The following is a description of accounting policies that will be adopted by the Company in future.
International Financial Reporting Standards
International Financial Reporting Standards will be required for publicly accountable profit-oriented enterprises for fiscal years beginning on or after January 1, 2011. After that date, IFRS will replace Canadian GAAP for those enterprises. The Company will apply IFRS beginning January 1, 2011 and will present 2010 comparative figures using IFRS, starting in the first quarter of 2011.
The Company has committed adequate internal resources to oversee the IFRS project and external consultants have been engaged throughout the process. The Audit and Governance Committee is regularly updated on the status of the project. Management has satisfied itself that it has sufficient resources, systems and applications in place to meet its financial reporting requirements.
IFRS-1 First-time Adoption of International Financial Reporting Standards provides guidance for transition which generally requires an entity to apply all IFRS standards retrospectively, with prior period restatements, on adoption of the new standards. However, IFRS-1 also includes mandatory exceptions and certain exemptions which enable an entity to apply certain areas of the standards prospectively. Management has analysed the exceptions and exemptions available under IFRS-1 and plans to apply the exemptions listed in the following table. A brief description of the impact of applying these exemptions is discussed as well.
|Business Combinations||The Company will elect to not restate any prior business combinations on adoption, to the extent the assets and liabilities meet the recognition criteria under the relevant IFRS standards. Broadcast licences and goodwill resulting from a business combination are not amortized under IFRS. Upon adoption of IFRS, the Company’s previously recognized accumulated amortization of broadcast licences and goodwill will be reversed resulting in an increase in broadcast licences and goodwill of $6.8 million. Deferred income tax liabilities will be increased by $1.7 million and retained earnings will be increased by $5.1 million.|
|Fair Value or Revaluation as Deemed Cost||Due to the extensive cost involved in revaluing its property and equipment and the fact that most arose through business combinations, the Company has chosen not to revalue property and equipment on the transition date to its fair value.|
|Employee Benefits||The Company has elected to charge to equity any unamortized actuarial gains/losses arising from the defined benefit pension plans. The financial impact of this election, along with other pension restatement entries, approximates a $2.1 million increase in pension liability. Deferred income tax assets will increase by $0.5 million and retained earnings will decrease by $1.6 million.|
|Share-based Payment Transactions||The Company will elect not to retrospectively apply the IFRS-2 Share-Based Payments standards for any executive stock options granted prior to November 2002 and for any options that have fully vested or have been exercised prior to transition date.|
Management has identified the differences between Canadian GAAP and IFRS and has devoted considerable time and resources on those areas that will most significantly impact the Company. The following table sets forth the accounting standards that will most likely impact the Company’s consolidated financial statements; however, the actual impact is still subject to audit and final amounts may differ.
The following list shows the areas that management believes will present the most significant differences in accounting treatment based on the standards in effect as at December 31, 2010. It is not a complete and exhaustive list of all the Canadian GAAP and IFRS differences. The following are the key accounting areas management believes will impact the Company’s consolidated financial statements with a brief description of the likely impact.
|Key accounting areas||Impact|
|IAS – 1 Presentation of Financial Statements||Additional financial statement note disclosures will be required.|
|IAS – 12 Income Taxes||Future income tax assets/liabilities will be referred to as deferred income tax assets/liabilities and no current classification will be permitted. The criteria to recognize and measure deferred income taxes may result in differences compared to existing future income tax calculations.
In addition, under IFRS the tax basis for certain Broadcast licences and related CCD obligation is nil at inception and therefore upon transition the net deferred tax liability will be reduced by $7.4 million and retained earnings will increase by $7.4 million.
|IAS – 16 Property and Equipment||Entities are required to split traditional asset categories into components based on varying useful lives which may result in changes to the amount of annual depreciation expense. The increase in retained earnings upon adoption of this standard is expected to be $0.3 million.|
|IAS – 19 Employee Benefits||An accounting policy choice is available for actuarial gains or losses after adoption;
an entity may elect to amortize the gains/losses using the corridor approach;
it may elect to recognize the gains/losses in net income annually; or
it may elect to recognize gains/losses in OCI annually.
Under IFRS, there are differences in how defined benefit plan assets are valued and how an entity measures its plan asset valuation allowance, if any.
|IAS – 36 Impairment of Assets||Impairment calculations under IFRS are done at the cash-generating unit (“CGU”) which is defined as a unit that has independent cash inflows (as opposed to independent net cash flows under Canadian GAAP).
Calculations are done using a discounted cash flow method under a one-step approach (as opposed to a two-step approach under Canadian GAAP).
Goodwill is allocated and tested in conjunction with its related CGU or group of CGU’s that benefit from collective synergies.
Any impairment of intangible assets that occurs after the adoption of IFRS, other than goodwill, may be reversed.
Due to the higher level of detail required for CGU analyses combined with a slightly different set of guidelines, this may give rise to an increased chance of Broadcast licence and goodwill impairments. Management has completed its impairment tests as at January 1, 2010 and have estimated that the impairment on transition will be $7.7 million. Deferred tax liabilities will be reduced by $1.2 million and retained earnings will be reduced by $6.5 million.
|IAS – 38 Intangible Assets||After analysing IAS 38, management has concluded that there will be no significant differences in how the Company measures its internally-developed broadcast licences under IFRS.|
|IAS – 39 Financial Instruments: Recognition and Measurement||This standard will effectively be replaced by new IFRS-9 Financial Instruments effective January 1, 2013 and may pose differences in how the Company classifies, recognizes and measures its financial instruments, including how it accounts for hedges. Earlier adoption of this standard may be permitted and the Company will monitor these developments closely.|
|IFRS – 2 Share-based Payments||The Company anticipates a change in how it measures executive compensation for its stock appreciation rights plan because of differences related to pricing models, vesting periods and how to account for forfeiture. It is expected that there will be no impact to retained earnings upon the adoption of this standard.|
|IFRS – 3 Business Combinations||Under this standard, acquisition-related costs such as legal, accounting, and other administrative costs, cannot be capitalized; they are to be expensed as period costs. Under Canadian GAAP, these costs were included in the cost of the business combination and capitalized.
In the Broadcasting industry significant commitments arise on business combinations that are payable to third parties, such as CCD commitments. Currently these commitments, which are equal to 6% of the purchase price, are capitalized under Canadian GAAP, however, under IFRS, these amounts will be expensed. All business acquisitions after January 1, 2011 will be impacted.
At this time, management is on track with the conversion project. The impact of the transition has been identified for most of the categories of the IFRS conversion and the Company is in the final stages of verifying the complete impact of the transition to IFRS and will be in a position to meet the filing timelines for the first quarter of 2011.