Page 99 - Suncor AR English

resulting from revisions to the estimated timing or amount of undiscounted cash flows are recognized as a change in the

decommissioning and restoration provision and related asset.

(m) Income Taxes
The company follows the liability method of accounting for income taxes whereby deferred income taxes are recorded for

the effect of differences between the accounting and income tax basis of an asset or liability. Deferred income tax assets
and liabilities are measured using enacted or substantively enacted income tax rates at the balance sheet date that are

anticipated to apply to taxable income in the years in which temporary differences are anticipated to be recovered or
settled. Changes to these balances are recognized in earnings or in Other Comprehensive Income in the period they

occur. Investment tax credits are recorded as an offset to the related expenditures.

The company recognizes the financial statement impact of a tax filing position when it is probable, based on the technical
merits, that the position will be sustained upon audit. The company assesses possible outcomes and their associated

probabilities. If the company determines payment is probable, it measures the tax position at the best estimate of the
amount of tax payable.

(n) Pensions and Other Post-Retirement Benefits

The company sponsors defined benefit pension plans, defined contribution pension plans and other post-retirement
benefits.

The cost of pension benefits earned by employees in the defined contribution pension plan are expensed as incurred. The

cost of defined benefit pension plans and other post-retirement benefits are actuarially determined using the projected
unit credit method based on present pay levels and management’s best estimates of demographic and financial

assumptions. Pension benefits earned during the current year are recorded in Operating, Selling and General expense.
Interest costs on the net unfunded obligation are recorded in Financing Expenses. Any actuarial gains or losses are

recognized immediately through Other Comprehensive Income and transferred directly to Retained Earnings.

The liability recognized on the balance sheet is the present value of the defined benefit obligations less the fair value of
plan assets.

(o) Share-Based Compensation Plans

Under the company’s share-based compensation plans, share-based awards are granted to executives, employees and
non-employee directors. Compensation expense is recorded in Operating, Selling and General expense.

Share-based compensation awards that settle in cash or have the option to settle in cash or shares are accounted for as

cash-settled plans. These are measured at fair value each reporting period using the Black-Scholes options pricing model,
with the exception of performance share units, which are measured at fair value using the Monte-Carlo simulation
approach. The expense is recognized over the vesting period, with a corresponding adjustment to liabilities. When awards

are surrendered for cash, the cash settlement paid reduces the outstanding liability. When awards are exercised for
common shares, consideration paid by the holder and the previously recognized liability associated with the options are

recorded to Share Capital.

Stock options that give the holder the right to purchase common shares are accounted for as equity-settled plans. The
expense is based on the fair value of the options at the time of grant using the Black-Scholes options pricing model and

is recognized over the vesting periods of the respective options. A corresponding increase is recorded to Contributed
Surplus. Consideration paid to the company on exercise of options is credited to Share Capital and the associated amount

in Contributed Surplus is reclassified to Share Capital.

(p) Financial Instruments
The company classifies its financial instruments into one of the following categories: fair value through profit or loss;

assets available for sale; held-to-maturity investments; loan and receivables and financial liabilities measured at amortized
cost. All financial instruments are initially recognized at fair value on the balance sheet, net of any transaction costs

except for financial instruments classified as fair value through profit and loss, where transaction costs are expensed as
incurred. Subsequent measurement of financial instruments is based on their classification. The company classifies

derivative financial instruments as fair value through profit and loss, cash and cash equivalents and accounts receivable as
loans and receivables, financial instruments included in other assets as available for sale, and accounts payable and

accrued liabilities, debt, and other long-term liabilities as other financial liabilities.

SUNCOR ENERGY INC. ANNUAL REPORT 2013 95