At December 31, 2012 the recoverable amounts of the Company's CGUs were based on their estimated FVLCTS. Note 5 outlines the factors considered in estimating these amounts. The key assumptions and estimates of the value of oil and gas reserves and the existing and potential markets for the Company's oil and gas assets are made at the time of reserves estimation and market assessment and are subject to change as new information becomes available. Changes in international and regional factors including supply and demand of commodities, inventory levels, drilling activity, currency exchange rates, weather, geopolitical and general economic environment factors may result in significant changes to the estimated recoverable amounts of CGUs.
Decommissioning obligations. The Company is required to set up a provision for future removal and site restoration costs. The Company must estimate these costs in accordance with existing laws, contracts or other policies. These estimated costs are charged to property, plant and equipment and the appropriate liability account over the expected service life of the asset. The estimate of future removal and site restoration costs involves a number of estimates related to timing of abandonment, determination of the economic life of the asset, costs associated with abandonment and site restoration, discount rates and review of potential abandonment methods.
Income taxes. The determination of the Company's income and other tax liabilities requires interpretation of complex laws and regulations often involving multiple jurisdictions. All tax filings are subject to audit and potential reassessment after the lapse of considerable time. Accordingly, the actual income tax liability may differ from that estimated and recorded by management. The Company estimates its future income tax rate in calculating its future income tax liability. Various assumptions are made in assessing when temporary differences will reverse and this will impact the rate used.
Allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts to provide for receivables which may ultimately be uncollectible. The allowance is determined in light of a number of factors including company specific conditions, economic events and the Company's historical loss experience. The allowance is assessed quarterly by a detailed formal review of accounts receivable balances.
Share-based compensation. In order to recognize share-based compensation costs, the Company estimates the fair value of stock options granted using assumptions related to interest rates, expected life of the option, forfeitures, volatility of the underlying security and expected dividend yields. These assumptions may vary over time.
NEW AND PENDING ACCOUNTING STANDARDS
Standards that are issued and that the Company reasonably expects to be applicable at a future date are listed below.
IFRS 9 - Financial Instruments. IFRS 9, as issued, reflects the first phase of the IASB's work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition.
IFRS 10 - Consolidated Financial Statements. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. IFRS 10 replaces SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. The standard is effective for annual periods beginning on or after January 1, 2013.
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