Accounting & Tax

Company Stumbles at U.S.-Canada “GAAP”

For a Vancouver-based company that trades on the New York Stock Exchange, two accounting treatments for share purchase warrants adds up to a restat...
Stephen TaubFebruary 15, 2007

Mining company Silver Wheaton disclosed that it will restate certain prior results due to a recent accounting interpretation regarding the treatment of its share purchase warrants.

The Vancouver-based company, which trades on the New York Stock Exchange, reports using Canadian generally accepted accounting principles and provides disclosures in the notes to its financial statements on its reconciliation with U.S. GAAP.

Under Canadian GAAP, the company pointed out, share purchase warrants are accounted for as equity and recorded at their historical cost. But under U.S. GAAP, when such warrants have an exercise price denominated in a currency other than a company’s functional currency, they must be classified as liabilities at their fair value.

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Any resulting gains or losses would be included in the calculation of U.S. GAAP earnings. As a result, noted the company, it would be required to record gains or losses when the value of the share purchase warrants increases or decreases.

As a result of this interpretation, Silver Wheaton will restate the reconciliation note disclosure in its financial statements for the four months ended December 31, 2004, for the year ended December 31, 2005, and for the second quarter of 2006. The company stressed that the revision pertains only to that reconciliation note disclosure.

The company will record a decrease to earnings of $8 million for the four months ended December 31, 2004, and $50 million for the year ended 2005, but it will increase earnings by $41 million for the second quarter of 2006.

Silver Wheaton pointed out that the U.S. Financial Accounting Standards Board has initiated a project to determine the accounting treatment for convertible debt with elements of foreign currency risk. This project is expected to provide further U.S. GAAP guidance regarding the accounting for share purchase warrants, the company added.

As it happens, Canada’s Accounting Standards Board has decided to scrap the standards known as Canadian GAAP, but not in favor of the U.S version. Instead, during the next five years or so, Canada will reportedly align its accounting rules with international financial reporting standards.