Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Pre-funding arrangements - The Company obtains funding from a limited number of customers before a seismic project is
completed. In return for the pre-funding, the customer typically gains the ability to direct or influence the project specifications, to
access data as it is being acquired and to pay discounted prices.
The Company recognizes pre-funding revenue as the services are performed on a proportional performance basis. Progress is
measured in a manner generally consistent with the physical progress on the project, and revenue is recognized based on the
ratio of the project's progress to date, provided that all other revenue recognition criteria are satisfied.
(b) Proprietary sales/contract sales
The Company performs seismic services under contract for a specific customer, whereby the seismic data is owned by that
customer. The Company recognizes proprietary/contract revenue as the services are performed and become chargeable to the
customer on a proportionate performance basis over the term of each contract. Progress is measured in a manner generally
consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project's progress to
date, provided that all other revenue recognition criteria are satisfied.
(c) Other services
Revenue from other services is recognized as the services are performed, provided all other recognition criteria are satisfied.
Income taxes
Income tax expense represents the sum of the current tax expense (or recovery) plus the change in deferred tax liabilities and
asset during the period, except for current and deferred income tax relating to items recognized in the consolidated statement of
comprehensive income, in which case the tax is also recognized in the consolidated statement of comprehensive income.
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or
paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are calculated using the liability method for all temporary differences between the carrying
amount of assets and liabilities in the consolidated financial statements and for tax purposes, including tax losses carried
forward. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill.
Deferred income tax is recognized on temporary differences arising on investments in subsidiaries, associates and interests in
joint ventures, except where the timing of the reversal of the temporary differences can be controlled by the Company and it is
probable that the temporary differences will not reverse in the foreseeable future.
The Company includes deductions/benefits from uncertain tax positions when it is probable that the tax position will be
ultimately sustained.
The carrying amount of deferred income tax assets is reviewed at each end of the reporting period and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to
be utilized. Unrecognized deferred income tax assets are reassessed at each end of the reporting period and are recognized to
the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The probability
assessment is based on Management’s judgement and estimates in regards to future taxable income and tax planning
opportunities (see separate note describing accounting estimates below).
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is
realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end
of the reporting period.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes are related to the same taxable entity and the same taxation authority. Deferred tax
is classified as long-term in the consolidated statements of financial position.
Provisions
A provision is a liability of uncertain timing or amount. Provisions are recognized when the Company has a present obligation
(legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company
expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized
as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in
the consolidated statements of operations net of any reimbursement. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognized as a finance cost.
PGS ANNUAL REPORT 2011 8
PGS Annual Report 2011 79