More quantified IFRS disclosures from third quarter MD&A…

by John Hughes

Since I think there’s a lot of interest in these disclosures, here are a few more recent examples of quantified IFRS information from third quarter MD&A.

Talisman Energy Inc. currently summarizes the expected impact in terms of ranges rather than point estimates:

The largest single impact comes from implementing the fair value as deemed cost election, although whereas that election’s most often discussed as a means of bringing unrecorded asset value onto the balance sheet, it has the opposite effect in Talisman’s case: “The carrying value of the Company’s PP&E at the time of adoption is expected to decrease by approximately $2.5 billion as a result of electing to measure certain of the Company’s properties at fair value and where permitted deeming these fair values as cost (decrease of approximately $2.0 billion), changes to the cost component of PP&E relating to the Company’s ARO (decrease of approximately $0.2 billion) as well as removing the tax adjustment from PP&E previously recorded for historical asset acquisitions under Canadian GAAP, which is not permitted under IFRS (decrease of approximately $0.3 billion).” Talisman also reports that IFRS “is expected to increase the Company’s previously reported quarterly net income for the three months ended March 31, 2010 by approximately $0.2 billion and have minimal net impact on the quarter ended June 30, 2010.”

Precision Drilling Corporation doesn’t yet provide this kind of comprehensive quantification but provides a similar example of the fair value as deemed cost election in action: “In accordance with the guidance in IFRS 1, upon implementation of IFRS, Precision intends to record certain larger drilling rigs located in the United States at fair value as the deemed cost. Precision’s project team and management are currently in the process of obtaining valuations for the selected rigs. It is anticipated that the one-time adjustment to the carrying value of these rigs to bring them to their fair value at the time of initial adoption of IFRS is a reduction of carrying value in the range of $125 million to $175 million.”

Precision also provides one of the more striking statements on the impact of componentization: “Precision’s IFRS project team has analyzed the potential impact of component accounting on Precision’s financial statements. Based on the data collected by the IFRS team in 2010, it is anticipated that upon adoption of IFRS, annual depreciation and amortization expense will increase by 20% to 30%. This is primarily due to the componentization of drilling rigs into three categories. The additional two categories are meant to better reflect the shorter useful lives of specific assets on the rig.”

Aecon Group Inc. is now providing this disclosure:

The footnote to the following income reconciliation illustrates a measurement difference on interim statements which hasn’t been mentioned in practice too often:

Here’s another example, from Bell Aliant Regional Communications Income Fund. As with several examples in the previous posting, employee benefits provides the single most impactful item:

At first glance, net earnings have risen by some 40%, but almost all of this actually relates to the different presentation of non-controlling interest under IFRS:

The most unusual of the differences probably relates to non-monetary transactions: “We have a number of joint use pole agreements in place with utility companies, giving us the rights to use space on the poles owned by the utility companies and conversely, the utility companies the right to use space on the poles owned by us. These amounts receivable and payable are not settled in cash, resulting in a non-monetary transaction. Under Canadian GAAP, non-monetary transactions are measured at the fair value of the services given up, while under IFRS they are measured at the fair value of the services received. As a result, for the nine months ended September 30, 2010, under IFRS our operating revenue and operating expenses will both increase by $16.8 million.”

BCE Inc illustrates a presentation idea that might be useful in some cases – distinguishing between the effects of mandatory and elective changes:

Here’s another format again, from Stantec Inc.

The item that most caught my eye there is this: “Under IAS 37, an inflow of resources is recognized in the statement of financial position when it is virtually certain. Under Canadian GAAP, we establish lease exit liabilities when we cease to use office space under an operating lease arrangement. Included in the liability is the present value of the remaining lease payments offset by an estimate of future sublease revenue. Upon the adoption of IAS 37, we will derecognize an estimated $2.6 million in future sublease revenue at January 1, 2010, since this revenue was not virtually certain at that date. As a result, we estimate that our opening IFRS consolidated statement of financial position provision for lease exit liabilities will increase by $2.6 million and that retained earnings will decrease by $1.7 million (net of tax).”

Finally for today, Flint Energy Services Ltd. presents an extended opening balance sheet, splitting out each source of differences in separate columns. This certainly makes things easier to absorb but probably wouldn’t be a practical option for every entity:

The biggest transition adjustment there – impairment of property, plant and equipment. And you know they won’t be the last company in that box!

 The opinions expressed are solely those of the author.