fair value in interim and annual financial statements fr perids ending after January 20, The Cmpany adpted this standard as f January 1, IFRS - Nn-perfrmance risk is required t be cnsidered when determining the fair value f a financial asset r liability, which wuld include an entity s wn credit risk fr financial liabilities, including derivatives. Althugh the guidance in Canadian GAAP and IFRS are aligned as f January 1, 2009 with regard t the cnsideratin f nn-perfrmance risk in cmputing the fair value f derivative instruments, the Cmpany adjusted the value f certain instruments fr reprting perids prir t January 1, IMPAIRMENTS Assets Held fr Sale Canadian GAAP - Assets held fr sale are measured at the lwer f their carrying amunt r fair value less csts t sell. The carrying amunt fr determining impairment includes cumulative translatin adjustments Financial Reprting in Canada under IFRSs 20-67

68 CHAPTER 20 Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs (cntinued) IFRS - Assets held fr sale are als measured at the lwer f their carrying amunt r fair value less csts t sell, but the carrying value used in the calculatin excludes cumulative translatin adjustments. As a result f this change in measurement methdlgy, the Cmpany recgnized additinal impairments under IFRS as the carrying amunt f assets held fr sale was in excess f their fair value less cst t sell. Recverable Amunt Canadian GAAP - A recverability test is perfrmed by first cmparing the undiscunted expected future cash flws t be derived frm the asset t its carrying amunt. If the asset des nt recver its carrying value, an impairment lss is calculated as the excess f the asset s carrying amunt ver its fair value. IFRS The impairment lss is calculated as the excess f the asset s carrying amunt ver its recverable amunt, where recverable amunt is defined as the higher f the asset s fair value less csts t sell and its value-in-use. Under the value-in-use calculatin, the expected future cash flws frm the asset are discunted t their net present value. As a result f the change in measurement methdlgy, the Cmpany recgnized additinal impairments under IFRS as the carrying amunt f assets held fr sale was in excess f their fair value less cst t sell r value-in-use. Reversal f Impairment Canadian GAAP - Reversal f impairment lsses is nt permitted. IFRS - Reversal f impairment lsses is required fr assets ther than gdwill if certain criteria are met. As a result, the Cmpany reversed certain impairments recgnized under IFRS. 7. INCOME TAXES Intercmpany Transactins Canadian GAAP - Recgnitin f a deferred tax asset r liability fr a temprary difference arising frm intercmpany transactins is prhibited. Such temprary differences may arise when the tax base f the asset in the buyer s jurisdictin differs frm the carrying amunt f the asset in the cnslidated financial statements. Further, cash tax paid r recvered as a result f a transfer f an asset is recrded as a deferred tax asset r liability in the financial statements and recgnized thrugh tax expense when the asset leaves the Cmpany r is therwise utilized. IFRS - There are n such exceptins under IFRS. Therefre, deferred tax is recgnized fr temprary differences arising n intercmpany transactins measured at the tax rate f the buyer, and cash tax paid r recvered n intercmpany transactins is recgnized in the perid incurred. As a result, the Cmpany reversed certain tax deferrals n intercmpany transactins. Deferred Tax Assets f an Acquired Cmpany Nt Previusly Recgnized Canadian GAAP - Previusly unrecgnized deferred tax assets f an acquired cmpany are recgnized as part f the cst f the acquisitin when such assets are mre likely than nt t be realized as a result f a business cmbinatin. If an unrecgnized deferred tax asset becmes realizable subsequent t the acquisitin date, such benefit is als recgnized thrugh gdwill. The acquirer recgnizes deferred tax assets that becme realizable as a result f the acquisitin as part f the cst f the acquisitin. IFRS - Previusly unrecgnized deferred tax assets f an acquired cmpany are recgnized as part f the cst f the acquisitin if realizatin is mre likely than nt as a result f the business cmbinatin. If an unrecgnized deferred tax asset becmes realizable subsequent t the acquisitin date, the tax benefit is recgnized in the incme statement and a crrespnding amunt f gdwill is recgnized as an perating expense. The acquirer recgnizes deferred tax assets that becme realizable as a result f the acquisitin thrugh earnings. As a result, the Cmpany recgnized deferred tax assets that becme realizable as a result f the acquisitin in earnings Financial Reprting in Canada under IFRSs

69 FIRST-TIME ADOPTION OF IFRSs Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs (cntinued) Accunting fr Uncertainty in Incme Tax Psitins Canadian GAAP - Benefits fr uncertain tax psitins are determined by reference t a tw step prcess. First, the Cmpany determines whether it is mre likely than nt that an uncertain tax psitin will be sustained upn examinatin. Where the psitin meets that criterin f likelihd, the amunt f benefit is measured as the largest amunt f benefit that is greater than 50% likely f being realized. Where the criterin f likelihd is nt met, n benefit is recgnized fr the uncertain tax psitin. IFRS - The prvisin fr uncertain tax psitins is a best estimate f the amunt expected t be paid based n a qualitative assessment f all relevant factrs. As a result, the Cmpany recalculated its prvisin under IFRS. Accunting fr Uncertainty in Incme Taxes in Business Cmbinatins Canadian GAAP - Changes t prvisins fr uncertain tax psitin relating t pre-acquisitin perids are adjusted thrugh the purchase price allcatin, first reducing gdwill and intangible assets assciated with the business cmbinatin and, nly after exhausting thse amunts, reducing incme tax expense. IFRS - Changes t pre-acquisitin prvisins fr uncertain tax psitins beynd 12 mnths f the acquisitin date are recrded t the incme statement. As a result, the Cmpany adjusted its tax expense t reflect this difference. Recgnitin f Deferred Tax Assets n Tax Deductible Gdwill in Business Cmbinatins Canadian GAAP When the tax base f tax deductible gdwill exceeds its carrying value, n deferred tax asset is recgnized in respect f that excess. IFRS Deferred tax assets are recgnized in respect f all deductible temprary differences, subject t the usual assessment f recverability. Incme Tax Effect f Other Recnciling Differences between Canadian GAAP and IFRS Differences fr incme taxes include the effect f recrding, where applicable, the deferred tax effect f ther differences between Canadian GAAP and IFRS. 8. FOREIGN CURRENCY TRANSLATION ADJUSTMENT As nted in the sectin entitled IFRS Exemptin Optins, the Cmpany has applied the ne-time exemptin t set the freign currency cumulative translatin adjustment ( CTA ) t zer as f January 1, The cumulative translatin adjustment balance as f January 1, 2008 f $280 millin was recgnized as an adjustment t retained earnings. The applicatin f the exemptin had n impact n net equity. Additinally, deferred freign currency gains and lsses n lans repaid that are reclassified int earnings frm CTA will differ under IFRS due t the IFRS 1 electin t reset the CTA balance at the Transitin Date Presentatin Reclassificatins 1. RECLASSIFICATION OF SOFTWARE AMORTIZATION AND DEPRECIATION Canadian GAAP - Amrtizatin f external use cmputer sftware is included in cst f sales and amrtizatin f internal use sftware is included in depreciatin. IFRS - Amrtizatin f all cmputer sftware is presented separately n the face f the incme statement. 2. DISCLOSURE OF EQUITY METHOD INVESTEES Canadian GAAP - The share f prfit r lss frm equity methd investees is presented as part f Other incme (expense) in the incme statement. IFRS - A separate disclsure n the face f the incme statement is required fr the Cmpany s share f prfit r lss frm equity methd investees Financial Reprting in Canada under IFRSs 20-69

70 CHAPTER 20 Extract 20(11) Explanatin f effect f transitin frm pre-changever Part V Canadian GAAP t IFRSs (cntinued) 3. GAIN/LOSS ON SALE OF BUSINESS Canadian GAAP A gain r lss n dispsal f a businesses r prperty is nt a cmpnent f perating prfit and is presented in ther incme and expense. IFRS A gain r lss frm dispsal f business r prperty is a cmpnent f the perating prfit and is included in Other perating gains and lsses in the incme statement. 4. TAX RECLASSIFICATION Interest Expense and Uncertain Tax Psitins Canadian GAAP - Interest expense payable n tax audit settlements is presented as part f tax expense. IFRS - Interest expense payable n tax audit settlements is presented as part f interest expense. Deferred Tax Canadian GAAP - Deferred taxes are split between current and nn-current cmpnents n the basis f either (1) the underlying asset r liability r (2) the expected reversal f items nt related t an asset r liability. IFRS - All deferred tax assets and liabilities are classified as nn-current. 5. NON-CONTROLLING INTERESTS Nn-cntrlling Interest in Cnslidated Subsidiary Canadian GAAP - Nn-cntrlling interests in the equity f a cnslidated affiliate are classified as a separate cmpnent between liabilities and equity in the statement f financial psitin and as a cmpnent f net earnings within the incme statement. IFRS - Nn-cntrlling interests are classified as a cmpnent f equity separate frm the equity f the parent and are nt included in net earnings, but rather presented as an allcatin f net earnings. As part f the adptin f IFRS, the term minrity interest has been replaced with nn-cntrlling interests in accrdance with IAS 1. Sale f Nn-cntrlling Interest in a Cnslidated Subsidiary Canadian GAAP In January 2008, the Cmpany sld a nn-cntrlling interest in a cnslidated subsidiary. The gain n this sale was deferred because the fair value f all related future perfrmance bligatins culd nt be reliably measured. IFRS Under IFRS, there is greater flexibility t determine fair value and allcate cnsideratin t multiple cmpnents. As a result, the gain n sale f the nn-cntrlling interest was able t be reliably measured. The Cmpany elected t treat this transactin as thugh it were with an equity participant. Accrdingly, this gain was recgnized in equity. 6. DISCONTINUED OPERATIONS Canadian GAAP - T qualify as a discntinued peratin an entity may nt have any significant cntinuing invlvement in the peratins f the entity after the dispsal transactin. Additinally, rutine dispsitins f entities are classified as discntinued peratins, if certain criteria are met. IFRS Cntinuing invlvement with a sld entity des nt preclude presentatin as a discntinued peratin. Additinally, nly dispsals f significant peratins, such as a segment, meet the IFRS requirements t present the results as discntinued peratins. As a result, ne entity that had been classified as a discntinued peratin was reclassified t cntinuing peratins under IFRS. COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the secnd quarter interim financial reprt (fr the quarter ended June 30, 2009) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany explains the effect f the transitin frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs

71 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(12) RECONCILIATION OF EQUITY (COMPARATIVE INTERIM PERIOD) Thmsn Reuters Crpratin (Secnd Quarter Reprt June 30, 2009) pages 67, Nte 27: Transitin t IFRS (in part) Recnciliatins f Canadian GAAP t IFRS (in part) page 67 Recnciliatin f Equity (in millins f U.S. dllars) As f December 31, 2008 June 30, 2008 Sharehlders equity under Canadian GAAP 20,126 21,666 Differences increasing (decreasing) reprted sharehlders equity: 1. Business cmbinatins (1,166) (1,074) 2. Emplyee benefits (773) (692) 3. Share-based cmpensatin (50) (26) 4. Revenue Derivative instruments and hedging activities 14 (10) 6. Impairments 1 (16) 7. Incme taxes Nn-cntrlling interest Ttal equity under IFRS 18,488 20, Financial Reprting in Canada under IFRSs 20-71

72 CHAPTER 20 Extract 20(12) Recnciliatin f equity (cmparative interim perid) (cntinued) Restated Thmsn Reuters financial statements (in part) pages Thmsn Reuters Crpratin Recnciliatin f Cnslidated Statement f Financial Psitin as f June 30, 2008 (millins f U.S. dllars) Canadian Canadian GAAP accunts GAAP balance IFRS adjustments IFRS reclassificatins IFRS balance IFRS accunts ASSETS ASSETS Cash and cash equivalents Cash and cash equivalents Accunts receivable, net f allwances 1, ,828 Trade and ther receivables Other financial assets Prepaid expenses and ther current assets 801 (40) (168) 593 Prepaid expenses and ther current assets Deferred incme taxes (197) - Current assets 3,598 (36) (194) 3,368 Current assets Cmputer hardware and ther prperty, net 1,723 (54) - 1,669 Cmputer hardware and ther prperty, net Cmputer sftware, net 1,903 (583) 1 1,321 Cmputer sftware, net Identifiable intangible assets, net 8,618 1, ,980 Other identifiable intangible assets, net Gdwill 19,994 (582) 2 19,414 Gdwill Other financial assets Other nn-current assets 1,994 (610) (726) 658 Other nn-current assets Deferred tax Ttal assets 37,830 (638) (124) 37,068 Ttal assets LIABILITIES AND SHAREHOLDERS EQUITY LIABILITIES AND EQUITY Liabilities Liabilities Shrt-term indebtedness 4 (3) Current indebtedness Accunts payable and Accruals 2, (34) 2,648 Payables, accruals and prvisins Deferred revenue 1,235 (14) - 1,221 Deferred revenue Other financial liabilities Current prtin f lng-term debt and finance lease bligatins (668) - Current liabilities 4, (19) 4,553 Current liabilities Lng-term debt and finance lease bligatins 7,733 (36) (61) 7,636 Lng-term indebtedness Other nn-current liabilities 1, (32) 1,806 Prvisins and ther nncurrent liabilities Other financial liabilities Deferred incme taxes 2, (44) 2,904 Deferred tax 16,931 Ttal liabilities Minrity interest in equity f cnslidated affiliate 73 - (73) - Sharehlders equity Equity Capital 11,020 (1,096) - 9,924 Capital Retained earnings 10,341 (120) - 10,221 Retained earnings Accumulated ther cmprehensive incme 305 (386) - (81) Accumulated ther cmprehensive lss Ttal sharehlders equity 21,666 (1,602) - 20,064 Ttal sharehlders equity Nn-cntrlling interests 21,666 (1,602) 73 20,137 Ttal equity Ttal liabilities and sharehlders equity 37,830 (638) (124) 37,068 Ttal liabilities and equity Financial Reprting in Canada under IFRSs

73 FIRST-TIME ADOPTION OF IFRSs Extract 20(12) Recnciliatin f equity (cmparative interim perid) (cntinued) Thmsn Reuters Crpratin Recnciliatin f Cnslidated Statement f Financial Psitin as f December 31, 2008 (millins f U.S. dllars) Canadian GAAP accunts Canadian GAAP balance IFRS adjustments IFRS reclassificatins IFRS balance IFRS accunts ASSETS ASSETS Cash and cash equivalents Cash and cash equivalents Accunts receivable, net f allwances 1, ,818 Trade and ther receivables Other financial assets Prepaid expenses and ther current assets (206) 766 Prepaid expenses and ther current assets Deferred incme taxes (100) - Current assets 3, (17) 3,686 Current assets Cmputer hardware and ther prperty, net 1, ,556 Cmputer hardware and ther prperty, net Cmputer sftware, net 1, ,299 Cmputer sftware, net Identifiable intangible assets, net 8,596 (24) 130 8,702 Other identifiable intangible assets, net Gdwill 19,348 (1,024) - 18,324 Gdwill Other financial assets Other nn-current assets 1,550 (368) (555) 627 Other nn-current assets Deferred tax Ttal assets 36,020 (1,385) (46) 34,589 Ttal assets LIABILITIES AND SHAREHOLDERS EQUITY LIABILITIES AND EQUITY Liabilities Liabilities Shrt-term indebtedness Current indebtedness Accunts payable and accruals 2,710 (2) (4) 2,704 Payables, accruals and prvisins Deferred revenue 1,196 (3) - 1,193 Deferred revenue Other financial liabilities Current prtin f lng-term debt and finance lease bligatins (675) - Current liabilities 4,591 (2) 56 4,645 Current liabilities Lng-term debt and finance lease bligatins 6,834 (4) (47) 6,783 Lng-term indebtedness Other nn-current liabilities 1, (222) 1,798 Prvisins and ther nncurrent liabilities Other financial liabilities Deferred incme taxes 2, (55) 2,653 Deferred tax 16,101 Ttal liabilities Minrity interest in equity f cnslidated affiliate 72 - (72) - Sharehlders equity Equity Capital 11,135 (1,101) - 10,034 Capital Retained earnings 10,969 (319) - 10,650 Retained earnings Accumulated ther cmprehensive lss (1,978) (290) - (2,268) Accumulated ther cmprehensive lss Ttal sharehlders equity 20,126 (1,710) - 18,416 Ttal sharehlders equity Nn-cntrlling interests 20,126 (1,710) 72 18,488 Ttal equity Ttal liabilities and sharehlders equity 36,020 (1,385) (46) 34,589 Ttal liabilities and equity COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the secnd quarter interim financial reprt (fr the quarter ended June 30, 2009) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the cmparable interim perid f the immediately preceding financial year Financial Reprting in Canada under IFRSs 20-73

74 CHAPTER 20 Althugh IFRS 1 requires nly a recnciliatin f equity as at the end f the cmparable interim perid f the immediately preceding financial year, the cmpany has als presented: a recnciliatin f equity as at the end f the latest perid presented in the mst recent annual financial statements in accrdance with pre-changever Part V Canadian GAAP; and a recnciliatin f line items in the cnslidated statement f financial psitin frm pre-changever Part V Canadian GAAP t IFRSs. EXTRACT 20(13) RECONCILIATION OF TOTAL COMPREHENSIVE INCOME (COMPARATIVE CURRENT PERIOD AND COMPARATIVE YEAR-TO-DATE PERIOD) Thmsn Reuters Crpratin (Secnd Quarter Reprt June 30, 2009) pages 67 68, Nte 27: Transitin t IFRS (in part) Recnciliatins f Canadian GAAP t IFRS (in part) pages Recnciliatin f Earnings Three mnths ended June 30, 2008 Six mnths ended June 30, 2008 (in millins f U.S. dllars) Fr the perids ended Net earnings under Canadian GAAP Differences in GAAP increasing (decreasing) reprted earnings: 1. Business cmbinatins (34) (34) 2. Emplyee benefits Share-based cmpensatin Revenue Derivative instruments and hedging activities (2) (4) 6. Impairments (19) (19) 7. Incme taxes Freign currency translatin adjustments Nn-cntrlling interest 4 6 Net earnings under IFRS Recnciliatin f Cmprehensive Incme Three mnths ended June 30, 2008 Six mnths ended June 30, 2008 (in millins f U.S. dllars) Fr the perids ended Cmprehensive (lss) incme under Canadian GAAP Differences in GAAP increasing (decreasing) reprted cmprehensive incme r (increasing) decreasing reprted cmprehensive lss: Differences in net earnings, net f tax (19) (18) Unrealized cash flw hedges 2 (4) Freign currency translatin adjustments t equity (100) (99) Freign currency translatin adjustments t earnings Actuarial gains (lsses) n pensin plans, net f tax (241) (264) Cmprehensive (lss) incme under IFRS (248) Financial Reprting in Canada under IFRSs

75 FIRST-TIME ADOPTION OF IFRSs Extract 20(13) Recnciliatin f ttal cmprehensive incme (cmparative current perid and cmparative year-t-date perid) (cntinued) Restated Thmsn Reuters financial statements (in part) pages Thmsn Reuters Crpratin Recnciliatin f Cnslidated Incme Statement fr the Six Mnths ended June 30, 2008 (millins f U.S. dllars) Canadian Canadian GAAP accunts GAAP balance IFRS adjustments IFRS reclassificatins IFRS balance IFRS accunts Revenues 4, ,973 Revenues Cst f sales, selling, marketing general and administrative expenses (3,863) (19) 31 (3,851) Operating expenses Depreciatin (313) (9) 155 (167) Depreciatin - (14) (190) (204) Amrtizatin f cmputer sftware Amrtizatin (203) 23 - (180) Amrtizatin f ther intangible assets Impairment f assets held Impairment f assets held fr sale (72) (17) - (89) fr sale Operating prfit 511 (30) Operating prfit Finance csts, net: Net interest expense and ther financing csts (15) - 3 (12) Net interest expense Net ther expense (64) (4) (4) (72) Other finance csts 432 (34) Incme befre tax and equity methd investees Tradeweb wnership interests, net f tax (6) (1) 8 1 Share f pst tax earnings in equity methd investees Incme taxes (54) 11 (3) (46) Tax expense Earnings frm cntinuing peratins 372 (24) Earnings frm cntinuing peratins Lss frm discntinued peratins, net f tax (5) - 1 (4) Lss frm discntinued peratins, net f tax Net earnings 367 (24) Net earnings Dividends declared n preference shares (3) Earnings attributable t Thmsn Reuters Crpratin cmmn shares and Thmsn Reuters PLC rdinary shares 364 Earnings attributable t: 343 Cmmn and rdinary sharehlders 6 Nn-cntrlling interests Earnings per share Basic and diluted earnings per share: Frm cntinuing peratins $0.52 $0.48 Frm discntinued peratins (0.01) (0.01) Basic and diluted earnings per share $0.51 $ Financial Reprting in Canada under IFRSs 20-75

76 CHAPTER 20 Extract 20(13) Recnciliatin f ttal cmprehensive incme (cmparative current perid and cmparative year-t-date perid) (cntinued) Thmsn Reuters Crpratin Recnciliatin f Cnslidated Statement f Cmprehensive Incme fr the Six Mnths Ended June 30, 2008 (millins f U.S. dllars) Canadian GAAP accunts Canadian GAAP balance IFRS adjustments IFRS reclassificatins IFRS balance IFRS accunts Net earnings 367 (24) Net earnings Other cmprehensive incme: Other cmprehensive lss: Unrecgnized net gain n cash flw hedges 1 (4) - (3) Unrecgnized net lss n cash flw hedges Freign currency translatin adjustments 20 (99) - (79) Freign currency translatin adjustments t equity - (264) - (264) Actuarial lsses n defined benefit pensin plans,net f tax f ($114) 21 (367) - (346) Other cmprehensive lss Cmprehensive incme 388 (391) 6 3 Ttal cmprehensive incme Cmprehensive incme fr the perid attributable t: (3) Cmmn and rdinary sharehlders 6 Nn-cntrlling interests COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the secnd quarter interim financial reprt (fr the quarter ended June 30, 2009) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f ttal cmprehensive incme frm pre-changever Part V Canadian GAAP t IFRSs fr the cmparable current perid and the cmparable year-t-date perid f the immediately preceding financial year. Althugh IFRS 1 requires nly a recnciliatin f ttal cmprehensive incme, the cmpany has als presented: a recnciliatin f prfit r lss frm pre-changever Part V Canadian GAAP t IFRSs; and a recnciliatin f line items in the cnslidated incme statement and cnslidated statement f cmprehensive incme frm pre-changever Part V Canadian GAAP t IFRSs fr the cmparable year-t-date perid f the immediately preceding financial year Financial Reprting in Canada under IFRSs

77 FIRST-TIME ADOPTION OF IFRSs Third Quarter [IAS 34, para 20] An entity s third quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include at least the fllwing: Reprting Third Quarter Ending September 30, 20X2 Cmparative Third Quarter Ending September 30, 20X1 Cmparative Year Ending December 31, 20X1 Statement f financial psitin Statement f financial psitin Statement f prfit r lss and ther cmprehensive incme fr: the current perid; and the year-t-date perid Statement f prfit r lss and ther cmprehensive incme fr: the current perid; and the year-t-date perid Statement f changes in equity fr the year-t-date perid Statement f changes in equity fr the year-t-date perid Statement f cash flws fr the year-t-date perid Statement f cash flws fr the year-t-date perid Ntes t the financial statements Ntes t the financial statements Ntes t the financial statements Nte that the dates presented are examples fr an entity with a calendar year end that presents nly ne cmparative perid. Disclsure fr Third Quarter [IFRS 1, para 32] In additin t the requirements in IAS 34, an entity s third quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include the fllwing recnciliatins: Nature f Infrmatin Recnciliatin f equity as at the end f the cmparable interim perid f the immediately preceding financial year. Recnciliatin f ttal cmprehensive incme fr the cmparable interim perid f the immediately preceding financial year. If the entity did nt reprt ttal cmprehensive incme under previus GAAP, the starting pint fr this recnciliatin is the prfit r lss in accrdance with the previus GAAP. Cmparative Third Quarter Ending September 30, 20X1 A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. A recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs fr: the cmparable current perid; and the cmparable year-t-date perid. Nte that the date presented is an example fr an entity with a calendar year end that presents nly ne cmparative perid Financial Reprting in Canada under IFRSs 20-77

78 CHAPTER 20 If an entity changes its accunting plicies r its use f ptinal exemptins, it must: explain the changes in the interim financial reprt; and update the recnciliatins disclsed in all previus interim financial reprts. ILLUSTRATIVE DISCLOSURES: In reviewing the fllwing illustrative disclsures, keep in mind that sme f the specific IFRSs referred t may have changed since the cmpany cited adpted IFRSs fr the first time. The extracts are prvided t give examples f the details f the disclsures and the type f recnciliatins required under IFRS 1. A use f anther type f previus GAAP wuld require ther types f disclsures. EXTRACT 20(14) EXPLANATION OF EFFECT OF TRANSITION FROM PRE-CHANGEOVER PART V CANADIAN GAAP TO IFRSs Anraq Resurces Crpratin (Cndensed Cnslidated Financial Statements September 30, 2009) pages EXPLANATIONS OF TRANSITIONS TO IFRS (in part) Ntes t Recnciliatins (a) Basis f Cnslidatin Under GAAP, the Cmpany accunted fr its 50% interest in Ga-Phasha Platinum Mines (Prprietary) Limited ( GPM ), previusly a variable interest entity. The Cmpany was nt cnsidered the primary beneficiary prir t July 1, 2009 and therefre accunted fr its interest using the equity methd. IFRS des nt include the cncept f a variable interest entity. IFRS requires the Cmpany t cnslidate entities including Special Purpse Entities ("SPE") nly where the Cmpany has the pwer t gvern the financial and perating plicies f an entity s as t btain benefits frm its activities. On transitin t IFRS, the Cmpany has determined that GPM is nt a SPE and that the Cmpany has jint cntrl f GPM. Accrdingly, under IFRS, the Cmpany can elect t use either the equity methd r prprtinate cnslidatin methd t accunt fr its interest in GPM. The Cmpany has elected t cntinue using the equity methd f accunting fr Anraq's interest in GPM. Therefre, ther than an adjustment related t freign currency discussed belw, there was n impact n the pening balance sheet at the Transitin Date r n the cnslidated balance sheet at December 31, 2008 ther than the effect f the freign currency translatin adjustment nted belw. The Cmpany's equity investment in jint venture is nw presented separately n the balance sheet rather than included in mineral prperty interests. (b) Functinal Currency Under GAAP, all the Cmpany's subsidiaries were integrated freign peratins. Therefre, mnetary items were translated at perid end rates and nnmnetary items were translated at average rates with all freign currency gains and lsses recgnised in prfit r lss. IFRS requires that the functinal currency f each subsidiary f the Cmpany be determined separately. It was determined that as at the Transitin Date, the Canadian dllar was the functinal currency f all subsidiaries except Plateau and GPM, which have ZAR as their functinal currency. In accrdance with the IFRS 1 ptinal exemptins, the Cmpany has elected t transfer the freign currency translatin differences, recgnised as a separate cmpnent f sharehlder's equity, t accumulated lss n the Transitin Date. (c) Share-based Payment Under GAAP, the Cmpany measured share-based cmpensatin related t share ptins at the fair value f the ptins granted using the Black-Schles ptin pricing frmula and recgnised this expense ver the vesting perid f the ptins. Fr the purpse f accunting fr share-based payment transactins, an individual was classified as an emplyee when the individual was cnsistently represented t be an emplyee under law. The fair value f the ptins granted t emplyees was measured n the date f grant. The fair value f ptins granted t cntractrs and cnsultants (nn-emplyee) were measured n the date the services were cmpleted. Frfeitures were recgnised as they ccurred. IFRS 2, similar t GAAP, requires the Cmpany t measure share-based payment transactins related t share ptins granted t emplyees at the fair value f the ptins n the date f grant and t recgnize such expense ver the vesting perid f the ptins. Hwever, fr ptins granted t nnemplyees, IFRS requires that share-based cmpensatin be measured at the fair value f the services received unless the fair value cannt be reliably measured. Fr the purpse f accunting fr share-based payment transactins, an individual is classified as an emplyee when the individual is an emplyee fr legal r tax purpses (direct emplyee) r prvides services similar t thse perfrmed by a direct emplyee. This definitin f an emplyee is brader than that previusly applied by the Cmpany and resulted in certain cntractrs and cnsultants being classified as emplyees under IFRS. Hwever, the Cmpany has determined that n adjustments was required at the Transitin Date, n September 30, 2008 r fr the year ended December 31, (d) Deferred tax n mineral prperties Under GAAP, in determinatin f the net lss frm its interest in GPM, the Cmpany recgnised future incme taxes n temprary differences arising n the initial recgnitin f the GPM mineral prperty interest (where the fair value f the asset acquired exceeded its tax basis) in a transactin which was nt a business cmbinatin and affected neither accunting prfit (lss) nr taxable prfit (lss). IAS 12, Incme Taxes ("IAS 12"), des nt permit the recgnitin f deferred taxes n such transactins. As f the Transitin Date, September 30, 2008, and December 31, 2008, the Cmpany has derecgnised the impacts f all deferred taxes which had previusly been recgnised n the initial acquisitin f the mineral prperties thrugh transactins deemed nt t be business cmbinatins and affecting neither accunting prfit (lss) nr taxable prfit (lss). (e) Presentatin Certain amunts n the balance sheet, statement f cmprehensive lss and statement f cash flws have been reclassified t cnfrm t the presentatin adpted under IFRS Financial Reprting in Canada under IFRSs

79 FIRST-TIME ADOPTION OF IFRSs COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the third quarter interim financial reprt (fr the quarter ended September 30, 2009) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany explains the effect f the transitin frm pre-changever Part V Canadian GAAP t IFRSs. EXTRACT 20(15) RECONCILIATION OF EQUITY (COMPARATIVE INTERIM PERIOD) Anraq Resurces Crpratin (Cndensed Cnslidated Financial Statements September 30, 2009) pages EXPLANATIONS OF TRANSITIONS TO IFRS (in part) Recnciliatin f Assets, Liabilities and Equity As at January 1, 2008 As at September 30, 2008 As at December 31, 2008 Effect f Effect f Effect f Transitin t Transitin t Transitin t Nte GAAP IFRS IFRS GAAP IFRS IFRS GAAP IFRS IFRS ASSETS Prperty plant and equipment 105, , , , , ,635 Mineral prperty interests 4,200,000 4,200,000 4,200,000 4,200,000 4,200,000 4,200,000 Investment in jint venture 11 (b) (d) 4,878,714 (1,919,929) 2,958,785 4,926,896 (2,290,525) 2,476,778 4,793,645 (2,274,674) 2,518,971 Deferred acquisitin csts 368, ,146 1,330,949 1,522,607 1,587,959 $ 1,587,959 Ttal nn-current assets 9,552,354 ( 1,919,929) 7,632,425 10,865,906 (2,290,525) 8,707,607 11,051,239 (2,274,674) 8,776,565 Current assets Accunts receivable 269,188 96, , , , , ,554 Cash and cash equivalents 7,131,821 7,131,821 1,140,359 1,220,566 3,850,674 3,850,674 Ttal current assets 7,401,009 7,401,009 1,518,425 1,444,439 4,122,228-4,122,228 Ttal Assets 16,953,363 (1,919,929) 15,129,806 12,384,331 (2,290,525) 10,152,046 15,173,467 (2,274,674) 12, SHAREHOLDER S EQUITY As at January 1, 2008 As at September 30, 2008 As at December 31, 2008 Effect f Effect f Effect f Transitin t Transitin t Transitin t Nte GAAP IFRS IFRS GAAP IFRS IFRS GAAP IFRS IFRS Share capital 51,855,350 51,855,350 54,948,340 54,948,340 54,948,341 54,948,341 Share based payment reserve 13,254,905 13,254,905 17,510,577 17,510,577 17,584,974 17,584,974 Translatin reserve 11 (b) - 441, , , ,684 Accumulated lss (60,376,436) (1,823,557) (62,199,993) (70,844,119) (2,818,494) (73,662,613) (73,862,103) (2,404,358) (76,266,461) Ttal Equity 4,733,819 (1,823,557) 2,910,262 1,614,798 (2,376,653) (761,855) (1,328,788) (2,274,674) (3,603,462) LIABILITIES Nn-Current Liabilities Lans and brrwings 9,806,636 9,806,636 8,722,464 8,722,464 12,967,753 12,967,753 Current Liabilities Trade and ther payables 520, ,711 1,009,938 1,009,938 1,798,839 1,798,839 Lans and brrwings 1,892,197 1,892,197 1,181,499 1,181,499 1,735,663 1,735,663 2,412,908 2,412,908 2,191,437 2,191,437 3,534,502 3,534,502 Ttal Liabilities 12,219,544 12,219,544 10,913,901 10,913,901 16,502,255 16,502,255 Ttal Equity and Liabilities 16,953,363 (1,919,929) 15,129,806 12,528,699 (2,376,653) 10,152,046 15,173,467 (2,274,674) 12,898,793 COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the third quarter interim financial reprt (fr the quarter ended September 30, 2009) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the cmparable interim perid f the immediately preceding financial year. Althugh IFRS 1 requires nly a recnciliatin f equity as at the end f the cmparable interim perid f the immediately preceding financial year, the cmpany has als presented: a recnciliatin f equity as at: the date f transitin t IFRSs; and the end f the latest perid presented in the mst recent annual financial statements in accrdance with pre-changever Part V Canadian GAAP; a recnciliatin f line items in the cndensed cnslidated statements f financial psitin frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs 20-79

80 CHAPTER 20 EXTRACT 20(16) RECONCILIATION OF TOTAL COMPREHENSIVE LOSS (COMPARATIVE CURRENT PERIOD AND COMPARATIVE YEAR-TO-DATE PERIOD) Anraq Resurces Crpratin (Cndensed Cnslidated Financial Statements September 30, 2009) page EXPLANATIONS OF TRANSITIONS TO IFRS (in part) Recnciliatin f Lss and Cmprehensive Lss Three mnths ended September 30, 2008 Nine mnths ended September 30, 2008 Twelve mnths ended December 31, 2008 Effect f Effect f Effect f Transitin Transitin t Transitin t Nte GAAP t IFRS IFRS GAAP IFRS IFRS GAAP IFRS IFRS Revenue Cst f sales Operating lss Depreciatin and amrtisatin (14,020) (14,020) (32,138) (32,138) (61,140) (61,140) Administrative expenses (1,449,943) (282,152) (1,732,095) (9,116,262) (896,565) (10,012,827) (11,618,993) (385,486) (12,004,479) Transactin csts 11 (a) Other incme 11 (b) Lss befre finance expense and tax (1,463,963) (282,152) (1,746,115) (9,148,400) (896,565) (10,044,965) (11,680,133) (385,486) (12,065,619) Finance incme 12,002 12, , , , ,119 22,945 67, ,079 Finance expense (518,049) (495,104) (1,468,927) (1,401,594) (1,985,653) (1,848,574) Net finance expense (506,047) 22,945 (483,102) (1,321,466) 67,333 (1,253,953) (1,806,534) 137,079 (1,669,455) Share f lss f equity accunted (59,285) (163,702) (235,022) investees (ne f incme tax) - (59,285) - (163,702) - (235,022) Lss befre incme tax ( 1,970,010) (318,492) ( 2,285,502) ( 10,469,866) (992,934) (11,462,620) ( 13,486,667) (483,429) ( 13,970,096) Incme tax 1,000 (1,000) 2,000 (2,000) 1,000 (1,000) Lss fr the perid Other cmprehensive (lss)/incme Freign currency translatin differences 11 (a) 197, , , , , ,684 fr freign peratins Ttal cmprehensive lss fr the (1,969,010) (122,468)) (2,091,478) (10,467,866) (553,096)) (11,020,779) (13,485,667) (354,745) (13,840,412) perid Ttal cmprehensive (lss) / incme (1,969,010) (122,468)) (2,091,478) (10,467,866) (553,096)) (11,020,779) (13,485,667) (354,745) (13,840,412) attributable t wners f cmpany COMMENTARY: The cmpany s date f transitin t IFRSs was January 1, 2008 and its first IFRS reprting perid was the annual reprting perid ending December 31, In this extract frm the third quarter interim financial reprt (fr the quarter ended September 30, 2009) fr part f the perid cvered by the first IFRS financial statements (fr a perid that ends n December 31, 2009), the cmpany presents a recnciliatin f ttal cmprehensive lss frm pre-changever Part V Canadian GAAP t IFRSs fr the cmparable current perid and the cmparable year-t-date perid f the immediately preceding financial year. Althugh IFRS 1 requires nly a recnciliatin f ttal cmprehensive lss fr the cmparable current perid and the cmparable year-t-date perid f the immediately preceding financial year, the cmpany has als presented: a recnciliatin f ttal cmprehensive lss fr the latest perid in the mst recent annual financial statements; and a recnciliatin f line items in the cndensed cnslidated statements f cmprehensive lss frm pre-changever Part V Canadian GAAP t IFRSs Financial Reprting in Canada under IFRSs

81 FIRST-TIME ADOPTION OF IFRSs Furth Quarter [IAS 34, para 20] An entity s furth quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include at least the fllwing: Reprting Furth Quarter Ending December 31, 20X2 Statement f financial psitin Statement f prfit r lss and ther cmprehensive incme fr: the current perid; and the year-t-date perid Statement f changes in equity fr the year-tdate perid Statement f cash flws fr the year-t-date perid Ntes t the financial statements Cmparative Furth Quarter Ending December 31, 20X1 Statement f financial psitin Statement f prfit r lss and ther cmprehensive incme fr: the current perid; and the year-t-date perid Statement f changes in equity fr the year-tdate perid Statement f cash flws fr the year-t-date perid Ntes t the financial statements Nte that the dates presented are examples fr an entity with a calendar year end that presents nly ne cmparative perid. Disclsure fr Furth Quarter [IFRS 1, para 32] In additin t the requirements in IAS 34, an entity s furth quarter interim financial reprt fr part f the perid cvered by its first IFRS financial statements must include the fllwing recnciliatins: Nature f Infrmatin Recnciliatin f equity as at the end f the cmparable interim perid f the immediately preceding financial year. Cmparative Furth Quarter Ending December 31, 20X1 A recnciliatin f equity in accrdance with previus GAAP t equity in accrdance with IFRSs. Recnciliatin f ttal cmprehensive incme fr the cmparable interim perid f the immediately preceding financial year. If an entity des nt reprt ttal cmprehensive incme under previus GAAP, the starting pint fr this recnciliatin is the prfit r lss in accrdance with the previus GAAP. A recnciliatin f ttal cmprehensive incme in accrdance with previus GAAP t ttal cmprehensive incme in accrdance with IFRSs fr: the cmparable current perid; and the cmparable year-t-date perid. Nte that the date presented is an example fr an entity with a calendar year end that presents nly ne cmparative perid. If an entity changes its accunting plicies r its use f ptinal exemptins, it must: explain the changes in the interim financial reprt; and update the recnciliatins disclsed in all previus interim financial reprts Financial Reprting in Canada under IFRSs 20-81

82 CHAPTER 20 AMENDMENTS EFFECTIVE AFTER ADOPTION [IFRS 1, paras 7 8] As previusly mentined, an entity must use the same accunting plicies in its pening IFRS statement f financial psitin and thrughut all perids presented in its first IFRS financial statements. Thse accunting plicies must cmply with each IFRSs effective at the end f its first IFRSs reprting perid, unless there is a mandatry exceptin t retrspective applicatin r an ptinal exemptin frm the requirements f IFRSs. An entity may, hwever, apply a new IFRSs that is nt yet mandatry if that IFRSs permits early applicatin. Please see the specific chapters fr any amendments related t specific standards that are relevant and effective fr later reprting perids r fr upcming changes. FUTURE DEVELOPMENTS Currently, all IFRS 1 related prjects have been cmpleted and there are n pending prjects, but it is imprtant t mnitr the IASB website. COMPREHENSIVE EXAMPLES This sectin presents tw cmprehensive examples frm the financial statements f Canadian cmpanies that have adpted IFRSs. All BPO Prperties Ltd. Extracts 20(A) were btained frm the unaudited First Quarter Reprt fr the perid ended March 31, BPO Prperties Ltd. s date f transitin t IFRSs was January 1, 2009 and its first IFRSs reprting perid was the annual reprting perid ending December 31, The secnd example is Canadian Tire Crpratin, Limited. All Extracts 20(B) were btained frm the Cnslidated Financial Statements fr the year ended December 31, Canadian Tire Crpratin, Limited s date f transitin t IFRSs was January 3, 2010 and its first IFRS reprting perid was the annual reprting perid ending December 31, In reviewing the fllwing illustrative disclsures, keep in mind that sme f the specific IFRSs mentined may have changed since these cmpanies adpted IFRSs fr the first time. The extracts are prvided t give examples f the details f the disclsures and the type f recnciliatins required under IFRS 1. A use f anther type f previus GAAP wuld require ther types f disclsures. In bth f these cases, the previus GAAP was pre-changever Part V Canadian GAAP. COMPREHENSIVE EXAMPLE 20(A) BPO PROPERTIES LTD. (Q1 2010) EXTRACT 20(A1) BPO PROPERTIES LTD., PAGE 37 (Q1 2010) The cmpany presents a cnslidated statement f financial psitin as at the end f the reprting perid and cmparative year. The CSA published amendments t NI , which require the presentatin f an pening IFRS statement f financial psitin in the first IFRS interim financial reprt; therefre, in this extract, BPO presents a cnslidated pening IFRS statement f financial psitin in its interim financial reprt fr part f the perid cvered by its first IFRS financial statements Financial Reprting in Canada under IFRSs

83 FIRST-TIME ADOPTION OF IFRSs Cnslidated Balance Sheets (Unaudited) (Millins) (CDN$) Nte Mar. 31, 2010 Dec. 31, 2009 (1) Jan. 1, 2009 (1) Assets Nn-current assets Investment prperties Cmmercial prperties 4 $ 3,083.1 $ 3,056.2 $ 2,597.0 Cmmercial develpments Other nn-current assets , , ,516.5 Current assets Lan receivable Tenant receivables and ther assets Cash and cash equivalents Ttal assets $ 3,464.2 $ 3,467.0 $ 3,775.9 Liabilities Nn-current liabilities Cmmercial prperty debt 10 $ $ $ 1,024.9 Deferred incme tax liabilities , , ,433.4 Current liabilities Cmmercial prperty debt Accunts payable and ther liabilities Ttal liabilities 1, , ,732.2 Sharehlders equity 13 1, , ,043.7 Ttal liabilities and sharehlders equity $ 3,464.2 $ 3,467.0 $ 3,775.9 (1) Refer t Nte 3f fr eff ect f ad pt in f IFRS See accmpan ying gn te st the cn slid ida ted interim financi ial st atemen ments EXTRACT 20(A2) BPO PROPERTIES LTD., PAGE 38 (Q1 2010) In this extract, the cmpany presents a cnslidated statement f cmprehensive incme fr the reprting and cmparative interim perid. Nte that, fr this cmpany, prfit r lss and ttal cmprehensive incme are the same. Cnslidated Statements f Incme and Cmprehensive Incme (Unaudited) Three mnths ended Mar. 31 (Millins, except per share amunts) (CDN$) Nte (1) Cmmercial prperty peratins Revenue 14 $ 93.7 $ 77.7 Operating expenses Investment and ther incme Expenses Interest General and administrative Depreciatin Incme befre fair value gains (lsses), share f net earnings frm equity accunted investment and incme taxes Fair value gains (lsses) (15.5) (30.0) Share f net earnings frm equity accunted investment Incme befre incme taxes Incme taxes 11 (7.9) (3.2) Net incme (lss) 8.6 (1.6) Net incme (lss) per cmmn share $ 0.09 $ (0.04) (1) Refer t Nte 3f fr eff ect f ad pt in f IFRS S i t t th l id t di t i fi i l t t t 2013 Financial Reprting in Canada under IFRSs 20-83

84 CHAPTER 20 EXTRACT 20(A3) BPO PROPERTIES LTD., PAGE 39 (Q1 2010) Here, the cmpany presents a cnslidated statement f changes in equity fr the reprting and cmparative year-t-date perid. Cnslidated Statements f Changes in Sharehlders Equity (Unaudited) Three mnths ended Mar. 31 (Millins) (CDN$) (1) Preferred shares Balance at beginning f perid and end f perid $ $ Cmmn shares Balance at beginning f perid and end f perid Retained earnings Balance at beginning f perid 1, ,583.4 Net incme (lss) 8.6 (1.6) Preferred share dividends (1.2) (2.1) Cmmn share dividends (8.5) (4.2) Balance at end f perid 1, ,575.5 Sharehlders equity at end f perid $ 1,685.5 $ 2,035.6 (1) Refer t Nte 3f fr eff ffect f adpt in f IFRS See accm cmpan ying gn te st the cn slid ida ted inter terim financ anci ial st atemen ments EXTRACT 20(A4) BPO PROPERTIES LTD., PAGE 40 (Q1 2010) The cmpany presents a cnslidated statement f cash flws fr the reprting and cmparative year-t-date perid. Cnslidated Statements f Cash Flws (Unaudited) Three mnths ended Mar. 31 (Millins) (CDN$) Nte (1) Operating activities Net incme (lss) fr the perid $ 8.6 $ (1.6) Add (deduct): Fair value lsses Depreciatin Deferred incme taxes (0.4) (2.7) Straight-line rental revenue (7.0) 0.7 Accretin f debt discunt and transactin csts Share f net earnings frm equity accunted investment 5 (0.9) (1.1) Distributins received frm equity accunted investment 0.7 Initial direct leasing csts (1.0) (0.2) (Increase) decrease in tenant receivables (0.6) 4.1 Decrease (increase) in ther assets 0.3 (7.3) Increase in accunts payable and ther liabilities Cash flws prvided by perating activities Investing activities Restricted cash and depsits 0.2 Capital expenditures cmmercial develpments (3.7) (41.5) Capital expenditures cmmercial prperties (6.7) (5.2) Advances (t) frm related parties (1.5) Cash flws prvided by investing activities (11.9) 76.4 Financing activities Cmmercial prperty debt amrtizatin (3.0) (2.9) Cmmercial prperty debt arranged Cmmercial prperty debt repayments (5.3) Cmmn share dividends paid (8.5) (4.2) Preferred share dividends paid (1.2) (2.1) Cash flws (used in) prvided by financing activities (15.8) 16.4 (Decrease) increase in cash and cash equivalents (3.8) Cash and cash equivalents, beginning f perid Cash and cash equivalents, end f perid $ 47.8 $ (1) Refer t Nte 3f fr eff ect f ad pt in f IFRS See accm cmpan ying gn te st the cn slid ida ted inter terim financ anci ial st atemen ments Financial Reprting in Canada under IFRSs

85 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(A5) BPO PROPERTIES LTD., PAGE 41 (Q1 2010) In this extract, the cmpany makes a statement f cmpliance with IAS 34. Nte that the cmpany will make an explicit and unreserved statement f cmpliance with IFRSs when it issues its 2010 annual financial statements. NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (in part) NOTE E2 :S SIGN IGNIFI IFICAN CANT TA ACCO CCOUNT UNTING POLIC LICIES IES (a) Statement f cmpliance Internatinal Financial Reprting Standards ( IFRS ) requires an entity t adpt IFRS in its first annual financial statements under IFRS by making an explicit and unreserved statement in thse financial statements f cmpliance with IFRS. The Cmpany will make this statement when it issues its 2010 annual financial statements. These financial statements have been prepared in accrdance with IAS 34, Interim Financial Reprting ( IAS 34 ) as issued by the Internatinal Accunting Standards Bard ( IASB ) and using the accunting plicies the Cmpany expects t adpt in its cnslidated financial statements fr the year ending December 31, As these financial statements are the Cmpany s first financial statements prepared using IFRS, certain disclsures that are required t be included in the annual financial statements prepared in accrdance with IFRS that were accrdingly nt in the Cmpany s mst recent annual cnslidated financial statements prepared in accrdance with Canadian generally accepted accunting principles ( Canadian GAAP ) have been included in these cnslidated financial statements. These interim cnslidated financial statements shuld be read in cnjunctin with the Cmpany s 2009 annual cnslidated financial sta tem ent ts sand in cn sid sdera eati tn f the IFRS Stran sit stin di scl sures inclu cuded in Nte 3and the addit dtin al ann ual di scl sures included her ein. EXTRACT 20(A6) BPO PROPERTIES LTD., PAGE 44 (Q1 2010) The cmpany disclses the ptinal exemptins it elected t use in accrdance with IFRS 1. NOTE 3: TRANSITION TO IFRS (in part) NOTE E3 :T TRAN RANSIT SITION ION TO IFRS The Cmpany has adpt ed IFRS effective January 1, 2009 ( the transiti n date ) and has prepared its pening IFRS cnslidatedd b alance sheet et as at that date. Prir t the adptin f IFRS, the Cmpany prepared its cnslidated financial statements in accrdance with Canadian GAAP. The Cmpany s cnslidated financial statements fr the year ending December 31, 2010 will be the first annual cnslidated financial statements that cmply with IFRS. The Cmpany will ultimately prepare its pening IFRS cnslidated balance sheet by applying existing IFRS with an effective date f December 31, 2010 r prir. Accrdingly, the pening IFRS cnslidated balance sheet and the December 31, 2009 cmparative balance sheet ultimately presented in the cnslidated financial statements fr the year ending December 31, 2010 may differ frm thse presented at this time. (a) Elected exemptins frm full retrspective applicatin In preparing these cnslidated financial statements in accrdance with IFRS 1, First-time Adptin f Internatinal Financial Reprting Standards ( IFRS 1 ), the Cmpany has applied an ptinal exemptin frm full retrspective applicatin f IFRS. The ptinal exemptin applied is described belw. Business cmbinatins The Cmpany has applied the business cmbinatins exemptin in IFRS 1, t nt apply IFRS 3, Business Cmbinatins" ( IFRS 3 ) retrspectively t past business cmbinatins. Accrdingly, the Cmpany has nt restated business cmbinatins that tk place pri r t the transitin date Financial Reprting in Canada under IFRSs 20-85

86 CHAPTER 20 EXTRACT 20(A7) BPO PROPERTIES LTD., PAGE 45 (Q1 2010) The cmpany disclses the mandatry exceptins it was required t apply in accrdance with IFRS 1. NOTE 3: TRANSITION TO IFRS (in part) (b) Mand datry excepti tins t retrspe ctive appli lic atin In preparing these cnslidated financial statements in accrdance with IFRS 1, the Cmpany has applied a mandatry exceptin frm full retrspective applicatin f IFRS. The mandatry exceptin applied frm full retrspective applicatin f IFRS is described belw. Estimates Hindsight was nt used t create r revise estimates and accrdingly the estimates previusly made by the Cmpany under Canadian GAAP are cnsistent with their applicatin under IFRS. EXTRACT 20(A8) BPO PROPERTIES LTD., PAGE 45 (Q1 2010) In this extract, the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the date f transitin t IFRSs. NOTE 3: TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) (c) () Recnc ncili iliati atin f equ ity as repr ted under Canad nadian GAAP AP and IFRS The fll ll win gi is sa recn cili iatin in f th ec Cmp mpany any s sha reh lders ers e quity rep rt ed in acc rdance with Can adian an GAAP Pt i its sha reh lders ers eq quity in accrdance with IFRS at the transitin date: (Millins) Share capital Retained earnings Sharehlders equity As reprted under Canadian GAAP - December 31, 2008 $ $ $ Differences increasing (decreasing) reprted amunt: Investment prperty (i) 1, ,593.1 Deferred incme taxes (ii) (409.8) (409.8) Other (iii) As reprted under IFRS - January 1, 2009 $ $ 1,583.6 $ 2,043.7 EXTRACT 20(A9) BPO PROPERTIES LTD., PAGE 45 (Q1 2010) Here, the cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the latest perid presented in the mst recent annual financial statements in accrdance with frm pre-changever Part V Canadian GAAP. NOTE 3: TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) The fll ll win gi is a recn cili iatin in f th ec Cmpany s sha reh lders ers e quity rep rt ed in acc rdance wi th Can adian an GAAPt i its sha reh lders ers e quity in accrdance with IFRS at December 31, 2009: (Millins) Share capital Retained earnings Sharehlders equity As reprted under Canadian GAAP December 31, 2009 $ $ $ Differences increasing (decreasing) reprted amunt: Investment prperty (i) 1, ,239.5 Deferred incme taxes (ii) (304.4) (304.4) Other (iii) As reprted under IFRS December 31, 2009 $ $ 1,226.6 $ 1, Financial Reprting in Canada under IFRSs

87 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(A10) BPO PROPERTIES LTD., PAGE 45 (Q1 2010) The cmpany presents a recnciliatin f equity frm pre-changever Part V Canadian GAAP t IFRSs as at the end f the cmparable interim perid f the immediately preceding financial year. NOTE 3: TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) The fll llwin g is a recn cili iatin f th e Cmpany s sha reh lders ers equity reprt ed in accrdance wi th Canadian GAAP t its sha reh lders ers e quity in accrdance with IFRS at March 31, 2009: (Millins) Share capital Retained earnings Sharehlders equity As reprted under Canadian GAAP March 31, 2009 $ $ $ Differences increasing (decreasing) reprted amunt: Investment prperty (i) 1, ,569.9 Deferred incme taxes (ii) (404.5) (404.5) Other (iii) As reprted under IFRS March 31, 2009 $ $ 1,575.5 $ 2,035.6 EXTRACT 20(A11) BPO PROPERTIES LTD., PAGES (Q1 2010) The cmpany explains the effect f the transitin frm frm pre-changever Part V Canadian GAAP t IFRSs n equity. NOTE 3: TRANSITION TO IFRS (in part) (c) Recnciliatin f equity as reprted under Canadian GAAP and IFRS (in part) (i) Investment prperty The Cmpany cnsiders its cmmercial prperties and cmmercial develpments t be investment prperties under IAS 40, Investment Prperty ( IAS 40 ). Investment prperty includes land and buildings held primarily t earn rental incme r fr capital appreciatin r bth, rather than fr use in the prductin fr supply f gds r services r fr sale in the rdinary curse f business. Similar t Canadian GAAP, investment prperty is initially recrded at cst under IAS 40. Hwever, subsequent t initial recgnitin, IFRS requires that an entity chse either the cst r fair value mdel t accunt fr investment prperty. The Cmpany has elected t use the fair value mdel. This adjustment t retained earnings represents the cumulative unrealized gain in respect f the Cmpany s investment prperty, net f the de-recgnitin f related intangible assets and liabilities which are inherently reflected in the fair value f cmmercial prperty, and the reclassificatin f straight-line rent receivables, free-rent receivables, tenant inducement receivables and deferred rent payables. This adjustment als includes fair value adjustments, determined in a similar manner as fr cmmercial prperties and cmmercial develpments, related t the Cmpany s share f investment prperties in jintly cntrlled entities. The Cmpany s investment in the jintly cntrlled entities were prprtinately cnslidated under Canadian GAAP and are accunted fr fllwing the equity methd under IFRS. At the transitin date, the fair value f the Cmpany s cmmercial and develpment prperty prtfli was apprximately $1.6 billin greater than the carrying value under Canadian GAAP inclusive f crrespnding intangible assets f $30.3 millin, intangible liabilities f $71.9 millin, straight-line rent receivable f $18.4 millin, free-rent receivable f $8.8 millin, tenant inducement receivable f $3.4 millin and deferred rent payable f $0.6 millin. Hwever, this increase is ffset by the decnslidatin f a jint venture investment that was prprtinately cnslidated under Canadian GAAP that has been equity accunted under IFRS, with a carrying value f $173.5 millin. The Cmpany determined the fair value f each investment prperty based upn, amng ther things, rental incme frm current leases and assumptins abut rental incme frm future leases reflecting market cnditins at January 1, 2009 less future cash utflws in respect f such leases. Fair values were primarily determined by discunting the expected future cash flws, generally ver a term f 10 years including a terminal value based n the applicatin f a capitalizatin rate t the estimated year 11 cash flws. (ii) Deferred incme taxes The increase in deferred incme tax liabilities under IFRS cmpared t Canadian GAAP primarily relates t the increased carrying values f the Cmpany s cmmercial prperties and cmmercial develpments. The deferred incme tax liability under IFRS is determined by applying tax rates applicable t business incme t temprary differences that are cnsistent with the Cmpany s expectatin that the methd f realizatin will be thrugh wning and perating its pr per ties rather than thrugh sale Financial Reprting in Canada under IFRSs 20-87

88 CHAPTER 20 Extract 20(A11) BPO Prperties Ltd., pages (Q1 2010) (cntinued) (iii) Other Under IFRS, the date in which a develpment prperty is reclassified t cmmercial prperty is when the asset is in the cnditin capable f perating in the manner intended by management. This date may be earlier as cmpared t Canadian GAAP and as a result there is an adjustment t recgnize interest and ther csts previusly capitalized under Canadian GAAP int incme under IFRS. In additin, incme related t peratins that are incidental t the cnstructin f a develpment prperty are t be recgnized int incme, rather than recgnized as part f the cst f an asset during the develpment perid as permitted under Canadian GAAP. EXTRACT 20(A12) BPO PROPERTIES LTD., PAGE 46 (Q1 2010) In this extract, the cmpany presents a recnciliatin f ttal cmprehensive incme frm prechangever Part V Canadian GAAP t IFRSs fr: the latest perid in the mst recent annual financial statements; and the cmparable interim perid f the immediately preceding financial year. Nte that, fr this cmpany, prfit r lss and ttal cmprehensive incme are the same. NOTE 3: TRANSITION TO IFRS (in part) (d) Recnciliatin f Net Incme As Reprted Under Canadian GAAP and IFRS (in part) (d) Recnc ncili iliati atin f Net Incm cme ea As Repr ted Under Canad nadian GAAP AP and IFRS The fll ll win gi is a recn cili iatin in f th ec Cmpany s net incme rep rted di in acc rdance wi th Can adian an GAAPt i its net incm ei in accr crdan dance with IFRS fr the year ended December 31, 2009 and the three mnths ended March 31, 2009: (Millins) Nte Three mnths ended Mar. 31, 2009 Year ended Dec. 31, 2009 As reprted under Canadian GAAP $ 16.0 $ 61.5 Differences increasing (decreasing) reprted amunt: Investment prperty (i) (26.1) (352.2) Lease accunting (ii) (0.5) (1.5) Deferred incme taxes (iii) Other (iv) Net lss as reprted under IFRS $ (1.6) $ (185.0) EXTRACT 20(A13) BPO PROPERTIES LTD., PAGES (Q1 2010) The cmpany explains the effect f the transitin frm frm pre-changever Part V Canadian GAAP t IFRSs n ttal cmprehensive incme. Nte that, fr this cmpany, prfit r lss and ttal cmprehensive incme are the same. NOTE 3: TRANSITION TO IFRS (in part) (d) Recnciliatin f Net Incme As Reprted Under Canadian GAAP and IFRS (in part) (i) Investment prperty In accrdance with IFRS and the Cmpany s plicy chice, the Cmpany measures investment prperty at fair value and recrds changes in fair value in incme during the perid f change. Under Canadian GAAP, cmmercial prperty was recrded at cst and depreciated ver its estimated life. In additin, the amrtizatin f intangible assets and liabilities recgnized n acquisitin f investment prperty was amrtized t revenue under Canadian GAAP, which will n lnger be the case under IFRS as the value f the intangib le assets andl liabilitiesa are cnsidereded in the determinatin f the fair value f the investment pr per ty Financial Reprting in Canada under IFRSs

89 FIRST-TIME ADOPTION OF IFRSs Extract 20(A13) BPO Prperties Ltd., pages (Q1 2010) (cntinued) The effect n incme f these differences is as fllws: (Millins) Three mnths ended Mar. 31, 2009 Year ended Dec. 31, 2009 Fair value gains (lsses) recrded under IFRS $ (30.0) $ (376.4) Fair value gains (lsses) recrded under IFRS, equity accunted investment (6.5) (17.8) Amrtizatin f abve and belw market leases recrded under Canadian GAAP (2.5) (8.8) Depreciatin and amrtizatin recrded under Canadian GAAP Difference $ (26.1) $ (352.2) (ii) Lease accunting Cnsistent with Canadian GAAP, IFRS requires rental revenue frm perating leases t be recgnized n a straight-line basis ver the term f the lease. Hwever, Canadian GAAP adpted this accunting n a prspective basis in 2004 and as a result this adjustment reflects the amunts that wuld be recgnized as rental revenue under IFRS had the applicable leases been accunted fr n a straight-line basis since their inceptin. (iii) Deferred incme taxes The adjustment related t deferred taxes reflects the change in temprary differences resulting frm the impact f the abve differences between IFRS and Canadian GAAP nt already recrded in net incme. (iv) Other Under IFRS, the date in which a develpment prperty is reclassified t a cmmercial prperty is when the asset is in the cnditin capable f perating in the manner intended by management. This date may be earlier as cmpared t Canadian GAAP and as a result there is an adjustment t recgnize interest and ther csts previusly capitalized under Canadian GAAP int incme under IFRS. In additin, incme related t peratins that are incidental t the cnstructin f a develpment prperty are t be recgnized int incme, rather than recgnized as part f the cst f an asset during the develpment perid as permitted under Canadian GAAP. EXTRACT 20(A14) BPO PROPERTIES LTD., PAGE 47 (Q1 2010) The cmpany has nt revised its designatin f financial assets and financial liabilities. NOTE 3: TRANSITION TO IFRS (in part) (e) Upn the ad ptin f IFRS, all previusly recgnized fina nci al assets and fina nci al liabilities i have been designat ed cnsistent with the designatins under Canadian GAAP. The fair value f the financial assets and liabilities designated as FVTPL under IFRS apprximates their carryiryi ng amunt under Canadian GAAP. AP. EXTRACT 20(A15) BPO PROPERTIES LTD., PAGE 47 (Q1 2010) The cmpany prvides an explanatin f material adjustments t the statement f cash flws. NOTE 3: TRANSITION TO IFRS (in part) (f) There were en mate aterial ladju stments st the cash hflw statement tas sare result tf fthe cnversin nt IFRS FRS Financial Reprting in Canada under IFRSs 20-89

90 CHAPTER 20 COMPREHENSIVE EXAMPLE 20(B) CANADIAN TIRE CORPORATION, LIMITED (CFS 2011) EXTRACT 20(B1) CANADIAN TIRE CORPORATION, LIMITED, PAGE 84 (CFS 2011) In this extract, the cmpany presents cnslidated statements f incme fr the reprting and cmparative year. Nte that there is a reference t Nte 44, which is the detailed transitin nte fr the cmparative year. Cnslidated Statements f Incme Fr the years ended (C$ in millins except per share amunts) December 31, 2011 January 1, 2011 (Nte 44) Revenue (Nte 32) $ 10,387.1 $ 9,213.1 Cst f prducing revenue (Nte 33) (7,326.4) (6,422.1) Grss margin 3, ,791.0 Other incme Operating expenses Distributin csts (329.2) (296.3) Sales and marketing expenses (1,286.3) (1,090.4) Administrative expenses (701.5) (682.9) Ttal perating expenses (Nte 34) (2,317.0) (2,069.6) Operating incme Finance incme Finance csts (155.2) (168.1) Net finance csts (Nte 36) (132.2) (135.7) Incme befre incme taxes Incme taxes (Nte 37) (162.9) (142.6) Net incme $ $ Basic earnings per share $ 5.73 $ 5.45 Diluted earnings per share $ 5.71 $ 5.42 Weighted average number f Cmmn and Class A Nn-Vting Shares utstanding Basic (Nte 30) 81,447,398 81,565,476 Weighted average number f Cmmn and Class A Nn-Vting Shares utstanding Diluted (Nte 30) 81,803,786 81,905,012 The related ntes frm an integral part f these cnslidat lidated financia ancial statement ements Financial Reprting in Canada under IFRSs

91 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(B2) CANADIAN TIRE CORPORATION, LIMITED, PAGE 85 (CFS 2011) The cmpany presents cnslidated statements f cmprehensive incme fr the reprting and cmparative year. Nte that there is a reference t Nte 44, which is the detailed transitin nte fr the cmparative year. Cnslidated Statements f Cmprehensive Incme Fr the years ended (C$ in millins) December 31, 2011 January 1, 2011 (Nte 44) Net incme $ $ Other cmprehensive incme (lss) Derivatives designated as cash flw hedges: Gains/(lsses), net f tax f $0.4 (2010 $24.2) 0.8 (53.7) Reclassificatin f lsses t nn-financial asset, net f tax f $15.6 (2010 $26.3) Reclassificatin f lsses t incme, net f tax f $0.4 (2010 $1.9) Available-fr-sale financial assets: Gains, net f tax f $3.5 (2010 $nil) Reclassificatin f (gains)/lsses t incme, net f tax f $2.9 (2010 $nil) (7.4) Actuarial adjustments, net f tax f $4.9 (2010 $2.1) (Nte 28) (14.2) (6.2) Ttal ther cmprehensive incme Ttal cmprehensive incme $ $ The related ntes frm an integral part f these cnslidated financial statements Financial Reprting in Canada under IFRSs 20-91

92 CHAPTER 20 EXTRACT 20(B3) CANADIAN TIRE CORPORATION, LIMITED, PAGE 83 (CFS 2011) Here, the cmpany presents: cnslidated balance sheets (statements f financial psitin) as at the end f the reprting and cmparative year; and a cnslidated pening IFRS balance sheet (statement f financial psitin) as at January 3, 2010, the date f transitin. Cnslidated Balance Sheets As at (C$ in millins) December 31, 2011 January 1, 2011 January 3, 2010 (Nte 44) (Nte 44) ASSETS Cash and cash equivalents (Nte 9) $ $ $ Shrt-term investments (Nte 10) Trade and ther receivables (Nte 11) Lans receivable (Nte 12) 4, , ,008.7 Merchandise inventries 1, Incme taxes recverable Prepaid expenses and depsits Assets classified as held fr sale (Nte 13) Ttal current assets 6, , ,893.0 Lng-term receivables and ther assets (Nte 14) Lng-term investments (Nte 15) Gdwill and intangible assets (Nte 16) 1, Investment prperty (Nte 17) Prperty and equipment (Nte 18) 3, , ,210.4 Deferred incme taxes (Nte 19) Ttal assets $ 12,338.8 $ 11,048.5 $ 11,407.2 LIABILITIES Bank indebtedness (Nte9) $ $ $ 83.7 Depsits (Nte 20) 1, Trade and ther payables (Nte 21) 1, , ,192.9 Prvisins (Nte 22) Shrt-term brrwings (Nte 24) Lans payable (Nte 25) Incme taxes payable 3.9 Current prtin f lng-term debt (Nte 26) Ttal current liabilities 4, , ,971.9 Lng-term prvisins (Nte 22) Lng-term debt (Nte 26) 2, , ,441.1 Lng-term depsits (Nte 20) 1, , ,196.9 Deferred incme taxes (Nte 19) 66.1 Other lng-term liabilities (Nte 27) Ttal liabilities 7, , ,764.1 SHAREHOLDERS EQUITY Share capital (Nte 29) Cntributed surplus Accumulated ther cmprehensive incme (lss) 11.0 (32.3) (38.6) Retained earnings 3, , ,961.1 Ttal sharehlders equity 4, , ,643.1 Ttal liabilities and sharehlders equi ty $1 2, $ 11,,048.5 $ 11, Financial Reprting in Canada under IFRSs

93 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(B4) CANADIAN TIRE CORPORATION, LIMITED, PAGE 87 (CFS 2011) In this extract, the cmpany presents cnslidated statements f changes in equity fr the reprting and cmparative year. Cnslidated Statements f Changes in Sharehlders Equity Fair value changes in available-frsale financial assets Ttal accumulated ther cmprehensive incme (lss) Ttal sharehlders equity Share Cntributed Cashflw Retained (C$ in millins) capital surplus hedges earnings Balance at January 1, 2011 (Nte 44) $ $ 0.3 $ (32.4) $ 0.1 $(32.3) $ 3,325.3 $ 4,004.9 Ttal cmprehensive incme Net incme Other cmprehensive incme (lss) Derivatives designated as cash flw hedges: Gains, net f tax f $ Reclassificatin f lsses t nn-financial asset, net f tax f $ Reclassificatin f lsses t incme, net f tax f $ Available-fr-sale financial assets: Gains, net f tax f $ Reclassificatin f gains t incme, net f tax f $2.9 (7.4) (7.4) (7.4) Actuarial adjustments, net f tax f $4.9 (14.2) (14.2) Ttal ther cmprehensive incme (lss) (14.2) 29.1 Ttal cmprehensive incme Cntributins by and distributins t sharehlders Issue f Class A Nn-Vting Shares (Nte 29) Repurchase f Class A Nn-Vting Shares (Nte 29) (11.9) (11.9) Excess f issue price ver repurchase price (Nte 29) (0.8) 0.8 Dividends (Nte 29) (91.7) (91.7) Ttal cntributins by and distributins t sharehlders (1.1) 0.8 (91.7) (92.0) Balance at December 31, 2011 $ $ 1.1 $ 9.4 $ 1.6 $ 11.0 $ 3,686.4 $ 4,409.0 Balance at January 3,2010 (Nte 44) $ $ 0.2 $ (38.6) $ $ (38.6) $ 2,961.1 $ 3,643.1 Ttal cmprehensive incme Net incme Other cmprehensive incme (lss) Derivatives designated as cash flw hedges: Lsses, net f tax f $24.2 (53.7) (53.7) (53.7) Reclassificatin f lsses t nn-financial asset, net f tax f $ Reclassificatin f lsses t incme, net f tax f $ Available-fr-sale financial assets: Gains, net f tax f $nil Reclassificatin f lsses t incme, net f tax f $nil Actuarial adjustments, net f tax f $2.1 (6.2) (6.2) Ttal ther cmprehensive incme (lss) (6.2) 0.1 Ttal cmprehensive incme Cntributins by and distributins t sharehlders Issue f Class A Nn-Vting Shares (Nte 29) Repurchase f Class A Nn-Vting Shares (Nte 29) (25.4) (25.4) Excess f issue price ver repurchase price (Nte 29) (0.1) 0.1 Dividends (Nte 29) (73.8) (73.8) Ttal cntributins by and distributins t sharehlders (8.8) 0.1 (73.8) (82.5) Balance at January 1, 2011 (Nte 44) $ $ 0.3 $ (32.4) $ 0.1 $ (32.3) $ 3,325.3 $ 4, Financial Reprting in Canada under IFRSs 20-93

94 CHAPTER 20 EXTRACT 20(B5) CANADIAN TIRE CORPORATION, LIMITED, PAGE 86 (CFS 2011) The cmpany presents cnslidated statements f cash flws fr the reprting and cmparative year. Cnslidated Statements f Cash Flws Fr the years ended (C$ in millins) December 31, 2011 January 1, 2011 (Nte 44) Cash generated frm (used fr): Operating activities Net incme $ $ Adjustments fr: Impairment n lans receivable (Nte 12) Depreciatin n prperty and equipment and investment prperty Incme tax expense Net finance csts Amrtizatin f intangible assets Changes in fair value f derivative instruments (3.1) (16.0) Other Gain n revaluatin f shares (Nte 8) (10.4) 1, ,337.9 Changes in wrking capital and ther (Nte 38) (293.1) Cash generated frm perating activities befre interest and taxes 1, ,044.8 Interest paid (176.6) (190.5) Interest received Incme taxes paid (63.7) (131.5) Cash generated frm perating activities 1, Investing activities Acquisitin f FGL Sprts (Nte 8) (739.9) Acquisitin f shrt-term investments (334.8) (215.5) Acquisitin flng-term investments (123.1) (70.5) Additins t prperty and equipment and investment prperty (230.5) (237.9) Additins t intangible assets (128.9) (70.4) Lng-term receivables and ther assets (3.2) 16.5 Prceeds frm the dispsitin f lng-term investments 18.1 Prceeds frm the dispsitin f shrt-term investments Other Cash used fr investing activities (1,161.4) (443.2) Financing activities Issuance f lng-term debt Issuance f shrt-term brrwings 2, ,160.3 Repayment f shrt-term brrwings (2,666.7) (1,222.7) Issuance f lans payable Repayment flans payable (187.6) (318.8) Issuance f share capital (Nte 29) Repurchase f share capital (Nte 29) (11.9) (25.4) Repayment f lng-term debt and finance lease liabilities (355.6) (690.8) Dividends paid (89.6) (68.5) Payment f transactin csts related t lng-term debt (1.7) Cash used fr financing activities (493.7) (638.0) Cash used in the year (249.6) (351.7) Cash and cash equivalents, net f bank indebtedness, beginning f year Effect f exchange rate fluctuatins n cash held (0.3) 0.5 Cash and cash equivalents, net f bank indebtedness, end f year (Nte 9) $ $ Financial Reprting in Canada under IFRSs

95 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(B6) CANADIAN TIRE CORPORATION, LIMITED, PAGE 88 (CFS 2011) Here, the cmpany makes an explicit and unreserved statement f cmpliance with IFRSs. 2. Basis f Presentatin (in part) Statement fcmpliance These cnslidated financial statements have been prepared in accrdance with Internatinal Financial Reprting Standards ( IFRS ) and using the accunting plicies described herein. These are the Cmpany s first annual cnslidated financial statements reprted under IFRS fr the 52-week perid ended December 31, 2011 with cmparatives fr the 52-week perid ended January 1, 2011, and IFRS 1 First-time Adptin f IFRS ( IFRS 1 ) has been applied. An explanatin f hw the transitin frm previus Canadian Generally Accepted Accunting Principles t IFRS as at January 3, 2010 ( Transitin Date ) has affected the reprted financial psitin, financial perfrmance and cash flws f the Cmpany, including the mandatry exceptins and ptinal exemptins under IFRS, is prvidedin Nte 44. These e cnsli slidate dated d financi ancial al statem atements ents were appr ved by th e Cmpany y s sbard f Direct ectrs n March 15, EXTRACT 20(B7) CANADIAN TIRE CORPORATION, LIMITED, PAGE 139 (CFS 2011) Nte 44 is the cmpany s transitin nte. In this extract, the cmpany summarizes the transitin and disclses the changes in presentatin that were required in its cnslidated statements f incme and cnslidated balance sheets. 44. Transitin t IFRS (in part) The Cmpa mpany has adpted IFRS effectiv ctive January 2, Prir t the adpti ptin nfifrs FRS, the Cmpa mpany presen esented its financ nancial state tatement ments sinaccr ccrdanc dance with previus Canadian Generally Accepted Accunting Principles ( previus GAAP ). As a result, the 2010 cmparative infrmatin has been adjusted frm amunts previus reprted in the Cmpany s financial statements prepared in accrdance with previus GAAP. IFRS 1 First-time Adptin f Internatinal Financial Reprting Standards ( IFRS 1 ), requires first-time adpters t apply IFRS Standards retrspectively as if IFRS had been in effect frm the date f the Cmpany s inceptin. The Cmpany s transitin date is January 3, 2010 (the Transitin Date ) and an pening Cnslidated Balance Sheet has been prepared as at that date. These cnslidated financial statements have been presented in accrdance with the IFRS accunting plicies discussed in Nte 3. A. Presentatin f cnslidated financial statements Cnslidated Statements f Incme functin f expense presentatin The Cmpany has chsen t present the Cnslidated Statements f Incme n the functin f expense r cst f sales frmat. The Cmpany has determined that presenting expenses based n functin prvides mre meaningful and relevant infrmatin t users f its financial statements. Additinal infrmatin n the nature f expenses is disclsed in Nte 34. The mre significant change t the Cmpany s Cnslidated Statements f Incme is the separate presentatin f cst f merchandise sld and all ther perating expenses except fr the undernted items under previus GAAP int cst f prducing revenue and perating expenses distributin csts; sales and marketing expenses; and administrative expenses. Depreciatin and amrtizatin are nw included in each f these classificatins as applicable. In additin, interest n depsits has been reclassified frm net interest expense t cst f prducing revenue. A full recnciliatin f the Cnslidated Statements f Incme reprted under previus GAAP t that prepared under IFRS is presented in sectin G. Cnslidated Balance Sheets IFRS requires certain items, sme f which the Cmpany previusly gruped tgether, t be presented separately n the face f the Cnslidated Balance Sheets. Such items include investment prperty, prvisins, and assets classified as held fr sale. As part f the transitin t IFRS, the term future incme taxes has been replaced with deferred incme taxes. Under IFRS all deferred tax assets r liabilities are classified as nn-current. Furthermre, as a result f applying the IFRS 1 exemptin, certain financial assets have been reclassified frm held fr trading t available-fr-sale. These reclassificatins fr presentatin under IFRS are shwn in the restated Cnslidated Balance Sheets as IFRS Reclassificatins in sectin G. A full recnciliatin f the Cnslidated Balance Sheets reprted under previus GAAP t that prepared under IFRS ispresented in sectin G Financial Reprting in Canada under IFRSs 20-95

96 CHAPTER 20 EXTRACT 20(B8) CANADIAN TIRE CORPORATION, LIMITED, PAGES (CFS 2011) The cmpany disclses the ptinal exemptins it elected t use in accrdance with IFRS Transitin t IFRS (in part) B. Opti tin al ex emptins frm full retrspe ctive appli licati tin IFRS 1 prvides entities preparing their first IFRS cmpliant financial statements with several ptinal exemptins frm full retrspective applicatin f IFRS. The Cmpany has applied certain f these ptinal exemptins as described belw. Business cmbinatins This exemptin allws the Cmpany t nt apply IFRS 3 Business Cmbinatins retrspectively t past business cmbinatins. The Cmpany has elected t apply this exemptin and therefre has nt restated business cmbinatins that tk place prir t the Transitin Date. Any gdwill arising n such business cmbinatins befre the Transitin Date remains at the carrying value determined under previus GAAP. Share-based payment transactins This exemptin allws the Cmpany tnt apply IFRS 2 Share-based Payments ( IFRS 2 ) tequity instruments granted n r befre Nvember 7,2002, r t equity instruments granted after Nvember 7, 2002 and vested befre the Transitin Date. The Cmpany has elected nt t apply IFRS 2 t equity instruments granted n r befre Nvember 7, 2002 and t equity instruments granted after Nvember 7, 2002 that had vested by the Transitin Date. Fair value as deemed cst This exemptin allws the Cmpany tinitially measure an item fprperty and equipment, investment prperty, r intangible asset at its fair value, r an amunt determined by a previus GAAP revaluatin and use that amunt as deemed cst as at the Transitin Date n an asset by asset basis. The Cmpany h as electe ected nt t apply ply py t his exemp xemptin tin. Emplyee benefits This exemptin permits the Cmpany t reset its cumulative unamrtized actuarial gains and lsses t zer by recgnizing the full amunt in pening retained earnings as at January 3, The Cmpany has elected t apply this exemptin. Cumulative translatin differences This exemptin permits the Cmpany t reset its cumulative translatin differences t zer by recgnizing the full amunt in pening retained earnings asat January 3, The Cmpany has elected t apply this exemptin. Designatin f previusly recgnized financial instruments This exemptin permits an entity t designate any financial asset that qualifies as available-fr-sale atthe Transitin Date. Additinally, at the date f transitin t IFRS, the Cmpany is permitted t designate any financial instrument that qualifies as fair value thrugh prfit r lss. The Cmpany has applied this exemptin t certain f its financial assets. These financial instruments were previusly designated as held fr trading and were carried in the Cmpany s annual audited financial statements as at January 2, 2010 at their fair value f $75.0 millin. Decmmissining liabilities included in the cst f prperty and equipment This exemptin permits the Cmpany t nt cmply with IFRIC 1 Changes in Existing Decmmissining, Restratin and Similar Liabilities ( IFRIC 1 ). IFRIC 1 requires specified changes in the measurement f a decmmissining, restratin r similar liability t be added t r deducted frm the cst f the asset t which it relates. The Cmpany has elected t apply this exemptin. Brrwing csts This exemptin allws the Cmpany tadpt IAS 23 Brrwing Csts, which requires the capitalizatin f brrwing csts n all qualifying assets, prspectively frm the Transitin Date. The Cmpany has elected t apply this exemptin. Leases This exemptin applies t first-time adpters wh have made a determinatin f whether an arrangement cntained a lease in accrdance with aprevius GAAP. If the determinatin made under the entity s previus GAAP wuld have given the same utcme as that resulting frm applying IAS 17 Leases and IFRIC 4 Determining whether an Arrangement cntains a Lease, then the first-time adpter need nt reassess that determinatin when it adpts IFRS. The Cmpany has elected t apply this exemptin, and as a result has nt reassessed its arrangements. Insurance This exemptin allws the Cmpany t apply the transitinal prvisins in IFRS 4 Insurance Cntracts ( IFRS 4 ). IFRS 4 restricts changes in accunting plicies fr insurance cntracts including changes made by a first-time adpter. The Cmpany has elected t apply this exemptin Financial Reprting in Canada under IFRSs

97 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(B9) CANADIAN TIRE CORPORATION, LIMITED, PAGE 140 (CFS 2011) The cmpany disclses the mandatry exceptins t retrspective applicatin it was required t apply in accrdance with IFRS Transitin t IFRS (in part) C. Mandatry exceptins t retrspective applicatin f IFRS In preparing these cnslidated financial statements in accrdance with IFRS 1 the Cmpany has applied the fllwing mandatry exceptins frm full retrspective applicatin f IFRS. Hedge accunting As required by IAS 39 Financial Instruments: Recgnitin and Measurement, the Cmpany has measured all derivatives at fair value and eliminated all deferred gains and lsses arising n derivatives that were reprted in accrdance with previus GAAP as if they were assets r liabilities. Only hedging relatinships that satisfied the hedge accunting criteria as f the Transitin Date are reflected as hedges in the IFRS financial statements. Estimates Estimates madebyt he Cmpan y und er pr evius GAAPAP are cnsistent with their appl icatinin under IFRS. EXTRACT 20(B10) CANADIAN TIRE CORPORATION, LIMITED, PAGES (CFS 2011) In this extract, the cmpany explains the effect f the transitin frm pre-changever Part V Canadian GAAP t IFRSs n the change in equity, with detailed nte disclsure explaining each change. A recnciliatin f the sharehlders equity frm previus GAAP t IFRSs is prvided. 44. Transitin t IFRS (in part) D. Recnc cncilia iliatin f Shareh arehlde lders Eq quit y frm pre vius GAAP PtIFRS The fllwing is a recnciliatin f the Cmpany s ttal Sharehlders Equity reprted in accrdance with previus GAAP t its Sharehlders Equity reprted in accrdance with IFRS fr the fllwing dates: (C$ in millins) Nte January 1, 2011 January 3, 2010 Ttal Sharehlders' Equity as reprted under previus GAAP $ 4,066.7 $ 3,687.9 Transitinal adjustments: Prperty and equipment i (1.0) (0.6) Impairment ii (2.5) (1.3) Leases iii Prvisins iv (24.9) (24.7) Lyalty prgrams v (1.2) (1.6) Emplyee benefits vi (22.0) (14.2) Share-based payments vii (6.0) (6.7) Cnslidatin viii (0.2) Securitizatin ix (48.0) (49.2) Financial instruments x Freign exchange translatin xi Incme taxes xii Other 0.2 Ttal transitinal adjustments (61.8) (44.8) Ttal Sharehlders' Equity as reprted under IFRS $ 4,004.9 $ 3,643.1 The fllwing is an explanatin f the adjustments t sharehlders equity: (i) Prperty and equipment IAS 16 Prperty, Plant andequipment requires the Cmpany t cmpnentize the amunt initially recgnized in respect f an item f prperty, plant and equipment int its significant parts and depreciate each part separately ver its respective useful life. The Cmpany determined that certain f its supply chain assets have additinal separable parts r cmpnents. These cmpnents were separately depreciated ver their useful lives, resulting inahigher depreciatin charge. Furthermre, insurance prceeds and rental prceeds netted against the cst f prperty and equipment under previus GAAP have been reclassified t net incme under IFRS. (ii) Impairment IFRS requires impairment testing f gdwill, intangibles and tangible assets at the CGU level. Under previus GAAP, the Cmpany tested gdwill at the reprting unit level. This change resulted in an impairment f gdwill assciated with ne f its CGUs in the Retail perating segment. Under previus GAAP, tangible and intangible assets ther than gdwill were tested fr impairment by first cmparing the undiscunted cash flws generated bythe asset r grup f assets t the carrying amunt. If the applicatin f this first test indicated that there was an impairment, the amunt f the impairment was then calculated by cmparing the discunted cash flws t the carrying amunt f the asset r grup f assets. Under IFRS, impairment testing is perfrmed by immediately cmparing discunted cash flws t the carrying amunt f an asset r grup f assets. As a result, the Cmpany recrded impai rments n certain f its lng-lived assets in its Retail pera ting segm ent Financial Reprting in Canada under IFRSs 20-97

98 CHAPTER 20 Extract 20(B10) Canadian Tire Crpratin, Limited, pages (CFS 2011) (cntinued) (iii) Leases There are tw impacts t the Cmpany f adpting lease accunting under IFRS: (a) the reclassificatin f certain leases frm perating t finance, and (b) the accunting fr deferred gains and lsses n previus sale and leaseback transactins. (a) Under previus GAAP, the Cmpany classified a lease as perating r finance based n quantitative bright-line tests. Under IFRS, the assessment must be made based n aqualitative analysis f risks and rewards. As a result f the qualitative analysis, the Cmpany identified certain IT and supply chain leases where the Cmpany btains the majrity f the risks and rewards incidental t wnership. These leases were reclassified frm perating t finance leases. As a result, the Cmpany has retrspectively recrded leased assets and finance lease bligatins, as well as an adjustment t retained earnings based n the difference between the lease payments under previus GAAP and the depreciatin and interest (accretin) recrded n the finance leases under IFRS. (b) Under IFRS, any gains r lsses n sale and leaseback transactins that were established at fair value and where the leaseback transactin results in an perating lease must be recgnized immediately. Under previus GAAP, the Cmpany was amrtizing the gains r lsses ver the lease term. As a result, the Cmpany has recgnized the remaining balance f deferred gains n its perating sale and leaseback transactins in pening retained earnings. (iv) Prvisins Under IFRS, reserves and/r accruals fr which there is a significant degree f uncertainty abut the amunt r timing f the payment are classified as prvisins. In additin, a prvisin must be discunted when the time-value f mney is material. Therefre, the Cmpany reclassified certain accruals t prvisins and has discunted these prvisins where applicable. Furthermre, IFRS specifies that the discunt rate applied t the prvisin must be the rate that reflects the risks assciated with the bligatin. Under previus GAAP, the Cmpany measured its prvisins fr asset retirement bligatins using the credit-adjusted risk-free rate f interest. As a result, the Cmpany has remeasured its prvisins fr asset retirement bligatins, which are nw referred t as site restratin and decmmissining prvisins under IFRS. Under previus GAAP, reserves and accruals are nly recrded when a legal bligatin exists. Under IFRS prvisins are recrded fr bth legal and cnstructive bligatins. A cnstructive bligatin exists when an actin by the Cmpany indicates t a third party that it will accept certain respnsibilities, and creates a valid expectatin n the part f that third party that it will discharge thse respnsibilities. (v) Lyalty prgrams IFRIC 13 Custmer Lyalty Prgrammes requires award credits granted as part f asales transactin t be accunted fr as a separate cmpnent f revenue earned n the transactin. Revenue earned n the transactin is allcated t the award credit based n its fair value and deferred until the award credits are redeemed, unless a third party prvides the awards, in which case revenue is deferred until the Cmpany fulfills its bligatins t the custmer in respect f the awards. As a result, the Cmpany has deferred revenue earned n transactins relating t its lyalty prgrams until the Cmpany has fulfilled its bligatin t the custmer. (vi) Emplyee benefits Under previus GAAP, the Cmpany was using the crridr methd t amrtize actuarial gains and lsses. On transitin t IFRS, thecmpany elected t reset all cumulative unamrtized actuarial gains and lsses t zer as at the Transitin Date. Cumulative actuarial gains and lsses that existed at the Transitin Date were recgnized in pening retained earnings fr the Cmpany s emplyee benefit plans. (vii) Share-based payments Under previus GAAP, the bligatin fr cash settled share-based awards was revalued at each reprting perid based n the intrinsic value f each award and the prtin vested. Under IFRS, the bligatin fr cash-settled awards was remeasured at each reprting date based n the fair value f each award and the prtin vested. Under previus GAAP, the Cmpany recgnized frfeitures f share-based awards as they ccurred. Under IFRS, anestimate is required f the number f awards expected t vest, which is revisedifsubsequent infrmatin indicates that actual frfeitures are likely tdiffer frm the estimate. As a result, the Cmpany adjusted its liability fr share-based awards. Under previus GAAP, the Cmpany recgnized the ttal fair value f share-based awards with graded vesting n a straight-line basis ver the emplyment perid necessary t vest the award. Under IFRS, the Cmpany recgnized the fair value f each tranche in an award with graded vesting n astraight-line basis ver the vesting perid f the tranche. (viii) Cnslidatin Glacier Credit Card Trust ( GCCT ) GCCT was frmed t buy c-wnership interests in the Cmpany s credit card lans. GCCT issues debt t third-party investrs t fund its purchases. Under previus GAAP, GCCT was determined t be a qualifying SPE and was therefre exempt frm cnslidatin. Under IFRS, thecmpany is required t cnslidate an entity that it cntrls based n the criteria set frth in SIC 12 Cnslidatin Special Purpse Entities ( SIC 12 ). The Cmpany determined that it cntrls GCCT and is therefre required t cnslidate GCCT under IFRS. Dealer lan prgram Franchise Trust, a legal entity spnsred by a third party bank, riginates lans t Dealers fr their purchase f inventry and fixed assets. The Cmpany has arranged fr several majr Canadian banks t prvide standby letters f credit t Franchise Trust t supprt the credit quality f the lan prtfli. The Cmpany was nt required t cnslidate any part f Franchise Trust under previus GAAP. Under IFRS, thecmpany is required t cnslidate an entity/ arrangement (r a prtin theref) it is cnsidered t cntrl based n the criteria set frth in IAS 27 and SIC 12. The Cmpany has determined that it cntrls the prtin (sil) f Franchise Trust that issues lans t Dealers under the Dealer lan prgram and accrdingly, is required t cnslidate the sil f Franchis chise Trust cntai ntaining ning the Deale ealer lan pr gram Financial Reprting in Canada under IFRSs

99 FIRST-TIME ADOPTION OF IFRSs Extract 20(B10) Canadian Tire Crpratin, Limited, pages (CFS 2011) (cntinued) (ix) Securitizatin Since 1995, the Cmpany has securitized credit card receivables thrugh GCCT. Under previus GAAP, the Cmpany recrded a gain/lss n sale and derecgnized the credit card receivables. Under IFRS, an entity may nt derecgnize an asset when it maintains the majrity f the risks and rewards assciated with the asset. Therefre, the securitizatin transactins n lnger qualify fr derecgnitin under IFRS and the Cmpany must recgnize the receivables in the Cnslidated Balance Sheets. Accrdingly, the gain/lss n the sale f the receivables was reversed. (x) Financial instruments Hedging with ptins Under IFRS, the Cmpany is required t reflect the time value f freign exchange ptins in the Cnslidated Statements f Incme. Under previus GAAP, the fair market value f the freign exchange ptins prtfli was recrded as an adjustment t inventry (fr gds where title f wnership had transferred) r OCI (fr future merchandise yettbe purchased). Under IFRS, the time value cmpnent f the fair market valuatin f the freign exchange ptins prtfli is recrded in the Cnslidated Statements f Incme rather than in OCI, which results in new incme statement vlatility ging frward under IFRS. Debt issuance csts Under IFRS, all transactin csts that are directly attributable t the issuance f debt must be capitalized and amrtized ver the term f the debt. Under previus GAAP, the Cmpany expensed these transactin csts as incurred. As a result, csts previusly expensed are retrspectively capitalized in the Cnslidated Balance Sheets and netted against the utstanding debt. Allwance fr impairment f lans receivable Under bth previus GAAP and IFRS, the Cmpany determines its allwance fr impairment f lans receivable using an incurred lss mdel. Hwever, IFRS requires bjective evidence f a lss having ccurred prir t recrding impairment n a financial asset. IFRS als prvides mre detailed guidance n lss events, impairment analysis, and when an impairment is permitted. This increased guidance has resulted in an increase in the Cmpany s impairment allwance. (xi) Freign exchange translatin The Cmpany elected t reset all cumulative translatin differences t zer as at the Transitin Date. Cumulative translatin differences that existed at the Transitin Date were fully recgnized in pening retained earnings. (xii) Incme taxes This adjustment reflects the change in current r deferred incme taxes resulting frm the effect f the IFRS adjustments described as allwed under IAS 12 Incme Taxes. EXTRACT 20(B11) CANADIAN TIRE CORPORATION, LIMITED, PAGE (CFS 2011) In this extract, the cmpany presents a recnciliatin f net incme and ttal cmprehensive incme frm pre-changever Part V Canadian GAAP t IFRSs fr the latest perid in the mst recent annual financial statements, the 52-week perid ended January 1, Detailed nte disclsure describing each change is als prvided. 44. Transitin t IFRS (in part) E. Recnciliatin f Net Incme and Cmprehensive Incme frm previus GAAP tifrs The fllwing is a recnciliatin f the Cmpany s Net incme and Cmprehensive incme reprted in accrdance with previus GAAP t its Net incme and Cmprehensive incme in accrdance with IFRS fr the 52 weeks ended January 1, 2011: (C$ in millins) Ntes 52 weeks ended January 1, 2011 Net incme as reprted under previus GAAP $ Transitinal adjustments: Prperty and equipment i (0.4) Impairment ii (1.2) Leases iii (12.6) Prvisins iv (0.2) Lyalty prgrams v 0.4 Emplyee benefits vi 0.5 Share-based payments vii 0.7 Cnslidatin viii (0.2) Securitizatin ix 1.2 Financial instruments x 1.3 Incme taxes xi 0.9 Other 0.2 Ttal transitinal adjustments (9.4) Net i ncmeasrepr epr ted under IFRS $ Financial Reprting in Canada under IFRSs 20-99

100 CHAPTER 20 Extract 20(B11) Canadian Tire Crpratin, Limited, page (CFS 2011) (cntinued) (C$ in millins) Ntes 52 week ks end ed January 1, 2011 Cmprehensive incme as reprted under previus GAAP $ Transitinal adjustments: Adjustments t net incme (9.4) Emplyee benefits vi (6.2) Financial instruments x (1.4) Cmprehensive incme as reprted under IFRS $ The fllwing is an explanatin f the adjustments t net incme and cmprehensive incme: (i) Prperty and equipment Additinal significant cmpnents f certain assets are depreciated separately verashrter useful life. As a result, higher depreciatin was charged n these cmpnents. (ii) Impairment On initial transitin t IFRS, the Cmpany impaired certain depreciable assets. The lwer cst base resulted in a decrease in depreciatin expense. In additin, an impairment indicatr was triggered during the year ended January 1, 2011 and the Cmpany recgnized additinal impairments under IFRS f $1.5 millin relating t investment prperty. (iii) Leases The Cmpany accunts fr leases f certain assets as finance leases under IFRS. As a result, the Cmpany depreciates the leased assets n the same basis as similar wned assets and recrds interest expense n the bligatin. Under previus GAAP, these assets were accunted fr as perating leases and rental payments were expensed n a straight-line basis verthe lease term. Furthermre, the gain recrded n previus sale andleaseback transactins were being amrtized t net incme n a straight-line basis ver the lease term under previus GAAP. Under IFRS, as a result f the reclassificatin f the lease frm perating t finance, the gain n sale was amrtized n the same basis as the leased assets. Under previus GAAP, the Cmpany was amrtizing gains and lsses frm previus sale and leaseback transactins classified as perating leases ver the term f the varius lease agreements. Under IFRS, gains and lsses n sale and leaseback transactins that result in an perating lease must be recrded in incme immedi diat ely. Ther efr e, th e balance ances are n lnger being am rtiz ed. (iv) Prvisins The adjustments relate t mvements in the IFRS discunt rate during the year and the unwinding f the discunt rate applied t prvisins fr warranty and site restratin, which were partly ffset by depreciatin n decmmissining and restratin bligatins. (v) Lyalty prgrams Awards prvided by the Cmpany Under IFRS, thecmpany defers revenue allcated t award credits granted as part f a sales transactin and recgnizes that revenue when the custmer redeems the award credits. Under previus GAAP, the cst f prviding award credits was included in revenue and marketing expenses. Awards prvided by a third party Under previus GAAP, the Cmpany recrded the cst f perating its Canadian Tire Mney prgrams as a reductin f revenue. Under IFRS, since the awards assciated with this prgram are supplied by a third party, the Cmpany defers revenue until it has fulfilled its bligatins t the custmer in respect f the awards. As the Cmpany s bligatin t the custmer is fulfilled at the same time that the award credits are granted t the custmer, the event triggering the revenue deferral and the event triggering revenue recgnitin are the same, resulting in the Cmpany immediately recgnizing the revenue assciated with the lyalty transactin and a crrespnding lyalty expense. (vi) Emplyee benefits The Cmpany elected t recgnize all cumulative actuarial gains and lsses as at the Transitin Date. As a result, the Cmpany adjusted its expense t remve the amrtizatin f actuarial gains and lsses. Furthermre, the Cmpany s plicy under IFRS is t recrd actuarial gains and lsses int OCI. Under previus GAAP, the Cmpany was recgnizing actuarial gains and lsses int incme using the crridr apprach. (vii) Share-based payments Under previus GAAP, the bligatin fr cash settled share-based awards was revalued at each reprting perid based n the intrinsic value f each award and the prtin vested. Under IFRS, the bligatin fr cash-settled awards was remeasured at each reprting date based n the fair value f each award and the prtin vested. Under previus GAAP, the Cmpany recgnized frfeitures f share-based awards as they ccurred. Under IFRS, an estimate is required f the number f awards expected t vest, which is revised if subsequent infrmatin indicates that actual frfeitures are likely t differ frm the estimate. As a result, the Cmpany adjusted its liability fr share-based awards. Under previus GAAP, the Cmpany recgnized the ttal fair value f share-based awards with graded vesting n a straight-line basis ver the emplyment perid necessary t vest the award. Under IFRS, the Cmpany recgnized the fair value f each tranche in an award with graded vesting n a straight-line basis ver the vesting perid f the tranche. (viii) Cnslidatin The Cmpany cnslidates GCCT and the sil f Franchise Trust cntaining the Dealer lan prgram under IFRS, but did nt cnslidate these entities under previus GAAP. Accrdingly, the financial results f these entities have been included in the determinatin f the Cmpany s net incme under IFRS. (ix) Securitizatin Credit card receivables that were securitized thrugh GCCT n lnger qualify fr derecgnitin under IFRS as they did under previus GAAP. As a result, the Cmpa ny has reinstated the receivable balances and crrespn ding incme and expenses related t thse balances Financial Reprting in Canada under IFRSs

101 FIRST-TIME ADOPTION OF IFRSs Extract 20(B11) Canadian Tire Crpratin, Limited, page (CFS 2011) (cntinued) (x) Financial instruments Hedging with ptins Under IFRS, thecmpany is required t reflect the time value f freign exchange ptins in the Cnslidated Statements f Incme. Under previus GAAP, the fair market value f the freign exchange ptins prtfli was recrded as an adjustment t inventry (fr gds where title f wnership had transferred) r OCI (fr future merchandise yet t be purchased). Under IFRS, the time value cmpnent f the fair market valuatin f the freign exchange ptins prtfli is recrded in the Cnslidated Statements f Incme rather than in OCI, which results in new incme statement vlatility ging frward under IFRS. Designatin f previusly recgnized financial instruments Upn transitin t IFRS, certain financial assets were reclassified frm held fr trading t available-fr-sale. Changes in the fair value f financial assets classified as held fr trading are recrded in net incme, whereas changes in fair value f available-fr-sale financial assets are recrded in OCI. Debt issuance csts Under IFRS, all transactin csts that are directly attributable t the issuance f debt must be capitalized. Under previus GAAP, the Cmpany expensed these transactin csts as incurred. Therefre, the previusly expensed csts were retrspectively capitalized in the Cnslidated Balance Sheets and netted against the utstanding debt. These transactin csts are being amrtized int incme ver the term f the related debt. Allwance fr impairment f lans receivable Under IFRS, the Cmpany was required t recalculate its allwance fr impairment f lans receivable. This resulted in an increase in the impairment and a decrease t net incme. (xi) Incme taxes This adju stment reflects the currentrent r deferreded incme taxes resulting fr m the effectect f the IFRS adju stments described Financial Reprting in Canada under IFRSs

102 CHAPTER 20 EXTRACT 20(B12) CANADIAN TIRE CORPORATION, LIMITED, PAGES (CFS 2011) Althugh IFRS 1 requires nly a recnciliatin f equity, the cmpany als presents a recnciliatin f line items in the cnslidated statement f financial psitin frm pre-changever Part V Canadian GAAP t IFRSs. This infrmatin is prvided fr the transitin date, January 3, 2010 and the cmparative year ended January 1, Transitin t IFRS (in part) G. Financial Statements Recnciliatins (in part) G. Financ nancial State tatement ments Recnci nciliat liatins ins The fll llwing are recn ecncili ciliati atins f the finan inancial statemen ements reprt ed under previ revius GAAP t amended financia ncial stateme tements prepa p red under IFRS. Cnslidated Balance Sheet under IFRS As atjanuary 3, 2010 (C$ in millins) Previus GAAP Cnslidatin f additinal entities IFRS reclassificatins IFRS adjustments IFRS ASSETS Cash and cash equivalents $ $ 16.3 $ (0.2) $ $ Shrt-term investments 64.0 (3.3) Trade and ther receivables Lans receivable 2, ,774.8 (40.9) 4,008.7 Merchandise inventries (0.6) Incme taxes recverable Prepaid expenses and depsits Deferred incme taxes 82.8 (82.8) Assets classified as held fr sale Ttal current assets 5, ,790.7 (52.4) (41.5) 6,893.0 Lng-term receivables and ther assets (0.4) (19.5) Other lng-term investments Intangible assets (1.8) Investment prperty Prperty and equipment 3,180.4 (86.2) ,210.4 Deferredincme taxes Ttal assets $ 8,872.5 $ 2,503.0 $ (34.8) $ 66.5 $ 11,407.2 LIABILITIES Bank indebtedness $ 83.7 $ $ $ $ 83.7 Depsits Trade and ther payables 1, (212.2) (5.5) 1,192.9 Prvisins Shrt-term brrwings Lans payable Current prtin f lng-term debt Ttal current liabilities 2, ,304.6 (12.8) ,971.9 Lng-term prvisins Lng-term debt 1, , ,441.1 Lng-term depsits 1, ,196.9 Deferred incme taxes 49.8 (49.8) Other lng-term liabilities (67.2) Ttal liabilities 5, ,503.0 (34.8) ,764.1 SHAREHOLDERS' EQUITY Share capital Cntributed surplus Accumulated ther cmprehensive incme (lss) (46.4) 7.8 (38.6) Retained earnings 3,013.7 (52.6) 2,961.1 Ttal sharehlders' equity 3,687.9 (44.8) 3,643.1 Ttal liabilities and sharehlders' equity $ 8,872.5 $ 2,503.0 $ (34.8) $ 66.5 $ 11, Financial Reprting in Canada under IFRSs

103 FIRST-TIME ADOPTION OF IFRSs Extract 20(B12) Canadian Tire Crpratin, Limited, pages (CFS 2011) (cntinued) Cnslidated Balance Sheet under IFRS As at January 1, 2011 (C$ in millins) ASSETS Previus GAAP Cnslidatin f additinal entities IFRS reclassificatins IFRS adjustments Cash and cash equivalents $ $ 15.4 $ (0.8) $ $ Shrt-term investments Trade and ther receivables Lans receivable 2, ,606.8 (37.0) 4,051.0 Merchandise inventries (0.5) Incme taxes recverable 99.4 (0.1) 99.3 Prepaid expenses and depsits (0.3) 37.6 Deferred incme taxes 72.4 (72.4) Assets classified as held fr sale Ttal current assets 5, ,624.2 (41.7) (37.9) 6,549.2 Lng-term receivables and ther assets (0.4) (21.7) Other lng-term investments Intangible assets (1.6) Investment prperty 70.1 (1.5) 68.6 Prperty and equipment 3,219.8 (90.9) ,232.0 Deferred incme taxes Ttal assets $ 8,764.1 $ 2,272.3 $ (45.1) $ 57.2 $ 11,048.5 LIABILITIES Bank indebtedness $ $ $ $ $ Depsits Trade and ther payables 1, (187.6) (7.0) 1,179.9 Prvisins Shrt-term brrwings Lans payable Current prtin f lng-term debt Ttal current liabilities 2, ,123.7 (12.8) ,251.5 Lng-term prvisins Lng-term debt 1, , ,365.4 Lng-term depsits 1, ,264.5 Deferred incme taxes 54.6 (54.6) Other lng-term liabilities (53.8) Ttal liabilities 4, ,272.5 (45.1) ,043.6 SHAREHOLDERS' EQUITY Share capital Cntributed surplus Accumulated ther cmprehensive incme (lss) (38.7) (32.3) Retained earnings 3,393.5 (0.2) (0.1) (67.9) 3,325.3 Ttal sharehlders' equity 4,066.7 (0.2) (61.6) 4,004.9 Ttal liabilities and sharehlders' equity $ 8,764.1 $ 2,272.3 $ (45.1) $ 57.2 $ 11,048.5 IFRS 2013 Financial Reprting in Canada under IFRSs

104 CHAPTER 20 EXTRACT 20(B13) CANADIAN TIRE CORPORATION, LIMITED, PAGES (CFS 2011) Althugh IFRS 1 requires nly a recnciliatin f ttal cmprehensive incme, the cmpany als presents a recnciliatin f line items in the cnslidated statements f incme frm prechangever part V Canadian GAAP t IFRSs fr the year ended January 1, Nte that the cmpany prvides detailed infrmatin shwing hw the presentatin f items changed when the cmpany adpted IFRSs and chse t present expenses by functin. 44. Transitin t IFRS (in part) G. Financial Statements Recnciliatins (in part) Cnslidated StatementfIncme Functin f Expense frmat under previus GAAP Fr the year ended January 1, 2011 (C$ in millins) Adjustments Frmat under previus GAAP fr new frmat Functin f expense frmat under previus GAAP Grss perating revenue $ 8,980.8 $ 8,980.8 Revenue (6,425.0) (6,425.0) Cst f prducing revenue 2,555.8 Grss margin Operating expenses Cst f merchandise sld and all ther perating expenses except fr the undernted items (8,000.2) 8,000.2 Net interest expense (103.3) Depreciatin and amrtizatin (247.3) Emplyee prfitsharing plan (33.0) 33.0 Ttal perating expenses (8,383.8) Other incme Operating expenses (298.6) (298.6) Distributin csts (956.9) (956.9) Sales and marketing expenses (682.8) (682.8) Administrative expenses (1,938.3) Ttal perating expenses Operating incme Finance incme (64.3) (64.3) Finance csts (36.0) Net finance csts Earnings befre incme taxes Incme befre incme taxes Incme taxes Current (132.8) Future (10.6) Incme taxes (143.4) (143.4) Incme taxes Net earnings $ $ Net incme Financial Reprting in Canada under IFRSs

105 FIRST-TIME ADOPTION OF IFRSs Extract 20(B13) Canadian Tire Crpratin, Limited, pages (CFS 2011) (cntinued) Cnslidated Statement f Incme under IFRS Fr the year ended January 1, 2011 (C$ in millins) Functin f expense frmat under previus GAAP Cnslidatin f additinal entities IFRS adjustments/ reclassificatins Revenue $ 8,980.8 $ $ $ 9,213.1 Cst f prducing revenue (6,425.0) 2.9 (6,422.1) Grss margin 2, ,791.0 Other incme 15.5 (12.3) (2.1) 1.1 Operating expenses Distributin csts (298.6) 2.3 (296.3) Sales and marketing expenses (956.9) (133.5) (1,090.4) Administrative expenses (682.8) (2.9) 2.8 (682.9) Ttal perating expenses (1,938.3) (2.9) (128.4) (2,069.6) IFRS Operating incme (0.5) Finance incme 28.3 (0.2) Finance csts (64.3) (90.0) (13.8) (168.1) Net finance csts (36.0) (90.2) (9.5) (135.7) Incme befre incme taxes (0.2) (10.0) Incme taxes (143.4) 0.8 (142.6) Net incme $ $ (0.2) $ (9.2) $ Basic earnings per share $ 5.56 (0.11) $ 5.45 Diluted earnings per share $ 5.56 (0.14) $ 5.42 Weighted average number f Cmmn and Class A Nn-Vting Shares utstanding Basic 81,565,476 81,565,476 Weighted average number f Cmmn and Class A Nn-Vting Shares utstanding Diluted 81,565, ,536 81,905,012 Suppleme lementar y Infrma rmati tin : Interes erest Cverag erage The Cmpany s lng-term interest requirements fr the 52 weeks ended December 31, 2011, after annualizing interest n lng-term debt issued and retired during this perid, amunted t $158.5 millin. The Cmpany s earnings befre interest n lng-term debt and incme taxes fr the 52 weeks then ended were $ milli llin n, wh ich is times the Cmpany s lng-te gte rm intere terest requir ements fr this per id Financial Reprting in Canada under IFRSs

106 CHAPTER 20 EXTRACT 20(B14) CANADIAN TIRE CORPORATION, LIMITED, PAGE 146 (CFS 2011) IFRS 1 requires an explanatin f material adjustments t the statement f cash flws. In this extract, the cmpany presents a discussin f the majr changes in the cnslidated statements f cash flws between pre-changever Part V Canadian GAAP and IFRSs fr the latest perid in the mst recent annual financial statements, i.e., the year ended January 1, Recnciliatin f Cash Flws frm previus GAAP t IFRS F. Recnc cncili iliati tin fc Ca shfl ws frm p revi us GAAP t IFRS The mst significant adjustments t the Cmpany s Cnslidated Statements f Cash Flws reprted in accrdance with IFRS relate t the cnslidatin f additinal entities under IFRS that were nt required t be cnslidated under previus GAAP and the eliminatin f securitizatin transactins reprted under previus GAAP that n lnger qualify fr de-recgnitin under IFRS. All amunts and classificatin changes referenced in the nte belw relate t items in the Cmpany s Cnslidated Statements f Cash Flws fr the 52 weeks ended January 1, As a result f the cnslidatin f additinal entities and new finance leases, the repayment f lng-term debt increased frm $310.1 millin under previus GAAP t $690.8 millin under IFRS. Issuance f debt under IFRS is $264.5 millin. In additin, under IFRS the Cmpany includes issuance/repayment f shrt-term brrwings f $1,160.3 millin and $1,222.7 millin, respectively, and issuance/repayment f lans payable f $248.8 millin and $318.8 millin, respectively, in financing activities. As a result f securitizatin transactins reprted under previus GAAP n lnger qualifying fr de-recgnitin under IFRS, net prvisin fr lans receivable f $177.5 millin under previus GAAP is nw presented as impairment n lans receivable f $347.0 millin under IFRS. In additin, gain n sale f lans receivable f $33.8 millin, securitizatin lans receivable f $30.9 millin and net securitizatin f lans receivable f $155.1 millin presented under previus GAAP are n lnger applicable under IFRS. Investment in lans receivable changed frm ($156.6) millin under previus GAAP t ($324.6) millin under IFRS. The Cmpany has als mdified the classificatin f certain items within the Cnslidated Statements f Cash Flws. Investment in lans receivable, classified as investing activities under previus GAAP, isnw presented as lans receivable in changes in wrking capital and ther. Net change in depsits, classified as financing activities under previus GAAP, is nw presented as depsits in changes in wrking capital and ther. Net finance csts and incme tax expense are included in perating activities and interest paid, interest received and incme taxes paid are included in cas cash gen erated ed frm perat erating a ctivitie ities in the Cns nslida lidated State tatement ments sfcash Flws under IFRS. PLANNING FOR IMPLEMENTATION The implementatin f IFRSs must be planned carefully; therefre, an entity shuld: Identify the significant differences between previus GAAP and IFRSs. Mnitr future develpments, especially prjects expected t culminate in new IFRSs that are: effective at the end f the year that the cmpany plans t adpt IFRSs; r nt yet mandatry, but eligible fr early adptin; Evaluate each IFRSs issued by the end f the year that the cmpany plans t adpt IFRSs, distinguishing between IFRSs that are: effective at the end f the year that the cmpany plans t adpt IFRSs, and nt yet mandatry, but eligible fr early adptin; Develp accunting plicies based n each IFRSs effective at the end f the year that the cmpany expects t adpt IFRSs and IFRSs that were adpted early. Assess the cmplexities and pssible impact f mandatry exceptins, ptinal exemptins and disclsure requirements in IFRS 1. In deciding whether t elect t use an ptinal exemptin, the entity shuld cnsider: the csts and effrt t: recreate data that was nt captured at the date f a transactin, and make subjective estimates abut cnditins that existed at the date f a transactin, the strategic benefits f retrspective applicatin, the impact n the financial statements n and after transitin, and the ptinal exemptins that industry peers in Canada and abrad have elected t use. Cnsider making changes t infrmatin systems and manual prcesses necessary t satisfy the requirements f IFRSs Financial Reprting in Canada under IFRSs

107 FIRST-TIME ADOPTION OF IFRSs ADAPTING INFORMATION SYSTEMS Mdificatins t infrmatin systems will be driven by the requirements f IFRSs. Therefre, the adptin f IFRSs may require mdificatins fr: The cllectin f new data. Fr example, investment prperty is subsequently measured at fair value if the fair value mdel is chsen. Under previus GAAP, investment prperty may have been measured at cst, net f accumulated amrtizatin. Changes t calculatins. Fr example, impairment lss is measured as the amunt by which the carrying amunt f an asset exceeds its recverable amunt (i.e., the higher f its fair value less csts t sell and its value in use). Under previus GAAP, impairment lss may have been measured as the amunt by which the carrying amunt f an asset exceeds its fair value. Changes in reprting. Fr example, deferred tax assets and liabilities are prhibited frm being presented as current when a classified statement f financial psitin is presented. Under previus GAAP, the current and nn-current prtins f deferred tax assets and liabilities may have been presented separately when a classified statement f financial psitin is presented. Furthermre, an entity must satisfy the dual-reprting requirement fr reprting perids prir t its first IFRS reprting perid. Fr example, assume that an entity decides t adpt IFRSs fr the year ended December 31, 20X3. If the entity presents nly ne cmparative perid, it must present financial statements in accrdance with previus GAAP fr the reprting year ending December 31, 20X2 and financial statements in accrdance with IFRSs fr the cmparative year ending December 31, 20X2. Therefre, infrmatin systems may need t be mdified t maintain tw parallel sets f financial statements fr 20X2. An entity may, instead, meet the dual-reprting requirement fr 20X2 by using spreadsheets that recncile previus GAAP t IFRSs; hwever, spreadsheets are nt subject t the same level f cntrls nrmally integrated int infrmatin systems, which can significantly increase the risk f errrs. Strict internal cntrls will need t be implemented t manage and mnitr spreadsheets, and t facilitate required management certificatins in accrdance with regulatry requirements. CANADIAN SECURITIES ADMINISTRATORS Canadian public cmpanies were required t adpt IFRSs fr years beginning n r after January 1, T ensure that detailed disclsure wuld be made available t investrs, the CSA published a variety f ntices detailing the type f disclsures that cmpanies wuld have t make. Belw, are the summaries f the varius CSA ntices prviding disclsure guidance fr interim reprts and MD&A disclsures prir t changever and adptin f IFRSs. Althugh the dates wuld be different fr future adptins, the timing f the infrmatin t be disclsed is relevant fr any public cmpany wishing t adpt IFRSs in the future. Interim Financial Reprts In Octber 2010, the CSA published NI Acceptable Accunting Principles and Auditing Standards, and amendments t NI NI requires disclsure f an unreserved statement f cmpliance with IAS 34 in interim financial reprts. The amendments t NI : nly require the presentatin f a statement f cash flws in the interim financial reprt fr the year-t-date perid and the crrespnding cmparable year-t-date perid because IAS 34 des nt require the presentatin f a statement f cash flws in the interim financial reprt fr the current perid and the crrespnding cmparable current perid; require the presentatin f an pening IFRSs statement f financial psitin in the first IFRS interim financial reprt; and 2013 Financial Reprting in Canada under IFRSs

108 CHAPTER 20 prvide a 30-day extensin t the deadline fr filing the first IFRS interim financial reprt fr an interim perid beginning n r after January 1, MD&A Disclsures befre Changever In May 2008, the CSA published CSA Staff Ntice Disclsure f Expected Changes in Accunting Plicies Relating t Changever t Internatinal Financial Reprting Standards, which prvides the fllwing guidance n disclsure in the MD&A: Years befre Changever Year MD&A Disclsures Annual Discuss the status f the key elements and timing f the IFRSs changever plan Interim Prvide an update f prgress n the IFRSs changever plan and any changes in the plan. Annual Prvide updates f the 2008 annual MD&A and 2009 interim MD&A disclsures. Describe the majr identified differences between the entity s current accunting plicies and thse the entity is required r expects t apply in preparing IFRSs financial statements t enable an investr t understand the key elements f the entity s financial statements that will be affected by the changever t IFRSs. Disclse any assumptins made abut future changes t IFRSs (if the entity believes it is als apprpriate t cnsider the ptential impact f prjects that the IASB currently has in prcess in identifying the accunting plicies the entity expects t apply n initial adptin f IFRSs) Interim Prvide updates f the 2009 annual MD&A disclsures. Include decisins abut accunting plicy chices available under IFRS 1 and ther individual IFRSs standards that are relevant t the entity. Include quantified infrmatin abut the impact f IFRSs n the key line items in the financial statements (if available). Annual Prvide updates f the 2010 interim MD&A disclsures. Nte that the dates presented are examples fr an entity with a calendar year-end. Key elements f an entity s plan may address the impact f IFRSs n: accunting plicies, including chices amng plicies permitted under IFRSs, and implementatin decisins such as whether certain changes will be applied n a retrspective r prspective basis; infrmatin technlgy and data systems; internal cntrl ver financial reprting; Financial Reprting in Canada under IFRSs

109 FIRST-TIME ADOPTION OF IFRSs disclsure cntrls and prcedures, including investr relatins and external cmmunicatins plans; financial reprting expertise, including training requirements; and business activities, such as freign currency and hedging activities, as well as matters that may be influenced by previus GAAP measures, such as debt cvenants, capital requirements and cmpensatin arrangements. Differences between accunting plicies include any difference due t an expected change in accunting plicy even thugh the entity s existing plicy under previus GAAP is permissible under IFRSs. ILLUSTRATIVE DISCLOSURES: EXTRACT 20(17) ANNUAL MD&A DISCLOSURES (ONE YEAR BEFORE CHANGEOVER) Thmsn Reuters Crpratin (AR 2008) pages 47, MANAGEMENT S DISCUSSION AND ANALYSIS (in part) ACCOUNTING POLICIES (in part) page 47 deci isi i ns sre regar dingr equire iredd disc scls lsure ue. Transiti tin t IFRS frm Canadian GAAP Internal Cntrl ver Financial Reprting In 2008, the Canadian Accunting Standards Bard cnfirmed that Canadian publicly accuntable enterprises will be required t adpt Internatinal Financial Reprting Standards (IFRS) by 2011 t replace Canadian GAAP. The Canadian securities regulatry authrities have apprved ur applicatin t early adpt IFRS in We wish t adpt IFRS earlier than required, because we can fulfill all f ur public cmpany reprting requirements using this single set f accunting standards. We will initially file ur first quarter 2009 reprt under Canadian GAAP and will cntinue t prvide a vluntary recnciliatin f earnings and equity frm Canadian GAAP t IFRS fr the respectivep perids presented. As a result f ur acquisitin f Reuters, we expanded ur internal cntrls ver financial reprting t include cnslidatin f the Reuters results f peratins, as well as acquisitin accunting and disclsures. Additinally, as part f ur integratin and synergy prgram, during the first and third quarters f 2008, we migrated certain legacy financial prcessing systems t cmpanywide sftware as well as transferred varius wrkflws t shared service centers. In cnnectin with the sftware implementatin and transfer f wrkflws frm the legacy systems, we mdified the design and dcumentatin f ur internal cntrl prcesses and prcedures. EMPLOYEE FUTUREURE BENEFITS The determinatin f the cst and bligatins assciated with ur emplyee future benefits requires the use f varius assumptins. We must select assumptins such as the expected return n assets available t fund pensin bligatins, the discunt rate t measure bligatins, the prjected age f emplyees upn retirement, the expected rate f future cmpensatin and the expected healthcare cst trend rate. These assumptins are re-evaluated each year, and variatins between the actual results and the results based n ur assumptins fr any perid will affect reprted amunts in future perids. We retain an independent actuarial expert t prepare the calculatins and t advise us n the selectin f assumptins. Additinal infrmatin is prvided in Appendix C f this management s discussin and analysis. Recently Issued Accunting Standards CICA 3064, GOODWILL AND INTANGIBLE ASSETS In February 2008, the CICA issued CICA 3064, Gdwill and Intangible Assets, which replaces CICA 3062 and establishes standards fr the recgnitin, measurement, presentatin and disclsure f gdwill and intangible assets. The new standard expands n the criteria f when intangible assets can be recgnized t include internally develped intangible assets and is effective fr us as f January 1, We believe there will nt be a significant impact n ur financial statements upn adptin. EIC-173 CREDIT RISK AND THE EFAIR VALUE OF FINAN NANCIA CIAL Prir t the issuance f urs secnd quarter2r 2009 reprt, we expectect t amend ur first quarter 2009 reprt t present ur interim financial statements and ftntes in accrdance with Internatinal Accunting Standard 34, Interim Financial Reprting (IAS 34). In additin, the amended reprt will include restated 2008 annual and quarterly financial statement infrmatin t be cnsistent with ur new IFRS basis, as well as recnciliatins f equity and net earnings fr the previusly reprted Canadian GAAP amunts. IFRS 1, First-time Adptin f Internatinal Financial Reprting Standards, sets frth that the adptin f IFRS ccurs in the first annual financial statements in which the entity adpts IFRS by making an explicit and unreserved statement in thse financial statements f cmpliance with IFRS. IFRS 1 requires that cmparative financial infrmatin be prvided and that the same accunting plicies be applied thrughut all perids presented. As the IFRS and IFRIC interpretatins that will be applicable at December 31, 2009 are nt knwn with certainty at this time, ur 2008 and interim 2009 IFRS financial statements may be adjusted fr the impacts f new standards that becme effective fr us prir t December 31, At present, we d nt expect that there will be any additinal IFRS r IFRIC prnuncements issued that will have an effective date befre December 31, Our date f transitin t IFRS will be January 1, 2008 (Transitin Date). IFRS 1 prvides fr certain ptinal exemptins and certain mandatry exceptins fr first time IFRS adpters. Please see Appendix D f this management s discussin and analys lysis fr addit ditin inal infrm rmati atin n ur IFRS adpti ptin n Financial Reprting in Canada under IFRSs

110 CHAPTER 20 Extract 20(17) Annual MD&A disclsures (ne year befre changever) (cntinued) Appendix D pages IFRS ADOPTION The fllwing is prvided in cnnectin with ur expected adptin f IFRS in Initial Electins upn Adptin. Set frth belw are the IFRS 1 electins we expect t make t cnvert ur Canadian GAAP results t IFRS. IFRS Exemptin Optins 1. Business cmbinatins IFRS 3, Business Cmbinatins, may be applied retrspectively r prspectively. The retrspective basis wuld require restatement f all business cmbinatins that ccurred prir t the transitin date. We will nt elect t retrspectively apply IFRS 3 t business cmbinatins that ccurred prir t the Transitin Date and such business cmbinatins will nt be restated. Any gdwill arising n such business cmbinatins befre the Transitin Date will nt be adjusted frm the carrying value previusly determined under Canadian GAAP as a result f applying these exemptins except as required under IFRS 1. Further, we will nt early adpt IFRS 3 Revised, and instead will adpt that standard upn its effective date which, fr us, will be January 1, Fair value as deemed cst IFRS 1 prvides a chice between measuring prperty, plant and equipment at its fair value at the date f transitin and using thse amunts as deemed cst r using the histrical valuatin under the prir GAAP. We will cntinue t apply the cst mdel fr prperty, plant & equipment and will nt restate prperty, plant & equipment t fair value under IFRS. We will use the histrical bases under Canadian GAAP as deemed cst under IFRS at Transitin Date. 3. Emplyee benefits IAS 19, Emplyee Benefits, allws certain actuarial gains and lsses t be either deferred and amrtized, subject t certain prvisins (crridr apprach), r immediately recgnized thrugh equity. Retrspective applicatin f the crridr apprach fr recgnitin f actuarial gains and lsses in accrdance with IAS 19 wuld require us t determine actuarial gains and lsses frm the date benefit plans were established. We will elect t recgnize all cumulative actuarial gains and lsses that existed at the Transitin Date in pening retained earnings fr all f its emplyee benefit plans. 4. Cumulative translatin differences Retrspective applicatin f IFRS wuld require us t determine cumulative currency translatin differences in accrdance with IAS 21, The Effects f Changes in Freign Exchange Rates, frm the date a subsidiary r assciate was frmed r acquired. IFRS 1 permits cumulative translatin gains and lsses t be reset t zer at the Transitin Date. We will elect t reset all cumulative translatin gains and lsses t zer in pening retained earnings at the Transitin Date. 5. Share-based payments IFRS 2, Share Based Payments, encurages applicatin f its prvisins t equity instruments granted n r befre Nvember 7, 2002, but permits the applicatin nly t equity instruments granted after Nvember 7, 2002 that had nt vested by the Transitin Date. We will elect t avail itself f the exemptin prvided under IFRS 1 and will apply IFRS 2 fr all equity instruments granted after Nvember 7, 2002 that had nt vested by January 1, Further, we will apply IFRS 2 fr all liabilities arising frm share-based payment transactins that existedatjanuary 1, Changes in existing decmmissining, restratin and similar liabilities included in the cst f prperty, plant and equipment IFRS 1 allws fr either the retractive adptin r prspective adptin frm the transitin date f IFRIC 1, Changes in Existing Decmmissining, Restratin and Similar Liabilities. We will elect nt t retrspectively recgnize changes t liabilities under IFRIC 1 which may have ccurred befre the Transitin Date. IFRS Mandatry Exceptins 1. Hedge accunting Hedge accunting can nly be applied prspectively frm the Transitin Date t transactins that satisfy the hedge accunting criteria in IAS 39 at that date. Hedging relatinships cannt be designated retrspectively and the supprting dcumentatin cannt be created retrspectively. As a result, nly hedging relatinships that satisfied the hedge accunting criteria as f the Transitin Date will be reflected in ur IFRS results. 2. Estimates Hindsight is nt used t create r revise estimates. The estimates we previusly made under Canadian GAAP cannt be revised fr applicatin f IFRS except where necessary t reflect any difference in accunting plicies. Significant Changes in Accunting Plicies upn Cnversin t IFRS In additin t the IFRS 1 electins, we expect t make changes in ur accunting plicies t be cmpliant with IFRS. Our IFRS plicies are expected t be cnsistent with the plicies we applied in preparing the Vluntary Recnciliatin. As such, the descriptins cntained within the recnciliatin are anticipated t be reflective f the changes we plan t make in ur adptin f IFRS with the exceptin f certain immaterial changes t revenue recgnitin, as described belw. In reviewing IAS 18, Revenue, we have determined that certain changes will be made in the manner in which we recgnize revenue in arrangements that have multiple deliverables. We will als make changes fr certain arrangements in which we had previusly deferred revenue recgnitin until the cmpletin f the cntract. The aggregate impact f such changes is nt significant t ur peratins r financial psitin and will have n impact n ur cash flw. Impact f Adptin n Our Organizatin The cnversin t IFRS will impact the way we present ur financial results. We have btained an understanding f IFRS frm intensive training and preparatin f recnciliatins f histrical Canadian GAAP financial statements t IFRS. Further, ur accunting staff includes frmer Reuters emplyees wh prepared financial statements under IFRS fr the past three years. At present, we are engaging in the prcess f cmmunicating the changes required by IFRS t the relevant persnnel in the rganizatin, including thse in subsidiary accunting functins, ur shared service functins, ther functinal areas (such as real estate, human resurces and business develpment) as well as management f ur key subsidiaries Financial Reprting in Canada under IFRSs

111 FIRST-TIME ADOPTION OF IFRSs Extract 20(17) Annual MD&A disclsures (ne year befre changever) (cntinued) We have evaluated the impact f the cnversin n ur accunting systems and have develped detailed plans n hw the requisite systems will be updated fr the perids affected. We expect that the systems changes will be made prir t ur cnversin t IFRS in the secnd quarter f We believe ur internal and disclsure cntrl prcesses, as currently designed, will nt need significant mdificatins as a result f ur cnversin t IFRS. We have assessed the impacts f adpting IFRS n ur debt cvenants and ther cntractual arrangements, and have nt identified any material cmpliance issues. We are cnsidering the impacts that the transitin will have n ur internal planning prcess and cmpensatin arrangements. Estimated Impact f Adptin n 2008 Results We are finalizing the impact f ur adptin n the 2008 financial results based n the IFRS 1 electins and plicy changes discussed abve. The Vluntary Recnciliatin f Canadian GAAP t IFRS shwn belw prvides an estimate f the impact IFRS will have n equity and earnings fr The IFRS amunts as presented in the Vluntary Recnciliatin will be substantially the same as thse that will be presented nce we have frmally adpted IFRS. There will be certain differences primarily due t the use f different transitin dates, as well as minr adjustments related t revenue recgnitin plicies described abve. The Vluntary Recnciliatin was prepared using a transitin date f January 1, 2004 while the transitin date fr purpses f adpting IFRS will be January 1, 2008 as its date f transitin. This change will generally impact the amunts related t share based payments, emplyee benefits, business cmbinatins, financial instruments and currency translatin adjustments. In additin t changes in earnings and equity, there are ther changes that we will make with respect t the classificatin f certain incme statement and balance sheet accunts. Vluntary Recnciliatin frm Canadian GAAP t IFRS In accrdance with ur cmmitment t the United Kingdm Listing Authrity, we have prvided a recnciliatin f sharehlders equity and net earnings frm Canadian GAAP t IFRS as f and fr the three years ended December 31, 2008, 2007 and 2006, respectively. While this recnciliatin des nt represent ur fficial adptin f IFRS, it prvides an indicatin f the majr differences identified t date, relative t ur histrical financial statements. In preparing the Vluntary Recnciliatin, we applied the principles and electins f IFRS 1, with a transitin date f January 1, 2004, cnsistent with thse assumed in its Business Acquisitin Reprt dated May 15, 2008 and als, cnsistent with the electins made regarding the ptinal exemptins under IFRS 1. Year ended December 31 (millins f U.S. dllars, except per share amunts) Net earnings under Canadian GAAP 1,405 4,004 1,120 Differences in GAAP increasing (decreasing) reprted earnings: 1. Business cmbinatins (117) (2) 2. Emplyee benefits 37 (5) Stck-based cmpensatin (23) Impairments (8) 31 (31) 5. Derivative instruments and hedging activities 1 (3) 3 6. Cumulative translatin adjustment (3) 7. Minrity interest in equity f cnslidated subsidiary Incme taxes 23 (39) (18) Net earnings under IFRS 1,332 3,989 1,156 Basic earnings per share $1.70 $6.21 $1.79 Diluted earnings per share $1.69 $6.18 $1.78 As at December 31 (millins f U.S. dllars) Sharehlders equity under Canadian GAAP 20,126 13,571 10,481 Differences increasing (decreasing) reprted sharehlders equity: 1. Business cmbinatins (1,159) (42) (40) 2. Emplyee benefits (763) (319) (487) 3. Stck-based cmpensatin (49) (18) (12) 4. Impairments 1 (31) 5. Derivative instruments and hedging activities 10 (2) 1 6. Minrity interest in equity f cnslidated subsidiary Sale f minrity interest in a cnslidated subsidiary Share repurchase bligatin (24) 9. Incme taxes Sharehlders equity under IFRS 18,557 13,284 10, Financial Reprting in Canada under IFRSs

112 CHAPTER 20 Extract 20(17) Annual MD&A disclsures (ne year befre changever) (cntinued) The fllwing describes the differences presented in the recnciliatin f net earnings and sharehlders equity. 1. Business Cmbinatins ACQUISITION COST Canadian GAAP Shares issued as cnsideratin are measured at their market price a few days befre and after the date the parties reach an agreement n the purchase price and prpsed transactin is annunced. IFRS Shares issued as cnsideratin are measured at their market price n the acquisitin clsing date. CONTINGENT CONSIDERATION Canadian GAAP Cntingent cnsideratin is recgnized as part f the cst f an acquisitin, but nly at the pint when the amunt can be reasnably estimated and the utcme is determined beynd reasnable dubt. IFRS Cntingent cnsideratin is recgnized as part f the cst f an acquisitin at the date f acquisitin, if it is prbable that the cntingency will be met and the amunt can be reliably measured at fair value. Changes t the initial amunt recrded are recgnized thrugh earnings and discunts n future cash payments are accreted thrugh interest expense. ACQUISITION RELATED COSTS Canadian GAAP Csts f the acquirer such as (1) exiting an activity, (2) invluntarily terminating an emplyee, r (3) relcating emplyees f an acquired cmpany are recgnized as part f the cst f an acquisitin. IFRS These csts are expensed, unless they are part f an existing restructuring by the acquiree, in which case they may be recgnized as part f the cst f an acquisitin. ADJUSTMENTS TO PROVISIONAL PURCHASE PRICE ALLOCATION Canadian GAAP Adjustments related t the finalizatin f initial purchase price allcatins are changes in accunting estimates and accunted fr prspectively frm the perid in which the purchase price allcatin was finalized. IFRS Adjustments related t the finalizatin f initial purchase price allcatins are applied retrspectively, as if they ccurred n the acquisitin date. Accrdingly, prir perid amunts are restated t reflect the final purchase price allcatin, including any changes in amrtizatin that becme necessary fr prir perids based n the final allcatins. 2. Emplyee Benefits MEASUREMENT DATE Canadian GAAP The measurement date f defined benefit bligatins and plan assets may be up t three mnths prir t the date f the financial statements. IFRS The measurement date generally cincides with the date f the financial statements, because the measurement date must nt result in a materially different utcme than if the balance sheet date had been used. PAST SERVICE COST Canadian GAAP Past service csts arising frm plan amendments are amrtized n a straight-line basis ver the average remaining service perid f active emplyees expected t benefit frm the amendment. IFRS These csts are amrtized n a straight-line basis ver the average perid until the benefits becme vested. T the extent that the amended benefits are already vested, past service csts are recgnized immediately. ACTUARIAL GAINS AND LOSSES Canadian GAAP Actuarial gains and lsses are recgnized n a systematic and cnsistent basis, subject t a minimum required amrtizatin based n a crridr apprach. Unrecgnized actuarial gains and lsses belw the crridr are deferred. IFRS We have elected an accunting plicy f recgnizing actuarial gains and lsses immediately thrugh equity. FAIR VALUE OF PLAN ASSETS Canadian GAAP A market-related fair value is used fr purpses f calculating expected returns n plan assets with changes in the fair value f plan assets recgnized ver a five-year perid. IFRS Plan assets are measured at fair value and fair value is used t determine the expected return n plan assets. 3. Stck-based Cmpensatin RECOGNITION OF EXPENSE Canadian GAAP The fair value f a stck-based award with graded vesting is recgnized n a straight-line basis ver the vesting perid. IFRS Each tranche f an award is cnsidered a separate grant with a different vesting date and fair value, and each is accunted fr separately. FORFEITURES Canadian GAAP Frfeitures f awards may be recgnized as they ccur. IFRS Frfeiture estimates are recgnized in the current perid and revised fr actual experience in subsequent perids Financial Reprting in Canada under IFRSs

113 FIRST-TIME ADOPTION OF IFRSs Extract 20(17) Annual MD&A disclsures (ne year befre changever) (cntinued) CASH-SETTLED SHARE-BASED PAYMENTS Canadian GAAP The liability fr cash-settled share-based payments is accrued based upn the intrinsic value f the award. IFRS The liability fr cash-settled share-based awards is measured at the fair value f vested awards, using an ptin pricing mdel. Changes in fair value are recgnized in the perid f change. MEASUREMENT OF DEFERRED TAX ASSETS Canadian GAAP Deferred tax assets fr share-based awards are based upn the cumulative amunt f cmpensatin cst recgnized. IFRS Deferred tax assets fr share-based awards are based upn the estimated tax deductin, which is generally the intrinsic value f the vested award at the balance sheet date. If the estimated deductin exceeds the cumulative cmpensatin expense, the excess is recgnized in equity. If n tax deductin is anticipated because the fair value f the shares has declined, then the deferred tax asset is reversed t earnings r equity as apprpriate, depending n hw the asset was riginally recrded. EMPLOYER TAXES Canadian GAAP Emplyer taxes n share-based cmpensatin are recgnized upn exercise f the instrument. IFRS Emplyer taxes n share-based cmpensatin are recgnized ver the vesting perid based upn the fair value f the awards at each balance sheet date. 4. Impairments ASSETS HELD FOR SALE Canadian GAAP Assets held fr sale are measured at the lwer f their carrying amunt r fair value less csts t sell, where the carrying amunt fr purpses f determining impairment includes cumulative translatin adjustments. IFRS Assets held fr sale are measured at the lwer f their carrying amunt r fair value less csts t sell, where the carrying amunt excludes cumulative translatin adjustments. Upn sale f the assets, the amunt f the cumulative translatin adjustment is included in the determinatin f the gain r lss n sale. REVERSAL OF IMPAIRMENTS Canadian GAAP Reversal f impairment lss is nt permitted. IFRS Reversal f impairment lss is required fr assets ther than gdwill if certain criteria are met. RECOVERABLE AMOUNT Canadian GAAP A tw-step apprach is used t measure impairment. In step 1, a recverability test is perfrmed by cmparing the expected undiscunted future cash flws t be derived frm the asset with its carrying amunt. If the asset fails the recverability test, step 2 is triggered, and the entity must recrd an impairment lss calculated as the excess f the asset s carrying amunt ver its fair value. IFRS An asset is impaired if the recverable amunt is lwer than the asset s carrying amunt. The recverable amunt is defined as the higher f the asset s fair value less cst t sell and its value-in-use. The value-in-use calculatin invlves discunting the expected future cash flws t be generated by the asset t their net present value. 5. Financial Instruments HEDGE ACCOUNTING Canadian GAAP Effectiveness fr cmpund derivative instruments that hedge currency and interest rate risk is assumed prvided the critical terms f the derivative instrument are cnsistent with the hedged instrument. IFRS Effectiveness fr cmpund derivative instruments must be assessed retrspectively and prspectively each reprting perid. As a result, certain hedge relatinships had t be prspectively discntinued as f the transitin date f adptin f IAS 32 and IAS 39. VALUATION OF FINANCIAL INSTRUMENTS REFLECTING CREDIT RISK Canadian GAAP Current Canadian GAAP des nt set ut specific requirements fr the determinatin and measurement f credit risk in determining the fair values f financial instruments. A new prnuncement related t the cnsideratin f credit risk has been issued and we will be adpting the applicable prnuncement effective the first quarter f IFRS IFRS cntains specific guidance regarding the determinatin and measurement f credit risk and such guidance is applicable t us fr Cumulative Translatin Adjustment Under bth Canadian GAAP and IFRS, freign currency gains r lsses n intercmpany lans that are deemed t be part f a net investment in a subsidiary are reflected within CTA in sharehlders equity. Upn repayment f such lans, any related deferred freign currency gain r lss is reclassified frm CTA int earnings. Hwever, these amunts will differ due t the IFRS 1 electin t reset the CTA balance t zer at transitin date. 7. Minrity Interest Canadian GAAP Minrity interest in the equity f a cnslidated subsidiary is classified as a separate balance sheet cmpnent between liabilities and equity. Minrity interest in the prfit r lss f a cnslidated subsidiary is presented as a cmpnent f earnings. IFRS Minrity interest in equity f a cnslidated subsidiary is classified as a cmpnent f equity but separate frm the equity f the parent. Minrity interest in the prfit r lss f a cnslidated affiliate is presented as an allcatin f earnings Financial Reprting in Canada under IFRSs

114 CHAPTER 20 Extract 20(17) Annual MD&A disclsures (ne year befre changever) (cntinued) 8. Sale f Minrity Interest in a Cnslidated Subsidiary Canadian GAAP Gains assciated with the sale f certain equity interests were deferred until the fair value f all related future perfrmance bligatins can be reliably measured. IFRS IFRS prvides greater flexibility in the determinatin f fair value and allcatin f cnsideratin t multiple elements resulting in the ability t measure and recgnize the gain n sale related t the sale f a minrity interest. We elected a plicy in which transactins with minrity sharehlders are cnsidered transactins with an equity participant. Accrdingly, the gain has been recgnized in equity. 9. Share Repurchase Obligatin Canadian GAAP An bligatin fr an entity t purchase its wn equity instruments is accunted fr as an equity transactin upn cmpletin f each purchase. IFRS A liability must be recgnized currently thrugh equity fr an bligatin when the entity has n discretin t cancel its instructins t repurchase shares. Subsequent adjustments t the present value f the liability are reflected within earnings. If the cntract expires withut delivery, the liability is reversed against equity. 10. Incme Taxes INTERCOMPANY TRANSACTIONS Canadian GAAP The recgnitin f deferred tax fr a temprary difference arising frm intercmpany transactins is prhibited. Further, taxes paid r recvered as a result f an intercmpany asset transfer are recrded as an asset r liability and recgnized as tax expense when the asset leaves the grup r is therwise utilized. IFRS Deferred taxes are recgnized fr temprary differences arising frm intercmpany transactins. Taxes paid r recvered as a result f an intercmpany asset transfer are recgnized in the perid incurred. BUSINESS COMBINATIONS: DEFERRED TAX ASSETS NOT PREVIOUSLY RECOGNIZED Canadian GAAP Previusly unrecgnized incme tax assets f an acquired cmpany are recgnized as part f the cst f the acquisitin when such assets are mre likely than nt t be realized as a result f a business cmbinatin. If an unrecgnized deferred tax asset becmes realizable subsequent t the acquisitin date, such benefit will als be recgnized thrugh gdwill. The acquirer recgnizes its wn tax benefits which becme realizable as a result f the acquisitin as part f the cst f the acquisitin. IFRS Previusly unrecgnized incme tax assets f an acquired cmpany are recgnized as part f the cst f the acquisitin if realizatin is mre likely than nt as a result f the business cmbinatin. If an unrecgnized deferred tax asset becmes realizable subsequent t the acquisitin date, the tax benefit is recgnized thrugh earnings, and a crrespnding amunt f gdwill is recgnized as an perating expense. The acquirer s tax benefits, which becme realizable as a result f the acquisitin, are recgnized thrugh earnings. ACCOUNTING FOR UNCERTAINTY IN INCOME TAX POSITIONS Canadian GAAP The amunt f reserves established fr uncertain tax psitins is determined by reference t a tw step prcess invlving the determinatin f whether it is mre-likelythan nt that an uncertain tax psitin will be sustained upn examinatin. Where it is determined that the psitin meets the mre-likely-than-nt criteria, the amunt f benefit is measured using the largest amunt f benefit that is greater than 50% likely f being realized upn ultimate settlement. IFRS The measurement f the benefit is based n a qualitative assessment f all factrs t determine a best estimate f the ultimate amunt f benefit that will be realized. ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES IN BUSINESS COMBINATIONS Canadian GAAP Changes t incme tax cntingencies relating t pre-acquisitin perids are adjusted thrugh the purchase price allcatin, first reducing gdwill, intangible assets assciated with the business cmbinatin, and nly after exhausting thse amunts, reducing incme tax expense. IFRS Changes t pre-acquisitin tax uncertainties beynd twelve mnths f the acquisitin date are recrded t the incme statement. INCOME TAX EFFECT OF OTHER RECONCILING DIFFERENCES BETWEEN CANADIAN GAAP AND IFRS Differences frm incme taxes include the deferred tax effect n earnings f pre-tax differences between Canadian GAAP and IFRS described abve. COMMENTARY: This extract illustrates the disclsures fr an annual MD&A published ne year befre the changever t IFRSs (because the cmpany had planned t adpt IFRSs early, in 2009). Nte that the cmpany als disclses quantified infrmatin abut the impact f IFRSs n key line items in its financial statements Financial Reprting in Canada under IFRSs

115 FIRST-TIME ADOPTION OF IFRSs EXTRACT 20(18) INTERIM MD&A DISCLOSURES (AFTER CHANGEOVER) SuthGbi Energy Resurces Ltd. (MD&A f Financial Cnditin and Results f Operatins March 31, 2009) pages 5 6 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Transitin tifrs frm GAAP IFRS Cnversin Impact f IFRS 2013 Financial Reprting in Canada under IFRSs

116 CHAPTER 20 Extract 20(18) Interim MD&A disclsures (after changever) (cntinued) InitialAdptin f Internatinal Accunting Standards Cmparative Infrmatin COMMENTARY: This extract illustrates sme ptential disclsures fr an interim MD&A published after the adptin f IFRSs (because the cmpany adpted IFRSs early in 2009). Nte that the cmpany has described the impact f IFRSs n: infrmatin technlgy and data systems; internal cntrl ver financial reprting; disclsure cntrls and prcedures; financial reprting expertise; and the financial statements Financial Reprting in Canada under IFRSs