ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 35
ACCOUNTING POLICIES AND ESTIMATES
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
On January 1, 2011, the company adopted International Financial Reporting Standards (“IFRS”) for financial reporting purposes, using a transition
date of January 1, 2010. The financial statements for the year ended December 31, 2011, including required comparative information, have been
prepared in accordance with International Financial Reporting Standards 1, First-time Adoption of International Financial Reporting Standards.
The following provides a summary reconciliation of Connacher’s 2010 net loss before taxes calculated in accordance with previous GAAP and
Connacher’s 2010 net loss after taxes calculated in accordance with IFRS, along with a discussion of the significant IFRS accounting policy changes.
Summary Net Loss Reconciliation
(Canadian dollar in thousands) YTD 2010
Net loss per previous GAAP $ (38,798)
Exploration and evaluation expense (964)
Depletion, depreciation, amortization and impairment 1,305
Disposition of oil and gas properties (5,287)
Compensation 44
Unwinding of discount on decommissioning liabilities 812
Interest in associate 3,140
Unrealized loss on revaluation of Convertible Debentures (228)
Income taxes (4,693)
Net loss per IFRS $ (44,669)
ACCOUNTING POLICY CHANGES
The following discussion explains the significant differences between Connacher’s previous GAAP accounting policies and those applied by the
company under IFRS. IFRS policies have been retrospectively and consistently applied except where specific IFRS 1 optional and mandatory
exemptions permitted an alternative treatment upon transition to IFRS for first-time adopters. IFRS 1 requires the presentation of comparative
information as at the January 1, 2010 (“transition date”) and subsequent comparative periods as well as the consistent and retrospective application
of IFRS accounting policies. To assist with the transition, the provisions of IFRS 1 allow for certain mandatory exceptions and optional exemptions
for first-time adopters. The significant mandatory exceptions and optional exemptions applied under IFRS 1 in preparing the consolidated financial
statements are set out below followed by a discussion regarding the impact of individually significant items.
Deemed cost election for oil and gas properties
Under previous GAAP, the company followed the “full cost” method of accounting for petroleum and natural gas activities under which all costs directly
associated with the acquisition of, the exploration for, and the development of petroleum and natural gas reserves were capitalized on a country–
by–country cost centre basis. The company had one cost centre, Canada, for the upstream segment. Costs accumulated within this one cost centre
were depleted using the unit–of–production method based on proved reserves determined using estimated future prices and costs. Upon transition
to IFRS, the company was required to adopt new accounting policies for upstream activities, including the segregation of exploration and evaluation
costs and petroleum and natural gas properties. Under IFRS, exploration and evaluation costs are those expenditures for which technical feasibility
and commercial viability has not yet been determined, are presented separately on the balance sheet as exploration and evaluation assets and may
or may not be amortized based on the company’s accounting policy. Petroleum and natural gas properties include those expenditures where technical
feasibility and commercial viability has been determined, are presented as a part of property, plant and equipment on the balance sheet and are
depleted and depreciated on a segregated basis based on the company’s accounting policy. The company adopted the IFRS 1 exemption whereby the
company deemed its January 1, 2010 IFRS upstream asset costs to be equal to its previous GAAP historical upstream property, plant and equipment
net book value. Accordingly, exploration and evaluation costs were deemed equal to the unproved properties balance and the petroleum and natural
gas properties costs were deemed equal to the remaining upstream full cost pool balance. The petroleum and natural gas property costs were
allocated for depletion, depreciation and impairment testing purposes on a pro rata basis using proved reserves values at the transition date.
Leases
The company has elected not to reassess whether an arrangement contains a lease under International Financial Reporting Interpretations Committee
Interpretation 4 for contracts that were assessed under previous GAAP.
Business Combinations
IFRS 3, “Business Combinations” has not been applied to business combinations that occurred before the transition date.
Borrowing Costs
Borrowing costs directly attributable to the acquisition or construction of qualifying assets were not retrospectively restated prior to transition date.