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Change In Accounting Policies
FINANCIAL INSTRUMENTS, COMPREHENSIVE INCOME AND HEDGING RELATIONSHIPS
Effective January 1, 2007, the Fund adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530 "Comprehensive Income", Section 3251 "Equity", Section 3855 "Financial Instruments – Recognition and Measurement", Section 3861 "Financial Instruments – Disclosure and Presentation" and Section 3865 "Hedges". In accordance with the transitional provisions in these new standards, these policies were adopted prospectively and accordingly, the prior periods were not restated.
The adoption of the new standards did not impact the Fund's earnings or cash flows.
Financial Instruments
CICA Handbook Section 3855 establishes recognition and measurement criteria for financial instruments. The new standard requires that, generally, all financial instruments are recorded at fair value on initial recognition. Subsequent measurement depends on whether the instrument has been classified as "held to maturity", "held for trading", "available for sale" or "loans and receivables" as defined by Section 3855.
With the exception of recognizing derivative instruments, including hedge instruments, at fair value, the valuation of the Fund's financial instruments has not changed. The methods by which the Fund determines the fair value of its financial instruments have also not changed as a result of adopting this standard.
Comprehensive Income and Equity
The new standards introduce comprehensive income, which consists of earnings and Other Comprehensive Income (OCI). The Fund's consolidated financial statements include a Statement of Comprehensive Income, which principally includes the components of comprehensive income. The Fund's OCI is currently comprised of the effective portion of changes in unrealized gains and losses related to cash flow hedges.
The Fund now presents a Consolidated Statement of Unitholders' Equity, which includes the change for each component of unitholders' equity. The cumulative changes in OCI are recorded in Accumulated Other Comprehensive Income (AOCI), a separate component of unitholders' equity. The components of AOCI are reflected in the Consolidated Statement of Comprehensive Income.
Unrealized gains and losses included in AOCI are reclassified to earnings when they become realized in accordance with hedge accounting standards.
Impact on Adoption
The adoption of the new standards resulted in the following adjustments on January 1, 2007:
|
(millions of Canadian dollars) Increase/(Decrease) |
Assets |
Liabilities and Equity |
|---|---|---|
Deferred Amounts and Other Assets1 |
(10.1) |
- |
Accounts Payable and Accrued Liabilities2 |
- |
1.0 |
Long-Term Debt1 |
- |
(5.4) |
Non-Recourse Long-Term Debt1 |
- |
(4.7) |
Long-Term Liabilities2 |
- |
5.1 |
Accumulated Other Comprehensive Loss2 |
- |
(6.1) |
|
(10.1) |
(10.1) |
- On January 1, 2007, the Fund reclassified unamortized deferred financing fees of $10.1 million from deferred amounts and other assets to long-term debt and non-recourse long-term debt.
- As a result of the new standards for derivative instruments, on January 1, 2007, the Fund recognized a liability of $6.1 million for unrealized losses related to its power purchase swap agreements designated as cash flow hedges.
FUTURE ACCOUNTING POLICY CHANGES
Capital Disclosures and Financial Instruments – Disclosure and Presentation
Effective January 1, 2008, the Fund will adopt new accounting standards for Capital Disclosures (CICA Handbook Section 1535) and Financial Instruments – Disclosure and Presentation (CICA Handbook Sections 3862 and 3863).
Under Section 1535, the Fund will disclose its objectives, policies and procedures for managing capital, any summary quantitative data about what the Fund manages as capital, whether the Fund has complied with any externally imposed capital requirements and, if the Fund has not complied with them, any consequences of non-compliance with these capital requirements.
The new Sections 3862 and 3863 replace Section 3861, Financial Instruments – Disclosure and Presentation. Disclosure requirements are revised and enhanced, while presentation requirements remain essentially unchanged. The new disclosure requirements will expand discussion around the significance of financial instruments for the Fund's financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks.