1. Has your company issued any long-term bonds or notes in the most recent year? If so, read the note related to long-term debt, identify one of the bonds or notes and list any special features related to that debt issue (e.g., callable, convertible, secured by specific collateral). 2 During the most recent year, how much cash did the company receive on issuing debt? How much did it pay on debt principal? does management suggest were the reasons for issuing and/or repaying debt during this year?

Consolidated Financial Statements of CGI GROUP INC. For the years ended September 30, 2014 and 2013 Management's and Auditors' reports MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING The management of CGI Group Inc. (\"the Company\") is responsible for the preparation and integrity of the consolidated financial statements and the Management's Discussion and Analysis (\"MD&A\"). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and necessarily include some amounts that are based on management's best estimates and judgement. Financial and operating data elsewhere in the MD&A are consistent with that contained in the accompanying consolidated financial statements. To fulfill its responsibility, management has developed, and continues to maintain, systems of internal controls reinforced by the Company's standards of conduct and ethics, as set out in written policies to ensure the reliability of the financial information and to safeguard its assets. The Company's internal control over financial reporting and consolidated financial statements are subject to audit by the independent auditors, Ernst & Young LLP, whose report follows. They were appointed as independent auditors, by a vote of the Company's shareholders, to conduct an integrated audit of the Company's consolidated financial statements and of the Company's internal control over financial reporting. In addition, the Executive Committee of the Company reviews the disclosure of corporate information and oversees the functioning of the Company's disclosure controls and procedures. Members of the Audit and Risk Management Committee of the Board of Directors, all of whom are independent of the Company, meet regularly with the independent auditors and with management to discuss internal controls in the financial reporting process, auditing matters and financial reporting issues and formulates the appropriate recommendations to the Board of Directors. The independent auditors have unrestricted access to the Audit and Risk Management Committee. The consolidated financial statements and MD&A have been reviewed and approved by the Board of Directors. Michael E. Roach President and Chief Executive Officer Franois Boulanger Executive Vice-President and Chief Financial Officer November 12, 2014 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 1 Management's and Auditors' reports MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in Canada. The Company's internal control over financial reporting includes policies and procedures that: - Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; - Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in Canada, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and, - Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's consolidated financial statements. All internal control systems have inherent limitations; therefore, even where internal control over financial reporting is determined to be effective, it can provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of the end of the Company's 2014 fiscal year, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework). Based on this assessment, management has determined the Company's internal control over financial reporting as at September 30, 2014, was effective. The effectiveness of the Company's internal control over financial reporting as at September 30, 2014, has been audited by the Company's independent auditors, as stated in their report appearing on page 3. Michael E. Roach President and Chief Executive Officer Franois Boulanger Executive Vice-President and Chief Financial Officer November 12, 2014 2 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Management's and Auditors' reports REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Shareholders of CGI Group Inc. We have audited CGI Group Inc.'s (the \"Company\") internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (\"the COSO criteria\"). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2014 based on the COSO criteria. We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as at and for the year ended September 30, 2014, and our report dated November 12, 2014 expressed an unqualified opinion thereon. Ernst & Young LLP Montral, Canada November 12, 2014 1. CPA auditor, CA, public accountancy permit No. A112431 3 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Management's and Auditors' reports REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS To the Board of Directors and Shareholders of CGI Group Inc. We have audited the accompanying consolidated financial statements of CGI Group Inc. (the \"Company\"), which comprise the consolidated balance sheets as of September 30, 2014 and 2013 and the consolidated statements of earnings, comprehensive income, changes in equity and cash flows for the years ended September 30, 2014 and 2013, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CGI Group Inc. as at September 30, 2014 and 2013, and its financial performance and its cash flows for the years ended September 30, 2014 and 2013, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. 4 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Management's and Auditors' reports Other matter We have also audited, in accordance with the standards of the Public company Accounting Oversight Board (United States), CGI Group Inc.'s internal control over financial reporting as of September 30, 2014, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated November 12, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting. Ernst & Young LLP Montral, Canada November 12, 2014 1. CPA auditor, CA, public accountancy permit No. A112431 5 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Consolidated Statements of Earnings For the years ended September 30 (in thousands of Canadian dollars, except per share data) 2014 2013 $ 10,499,692 10,084,624 9,129,791 127,341 101,278 9,012,310 338,439 113,931 (2,010) (4,362) 13,042 9,369,442 1,130,250 270,807 859,443 (3,316) 9,457,002 627,622 171,802 455,820 Basic earnings per share 2.78 1.48 Diluted earnings per share 2.69 1.44 Revenue Operating expenses Costs of services, selling and administrative (Note 23) Integration-related costs (Note 26b) Finance costs (Note 25) Finance income Foreign exchange loss (gain) Earnings before income taxes Income tax expense (Note 16) Net earnings Earnings per share (Note 21) $ See Notes to the Consolidated Financial Statements. 6 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Consolidated Statements of Comprehensive Income For the years ended September 30 (in thousands of Canadian dollars) 2014 2013 $ $ Net earnings Items that will be reclassified subsequently to net earnings (net of income taxes): 859,443 455,820 Net unrealized gains on translating financial statements of foreign operations 221,279 297,761 (100,869) (143,785) 20,729 941 134 (1,704) (35,311) 106,769 966,212 (30,845) 121,561 577,381 Net losses on derivative financial instruments and on translating long-term debt designated as hedges of net investments in foreign operations Net unrealized gains on cash flow hedges Net unrealized gains (losses) on investments available for sale Items that will not be reclassified subsequently to net earnings (net of income taxes): Net remeasurement losses Other comprehensive income Comprehensive income See Notes to the Consolidated Financial Statements. 7 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Consolidated Balance Sheets As at September 30 (in thousands of Canadian dollars) 2014 1,119,034 6,882 713,933 508,267 156,358 223,074 534,173 3,261,721 220,279 3,482,000 109,011 2,332,377 434,653 157,110 155,329 153,095 6,823,575 2,356,008 228,624 2,246,197 157,896 4,988,725 1,551,956 121,855 2,240,494 141,392 4,055,697 11,234,052 Equity Retained earnings Accumulated other comprehensive income (Note 18) Capital stock (Note 19) Contributed surplus 708,165 58,429 51,892 368,217 6,393,790 10,879,272 1,060,380 4,588 583,979 457,056 156,283 143,309 80,367 2,485,962 292,257 2,778,219 70,586 2,599,336 308,387 149,074 155,972 183,753 6,245,327 Liabilities Current liabilities Accounts payable and accrued liabilities Current derivative financial instruments (Note 31) Accrued compensation Deferred revenue Income taxes Provisions (Note 13) Current portion of long-term debt (Note 14) Total current liabilities before clients' funds obligations Clients' funds obligations Total current liabilities Long-term provisions (Note 13) Long-term debt (Note 14) Other long-term liabilities (Note 15) Long-term derivative financial instruments (Note 31) Deferred tax liabilities (Note 16) Retirement benefits obligations (Note 17) 106,199 1,344 1,205,625 911,848 218,446 17,233 2,460,695 222,469 2,683,164 475,143 140,472 630,074 74,158 84,077 323,416 6,611,323 11,234,052 Intangible assets (Note 9) Other long-term assets (Note 10) Long-term financial assets (Note 11) Deferred tax assets (Note 16) Goodwill (Note 12) $ 535,715 9,397 1,036,068 807,989 174,137 8,524 2,571,830 295,754 2,867,584 486,880 156,540 Assets Current assets Cash and cash equivalents (Note 4) Current derivative financial instruments (Note 31) Accounts receivable (Note 5) Work in progress Prepaid expenses and other current assets Income taxes Total current assets before funds held for clients Funds held for clients (Note 6) Total current assets Property, plant and equipment (Note 7) Contract costs (Note 8) 2013 $ 10,879,272 See Notes to the Consolidated Financial Statements. Approved by the Board Michael E. Roach Serge Godin Director Director 8 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Consolidated Statements of Changes in Equity For the years ended September 30 (in thousands of Canadian dollars) Retained earnings Accumulated other comprehensive income Capital stock Contributed surplus Total equity $ $ $ $ $ 1,551,956 121,855 2,240,494 141,392 4,055,697 859,443 859,443 106,769 106,769 859,443 106,769 966,212 Share-based payment costs 31,716 31,716 Income tax impact associated with stock options 3,269 3,269 Exercise of stock options (Note 19) 83,305 (18,380) 64,925 Exercise of performance share units (\"PSUs\") (Note 19) 583 (583) (55,391) (56,077) (111,468) (23,016) (23,016) Balance as at September 30, 2013 Net earnings Other comprehensive income Comprehensive income Repurchase of Class A subordinate shares (Note 19) Purchase of Class A subordinate shares held in trust (Note 19) Resale of Class A subordinate shares held in trust 908 482 1,390 2,356,008 228,624 2,246,197 157,896 4,988,725 Retained earnings Accumulated other comprehensive income Capital stock Contributed surplus Total equity $ $ $ $ $ 1,113,225 294 2,201,694 107,690 3,422,903 455,820 455,820 121,561 121,561 31,273 455,820 121,561 577,381 Share-based payment costs Income tax impact associated with stock options 15,232 15,232 Exercise of stock options (Note 19) 51,971 (12,531) 39,440 Exercise of performance share units (\"PSUs\") (Note 19) 272 (272) (17,089) (5,780) (22,869) (7,663) (7,663) 1,551,956 121,855 2,240,494 141,392 4,055,697 (Note 19) Balance as at September 30, 2014 Balance as at September 30, 2012 Net earnings Other comprehensive income Comprehensive income Repurchase of Class A subordinate shares (Note 19) Purchase of Class A subordinate shares held in trust (Note 19) Balance as at September 30, 2013 31,273 See Notes to the Consolidated Financial Statements. 9 CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 Consolidated Statements of Cash Flows For the years ended September 30 (in thousands of Canadian dollars) 2014 Operating activities Net earnings Adjustments for: Amortization and depreciation (Note 24) Deferred income taxes (Note 16) Foreign exchange loss (gain) Share-based payment costs Net change in non-cash working capital items (Note 27) Cash provided by operating activities 2013 $ $ 859,443 455,820 444,232 54,360 17,751 31,716 (232,667) 1,174,835 435,944 34,714 (4,938) 31,273 (281,556) 671,257 Investing activities Net change in short-term investments 73 11,843 Business acquisition (5,140) (181,471) 13,673 (73,900) (77,726) (15,059) 6,880 6,377 (321,153) (141,965) (283,049) 1,021,918 (1,047,261) (37,716) (23,016) 1,390 (111,468) 65,138 (414,064) (10,102) 429,516 106,199 535,715 (467,027) 80,333 (68,057) Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Additions to contract costs Additions to intangible assets Purchase of long-term investments Proceeds from sale of long-term investments Payments received from long-term receivable Cash used in investing activities Financing activities Net change in unsecured committed revolving credit facility Increase of long-term debt Repayment of long-term debt Settlement of derivative financial instruments (Note 31) Purchase of Class A subordinate shares held in trust (Note 19) Resale of Class A subordinate shares held in trust Repurchase of Class A subordinate shares (Note 19) Issuance of Class A subordinate shares Cash used in financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year (Note 4) (31,207) (71,447) (10,518) 6,402 8,177 (233,855) (7,663) (22,869) 39,312 (445,971) 1,665 (6,904) 113,103 106,199 Supplementary cash flow information (Note 27). See Notes to the Consolidated Financial Statements. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 10 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 1. Description of business CGI Group Inc. (the \"Company\"), directly or through its subsidiaries, manages information technology (\"IT\") services as well as business process services (\"BPS\") to help clients effectively realize their strategies and create added value. The Company's services include the management of IT and business functions (\"outsourcing\"), systems integration and consulting, as well as the sale of software solutions. The Company was incorporated under Part IA of the Companies Act (Qubec) predecessor to the Business Corporations Act (Qubec) which came into force on February 14, 2011 and its shares are publicly traded. The executive and registered office of the Company is situated at 1350 Ren-Lvesque Blvd. West, Montral, Qubec, Canada, H3G 1T4. 2. Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (\"IFRS\") and the International Financial Reporting Interpretations Committee interpretations as issued by the International Accounting Standards Board (\"IASB\"). The accounting policies were consistently applied to all periods presented. The Company's consolidated financial statements for the years ended September 30, 2014 and 2013 were authorized for issue by the Board of Directors on November 12, 2014. 3. Summary of significant accounting policies BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation. Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed or has right, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the relevant activities of the entity. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date control over the subsidiaries ceases. BASIS OF MEASUREMENT The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities, which have been measured at fair value as described below. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 11 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) USE OF JUDGEMENTS AND ESTIMATES The preparation of the consolidated financial statements requires management to make judgements and estimates that affect the reported amounts of assets, liabilities, equity, the accompanying disclosures at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Because the use of judgements and estimates is inherent in the financial reporting process, actual results could differ. Significant judgements and estimates about the future and other major sources of estimation uncertainty at the end of the reporting period could have a significant risk of causing a material adjustment to the carrying amounts of the following: deferred tax assets, revenue recognition, estimated losses on revenue-generating contracts, goodwill impairment, business combinations, provisions for income tax uncertainties and litigations and claims. The use of judgments, apart from those involving estimations, that have the most significant effect on the amounts recognized in the financial statements are: Multiple component arrangements Assessing whether the deliverables within an arrangement are separately identifiable components requires judgement by management. A component is considered as separately identifiable if it has value to the client on a stand-alone basis. The Company first reviews the contract clauses to evaluate if the deliverable is accepted separately by the client. Then, the Company assesses if the deliverable could have been provided by another vendor and if it would have been possible for the client to decide to not purchase the deliverable. Deferred tax assets Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Management judgment is required concerning uncertainties that exist with respect to the timing of future taxable income required to recognize a deferred tax asset. The Company recognizes an income tax benefit only when it is probable that the tax benefit will be realized in the future. In making this judgement, the Company assesses forecast and the availability of future tax planning strategies. A description of estimations is included in the respective sections within the Notes to the Consolidated Financial Statements and in Note 3, \"Summary of significant accounting policies\". CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 12 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE The Company generates revenue principally through the provision of IT services and BPS as described in Note 1. The Company provides services and products under arrangements that contain various pricing mechanisms. The Company recognizes revenue when the following criteria are met: there is clear evidence that an arrangement exists, the amount of revenue and related costs can be measured reliably, it is probable that future economic benefits will flow to the Company, the stage of completion can be measured reliably where services are delivered and the significant risks and rewards of ownership, including effective control, are transferred to clients where products are sold. Revenue is measured at the fair value of the consideration received or receivable net of discounts, volume rebates and sales related taxes. Some of the Company's arrangements may include client acceptance clauses. Each clause is analyzed to determine whether the earnings process is complete when the service is performed. Formal client sign-off is not always necessary to recognize revenue provided that the Company objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. Some of the criteria reviewed include historical experience with similar types of arrangements, whether the acceptance provisions are specific to the client or are included in all arrangements, the length of the acceptance term and historical experience with the specific client. Revenue from sales of third party vendor products, such as software licenses, hardware, or services is recorded gross when the Company is a principal to the transaction and is recorded net of costs when the Company is acting as an agent between the client and vendor. Factors generally considered to determine whether the Company is a principal or an agent are if the Company is the primary obligor to the client, if it adds meaningful value to the vendor's product or service and if it assumes delivery and credit risks. Relative selling price The Company's arrangements often include a mix of the services and products listed below. If an arrangement involves the provision of multiple components, the total arrangement value is allocated to each separately identifiable component based on its relative selling price. When estimating selling price of each component, the Company maximizes the use of observable prices which are established using the Company's prices for same or similar components. When observable prices are not available, the Company estimates selling prices based on its best estimate. The best estimate of selling price is the price at which the Company would normally expect to offer the services or products and is established by considering a number of internal and external factors including, but not limited to, geographies, the Company's pricing policies, internal costs and margins. The appropriate revenue recognition method is applied for each separately identifiable component as described below. Outsourcing Revenue from outsourcing and BPS arrangements is generally recognized as the services are provided at the contractually stated price, unless there is a better measure of performance or delivery. Systems integration and consulting services Revenue from systems integration and consulting services under time and material arrangements is recognized as the services are rendered, and revenue under cost-based arrangements is recognized as reimbursable costs are incurred. Revenue from systems integration and consulting services under fixed-fee arrangements where the outcome of the arrangements can be estimated reliably is recognized using the percentage-of-completion method over the service periods. The Company uses the labour costs or labour hours to measure the progress towards completion. This method relies on estimates of total expected labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates of total expected labour costs or hours. If the outcome of an arrangement cannot be estimated reliably, revenue is recognized to the extent of arrangement costs incurred that are likely to be recoverable. Revenue from benefits-funded arrangements is recognized only to the extent that it is probable that the benefit stream associated with the transaction will generate amounts sufficient to fund the value on which revenue recognition is based. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 13 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE (CONTINUED) Software licenses Most of the Company's software license arrangements include other services such as implementation, customization and maintenance. For these types of arrangements, revenue from a software license is recognized upon delivery if it has been identified as a separately identifiable component. Otherwise, it is combined with the implementation and customization services and is accounted for as described in \"Systems integration and consulting services\" above. Revenue from maintenance services for software licenses sold and implemented is recognized ratably over the term of the maintenance period. Work in progress and deferred revenue Amounts recognized as revenue in excess of billings are classified as work in progress. Amounts received in advance of the delivery of products or performance of services are classified as deferred revenue. Estimated losses on revenue-generating contracts Estimated losses on revenue-generating contracts may occur due to additional contract costs which were not foreseen at inception of the contract. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract. The estimated losses on revenue-generating contracts are recognized in the period when it is determined that a loss is probable. The expected loss is first applied to impair the related capitalized contract costs with the excess recorded in accounts payable and accrued liabilities and in other long-term liabilities. Management regularly reviews arrangement profitability and the underlying estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of unrestricted cash and short-term investments having an initial maturity of three months or less. FUNDS HELD FOR CLIENTS AND CLIENTS' FUNDS OBLIGATIONS In connection with the Company's payroll, tax filing and claims services, the Company collects funds for payment of payroll, taxes and claims, temporarily holds such funds until payment is due, remits the funds to the clients' employees, appropriate tax authorities or claim holders, and files federal and local tax returns and handles related regulatory correspondence and amendments. The funds held for clients include cash and long-term bonds. The Company presents the funds held for clients and related obligations separately. Funds held for clients are classified as current assets since, based upon management's intentions, these funds are held solely for the purpose of satisfying the clients' funds obligations, which will be repaid within one year of the consolidated balance sheets date. Interest income earned and realized gains and losses on the disposal of bonds are recorded in revenue in the period that the income is earned, since the collecting, holding and remitting of these funds are critical components of providing these services. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment (\"PP&E\"), including those under finance leases, are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Buildings Leasehold improvements Furniture, fixtures and equipment Computer equipment CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 10 to 40 years Lesser of the useful life or lease term 3 to 20 years 3 to 5 years 14 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) LEASES Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are initially recognized in PP&E at an amount equal to the fair value of the leased assets or, if lower, the present value of minimum lease payments at the inception of the lease, and then depreciated over the economic useful life of the asset or term of the lease, whichever is shorter. The capital element of future lease payments is included in the consolidated balance sheets within long-term debt. Interest is charged to the consolidated statements of earnings so as to achieve a constant rate of interest on the remaining balance of the liability. Lease payments under operating leases are charged to the consolidated statements of earnings on a straight-line basis over the lease term. Operating lease incentives are recognized as a reduction in the rental expense over the lease term. CONTRACT COSTS Contract costs are mainly incurred when acquiring or implementing long-term outsourcing contracts. Contract costs are comprised primarily of transition costs and incentives. Transition costs Transition costs consist of costs associated with the installation of systems and processes incurred after the award of outsourcing contracts, relocation of transitioned employees and exit from client facilities. Under BPS contracts, the costs consist primarily of costs related to activities such as the conversion of the client's applications to the Company's platforms. Transition costs are comprised essentially of labour costs, including compensation and related fringe benefits, as well as subcontractor costs. Incentives Occasionally, incentives are granted to clients upon the signing of outsourcing contracts. These incentives are granted in the form of cash payments. Pre-contract costs Pre-contract costs associated with acquiring or implementing long-term outsourcing contracts are expensed as incurred except where it is virtually certain that the contracts will be awarded and the costs are directly related to the acquisition of the contract. For outsourcing contracts, the Company is virtually certain that a contract will be awarded when the Company is selected by the client following a tender process but the contract has not yet been signed. Amortization of contract costs Contract costs are amortized as services are provided. Amortization of transition costs and pre-contract costs is included in costs of services, selling and administrative and amortization of incentives is recorded as a reduction of revenue. Impairment of contract costs When a contract is not expected to be profitable, the expected loss is first applied to impair the related capitalized contract costs. The excess of the expected loss over the capitalized contract costs is recorded as estimated losses on revenue-generating contracts in accounts payable and accrued liabilities and in other long-term liabilities. If at a future date the contract returns to profitability, the previously recognized impairment loss must be reversed. First the estimated losses on revenue-generating contracts must be reversed, and if there is still additional projected profitability then any capitalized contract costs that were impaired must be reversed. The reversal of the impairment loss is limited so that the carrying amount does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the contract costs in prior years. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 15 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) INTANGIBLE ASSETS Intangible assets consist mainly of internal-use software, business solutions, software licenses and client relationships. Internaluse software, business solutions and software licenses are recorded at cost. Business solutions developed internally and marketed are capitalized when they meet specific capitalization criteria related to technical, market and financial feasibility. Internal-use software developed internally is capitalized when it meets specific capitalization criteria related to technical and financial feasibility and when the Company demonstrates its ability and intention to use it. Internal-use software, business solutions, software licenses and client relationships acquired through business combinations are initially recorded at their fair value based on the present value of expected future cash flows, which involve making estimates about the future cash flows, as well as discount rates. Amortization of intangible assets The Company amortizes its intangible assets using the straight-line method over the following estimated useful lives: Internal-use software Business solutions Software licenses Client relationships and other 2 to 7 years 2 to 10 years 3 to 8 years 2 to 10 years IMPAIRMENT OF PP&E, INTANGIBLE ASSETS AND GOODWILL Timing of impairment testing The carrying values of PP&E, intangible assets and goodwill are reviewed for impairment when events or changes in circumstances indicate that the carrying value may be impaired. The Company assesses at each reporting date whether any such events or changes in circumstances exist. The carrying value of PP&E and intangible assets not available for use and goodwill is tested for impairment annually as at September 30. Impairment testing If any indication of impairment exists or when annual impairment testing for an asset is required, the Company estimates the recoverable amount of the asset or cash-generating unit (\"CGU\") to which the asset relates to determine the extent of any impairment loss. The recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal and its value in use (\"VIU\") to the Company. The Company mainly uses the VIU. In assessing VIU, estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If the recoverable amount of an asset or a CGU is estimated to be less than its carrying amount, the carrying amount is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statements of earnings. Goodwill acquired through business combinations is allocated to the CGU or group of CGUs that are expected to benefit from synergies of the related business combination. The group of CGUs that benefit from the synergies correspond to the Company's operating segments. For goodwill impairment testing purposes, the group of CGUs that represent the lowest level within the Company at which management monitors goodwill is the operating segment level. The recoverable amount of each segment has been determined based on the VIU calculation which includes estimates about their future financial performance based on cash flows approved by management covering a period of five years as the Company generates revenue mainly through long-term contracts. Key assumptions used in the VIU calculations are the discount rate applied and the long-term growth rate of net operating cash flows. In determining these assumptions, management has taken into consideration the current economic environment and its resulting impact on expected growth and discount rates. The cash flow projections reflect management's expectations of the segment's operating performance and growth prospects in the operating segment's market. The discount rate applied to an operating segment is the weighted average cost of capital (\"WACC\"). Management considers factors such as country risk premium, risk-free rate, size premium and cost of debt to derive the WACC. Impairment losses relating to goodwill cannot be reversed in future periods. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 16 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) IMPAIRMENT OF PP&E, INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Impairment testing (continued) For impaired assets, other than goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset's recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statements of earnings. LONG-TERM FINANCIAL ASSETS Long-term investments presented in long-term financial assets are comprised of bonds which are classified as long-term based on management's intentions. BUSINESS COMBINATIONS The Company accounts for its business combinations using the acquisition method. Under this method the consideration transferred is measured at fair value. Acquisition-related and integration costs associated with the business combination are expensed as incurred. The Company recognizes goodwill as the excess of the cost of the acquisition over the net identifiable tangible and intangible assets acquired and liabilities assumed at their acquisition-date fair values. The fair value allocated to tangible and intangible assets acquired and liabilities assumed are based on assumptions of management. These assumptions include the future expected cash flows arising from the intangible assets identified as client relationships, business solutions, and trademarks. The preliminary goodwill recognized is composed of the future economic value associated to acquired work force and synergies with the Company's operations which are primarily due to reduction of costs and new business opportunities. The determination of fair value involves making estimates relating to acquired intangible assets, PP&E, litigation, provision for estimated losses on revenue-generating contracts, other onerous contracts and contingency reserves. Estimates include the forecasting of future cash flows and discount rates. Subsequent changes in fair values are adjusted against the cost of acquisition if they qualify as measurement period adjustments. The measurement period is the period between the date of acquisition and the date where all significant information necessary to determine the fair values is available, not to exceed 12 months. All other subsequent changes are recognized in the consolidated statements of earnings. EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of shares outstanding during the period. Diluted earnings per share is determined using the treasury stock method to evaluate the dilutive effect of stock options and PSUs. RESEARCH AND SOFTWARE DEVELOPMENT COSTS Research costs are charged to earnings in the period in which they are incurred, net of related tax credits. Software development costs are charged to earnings in the year they are incurred, net of related tax credits, unless they meet specific capitalization criteria related to technical, market and financial feasibility. TAX CREDITS The Company follows the income approach to account for tax credits, whereby investment tax credits are recorded when there is a reasonable assurance that the assistance will be received and that the Company will comply with all relevant conditions. Under this method, tax credits related to operating expenditures are recorded as a reduction of the related expense and recognized in the period in which the related expenditures are charged to operations. Tax credits related to capital expenditures are recorded as a reduction of the cost of the related asset. The tax credits recorded are based on management's best estimates of amounts expected to be received and are subject to audit by the taxation authorities. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 17 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) INCOME TAXES Income taxes are accounted for using the liability method of accounting. Current income taxes are recognized with respect to the amounts expected to be paid or recovered under the tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred income tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts reported for financial statement purposes and tax values of the assets and liabilities using enacted or substantively enacted tax rates that will be in effect for the year in which the differences are expected to be recovered or settled. Deferred income tax assets and liabilities are recognized in earnings, other comprehensive income or in equity based on the classification of the item to which they relate. Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Once this assessment is made, the Company considers the analysis of forecast and future tax planning strategies. Such estimates are made based on the forecast by jurisdiction on an undiscounted basis. Management considers factors such as the number of years to include in the forecast period, the history of the taxable profits and availability of tax strategies. The Company is subject to taxation in numerous jurisdictions and there are transactions and calculations for which the ultimate tax determination is uncertain. When a tax position is uncertain, the Company recognizes an income tax benefit or reduces an income tax liability only when it is probable that the tax benefit will be realized in the future or that the income tax liability is no longer probable. The provision for uncertain tax positions is made using the best estimate of the amount expected to be paid based on qualitative assessment of all relevant factors. PROVISIONS Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The Company's provisions consist of liabilities for leases of premises that the Company has vacated, litigation and claim provisions arising in the ordinary course of business and decommissioning liabilities for operating leases of office buildings. The Company also records restructuring provisions mainly related to business acquisitions. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are discounted using a current pre-tax rate when the impact of the time value of money is material. The increase in the provision due to the passage of time is recognized as finance cost. The Company accrues provisions for onerous leases which consist of estimated costs associated with vacated premises. The provisions reflect the present value of lease payments in excess of the expected sublease proceeds on the remaining term of the lease. The accrued litigation and legal claim provisions are based on historical experience, current trends and other assumptions that are believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavourable outcome. Decommissioning liabilities pertain to operating leases of office buildings where certain arrangements require premises to be returned to their original state at the end of the lease term. The provision is determined using the present value of the estimated future cash outflows. Restructuring provisions, consisting of severances, are recognized when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, an appropriate timeline and has been communicated. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 18 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) TRANSLATION OF FOREIGN CURRENCIES The Company's consolidated financial statements are presented in Canadian dollars, which is also the parent company's functional currency. Each entity in the Company determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Functional currency is the currency of the primary economic environment in which the entity operates. Foreign currency transactions and balances Revenue, expenses and non-monetary assets and liabilities denominated in foreign currencies are recorded at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the balance sheet date. Unrealized and realized translation gains and losses are reflected in the consolidated statements of earnings. Foreign operations For foreign operations that have functional currencies different from the Company, assets and liabilities denominated in a foreign currency are translated into Canadian dollars at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at average exchange rates prevailing during the period. Resulting unrealized gains or losses on translating financial statements of foreign operations are reported in other comprehensive income. For foreign operations with the same functional currency as the Company, monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date and non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expenses are translated at average exchange rates for the period. Translation exchange gains or losses of such operations are reflected in the consolidated statements of earnings. SHARE-BASED PAYMENTS Equity-settled plans The Company operates equity-settled stock option and PSU plans under which the Company receives services from employees and others as consideration for equity instruments. The fair value of those share-based payments is established on the grant date using the Black-Scholes option pricing model for the stock options and the closing price of Class A subordinate shares of the Company on the Toronto Stock Exchange (\"TSX\") for the PSUs. The number of stock options and PSUs expected to vest are estimated on the grant date and subsequently revised on each reporting date. For stock options, the estimation of fair value requires making assumptions for the most appropriate inputs to the valuation model including the expected life of the option and expected stock price volatility. The fair values, adjusted for expectations related to performance conditions and for expected forfeitures, are recognized as share-based payment costs in earnings with a corresponding credit to contributed surplus on a graded-vesting basis over the vesting period. When stock options are exercised, any consideration paid is credited to capital stock and the recorded fair value of the stock option is removed from contributed surplus and credited to capital stock. When PSUs are exercised, the recorded fair value of PSUs is removed from contributed surplus and credited to capital stock. Share purchase plan The Company operates a share purchase plan for eligible employees. Under this plan, the Company matches the contributions made by employees up to a maximum percentage of the employee's salary. The Company contributions to the plan are recognized in salaries and other member costs within cost of services, selling and administrative. Cash-settled deferred share units The Company operates a deferred share unit (\"DSU\") plan to compensate the members of the Board of Directors. The Company measures the compensation granted at the fair value of the liability. The fair value of the liability is established by dividing the total fee payable by the closing price of Class A subordinate shares of the Company on the TSX on the day immediately preceding the fee payment date. Until the liability is settled, the Company remeasures the fair value of the liability at each reporting date using the market value of the shares issued. The DSU liability is presented in accrued compensation and fluctuations in fair value are recognized in salaries and other member costs within cost of services, selling and administrative. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 19 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) FINANCIAL INSTRUMENTS All financial instruments are initially measured at their fair values. Subsequently, financial assets classified as loans and receivables and financial liabilities classified as other liabilities are measured at their amortized cost using the effective interest rate method. Financial assets and liabilities classified as fair value through earnings (\"FVTE\") and classified as available for sale are measured subsequently at their fair values. Financial instruments may be designated on initial recognition as FVTE if any of the following criteria are met: i) the financial instrument contains one or more embedded derivatives that otherwise would have to be accounted for separately; ii) the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the financial asset or liability or recognizing the gains and losses on them on a different basis; or iii) the financial asset and financial liability are part of a group of financial assets or liabilities that is managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. Gains and losses related to periodic revaluations of financial assets and liabilities designated as FVTE are recorded in the consolidated statements of earnings. The unrealized gains and losses, net of applicable income taxes, on available for sale assets are reported in other comprehensive income. Interest income earned and realized gains and losses on the sale of available for sale assets are recorded in the consolidated statements of earnings. Transaction costs are comprised primarily of legal, accounting and other costs directly attributable to the issuance of the respective financial assets and liabilities. Transaction costs are capitalized to the cost of financial assets and liabilities classified as other than FVTE. Financial assets are derecognized if the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for derecognition. The transfer qualifies for derecognition if substantially all the risks and rewards of ownership of the financial asset are transferred. The Company has made the following classifications: FVTE Cash and cash equivalents and derivative financial instruments (unless they qualify for hedge accounting, refer to \"Derivative Financial Instruments and Hedging Transactions\"). In addition, deferred compensation plan assets were designated by management as FVTE upon initial recognition as this reflected management's investment strategy. Loans and receivables Trade accounts receivable, cash included in funds held for clients and long-term receivables. Available for sale Long-term bonds included in funds held for clients and in long-term investments. Other liabilities Accounts payable and accrued liabilities, accrued compensation, long-term debt and clients' funds obligations. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 20 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) FINANCIAL INSTRUMENTS (CONTINUED) Fair value hierarchy Fair value measurements recognized in the balance sheet are categorized in accordance with the following levels: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in Level 1, but that are observable for the asset or liability, either directly or indirectly; and Level 3: inputs for the asset or liability that are not based on observable market data. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency exchange risks. Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting date. The resulting gain or loss is recognized in the consolidated statements of earnings unless the derivative is designated and is effective as a hedging instrument, in which event the timing of the recognition in the consolidated statements of earnings depends on the nature of the hedge relationship. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. The cash flows of the hedging transactions are classified in the same manner as the cash flows of the position being hedged. NET INVESTMENT HEDGES Hedges on net investments in foreign operations The Company uses cross-currency swaps and foreign currency denominated long-term debt to hedge portions of the Company's net investments in its U.S. and European operations. Foreign exchange translation gains or losses on the net investments and the effective portions of gains or losses on instruments hedging the net investments are recorded in other comprehensive income. To the extent that the hedge is ineffective, such differences are recognized in consolidated statements of earnings. When the hedged net investment is disposed of, the relevant amount in other comprehensive income is transferred to earnings as part of the gain or loss on disposal. CGI Group Inc. - Consolidated Financial Statements for the years ended September 30, 2014 and 2013 21 Notes to the Consolidated Financial Statements For the years ended September 30, 2014 and 2013 (tabular amounts only are in thousands of Canadian dollars, except per share data) 3. Summary of significant accounting policies (continued) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS (CONTINUED) CASH FLOW HEDGES Cash flow hedges on future revenue The Company has entered into various foreign currency forward contracts to hedge the variability in the foreign currency exchange rates. Cash flow hedge on unsecured committed term loan credit facility The Company has entered into interest rate swaps to hedge the cash flow exposure of the issued variable rate unsecured committed term loan credit facility. Under the interest rate swaps, the Company receives a variable rate of interest and pays interest at a fixed rate on the notional amount. The above hedges were do