SMU Financial Accounting Assignment

Financial Accounting Assignment

AECON GROUP INC.
CONSOLIDATED
FINANCIAL
STATEMENTS
December 31, 2017
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
TABLE OF CONTENTS
INDEPENDENT AUDITOR’S REPORT………………………………………………………………………………….. 2
CONSOLIDATED BALANCE SHEETS ………………………………………………………………………………….. 4
CONSOLIDATED STATEMENTS OF INCOME ………………………………………………………………………. 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME …………………………………………. 6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ………………………………………………….. 7
CONSOLIDATED STATEMENTS OF CASH FLOWS ……………………………………………………………… 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ……………………………………………….. 9
1. PROPOSED ARRANGEMENT AND CORPORATE INFORMATION …………………………………………………….. 9
2. DATE OF AUTHORIZATION FOR ISSUE ………………………………………………………………………………………….. 9
3. BASIS OF PRESENTATION …………………………………………………………………………………………………………….. 9
4. CRITICAL ACCOUNTING ESTIMATES……………………………………………………………………………………………. 10
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ………………………………………………………………….. 13
6. NEW ACCOUNTING STANDARDS ………………………………………………………………………………………………… 25
7. FUTURE ACCOUNTING CHANGES ……………………………………………………………………………………………….. 26
8. CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH ………………………………………………………….. 29
9. TRADE AND OTHER RECEIVABLES ……………………………………………………………………………………………… 30
10. UNBILLED REVENUE AND DEFERRED REVENUE……………………………………………………………………….. 31
11. INVENTORIES ……………………………………………………………………………………………………………………………. 31
12. PROJECTS ACCOUNTED FOR USING THE EQUITY METHOD ……………………………………………………… 32
13. PROPERTY, PLANT AND EQUIPMENT ………………………………………………………………………………………… 34
14. INTANGIBLE ASSETS …………………………………………………………………………………………………………………. 35
15. BANK INDEBTEDNESS ……………………………………………………………………………………………………………….. 36
16. TRADE AND OTHER PAYABLES …………………………………………………………………………………………………. 37
17. PROVISIONS ……………………………………………………………………………………………………………………………… 37
18. LONG-TERM DEBT AND NON-RECOURSE PROJECT DEBT…………………………………………………………. 38
19. CONVERTIBLE DEBENTURES…………………………………………………………………………………………………….. 39
20. CONCESSION RELATED DEFERRED REVENUE …………………………………………………………………………. 40
21. INCOME TAXES………………………………………………………………………………………………………………………….. 41
22. EMPLOYEE BENEFIT PLANS ………………………………………………………………………………………………………. 43
23. CONTINGENCIES ……………………………………………………………………………………………………………………….. 46
24. COMMITMENTS UNDER NON-CANCELLABLE OPERATING LEASES ……………………………………………. 46
25. CAPITAL STOCK ………………………………………………………………………………………………………………………… 47
26. EXPENSES ………………………………………………………………………………………………………………………………… 49
27. OTHER INCOME …………………………………………………………………………………………………………………………. 50
28. FINANCE COSTS………………………………………………………………………………………………………………………… 50
29. EARNINGS PER SHARE ……………………………………………………………………………………………………………… 51
30. SUPPLEMENTARY CASH FLOW INFORMATION ………………………………………………………………………….. 52
31. FINANCIAL INSTRUMENTS …………………………………………………………………………………………………………. 53
32. CAPITAL DISCLOSURES …………………………………………………………………………………………………………….. 57
33. OPERATING SEGMENTS ……………………………………………………………………………………………………………. 58
34. RELATED PARTIES …………………………………………………………………………………………………………………….. 61
AECON GROUP INC.
Page 1
March 6, 2018
Independent Auditor’s Report
To the Shareholders of
Aecon Group Inc.
We have audited the accompanying consolidated financial statements of Aecon Group Inc. and its
subsidiaries, which comprise the consolidated balance sheets as at December 31, 2017 and
December 31, 2016, and the consolidated statements of income, comprehensive income, changes in equity
and cash flows for the years then ended, and the related notes, which comprise 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.
Auditor’s 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. 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 auditor’s judgment,
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 auditor considers 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, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes 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.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada, M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Aecon Group Inc. and its subsidiaries as at December 31, 2017 and December 31, 2016, and
their financial performance and their cash flows for the years then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars)
December 31
2017
December 31
2016
Note
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Trade and other receivables
Unbilled revenue
Inventories
Income tax recoverable
Prepaid expenses
8
8
9
10
11
Non-current assets
Long-term financial assets
Projects accounted for using the equity method
Deferred income tax assets
Property, plant and equipment
Intangible assets
$
12
21
13
14
TOTAL ASSETS
$
LIABILITIES
Current liabilities
Bank indebtedness
Trade and other payables
Provisions
Deferred revenue
Income taxes payable
Current portion of long-term debt
Convertible debentures
15
16
17
10
$
18
19
Non-current liabilities
Provisions
Non-recourse project debt
Long-term debt
Convertible debentures
Concession related deferred revenue
Deferred income tax liabilities
Other liabilities
2,260
32,610
18,196
457,151
293,878
804,095
2,526,790
17,940
621,863
11,546
206,681
3,544
44,472
168,466
1,074,512
$
$
$
231,858
604,759
492,848
28,460
19,275
12,100
1,389,300
2,633
27,618
23,908
450,368
111,658
616,185
2,005,485
7,476
577,333
20,530
201,408
6,449
51,568
864,764
17
18
18
19
20
21
5,812
352,888
91,211
118,380
109,719
2,793
680,803
1,755,315
5,096
86,403
164,778
7,111
119,767
3,967
387,122
1,251,886
25
19
367,612
8,664
39,604
355,970
(375)
771,475
2,526,790
346,770
8,674
43,060
357,218
(2,123)
753,599
2,005,485
TOTAL LIABILITIES
EQUITY
Capital stock
Convertible debentures
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
304,882
279,581
499,462
595,639
22,997
8,110
12,024
1,722,695
$
$
Commitments and contingencies (Notes 23 and 24)
Approved by the Board of Directors
AECON GROUP INC.
John M. Beck, Director
Anthony P. Franceschini, Director
The accompanying notes are an integral part of these consolidated financial statements.
Page 4
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
December 31
2017
December 31
2016
Note
$
Revenue
Direct costs and expenses
Gross profit
26
Marketing, general and administrative expenses
Depreciation and amortization
Income from projects accounted for using the equity method
Other income
Operating profit
Finance income
Finance costs
Profit before income taxes
Income tax expense
Profit for the year
Basic earnings per share
Diluted earnings per share
AECON GROUP INC.
(186,538)
(93,548)
8,417
6,281
53,635
26
26
12
27
(185,066)
(64,062)
12,401
11,358
87,099
$
282
(21,869)
65,512
(18,755)
46,757
$
$
0.48 $
0.46 $
0.82
0.77
21
The accompanying notes are an integral part of these consolidated financial statements.
3,213,133
(2,900,665)
312,468
895
(23,704)
30,826
(2,650)
28,176 $
28
29
29
2,805,728 $
(2,486,705)
319,023
Page 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars)
December 31
2017
Profit for the year
Other comprehensive income (loss):
$
Items that will not be reclassified to profit or loss:
Actuarial gain (loss)
Income taxes on the above
Items that may be reclassified subsequently to profit or loss:
Currency translation differences – foreign operations
Cash flow hedges – equity accounted investees
Income taxes on the above
Total other comprehensive income (loss) for the year
Comprehensive income for the year
AECON GROUP INC.
28,176 $
1,591
(426)
1,165
$
The accompanying notes are an integral part of these consolidated financial statements.
(1,487)
2,816
(746)
1,748
29,924 $
December 31
2016
46,757
(535)
143
(392)
(422)
60
(16)
(770)
45,987
Page 6
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Accumulated other comprehensive
income (loss)
Capital
stock
Balance as at January 1, 2017
$
Convertible
debentures
346,770
Profit for the year
$
Contributed
surplus
8,674
$
Currency
translation
differences
Retained
earnings
43,060
$
357,218
$
Actuarial
gains and
losses
(173)
$
Cash
flow
hedges
(720)
$
Shareholders’
equity
(1,230)
$
753,599
–
–
28,176
(1,487)
–
–
(1,487)
–
1,591
–
1,591
–
–
–
2,816
2,816
–
–
–
(426)
(746)
(1,172)
–
–
–
(1,487)
1,165
2,070
1,748
–
–
–
28,176
(1,487)
1,165
2,070
29,924
–
–
–
(29,424)
–
–
–
(29,424)
2,610
–
(698)
–
–
–
–
1,912
198
(10)
–
–
–
–
–
188
–
–
16,437
–
–
–
–
16,437
18,034
–
(18,034)
–
–
–
–
–
–
–
(1,161)
–
–
–
–
(1,161)
–
–
–
28,176
–
Currency translation differences – foreign operations
–
–
–
–
Actuarial gain
–
–
–
–
Cash flow hedges – equity-accounted investees
Taxes with respect to above items included in other comprehensive
income
–
–
–
–
–
Total other comprehensive income (loss) for the year
–
Total comprehensive income (loss) for the year
Dividends declared
Other comprehensive income (loss):
Common shares issued on exercise of options
Common shares issued on conversion of debentures
Stock-based compensation
Shares issued to settle LTIP/Director DSU obligations
Other LTIP settlements
Balance as at December 31, 2017
$
367,612
$
8,664
$
39,604
$
355,970
$
(1,660)
$
445
$
840
$
771,475
Accumulated other comprehensive
income (loss)
Capital
stock
Balance as at January 1, 2016
$
Profit for the year
Convertible
debentures
332,275
$
Contributed
surplus
8,674
$
Currency
translation
differences
Retained
earnings
41,546
$
336,910
–
–
–
46,757
Currency translation differences – foreign operations
–
–
–
–
Actuarial loss
–
–
–
–
Cash flow hedges – equity-accounted investees
–
–
–
Taxes with respect to above items included in other comprehensive
income
–
–
Total other comprehensive income (loss) for the year
–
Total comprehensive income (loss) for the year
$
Actuarial
gains and
losses
249
$
Cash
flow
hedges
(328)
$
Shareholders’
equity
(1,274)
$
718,052
–
–
46,757
(422)
–
–
(422)
–
(535)
–
(535)
–
–
–
60
60
–
–
–
143
(16)
127
–
–
–
(422)
(392)
44
(770)
–
–
–
46,757
(422)
(392)
44
45,987
(26,449)
Other comprehensive income (loss):
Dividends declared
Common shares issued on exercise of options
Stock-based compensation
Shares issued to settle LTIP/Director DSU obligations
Other LTIP Settlements
Balance as at December 31, 2016
$
–
–
–
(26,449)
–
–
–
1,491
–
(390)
–
–
–
–
1,101
–
–
16,668
–
–
–
–
16,668
13,004
–
(13,004)
–
–
–
–
–
–
–
(1,760)
–
–
–
–
(1,760)
346,770
$
8,674
$
43,060
$
357,218
$
(173)
$
(720)
$
(1,230)
$
753,599
During the year ended December 31, 2017, the Company declared dividends amounting to $0.50 per share (December 31, 2016 $0.46 per share).
AECON GROUP INC.
The accompanying notes are an integral part of these consolidated financial statements.
Page 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars)
December 31
2017
December 31
2016
Note
CASH PROVIDED BY (USED IN)
Operating activities
Profit before income taxes
Income taxes paid
Defined benefit pension
Items not affecting cash:
Depreciation and amortization
Income from projects accounted for using the equity method
Gain on sale of property, plant and equipment
Income from leasehold inducements
Unrealized foreign exchange gain
Increase in provisions
Notional interest representing accretion
Stock-based compensation
Change in other balances relating to operations
$
30,826
(5,601)
49
64,062
(12,401)
(1,790)
(505)
(761)
9,053
4,484
16,668
(114,605)
26,886
(289,264)
(37,327)
9,858
(127,281)
(5,160)
(22)
6,241
(442,955)
(33,140)
9,968
(6,849)
(799)
10,370
(20,450)
10,464
17,735
374,407
(57,855)
930
1,912
(1,161)
(28,667)
317,765
7,476
16,420
(56,262)
1,590
1,101
(1,760)
(25,568)
(57,003)
72,227
797
231,858
(50,567)
(307)
282,732
Financing activities
Increase in bank indebtedness
Issuance of long-term debt
Issuance of non-recourse long-term debt
Repayments of long-term debt
Increase in other liabilities
Issuance of capital stock
Settlement of LTIP
Dividends paid
Increase (decrease) in cash and cash equivalents during the year
Effects of foreign exchange on cash balances
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
30
65,512
(2,620)
(211)
93,548
(8,417)
(2,689)
(561)
(8,187)
13,408
4,276
16,437
64,328
197,417
30
Investing activities
Increase in restricted cash balances
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Investment in concession rights
Increase in intangible assets
Increase in long-term financial assets
Distributions from projects accounted for using the equity method
$
$
304,882
$
231,858
See Note 30 for additional disclosures relating to the Consolidated Statements of Cash Flows.
AECON GROUP INC.
The accompanying notes are an integral part of these consolidated financial statements.
Page 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
1. PROPOSED ARRANGEMENT AND CORPORATE INFORMATION
Aecon Group Inc. (“Aecon” or the “Company”) is a publicly traded construction and infrastructure development company
incorporated in Canada. Aecon and its subsidiaries provide services to private and public sector clients throughout
Canada and on a selected basis internationally. Its registered office is located in Toronto, Ontario at 20 Carlson Court,
Suite 800, M9W 7K6.
On October 26, 2017, the Company entered into an arrangement agreement (the “Arrangement Agreement”) with CCCC
International Holding Limited and 10465127 Canada Inc. (together, “CCCI”), pursuant to which CCCI has agreed, subject
to satisfaction of customary conditions, to acquire all of the issued and outstanding common shares of Aecon for $20.37
per common share in cash by way of a statutory plan of arrangement under the Canada Business Corporations Act (the
“Arrangement”).
Completion of the Arrangement remains subject to customary closing conditions for a transaction of this nature, including
regulatory approval under the Investment Canada Act. Assuming the satisfaction or waiver of these closing conditions, the
arrangement is expected to close by the end of the second quarter of 2018.
Aecon operates in four principal segments within the construction and infrastructure development industry: Infrastructure,
Energy, Mining and Concessions.
Refer to Note 34 “Related Parties,” for further details on the Company’s subsidiaries and significant joint arrangements
and associates.
2. DATE OF AUTHORIZATION FOR ISSUE
The consolidated financial statements of the Company were authorized for issue on March 6, 2018 by the Board of
Directors of the Company.
3. BASIS OF PRESENTATION
Basis of presentation
The Company prepares its consolidated financial statements in accordance with International Financial Reporting
Standards (“IFRS”).
Statement of compliance
These consolidated financial statements have been prepared in accordance with and comply with IFRS as issued by the
International Accounting Standards Board (“IASB”).
Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation
of certain financial assets and financial liabilities to fair value, including derivative instruments and available-for-sale
investments.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. In addition, the
Company’s participation in joint arrangements classified as joint operations is accounted for in the consolidated financial
statements by reflecting, line by line, the Company’s share of the assets held jointly, liabilities incurred jointly, and revenue
and expenses arising from the joint operations. The consolidated financial statements also include the Company’s
investment in and share of the earnings of projects accounted for using the equity method.
AECON GROUP INC.
Page 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
4. CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates
and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of
contingent liabilities. Uncertainty about these assumptions and estimates could result in a material adjustment to the
carrying value of the asset or liability affected.
Critical accounting estimates are those that require management to make assumptions about matters that are highly
uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could
potentially have a material impact on the Company’s financial results were a different estimate or assumption used.
Estimates and underlying assumptions are reviewed on an ongoing basis. These estimates and assumptions are subject
to change at any time based on experience and new information. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
Except as disclosed, there have been no material changes to critical accounting estimates related to the below mentioned
items in the past two fiscal years. Critical accounting estimates are also not specific to any one segment unless otherwise
noted below.
The Company’s significant accounting policies are described in Note 5, “Summary of Significant Accounting Policies”. The
following discussion is intended to describe those judgments and key assumptions concerning major sources of
estimation uncertainty at the end of the reporting period that have the most significant risk of resulting in a material
adjustment to the carrying amount of assets and liabilities within the next financial year.
4.1 MAJOR SOURCES OF ESTIMATION UNCERTAINTY
REVENUE AND GROSS PROFIT RECOGNITION
Revenue and income from fixed price construction contracts, including contracts in which the Company participates
through joint operations, are determined on the percentage of completion method, based on the ratio of costs incurred to
date over estimated total costs. The Company has a process whereby progress on jobs is reviewed by management on a
regular basis and estimated costs to complete are updated. However, due to unforeseen changes in the nature or cost of
the work to be completed or performance factors, contract profit can differ significantly from earlier estimates.
The Company’s estimates of contract revenue and cost are highly detailed. Management believes, based on its
experience, that its current systems of management and accounting controls allow the Company to produce materially
reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do
change during a contract performance period, which can result in a change to contract profitability from one financial
reporting period to another. Some of the factors that can change the estimate of total contract revenue and cost include
differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labour, the
performance of major material suppliers to deliver on time, the performance of major subcontractors, unusual weather
conditions and the accuracy of the original bid estimate. Fixed price contracts are common across all of the Company’s
sectors, as are change orders and claims, and therefore these estimates are not unique to one core segment. Because
the Company has many contracts in process at any given time, these changes in estimates can offset each other without
impacting overall profitability. However, changes in cost estimates, which on larger, more complex construction projects
can have a material impact on the Company’s consolidated financial statements, are reflected in the results of operations
when they become known.
A change order results from a change to the scope of the work to be performed compared to the original contract that was
signed. Unpriced change orders are change orders that have been approved as to scope but unapproved as to price.
For such change orders, contract revenue is recognized to the extent of costs incurred or, if lower, to the extent to which
recovery is probable. Therefore, to the extent that actual costs recovered are different from expected cost recoveries,
significant swings in revenue and profitability can occur from one reporting period to another.
Claims are amounts in excess of the agreed contract price, or amounts not included in the original contract price, that
Aecon seeks to collect from clients or others for client-caused delays, errors in specifications and designs, contract
AECON GROUP INC.
Page 10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated
additional costs. In accordance with the Company’s accounting policy, claims are recognized in revenue only when
resolution is probable. Therefore, it is possible for the Company to have substantial contract costs recognized in one
accounting period with associated revenue recognized in a later period.
Given the above-noted critical accounting estimates associated with the accounting for construction contracts, including
change orders and claims, it is reasonably possible, on the basis of existing knowledge, that outcomes within the next
financial year or later could be different from the estimates and assumptions adopted and could require a material
adjustment to revenue and/or the carrying amount of the asset or liability affected. The Company is unable to quantify the
potential impact to the consolidated financial results from a change in estimate in calculating revenue.
FAIR VALUING FINANCIAL INSTRUMENTS
From time to time, the Company enters into forward contracts and other foreign exchange hedging products to manage its
exposure to changes in exchange rates related to transactions denominated in currencies other than the Canadian dollar,
but does not hold or issue such financial instruments for speculative trading purposes. The Company is required to
measure certain financial instruments at fair value, using the most readily available market comparison data and where no
such data is available, using quoted market prices of similar assets or liabilities, quoted prices in markets that are not
active, or other observable inputs that can be corroborated.
Further information with regard to the treatment of financial instruments can be found in Note 31, “Financial Instruments.”
MEASUREMENT OF RETIREMENT BENEFIT OBLIGATIONS
The Company’s obligations and expenses related to defined benefit pension plans, including supplementary executive
retirement plans, are determined using actuarial valuations and are dependent on many significant assumptions. The
defined benefit obligations and benefit cost levels will change as a result of future changes in actuarial methods and
assumptions, membership data, plan provisions, legislative rules, and future experience gains or losses, which have not
been anticipated at this time. Emerging experience, differing from assumptions, will result in gains or losses that will be
disclosed in future accounting valuations. Refer to Note 22, “Employee Benefit Plans,” for further details regarding the
Company’s defined benefit plans as well as the impact to the financial results of a 0.5% change in the discount rate
assumption used in the calculations.
INCOME TAXES
The Company is subject to income taxes in both Canada and several foreign jurisdictions. Significant estimates and
judgments are required in determining the Company’s worldwide provision for income taxes. In the ordinary course of
business, there are transactions and calculations where the ultimate tax determination is uncertain. The Company
recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due.
Management estimates income taxes for each jurisdiction the Company operates in, taking into consideration different
income tax rates, non-deductible expenses, valuation allowances, changes in tax laws, and management’s expectations
of future results. Management bases its estimates of deferred income taxes on temporary differences between the assets
and liabilities reported in the Company’s consolidated financial statements, and the assets and liabilities determined by
the tax laws in the various countries in which the Company operates. Although the Company believes its tax estimates
are reasonable, there can be no assurance that the final determination of any tax audits and litigation will not be materially
different from that reflected in the Company’s historical income tax provisions and accruals. Where the final tax outcome
of these matters is different from the amounts that were initially recorded, such differences will impact the Company’s
income tax expense and current and deferred income tax assets and liabilities in the period in which such determinations
are made. Although management believes it has adequately provided for any additional taxes that may be assessed as a
result of an audit or litigation, the occurrence of either of these events could have an adverse effect on the Company’s
current and future results and financial condition.
The Company is unable to quantify the potential future impact to its consolidated financial results from a change in
estimate in calculating income tax assets and liabilities.
IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets with finite lives are amortized over their useful lives. Goodwill, which has an indefinite life, is not
amortized. Management evaluates intangible assets that are not amortized at the end of each reporting period to
AECON GROUP INC.
Page 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
determine whether events and circumstances continue to support an indefinite useful life. Intangible assets with finite lives
are tested for impairment whenever events or circumstances indicate the carrying value may not be recoverable.
Goodwill and intangible assets with indefinite lives, if any, are tested for impairment by applying a fair value test in the
fourth quarter of each year and between annual tests if events occur or circumstances change, which suggest the
goodwill or intangible assets should be evaluated.
Impairment assessments inherently involve management judgment as to the assumptions used to project these amounts
and the impact of market conditions on those assumptions. The key assumptions used to estimate the fair value of
reporting units under the fair value less cost to disposal approach are: weighted average cost of capital used to discount
the projected cash flows; cash flows generated from new work awards; and projected operating margins.
The weighted average cost of capital rates used to discount projected cash flows are developed via the capital asset
pricing model, which is primarily based on market inputs. Management uses discount rates it believes are an accurate
reflection of the risks associated with the forecasted cash flows of the respective reporting units.
To develop the cash flows generated from project awards and projected operating margins, the Company tracks
prospective work primarily on a project-by-project basis as well as the estimated timing of when new work will be bid or
prequalified, started and completed. Management also gives consideration to its relationships with prospective
customers, the competitive landscape, changes in its business strategy, and the Company’s history of success in winning
new work in each reporting unit. With regard to operating margins, consideration is given to historical operating margins
in the end markets where prospective work opportunities are most significant, and changes in the Company’s business
strategy.
Unanticipated changes in these assumptions or estimates could materially affect the determination of the fair value of a
reporting unit and, therefore, could reduce or eliminate the excess of fair value over the carrying value of a reporting unit
entirely and could potentially result in an impairment charge in the future.
Refer to Note 14, “Intangible Assets”, for further details regarding goodwill and other intangible assets.
4.2 JUDGMENTS
The following are critical judgments management has made in the process of applying accounting policies and that have
the most significant effect on how certain amounts are reported in the consolidated financial statements.
BASIS FOR CONSOLIDATION AND CLASSIFICATION OF JOINT ARRANGEMENTS
Assessing the Company’s ability to control or influence the relevant financial and operating policies of another entity may,
depending on the facts and circumstances, require the exercise of significant judgment to determine whether the
Company controls, jointly controls, or exercises significant influence over the entity performing the work. This assessment
of control impacts how the operations of these entities are reported in the Company’s consolidated financial statements
(i.e., full consolidation, equity investment or proportional share).
The Company performs the majority of its construction projects through wholly owned subsidiary entities, which are fully
consolidated. However, a number of projects, particularly some larger, multi-year, multi-disciplinary projects, are
executed through partnering agreements. As such, the classification of these entities as a subsidiary, joint operation, joint
venture, associate or financial instrument requires judgment by management to analyze the various indicators that
determine whether control exists. In particular, when assessing whether a joint arrangement should be classified as either
a joint operation or a joint venture, management considers the contractual rights and obligations, voting shares, share of
board members and the legal structure of the joint arrangement. Subject to reviewing and assessing all the facts and
circumstances of each joint arrangement, joint arrangements contracted through agreements and general partnerships
would generally be classified as joint operations whereas joint arrangements contracted through corporations would be
classified as joint ventures. The majority of the current partnering agreements are classified as joint operations.
The application of different judgments when assessing control or the classification of joint arrangements could result in
materially different presentations in the consolidated financial statements.
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
SERVICE CONCESSION ARRANGEMENTS
The accounting for concession arrangements requires the application of judgment in determining if the project falls within
the scope of IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”). Additional judgments are needed
when determining, among other things, the accounting model to be applied under IFRIC 12, the allocation of the
consideration receivable between revenue-generating activities, the classification of costs incurred on such activities, as
well as the effective interest rate to be applied to the financial asset. As the accounting for concession arrangements
under IFRIC 12 requires the use of estimates over the term of the arrangement, any changes to these long-term estimates
could result in a significant variation in the accounting for the concession arrangement.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
5.1 REVENUE RECOGNITION
Construction contracts
A construction contract is a contract specifically negotiated for the construction of an asset or combination of assets,
including contracts for the rendering of services directly related to the construction of the asset. Such contracts include
fixed-price and cost-plus contracts.
Revenue recognition when the outcome of the contract can be estimated reliably
When the outcome of a construction contract can be estimated reliably, revenue from fixed priced and cost-plus
construction contracts is recognized using the percentage of completion method, based on the ratio of costs incurred to
date over estimated total costs at the end of the reporting period.
Revenue recognition when the outcome of the contract cannot be estimated reliably
When the outcome of a construction contract cannot be estimated reliably, revenue is recognized to the extent of contract
costs incurred where it is probable they will be recovered.
Revision of estimated total costs
On an ongoing basis, the estimated total costs for construction projects are revised based on the information available at
the end of the reporting period. Changes in estimated total costs are reflected in the percentage of completion of
applicable construction projects in the same period as the change in estimate occurs.
Recognition of contract costs
Contract costs are recognized as expenses in profit or loss as incurred. Contract costs include all amounts that relate
directly to the specific contract, are attributable to contract activity, and are specifically chargeable to the customer under
the terms of the contract. Examples of such costs include direct material, labour and equipment costs, borrowing costs
and those indirect costs relating to contract performance such as indirect labour and supplies, depreciation on
construction assets, tools and repairs.
Contract losses
Losses on contracts, if any, are recognized in full in the period when such losses become probable.
Change orders, disputes and claims
Contract revenues and costs are adjusted to reflect change orders that have been approved as to both price and scope.
For change orders that have not been approved as to price, contract revenues are recognized to the extent of costs
incurred or, if lower, to the extent to which recovery is probable. Profit on unpriced change orders is not recognized until
pricing has been approved.
If there are disputes or claims regarding additional payments owing as a result of changes in contract specifications,
delays, additional work or changed conditions, the Company’s accounting policy is to record all costs for these change
orders but not to record any revenues anticipated from these disputes until resolution is probable.
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Revenue recognition – other
Revenue on consulting contracts to manage or supervise the construction activity of others is recognized when consulting
services are rendered.
Contract revenues are measured at the fair value of the consideration received or receivable. Where deferral of payment
has a material effect on the determination of such fair value, the amount at which revenues are recognized is adjusted to
account for the time-value-of-money.
Unbilled revenues represent revenues earned in excess of amounts billed on uncompleted contracts.
Deferred revenue represents the excess of amounts billed to customers over revenue earned on uncompleted contracts.
Where advance payments are received from customers for the mobilization of project staff, equipment and services, the
Company recognizes these amounts as liabilities and includes them in deferred revenue.
The operating cycle, or duration, of many of the Company’s contracts exceeds one year. All contract related assets and
liabilities are classified as current as they are expected to be realized or satisfied within the operating cycle of the contract.
Other revenue types
Revenue related to the sale of aggregates is recognized on delivery of the product or when the significant risks and
rewards of ownership have been transferred to the customer.
Interest income is recognized using the effective interest method.
5.2 CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash at banks and on hand, cash in joint operations, demand deposits, and shortterm highly liquid investments that are readily convertible into known amounts of cash and that are subject to an
insignificant risk of changes in value. The Company considers investments purchased with original maturities of three
months or less to be cash equivalents.
5.3 RESTRICTED CASH
Restricted cash is cash where specific restrictions exist on the Company’s ability to use this cash. Restricted cash
includes cash that has been deposited as collateral for letters of credit issued by the Company or cash deposits made to
secure future equity commitments in projects.
5.4 FINANCIAL INSTRUMENTS – CLASSIFICATION AND MEASUREMENT
Financial Assets
Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-tomaturity investments or available-for-sale financial assets, as appropriate. The Company determines the classification of
its financial assets at initial recognition. When, as a result of a change in intention or ability, it is no longer appropriate to
classify an investment as held-to-maturity, the investment is reclassified into the available-for-sale category.
Financial assets at fair value through profit or loss
The Company may designate any financial asset as fair value through profit or loss on initial recognition with transaction
costs recognized in profit or loss. Financial assets are also classified as financial assets at fair value through profit or loss
if they are acquired for the purpose of selling in the near term. Gains or losses on these items are recognized in profit or
loss.
Derivatives that are financial assets are classified as financial assets at fair value through profit or loss unless they are
designated as, and are effective, hedging instruments.
AECON GROUP INC.
Page 14
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Loans and receivables
Loans and receivables (including cash and cash equivalents, restricted cash, trade, other receivables and long-term
receivables and financial assets with terms of more than one year) are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been
designated as either fair value through profit or loss or available-for-sale. Such assets are carried at amortized cost using
the effective interest rate method, less any impairment losses, with gains and losses recognized in profit or loss when the
asset is derecognized or impaired. Loans yielding interest at normal market rates are reported at face value, while noninterest bearing loans and loans not at market rates are discounted to present value using a risk adjusted discount rate.
Held-to-maturity investments
Non-derivative financial assets (including short-term deposits classified as marketable securities) with fixed or
determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive
intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this
classification. Held-to-maturity investments are measured at amortized cost using the effective interest rate method, less
any impairment losses. Impairment losses are recognized in profit or loss.
Available-for-sale financial assets
Available-for-sale financial assets (including equity shares classified as marketable securities) are those non-derivative
financial assets that are designated as available-for-sale or are not classified in any of the other three stated categories.
After initial recognition, available-for-sale financial assets are measured at fair value with unrealized gains or losses
recognized in other comprehensive income (“OCI”) until the asset is derecognized, or impaired, at which time the
cumulative gain or loss previously reported in OCI is included in profit or loss.
Financial Liabilities
The Company determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognized
initially at fair value. For trade and other payables, bank indebtedness, loans and borrowings, directly attributable
transaction costs are applied against the balance of the liability. For derivative financial instruments, transaction costs are
expensed in profit or loss.
After initial recognition, interest bearing loans and borrowings and, where necessary, trade payables, are subsequently
measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate method.
Amortization arising from the use of the effective interest rate method is included in finance costs in the consolidated
statements of income.
Convertible Debentures
The 2018 convertible debentures are accounted for as a compound financial instrument with a debt component and a
separate equity component. The debt component of these compound financial instruments is measured at fair value on
initial recognition by discounting the stream of future interest and principal payments at the rate of interest prevailing at the
date of issue for instruments of similar term and risk. The debt component is subsequently deducted from the total
carrying value of the compound instrument to derive the equity component. The debt component is subsequently
measured at amortized cost using the effective interest rate method. Interest expense based on the coupon rate of the
debenture and the accretion of the liability component to the amount that will be payable on redemption are recognized
through profit or loss as finance costs.
Hedging
To qualify for hedge accounting, the Company must formally designate and document a hedge relationship between a
qualifying hedging instrument and a qualifying hedged item at the inception of the hedge. The Company assesses the
effectiveness of the designated hedging relationships both at inception and on an ongoing basis to demonstrate the
effectiveness of the hedge.
Fair value hedge: Changes of the hedging derivative are recognized in the consolidated statements of income together
with any changes in the fair value of the hedged items that are attributable to the hedged risk.
AECON GROUP INC.
Page 15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Cash flow hedge/hedge of a net investment in a foreign operation: The effective portion of the change in the fair value of
the hedging derivative is recognized in OCI while the ineffective portion is recognized in net income. When hedge
accounting is discontinued, amounts previously recognized in Accumulated Other Comprehensive Income (“AOCI”) are
reclassified to net income during the periods when the variability in the cash flows of the hedged item affects net income.
Gains and losses on derivatives are reclassified immediately to net income when the hedged item is sold or terminated
early.
5.5 DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES
Financial assets
A financial asset is derecognized when the contractual rights to the cash flows from the asset expire or when the
Company transfers the financial asset to another party without retaining control or substantially all the risks and rewards of
ownership of the asset. Any interest in transferred financial assets that is created or retained by the Company is
recognized as a separate asset or liability.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability. Any loss on the derecognition of the original liability is recognized in profit or
loss.
5.6 IMPAIRMENT OF FINANCIAL ASSETS
The Company assesses at each consolidated balance sheet date whether there is objective evidence that a financial
asset or group of financial assets is impaired.
Financial assets carried at amortized cost
For financial assets carried at amortized cost, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at
initial recognition).
Objective evidence of impairment of financial assets carried at amortized cost exists if the counterparty is experiencing
significant financial difficulty, there is a breach of contract, concessions are granted to the counterparty that would not
normally be granted, or it is probable the counterparty will enter into bankruptcy or a financial reorganization.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any
subsequent reversal of an impairment loss is recognized in profit or loss to the extent the carrying value of the asset does
not exceed its amortized cost at the reversal date.
Available-for-sale financial assets
Objective evidence of impairment of equity investments classified as available-for-sale would be a significant or prolonged
decline in the fair value of the security below its cost.
Reversals of impairment in respect of equity instruments classified as available-for-sale are recognized in other
comprehensive income.
For debt securities, the Company uses the criteria referred to under financial assets carried at amortized cost above.
Reversals of impairment losses on debt instruments are made through profit or loss if the increase in fair value of the
instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
AECON GROUP INC.
Page 16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Assets carried at cost
If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at
fair value (because its fair value cannot be reliably measured), the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current
market rate of return for a similar financial asset and is recognized in profit or loss for the period. Reversals of impairment
losses on assets carried at cost are not permitted.
5.7 INVENTORIES
Inventories are recorded at the lower of cost and net realizable value, with the cost of materials and supplies determined
on a first-in, first-out basis and the cost of aggregate inventories determined at weighted average cost. The cost of
finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related
production overheads based on normal operating capacity.
Inventories are written down to net realizable value (“NRV”) if their NRV is less than their carrying amount at the reporting
date. If the NRV amount subsequently increases, the amount of the write-down is reversed and recognized as a reduction
in materials expense. The NRV of inventory is its estimated selling price in the ordinary course of business less
applicable selling costs.
5.8 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost less accumulated depreciation and accumulated impairment
losses, if any. The cost of property, plant and equipment includes the purchase price and the directly attributable costs of
acquisition or construction costs required to bring the asset to the location and condition necessary for the asset to be
capable of operating in the manner intended by management. Property, plant and equipment under finance lease, where
the Company has substantially all the risks and rewards of ownership, are recorded at the lower of the fair value of the
leased item or the present value of the minimum lease payments at the inception of the lease.
In subsequent periods, property, plant and equipment are stated at cost less accumulated depreciation and any
impairment in value, with the exception of land and assets under construction, which are not depreciated but are stated at
cost less any impairment in value.
Depreciation is recorded to allocate the cost, less estimated residual values of property, plant and equipment over their
estimated useful lives on the following bases:
Aggregate properties are depreciated using the unit of extraction method based on estimated economically recoverable
reserves, which results in a depreciation charge proportional to the depletion of reserves.
All other assets, excluding assets under construction, are depreciated on a straight-line basis over periods that
approximate the estimated useful lives of the assets as follows:
Assets
Land
Buildings and leasehold improvements
Machinery and equipment
Heavy mining equipment
Office equipment
Vehicles
Term
Not depreciated
10 to 40 years
2 to 15 years
12,000 – 60,000 hours
3 to 5 years
1 to 5 years
Assets under construction are not depreciated until they are brought into use, at which point they are transferred into the
appropriate asset category.
The Company reviews the residual value, useful lives and depreciation method of depreciable assets on an annual basis
and, where revisions are required, the Company applies such changes in estimates on a prospective basis.
AECON GROUP INC.
Page 17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
The net carrying amounts of property, plant and equipment assets are reviewed for impairment either individually or at the
cash-generating unit level when events and changes in circumstances indicate the carrying amount may not be
recoverable. To the extent these carrying amounts exceed their recoverable amounts, that excess is fully recognized in
profit or loss in the financial year in which it is determined.
When significant parts of property, plant and equipment are required to be replaced and it is probable that future
economic benefits associated with the item will be available to the Company, the expenditure is capitalized and the
carrying amount of the item replaced is derecognized. Similarly, maintenance and inspection costs associated with major
overhauls are capitalized and depreciated over their useful lives where it is probable that future economic benefits will be
available and any remaining carrying amounts of the cost of previous overhauls are derecognized. All other costs are
expensed as incurred.
5.9 BORROWING COSTS
Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of
those assets for periods preceding the dates the assets are available for their intended use. All other borrowing costs are
recognized as interest expense in the period in which they are incurred.
5.10 GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are
not individually identified and separately recognized. Goodwill relating to the acquisition of subsidiaries is included on the
consolidated balance sheets in intangible assets. Goodwill relating to the acquisition of associates is included in the
investment of the associate and therefore tested for impairment in conjunction with the associate investment balance.
Goodwill is not amortized but is reviewed for impairment at least annually and whenever events or circumstances indicate
the carrying amount may be impaired. Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to the cash-generating units or groups of cash-generating units that are expected to benefit
from the business combination in which the goodwill arose. The Company’s cash-generating units generally represent
either individual business units, or groups of business units that are all below the level of the Company’s operating
segments.
In a business combination, when the fair value attributable to the Company’s share of the net identifiable assets acquired
exceeds the cost of the business combination, the excess is recognized immediately in profit or loss.
Internally generated goodwill is not recognized.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Intangible assets
Intangible assets acquired as part of a business combination are recorded at fair value at the acquisition date if the asset
is separable or arises from contractual or legal rights and the fair value can be measured reliably on initial recognition.
Separately acquired intangible assets are recorded initially at cost and thereafter are carried at cost less accumulated
amortization and impairment if the asset has a finite useful life.
Intangible assets are amortized over their estimated useful lives. Intangible assets under development are not amortized
until put into use.
Estimated useful lives are determined as the period over which the Company expects to use the asset and for which the
Company retains control over benefits derived from use of the asset.
For intangible assets with a finite useful life, the amortization method and period are reviewed annually and impairment
testing is undertaken when circumstances indicate the carrying amounts may not be recoverable.
Amortization expense on intangible assets with finite lives is recognized in profit or loss as an expense item.
AECON GROUP INC.
Page 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
The major types of intangible assets and their amortization periods are as follows:
Assets
Acquired customer backlog
Licences, software and other rights
Aggregate permits
Amortization basis
Pro rata basis as backlog revenue is worked off
1 – 10 years
Units of extraction
5.11 SERVICE CONCESSION ARRANGEMENTS
The Company accounts for Service Concession Arrangements in accordance with “IFRIC 12”.
IFRIC 12 provides guidance on the accounting for certain qualifying public-private partnership arrangements, whereby the
grantor (i.e., usually a government) (a) controls or regulates what services the operator (i.e. “the concessionaire”) must
provide with the infrastructure, to whom it must provide those services, and at what price; and (b) controls any significant
residual interest in the infrastructure at the end of the term of the arrangement.
Under such concession arrangements, the concessionaire accounts for the infrastructure asset by applying one of the
following accounting models depending on the allocation of the demand risk through the usage of the infrastructure
between the grantor and the concessionaire:
Accounting Model
(a) Financial Asset Model
Applicable when the concessionaire does not bear demand risk through the usage of the infrastructure (i.e., it has an
unconditional right to receive cash irrespective of the usage of the infrastructure, for example through availability
payments).
When the Company delivers more than one category of activity in a service concession arrangement, the consideration
received or receivable is allocated by reference to the relative fair values of the activity delivered, when the amounts are
separately identifiable.
Revenue recognized by the Company under the financial asset model is recognized in “Long Term Receivables”, a
financial asset that is recovered through payments received from the grantor.
(b) Intangible Asset Model
Applicable when the concessionaire bears demand risk (i.e., it has a right to charge fees for usage of the infrastructure).
The Company recognizes an intangible asset arising from a service concession arrangement when it has a right to charge
for usage of the concession infrastructure. The intangible asset received as consideration for providing construction or
upgrade services in a service concession arrangement is measured at fair value upon initial recognition. Borrowing costs,
if any, are capitalized until the infrastructure is ready for its intended use as part of the carrying amount of the intangible
asset.
The intangible asset is then amortized over its expected useful life, which is the concession period in a service concession
arrangement. The amortization period begins when the infrastructure is available for use.
AECON GROUP INC.
Page 19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Revenues from service concession arrangements accounted for under IFRIC 12 are recognized as follows:
(a) Construction or upgrade activities when a service concession arrangement involves the construction or
upgrade of the public service infrastructure:
Revenues relating to construction or upgrade services under a service concession arrangement are recognized based on
the stage of completion of the work performed, consistent with the Company’s accounting policy on recognizing revenue
applicable to any construction contract (see Section 5.1, “Revenue Recognition”).
(b) Operations and maintenance activities may include maintenance of the infrastructure and other activities
provided directly to the grantor or the users:
Operations and maintenance revenues are recognized in the period in which the activities are performed by the Company,
consistent with the Company’s accounting policy on recognizing revenue applicable to any operations and maintenance
contract (see Section 5.1, “Revenue Recognition”).
(c) Financing (applicable when the financial asset model is applied)
Finance income generated on financial assets is recognized using the effective interest method.
5.12 IMPAIRMENT OF NON-FINANCIAL ASSETS
Property, plant and equipment and intangible assets that are subject to amortization are reviewed for impairment at the
end of each reporting period. If there are indicators of impairment, a review is undertaken to determine whether the
carrying amounts are in excess of their recoverable amounts. An asset’s recoverable amount is determined as the higher
of its fair value less costs to sell and its value-in-use. Such reviews are undertaken on an asset-by-asset basis, except
where assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cashgenerating unit (“CGU”) level.
Where a CGU, or group of CGUs, has goodwill allocated to it, or includes intangible assets that are either not availablefor- use or that have an indefinite useful life (and can only be tested as part of a CGU), an impairment test is performed at
least annually or whenever there is an indication the carrying amounts of such assets may be impaired. Corporate assets,
where material to the carrying value of a CGU in computing impairment calculations, are allocated to CGUs based on the
benefits received by the CGU.
If the carrying amount of an individual asset or CGU exceeds its recoverable amount, an impairment loss is recorded in
profit or loss to reflect the asset at the lower amount. In assessing the value-in-use, the relevant future cash flows
expected to arise from the continuing use of such assets and from their disposal are discounted to their present value
using a market determined pre-tax discount rate, which reflects current market assessments of the time-value-of-money
and asset-specific risks. Fair value less costs to sell is determined as the amount that would be obtained from the sale of
the asset in an arm’s length transaction between knowledgeable and willing parties.
Similarly, a reversal of a previously recognized impairment loss is recorded in profit or loss when events or circumstances
indicate the estimates used to determine the recoverable amount have changed since the prior impairment loss was
recognized and the recoverable amount of the asset exceeds its carrying amount. The carrying amount is increased to the
recoverable amount but not beyond the carrying amount net of amortization, which would have arisen if the prior
impairment loss had not been recognized. After such a reversal, the amortization charge is adjusted in future periods to
allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Goodwill impairments are not reversed.
5.13 JOINT ARRANGEMENTS
Under IFRS 11, “Joint Arrangements,” a joint arrangement is a contractual arrangement wherein two or more parties have
joint control. Joint control is the contractually agreed sharing of control of an arrangement when the strategic, financial and
operating decisions relating to the arrangement require the unanimous consent of the parties sharing control.
AECON GROUP INC.
Page 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual
rights and obligations of each party. Refer to Note 4 “Critical Accounting Estimates” for significant judgments affecting the
classification of joint arrangements as either joint operations or joint ventures.
The parties to a joint operation have rights to the assets, and obligations for the liabilities, relating to the arrangement
whereas joint ventures have rights to the net assets of the arrangement. In accordance with IFRS 11, the Company
accounts for joint operations by recognizing its share of any assets held jointly and any liabilities incurred jointly, along
with its share of the revenue from the sale of the output by the joint operation, and its expenses, including its share of any
expenses incurred jointly.
Joint ventures are accounted for using the equity method of accounting in accordance with IAS 28, “Investments in
Associates and Joint Ventures.”
Under the equity method of accounting, the Company’s investments in joint ventures and associates are carried at cost
and adjusted for post-acquisition changes in the net assets of the investment. Profit or loss reflects the Company’s share
of the results of these investments. Distributions received from an investee reduce the carrying amount of the investment.
The consolidated statements of comprehensive income also include the Company’s share of any amounts recognized by
joint ventures and associates in OCI.
Where there has been a change recognized directly in the equity of the joint venture or associate, the Company
recognizes its share of that change in equity.
The financial statements of the joint ventures and associates are generally prepared for the same reporting period as the
Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies
that may exist in the underlying records of the joint venture and/or associate. Adjustments are made in the consolidated
financial statements to eliminate the Company’s share of unrealized gains and losses on transactions between the
Company and its joint ventures and associates.
Transactions with joint operations
Where the Company contributes or sells assets to a joint operation, the Company recognizes only that portion of the gain
or loss that is attributable to the interests of the other parties.
Where the Company purchases assets from a joint operation, the Company does not recognize its share of the profit or
loss of the joint operation from the transaction until it resells the assets to an independent party.
The Company adjusts joint operation financial statement amounts, if required, to reflect consistent accounting policies.
5.14 ASSOCIATES
Entities in which the Company has significant influence and which are neither subsidiaries, nor joint arrangements, are
accounted for using the equity method of accounting in accordance with IAS 28, “Investments in Associates and Joint
Ventures.” This method of accounting is described in Section 5.13, “Joint Arrangements.”
The Company discontinues the use of the equity method from the date on which it ceases to have significant influence,
and from that date accounts for the investment in accordance with IAS 39, “Financial Instruments: Recognition and
Measurement” (its initial costs are the carrying amount of the associate on that date), provided the investment does not
then qualify as a subsidiary or a joint arrangement.
5.15 PROVISIONS
General
Provisions are recognized when the Company has a present obligation (legal or constructive) 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. Where the Company expects some or all of the provision
to be reimbursed, the reimbursement is recognized as a separate asset when reimbursement is virtually certain. The
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
expense relating to any provision is presented in profit or loss net of any reimbursement. Where material, provisions are
discounted using a current pre-tax discount rate that reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Decommissioning liabilities
The Company has legal obligations associated with the retirement of pits and quarries utilized in aggregate mining
operations. As a result, a provision is made for close down, restoration and environmental rehabilitation costs (which
include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas)
in the financial period when the related environmental disturbance occurs, based on estimated future costs using
information available at the consolidated balance sheet dates. The provision is discounted using a current market-based
pre-tax discount rate that reflects the average life of the obligations and the risks specific to the liability. An increase in the
provision due to the passage of time is recognized as a finance cost and the provision is reduced by actual rehabilitation
costs incurred. The present value of the legal obligations incurred is recognized as an inventory production cost and is
included in the cost of the aggregates produced.
The provision is reviewed at each reporting date for changes to obligations, legislation or discount rates that impact
estimated costs or lives of operations. Changes in the amount or timing of the underlying future cash flows or changes in
the discount rate are immediately recognized as an increase or decrease in the carrying amounts of related assets and
the provision.
5.16 LEASES
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to
income on a straight-line basis over the term of the lease.
Finance leases
Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalized at the commencement of the lease at the lower of the fair
value of the leased property and the present value of the minimum lease payments.
The corresponding rental obligations, net of finance charges, are included in obligations under finance leases on the
consolidated balance sheets. The interest element of the finance cost is charged to profit or loss over the lease term so
as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property,
plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the
lease term.
5.17 EMPLOYEE BENEFIT PLANS
The Company recognizes the cost of retirement benefits over the periods in which employees are expected to render
services in return for the benefits.
The Company sponsors defined benefit pension plans (which had their membership frozen as at January 1, 1998) and
defined contribution pension plans for its salaried employees. The Company matches employee contributions to the
defined contribution plans, which are based on a percentage of salaries. For the defined contribution pension plans the
contributions are recognized as an employee benefit expense when they are earned.
For the defined benefit pension plans, current service costs are charged to operations as they accrue based on services
rendered by employees during the year. Pension benefit obligations are determined annually by independent actuaries
using management’s best estimate assumptions. The plans’ assets are measured at fair value. The present value of the
defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high quality
corporate bonds that have terms to maturity approximating the terms of the related pension liability. Actuarial gains and
losses are recognized in other comprehensive income as they arise. Past service costs are recognized immediately in
profit or loss unless the changes to the pension plan are conditional on the employees remaining in service for a specified
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the
vesting period.
5.18 CURRENT AND DEFERRED INCOME TAXES
Current income tax is calculated on the basis of tax laws enacted or substantively enacted at the consolidated balance
sheet dates in the countries where the Company operates and generates taxable income. Current tax includes
adjustments to tax payable or recoverable in respect of previous periods.
Deferred income tax is provided using the asset and liability method on all temporary differences at the consolidated
balance sheet dates between the tax basis of assets and liabilities and their carrying amounts for financial reporting
purposes. However, deferred income taxes are not recognized if they arise from the initial recognition of goodwill.
Deferred income tax is also not accounted for if it arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss.
Deferred income tax is provided on temporary differences associated with investments in subsidiaries, associates or joint
ventures, except where the timing of the reversal of temporary differences can be controlled and it is probable the
temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized only to the extent that it is probable that taxable profit will be available against
which deductible temporary differences, carried forward tax credits or tax losses can be utilized.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the
asset is realized or the liability is settled, based on tax rates and tax laws enacted or substantively enacted at the
consolidated balance sheet dates.
The carrying amount of deferred income tax assets is reviewed at each consolidated balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred
income tax asset to be utilized. To the extent that an asset not previously recognized fulfills the criteria for recognition, a
deferred income tax asset is recorded.
Current and deferred taxes relating to items recognized directly in equity and other comprehensive income are recognized
in equity and other comprehensive income and not in profit or loss.
Current income tax assets and liabilities or deferred income tax assets and liabilities are offset, if a legally enforceable
right exists to offset current tax assets against current tax liabilities and the income taxes relate to the same taxable entity
and the same tax authority.
5.19 DIVIDENDS
A provision is not recorded for dividends unless the dividends have been declared by the Board of Directors on or before
the end of the year and not distributed at the reporting date.
5.20 STOCK-BASED COMPENSATION
The Company has stock-based compensation plans, as described in Note 25, “Capital Stock.” All transactions involving
stock-based payments are recognized as an expense over the vesting period.
Equity-settled stock-based payment transactions, such as stock option awards and the Company’s long-term incentive
plan, are measured at the grant date fair value of employee services received in exchange for the grant of options or
share awards and for non-employee transactions, at the fair value of the goods or services received at the date on which
the entity recognizes the goods or services. The total amount of the expense recognized in profit or loss is determined by
reference to the fair value of the share awards or options granted, which factors in the number of options expected to vest.
Equity-settled share-based payment transactions are not remeasured once the grant date fair value has been determined,
except in cases where the stock-based payment is linked to non-market related performance conditions.
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
Cash-settled stock-based payment transactions are measured at the fair value of the liability. The liability is remeasured at
each consolidated balance sheet date and at the date of settlement, with changes in fair value recognized in profit or loss.
5.21 EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is determined by dividing profit attributable to shareholders of the Company, excluding, if
applicable, preferred dividends after-tax, amortization of discounts and premiums on issuance, premiums on repurchases,
inducements to convert relating to convertible debentures and any costs of servicing equity other than common shares, by
the weighted average number of common shares outstanding during the year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account
the after income tax effect of interest and other financing costs associated with dilutive potential common shares and the
weighted average number of shares assumed to have been issued in relation to dilutive potential common shares.
Dilutive potential common shares result from issuances of stock options and convertible debentures and from shares held
by the trustee of the Long-Term Incentive Plan.
5.22 FOREIGN CURRENCY TRANSLATION
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the currency of the
primary economic environment in which the entity operates (“the functional currency”). The consolidated financial
statements are presented in thousands of Canadian dollars, which is the Company’s presentation currency.
Transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the
settlement of such transactions and resulting from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognized in profit or loss, except when deferred in other comprehensive
income for qualifying cash flow hedges and for qualifying net investment hedges.
All foreign exchange gains and losses presented in profit or loss are presented within other income.
Changes in the fair value of monetary securities denominated in a foreign currency classified as available-for-sale are
separated between translation differences resulting from changes in the amortized cost of the security and other changes
in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit
or loss, and other changes in the carrying amount are recognized in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or
loss are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial
assets, such as equities classified as available-for-sale, are included in other comprehensive income.
Translation of foreign entities
Assets and liabilities are translated from the functional currency to the presentation currency at the closing rate at the end
of the reporting period. The consolidated statements of income are translated at exchange rates at the dates of the
transactions or at the average rate if it approximates the actual rates. All resulting exchange differences are recognized in
other comprehensive income.
On disposal, or partial disposal, of a foreign entity, or repatriation of the net investment in a foreign entity, resulting in a
loss of control, significant influence or joint control, the cumulative translation account balance recognized in equity
relating to that particular foreign entity is recognized in profit or loss as part of the gain or loss on sale. On a partial
disposition of a subsidiary that does not result in a loss of control, the amounts are reallocated to the non-controlling
interest in the foreign operation based on its proportionate share of the cumulative amounts recognized in AOCI. On
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
partial dispositions of jointly controlled foreign entities or associates, the proportionate share of translation differences
previously recognized in AOCI is reclassified to profit or loss.
5.23 BUSINESS COMBINATIONS
The Company uses the acquisition method of accounting to account for business combinations. The consideration
transferred for the acquisition of a subsidiary includes the fair values of the assets transferred, the liabilities incurred and
the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Acquisition related costs are expensed as incurred. Identifiable
assets acquired, and liabilities and contingent liabilities assumed in a business combination, are measured initially at their
fair values at the acquisition date. For each acquisition, the Company recognizes any non-controlling interest in the
acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Company’s share of the
identifiable net assets acquired is recorded as goodwill. If this amount is less than the fair value of the net assets of the
subsidiary acquired, such as in the case of a bargain purchase, the difference is recognized directly in profit or loss.
Non-controlling interests represent the equity in a subsidiary not attributable, directly or indirectly, to a parent and are
presented in equity in the consolidated balance sheets, separately from the parent’s shareholders’ equity.
5.24 OPERATING SEGMENTS
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker is responsible for allocating resources and assessing the
performance of the operating segments and has been identified as the Executive Committee that makes strategic
decisions.
6. NEW ACCOUNTING STANDARDS
The following IFRS standards became effective for the Company on January 1, 2017.
IAS 7, Statement of Cash Flows
The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both cash and non-cash changes.
The Company has applied these amendments for the first time in the current year. The Company’s liabilities arising from
financing activities consist of cash and bank indebtedness, long-term debt and convertible debentures. A reconciliation
between the opening and closing balances of these items is provided in Note 18, “Long Term Debt and Non-Recourse
Project Debt.” Consistent with the transition provisions of the amendments, the Company is not required to disclose
comparative information for the prior period. Apart from the additional disclosures in Note 18, “Long Term Debt and NonRecourse Project Debt”, the application of these amendments had no impact on the Company’s consolidated financial
statements.
IAS 12, Income Taxes
The amendments to the Recognition of Deferred Tax Assets for Unrealized Losses clarify the following aspects:
– Unrealized losses on debt instruments measured at fair value for which the tax base remains at cost give rise to a
deductible temporary difference, irrespective of whether the debt instrument’s holder expects to recover the
carrying amount of the debt instrument by sale or by use or whether it is probable that the issuer will pay all the
contractual cash flows;
– When an entity assesses whether taxable profits will be available against which it can utilize a deductible
temporary difference, and the tax law restricts the utilization of losses to deduction against income of a specific
type (e.g. capital losses can only be set off against capital gains), an entity assesses a deductible temporary
difference in combination with other deductible temporary differences of that type, but separately from other types
of deductible temporary differences;
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
–
The estimate of probable future taxable profit may include the recovery of some of an entity’s assets for more
than their carrying amount if there is sufficient evidence that it is probable that the entity will achieve this; and
– In evaluating whether sufficient future taxable profits are available, an entity should compare the deductible
temporary differences with future taxable profits excluding tax deductions resulting from the reversal of those
deductible temporary differences.
The amendments had no impact on the Company’s financial position or results of operations.
7. FUTURE ACCOUNTING CHANGES
IFRS standards and interpretations that are issued, but not yet effective as at December 31, 2017, are disclosed below.
The Company intends to adopt these standards, as applicable, when they become effective.
IFRS 15, Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18, “Revenue,” and IAS
11, “Construction Contracts,” and the related interpretations when it becomes effective. IFRS 15 is effective for years
beginning on or after January 1, 2018.
The core principle of IFRS 15 is that an entity should recognize revenue based on the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. Specifically, IFRS 15 introduces a 5-step approach to revenue recognition:
•
Step 1: Identify the contract(s) with a customer.
•
Step 2: Identify the performance obligations in the contract.
•
Step 3: Determine the transaction price.
•
Step 4: Allocate the transaction price to the performance obligations in the contract.
•
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
Under IFRS 15, an entity recognizes revenue as a performance obligation is satisfied, i.e. when control of the goods or
services underlying the particular performance obligation is transferred to the customer. Furthermore, extensive
disclosures are required by IFRS 15.
A comprehensive change management project plan was developed to guide the Company’s implementation of IFRS 15
and assess the impacts on business processes, systems and controls. Initially a qualitative assessment was made of the
new standard, analyzing its impact on the Company’s contract portfolio, comparing historical accounting policies and
practices to the requirements of the new standard, and identifying potential impacts on reporting systems. In addition, the
Company analyzed a sample of construction and service contracts from each segment, contract type, market sector,
service focus, and risk type to assess potential impacts of the new revenue standard.
Change orders and claims, referred to as contract modifications, are currently recognized as per the guidance provided in
IAS 11, “Construction Contracts”. Under such guidance, revenue is recognized on contract modifications only when
certain conditions are met, including the fact that it is probable the customer will approve the modification and the amount
of revenue arising from it. Under IFRS 15, contract modifications are included in estimated revenue when, among other
factors, management believes the Company has an enforceable right to payment, the amount can be estimated reliably,
and realization is highly probable. As a result of these requirements, in some instances the timing of when revenue from
contract modifications is recognized may be delayed under IFRS 15.
Any measurement changes from adopting this standard will impact the timing of revenue and margin recognition, and will
result in an adjustment to equity at transition. There will be no changes to the treatment of cash flows and cash will
continue to be collected in line with contractual terms.
As a result of adopting the new standard, the Company has estimated the cumulative impact to the Company’s opening
retained earnings as at January 1, 2018 from the reversal of revenue recognized under IAS 11 to be approximately
$10,000 after taxes. Revenue from these contract modifications will be recognized when, and if, the IFRS 15 guidance is
met.
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
The Company continues to closely monitor industry specific interpretative issues and International Accounting Standards
Board (“IASB”) activity related to the new standard. In addition, the Company is implementing appropriate changes to
policies, business processes, systems and internal controls to support recognition and disclosure under the new standard.
The Company expects additional disclosures related to revenue in the Consolidated Financial Statements as well as
certain reclassifications in the Consolidated Balance Sheets once IFRS 15 is effective.
The Company intends to apply the new standard retrospectively with the cumulative effect of initially applying the standard
recognized at the date of initial application.
IFRS 9, Financial Instruments
IFRS 9 introduces new requirements for classifying and measuring financial instruments and is a partial replacement of
IAS 39, “Financial Instruments: Recognition and Measurement.” The standard is effective for accounting periods
beginning on or after January 1, 2018, with early adoption permitted. IFRS 9 mainly affects the classification and
measurement of financial assets and financial liabilities; the recognition of expected credit losses; and hedge accounting.
(i)
Classification and measurement of financial assets. The classification of financial assets is based on the
Company’s assessment of its business models for holding financial assets. The standard introduces new
classification categories for financial assets. The main classification categories are: financial assets measured at
amortized cost (assets held to maturity in order to collect contractual cash flows: principal and interest), financial
assets at fair value through profit or loss (assets held for trading) and financial assets at fair value through other
comprehensive income (trade, manage on a fair value basis, or maximize cash through sale). The IAS 39
available-for-sale category of financial instruments has been eliminated. The IFRS 9 accounting model for
financial liabilities is broadly the same as that in IAS 39, except that in relation to the fair value option, any
changes in fair value of a financial liability attributable to the Company’s credit risk must be recognized in other
comprehensive income (provided this does not give rise to an accounting mismatch). Based on the analysis
performed to-date, the Company does not expect any material impact, given that most of the Company’s assets
and liabilities will continue to be recognized at amortized cost.
(ii)
Impairment of financial assets. IFRS 9 replaces the incurred loss model of IAS 39 with a model based on
expected credit losses. Under the new standard, the loss allowance for a financial instrument will be calculated at
an amount equal to 12-month expected credit losses, or lifetime expected credit losses if there has been a
significant increase in the credit risk on the instrument. Based on the analysis performed to-date, the Company
does not expect any material impact from the current practice of recognizing credit losses.
(iii)
Hedge accounting. IFRS 9 attempts to align hedge accounting more closely with risk management, and the new
requirements establish a principle-based approach. Based on the analysis performed to-date, the Company does
not expect any material change from its current practice.
IFRS 9 is applicable retrospectively, subject to certain exemptions and exceptions.
The Company expects that its financial assets and financial liabilities will continue to be measured on the same bases as
is currently adopted under IAS 39.
IAS 28, Investments in Associates and Joint Ventures
The amendments to IAS 28, “Investments in Associates and Joint Ventures,” clarify that the qualifying entity can elect to
measure an investment in an associate or a joint venture at fair value through profit or loss on an investment-byinvestment basis, upon initial recognition. The amendments are effective for annual periods beginning on or after January
1, 2018. The Company does not anticipate any material change to the Company’s financial position or results of
operations from this amendment.
IFRIC 22, Foreign Currency Transactions and Advance Consideration
IFRIC 22 addresses how to determine the “date of transaction” for the purpose of determining the exchange rate to use on
initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance
in a foreign currency which resulted in the recognition of a non-monetary asset or non-monetary liability (for example, a
non-refundable deposit or deferred revenue).
AECON GROUP INC.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(in thousands of Canadian dollars, except per share amounts)
The interpretation specifies that the date of transaction is the date on which the entity initially recognises the nonmonetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple
payments or receipts in advance, the interpretation requires an entity to determine the date of transaction for each
payment or receipt of advance consideration.
The interpretation is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted.
Entities can apply the interpretation either retrospectively or prospectively. Specific transition provisions apply to
prospective application. The Company does not anticipate any material impact to the Company’s financial position or
results of operations from this amendment.
IFRS 16, Leases
IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective
of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. IFRS 16
will supersede the current lease recognition guidance including IAS 17 “Leases” and the related interpretations when it
becomes effective.
Under IFRS 16, the lessee recognizes a right-of-use asset and a lease liability upon lease commencement for leases with
a lease term of greater than one ye…