@article {51365,
	title = {Accounting for environmental liabilities under international financial reporting standards},
	year = {2011},
	note = { OSRIN Report No. TR-9.  },
	pages = {16 pages },
	institution = {Oil Sands Research and Information Network University of Alberta School of Energy and the Environment },
	address = {Edmonton, AB },
	abstract = {Recent reports from environmental non-governmental organizations (ENGOs) such as the Pembina Institute and the Environmental Law Centre in Canada, as well as investor groups such as Ceres and The Ethical Funds Company, have addressed the growing concern over environmental liabilities related to operations in Alberta{\textquoteright}s oil sands (Lemphers et al. 2010, Reuter et al. 2010, The Ethical Funds Company 2008, Watt 2010). Furthermore, environmental obligations are beginning to take a real bite out of the financial statements of firms operating in this sector. For example, a recent Globe and Mail article (Taylor 2010) on the owner of the largest single share in the Syncrude operation, Canadian Oil Sands Trust, notes that the almost $1 billion in spending next year it has allocated to its plants are primarily for moving equipment around and meeting environmental obligations, rather than improving plant efficiencies (Canadian Oil Sands Trust 2010). Concurrent to this is a change in the accounting rules for Canadian public companies. Canadian public companies are in the process of moving from reporting under old Canadian Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS), which is now officially Canadian (public company) GAAP. This transition must take place for fiscal years ending after December 31st, 2010; which means that the first quarter financial reports for 2011 will be based on IFRS. This will include comparative information as it pertains to 2010. With the move to IFRS, one of the key areas affecting firms in extractive industries pertains to the accounting rules by which environmental liabilities are accounted for. For firms in these industries, environmental matters play a major role in operations. The change in accounting rules will have a material effect on the total amount of environmental liabilities reported and the way in which they are expensed over time. I expect that under IFRS, more environmental liabilities will be recognised in the financial statements of firms operating in extractive industries, such as oil and gas and mining. However, there are certain mitigating factors that may be strong enough such that we see no significant increase in the reported environmental liabilities of these firms. The actual settling of these liabilities will occur in the coming decades. Under old Canadian GAAP and IFRS, these liabilities are recognised in the financial statements based on their present value. This is typically done by using a discount rate and the usual methods of calculating the present value of a future obligation. The new IFRS rules are very sensitive to the discount rate used and there is some debate as to exactly how the new discount rate should be calculated. Thus, although the new accounting standards under IFRS dictate that more specific environmental liabilities be recognised in the financial statements, this may be offset by changes in the way that they are quantified. This report discusses the potential impact the move to IFRS is expected to have on firms with mining operations in Alberta{\textquoteright}s oil sands. It details the changes in accounting methods and the potential impact on these firms with regards to the reporting and expensing of environmental liabilities. The discussion can be generalized to the overall oil and gas and mining sectors. However, the significant environmental challenges that are faced by the handful of firms mining in Alberta{\textquoteright}s oil sands make the move to IFRS an interesting one to follow. },
	keywords = {economics, OSRIN, UofA},
	url = {http://hdl.handle.net/10402/era.22741},
	author = {Schneider, T.}
}
