Pretium receives approval for early adoption of IFRS
2011-03-18 05:08 ET - News Release
Mr. Robert Quartermain reports
PRETIUM RESOURCES INC.: EARLY ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
Pretium Resources Inc.'s application for the early adoption of international financial reporting standards (IFRS) has been accepted by applicable Canadian securities regulatory authorities.
In February, 2008, the Canadian Accounting Standards Board confirmed that IFRS would be replacing the Canadian generally accepted accounting principles (GAAP) for all publicly accountable enterprises for financial periods beginning on and after Jan. 1, 2011, but indicated companies may adopt IFRS prior to this date with approval from the applicable Canadian securities regulatory authorities. Based on the exemptive relief granted to Pretium, Pretium's annual consolidated financial statements and MD&A (management's discussion and analysis) for the year ended Dec. 31, 2010, have been prepared in accordance with IFRS. Pretium expects to file these financial statements and MD&A with applicable Canadian securities regulatory authorities shortly.
IFRS conversion
Pretium has considered the implications of adopting IFRS with respect to its obligations under applicable securities legislation. Pretium's management has established a comprehensive conversion plan and timeline including addressing changes to its accounting policy, information system and disclosure and its internal controls with its auditors PricewaterhouseCoopers LLP. It has prepared a protocol for addressing audit related matters and adoption items with PricewaterhouseCoopers LLP for the conversion from GAAP to IFRS. The audit committee of Pretium has been overseeing the implementation of the conversion plan and has received regular updates on its status and effectiveness. The readiness of Pretium's staff, board of directors, audit committee, auditors, investors and other market participants for the adoption of IFRS has been assessed by Pretium, and Pretium has concluded that they are adequately prepared.
Transition to IFRS
Pretium's first financial statements under IFRS will be the consolidated financial statements for the year ended Dec. 31, 2010. IFRS 1 -- First-time adoption of international financial reporting standards -- sets forth guidance for the initial adoption of IFRS and generally requires all IFRS standards and interpretations be accounted for on a retrospective basis, but provides for certain optional exemptions to this general principal.
Impact of IFRS
Pretium has identified key areas where changes in accounting policy are required to transition from GAAP to IFRS as follows:
Income taxes
There are a number of GAAP differences related to income taxes, the most significant being the calculation of temporary differences on non-monetary items and the initial recognition exemption on an asset acquisition.
IFRS provides an initial recognition exemption such that a deferred tax asset or liability is not recognized in the event it arises from initial recognition of an asset or liability acquired outside of a business combination. This exemption does not exist in GAAP.
Asset impairment
Both GAAP and IFRS require an entity to undertake impairment testing where there is an indication of impairment. Annual impairment tests are required for goodwill and indefinite lived intangible assets.
GAAP provides a two-step approach to testing a long-lived asset for impairment if an indication of impairment exists. The first step is a test for recoverability whereby the carrying value is compared with the undiscounted cash flows that the asset is expected to generate. If the undiscounted cash flows exceed the carrying amount, then no impairment charge is necessary. If the undiscounted cash flows are lower than the carrying amount of the asset, then the asset is written down to the estimated fair value, determined based on the discounted cash flows.
Under IFRS, if there is an indication of impairment the entity must compare the carrying value of the asset or cash generating unit (CGU) with the recoverable amount. Recoverable amount is defined as the higher of an asset or CGU's fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or CGU. An impairment loss is recognized to the extent that the carrying value exceeds the recoverable amount. Unlike GAAP, IFRS requires impairment charges to be reversed if the circumstances leading to the impairment no longer exist.
The company has assessed impairment indicators under IFRS and concluded that there were no such indicators, which was consistent with GAAP.
Provision for reclamation and rehabilitation
The primary differences between IFRS and GAAP for reclamation and rehabilitation provisions include the basis of estimation for undiscounted cash flows, the discount rate used, the frequency of liability remeasurement and recognition of a liability when a constructive obligation exists.
GAAP requires the estimate of undiscounted cash flows to be based on the amount that a third party would demand to assume the obligation, whereas IFRS focuses on the use of management's best estimate of the expenditures required to settle the obligation. The recognition principle is also broadened with the implementation of IFRS, which requires that a liability be recorded if there is a legal or constructive obligation, where GAAP requires a liability to be recognized when there is a legal obligation. These differences have not had a significant impact on the company's estimates.
The discount rate used to determine the present value of the expenditures for GAAP is the credit adjusted risk free rate for the entity. IFRS requires the use of a discount rate that reflects the risks specific to the liability.
In accordance with GAAP, the company's provision for reclamation and rehabilitation is remeasured when there is a change in the amount or timing of cash flows required to settle the obligation. IFRS requires the remeasurement of the liability at each reporting date. Although this calculation will occur more frequently, it will result in a simplification of the process due to the removal of the layering effect under GAAP.
Share-based payments
IFRS requires Pretium to measure share-based compensation related to share purchase options granted to employees at the fair value of the options on the date of grant and to recognize such expense over the vesting period of the options, similar to GAAP. However, under IFRS, the recognition of such expense must be done with a graded vesting methodology as opposed to the straight-line vesting method allowed under GAAP. In addition, under IFRS, forfeitures estimates are recognized in the period they are estimated and are revised for actual forfeitures in subsequent periods; while under GAAP, forfeitures of awards are recognized as they occur.
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