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

1. PASC – March 14, 2012 IFRS Adoption Done! What Accounting Issues Should Oil & Gas Companies Focus on Now? Mark Walsh FCAPrincipal, AcSB Staff The views expressed in this presentation are those of the presenter, not necessarily those of the AcSB.

2. Objectives • Understand the new standard setting world • Are we just “takers” of standards or can we have a significant influence • How to keep up-to-date • Overview of changes to IFRSs that companies should be planning to adopt in the next few years

3. Some basics about IFRSs in Canada • IFRSs as issued by the IASB • No modifications or carve-outs • Annual Improvements • ED issued June 2011, final to be issued Q2, 2012 • ED for next cycle to be issued Q1, 2012 • Interpretations – IFRS Interpretations Committee • No Canadian interpretations • Don’t forget the NIFRICs

4. Standard-setting Process • Canadian participation • Trustee, Interpretations Committee, IFRS Advisory Council, Working Groups on leases and employee benefits • IASB has open process • Board and Interpretations Committee papers on website • Board and Interpretations Committee meetings webcast • Public consultations on process and governance, future work plan and specific projects

5. AcSB Interface with IASB • AcSB staff member assigned for each IASB project • Active interface with IASB project manager • Outreach to Canadian stakeholders • Respond to all documents for comment • Facilitate input from Canadian constituents to IASB • User Advisory Council • Round tables (with IASB staff present) • Assist industry groups and others in their communications with IASB • National standard setters meetings

6. AcSB Interface with IASB • Requests for changes made to IASB • IFRS 1 amendments for oil & gas • Investment companies • Rate regulated entities • IFRIC e.g. deferred stripping, ARO discount rate

7. IFRSs - What’s happening? • Several IFRSs recently issued with effective dates 2013 • Remaining joint projects with FASB • Revenue, leases, financial instruments, insurance • Agenda Consultation

8. New IFRSs Issued in 2011 • Consolidated financial statements • Joint arrangements • Disclosures of interests in other entities • Fair value measurement • Post-employment benefits • FSP: Other comprehensive income • IFRIC 20 – Stripping costs

9. Consolidated Financial Statements • Objective: Define a single control model to determine what is consolidated • Control of an entity requires: • Power over the entity • Exposure to variable returns from involvement • Ability to use its power to affect returns • Principles-based: • Numerous factors to consider besides voting rights • Some situations will requires judgment • Effective annual periods beginning on/ after Jan 1 2013

10. Joint Arrangements • Objective: Accounting for arrangements controlled jointly should reflect rights and obligations • Joint operation – joint control of assets & liabilities • Include share of assets & liabilities • Joint venture – joint control of net assets • Most jointly controlled enterprises – but not all! • Use equity method • Think about how you structure a joint arrangement • Effective annual periods beginning on/ after Jan 1 2013

11. Disclosures of Interests in Other Entities • Objective: Provide information for users to evaluate: • Nature and risks of interests in other entities • Effect on financial position, performance, cash flow • Disclosures are extensive e.g. • Details of subsidiaries, joint arrangements, significantly influenced investees incl. summarized financial information for material entities • Restrictions on access to cash • Effective annual periods beginning on/ after Jan 1 2013 • Adopt when adopt IFRS 10 and IFRS 11

12. Fair Value Measurement • Objective: Guidance on HOW to measure fair value • Does not affect when FV is used • 3 level hierarchy consistent with Section 3862 • More extensive guidance • More disclosure • Effective annual periods beginning on/ after Jan 1 2013 • Early adopt?

13. Employee Benefits – defined benefit plans • Objective: Get the balance sheet right! • Full obligation on balance sheet • Defer and amortize eliminated • Expense consists of service cost, financing and remeasurement • Remeasurement in OCI - without recycling • Disclosures • Effective annual periods beginning on/after Jan 1, 2013

14. Stripping Costs: IFRIC20 • Scope is a surface mine • Capitalize stripping costs that benefit future periods as a cost of the portion of the ore that the stripping activity helps access • Stripping costs that benefit current production are an inventory cost • Largely consistent with EIC-160 • Effective annual periods beginning on/after Jan 1, 2013 14

15. Revenue • Exposure Draft • Single approach to be applied across industries • Recognize revenue • When each performance obligation is satisfied • At amount of consideration received or expected to be received • Implications • Delay revenue recognition for many arrangements • Service and construction contracts, multideliverables? • More estimates • Disclosures

16. Revenue • How will this affect you? • Implications for oil & gas companies of new IFRS not expected to be large • Effective date not set – no earlier than Jan 1 2015 • Re-exposure draft comment deadline March 13, 2012 • Look at it to make sure no surprises! 16

17. Leases • Exposure Draft • Recognize all assets and liability under lease • Measure at PV of lease payments • Post ED redeliberations • Proposals significantly modified • Lease period • Contingent rents • Short term leases • Transition

18. Financial Instruments • IFRS 9 contains recognition and measurement of financial assets and liabilities • Coming soon – additional sections of IFRS 9 on: • Classification and measurement – ED Q3 • Impairment – re-expose Q3 • Hedge accounting – review draft Q1 • Macro hedging – exposure draft 18

19. IASB’s Future Agenda • IASB issued a request for input on post 2011 IASB work plan • 247 written responses received • Round tables in Toronto, London and Norwalk in March 2012 • Agenda consultation is input to IASB • IASB will make final decisions • Likely not until later this year 19

20. IASB’s Future Agenda • What did the IASB hear? • Finish 4 outstanding projects • Zero to very few new standards projects in next few years • Rate regulated? • Conceptual Framework is high priority • Focus on maintaining existing standards – interpretations and post-implementation reviews

21. Whither extractive? • Remains a “hole” in IFRSs • - Will this be an issue for US adoption? • Would an extractive project be joint with FASB? • Should it be part of an intangible assets project? • - DP respondents queried why different to R&D • - Would an Intangibles IFRS address extractive issues? • - Would an intangibles IFRS require expensing of research costs? Exploration costs? • Part of post 2011 agenda consultation

22. Oil & Gas Task Force on IFRSs • Created by CAPP, SEPAC and CICA • Objective: share views on IFRS issues relevant to junior oil & gas companies • Output is non-authoritative – not authorized by AcSB • Viewpoints issued on • Significant IFRS Application Issues • Functional Currency • Flow-through Shares • Farm-out Arrangements • http://www.cica.ca/ifrs/ifrs-transition-resources/item2492.aspx#oil

23. Key Messages • Adopting IFRSs is not the end of change • Be aware of implications for your company of new IFRSs • Importance of understanding the new standard-setting process and participating in it • AcSB is actively engaged in working with the IASB so that IFRSs meet Canadian financial reporting needs

24. Mark.Walsh@cica.ca