This discussion and analysis is made with reference to the Company’s interim unaudited consolidated financial statements and notes thereto for the nine months ended September 30, 2006, which were prepared in accordance with Canadian GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amount of revenues and expenses during the period. These estimates are based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgements about the reported amounts of revenues and expenses, and the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
We have identified the accounting policies and estimates outlined below as critical to an understanding of our business operations and our results of operations. The impact and any associated risks related to these policies and estimates on our business operations are discussed throughout this discussion and analysis.
Our Audit Committee reviews our accounting policies and all quarterly and annual filings, and recommends adoption of our annual financial statements to our Board of Directors.
Our critical accounting policies and estimates are as follows:
• Disclosure relating to the Company’s future operations;
• Revenue and deferred revenue recognition;
• Deferred costs;
• Future income taxes and related valuation allowance;
• Variable interest entities;
• Depreciation and amortization policies and estimated useful lives;
• Asset impairment; and
• Related party transactions.
Effective January 1, 2005, the Company adopted the CICA Accounting Guideline 15, Consolidation of Variable Interest Entities ("AcG-15") on a prospective basis. AcG-15 prescribes the application of consolidation principles for entities that meet the definition of a variable interest entity ("VIE"). An enterprise holding other than a voting interest in a VIE could, subject to certain conditions, be required to consolidate the VIE if it is considered its primary beneficiary whereby it would absorb the majority of the VIE’s expected losses, receive the majority of its expected residual returns, or both.
Prior to adopting AcG-15, the Company fully consolidated the VIEs where the Company was considered to be the primary beneficiary under AcG-15, and consequently there was no material impact to the consolidated balance sheets or consolidated statements of operations upon adoption.
