TEL US Corporation is one of Canada’s; largest telecommunications companies and provides both products and services. Its shares are traded on the Toronto and New York stock exchanges. The credit facilities contain certain covenants relating to the amount of debt the company is allowed to hold.
The following are selected excerpts from the 2011 Annual Report:
Note 18- SHORT-TERM BORROWINGS - Review of short-term borrowings and related disclosures On July 26, 2002, TEL US subsidiary TELUS Communications Inc. (see Note 23(a)) entered into an agreement with an arm's-length securitization trust associated with a major Schedule I bank under which TEL US Communications Inc. is able to sell an interest incensing of its trade receivables up to a maximum of $500 million (December 31, 2010 - $500 million; January 1, 2010-$500 million). This revolving-period securitization agreement's current term ends August 1, 2014. TELUS Communications Inc. is required to maintain at least a BBB (low) credit rating by Dominion Bond Rating Service or the securitization trust may require the sale program to be wound down prior to the end of the term.
When the Company sells its trade receivables, it retains reserve accounts, which are retained interests in the securitized trade receivables, and servicing rights. As at December 31, 2011, the Company had transferred, but continued to recognize, trade receivables of $456 million (December 31, 2010-$465 million; January 1, 2010-$598 million). Short-term borrowings of $400 million (December 31, 2010-$400 million; January 1, 2010 - $500 million) are comprised of amounts loaned to the Company from the arm's-length securitization trust pursuant to the sale of trade receivables.
The balance of short-term borrowings (if any) comprised amounts drawn on the Company’s; bilateral bank facilities.
Note 25-EXPLANATION OF TRANSITION TO IFRS-11’SB
Previously, Canadian GAAP de-recognized trade receivables sold to the arm’s-length securitization trust with which the Company transacts. IFRS-IASB does not de-recognize the trade receivables sold to the arm’s-length securitization trust with which the Company transacts and considers the sale proceeds to be short-term borrowings of the Company.
Instructions
Adopt the role of the controller of TELUS and discuss the differing accounting treatment regarding the securitization transactions under IFRS and pre-changeover GAAP. (Since ASPE is very similar to pre-changeover GAAP for securitizations, use ASPE for the analysis.)