Canadian Utilities Limited is based in Alberta and is involved in power generation, utilities, logistics, and energy services and technologies. The company was incorporated in 1927 and its shares trade on the TSX. PricewaterhouseCoopers is the current auditor.
According to the notes to the 2009 financial statements, the company accounts for employee future benefits and stock-based compensation as follows:
Employee Future Benefits
The Corporation accrues for its obligations under defined benefit pension and other post employment benefit (“OPEB”) plans. Costs of these benefits are determined using the projected benefits method prorated on service and reflects management’s best estimates of investment returns, wage and salary increases, age at retirement and expected health care costs.
Pension plan assets at the end of the year are reported at market value. The expected long term rate of return on plan assets is determined at the beginning of the year on the basis of the long bond yield rate at the beginning of the year plus an equity and management premium that reflects the plan asset mix.
Expected return on plan assets for the year is calculated by applying the expected long term rate of return to the market related value of plan assets, which is the average of the market value of plan assets at the end of the preceding three years.
Accrued benefit obligations at the end of the year are determined using a discount rate that reflects market interest rates on high quality corporate bonds that match the timing and amount of expected benefit payments.
Experience gains and losses and the effect of changes in assumptions in excess of 10% of the greater of the accrued benefit obligations or the market value of plan assets, adjustments resulting from plan amendments and the net transitional liability or asset, which arose upon the adoption in 2000 of the current accounting standard, are amortized over the estimated average remaining service life of employees.
Pursuant to an AUC decision effective January 1, 2000, the regulated operations, excluding Alberta Power (2000), are required to expense contributions for other post employment benefit and certain other defined benefit pension plans as paid. The difference between the amounts accrued and paid is deferred in non-current regulatory assets.
Employer contributions to the defined contribution pension plans are expensed as paid.
Stock Based Compensation Plans
The Corporation expenses stock options granted on and after January 1, 2002; no compensation expense is recorded for stock options granted prior to January 1, 2002 as permitted by GAAP. The Corporation determines the fair value of the options on the date of grant using an option pricing model and recognizes the fair value over the vesting period of the options granted as compensation expense and contributed surplus. Contributed surplus is reduced as the options are exercised and the amount initially recorded in contributed surplus is credited to Class A and Class B share capital.
No compensation expense is recognized when share appreciation rights are granted. Prior to vesting, compensation expense arising from an increase or decrease in the market price of the shares over the base value of the rights is accrued equally over the remaining months to the date of vesting. After that date, compensation expense arising from an increase or decrease in the market price of the shares is recognized monthly in earnings.
Instructions
Adopt the role of the auditor and discuss any financial reporting issues. Assume the company is interested in how the move to IFRS will affect it. Even though it will not follow ASPE, it is also interested in how the accounting differs. Therefore, specifically, discuss the differences between ASPE and IFRS for the issues raised.